Shipping subsidies under debate as job losses loom

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In May 2001, the Finnish government was considering a new subsidy for the country's passenger shipping, in the form of the abolition of tax and social security contributions on seafarers' wages. The government is under pressure to introduce this measure - which is demanded by the sector's social partners - because subsidies are already in use in many EU countries following a 1997 European Commission decision to allow them. If the government does not grant the subsidy, the shipowners will "outflag" their vessels to other countries' registers and then be able to hire cheaper labour, with the trade unions powerless in the face of this threat.

In May 2001, the Finnish government was considering bringing the country's passenger vessels under the "net pay system" - a form of subsidy for shipping companies whereby they do not pay the state any taxes or social security contributions on seafarers' wages. Finnish merchant shipping is facing a serious challenge at present, as the shipowners are trying to cut costs and improve their competitiveness relative to "flag of convenience" countries (countries which offer their maritime flag registration to owners from another country, often allowing them to avoid taxation, safety regulations etc). The Finnish Seafarers' Union (Suomen Merimies-Unioni, SM-U), seeking to defend its members' interests, has joined the shipowners in a united front to call for further government subsidies for merchant shipping. The government had already, in June 2000, introduced subsidies in the form of "tonnage taxation" (levying a fixed tax, based on net tonnage, on shipping companies, rather than normal company taxes) (FI0007154N).

Background

In 1997, the European Union adopted a set of Community guidelines on state aid to maritime transport, allowing national governments to grant various fiscal and social state subsidies for merchant shipping, aimed at improving competitiveness. One after another, a number of Member State governments have since decided to grant subsidies, and this "domino effect", after hitting Sweden (SE9811124N), has now reached Finland.

During the sectoral collective bargaining round in spring 2000 (FI0002135N), SM-U sought an agreement aimed at preventing the outflagging of Finnish ships (ie transferring the ships to foreign ownership, possibly leading to the use of foreign labour). In March 2000, SM-U and the Finnish Shipowners' Association (Suomen Varustamoyhdistys, SVY) did indeed conclude a framework agreement providing for the competitiveness of Finnish ships to be guaranteed through collective agreements. Linked with this agreement was a call by the social partners for state subsidies for the maritime transport sector. The government subsequently introduced the "tonnage taxation" scheme. However, many shipowners have continued to threaten to transfer their ships to the register of some other EU country, if the maritime sector is not subsidised in Finland as much as in other EU countries. Some shipping companies have already outflagged ships and concrete negotiations over dismissals of seafarers are in progress.

Government dilemma

The Central Organisation of Finnish Trade Unions (Suomen Ammattiliittojen Keskusjärjestö, SAK), SM-U and SVY have repeatedly demanded that the government take action, including introduction of the net pay system, in order to safeguard the operational prerequisites for merchant shipping. A switch to the net pay system would cost the state, according to estimates, about FIM 500 million. The dispute about seafaring subsidies has already been underway for some time, and SM-U has resorted to a number of strikes and blockades of Finnish vessels in support of its demands. (FI0005149F and FI0008156F).

In May 2001, the Finnish government conducted negotiations with its Swedish counterpart concerning maritime transport subsidies. Finland proposed to Sweden that vessels operating in the Åland archipelago (a "tax-free" zone, not covered by EU tax rules, which lies between the two countries) should be excluded from such subsidies, because they are already being subsidised through tax-free sales (although tax-free sales were abolished for internal EU travel in 1999, they are still allowed on shipping between Finland and Sweden if the ships call at the Åland islands). Following the negotiations, the Swedish government decided nevertheless to use the subsidies to their full extent.

The Finnish government is now in a dilemma. If it grants further subsidies for shipping through the net pay system, other industries and occupations will protest. Such a subsidy would have the greatest direct effect on the hotel and restaurant industry, which competes with maritime passenger transport for the leisure time of consumers, and considers support for such transport as unfair competition. For its part, the Finnish government seems to lack enthusiasm for the idea of the subsidy: according to the Minister of Transport and Communication, Olli-Pekka Heinonen, "subsidy of FIM 500 million for an activity which will not result in any new benefit is a difficult decision." However, if the subsidy is not granted, the most likely consequence will be that Finnish vessels will be outflagged and Finnish seafarers replaced by foreign labour. Such outflagging would affect about 4,300 jobs.

Commentary

Underlying the crisis in Finnish merchant shipping lies the failed subsidy policy of the EU. The European Commission's decision to counter the threat of international competition by allowing governments to subsidise seafaring has led to an odd situation. Simultaneously with the advent of free competition, the industry has to be subsidised if EU shipowners are to remain competitive in relation to the flag of convenience countries. National governments have thus been forced into tax competition. The Finnish government is faced with a difficult decision. Its overall economic policy is aimed at decreasing subsidies, but weighing heavy on the other side of the scale are job losses and a possible disappearance of seafaring know-how. In the face of public opinion, the granting of subsidies is made difficult by the fact that there are many other needy causes to which tax money ought to be allocated - such as social services and healthcare, where the recent doctors' strike may be seen as an example of the current crisis in the public sector (FI0103182F). The government should take a decision on new subsidies for maritime transport in the near future. For the time being, all its alternatives seem problematic. As free international competition becomes more widely established, it is likely that the same kind of development will become a reality in other sectors. It seems that the efforts of the labour movement to save jobs are on quite shaky ground. (Juha Hietanen, Ministry of Labour)