An owner contemplating to build a ship, herein called the contracting shipowner, is free, except when law restricts his freedom, to have his ship built in any shipyard of his choice. Most owners nowadays do not follow the old practice of coming back to the same shipyard because of the fierce competition facing the shipbuilding industry. Many yards with empty order-books are prepared to accept unfavourable conditions just to stay in business and to fill their berths. The depressed shipping market, inflation and recession in world trade severely affected many shipyards.

The main pressure on the shipbuilding industry is coming from Japan.1 In 1976 Japan’s share of orders was 46.8%, compared with Western Europe’s 37.6% and that for the rest of the world 15.6%. In 1977 the order-book position showed Japan with 56.3 % of the market share, Western Europe with 21 % and the rest of the world with 22.7%.

In order to solve the financial problems facing the shipbuilding industry, many Governments provide [a kind of] support to the industry in one form or another. Most Governments allow an exemption from indirect taxes and import duties and all—except Japan—give exemption from, or rebate of, Customs duty paid on imported materials used in constructing ocean-going vessels. Direct subsidies on the price of vessels are provided in the United Kingdom, the United States,2 Sweden, Holland, Belgium, Italy, France, Norway and West Germany.

The Organisation for Economic Co-operation and Development (OECD) attempted to harmonise the policy of its Member States in this area. It approved measures providing that up to 70 % of the purchase price can be obtained through a loan which can be repaid over a period of seven years from delivery of the vessel. These measures also fix the interest rate on loans of 7½%. Unfortunately, the OECD measures have proved to be unworkable and in fact they tend to increase the subsidies.

Recently the European Commission tried to avoid any increase in the subsidies by recommending that new orders should be shared equally between Japan and Western Europe. This recommendation, however, was not accepted by the Japanese.