The Canadian government has taken dramatic action to eliminate barriers to the import and export of traded goods. While Free Trade Agreements provide benefits to certain industries, shipbuilding is generally not one of them and such agreements threaten the protection of our domestic marine industry.
NAFTA: a one-way flow for the marine industry
The most significant was the North American Free Trade agreement (NAFTA) with the USA and Mexico. While NAFTA from the Canadian perspective is considered a success not all industries have seen the US markets opened to them. Because of the Jones Act (the United States’ cabotage legislation), Canadian shipbuilders have been virtually shut out of the US. Under the Jones Act, Canada can not build ships to be used on United States domestic trades whereas the United States is able to do so in Canada.
Free trade with the world’s leading shipbuilding nations
Recently, agreements have been signed but not ratified with the European Union and South Korea; both of which contain major shipbuilding capabilities. In addition, there are 14 sets of negotiations ongoing including India and the Trans Pacific Partnership Nations (TPP). What is unknown is how these free trade initiatives will affect Canada’s marine and shipbuilding industries – is it intended for these Free Trade Agreements to eliminate tariffs on imported vessels? We simply do not know and have effectively been shut out of any discussions.
A brief look at some of the most successful shipbuilding nations
i.e. Japan, Norway, China and the European Union will show that their governments have provided a plethora of initiatives to support the industry, realizing that it provides jobs and exports. Moreover, retaining a strong shipbuilding capability is imperative for national security.
Direct government involvement in successful shipbuilding nations includes:
- Owned or supported shipyards
- Cabotage laws
- Protection against failure (debt relief)
- Low capitalization requirements
- The provision of export credit facilities to ship buyers
- Direct labour subsidies
- Supplier subsidies (steel etc.)
- Indirect subsidies (technology grants etc.)
Unnecessary elimination of tariffs
Canadian shipyards have received some tariff protection. The National Shipbuilding Strategy (NSS) for Federal Government ships has a build-in-Canada policy. On the other hand, the commercial shipbuilding side of the industry which is focused on export can access very few support measures. In order to make both the NSPS and the industry a success, a long- term plan is required which protects domestic shipbuilders while Canada develops itself as a major specialized shipbuilding nation. Until January 2010 ship owners that wanted to participate in the Canadian domestic trade were required to build their ships in Canada or pay a 25% import duty on ships imported into Canada. After consultation, it was agreed that Canadian shipbuilders were focused on value-added specialized vessels (such as ferries, oilfield services vessels, naval and other specialized vessels) and therefore would not contest a relaxation of tariffs for simple, commoditized cargo ships such as bulk carriers and tankers which can be built at a low cost in Asia. However, on 1 January 2010 the government eliminated not only the duty on cargo ships and tankers but also on ferries with a length greater than 129 metres. The elimination of duty on ferries was a significant blow to shipbuilders as they represent a key product sector for the industry.