International Journal

on Marine Navigation

and Safety of Sea Transportation

Volume 6

Number 2

June 2012

271

1 EUROPEAN LEGISLATION ON STATE AID

1.1 State Aid Guidelines for Maritime Transport

Basic principle of European State aid to maritime

transport is based on gains from maritime cluster

that overweight the tax relaxation and reduction of

State taxation revenues from the shipping as a con-

sequence.

Initially the State aid to the shipping industry was

introduced since 1989, based on the example of

Greece and the Netherlands. Now the European

Shipping policy is mainly based on Communication

of the European Commission C(2004)43 of 17 Janu-

ary 2004 “Community Guidelines on state aid to

maritime transport” [1]. The term of application of

these Guidelines was extended up to year 2011 at

least. These Guidelines are focusing on merchant

fleet taxation system, introducing tonnage tax in-

stead of corporative tax, also relaxation of income

taxation and social security payments for community

seafarers. Many European countries had introduced

this State aid to merchant shipping, they have to re-

port to European Commission and obtain approval

from EC. The above Guidelines are under revision

as announced by COM(2009) 8, the Communication

of 21 January 2009 “Strategic goals and recommen-

dations for the EU’s maritime transport policy until

2018”. COM(2009) 8 strongly declares prolongation

of Guidelines: “A clear and competitive EU frame-

work for tonnage taxation, income taxation and state

aid should be maintained and, where appropriate,

improved, in the light of the experience gained under

the State aid guidelines for maritime transport.” [2]

Apart from the above type of State aid to ship

owners and seafarers taxation relaxation in Chapter

10 of Communication C(2004)43 is the provision

providing another type of State aid in a form of

complementary funding for the launching of the Mo-

torways of the Sea. This is confirmed by another

Communication 2008/C 317/08. By this communi-

cation is allowed, under certain conditions, for start-

up aid to new or improved short sea shipping ser-

vices with a maximum duration of three years and a

maximum intensity of 30 % of operational cost and

10 % of investments costs. This is Marco Polo

scheme, focusing on financial support by Communi-

ty funding in development of new short sea shipping

lines. Second stage of Marco Polo II program has

been successful. Under the 2009 call for proposals,

22 projects were successful - from 70 bidders for the

budget of €66.34 million. Marco Polo is supporting

also rail transport, accounting for 40.7% of the grant,

followed by sea routes with 22.7%. The project

budget for 2007 – 2013 is €450 million. [3]

1.2 State Aid to ship management companies

This is new undertaking by EU to extend the Com-

mission Communication C(2004) 43 provisions on

reduction of corporate tax or the application of the

tonnage tax also to ship management companies un-

der section 3.1. of the Guidelines. This is provided

by adoption of Communication from the European

Effectiveness of the European Maritime Policy

Instruments

G. Šteinerts

Latvian Maritime Academy, Riga, Latvia

ABSTRACT: European Maritime Transport Policy 2009-2018 was confirmed by EC Strategy Paper of 21

January 2009. This gives sound basis also for future of European shipping policy and particularly in respect of

the global competitive position of European shipping. State Aid Guidelines for Maritime Transport have been

introduced and implemented in many European countries and it was proposed now to maintain these Guide-

lines for another longer period and possibly to improve them also. The latest EU Maritime policy develop-

ments are discussed more in detail in this Paper and effectiveness of them assessed.

272

Commission 2009/C 132/06. It does not deal with

the State aid to commercial managers of ships. The

Communication applies to crew and technical man-

agement irrespectively of whether they are individu-

ally provided or jointly provided to the same ship.

However, eligibility is limited to the joint provision

of both technical and crew management for a same

vessel ("full management").

In Europe shipping management most developed

is in Cyprus, which features the largest ship man-

agement industry in the world. Important players in

this field are also in the United Kingdom, Germany,

Denmark, Belgium and the Netherlands. Outside Eu-

rope ship management most developed is in Hong

Kong, Singapore, India, United Arab Emirates and

the USA. Therefore it is important that European

ship management business should be further sup-

ported in respect of the global competitive position

of European shipping be maintained and reinforced.

1.3 State Aid to shipbuilding

State aid provisions for Community shipbuilding

have been introduced long before tonnage tax sys-

tem. Present ones are given in the "Shipbuilding

Framework" which entered into effect on 1 January

2004. [4] These rules have been applied initially for

a period of three years, then prolonged twice and

currently applicable until 31 December 2011. In a

view of the expiry of the Framework by the end of

2011, the Commission have started consultations

with Member States and other interested parties to

determine whether to continue to apply this Frame-

work, modify it or let it expire in 2011.

Some of the problems that the EU shipbuilding

industry is facing today are linked to the economic

and financial crisis. After a period of several years

of high demand, in 2009/2010 demand for new ships

has fallen drastically. Therefore this aid could be

critical to support research, development and inno-

vation in European shipbuilding as announced in

COM(2009) 8, the Communication of 21 January

2009 “Strategic goals and recommendations for the

EU maritime transport policy until 2018”.

2 ECONOMIC BACKGROUND

2.1 European fleet position in the World

Europe plays a major role in today’s shipping world,

with European companies owning 41% of the

world’s total fleet in terms of deadweight (DWT)

and 45% in terms of Gross Tonnage (GT). This is

partly because of effectiveness of EU State aid re-

gime. These figures are based on ownership, or to be

more accurate, on real control of this fleet and not on

flag.

European (European Economic Area – EEA) reg-

istered merchant fleet share in the World fleet,

which may be used for assessment of EU State aid

effectiveness, is as in Table 1. [6]

Table 1. European flags share in the World merchant fleet,

mil. GT / DWT , %, as on 1

July 2010

___________________________________________________

Gross Tonnage, mil. Deadweight, mil.

___________________________________________________

World 915.976 1348.786

EEA 209.079 289.705

EEA / World % 22.8 % 21.5 %

___________________________________________________

As to latest statistics of European national flag

registers share in the World, the situation is rather

stable about 21- 22% share, but YoY development is

slower than the Worlds’ one (Fig.1). [6] [7] [8] [9]

World merchant fleet is developing steadily and

faster than the EAA fleet under national flags.

Figure 1. European flags share in the World merchant fleet,

mil. DWT , %, 2007 – 2010

2.2 European registered and controlled fleet

The economical strengths of the European shipping

are connected not only to national registers. It is al-

ways the matter of discussions whether the national

flags are so important as far as the merchant fleet

development very often is based of the Flags of

Convenience (FOC) model and these flags are doing

well indeed, the most successful being Panama with

198.6 mil. GT (21.7% of the World fleet), Liberia

with 97.7 mil. GT (10.6%) and Marshal Islands with

55.7 mil. GT (6.1%).

At the same time even the 3 biggest European

flags are comparatively small – Greece with 40.9

EEA SHARE IN THE WORLD FLEET

2007 - 2010

(mil. DWT)

200

400

600

800

1000

1200

1400

1600

EEA

225

253

268,8

289,7

WORLD

1040

1129,3

1210,2

1 349

2007

(21.6 %)

2008

(22.4%)

2009

(22.2%)

2010

(21.2%)

273

mil. GT (4.4% of the World), Malta – 35.7 mil. GT

(3.9%) and Cyprus – 21.2 mil. GT (2.3%). [6]

Malta and Cyprus also could be considered as Eu-

ropean FOC registers and this is possibly because of

ship management businesses in these countries. An-

other European FOC may be attributed to Isle of

Man register, which is outside the EEA jurisdiction

but with close connections to UK shipping.

The situation for all European registered mer-

chant fleet versus European controlled fleet but reg-

istered under 3rd flags is rather stable last years.

EEA Registered merchant fleet in terms of GT is of

the same size as EEA controlled fleet but registered

under 3rd flags, possibly under FOC. At the same

time it should be noted, that not all fleet registered in

EEA registers is controlled by EEA shipowners. The

situation for EEA controlled and EEA registered

merchant fleet and these two types of European fleet

against World Total fleet in terms of GT for years

2007 to 2010 are presented in Table 2. [6] [7] [8] [9]

Table 2. EEA registered and EEA controlled merchant fleet

2007 – 2010 (100 GT and above), mil. GT

___________________________________________________

2007 2008 2009 2010

___________________________________________________

EEA Registered

and controlled 140.5 151.6 163.0 175.7

EEA Registered,

foreign controlled 21.2 30.0 30.8 33.3

EEA controlled,

registered outside

EEA 150.3 160.2 160.8 206.5

___________________________________________________

TOTAL EEA 312.0 341.6 354.6 415.5

TOTAL World 704.6 770.9 824.7 916.0

TOTAL EEA to

TOTAL World, % 44.2 % 44.3 % 43.0 % 45.3%

___________________________________________________

EEA Registered and foreign controlled fleet is

rather unclear model. We can only guess where the-

se foreign owners are from. Possibly the reason is

connected with the development of European ship

management businesses, such are very active in Cy-

prus. Very possibly this is also in conjunction with

the offshore registered companies, i.e. very well

known and favourite model of tax–avoidance. What-

ever the reasons for foreigners to register their ships in

EEA registers, this is in line with the European shipping

policy supported by new European initiative on

State

Aid to ship management companies. Contrary to

this, European shipping policy is not favouring Euro-

pean controlled fleet registered outside EEA, which

is not in line of strengthening of EEA countries mar-

itime cluster but supporting FOC system rather.

2.3 Impact of the World economic recession

Demand for shipping and port services is derived

from the demand for the products being shipped.

Collapse in demand because of the global financial

crisis has lead to a dramatic change in freight rates,

which also collapsed in all sectors and are unlikely

to begin their upward cycle until the supply and de-

mand gap is closed. In this respect, the emerging

markets of China and India have made a significant

impact on demand side of the industry. As far as

trade is concerned, there is still enormous potential

for growth in countries such as Vietnam, Malaysia,

Philippines, the Indian sub-continent, countries of

Central Asia, Russia and the East European states,

Africa and South America. Despite of current mas-

sive overcapacity of tonnage the growth of China,

India and others Asia countries are likely to help

avoid overcapacity and depression in the shipping

market.

Shipping industry analysts are rather optimistic

on recovery of shipping market. As to World mer-

chant fleet development, they quote the following

YoY figures, as in Table.3. [5]

Table 3. Prospects of World merchant fleet development 2011

___________________________________________________

2009 2010 2011

___________________________________________________

Tonnage demand -2.9 % 12 % 6 %

Fleet growth 6.7 % 7 % 7 %

Utilization rate 81.1 % 85 % 84 %

___________________________________________________

In connection with future development of Euro-

pean fleet, we may examine the shipbuilding portfo-

lio, as at May 2010, showing the following figures in

terms of deadweight:

EEA shipowners have ordered merchant fleet of

174.8 mil. DWT, which is 32.4 % of the World

shipbuilding portfolio of 540 mil. DWT. These fig-

ures does not include 64 passenger ships’ ordered

for EEA shipowners out of 192 passenger ships total

orders in the World. This is a promising sign also for

fleet renovation trend as the newbuiding portfolio is

approximately 40 % of existing fleet size. [6]

It is hard to assess what impact could be expected

because of application of European State Aid to

shipbuilding regime. This State aid may be of good

use for European shipyards which are key drivers for

maritime innovations and therefore eligible to this

State aid regime. The difficulties may arise because

of Far East shipbuilders’ enquiries to World Trade

Organization (WTO) whether this Sate aid complies

with the fair competition rules.

3 EEA COUNTRY PROFILE

3.1 Major European flags

There are 10 EEA flags in the list of World 30 big-

gest flags. No.1 in EEA is Greece, ranking 7th in the

274

World. Then follows Malta, 8th in the World and

Cyprus, 10th in the World. It should be noted again

however, that these statistics are according to regis-

tration or flag and not according to the fleet under

ownership or under control.

If we consider the second type of ranking, i.e.,

controlled fleet, then No.1 in the World is Japan

with 176mil. DWT and No.2 - Greece with 175 mil.

DWT. Germany with 105 mil. DWT is No.3 in the

World by controlled fleet. The current list of 10

EEA major flags includes also UK, Norway, Italy,

Denmark, France, Netherlands and Isle of Man (not

in EEA). The development of European major mer-

chant fleets by flag as from 2007 is presented in Ta-

ble 4. [6]

Table 4. Development of major European flags 2007 - 2010,

mil. DWT and percentage

___________________________________________________

2007 2010 2007/2010 %

___________________________________________________

Greece 56 665.4 71 752.8 + 26.6 %

Malta 40 480.5 58 337.2 + 44.1 %

Cyprus 30 141.5 33 024.6 + 9.5 %

Norway 22 491.5 22 687.8 + 0.9 %

UK 12 437.8 19 245.8 + 54.7 %

Italy 13 346.0 17 682.2 + 32.5 %

Germany 13 856.0 17 660.2 + 27.4 %

Isle of Man 13 730.0 15 486.5 + 12.8 %

Denmark 10 602.9 13 319.5 + 25.6 %

Netherlands 4 999.4 7 828.8 + 56.6 %

France 7 343.0 8 019.0 + 9.2 %

___________________________________________________

Tonnage increase as from 2007 is noted for all

major European flags except Norway. The champi-

ons for increase speed are UK and Malta. Serious

increase of tonnage is also for Netherlands, the basic

initiator for introduction of tonnage tax. Malta’s

tonnage increase apparently is connected with the

ship management business. All this is confirming the

effectiveness of the system of State aid in general,

when this aid is properly applied.

However, this is current situation of tonnage un-

der national flags. When considering tonnage under

control Greece is No.2 in the World with 175 mil.

DWT. Germany is No.3 with 105 mil. DWT and

have the fastest developing fleet with average annual

growth of 16.2% but 83% of it is foreign registered.

[10]

3.2 European country profile

It would be important to assess the situation in each

of EAA country, what is a balance between the na-

tional flag and 3rd flag fleets. This would serve as

the indication of how effective is the system of State

aid, which is a basis for development of a maritime

cluster in each country and in EEA as a whole.

Greece is the first to consider as No.1 in EEA and

No.2 in the World by controlled tonnage.

The Greek

owned fleet under EU flags (including national

Greek flag) accounts for 39.7% of the EU tonnage in

terms of DWT, while under national Greek flag is

24.7% of the Greek owned fleet. Therefore, under

non-European flags is 60.3% of the Greek owned

fleet and this is not in line with the European ship-

ping policy ideas. Further development of Greek

fleet is expected, as by the end of December 2009,

new-building orders by Greek interests (ships over

1,000 GT) amounted to 748 vessels and 64.9 million

DWT. Under what flag this new fleet is going to be

operated is hard to answer.

Generally speaking, the Greek fleet situation con-

firms the effectiveness of application of tonnage tax

system introduced in Greece before the Netherlands.

There are 1,300 shipping companies now in Greece

giving solid base for national maritime cluster

providing employment directly or indirectly to

200,000 persons. The outstanding performance of

the maritime sector in the context of World (and na-

tional) economic downturn in 2009 is a confirmation

that the maritime sector was the only in Greece that

did not create any unemployment. Positive trend al-

so is noted on national efforts for the attraction of

youngsters to the seafaring profession, resulting in

increase of number of cadets for the Marine Acade-

mies by 50%. [6]

Malta as a second European flag with 58.3 mil.

DWT fleet is developing very fast. As to fleet under

control of Malta’s shipowners, the figure is very

small (59,000 DWT on 1

July 2009). That means

that all Maltese registered fleet in foreign owned.

Malta shipping policy is based on support of ship

management businesses, supported also by national

law. In 2010 the new regulations have been adopted

which extend the tonnage tax regime to foreign

flagged ships and to ship-management activities.

Cyprus with 33.0 mil. DWT fleet is another ex-

ample of the largest ship management centre in Eu-

rope. Merchant fleet under control of Cyprus ship-

owners accounts for 25% of Cyprus flag registry

(2009). Cyprus is also implementing improvements

to their tonnage tax system by offering new addi-

tional tax incentives for Cyprus shipping companies.

Norway historically is claiming to be a shipping

nation. Norwegian International Ship Registry (NIS)

was introduced long time ago serving some support

to Norwegian fleet. As to taxation, in 2007 the Par-

liament has adopted a new shipping tax scheme

abolishing favourable 1996 taxation rules. In Febru-

ary 2010, the Norwegian Supreme Court concluded

that 2007 rules are not complying with the Constitu-

tion, previous rules may be applied. Statistics of de-

velopment of Norwegian merchant fleet reflects the-

se political uncertainties: for period as from 2007 to

275

2010, tonnage is on stagnation, in 2010 being 22,6

mil. DWT. Fleet under Norwegian shipowners con-

trol is a double size as under Norwegian flag (in-

cluding NIS); about 49% (2009) of the controlled

fleet is registered outside Norway. [10]

United Kingdom is one of the pioneers for intro-

duction of tonnage tax 10 years ago resulting in rise

of tonnage under UK flag while there has also been

some lack of certainty in some aspects of the ton-

nage tax and UK’s fiscal regime in general. During

period of 2007 – 2010, the increase of tonnage was

by 54.7%. Since 2008, a dramatic slowdown in trade

and a collapse in shipping freight rates in 2009 this

growth have been held back. Sea transport is in the

UK is No.3 in of top export earners and positive

contributor to employment through the tonnage tax

regime. The number of cadets in training has more

than doubled in the last ten years. The merchant fleet

under UK registry and UK shipowners control is

stable, last year increased by 1.2% to 21.5 mil.

DWT.

Statistics on UK shipping usually include Isle of

Man (IoM) flag registry being some kind of British

FOC. The tonnage under UK + IoM shipowners con-

trol is about 32.2 mil. DWT with average increase of

5.9%. About 90% of the controlled fleet is under na-

tional flags. [10]

Italy with 17, 7 mil. DWT merchant fleet is on a

fast rise of 32.5% during 2007–2010. Italian ap-

proach to State aid is based on establishment of the

Italian International Register. 91.3% of Italian

owned ships are entered in the Italian International

tal, of the Italian owned tonnage flies a foreign flag.

[6]

Germany with the third largest merchant fleet un-

der control of their owners, launched an initiative for

the registration of ships under the German flag.

German merchant fleet since 2000 has four times in-

creased in size with an average growth rate of ap-

prox. 14 % per year over last decade. In container

shipping Germany is the World leader with over one

third of the controlled container vessel fleet. This

position will also be kept in the future as German

shipowners have ordered about 900 vessels repre-

senting 32 mil. GT on order. 243 of these 900 ships

are containerships. While there is a positive sum-

mary of the German shipping policy in recent years,

German Government is critical and consider whether

State aid in a form of tonnage tax regime be pro-

longed.

Denmark registry (including DIS) with 13.3 mil.

DWT merchant fleet is developing rather fast, by

25.6% during 2007 – 2010. Denmark is the fifth in

the world by controlled tonnage of more than 50 mil.

DWT. About 60% of the controlled fleet is under na-

tional flag. [8] Denmark is supporting revision of the

EU State Aid Guidelines for tonnage taxation, in-

come taxation and other types of State aid. [6]

Netherlands merchant fleet under national flag is

growing, in 2010 being 7.8 mil. DWT, increased by

+ 56.6 % during 2007 – 2010. But still the shipown-

ers and ships are deserting the Netherlands out of the

necessity of cutting costs. This is showing that the

Netherlands as a basic initiator for application of

tonnage tax have insufficient shipping taxation re-

gime. The Netherlands government has acknowl-

edged that flagging out and the departure of compa-

nies and shore management from the country will

have negative consequences also for national seafar-

ers and for nautical education. [6]

Belgian merchant fleet tonnage at 12.5 mil. DWT

last years was on a slight rise, by 8.8% annually.

47% of the Belgian controlled fleet was registered in

the Belgian register, 44% in other EU registers and,

unlike other European controlled fleets, just a minor-

ity of 9% in open registers. [6]

French merchant fleet of 8 mil. DWT (including

FIS) is slowly developing. France does not use the

tonnage tax system; instead, at the end of 2009 the

guarantee scheme for ship financing, like for other

companies in France may be used. It is not a state

aid, there is a cost for the shipowner.

Sweden is serving negative example of govern-

mental shipping policy. Because of political deci-

sions in April 2009, it was announced that there

would be no tonnage tax during the government’s

present term of office. As a result, the flagging out is

the only solution for shipping companies and this is

reflected in statistics: only 33.7% out of Swedish

controlled fleet of 7.2 mil. DWT is under national

flag. [6]

Spanish shipping is using Canary Island Special

by 67.3% out of 4.5 mil. DWT fleet. At the same

time, Spanish registered fleet is decreasing and for-

eign registered increasing. [7] This apparently is be-

cause of inefficient shipping policy of the Spanish

government.

In Portugal shipowners with the fleet of 1.2 mil.

DWT are using Conventional Register and Madeira

International Register, 25% of ships are flagged out.

They are in need for an effective shipping policy,

similar to those that have been successfully imple-

mented in other EU countries. [6]

Polish shipowners control a fleet of 2.6 mil. DWT

of which only 144 thousand DWT fleet or 5.5% is

under national flag. A Tonnage Tax Act was adopted

in 2006, formally approved by the Commission in

December 2009 and came into force on 1 January

2011. [6] It is a hope that this State aid regime will

276

improve the situation but pending on success of ne-

gotiations with trade unions.

Finnish merchant fleet is on stagnation with 1.2

mil. DWT under national flag. Revised tonnage tax

regime is underway accompanied by difficult trade

union negotiations but may improve the situation.

Latvian merchant fleet under national flag is

small and in further decrease notwithstanding the

State aid regime has been introduced in 2001. Flag-

ging out (90%) is usual approach, including for

Malta flag. Shipowners claim that too formal ap-

proach from the State revenue office is to be blamed.

Lithuanian merchant fleet under national flag is on

decrease having 0.3 mil. DWT size in 2010, now

struggling the recession but introduction of tonnage

tax is underway. Estonian shipping companies did

not manage to pass the tonnage taxation law in the

Parliament but hope to make it in future. The fleet

under national flag is of 0.168 mil. DWT, the rest of

the Estonian controlled fleet is flagged out including

four vessels registered under the Latvian flag, which

appears to be more favourable.

Bulgaria with 0.9 mil. DWT fleet under national

flag still encounter massive flagging out (92.7%)

notwithstanding tonnage tax regime, introduced

some five years ago.

Romania with 0.2 mil. DWT fleet under national

flag also use foreign registration (85%). Small fleet

of Slovenia even 100% is flagged out. [10]

4 CONCLUSION

We may notice very different approaches to imple-

mentation of State aid schemes and maritime policy

in European countries. Most of the countries, espe-

cially major maritime countries, are using Guide-

lines as provided in EC Communication C(2004)43

and these Guidelines are to prolonged and improved.

It should be noted also that in a number of Euro-

pean countries there is not enough political will to

introduce State aid regime for shipping.

Introduction of tonnage tax system does not nec-

essarily serve as an effective tool for preventing

flagging out trends. More complex approach need to

be taken. Extension of Guidelines to ship manage-

ment companies is one of the ways which is under

consideration in European Commission now.

Other State aid types also are important, such as

Marco Polo program and State aid to shipbuilding.

REFERENCES

1. Official Journal of the European Union of 17.1.2004,

C(2004) 43.

2. Official Journal of the European Union 21.1.2009,

COM(2009) 8 final Brussels.

3. EC site 15.12.2010 “Marco Polo - New ways to a green

horizon”.

4. Official Journal of the European Union of 30.12.2003,

COM(666).

5. RS Platou Monthly, December 2010

6. ECSA Annual report 2009 -2010

7. ECSA Annual report 2008 -2009

8. ECSA Annual report 2007 -2008

9. ECSA Annual report 2006 -2007

10. ISL Sipping Statistics Yearbook 2009