(08.01.2000 - Juhani Artto) There was good news to usher in the new millennium for the Finnish shipbuilding industry. Masa-Yards, the leading shipbuilding company in Finland, won an order for a Spirit-class luxury cruise liner worth about FIM 2,000 million (EUR 330 million, USD 350 million). This matches jobs for 5,000 employees for one year.

In spite of this, the future of the industry in Finland and the other EU Member States is under serious threat. The global market share of the EU shipbuilding industry has fallen below 20 per cent. Ten years ago it was about 30 per cent.

The industry blames the loss on South Korea's aggressive expansion campaign, which the EU and European companies claim to be based on unfair subsidies. According to European sources, the South Koreans have reduced their prices below the level of material costs alone in the worst tenders.

It is suspected in Europe that South Korea has used part of the USD 58 billion financial crisis support provided by the IMF to protect the competitiveness of its shipbuilding industry. On the other hand, the crisis slashed the average wage of South Korean industrial workers from USD 7.5 per hour in 1996 to USD 4.3 in 1998.

Over a period of just twelve years the South Koreans have doubled their global market share, which now approaches 40 per cent. In the first half of 1999 the country's shipbuilders captured one third of all new orders.

Another rising nation in the industry is China, but its share is still a small one.

Japan enjoys a market share of about 40 per cent. The Japanese State does not subsidise the shipbuilding industry. Although the shipbuilders belong to giant multi-industrial corporations which may dump their prices to protect the competitiveness of their dockyards, the Europeans have no hard evidence to show that this is happening.

The EU is currently scrutinising South Korean practices closely with a view to exposing the suspected unfair trading policy. Firm evidence of this would give more weight to the lobby for an international agreement banning all subsidies.

The regulations within the EU allow the Member States to continue subsidising their shipbuilding companies to the end of this year. No subsidies will be allowed after this. The maximum EU subsidy is 9 per cent of the total price for new ships and 4.5 per cent in repair orders. The Member States concerned and the companies have long struggled to reach agreement on the zero-subsidy policy.

Another problem facing the Europeans is the opposition of the USA to an OECD agreement banning subsidies. The US shipbuilding industry has much higher production costs than its European competitors but the Americans protect their industry by allowing only US-built ships to sail from one US harbour to another.

Western Europe has now 115,000 employees in its shipbuilding industry, which is only one quarter of the number twenty years ago. Over the same period the South Korean figure has risen from 35,000 to 51,000.

There are only 8,000 jobs left in the Finnish shipbuilding industry. Another important factor, however, is the major employment impact of shipbuilding in the assignments which it provides for subcontractors.

In recent years the industry in Finland has specialised in huge luxury cruise liners mainly constructed for cruises in the Caribbean. The strongest competitors in this sector are French, German and Italian companies. The South Koreans have recently also tried to penetrate this very demanding sector, but so far with no significant success.

One more cloud hanging over the industry in Finland is the decision by Kvaerner, the Norwegian owner of Masa-Yards, to sell its shipbuilding industries. Negotiations with potential buyers have been underway for several months. There are also Finnish investors who are interested in becoming owners of the Masa-Yards dockyards in Helsinki and Turku. The two dockyards have a combined workforce of 6,000 employees. In early January Masa-Yards announced that it will concentrate fully on the luxury cruise liner business. This plan means further cuts in the workforce and annual savings of about FIM 200 million (EUR 33 million, USD 35 million).

Icebreakers, the former Finnish niche product, no longer command any demand in the domestic or international market.

Finland's Minister of Trade and Industry, Erkki Tuomioja, has firmly rejected all appeals for subsidies after the end of the year. Over the period 1996-1999 Finland subsidised or provided subsidy commitments to the shipbuilding companies for some FIM 800 million (EUR 132 million, USD 140 million). These subsidies were allocated to business deals worth almost FIM 13 billion (EUR 2.14 billion, USD 2.27 billion). The subsidies were used to make new openings in the business, meaning that only the first ships in a series of similar business deals have been financially supported by the government.

Speaking in November, Per-Erik Lundh, the President of the Finish Metalworkers' Union stressed that the primary aim is to reach an international no-subsidies agreement, but if these negotiations fail, then Finland must to be ready to defend the competitiveness of its shipbuilding industry.