Member countries of the Council Working Party on Shipbuilding (WP6) of the Organization for Economic Co-operation and Development (OECD) have agreed in a meeting held in in Paris to resume negotiations on a multilateral Shipbuilding Agreement, on hold since September 2005.
WP6´s aim is to normalize the competitive conditions under which the international shipbuilding industry functions. Through the agreement it is sought to reduce the extensive and regular intervention of different governments in their respective shipbuilding industries and level the playing field by eliminating the global overcapacities that lead to supply and demand imbalances and causes artificial drops in prices.
OECD members, as well as representatives of Brazil, China, Chinese Taipei, Croatia, Romania, the Russian Federation, and Ukraine, have reached a preliminary agreement to restart negotiations as soon as possible and to bring forward the next scheduled meeting of the WP6 from December to 9-10 September.
The participating countries represent around 90% of the world’s total shipbuilding capacity, making the agreement of paramount importance both for the sector itself and for global trade as a whole. Given the huge volumes of traded goods that are transported by sea, the impact on global trade of price increases in the shipping industry are not to be taken lightly.
Concern about subsidies to the shipbuilding industry is not new. A previous agreement reached by OECD members and other participant states after five years of negotiations, in 1994, the “Agreement Respecting Normal Competitive Conditions in the Commercial Shipbuilding and Repair Industry”, never came into force due to lack of ratification by the US, whose government considered it to be contrary to US interests as it would have thwarted the country’s efforts to revitalize commercial shipyards.
Though the content and scope of the Shipbuilding Agreement under discussion have not been made public, it is widely held that if the original objective of the 1994 agreement to establish legally binding prohibitions on all subsidies is retained, then the chances of ratification by the US or any other country trying to build up its shipping industry are very low, particularly at a time when all economies are fighting hard to combat high levels of unemployment. If this original objective is dropped, however, making ratification more likely, the potential impact of the agreement will be vastly reduced.