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The selection of appropriate government assistance measures to encourage the development of a Canadian… Chiykowski, Gregory L. 1980

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THE SELECTION CF APPBOPBIATE GOVERNMENT ASSISTANCE MEASURES TO ENCOUB AGE THE DEVELOPMENT OF A CANADIAN DEEP-SEA FLEET, by  ^ ^ ^ y Gregory L. Chiykowski E.Ccmm., Carleton A THESIS SUBMITTED  University,  1979  IN PABTIAI FULFILMENT OF  TfiE REQUIREMENTS FOB THE DEGBEE OF MASTER OF SCIENCE (BUSINESS  ADMINISTRATION)  in THE FACULTY OF GRADUATE STUDIES Faculty  of Commerce  «e accept t h i s t h e s i s as conforming to the required  standard  THE UNIVERSITY OF BRITISH COLUMBIA September  1980  c Gregory L. Chiykowski  In  presenting  an  advanced  the I  Library  further  for  his  of  this  written  thesis  degree shall  agree  scholarly  by  this  at  the U n i v e r s i t y  make  that  purposes  for  it  freely  permission  representatives. thesis  in p a r t i a l  financial  of  The U n i v e r s i t y  Cemvrn£SUL&-  of  B r i t i s h Columbia  2075 Wesbrook P l a c e V a n c o u v e r , Canada V6T 1W5  shall  the  for  requirements  not  of  copying  that  I agree  r e f e r e n c e and  t h e Head o f  by  is understood gain  of  B r i t i s h Columbia,  for extensive  permission.  Department  of  available  may be g r a n t e d It  fulfilment  this  be a l l o w e d  or  that  study. thesis  my D e p a r t m e n t  copying  for  or  publication  without  my  ii  abstract The  objective of t h i s  gcvei.nns.ent  p a p e r i s t o d i s c u s s "What f e d e r a l  a s s i s t a n c e m e a s u r e s , i f any, m i g h t be a p p r o p r i a t e f o r  encouraging  the development of a Canadian deep-sea  Appropriate  assistance  economically  measures a r e t h o s e  efficient,  newspaper a r t i c l e s ; economics, operators and  that are adeguate,  eguitable, acceptable  Sources o f r e f e r e n c e  included  and an i n t e r v i e w  and  reliable.  government p u b l i c a t i o n s ;  journals; general  and t a x l a w ; p e r s o n a l  fleet"?  t e x t b o o k s on s h i p p i n g ,  correspondence with  program  shipping  of Vancouver-based  shippers  ship-operators. Virtually  foreign-flag  a l l Canadian exports  v e s s e l s . Canadian  a'nd i m p o r t s  involvement  are c a r r i e d  on  ininternational  shipping  i s mere s u b s t a n t i a l t h a n t h e f i g u r e s might s u g g e s t . The  question  nevertheless  continue  t c depend on f o r e i g n - f l a g s e r v i c e s i n l i g h t  trends  a r i s e s as t o whether Canada  and d e v e l o p m e n t s t h a t  should of r e c e n t  a r e o c c u r r i n g in i n t e r n a t i o n a l  s h i p p i ng. Assistance being  m e a s u r e s c a n be c o n v e n i e n t l y  either financial  financial  assistance  a s s i s t a n c e measures. used  to assist  provision  subsidies,  lean  phase, or n o n f i s c a l  include, operating  measures c a n be f o u n d to ether  loans,  or protected  c o u l d be  s u b s i d i e s , government  and s e r v i c e s , s p e c i a l  g u a r a n t e e s , government  world. In r e l a t i o n  phase,  a s s i s t a n c e measures t h a t  government s u p p o r t ,  each o f t h e s e the  Specific  of f a c i l i t i e s  incentives,  a s s i s t a n c e i n the o p e r a t i n g  i n the c a p i t a l  shipping  c a t e r g o r i z e d as  s u b s i d i e s , tax construction  markets. E x a m p l e s o f  i n v a r i o u s forms  maritime n a t i o n s ,  throughout  Canada's  iii  a s s i s t a n c e measures can not be considered as being  very  generous. Sn o p e r a t i n g subsidy program i s not an a p p r o p r i a t e form of a s s i s t a n c e f o r the f e d e r a l government to introduce s i n c e i t encourages i n e f f i c i e n t usage of r e s o u r c e s , i s not a d a p t a b l e , i s net acceptable t o any I t i s estimated government $4  major Canadian s h i p p i n g i n t e r e s t  that such  and  group.  a program might c o s t the f e d e r a l  to 6 m i l l i o n a n n u a l l y . The  s o c i a l c o s t s of such a  program are represented by the i n c r e a s e i n s h i p p i n g revenues l e s s the increase i n c o s t s , valued at t h e i r s o c i a l o p p o r t u n i t y c o s t . Taxes are ignored i n the a n a l y s i s , except to the e x t e n t that they may  affect  the a l l o c a t i o n  of r e s o u r c e s . That i s  because taxes r e p r e s e n t a t r a n s f e r cf resources r a t h e r than  an  a c t u a l c o s t or b e n e f i t . Tax  i n c e n t i v e s are, perhaps, the most a p p r o p r i a t e type of  a s s i s t a n c e measure examined s i n c e they are adaptable, and  can be e a s i l y  allowances  implemented. I n c r e a s i n g c a p i t a l c o s t  from a 15 percent d e c l i n i n g balance  straight-line  method could r e s u l t  to a 33  at 11.17  permittance  m i l l i o n and  d e p r e c i a t i o n at $1.25  r e d u c t i o n i n tax r a t e s i s only e f f e c t i v e  flow  million  of advance d e p r e c i a t i o n might be  special  Income i s being earned.  percent  i n present value cash  s a v i n g s to a shipowner of $2. 124 m i l l i o n on a $20 v e s s e l . The  reliable,  valued  m i l l i o n . ,A  i f s u f f i c i e n t taxable  A reserve fund i s a l s o an a p p r o p r i a t e  a s s i s t a n c e measure f o r many of the reasons c i t e d above.,Such a program might c o s t the government $2 to $3 m i l l i o n a n n u a l l y . Government loan guarantees, l e t t e r c r e d i t t e r n s may  a l l o w i n g shipowners to  also result  secure  i n s u b s t a n t i a l b e n e f i t s to  Canadian shipowners and would r e q u i r e a minimal  o u t l a y of  funds  cn t h e g o v e r n m e n t s b e h a l f . ,A d i r e c t government l o a n program i s not an a p p r o p r i a t e measure because i t i s not a d a p t a b l e , e g u i t a b l e , or e c o n o m i c a l l y e f f i c i e n t u n l e s s the government can perform  the l e n d i n g f u n c t i o n more e f f i c i e n t l y than can p r i v a t e  industry. C o n s t r u c t i o n s u b s i d i e s b e n e f i t s h i p b u i l d e r s , with the b e n e f i t s a c c r u i n g to shipowners being minimal and N o n f i s c a l a s s i s t a n c e measures such as f l a g  discrimination  and cargo p r e f e r e n c e , are c o n s i d e r e d e c o n o m i c a l l y and  unacceptable.  unreliable.  inefficient,  Such measures a r e , at the present t i m e ,  harsh a r e p l y to the f l a g d i s c r i m i n a t i o n and cargo problems t h a t are d e v e l o p i n g elsewhere p o s s i b l e e x c e p t i o n t o t h i s may  too  preference  i n the w o r l d . The  one  be C a n a d i a n - f l a g c a r r i a g e of  cargoes t o and from the A r t i e r e g i o n s of Canada. I t i s p o s s i b l e t h a t the i n t a n g i b l e b e n e f i t s a s s o c i a t e d w i t h such a  venture  ( i . e . , s e c u r i t y , s o v e r e i g n t y , p r i d e ) might j u s t i f y the h i g h e r costs involved.  V  Table of Contents  Abstract ........... .............. ... ...................... i i list  of F i g u r e s .......................................... v i i i  list  c f Appendices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . •  x  Ackncsledgement ....................................... . . . . x i i  I.  IFTBOBUCTION ...........................................  1  OUTLINE .........  3  DEFINITION OF TEBMS ..................................... 4  II  LIKITATIONS OF THE STODX ................................  5  IKTEBNATIONAl SHIPPING ................................ .  7  1. The World F l e e t And I n t e r n a t i o n a l Markets ...........  7  2. The N a t i o n a l i t y And R e g i s t r a t i o n Of Ships ........... .10 3. Shipping Operations And The Economics Of Sea Transportation  ....................... ................ 12  4. Modern Trends And Developments  ......................16  A. T e c h n o l o g i c a l ....................................... 16 B. The UNCTAD l i n e r Cede  18  C. F l a g s Of Convenience ................................ 19 D. F l a g D i s c r i m i n a t i o n ................................. 20 E. The B i s e Of The N a t i o n a l F l e e t s ..................... 23 III.  The Shipping Industry In Canada ...................... 25 1. B r i e f Beview Of Canadian Shipping H i s t o r y ........... ,25 2. Shipping Operations In Canada ....................... 28 A. Domestic S h i p p i n g  ................................... 28  B. I n t e r n a t i o n a l : T r a n s t o r d e r ..........................31 C. Canadian Beep-sea Shipping - Non U.S. ............... .32  vi  3. C a n a d i a n S h i p p i n g  I n t e r e s t s .........................  A. S h i p o w n e r s And O p e r a t o r s B. S h i p p e r s  . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35  ............................................  C. Government  Eodies  35  33  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39  D. U n i o n Groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41  IV  E. S h i p b u i l d e r s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  42  P o s s i b l e Government A s s i s t a n c e  Measures To A i d S h i p p i n g  44  1. M e a s u r e s To A s s i s t  Deep-sea  National  F l e e t s . . . . . . . . . 44  A. F i n a n c i a l A s s i s t a n c e  I n The O p e r a t i n g  B. F i n a n c i a l A s s i s t a n c e  I n The C a p i t a l Phase  C. N o n f i s c a l A s s i s t a n c e  Measures  2. The E f f e c t s C f The V a r i o u s  Assistance  1. F i n a n c i a l A s s i s t a n c e A. O p e r a t i n g  Subsidies  D. Tax S u b s i d i e s  . . . . . . . . . . ,50  . . . . . . . . . . . . . 59  Discrimination  ..............61  Measures . . . . . . . . . . . . . . . . . . . . . ,64  I n The O p e r a t i n g  Phase . . . . . . . . . ..64  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 . . . . . . . . . . . . . . . . . . . . . . 67  ...................................68  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70  2. F i n a n c i a l A s s i s t a n c e A loan  Subsidies  Subsidies  B. G o v e r n m e n t - P r o v i d e d F a c i l i t i e s C. S p e c i a l S u b s i d i e s  . . . . . . . . . . . 47  M e a s u r e s ..................49  B. Economic E f f e c t s Of O p e r a t i n g  V. World S h i p p i n g  45  . . . . . . . . . . . . . . . . . . . . . . . 49  A. E c o n o m i c E f f e c t s Of C o n s t r u c t i o n  C. E c o n o m i c E f f e c t s Of F l a g  Phase . . . . . . . . .  I n The C a p i t a l Phase ............ 74  G u a r a n t e e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75  B. D i r e c t Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 C. C o n s t r u c t i o n  Subsidies  D. Government O w n e r s h i p 3. NONFISCAL  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79  ................................81  ASSISTANCE MEASURES  A. CARGO PREFERENCE  83 83  vii  B. FLAG DISCRIMINATION  .................................  85  C. EILATEBAL TBADE AGREEMENTS . . . . . . . . . . . . . . . . . . . . . .,. . . . 86 D. CTBEE NONFISCAI MEASURES VI.  Shipping  Policy  I n Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1. M a j o r C a n a d i a n S h i p p i n g 2. C u r r e n t  88  S t u d i e s Of The P a s t  Canadian Shipping  Policy.  92  ..................  96  C a n a d i a n Government A s s i s t a n c e  ft. F i n a n c i a l  A s s i s t a n c e I n The O p e r a t i n g  B. F i n a n c i a l  Assistance  In The C a p i t a l  C. N o n - f i s c a l A s s i s t a n c e VII  A Canadian Plan  Measures  Decade ,. 90  ...................  3. The C a n a d i a n M e r c h a n t M a r i n e I s s u e 4. E x i s t i n g  90  Measures  .....99  Phase . . . . . . . . . ,99  Phase  . . . . . . . . . . . 106  . . . . . . . . . . . . . . . . . . . . . . 107  Of A c t i o n  109  1. F i n a n c i a l  Assistance  I n The O p e r a t i n g  A. O p e r a t i n g  Subsidies  .................................112  B. G o v e r n m e n t - p r o v i d e d F a c i l i t i e s C. S p e c i a l S u b s i d i e s D. Tax I n c e n t i v e s 2. F i n a n c i a l A. l o a n  Phase  .........112  ......................116  ...................................117  ......................................120  Assistance  I n The C a p i t a l  Phase  ...........131  G u a r a n t e e s .....................................131  B. Government l o a n s C. C o n s t r u c t i o n  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134  Subsidies  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138  D. Government o w n e r s h i p ................................139 3. N c n f i s c a l A s s i s t a n c e VIII Notes  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140  Summary And C o n c l u s i o n s  ..............................144 149  E i b l i c g r a p h y . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 A p p e n d i c e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169  viii  List  o f .Figures  Figure  2.1 - Wcrld  Figure  3. 1 - C a n a d i a n I n t e r n a t i o n a l S h i p p i n g Ten  Commodities l o a d e d  F i g u r e 4.1 - The l  Figure  4.2-  Seaborne Trade ......................  Effect  4.3 -  4.4 -  i n Consumer S u r p l u s  Increase  The  4.5 -  Calculation Society  Effect  Effect  Figure  4.7 -  4.8 -  Subsidy  from  a Construction  of a Construction Supply  on S u p p l y  57  on t h e Ship  Subsidy  and Demand o f an  . . . . . . . . . . . . . . . . . . . . . . . . . 60  o f an O p e r a t i n g  Subsidy  S t r u c t u r e o f an I n d i v i d u a l  Cost  55  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ,58  Effect  Operator F i g u r e 4.11- The  Subsidy  S t r u c t u r e o f an I n d i v i d u a l  F i g u r e 4.10- E f f e c t Cost  .............................  of a Construction  Operating  . . . . 53  . . . . . . » . . . . . . . . . . . . . . . . . .55  Operator  4.9 - The  Subsidy  Subsidy^  Ship  Operator  ..... ,53  Subsidy  S t r u c t u r e o f an I n d i v i d u a l  Effect  . . . . . 51  o f t h e O v e r a l l Net B e n e f i t s  Cost  Cost  Figure  Subsidy  Demand . . . . . . . . . . . . . . . . . . . . . . . . . .  Xnelastic Figure  Resulting  Surplus  a Construction  of a Construction  Inelastic F i g u r e 4.6 -  i n Producer  from  32  . . . . . . . . . . . . . . . . . . . . . . 51  from a C o n s t r u c t i o n  Increase  .......  and Demand o f a  The  to Figure  and U n l o a d e d  Subsidy  Resulting Figure  - Top  Construction  Resulting Eigure  on S u p p l y  8  on t h e Ship  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 to Society o f Flag  Discrimination Practices  X  L i s t of appendices Appendix  1 - World Bulk Trade F i g u r e s ..................... 170  Appendix 2 - The World Merchant F l e e t ..................... 171 Appendix 3 - The Canadian E e g i s t e r e d Merchant F l e e t ....... 172 Appendix 4 - Canadian Great Lakes Dry Bulk Cargo . . . . . . . . 173 Appendix 5 - S e c t i o n B2I-19 Of The Maritime Code .......... 174 Appendix 6 - S e c t i o n 6 Of The Canada Shipping Act ......... 175 Appendix 7 - Canadian Ship C o n s t r u c t i o n Subsidy Bates .....176 Appendix 8 - D i f f e r e n c e Between Canadian And F o r e i g n Manning Costs ..........................................177 Appendix 9 - Breakdown Of Canadian Shipping Expenses ...... 178 Appendix  10 - C a l c u l a t i o n s For Change In Operating Margin  A s s o c i a t e d With An Operating Subsidy  179  Appendix  11 - Proposed S u b s i d i z a b l e Boutes And V e s s e l s ....180  Appendix  12 - C a l c u l a t i o n Of C o s t s Associated With An  Operating Subsidy Program ................................181 Appendix  13 - A l t e r n a t i v e Method F o r C a l c u l a t i n g The C o s t s  Associated With An Operating Subsidy Program ........... 182 Appendix Fleet Appendix  14 - Crewing B e n e f i t s A s s o c i a t e d With The Proposed ............................. .. ... ........ ,., ..... |83 15 - S o c i a l Costs Of Labour Associated With An  Operating Subsidy Program .............................. 184 Appendix  16 - V e s s e l s Q u a l i f y i n g For A F i v e Percent  Investment Tax C r e d i t Appendix  ........185  17 - Savings Associated With The Customs Exemption  Of Imported Ships To Be Dsed In I n t e r n a t i o n a l Trade ....187 Appendix  18 - C a p i t a l Cost Allowance Deductions A s s o c i a t e d  With Various Bates And Methods  .....188  appendix  19 - Present Values Of D i f f e r n t i a l Cash Flow  Savings  ................................................190  appendix 20 - D i f f e r e n t i a l PV Cash Flows F o r Advance And S p e c i a l D e p r e c i a t i o n Methods ........................... 192 Appendix 21 - Costs Associated With A Zero Tax Bate On Ship Earnings .......................................... .....193 Appendix 22 - Costs A s s o c i a t e d S i t h A V e s s e l Beserve Fund  .194  Appendix 23 - B e n e f i t To Shipowners Of A Loan Guarantee Pro grain ................................................195 Appendix 24 - The S o c i a l E e n e f i t s A s s o c i a t e d With A Loan Guarantee Program .............. .................. ...... 196  xii  Acknowledgement  The  author wishes  generously  consented  t o thank  the f o l l o w i n g  people  who  to being interviewed,  G . E • Bennett ( C o u n c i l o f F o r e s t I n d u s t r i e s ) w.H. McNulty (Weldwocd o f C a n a d a , L t d . ) A l i s t a i r P o l l o c k ( C o u n c i l c f Marine C a r r i e r s ) G.A. Adams ( C a n a d i a n T r a n s p o r t Co.) C L . J a c o b s ( S e a b o a r d S h i p p i n g Co. L t d . ) I . J . Haven ( S e a b o a r d S h i p p i n g Co. Ltd.), I . E . S u t h e r l a n d (Empire S h i p p i n g Co. L t d . ) John flay ( f l a p l e L e a f S h i p p i n g ) John P e a r s o n ( f o r m e r l y w i t h Seaspan) Thanks i s a l s o navigation), response the to  and K . C . , G r i f f i n  members o f t h e t h e s i s extend  t o H.E. B e l l  ( F e d e r a l Commerce and  f o r m a t e r i a l s they  a special  thanks  committee  t h e a u t h o r would a l s o  t o D r . T r e v o r D. Heaver,  S t u d i e s a t the U n i v e r s i t y  of B r i t i s h  t h e g u i d a n c e , m a t e r i a l s and t e c h n i c a l  during  provided i n  t c my r e q u e s t s f o r i n f o r m a t i o n . I n a d d i t i o n t o t h a n k i n g  Transportation for  extended  t h e r e s e a r c h i n g and w r i t i n g  of t h i s  expertise t h e s i s . ...  like  Chairman c f Columbia, he p r o v i d e d  1  1-  INTBODUCTION  Water . t r a n s p o r t a t i o n of people a  and goods has always  played  dominant r o l e i n Canadian h i s t o r y . I t was i n s t r u m e n t a l i n the  founding  and s e t t l i n g of Canada and has a l s o been  an  important  mode c f t r a n s p o r t a t i o n i n the development of Canada's import and export  trade.  In  fact,  on  s e v e r a l o c c a s i o n s i n the past 100  y e a r s , Canada has had a merchant marine t h a t  has  the f i v e l a r g e s t  the Canadian  ranks  i n the world. However, today  ranked  among fleet  as the f o r t y - t h i r d l a r g e s t i n the world and i s comparable  i n s i a e t o the n a t i o n a l f l e e t s  of  Iran,  Algeria,  Libya,  and  He x i cc.  1  Since  the  end  of  have depended upci» the  the Second World War Canadian s h i p p e r s  competitive  forces  that  traditionally  p r e v a i l i n i n t e r n a t i o n a l s h i p p i n g . This p r a c t i c e has w e l l served Canadian do  shippers  so,  i n the past and could o s t e n s i b l y c o n t i n u e t o  providing  However,  recent  these  competitive  political  and  forces  remain  economic t r e n d s a r e developing  which may s e r i o u s l y j e o p a r d i z e the degree of competition in international what  is  to  s h i p p i n g . I f such  come  then  Canada  intact.  events stands  are in  a  present  admonitions  of  most p r e c a r i o u s  p o s i t i o n , v u l n e r a b l e t o the v a g a r i e s of f o r e i g n governments  and  shipc*ners. , The  f o l l o w i n g s t a t i s t i c s exemplify t h i s high dependence o f  Canadian s h i p p e r s upon f o r e i g n - f l a g s h i p s ; 1) Canadian-flag 29.8  percent  tonnage. from  2  of  s h i p s <thcse r e g i s t e r e d i n Canada) Canada's  international  However, i f t r a d e with t h e United  the  data  then  Canadian-flag  carried  waterbourae trade by States  ship  is  excluded  participation  in  2  international percent. 2)  cargo  at  the  end  ships  registry)  consisted  involved  $2.5  of  i n deep-sea  Mllion  fleet  a  paltry  two-tenths  of  o f 1978 t h e C a n a d i a n merchant  fleet  1000  on  one  that  companies  (CP  fact,  Papachristidis  over  only  Canadian  f o u r o f which  to foreign flag  tonnage i s  Ships  with  were  has  annually  vessels.? s e a g o i n g merchant in  foreign  two l a r g e s t s h i p c w n i n g  thirty-eight  twenty-one)  out  registered  n e i t h e r o f Canada's  with  pay  c f t h e Canadian-owned  i n terms o f d e a d w e i g h t In  vessels  and  Canadian s h i p p e r s  bills  two-thirds  countries.  tons  (self-  trade.*  in freight  Fully  gross  263  of  I t i s estimated  4)  is  3  propelled  3)  trade  vessels,  and  any s h i p s u n d e r C a n a d i a n  regi stry.* The central if  objective question;  of this " Ihat  What  are  assistance  government's  policies  a  exist the are  i n Canada? arguments  the c o s t s  identifying  fleet?  characteristics  What  are  international  i n Canada  the  cf  and b e n e f i t s currently  shipping?  What  t o encourage t h e development  What h i n d e r a n c e s t o owning  a C a n a d i a n merchant  to society being  an  federal  ships  can t h e s e h i n d e r a n c e s be removed? What  f o r and a g a i n s t  are  measures,  t o a number o f i m p o r t a n t a n c i l l a r y  towards  deep-sea How  assistance  the  f o r encouraging t h e development o f  measure?  i f any, e x i s t  Canadian  measures  rise  the  appropriate  incentives,  i s to address  fleet"?  This guestion gives questions.  therefore,  f e d e r a l government  any, might be a p p r o p r i a t e  a Canadian deep-sea  of  thesis,  used  o f such in  a  other  are  m a r i n e ? What  venture? countries  What to  3  establish,  promote,  successful  would such measures be i f introduced  of these q u e s t i o n s thesis  1  protect  national  w i l l be discussed  during  fleets?  And  how  i n Canada? Many  the course  of  this  discussion.  This  paper  information  cn  consists  appropriate  of  shipping  a s s i s t a n c e measures most  and  four  main  (Chapters  II  s e c t i o n s ; background and  I I I ) , government  (Chapters IV,V and VI), the s e l e c t i o n of the  measures f o r Canada t o take  f i n a l l y the summary and c o n c l u s i o n s  (Chapter VII) , and  (Chapter V I I I ) ,  Chapter I I d e s c r i b e s the developments t h a t are o c c u r r i n g i n international Canada.  The  shipping present  a l s o he discussed different and  and state  in  considers  the  ramifications for  o f the world shipping  this  chapter  and  kinds o f s h i p p i n g o p e r a t i o n s ,  topics  markets such  will  as the  t e c h n o l o g i c a l advances,  ma j o r world t i a d e routes w i l l a l s o be examined. Chapter I I I  examines  the  pervasive  nature  of  Canadian  s h i p p i n g ; the groups i n v o l v e d , the major s h i p p i n g areas, and the nature  and  chapter  i n v e s t i g a t e s the r e g i s t r y of  are  composition  of  the cargoes c a r r i e d . F i n a l l y , ocean-going  vessels  that  i n v o l v e d i n the c a r r i a g e of Canadian t r a d e . , The  second  section,  dealing  with  measures to a s s i s t s h i p p i n g , commences chapter  essentially  with  possible  government  Chapter. IV., T h i s  generates a "shopping l i s t " o f a l t e r n a t i v e  measures that could be used t o e s t a b l i s h , promote, and a  this  national  deep-sea  fleet  with  an  emphasis placed  protect upon the  economic i m p l i c a t i o n s of the v a r i o u s a l t e r n a t i v e s . Chapter V examines the measures that governments  in  other  4  countries  c u r r e n t l y are using  t h e i r n a t i o n a l f l e e t s . I f the  to e s t a b l i s h , promote and  f e d e r a l government of Canada hopes  to encourage Canadian p a r t i c i p a t i o n then  it  mcst i n t r o d u c e  in  international  shipping  i n c e n t i v e s that are comparable t o those  o f f e r e d i n ether c o u n t r i e s . For t h i s reason, the construction  protect  assistance  programs  I t a l y , L i b e r i a , Panama, United  of  Brazil,  Kingdom and  operating  and  France, Germany,  the United  States  are  examined The  final  history  of  background  Canadian  i n c e n t i v e s and respect  to  shipping  subsidy  shipping.  merchant marine i s s u e against  Chapter  p o l i c y and  VI,  reviews  i n v e s t i g a t e s the  programs t h a t e x i s t i n t h i s country T h i s chapter a l s o d i s c u s s e s and  highlights  the  the tax with  the Canadian  arguments  for  and  a Canadian merchant marine.  Chapter presenting  VII  and  goes  is  the  core  chapter  of t h i s t h e s i s . A f t e r  e x p l a i n i n g the c r i t e r i a to be  appropriateness then  chapter.  c f the  various  used i n judging  a s s i s t a n c e measures, the  on to d i s c u s s the appropriateness  the  Chapter  of each i n d i v i d u a l  measure. The  f i n a l Chapter, Chapter V I I I , summarizes the  presented shipping federal  in  Chapter VII and  assistance government  measures  makes recommendations as t o which would  to i n t r o d u c e  development of a Canadian deep-sea DEFINITION OF  discussion  be  appropriate  for  i n the hope of encouraging  this  i s best study.  the  fleet.  -TEBHS  Before commencing with the i n i t i a l c h a p t e r s of t h i s it  the  to d e f i n e a few  b a s i c terras t h a t are used  thesis  throughout  5  An  appropriate assistance  adequate,  economically  reliable, later,  these  purpose  of  paper  will  be  discussed  the d e f i n i t i o n  Merchant  marine  g r o s s t o n s and  Another  that  traits  acceptable,  closely  t e r m , as used are  osned  will  o v e r on C a n a d i a n related  in this  paper,  ships operating  L a k e s and  are not c o n s i d e r e d  by  and  detail,  Transport  to s e l f  to  ships  7  "seagoing  shipowners  Canada  propelled  registry.  refers  Canada.'^ Host o f t h e  not  i n greater  term i s " C a n a d i a n d e e p - s e a  Canadian-based  Great  used  refer  by  <ie.  adaptable,  m a r i n e " c a n have a number o f meanings b u t f o r t h e  of t h i s  suffice.  1000  This  efficient,  that i s  i n Chapter V I I .  "Merchaat  will  measure i s d e f i n e d a s one  f l e e t . •? vessels  or r e g i s t e r e d i n  i n Canadian  inland  waters  S t . L a w r e n c e Seaway) o r f o r c o a s t a l  as p a r t  possess ocean-going  o f the deep-sea  fleet  because  trade  t h e y do  capabilities.  LIMITATIONS OF THI STUDY Material for t h i s journals,  newspapers,  shipping  and  personal  interviews.  first-hand subject  tests,  The  information  of a Canadian only  Fortunately  i t was  additional  drawn  from  several  sources;  Canada p u b l i c a t i o n s ,  assorted  v a r i o u s government d o c u m e n t s ,  i n t e n t o f t h e i n t e r v i e w s was  to  and  collect  cn s h i p o w n e r s ' v i e w p o i n t s c o n c e r n i n g t h e  deep-sea  a limited possible  of a Canadian  fleet.  Due  t o t i m e and  financial  number o f i n t e r v i e w s were c o n d u c t e d . tc  information  Canada p u b . l i c a t . i c n e n t i t l e d Development  was  Transport  economics  constraints  with  thesis  augment  the  interview  obtained  from  a recent Transport  Measures  to  Deep-Sea F l e e t  program  Encourage  the  Gradual  - Industry  Submissions.  6  This  publication contains  p a r t i e s involved of a deep-sea  with Canadian shipping  assistance  the  subject  programs of only the major  shipping  were examined i n t h i s t h e s i s .  F i n a l l y , as was only  concerning  with  stated  vessels  St., Lawrence t h i s study's  p r e v i o u s l y , t h i s t h e s i s i s concerned  possessing  c a p a b i l i t i e s . Vessels  ocean-going  that operate s o l e l y on the  Seaway,  or  equipment  and  Great Lakes  and  i n c o a s t a l trade are not i n c l u d e d i n  discussion.  In s p i t e of these l i m i t a t i o n s i t i s hoped that t h i s will on  major  fleet.  Government countries  b r i e f s submitted by some of the  provide  timely  and  relevant information  the p o s s i b l e measures t h a t the  and  thesis  recommendations  f e d e r a l government c o u l d  to encourage the development cf a Canadian deep-sea  fleet.  take  7  II  INTERNATIONAL SHIPPING  Shipping i s "the t r a n s p o r t a t i o n of goods by water" perhaps  the  w o r l d s most important  mode of t r a v e l . I t has  1  performed  by s h i p s i s twice as g r e a t as that c a r r i e d by a l l the  II the  r a i l w a y s , and  amount  expanded  sixfold,  exception  cf 1975.  There are concerned  n  has  kinds  and  with  transportation  increased  shipping that  subsequent  chapters.  of  shipping  deep-sea  is  and  presents  pertinent In  trade routes i n v o l v e d , and International  demand  and  but  shipping  of  this  to  the  this  of  the  thesis  is  chapter,  the  a  government  dynamic the  and  laws  of  discussed  in  nuances  of  will  cargoes  operations. competitive supply  and  i n t e r v e n t i o n . ..However, recent base of  developments  will  a f f e c t Canadian i n t e r e s t s i n the f u t u r e . Because of  t h e i r importance, to Canada, the e n t i r e chapter  world  background  i t works, the  the v a r i o u s types of is  the  the  issues  s h i p p i n g markets. These trends and  undoubtedly  has  with  events have begun to erode the t r a d i t i o n a l l y c o m p e t i t i v e the world  World  the c a r r i a g e of  describes  much  that has been r u l e d by free  Since  1  year  shipping;  i n t e r n a t i o n a l s h i p p i n g are examined - how  i n d u s t r y , one  ton-miles  performed  every  exports. T h i s chapter  information  and  in  2  primarily  deep-sea  done  airways put together. ,  shipping  and  many  seaborne imports of  of  work  been  that  War  transportation  is  estimated  world's roads,  "the  and  final  section  of  i s devoted to a d i s c u s s i o n o f these trends and how  a f f e c t the f o r m u l a t i o n of Canadian s h i p p i n g  JU T J J WOEIC FLEET AND  INTEBNATIQHAL BASKETS  policy.  this they  8  The  world  fleet  deadweight  tens  (accounting  for  carriers  fifty  totalled  This  3  percent  nearly  total  of  630  consisted  the  total  million  o f tankers  tonnage),  (twenty p e r c e n t ) , combination o i l / b u l k c a r r i e r s (ten p e r c e n t ) , tramp s h i p s  s p e c i a l purpose s h i p s The  rate  1978  (d.w.t.).  p e r c e n t ) , cargo l i n e r s and  in  can  ton-miles  (eight  (ten p e r c e n t ) ,  (two p e r c e n t ) .  world merchant f l e e t has been growing a t  as  bulk  be seen i n f i g u r e 2.1.  4  a  phenomenal  During the 1970s s h i p p i n g  performed i n c r e a s e d by about t e n percent  per annum.  World Seaborne Trade in MMMM ton-miles 18T W o r l d Seaborne T r a d e  1966  The  67  increase  technological  68  in  69  70  growth  advances  71  has  72  73  been  that  74  made  have  75  76  77  possible  recently  by  occurred  i n t e r n a t i o n a l s h i p p i n g . As s h i p s became l a r g e r , f a s t e r and specialized longer recorded  i t became economically  distances,  hence,  f e a s i b l e to ship l a r g e r  explaining  the in more loads  the dramatic i n c r e a s e i n  ton-miles.  A convenient way of c l a s s i f y i n g the  many  types  of  cargo  9  carried and  in  liner  i n t e r n a t i o n a l s h i p p i n g i s by way  categorization.  Bulk  cargoes  agricultural raw  of a bulk, tanker,  include  products,  materials carried  raw  materials,  grain  and  and f o r e s t products. The most  other  important  are i r o n ore and c o a l with the major t r a d e  routes being s i m i l a r f o r both commodities; the United S t a t e s and Canada t o Japan, A u s t r a l i a to Japan, West A f r i c a and Europe  (ircn  ere)  ( c o a l ) . Other raw  and  materials  manganese ore, s a l t , and commodity  with  Eastern  carried  to  to the r e s t of Europe  are  bauxite,  phosphates,  gypsum. G r a i n i s another important  bulk  most shipments o r i g i n a t i n g i n the g r a i n s u r p l u s  c o u n t r i e s cf the United S t a t e s , shipments  Europe  Brazil  find  Canada,  and  Australia.  These  markets i n Japan, Europe, I n d i a , China, and  Soviet Union. The  t h i r d c l a s s of bulk  forest  which account f o r nine percent of a l l seaborne  products  products  is  lumber  the and  tonnage c a r r i e d . Half of the f o r e s t product tonnage i s loaded i n the United S t a t e s and Scandanavia,  and  America,  summary  Europe,  and  commodities c a r r i e d The second liquid  bulk  A  g e n e r a l commodity  products.  comprise  destined of  for  these major bulk  Ey  far  group  is  tanker  cargo,  the most important l i q u i d  r e l a t e d petroleum  products.  In  fact,  over one-half the tonnage of the world  During the period 1966-1973 the seaborne t r a n s p o r t a t i o n (in  ton-miles)  declice in  oil  r e c e s s i o n cf 1973  North  i s presented i n appendix 1. ,  cemmcdity i s c i l and tankers  Japan.  is  increased tonnage and  by  carried  1974,  s t e a d i l y , at an average  250  percent. was  Although  experienced  or bulk oil  fleet. of  oil  a slight  during  the  o i l shipments have continued t o grow  r a t e of about s i x percent per annum. The  10  major  o i l e x p o r t i n g r e g i o n s are the Middle E a s t , South  and part of C e n t r a l A f r i c a destined  Fifty  f c r Europe twenty  United S t a t e s and twenty  percent  of  this  cargo  goods,  percent t o other r e g i o n s .  which i n c l u d e s mainly manufactured  These  dry  g e n e r a l cargo these  cargo  ships  cargoes  and  is  percent t o Japan, ten percent to the 5  The f i n a l g e n e r a l category of goods c a r r i e d are commodities,  America  dry  cargo  and i n t e r m e d i a t e  items are c a r r i e d on c o n t a i n e r s h i p s , small-sized  b u l k - c a r r i e r s . , Although  only account f o r ten percent of seaborne  they are important because they account f o r  tonnage  approximately  two-  t h i r d s c f the value cf a l l i n t e r n a t i o n a l shipments. , i i  J J J NATIONALITY AND The  shipping  industry  framework of law and Traditionally  BECISTBATION OF SHIPS  it  has  no  public policy  single,  f o r m a l , coherent  to c o n t r o l  i t s operations.*  has been the r e s p o n s i b i l i t y of the country i n  which the s h i p i s r e g i s t e r e d , t o determine the r u l e s under which s h i p s w i l l operate. ...to  set  up  n a t i o n a l i t y as Basically,  such its  each  Each  country  has  prerequisites concept  of  The  for  undisputed  right  the assumption  of i t s  national  welfare  laws  rules  shall  govern  of  the  respective  country.  8  and  and so  s u r p r i s i n g that a l a r g e d i f f e r e n c e i n r e g i s t r a t i o n exists the  from  so-called  Liberia,  and Singapore  who  their  i t  military is  registry"  countries,  such  not  requirements  country t o country. At one end of the spectrum "open  7  concerning the r e g i s t r a t i o n of s h i p s are  o f t e n c l o s e l y r e l a t e d t o the economic, p o l i t i c a l , interests  dictates."  s o v e r e i g n s t a t e has. the r i g h t t o determine  can f l y i t s n a t i o n a l f l a g , and what operations.  "the  as  are  Panama,  where the r e g i s t r a t i o n r u l e s are few. In  11  L i b e r i a , almost any v e s s e l i s e l i g i b l e t o be r e g i s t e r e d i n  that  country; a) seagoing vessels, regardless of tonnage, wherever b u i l t , owned by a c i t i z e n of L i b e r i a or of any f o r e i g n country. The terms " c i t i z e n " and " n a t i o n a l " shall include c o r p o r a t i o n s , p a r t n e r s h i p s and a s s o c i a t i o n of individuals. b) any v e s s e l of twenty net tons or over engaged i n trading cn the i n l a n d water o f L i b e r i a or between ports i n L i b e r i a . 9  In Panama ships t h a t are Panamanian  citizens  "wholly  or  partly  or of f o r e i g n e r s d o m i c i l e d  with more than f i v e years o f r e s i d e n c e registration residence In  i n t h a t country.V°  half  ships  suffice.*  cf  while 1  in  percentage few  i n the B e p u b l i e  Needless  to  say  establishing  the  world's  in  other  maritime c o u n t r i e s ,  a p r e r e q u i s i t e f o r the r e g i s t r a t i o n countries  partial  ownership  will  be  nationals  others  there  i s the  stipulation  that  a  certain  of the crew or o f f i c e r s must be n a t i o n a l s . I n /  vessels.  ft c l o s e r  restricted  to  only a  domestically  1 2  examination  of  the  world f l e e t emphasizes the  importance o f the s o - c a l l e d " f l a g s of convenience" c o u n t r i e s international  shipping.  Taken  registry countries of L i b e r i a , constitute  of  I n some c o u n t r i e s there are no such requirements  countries i s national r e g i s t r y  constructed  100 percent  I n I t a l y , Hexico, Peru, the OSSB, and Poland t h e r e i s  country.  while  of  t h e r e i n " are e l i g i b l e f o r  a r e g i s t r a t i o n reguirement that t h e crew must that  property  i n Panama i s a mere f o r m a l i t y .  n a t i o n a l ownership i s s t i l l of  the  collectively Panama,  Singapore  approximately t h i r t y percent  the world f l e e t and f i f t y - f o u r  percent  the  four and  in  openCyprus,  of the t o t a l tonnage of  of the t o t a l world  f l e e t . Three of these c o u n t r i e s , L i b e r i a (1) ,  Panama  tanker  (6) and  12  Singapore world.  (13)  r a n k among the  Flags  cf  top  convenience  operators  cf various  examined  in  fifteen  offer  nationalities  greater  detail  in  national fleets  many  a  the  to  ship  advantages  are  subsequent s e c t i o n i n  this  and  advantages  in  these  chapter. The  most i m p o r t a n t  tonnage United  are,  can  Italy, be  down the Ji  decreasing  order,  the  Federation  seen i n Appenix list  and  2,  shipping,  three  either  USSR,  a  United  ship  and  is  in forty-third  b a s i c ways t h a t  as  the  ECONOMICS OF  SEA  a company  operator,  as  registered  Japan, Greece,  the Canadian f l e e t  THE  of  Germany, S p a i n ,  c u r r e n t l y stands  SHIPPING OPERATIONS AND There a r e  of  i n terms  Liberia,  Kingdom, Norway, Panama, t h e  France, &s  in  national fleets  the  States,  Singapore. considerably  place.  TRANSPORTATION may  be  engaged i n  a shipowner or  as  an  operator-owner. As  a  ship  transporting specified of t h r e e  operator,  shippers*  i n the types,  goods  contract daily  contributions,  overtime),  voyage  costs  dues, loading/unloading the  ship.  incurred name result of  suggests of  are  cost  the  mostly  i f  at  revenue  rates  payroll  taxes,  crew  and  bunkerage, and  lease  are  of a semi-fixed  variable  they  may  extend  hope  to  costs  be  terms may  food,  and  and  nature costs, are  lease fifteen  the  canal  s u c c e s s f u l and  use  and  are  as  the  direct  payments or  be  social  payments f o r t h e  Voyage  to  by  leave,  harbour  and  ship s a i l s .  wages,  paid  undertaken. F i n a l l y ,  n a t u r e and  Operators,  market  (i.e.,  (i.e.,  costs  a voyage b e i n g  to  earns  costs  fees)  whether o r n o t  a fixed  years.  Daily  company  between them. E x p e n s e s i n c u r r e d  running  security  of  the  are  twenty earn  a  13  markets with care s i n c e the  p i of i t, must chocse t h e i r many  sectors  other  mode c f t r a n s p o r t a t i o n , i s a derived  prof i ts  a r e very  rates  in  v o l a t i l e . Water t r a n s p o r t a t i o n . l i k e any demand, and  shipping  f o l l o w a s i m i l a r trend t o t h a t e x h i b i t e d  w i l l generally  by t i e i n d u s t r y i t i s s e r v i c i n g . She  second  shipowner. and  type  of  involvement  Depending  upon  shipowner  may  depreciation,  than  recognized.  the have  nature will  a  of be  ship  operators  (lessee)•  the l e a s e the only expenses a  of  a  capital  nature  (i.e.,  i n t e r e s t payments, taxes on p r o f i t s , and p o s s i b l y  repayments  to  service  With s h i p c o n s t r u c t i o n  million  (depending  the debt costs  then  ranging  greater  a profit i s from  $ 1 2 to  on the s i z e and type of vessel)  common p r a c t i c e f o r shipowners to secure leases  i s as  premiums). I f the lease payments r e c e i v e d a r e  the  $100  shipping  The shipowner, u s u a l l y l e a s e s or c h a r t e r s out s h i p s ,  r e c e i v e s l e a s e payments from the  insurance  in  from s h i p operators  ten  to  it is  fifteen  year  even before  c o n s t r u c t i o n o f the ship  commences. S h i p b u i l d i n g p r i c e s are very  v o l a t i l e and a shipowner  who times h i s purchase well can make tremendous p r o f i t s well-established The  third  second-hand market that e x i s t s f o r s h i p s . option  f o r engaging  in  shipping  shipowner-operator. In t h i s case the f i r m owning t h e operators shipping  i n the  i t , thus  i s as a ship  also  no c h a r t e r payments ever change hands. The  f i r m earns revenue i n the form o f r a t e s charged f o r the  c a r r i a g e of goods and through the possess. , any  revenues  sale  are o f f s e t  of  any  ships  by d a i l y running  i t may expenses,  voyage expenses, and c a p i t a l expenses. The  previous  discussion i s only a  general  description  of  how  shipping  operations  i s determined by between  the  the  two  tarebeat  the  ship operator  type  of  a c t u a l l y pays what c o s t s  charter  p a r t i e s , , The  1) bareboat c h a r t e r s , the  f u n c t i o n * Who  contract  three  types  shipowner  (lessee) who  exists  of c h a r t e r s  are;  3 ) voyage c h a r t e r s . In  2) time c h a r t e r s and  c h a r t e r the  that  (lessor) l e a s e s the  i s then r e s p o n s i b l e  vessel to  for  providing  the crew, f u e l , s u p p l i e s , and the s u p e r v i s i o n of the v e s s e l . time c h a r t e r i s an arrangement whereby cargo space f o r a s p e c i f i e d p e r i o d cargc  carrying  food,  expenses.  b e n e f i t s and  insurance.  i s the voyage c h a r t e r for  a  specified  of the  S.A.  voyage  the  of time and  is  leasing  pays the f u e l  and  shipowner pays the crew's wages,  The  l a s t type of c h a r t e r agreement  between  two  assumes  no  leases  the  ship  p o r t s . In these kind of responsibility  for  the  ship.  Lawrence in h i s book I n t e r n a t i o n a l Sea T r a n s p o r t ;  Years Ahead c i t e s three engaged.*  lessee  where the s h i p operator  arrangements the operator operation  The  the  The  types of s e r v i c e i n which a s h i p may  These c l a s s e s are by no  3  The  three  be  means mutually e x c l u s i v e  demarcation between the c l a s s e s i s  determine.  The  sometimes  and  difficult  to  c l a s s e s of s e r v i c e are tramp, l i n e r ,  and  industrial. Tramp s e r v i c e s can time  or  voyage  customer and  be defined  charter  basis  c a r r y i n g one  or two  as  "carrying  u s u a l l y c a t e r i n g to one  to  be  moved  at  the  time. . Tramp  d i f f e r e n t i a t e d from l i n e r s e r v i c e s by the irregular  in  nature  and  the  on  a  single  commodities at a time."* * Tramp  s e r v i c e s g e n e r a l l y " f o l l o w the a c t i o n " and needs  cargoes  routes  c a r r y whatever services fact  that  s e r v i c e d may  are they  cargo best are  frequently  15  change. Liner service i s " t r a f f i c published  designated  the cargo of many s h i p p e r s  b a s i s whether or not the s h i p i s f u l l y  The  third  category  to a  and  sail  on  1,15  a  loaded.,  of services offered i s i n d u s t r i a l i z e d  s e r v i c e s . T h i s r e f e r s to the s i t u a t i o n where also  ports  schedule with a freguency of a l e a s t once a month.  Liner services carry regular  between  the  shipowner i s  the owner of the cargo being c a r r i e d . T h i s type of s e r v i c e  i s most common with l a r g e  resource  companies,  especially  the  major o i l companies., To s e r v i c e the many d i f f e r e n t kinds o f markets, there many  different  types  of  ships.  exist  These i n c l u d e tankers,  c a r r i e r s , r e f r i g e r a t o r ships, vehicle c a r r i e r s , container  bulkships,  combination s h i p s , and other s p e c i a l i z e d v e s s e l s . .,- Tankers previously  discussed  i n some  l a r g e s t type of v e s s e l predominant  cargo  and  carried  can by  however, other l i g u i d cargoes chemicals,liguid may  fee  general  nitrogen  be  a l r e a d y . , They  over  480,000  a r e the  d.w. t« , The  these kinds of v e s s e l s i s o i l ,  may  also  be  carried,  such  gas, and even wine. B u l k - c a r r i e r  as  ships  purpose, o r e c a r r i e r s , c o l l i e r s , c a r c a r r i e r s ,  c r e / c i l , and o r e / b u l k / o i l types.  detail  were  (OB0),  or  other  specialized  vessel  F i n a l l y , there e x i s t s a myriad of v e s s e l types t h a t make  up t h e f r e i g h t e r c l a s s i f i c a t i o n . These i n c l u d e ; general ships,  refrigerator  (fio.Bc)  vessels,  carriers.  A  ships,  barge  fourth  s h i p s and support  carriers,  class  merchant s p e c i a l purpose ships.  container  ships  and  timber  purpose  roll-on roll-off and  newprint  might a l s o be added to i n c l u d e non-  ships  such  as  ice-breakers,  survey  16  The  last  t o p i c t o be examined i n t h i s s e c t i o n on s h i p p i n g  o p e r a t i o n s , i s t h a t of l i n e r conferences, , A l i n e r conference "  an  organization  s e r v i c e s cn a given members."  16  Many  whereby sea  a number of shipowners o f f e r  route  on  conditions  conferences c o - o r d i n a t e the s a i l i n g  of t h e i r  members, a s s i g n ports of c a l l , handle  monitor  business  practices  in  that t r a d e .  over three hundred such conferences t h a t act manner,  fixing  rates  and  these  liner  conferences  However,  monopolistic  fashion  charging  by  schedules  a  cartel-like  behave  bear.  in  true  s i n c e t h e r e e x i s t s c o m p e t i t i o n from  The  attractive  feature  catering  to  the  trades  and  Today, t h e r e are  1 7  in  cannot  the  complaints,  and other  tramp  modes  of  of the c o n f e r e n c e s i s  t h a t they o f f e r r e g u l a r and e f f i c i e n t s e r v i c e s at thereby  their  what the cargo w i l l  v e s s e l s , other c o n f e r e n c e s , owner-operators transportation.  agreed  is  that  fixed  require  rates, reliable  transportation. 4. MCEEFN TBENES AND  DEVELOPHENTS  The Transport Canada p u b l i c a t i o n , Canada  provides  an  excellent  developments t h a t are i)technological, convenience,  occurring  ii)  iv)flag  UNCTAD'  A  Shipping  Policy  for  summary of the major t r e n d s and in  shipping.  Liner  Code,  These  include;  i i i ) flags  d i s c r i m i n a t i o n and v) the r i s e of  of  national  fleets.  Aa Technological Ships  today  are  they were ten years ago.  l a r g e r , f a s t e r and  more s p e c i a l i z e d  During the decade 1962-1971 the  than  average  17  s i z e c f new o i l tankers i n c r e a s e d almost f i v e f o l d , d.w.t.  to  130,000  were around  50,000  approaching  the  rapid increase  from  28,000  d.w.t. ,During the 1960s the l a r g e s t  tankers  d.w.t.  500,000  in  ship  Today,  the  new  supertankers  are  d.w.t.. mark, a t e n f o l d i n c r e a s e . The size  is  most  apparent  with  tanker  v e s s e l s , however, s i m i l a r s t a t i s t i c s show t h a t over the same ten year  p e r i o d , the average  dry bulk c a r r i e r i n c r e a s e d from  20,000  d.w.t. t o 55,000 d.w.t. Today, bulk c a r r i e r s may be as l a r g e  as  150,000 d.w.t., although the more common s i z e i s i n the range o f 60,000-70,000 d. w.t. Another form  i n c r e a s e i n c a r r y i n g c a p a c i t y has come about  of f a s t e r s h i p s . In 1949, the average speed  fourteen  knots,  which  has  has  of  resulted  in  faster  work  they  are  to  be  in  two  respects,  the  designed t o perform, and the use o f  automated equipment. Today, s p e c i a l v e s s e l s e x i s t cars,  voyage  i n c r e a s e d s h i p p i n g c a p a c i t y . V e s s e l s are also  more s p e c i a l i z e d than they used nature  of a tanker was  twenty years l a t e r i t had i n c r e a s e d t o s i x t e e n  knots. The i n c r e a s e i n speed, times  i n the  for  carrying  lumber, c o a l , l i q u i d n i t r o g e n , whereas before these  items  would have been c a r r i e d by g e n e r a l cargo v e s s e l s . The growth container  traffic  is  another  s h i p p i n g techniques. Today, a carrying the  2,000  large  of the new s p e c i a l i z e d  containership  operations  operations  by  a  magnitude  of  mechanized  of  f i v e . ,..  are a l s o becoming more automated. /The most  obvious cases of t h i s are the new computer-monitored systems,  capable  c o n t a i n e r s and c o s t i n g $50 m i l l i o n , can guicken  loading/unloading  Shipping  example  of  handling  equipment,  p l a n n i n g , and advanced sonar and radar  propulsion  computerized  systems.  route  18  The  increase  undoubtedly "Can  Canadian  the  answer  in vessel  affect ports is  Canadian  "no"  rates  then  United  "to  development  international to  development?"  trade  investigate  of  would  handling  the  r e s u l t i n higher  i n higher p r i c e s  for  Conference consider  of  role  means  of  l e s s developed  policies."*  the  f o r T r a d e and D e v e l o p m e n t  8  that  accelerating  states  the  through  revised  A s p e c i a l c o m m i t t e e was  formed  shipping  could  play  towards the  a t t a i n m e n t o f t h i s o b j e c t i v e . One o f t h e p r o p o s a l s s u g g e s t e d this  committee  was  the  a d o p t e d by UNCTAD i n A p r i l three  If  m i g h t be b y p a s s e d i n  capable  and u l t i m a t e l y  question i s  Code  Nations  (UNCTAD) was f o r m e d economic  ports  will  consumers. ,  E, The UNCTAD L i n e r The  ports  rapid  Such a s c e n a r i o  f o r Canadian s h i p p e r s  Canadian  the  Canadian  American  and l a r g e r s h i p s .  and s p e c i a l i z a t i o n  i n t e r e s t s . The p r i m a r y  keep pace w i t h  favour o f modernized newer,  s i z e , speed  main o b j e c t i v e s  Code o f C o n d u c t f o r L i n e r 1974  but  not  yet  by  Conferences  ratified.*  The  9  o f t h e Code a r e ;  1) to f a c i l i t a t e seaborne t r a d e .  the orderly  expansion  of world  2) t o s t i m u l a t e t h e development of regular and efficient l i n e r s e r v i c e adequate f o r the reguirements c f t h e t r a d e c o n c e r n e d and 3) to ensure a balance of interests between s u p p l i e r s and u s e r s o f l i n e r s h i p p i n g s e r v i c e s . ? 0  One o f t h e main f e a t u r e s 20 in  rule  that  would  the following  carried  by  apportion  o f t h e Code i s t h e p r o p o s e d the carriage  of l i n e r  manner; f o r t y p e r c e n t o f t h e t o n n a g e  the f l a g  ships  o f each o f t h e t r a d i n g  trade  40-40cargo  would  be  c o u n t r i e s and  19  the remaining twenty percent (vessels  flying  or importing  the f l a g of a country  2 1  interests.  operations  cf the  designated Code  p o l i c i e s and  r  cross-traders  other  than the  exporting  The  Code  would  adversely  severely  very  dependent.  Without  a  force  affect  restrict  t r a d i t i o n a l c r o s s - t r a d i n g nations  upon  national  which  fleet,  of  Canada t o s e r i o u s l y r e - e v a l u a t e  the  the  or  Liner  i t s shipping  practices.  f l a g s Cf Convenience  Torty percent the  for  Canadian c a r r i e r s , the implementation  would  C  left  the ONCIftD L i n e r Code would  Canadian  is  be  country).  If passed,  Canada  would  flags  of i n t e r n a t i o n a l s h i p p i n g i s conducted  under  of s o - c a l l e d "convenience c o u n t r i e s " which have been  defined as c o u n t r i e s  where;  1) r e g i s t r y allows ownership and/or c o n t r o l by noncitizens 2) access to r e g i s t r y i s easy. 3) r e c e i p t s from registry constitute a substantial component of the n a t i o n a l income and balance of payments H)taxes cn income from shipping are low or nonexistent. 5) manning of ships by non-nationals is freely permitted. 6) the country has neither the power or the administratve machinery effectively to impose any n a t i o n a l or i n t e r n a t i o n a l r e g u l a t i o n . 2 2  The  nest common f l a g  of convenience c o u n t r i e s are ( i n t e r n a t i o n a l  ranking  indicated  Singapore  (13), Cyprus  the  Bahamas  (88).  in  brackets),  (26), Bermuda (27),  The  majority  these c o u n t r i e s are o i l tankers, In the  1960s i t was  Liberia  estimated  of the  (1), Cayman  Panama Islands  and  vessels r e g i s t e r e d i n  f o l l o w e d next by bulk  that  (5),  approximately  carriers.  seventy-five  20  percent  of  American  the  and  flag  Greek  statistics  exist  convenience  fleets,  of  interests.  that  Rhy are f l a g o f foreign  convenience  reveal  The  who  today  of  currency  establishing  a  company  can  repatriated.  and  head  no  reliable  the  flag,  countries  so  attractive  of  to  prime a t t r a c t i o n s seem t o be; i ) easy  taxes, i i i )  exchange,  owned by  owns  r e g i s t r y , i i ) f i n a n c i a l b e n e f i t s a r i s i n g from avoidance  were  Unfortunately  convenience  shipowners?  vessels  the  deferral  or  lower c r e w i n g c o s t s , i v ) easy f o r e i g n  v)  lax  incorporation  office  in  defer  taxation  on  These  tax-deferred  procedures.  By  an ' o p e n - r e g i s t r y * c o u n t r y , a profits  until  they  are  p r o f i t s i n the meantime can be  r e i n v e s t e d i n s h i p p i n g o p e r a t i o n s and a r e , i n a s e n s e , i n t e r e s t f r e e l o a n s from the government. Traditionally, provided  Canadian  tonnage-, their  23  the  flag  shippers  of  (i.e.,  passed  that  may  have low-cost  jeopardize  see p r e v i o u s d i s c u s s i o n of the UNCTAD  L i n e r Code).,The g u e s t i o n a r i s e s , are  vessels  with a r e l i a b l e s o u r c e o f  However, t r e n d s are d e v e l o p i n g  existence  measures  convenience  that  "What  is  Canada  to  do  i f  i n h i b i t the r e g i s t r a t i o n of f l a g o f  convenience v e s s e l s ? "  p. F l a g D i s c r i m i n a t i o n Flag pressures  discrimination exerted  t h e i r own f l a g , which  norsally  by  refers  to  a  variety  of  acts  and  government t o d i r e c t cargoes t o s h i p s of  regardless govern  d i s c r i m i n a t i o n p r a c t i c e s can  of the be  the  commercial  considerations  routing  of  cargoes. *  examined  under  2  Flag  f i v e . general  21  groupings,  those  related  to the  apportionment of t r a d e ,  i n v o l v i n g access to pert f a c i l i t i e s , cargo, those a f f e c t i n g measures that f a v c u r Flag of trade  trade  the  those  those that govern a c c e s s t o  financing  and  various  usuage of n a t i o n a l f l a g  indirect  vessels,  2 5  d i s c r i m i n a t i o n measures that a f f e c t the apportionment include b i l a t e r a l agreements, the u n i l a t e r a l a l l o c a t i o n  of cargoes to n a t i o n a l - f l a g c a r r i e r s , and  requirement  that  government cargoes be c a r r i e d i n n a t i o n a l bottoms. Many of  these  measures are described Practices  the  i n f u r t h e r d e t a i l i n chapter  related  to  port  IV.  accessibility  include  d i s c r i m i n a t o r y port charges, and s p e c i a l f o r e i g n - f l a g taxes dues.  Discriminatory  f a c i l i t i e s and services.? berthing  p r i c e s may  s e r v i c e s such as harbour, l i g h t h o u s e  N a t i o n a l - f l a g s v e s s e l s may  6  assignments and  access  customs  to cargo may  that  of  enjoy  port  pilotage  preferential  clearance.  of these measures has  government  cargoes.,, Other  already  been  countries  may  exclude  foreign  through  the  falling  i n t o t h i s grouping i n c l u d e r u l e s governing the d e l i v e r y  of  cargo  ships  also  and  of  be r e s t r i c t e d e i t h e r wholly or i n part  to n a t i o n a l - f l a g v e s s e l s . One discussed,  a l s o e x i s t f o r the use  and  issuance  (there  transportation), national imposition  from competing f o r c e r t a i n commodities,  may  be  cargo  carriers of  of  a  extra  import  licenses.  differential pooling  percentage  Other  rates  requirements of  the  d u t i e s on imports not  regulation  for (  inland  guaranteeing  traffic),  and  the  using n a t i o n a l - f l a g  carriers., In the f o u r t h grouping, p r a c t i c e s concerning are  p r o v i s i o n s that extend insurance  concessions  trade to  finance, national-  22  flag  vessels,  currency  restrictions  s p e c i a l tax c o n c e s s i o n s f o r  national  s p e c i a l t a x inducements t o use Indirect  measures  and  exchange  shipping  controls,  companies,  and  n a t i o n a l - f l a g vessels.,,  i n c l u d e government p r e s s u r e r a t h e r  d i r e c t r e g u l a t i o n s . In some c o u n t r i e s Thailand  and  Taiwan)  exports  (Columbia,  are  supposed  South  than  Korea,  to be s h i p p e d i n  n a t i o n a l v e s s e l s on a c . i . f . b a s i s , w h i l e i m p o r t s a r e h a n d l e d an f.o.b. b a s i s . businesses  T h i s ensures t h a t  2 7  control  the  routing  domestically  of  cargo.  incorporated  Another  measure i s the e s t a b l i s h m e n t of a government agency cargo r o u t i n g and A  study  indirect  to  control  transportation.  done by P h i l l i p F r a n k l i n , Economic Impact of  D i s c r i m i n a t i o n e s t i m a t e d t h a t 20-2 5 p e r c e n t of the g e n e r a l tonnage, 10-12 of  the  on  p e r c e n t of the dry bulk tonnage, and  2-3  Flag cargo  percent  world's petroleum p r o d u c t s were a l l o c a t e d through cargo  allocation estimated  prodeduces that  favouring  such  the  national  flag. . I t  p r a c t i c e s have r e s u l t e d i n e x t r a  is  shipping  c o s t s of $500 m i l l i o n to $1 b i l l i o n . , Another study done by S . f i . H i l l flag  discrimination  upon  2 8  Canadian  examined the i n t e r e s t s . The  effects  s t u d y makes  mention of s e v e r a l i n c i d e n t s where Canadian s h i p o p e r a t o r s precluded  from  carrying  of  were  c e r t a i n cargoes t o or from p a r t i c u l a r  c o u n t r i e s . Flag d i s c r i m i n a t i o n  is  in  direct  opposition  with  current  policy  which  advocates  free  Canadian  competition, it  Canada should be concerned w i t h t h i s problem  restricts  major  the  problem  discourage  shipping  or  availability  faced combat  by  Canada flag  of is  since  cross-trader services. how  the  discrimination  government p r a c t i c e s . , In  The can k  23  Shipping  Policy  interds  to  interests  introduce from  accomplished  E  The  8i  In  for Canada  recent  particular  there  national  groups;  1976  the  20.6  million  twenty-five  Canadian the  countries  and  This trend i s  are  Canadian  is  to  be  obvious  among  Economic A s s i s t a n c e  and  3 0  over  2.5  growth.  doubled  was  million  countries  expected 1976  tons  1.1  Between  to  of  1980.  In  Canadian over  the  1966  and  9.4  to  t o expand a  E a s t Germay.  carried  Hungary,  i t s tonnage f r o m  COMECON c o u n t r i e s c a r r y i n g and  Romania,  E a s t Germany. Of t h e s e  the f a s t e s t  more t h a n  g.r.t.  Bulgaria,  t h e USSR and  c a r g o were P o l a n d  CCMECON  this  the C o u n c i l of Mutual  fleet  Other  how  protect  been a d r a m a t i c e x p a n s i o n i n  percent over the p e r i o d  ships carried exports.  has  fleets.  experienced  Soviet  Just  would  government  c o u n t r i e s and t h e d e v e l o p i n g n a t i o n s . _  CGHECGN  has  that  the  National Fleets  Czechoslovakia, Poland, U.S.S.B.  that  t o be s e e n . ,  years  (COMECON) a l l i a n c e The  practices.,  R i s e Cf The  government-backed two  legislation  such  remains  i t i s stated  2 9  further  1977  Soviet  imports  and  200,000 t e n s o f  Taken  collectively  percent of Canadian  imports  2 percent cf i t s exports. The  also  nationally-backed fleets  active  in  the  of Y u g o s l a v i a  transportation  of  and  Canadian  China  are  imports  and  exports. Eecause cover  the  expenses  government-backed of  a  capital  fleets  nature  are they  undercut  the c o m p e t i t i o n of o t h e r t r a d i t i o n a l  T h i s has  enabled  these state-backed f l e e t s  not  required  to.  are often able to maritime  to secure  nations.  significant  24  portions  of t r a f f i c  of c o n s t e r n a t i o n The  to other  major  government  is  cn c e r t a i n routes maritime  question "Should  to  be  which has become a source  nations,, addressed  the  Canadian  we continue to r e l y on Soviet and other  CCHECON c o u n t r i e s ' v e s s e l s to the extent guestion  by  t h a t we  now  do?" The  i s not an easy one t o answer and the t r a d e - o f f seems t o  te between n a t i c n a l s e c u r i t y and a cheap source of s h i p p i n g . . The  development of n a t i o n a l f l e e t s i s not c o n f i n e d  of  the Soviet Onion and the Eastern  the  South  American  Columbia),  India,  countries and  some  European c o u n t r i e s . Host of  (especially  Brazil,  these  own., I n  and  some  attempts a r e being f o s t e r e d by f l a g d i s c r i m i n a t i o n  p r a c t i c e s , government ownership, and s u b s i d i e s . These measures are examined  in  implications  increase  of  the  s i m i l a r t o those discussed beinc  Peru,  of the A s i a t i c c o u n t r i e s a r e a l s o  attempting to e s t a b l i s h n a t i o n a l f l e e t s o f t h e i r cases  t o those  greater in  detail  in  assistance  chapter  V, , The  the state-backed f l e e t s are  e a r l i e r ; Canadian s h i p o p e r a t o r s  are  excluded from competing i n p a r t i c u l a r markets, and c r o s s -  t r a d e r s are being  sgueezed out of these markets.  These a r e the trends shipping.  and developments that are o c c u r r i n g i n  Undoubtedly they w i l l have a profound  future formulation  of Canadian s h i p p i n g p o l i c y .  affect  on  the  25  I I I . THE Canada miles) and water  has  SHIPPING INDOSTBY IN CANADA  one  of the  world's longest c o a s t l i n e s (36,000  i s a l s o endowed with perhaps the world's best  transportation  systems  Lawrence Seaway). In terms of tenth  in  the  world.'*  And  s t a t i s t i c s , Canada only  has  fleet  What  in  the  world.  (the  Great  seaborne  forty-third  f a c t o r s can  small  f a c t o r s might be  cited  as  the  Canada  these r a t h e r  ranks  national relatively  fleet?  explanations..  First,  shipping  p o l i c y d e c i s i o n s t h a t occurred  the  past. Second, i t i s p o s s i b l e t h a t the  the  n a t i o n a l f l e e t do Eoth  these  statistics  no r e v e a l the e n t i r e s t o r y .  factors  are  examined  in  t h i s chapter.  This  major types of Canadian  shipping,  cargoes  markets  the  carried,  i n v o l v e d . The a general ore  discover,  the  Back  serviced,  and  v a r i o u s groups that are  presence  in  deep-sea  As we  for ,  shall  shipping  is  more s i g n i f i c a n t than the s t a t i s t i c s suggest,  REVIEW OF CANADIAN SHIPPING HISTORY in  the  nineteenth  century  , before  the steamship, Canadian ships were considered the  companies  involved  or another , with Canadian s h i p p i n g . Canadian  the  s e c t i o n to t h i s chapter i s reserved  d i s c u s s i o n cn the  considerably ii,BRIEF  the  concluding  aspect  in  regarding  chapter a l s o reviews the  in  the  s i z e of the c u r r e n t Canadian f l e e t might be a t t r i b u t e d t o  h i s t o r i c a l events and  in  St.  impressive  largest  e x p l a i n the  i n s i g n i f i c a n t s i z e of the Canadian n a t i o n a l Two  and  tonnage,  yet d e s p i t e the  Lakes  inland  world.  constructing  Throughout the H a r i t i m e s ,  v e s s e l s to  be  used  for  the i n v e n t i o n of  among  shipyards  fishing  and  the  finest  were b u s i l y commercial  26  trading. to  However,  Canadian  steel  busy  Canadian  * e r e now  quiet.  It  the  was  Britain;  ships  outbreak  and  of  months  government o f f i c i a l s ,  were  in  program.  ships constructed  under  the  Canadian  auspices  t h e war  wartime  before Canadian The  new was  the  Marine  this  involved  War  going fleet  o u t of  consisted  t i m e World in  War  shipping and  effort,  o f t h e war,  was  ranked  Park  Orders  especially  freighters  from  between Canadian  2  humming,  shipbuilding  program  program  were t o  government  be r u n  through  the  L t d . , (CGMB) . ,  of  its  b u s i n e s s i n 1936.  By  I I . The and  fleet  was  government  was  active  the P a r k  ships.  once  again  vessels  deep-sea  established  to supervise  Steamship  as h a v i n g t h e f o u r t h  controlled largest  150 s h i p s and  fleet  were  service. the  Company  s h i p s under C a n a d i a n r e g i s t r y . ,By  Steamships  the  again provided  many G r e a t L a k e s  put i n t o  vessels  19 39,  o f a mere t w e n t y - n i n e  and i n 1942  to a d m i n i s t e r  end  fleet.,  many  Time S h i p p i n g L i m i t e d  formed  the  and a c c o r d i n g l y s o l d  modified  shipbuilding  provided  the shipyards  under t h i s federal  so  t o Britain.'»  comprehensive  next s t i m u l u s f o r t h e C a n a d i a n  reguisiticned, The  of  once  unable t o maintain i t s  fleet  deep-sea  delivered  t o compete  shipyards  many c o u n t r i e s , forty-two  established  n o t hope  I that  end  t h e CGMM f o u n d i t s e l f  eventually  by t h e war, became  a  Government M e r c h a n t  after large  19 17,  well  deep-sea  d e t e r m i n e d t o keep  introduced The  War  of Canadian  twelve tons  a  could  World  i n from  10,000  Without  n a t i o n s . The  flooded  "Within  o f t h e s t e a m s h i p p u t an  shipyards  f o r the r e b u i l d i n g  new  2,000  supremacy.  t h e more i n d u s t r i a l i z e d  impetus for  shipbuilding  industry,  against  the i n t r o d u c t i o n  the  Canada  i n the world.  27  after  the  war,  established.  Its  measures  which  by  permanent  basis.V  Steamship  Company  the  mandate  was  the  to  fleet  After  3  Canadian  was  Maritime "determine  could  1948,  Commission and  was  implement  best be e s t a b l i s h e d on a  what  remained  of  the  Park  i n c o r p o r a t e d i n t o the Canadian Maritime  Commission. A  buoyant  shipping  market,  experienced  after  the  managed to keep the l a r g e Canadian war-time f l e e t f a i r l y however, the  went  into  a  slump  i n t r o d u c e the Replacement Plan sell  used  be  programs  (1949) which  to  purchase  enabled  owners  C a n a d i a n - b u i l t and r e g i s t e r e d  transferred lasted  to  until  Transfer  allowed  government  agreement.*  By  had  been  transferred  under  1961 the Canadian merchant  marine  but a shadow c f i t s former size,.  however.  marine  did  not  In 1969, the Canadian f l e e t had f a l l e n  stop  1975, and as of A p r i l , forty-third At  vessels.  largest national  breakdown  of  place  1980 the Canadian f l e e t was ranked fleet.  as  3  the end o f 1978 the Canadian merchant f l e e t A  there,  to t w e n t y - s i x t h  place in terms of n a t i o n a l tonnage r e g i s t e r e d , t o f o r t i e t h  the  ships  1961 by which time 211 s h i p s had been s o l d  The d e c l i n e of the merchant  in  to  vessels,  Canadian  E r i t i s h r e g i s t r y . Both these  under the Replacement Plan and 219  was  shipping  and the government was pressed to  another neasure, the T r a n s f e r Agreement  the  Horld  with  t h e i r s h i p s to f o r e i g n i n t e r e s t s provided that the proceeds  were  to  active,  a l l gccd t h i n g s must come to pass, and so i t was  halycon days of the Canadian n a t i o n a l f l e e t .  markets  war  numbered 26 3  the f l e e t shoas t h a t e i g h t y - t h r e e of  these v e s s e l s were o p e r a t i n g along  the A t l a n t i c  Coast,  thirty-  28  six  on  four  the  P a c i f i c Coast, and  vessels  Canadian  engaged  registered  carriers tctai  were  of  in  little,  any,  tanker  Only  trade.  The  (37,000  dry-bulk  d.w.t.)  for  a  give  i n Appendix 3.  the  impression  c o n t r o l over her  that  Canada  has  i n t e r n a t i o n a l seaborne trade,  f o r t u n a t e l y , the s i t u a t i o n i s not might  deep-sea  6  125,5000 d.w.t. ,A more d e t a i l e d breakdown of  statistics  if  regular  one  the Canadian f l e e t i s contained These  on the i n l a n d w a t e r s .  deep-sea f l e e t c o n s i s t e d of three  (78,500 d.w.t.) and  tonnage  140  as  ominous  as  the  numbers  suggest. Canadians are i n v o l v e d i n i n t e r n a t i o n a l s h i p p i n g  i n many ways. For example, companies  operating  there  are  many  Canadian  shipping  " o f f - s h o r e " as we s h a l l see i n the  ensuing  sections. Ii  SHIPPING OPERATIONS IN CANADA Canadian s h i p p i n g operations  either  domestic,  operation markets  transfeorder,  i s unique i n the serviced,  can  or  the  type  be  or  commodities  Domestic  ports.  Last  year  oil, these  carried,  of the  three  7  ships.  The  that  are  transported  these cargoes t o t a l l e d  tons,; with n i n e t y - f i v e percent Canadian-flag  type  Shipping  Domestic cargoes are those Canadian  being  of v e s s e l used. These  types of operation are examined below  JU  as  deep-sea., Each  of  design  classified  of t h i s t o t a l  principal  listed  accounted  million  carried  by  cargoes c a r r i e d were f u e l  l e g s , g a s o l i n e , i r o n ere, other ores, and commodities  being  120  between  grains.,ln  fact,  f o r e i g h t y - s i x percent  of  29  t o t a l domestic shipping  waterborne  regions  are;  tonnage.  the  The  five  major  East Coast, the S t .  domestic  Lawrence-Great  l a k e s , the West C c a s t , i n t e r c o a s t a l and A r c t i c . . By f a r the Lawrence-Great  most  important  Lakes  region  of  these  which  areas  accounts  is  for  the  St.  fifty-five  percent of the t o t a l domestic tonnage moved. The major commodity routes are; grain  from Thunderbay to  the  S t . . Lawrence  i r o n ore from the S t . Lawrence p o r t s to the Lakes, and products  from the Lakes and Quebec p o r t s to l o c a l  Host of these cargoes are c a r r i e d i n s p e c i a l i z e d and  small  coastal  tankers  which  both i n l a n d and deep-sea  petroleum  destination.* bulk-carriers,  are g e n e r a l l y r e s t r i c t e d to  i n l a n d o p e r a t i o n s . However, v e s s e l s are now have  b e i n g designed  c a p a b i l i t i e s . The  Upper Lake S h i p p i n g , Algoma C e n t r a l , the E i s e r e r T r a n s p o r t a t i o n (see appendix next  icst  important  Hall  that  major o p e r a t o r s  i n v o l v e d i n Great Lakes s h i p p i n g i n c l u d e Canada Steamship  The  ports,  Lines,  Corporation  and  4) . .  domestic s h i p p i n g r e g i o n i s the  East Coast. The cargoes c a r r i e d c o n s i s t mainly of f u e l products, l o c a l pulpwcod shipments, and fleet  consists  of  vessels,, tugs and and  a  general  variety  cargo.  The  by  barges, s p e c i a l i z e d  the  Irving  roll-on/roll-off  Group,  T r a n s p o r t , I m p e r i a l O i l , and Branch The  West  Coast  s e r v i c e small c o a s t a l resources  to  fleet  vessels  of the E a s t Coast  Chimo  Shipping,  Clarke  Lines.  consists  communities,  refining  Coast  of v e s s e l s ; s m a l l g e n e r a l cargo  isediuto-sized t a n k e r s . P r i n c i p a l ownership  operations i s  East  and  mainly  of  those  d e s t i n a t i o n s . , The  v e s s e l s that  that  major  transport commodities  c a r r i e d are l o g s and pulpwood, sand and g r a v e l , f u e l o i l ,  lumber  30  and c o a l . Of the t h i r t y - s i x twenty-eight hulk The  v e s s e l s o p e r a t i n g on the West  are f e r r i e s , three are general cargo, two  carriers,  two  are tankers and one  prominent o p e r a t o r s i n  Seabcrd, six  and  this  are;  Hivtow  vessels  v e s s e l s , c o n s i s t i n g mainly  there  are  of barges and  935  non  Pacific  to  petroleum  few  tugs., of  shipments t h a t are made are g e n e r a l l y from  the  Coast  and  consist  of  mainly  the  shipments  t o t a l amount of cargo being c a r r i e d  consisted  of  m i l l i o n tons  in  operations  for  northern  communities  HacKenzie B i v e r t r a f f i c ,  the shipments of g r a i n and Although  cargo  and  Arctic, traffic  carried  important  shipping  sovereignty  in  helps the  along  have  Northvest factors  been  to  resupply  v e s s e l s dominate  i n terms of tonnage  to  the  region  is,  Canada f o r s e v e r a l reasons, . f i r s t , establish  north.  Second,  gas  and  and the  protect area  valuable  Canadian  contains  huge  minerals. < T h i r d ,  r e c e n t d i s c u s s i o n s r e g a r d i n g the usage of the  Passage as tend  the  to and from the A r c t i c r e g i o n s i s  to  untapped d e p o s i t s of o i l , there  while f o r e i g n - f l a g  resupply  minerals.  rather i n s i g n i f i c a n t  nevertheless,  i n the  1976., These  HacKenzie E i v e r . C a n a d i a n - f l a g s h i p s c a r r y most of the  Arctic  or  g r a i n shipments from C h u r c h i l l ,  mineral e x t r a c t i o n movements from the E a s t e r n  still  coal  cargoes.  A r c t i c i s s m a l l , amounting to 1.5  and  thirty-  terms  Atlantic  Currently,  cargo  Straits,  self-propelled  Intercoastal shipping i s rather i n s i g n i f i c a n t i n The  dry-  vessel.  Seaspan I n t e r n a t i o n a l . In a d d i t i o n to these  self-propelled  tonnage.  are  i s a passenger  region  Coast,  an  suggest  international  shipping  route. , These  t h a t A r c t i c s h i p p i n g w i l l take on an  31  increasingly  important  role  commercial o p e r a t i o n s and The  to  Canada,  both  in  terms  of  national sovereignty. ,  government, perhaps r e a l i z i n g the f u t u r e importance of  A r c t i c s h i p p i n g , has r e c e n t l y become d i r e c t l y i n v o l v e d i n A r c t i c shipping  operations.  It  is  a  fifty-one  percent  C a n a r c t i c Shipping Company Ltd. /which owns and  owner  in  operates the  M.V.  A r c t i c , the world's f i r s t i c e - b r e a k i n g b u l k - c a r r i e r . ,,  JU  I n t e r n a t i o n a l : Transborder  In to  7 2.6  1S78  shipments between Canadian and  m i l l i o n tonnes  Canadia-flag  9  , two-thirds of  which  s h i p s . , A c l o s e r examination  carried  or  two-thirds  on the Great  Lakes.  St. Lawrence-flaritimes for of  of  the  total  p o r t s amounted  was  carried  of the composition  i n t e r c a t i o n a l - t r a n s b o r d e r shipments r e v e a l s tonnes,  U.S..  that  48.3  traffic  transborder t r a f f i c ,  Columbia and The  major  transborder  shipments  The  of  and  on the Great  v e s s e l s c a r r i e d an  balance British  Lakes were astounding  the t o t a l transborder Great Lakes tonnage. ,0n  the A t l a n t i c c o a s t , shipments c o n s i s t e d forest  products,  approximately  two-thirds  which c o n s i s t e d c f mainly  primarily  of  mineral,  most of which were c a r r i e d  f o r e i g n v e s s e l s . F i n a l l y , on the P a c i f i c carried  the  United S t a t e s ' p o r t s .  percent  petroleum  was  accounted  eleven percent, occurred between  g r a i n and i r o n ore. C a n a d i a n - f l a g 84.3  between  t o 0. S. . A t l a n t i c and G u l f p o r t s  a f u r t h e r twenty-two percent of the the t o t a l .  of  million  t r a n s b o r d e r tonnage  Transborder  by  of  coast the  Canadian  by  ships  t r a n s b o r d e r tonnage  lumber and c o a l shipments.,  32  C. Canadian Eeep-sea Shipping - Hon In 1977, $12,7  Canada's deep-sea t r a d e was  i n e x t o r t s (non U.S.)  Canada's  most  and  important  the Middle East  Figure  3.1  presents  loaded and unloaded the  most  $12.3  trading  value, were. Western Europe (11?), and  in  {U0%),  Asia  commodities  percent, and  an  1 2  were s o l d The  limestone  about  5.2  (10.1?), c o a l the  Most  1 0  show t h a t  grain  was  sold  Coal  mainly on c . i . f . terms (cost, exports  f o r 1979  of export/import  and  cargoes, 1 3  originate  and In in  many the  ore  shipment  on  an  were  f.o.b.  billion in  insurance  and  million  basis. results  in  s h i p p i n g o p e r a t i o n s . For example, Japan  Kingdom, however, most of our dry-bulk imports  home i n b a l l a s t . imports  grain  were valued at $731  p r i m a r i l y on an f.o.b.  the C a r r i b e a n a r e a . T h i s  backhaul  (8.5%),  of overseas exports and  most Canadian dry-bulk exports are destined f o r  from  seen,  corresponding  nature of Canadian deep-sea trade p a t t e r n s  imbalance  United  be  percent.  s i x t e e n percent  billion.  were s o l d  freight). and  As can  Lumber e x p o r t s products were valued at $1.1  1 1  America  i n Canada i n terms of  unloaded  most r e c e n t f i g u r e s f o r 1979  valued a t $2.8  and  South  cargo  were crude o i l 30 p e r c e n t , c o a l 25 p e r c e n t , i r o n  represented  1979  i n terms of  {27%),  loaded  lumber  basis.  ( a l l modes).,  a breakdown of the major commodities  commodities  (3.79?) . , For  billion;  \8%).  (39.7%), wheat  The  imports  partners,  tonnage were, i r c n ore  6.9  valued at $25  at Canadian p o r t s i n 1976.  important  percentages  U...S. ,  makes  it  difficult  to  and  the  originate procure  s h i p s must make the r e t u r n voyage  liquid  bulk  trade,  the Middle East and  most  Canadian  South America,  while  33 (A  C0  O ©  IH™  H  e o  C  o  (0 0> Q  (0  <o  W (9  6)  D  UJ H  3  (0 0)  DC/> O UJ o Hi  a  * §  0)  o a.  .E  E  X3 O  o o  s  °  75 P  ^ o  (/) (/) c e hC  O  H C  O  CO "<?  t\i  2 UJ H Qu  Q <  3 (/) UJ  (£> t CO  si  Z  O ID H  .2  Jpjj  E x  o  3. (0 <0Q  E  (A &  (ft 3* c  i  '•6 E  So  Q  2 o = c  o  E&  o o  u a.  Source:  o  o  ina/ ite  D UJ  oj  ( 0 10  •is a  A S h i p p i n g P o l i c y f o r .Canada. T r a n s p o r t Canada, TP-1676 M i n i s t e r o f Supply S S e r v i c e s Canada, 1979, p.5.  34  < anadian l i q u i d e x p o r t s t o these a r e a s are very s m a l l . , Neo-bulk products *  (forest  1  p r o d u c t s , i r o n o r e , a s b e s t o s , and aluminum)  a r e exported from Canada te major markets i n Western Europe the  United  from  Japan  difficult each  States and  w h i l e Canadian  Western  Europe.  neo-bulk i m p o r t s come mainly Unfortunately,  i t  is  also  t o secure b a c k h a u l c a r g o , even on these r o u t e s , s i n c e  different  commodity  transported  requires  specialized  eguipment and s h i p s . C o n t a i n e r i z e d c a r g o i s p r i m a r i l y to  and  restricted  East c o a s t o p e r a t i o n s and e n j o y s a r e l a t i v e l y b a l a n c e d trade  f l o w . However, imbalances s t i l l e x i s t on found  some  routes  such  as  on the C a n a d a - B r i t a i n c o n t a i n e r r o u t e , on t h i s p a r t i c u l a r  route, Only 11 percent of the tonnage moved from the A t l a n t i c Eegion to B r i t a i n was c o n t a i n e r i z e d . On the o t h e r hand, more than 90% o f the tonnage unloaded i n t h e region from ships coming from Britain was containerized.V 1 5  The nature c f Canadian o c e a n - t r a d e r o u t e s prompted the f o l l o w i n g c o n c l u s i o n i n Jk S h i p p i n g P o l i c y f o r Canada; In summary, Canadian deep-sea t r a d e i s c h a r a c t e r i z e d by imbalances i n t h e d i r e c t i o n and n a t u r e o f cargo f l o w s as w e l l as a d i f f i c u l t y i n s e c u r i n g c o m p a t i b l e and e c o n o m i c a l b a c k h a u l c a r g o e s . 1 6  Canadian-flag p a r t i c i p a t i o n i n deep-sea  trade  is  negligible,  t w o - t e n t h s cf one p e r c e n t of proportion  of  Canadian  over  one-half  Canada a r e c a r r i e d i n flag-cf-convenience  of  total  ocean-going  the  movement  of  non-U.S.  t o t a l l i n g o n l y 200,000 t o n s o r  r e g i s t e r e d i n the s o - c a l l e d f l a g of fact,  the  tonnage  carried.  A  large  trade i s carried i n vessels convenience  countries.  In  petroleum p r o d u c t s i m p o r t e d i n t o  flag-of-convenience  vessels.  The  major  v e s s e l s i n v o l v e d i n Canadian t r a d e a r e from  L i b e r i a , Panama, and S i n g a p o r e . Japanese  v e s s e l s are a l s o  active  35  i n Canadian waters and account f o r almost f o u r t e e e n Canadian  ncn-U.S.  seaborne  export  tonnage.  Western Europe (West Germany, B e l g i u m ,  and  percent  of  The c o u n t r i e s o f  France)  and  Great  B r i t a i n a l s o c a r r y s i g n i f i c a n t Canadian i n t e r n a t i o n a l tonnage. In  1977, l i n e r t r a f f i c accounted f o r o n l y e i g h t p e r c e n t o f  t c t a l Canadian deep-sea cargo tonnage. , However,  the  this  vessels  cargo  carried  accounted  for  tonnage  Most  1 7  conferences  surpassed  eighty-six cf  which  the  that  percent liner  operate  of of  tramp the  value  deep-sea  of  which  Canadian  t r a f f i c i s c a r r i e d by t h e f i f t y  into  and  out  of  Canada. ,„  These  c o n f e r e n c e s c a r r i e d g e n e r a l c a r g o v a l u e d a t f o r t y p e r c e n t of the value  of  Canadian  legislation  has  deep-sea  exempted  these  exports. liner  l f i  Recent  Canadian  conferences  from  the  Combines I n v e s t i g a t i o n a c t and a l l o w s them t o r e g u l a t e r a t e s and membership.  This  same  legislation  also p r o h i b i t s conferences  from u n d e r c u t t i n g c o m p e t i t i o n o u t s i d e the c o n f e r e n c e and them  to  meet  and  discuss  rates  with  forces  the Canadian S h i p p i n g  Council. Jx.-£1MSI1S  There shipping,  SHIPPING INTERESTS are and  many a  groups  study  w i t h o u t mention c f t h e s e concerns.  The  of  that  their  in  Canadian  objectives  and  their  examined can be d i v i d e d i n t o f i v e  g e n e r a l groups; shipowners and o p e r a t o r s , a g e n c i e s , l a b o u r u n i o n s , and s h i p b u i l d e r s .  JU  involved  the i n d u s t r y would not be complete  groups,  organizations  are  Shipowners and O p e r a t o r s  shippers,  government  36  Ihere  is  are o p e r a t i n g with  a  v e s s e l s under  shippers,  r e g i s t r y may deferral  l a r g e number of Canadian-based shipowners foreign-flag  conducted  by  the author, revealed  be a t t r a c t i v e f o r s e v e r a l  of  taxes,  cheaper  registry.  reasons;  If  the  federal  Interviews  that f o r e i g n  avoidance  government  flag  discrimination  hopes  to  coax  f o r e i g n - f l a g s back t o Canadian r e g i s t r y then i t must be tc introduce  and  labour, a t t r a c t i v e l o a n or c r e d i t  arrangements, or t o get around r e s t r i c t i v e practices.  who  these  prepared  i n c e n t i v e s t h a t are comparable t o those o f f e r e d  in  these f o r e i g n c o u n t r i e s . A  recent  Overseas  a r t i c l e by K.C.  Trade  6  Griff i n ,  Petrochemicals  Marketing D i r e c t o r of  1 9  for  Canadian  Pacific  Ltd.  estimates that the Canadian-owned seagoing merchant f l e e t , as of the end these  of  197.9, c o n s i s t e d of  vessels  while only 78  were  185  registered  offshore  put  ( i n ether  were r e g i s t e r e d i n Canada. The  Canadian-owned deep-sea f l e e t was today  v e s s e l s . ,0f t h i s t o t a l ,  Canada  into  6.3  fourteenth  107  of  countries)  total size  of  the  m i l l i o n d.w.t. which would place i n terms of  national  tonnage. The  most recent  f i g u r e s a v a i l a b l e (March 30,  that  the l a r g e s t percentage of the  the  Eritish flag  fleet  was  1980)  registered  ( i n c l u d i n g Bermuda). In a l l ,  sixty-one  were under E r i t i s h r e g i s t r y which c o n s t i t u t e d a l i t t l e half  the  favoured ships  fleet's flag  was  accounting  Canadian-registered  tctal the for  registered liberian  26. 1 vessels  tennage., The  f l a g which was  percent were  of third  indicate  the  under vessels  over next  flown by total  most  onemost  thirty  tonnage.  common,  although numbering seventy-seven s h i p s , accounted f o r only  and, 13.2  37  percent  of  Singapore  (3.5%  Zealand  the  tonnagecf  total  Other  tonnage  tonnage),  was  Greece  registered  (2,6%),  in  and  New  (1.3$) .  Data f o r 1978 r e v e a l s that t w o - t h i r d s of the Canadian-owned tonnage  was cf Japanese c o n s t r u c t i o n . C a n a d i a n - b u i l t s h i p s were  next most popular however, they accounted f o r only c f the t o t a l  ten  percent  tonnage.  Canada's l a r g e s t shipowning company as of December 31, was  Canadian  Pacific  (Bermuda)  l t d . which owned  s h i p s , a l l of which were under B r i t i s h Pacific fleet  fleet by  accounted  tonnage.  Papachristidis the the  for  The  of  one-third  second  Montreal  registry.  1979  thirty-five  The  Canadian  of the t o t a l Canadian  largest  ship  owner  was  which owned twenty-four percent of  t o t a l Canadian tonnage, or twenty-one s h i p s . .Again, case with Canadian P a c i f i c ,  as  was  not a s i n g l e one o f these s h i p s  was c f Canadian r e g i s t r y . Cast Shipping S e r v i c e s Canada L t d . was the  third  l a r g e s t owner i n Canada  12.6 percent  of  the  and fourth was F e d e r a l Navigation & Commerce with 6.5 the  tonnage.  Other  t o t a l tonnage were  major  Upper  Lakes  concern  Shipping,  operators.  They  Kent  Lines,  of  the  ship  argued  operators  on  "equal  that  were  footing"  with  that other c o u n t r i e s had much  more a t t r a c t i v e s h i p p i n g i n c e n t i v e s than Canada had result,  Canadian  with  and,  as  a  o p e r a t o r s were put at a disadvantage.,&11 the  operators interviewed f e l t competive  Jason  L t d . , and Canada Steamship L i n e s . ,  i n t e r v i e w e d was the d e s i r e to be put foreign  percent of  companies owning at l e a s t 2 percent of the  Steamship Co., Eeyship Canada The  tonnage  foreign  that  Canadian  companies  if  operators  could  they were given  be  similar  38  i n c e n t i v e s . The major complaints o f t h i s group were duties  on  imported  high t a x e s , and  ships,  legislation  regarding  arrangements. T h i s group, g e n e r a l l y  of  Canadian  merchant  encourage i t s d e v e l o p m e n t . In Canada, there These  marine  and  fulfill  industry;  supported  foreign  the  idea  measures  to  20  a  shipowner  variety  i n c l u d i n g the promotion of the general transport  problems,  and  suggested  are a l s o s e v e r a l  associations  labour  leasing,  charter a  custom  lack of a government loan program,  low c a p i t a l c o s t allowance r a t e s ,  restrictive  the  the f o r m u l a t i o n  regulations  b e n e f i c i a l t o the  collection  and  of  responsibilities  welfare  of  the  marine  of p o l i c i e s , l e g i s l a t i o n and  marine  dissemination  of  associations.  transport  industry;  the  s t a t i s t i c a l i n f o r m a t i o n , the  implementation c f t r a i n i n g programs, and the promotion of s a f e t y in  operations.  Dominion  The  2 1  Marine  major  shipowner  association  (representing  s h i p p e r s ) , the C o u n c i l o f Marine C a r r i e r s tow  and  fifty-eight  association  J.  a r e the  the Great  (representing  Lakes mainly  barge o p e r a t o r s on the P a c i f i c c o a s t ) , the St.Lawrence  Shipowner a s s o c i a t i o n and  associations  ( c o n s i s t i n g o f t h i r t y - o n e member companies  ships)  and  the  Newfoundland  (twenty members and t h i r t y - o n e  Shipowners  ships).  Shippers  Shippers  are  the a c t u a l users of s h i p p i n g  such they are p r i m a r i l y concerned with g e t t i n g  services their  and as  goods  to  market as cheaply and as e f f i c i e n t l y as p o s s i b l e . I n a d d i t i o n t o the  numerous  individual  users  of shipping  a l s o s e v e r a l important user a s s o c i a t i o n s that  s e r v i c e s t h e r e are arrange  shipping  39  services of such  and  negotiate  associations  are  (representing  the  Columbia), the  Canadian  Hanufacturers  rates f o r t h e i r members. A few the  lumber  Council  and  forest  Exporters  Association  and  of  Forest  suppliers  Association,  the  Atlantic  examples  Industries in  the  British Canadian  "Transport  Users  Association. In Canada, there Shipper's  Exporters  and  group  among  Association,  the  the  membership  as  the  Canadian  paper  producers,  makers of chemical and  lumbermen,  horticulturists, forest  are  the  and  Canadian  Canadian Hanufacturers A s s o c i a t i o n  various a s s o c i a t i o n s r e p r e s e n t i n g  The  known  C o u n c i l which c o n s i s t s of t h i r t e e n t r a d i n g groups  associations..Listed  and  i s also a  products.  key concern of the shipper  packers,  pulp  asbestos s h i p p e r s ,  and  2 2  associations i s that,  «... Canadian manufacturers must have a v a i l a b l e an e f f i c i e n t marine t r a n s p o r t a t i o n system capable of both delivering their products to o f f s h o r e markets and moving to Canada m a t e r i a l s e s s e n t i a l to support Manufacturing processes. These f u n c t i o n s must be performed at the lowest p o s s i b l e p r i c e s . 2 3  Shippers were Canadian  generally  deep-sea  opposed  fleet  to  claiming  r e l i a n c e on f o r e i g n - f l a g ships i s  the that  the  establishment  of  a  the c u r r e n t system of  most  efficient  system.  Shippers oppose government s u b s i d i e s to s h i p owners because they fear  that  such s u b s i d i e s w i l l i n time l e a d to cargo a l l o c a t i o n  measures which would r e s u l t i n higher  transportation  costs.  Cjt Government Bodies The shipping  major government department is  Transport  associated  with  Canadian  Canada, i n p a r t i c u l a r the Harine Branch. ,  40  This  body  is  responsible  for  administering  the  Earine  T r a n s p o r t a t i o n Program, the o b j e c t i v e of which i s ; -to foster the optimal development of marine t r a n s p o r t a t i o n c o n s i s t e n t with n a t i o n a l economic and social goals, through the p r o v i s i o n of marine f a c i l i t i e s and s e r v i c e s on a cost-recoverable basis wherever p r a c t i c a l , 2 4  Also  within  the  department  Pilotage Authority,  are the  programs f o r the  the Great Lakes P i l o t a g e A u t h o r i t y L t d . , the  N a t i o n a l Harbours Board, the St.Lawrence the Canadian Transport The  which  Commission  cf these being  administers  passenger  the  Water  on  the  Commission  cn  is  the  also  Great  Lakes  MacKenzie in  charge  v e s s e l s i n the above areas and to  and  for  and  Committee  Act of 193 8,  This  jurisdiction MacKenzie  over liver,  both package f r e i g h t  liver. of  under f i v e  Transport  Committee  package f r e i g h t on the Great Lakes, and goods i n bulk  i s organized  a s e c t i o n o f the Transport  traffic  Authority  (CTC). ,  s e c t i o n g i v e s the Water Transport  wishing  Seaway  a d m i n i s t r a t i v e work of the CTC  committees, one  Atlantic  the  The  Water  and  Transport  l i c e n s i n g of domestic  licensing  foreign  vessels  engage i n the Canadian c o a s t a l t r a d e . Under s e c t i o n  22 of the Act the Commission ; i s r e g u i r e d to i n q u i r e i n t o and recommend to the Rinister from time to time such economic p o l i c i e s and measures as i t considers necessary and desirable relating to the operation of the Canadian merchant marine commensurate with Canadian maritime n e e d s 25  Another department with an i n t e r e s t matters  i s the Department of Industry  which administers ^discussed  in  in  Canadian  shipping  Trade and Commerce  the s h i p b u i l d i n g c o n s t r u c t i o n subsidy  g r e a t e r d e t a i l i n chapter  VI) . The  (ITSC) program  Department of  P u b l i c Works i s a l s o i n v o l v e d t o a c e r t a i n degree with  shipping  u 1  through i t s Marine maintaining Finally,  program which i s concerned  marir<?  with p r o v i d i n g and  f a c i l i t i e s as r e q u i r e d by f e d e r a l  the Department of the Environment i s a l s o  shippinq  by way  programs.  involved  c£ i t s c o n s t r u c t i o n subsidy program f o r  in  fishing  vesseIs. a very important Canadian  government  deep-sea f l e e t  powerful  gcverraent  department  involved  of  department  controls  the  a  deep-sea  must  that  c f the  receive  needs a program to encourage the  fleet  then  such  a  the  Finance  might decrease  is  development  program would r e q u i r e the  Department cf Finance's support. Judging from seems  strings  t h i s department . Thus i f T r a n s p o r t Canada were to  decide that Carada of  the  issue i s the Department of F i n a n c e . This  p u b l i c purse and a l l budgets and a l l o c a t i o n s approval  in  past behaviour  it  g e n e r a l l y opposed to any measures that  i t s tax revenue  base.  EJI Onion Groups S t a t i s t i c s Canada data f o r the year 1977 were  19,285  people  the  Brotherhood the  Seafarers  ship o f f i c e r s  Service  Guild.  SIU  and  The  first  v e s s e l s while  operates  vessels. * 2  following  (SIU), the  two  the  there  Canadian  (CBRTGS)  of these  latter  three  or  unions  represents  engineers.  dominates  the labour a c t i v i t y  region and has ever 4000 members (6100 CEET  the  I n t e r n a t i o n a l Union  represent seamen cn board  The  of  cf Bailway Transport S General Workers  Merchant  that  employed as crew members aboard  Best cf these held memberships i n one unions;  shows  mainly  on  the  inland  i n the Great Lakes  during peak season). waters  and the  The  British  42  Columbia  Coast,  The  three  Canadian  claiming approximately unions  deep-sea  fleet,  s h i p s i n Canada s h o u l d The cf  level  other  be l i n k e d  members.  support  however, t h e y  c f Canadian  the  feel  seamen's  countries  (i.e.,  those  cf  Vanccover-based  wages  are  higher  Europe.  than  put i t t h i s  select  your trades c a r e f u l l y . " C o n s i d e r a b l e  taken  when  cannot  that  i n the A s i a t i c  and a b o u t  on p a r  manager  of  way; " C a n a d i a n  live  a  wage  w i t h b u t , y o u must  care  must  also  be  c o m p a r i n g t h e c o s t d i f f e r e n c e s between t h e c r e w s o f  countries  reliability  you  those  general  are  a  t o those  I t appears  China)  rates  various  something  One  of  requirement.  seamen's wages i n r e l a t i o n  s h i p p i n g company  not  concept  t o a C a n a d i a n crew  Hong Kong, P h i l i p i n e s , Northern  27  that the r e g i s t r y o f  c o u n t r i e s i s a h o t l y debated g u e s t i o n .  Canadian  with  generally  4500  may  vary  since  productivity,  from n a t i o n a l i t y  motivation,  and  to n a t i o n a l i t y . ,  1. S h i p b u i l d e r s The  shipbuilding  accounts  for  production recorded  .  at  offshore  of cf  $398.2  of  total  million  rigs.  11,200 p e o p l e  the  world's  i s up from t h e 0.5  17.4 p e r c e n t .  2 9  tankers, Bepairs  New  tugs,  constructions  fishing  and c o n v e r s i o n  (approximately  r e p a i r s and c o n v e r s i o n s  share  s h i p b u i l d i n g production  Government c o n t r a c t s a c c o u n t e d  new c o n s t r u c t i o n s  and  total  percent  and i n c l u d e d i c e - b r e a k e r s ,  bulk-carriers,  drilling  million.  total  percent  percentage  by a h e a l t h y  self-loading  $181  This  one  i n 1974. I n 1979 , t h e C a n a d i a n  increased valued  2 8  about  i n d u s t r y employs about  ( o r 26%), ,  for  were  ferries,  vessels,  and  work  totalled  $11.6  million  3%) and $46.5  million  43  The notable  c u t l c c k f o r Canadian s h i p y a r d s i s encouraging  as of J u l y  f o r increased  continuing  demand  requirements  related and  federal fcr  defence  new  2)  CSSBA  shipyards are  the new and 3)  offshore  v e s s e l s , and 4) p r o j e c t e d  f o r the Beaufort sea and the A r c t i c . ,  major s h i p y a r d s i n Canada and more than companies  percent  prospects  craft,  fifty  marine-  are represented by the Canadian S h i p b u i l d i n g  Ship Bepair A s s o c i a t i o n (CSSBA). The  the  1)  orders,  fishing  f c r supply and d r i l l i n g  v e s s e l requirements The  to nine  1, 1980. However, other than t h i s , Canadian  be o p t i m i s t i c f o r the f o l l o w i n g reasons;  good  one  exception; the twenty percent c o n s t r u c t i o n subsidy that  Canadian shipyards had been e n j o y i n g was lowered  can  with  official  position  of  on t h e i s s u e c f a Canadian deep-sea f l e e t i s t h a t i t  should be encouraged and that measures should a l s o be i n t r o d u c e d to  encourage Canadian shipowners t o place orders  with  Canadian  shipyards. As  can  be  seen  from  the  foregoing  discussion  i n s i g n i f i c a n t s i z e and tonnage of the Canadian r e g i s t e r e d sea in  fleet  are net accurate i n d i c a t i o n s of Canada's  deep-sea  fleet  shipping.  Supplementing  i s a sizable offshore f l e e t  Canadians. The Canadian presence efforts  cf  Canadian  shippers,  the  to  deep-sea  deep-  involvement  Canadian-registered  that i s owned and operated by  i s further  reinforced  by  the  unions, government b o d i e s , and  s h i p b u i l d e r s . Each o f these groups has i t s own p o s i t i o n Canadian  the  on  the  i s s u e and, n a t u r a l l y , each group i s l o b b y i n g  p r o t e c t i t s own s e l f - i n t e r e s t .  44  IV  POSSIBLE GOVERNMENT ASSISTANCE MEASURES TO AID SHIPPING Governments,  when  particular assistance the  international  material  investigating  the  appropriateness  measures to a i d s h i p p i n g , and  Canadian  shipping  of  must be aware o f  environment.  This  was presented i n chapters I I and I I I .  But  governments  international  must  shipping  be  more  than  just  aware  of  the  environment. They must a l s o have s t a t e d  o b j e c t i v e s and a l t e r n a t i v e measures that can be used to  achieve  these o b j e c t i v e s . T h i s chapter examines the a l t e r n a t i v e measures that  could  be used to e s t a b l i s h , promote or p r o t e c t a n a t i o n a l  deep-sea f l e e t . assistance and Ix  I t a l s o examines the economic e f f e c t s t h a t  measure  each  has on the behaviour of the i n d i v i d u a l f i r m  upon the o v e r a l l welfare  of s o c i e t y .  MEASURES TO ASSIST NATIONAL DEEP-SEA FLEETS Assistance  groups,  measures may be c l a s s i f i e d  financial  assistance measures. assistance  in The  assistance  the  capital  first  because  two they  into  i n the o p e r a t i n g phase  groups are  and are  "forms  three  phase, f i n a n c i a l  nonfiscal  assistance  considered of  "financial"  assistance  through the government's taxing and spending powers". group,  ncnfiscal  assistance  measures,  government's power t o r e g u l a t e and do transfer  of  cash  or  credit.  are  not  a) o p e r a t i n g  The  provided  involve  assistance  any  measures  2  1. F i n a n c i a l A s s i s t a n c e  1  rendered third  by  the  direct  Using these three c l a s s e s i t i s  p o s s i b l e t c c a t e g o r i z e the v a r i o u s f o l l o w i n g manner:  general  i n the Operating Phase  differential  subsidy  in  the  45  0) s p e c i a l  subsidies  c) tax i n c e n t i v e s d) government-provided f a c i l i t i e s 2.  F i n a n c i a l A s s i s t a n c e i n the C a p i t a l Phase a) loan guarantees b) d i r e c t  loans  c) c o n s t r u c t i o n s u b s i d i e s d) Government  Ownership  3. . V o n f i s c a l A s s i s t a n c e Measures a) cargo  preference  b) f l a g d i s c r i m i n a t i o n c) b i l a t e r a l agreements The  following  sections  describe  each  of  these  three  classes:  A, F i n a n c i a l A s s i s t a n c e In The Operating  Phase  Most c f the measures i n c l u d e d i n t h i s s e c t i o n are to  assist  running  or  national  flag  voyage  costs  operators (explained  by decreasing in  chapter  intended  their II)  daily or  by  i n c r e a s i n g t h e i r revenue. The  first  differential allowances intended  of  these  a s s i s t a n c e measures i s the o p e r a t i n g  subsidy. , D i r e c t are  made  payments,  either  grants  t o n a t i o n a l o p e r a t o r s . These payments are  to o f f s e t the d i f f e r e n c e between the  high  costs  n a t i o n a l operators must pay f o r the f a c t o r s of production ships,  labour)  competitors domestic  and  the  that  that (i.e. ,  lower c o s t s c o n f r o n t i n g t h e i r f o r e i g n  . Such s u b s i d i e s could be u t i l i z e d t o o f f s e t costs  or  might  exist  in  the  following  higher areas;  46  insurance, and  swages, r e p a i r s , maintenance,  officers.3  calculated attached is  The  actual  i n many d i f f e r e n t  operating ways  t o i t t h a t an operator  granted  and s u b s i s t e n c e  and  subsidy usually  of  paid has  can  of  a  schedule  be  conditions  must agree to before the  (e.g., maintenance  crew  of  subsidy  particular  service level) . S p e c i a l s u b s i d i e s i n c l u d e p r e f e r e n t i a l treatment such  as  ships.  lower Also  included  among  and documentation  priority  in  berth  special  assignments,  their a b i l i t y  subsidies  are  easier  f o r domestic c a r r i e r s , lower d u t i e s , '  measures reduce the o p e r a t i n g  and lower docking f e e s .  costs of  domestic  to compete against  phase  is  extended  government E i g h t encourage increasing  government  of  shipping.  investment  marine eguipment, and  entirely  attractive  arrangements, attracting  tax  Other  tax  ownership ,  by  replacement  exempt  from  tax  or  registry  sanctioning reserves,  or  by the the  measures  include  c r e d i t s f o r the purchase of v e s s e l s or  rules  consolidated  governing  a tax subsidy  program  leasing w i l l only  ship owners and o p e r a t o r s  Gerald J a n t s c h e r ,  . The  t a x , income earned i n  subsidy  the p e r m i t t i n g of  l e a s t as f a v o u r a b l e  i n the  system  tax and  be  returns, chartering  effective  in  i f : i ) there e x i s t s income  against which these c r e d i t s can be charged; i i ) the at  and  foreign-flag vessels.  the  allowances  tax-deferred  might  international special  national  depreciation  establishment  through  These  operators  Perhaps the most common form of f i n a n c i a l a s s i s t a n c e operating  ports  port dues and harbour charges f o r n a t i o n a l f l a g  licensing  improves  at  program  is  as those t h a t e x i s t i n o t h e r c o u n t r i e s .  i n h i s book Bread Upon  the  Haters  describes  tax s u b s i d i e s i n the f o l l o w i n g manner: "The program of tax s u b s i d i e s f u n c t i o n s as a l o a n program, i n which the f e d e r a l government forgoes c o l l e c t i n g taxes on a part o f shipowners* e a r n i n g s and grants the owners the use of these taxes on the c o n d i t i o n t h a t they i n v e s t t h e i r earnings i n new s h i p s and eguipment."* The is  f i n a l category of o p e r a t i n g  that  cf  phase  assistance  goverment-provided f a c i l i t i e s  measures  without' compensatory  user charges. T h i s might i n c l u d e government investment i n marine research,  pert f a c i l i t i e s  and n a v i g a t i o n a l a i d s or the  of s p e c i a l s e r v i c e s such as t r a f f i c breaking. measures  These  goods  since  the  and  shipping  F i n a n c i a l Assistance  Loan guarantees are one  c o n t r o l , dredging, and  s e r v i c e s are considered industry  advantage i n t e n t i o n a l l y provided  Sjt  by  In The  receives  government."  level  of  i n s t i t u t i o n that the the  loan  if  obligations. shipowners would  the  These  intensive  be  industry,  guarantees can  special  5  to  goverment w i l l  pay  shipowner government  is  the the  unable  guarantees  p o s s i b l e . , Since  a promise by a  issuing unpaid to  use  financial portion  meet  enable  his  of debt  prospective  at lower r a t e s than  shipping  advantage a f f o r d e d by  is  a  capital  these government  be s i z e a b l e .  Another very the  government  the  "a  subsidy  measure that the government may  to o b t a i n c r e d i t more e a s i l y and  otherwise  as  ice-  C a p i t a l Phase  to a s s i s t s h i p owners. A loan guarantee i s simply particular  providing  popular c a p i t a l  phase  assistance  measure  is  d i r e c t government loan whereby cash or c r e d i t i s extended to  shipowners  to  cover  a p o r t i o n of a s h i p ' s c o n s t r u c t i o n  costs.  48  Usually  the  credit  considerably  mere  terms  of  attractive  market. To q u a l i f y f o r these  third  constr uction govern ment s p e c i f ied costs the  mea sure subsid y.  pledges  an  investor  to  With pay  in  the  some  must  the s h i p b u i l d e r or the or  actual  of a v e s s e l . A d i f f e r e n t i a l c o n s t r u c t i o n  i n domestic y ards and  This  the the  purch aser a c o n s t r uction  subsidy  i s where  the c o s t d i f f e r e n c e betseen a the p r i c e that would have  been c o n s t r u c t e d  i n a f o r e i g n yard.  ship  bee n paid  Undoubtedly contentious  as to whether shipowners a l s o b e n e f i t from such a program. i s b r i e f l y examined l a t e r i n t h i s chapter. , F i n a l l y , the  shipping  government  company by  by the f i r m . The  can  become  a  part  also  be:  owner  in  a  s u b s c r i b i n g t o c a p i t a l stock that i s issued  i n t e n t of such a s s i s t a n c e  i s not n e c e s s a r i l y to  ensure the shipowner a reasonable r e t u r n on h i s may  is  subsidy  t h i s measure b e n e f i t s s h i p b u i l d e r s ; however, i t i s a item  are  usually  countries,  construction  percentage of the c o n t r a c t e d  i f the s h i p had  loans  those e x i s t i n g i n the open  loans  found  go vernment agree s to pay  built  than  government  cer t a i n r e s p o n s i b i l i t i e s .  agree to f u l f i l l A  these  investment  6  1. To ensure that there is direct public r e p r e s e n t a t i o n i n those cases where operations are c l a s s i f i e d as i n the n a t i o n a l i n t e r e s t . 2. To protect substantial government i n the e n t e r p r i s e .  debt  participation  by  3. To o f f s e t any i m p e r f e c t i o n s i n the capital market where, f c r example, r i s k s of the venture might be weighted higher than by e i t h e r the entrepreneur or the coverment. 4. To ensure t h a t the merchant marine meets g u i d e l i n e s as t o n a t i o n a l ownership and c o n t r o l , where the only additional equity funds available (other than government) are from f o r e i g n c a p i t a l . ,  but  49  C_. Hon f i s c a l Cargc informal  assistance  preference  Measures  refers  to  legislation,  i n s t r u c t i o n aimed a t ensuring  nest commonly a p p l i e d  property  interest  (e.g.,  of  use  the  (e.g.,  foreign aid  commercial  cargoes  s h i p s , through e i t h e r formal or i n f o r m a l  i s another form c f cargo preference. when  laws  m i l i t a r y cargoes) or t h a t a r e being  The u n i l a t e r a l assignment  national-flag  preference  to cargoes i n which the government has  moved as a r e s u l t of government i n t e r v e n t i o n cargoes).  or  t h a t n a t i o n a l - f l a g ships  c a r r y a percentage o f s p e c i f i e d cargoes. Cargo are  regulation  to  methods,  A u n i l a t e r a l assignment  is  government e i t h e r l e g i s l a t e s or pressures s h i p p e r s t o  national-flag vessels  when importing  or  exporting  certain  commodities. Flag d i s c r i m i n a t i o n i s a more general variety that  of  policies,  laws,  regulations,  term and r e f e r s t o "a or t r a d i n g  some c o u n t r i e s employ t o favour t h e i r own nation  Defined  in  such  a  manner  flag  discrimination  p r a c t i c e s r e l a t e d t o the apportionment of trade agreements), dues  or  port  practices taxes),  related  to  practices  fleets."  concerning  7  encompasses  (i.e.,bilateral  treatment i n p o r t s  (requirements t c use c e r t a i n c u r r e n c i e s , and  practices  trade  (higher  financing  s p e c i a l exchange  rates)  cabotage r e s t r i c t i o n s . ^  2m , THE EFFECTS OF THJ VARIOUS This  s e c t i c n examines the economic e f f e c t s a s s o c i a t e d  construction discrimination welfare  MEASURES  subsidies, practices.  perspective  and  operating 9  subsidies,  Each i s examined f i r s t then  from  the  and  with flag  from a . s o c i a l  perspective  of the  50  individual  firm*  A. Economic E f f e c t s Of C o n s t r u c t i o n two  distinct  groups  s u b s i d y , shipowners eventually  and  will  experience  curve  for  the  The Figures  supply and  ships  is  shipbuilders  supply o f new  perfect  inelastic  benefits  are  ships.  supply  the  Shipowners  is  demand  elastic. where  or the demand e l a s t i c . , groups i s i l l u s t r a t e d  following  c o m p e t i t i o n e x i s t s i n the  shipbuilding  the  most i n a s i t u a t i o n  to these two  below. The  construction  b e n e f i t s i f the  or  the  a  groups depends upon  o f the  ships i s i n e l a s t i c  to 4.6  flow  demand f o r new  benefit  benefits accruing 4.1  from  among these two  a larger portion  new  Conversely,  benefit  shipbuilders,  distributed  e l a s t i c i t i e s cf the  may  Subsidies  analysis  shipbuilding  assumes  that  market, t h a t  market experiences d e c r e a s i n g r e t u r n s  to  in  the  scale,—a-n-tr  tha-t -the e-o-n^st-r-ue-t-i-on—subs-idy—is—pa-id—to—shirp owners—rather-—t-ha-n t-e—s4rit*fe*M-de-r-s-. Upon for  the i n t r o d u c t i o n o f a c o n s t r u c t i o n  new  ships  increases  from  DD  to  subsidy the  D *D *  demand  representing  a  ver-fii cal hK>ri-2-ofrt-a-l  shift  in  the  demand  v e s s e l subsidy amount. , T h i s Shipowners built  vessel,  construction equilibrium program  will  now  subsidy. point  was  e i t h e r the  t o pay  that  they  Before  the  pq.  both p r i c e and  shown  willing  knowing  point i s established "Have  be  is  curve  A f t e r the  quantity  at p1q1.  The  equivalent in  4.1  more f o r a  will  be  subsidy  eligible was  guestion  per  below.  domesticallyfor  introduced  i n t r o d u c t i o n o f the  increase,  shipowners o r the  figure  t o the  and  a new  to  be  a the  subsidy  equilibrium  answered  is,  shipbuilders benefitted  from  51  F i g u r e s 4.1  and  4.2 Fi<j. M - l : The E f f e c f on Supply  and!  Demand of a Construct ion Subsief) Price of n e w  ship  0  «  ql  0  0  Guan+ify  hew  oi  Surplus  %hip  Consumes-  %&<5ul't'in<j from  Construction  Conifrucfions  f  3  Subsidy  If*crease  t  n<e*/  Ship constructions  ThS J/1 c r e a s e in PWce  of  Qu*n+i4y Shfp  in  of neon cons+ruU-ions  52  the c o n s t r u c t i o n subsidy, and i f s o , t o what To determine whether the shipowners before,  one  merely  has  to  extent"?  are  better  off  than  compare the consumer s u r p l u s t h a t  e x i s t e d before the c o n s t r u c t i o n subsidy and the consumer s u r p l u s that e x i s t s a f t e r w a r d s . consumer pBI,  surplus  This  1 0  before  is  done  in  Figure  4.2.  (  The  the subsidy was equal to the t r i a n g l e  and the consumer s u r p l u s afterwards i s the area p l B ' l * . The  difference in consumer  the  two  areas  represents  the  change  in  the  s u r p l u s . I f the change i n consumer s u r p l u s i s p o s i t i v e  then a net b e n e f i t has accrued  to shipowners, i f negative  has  be  been  incurred.  introduction  cf  As  can  seen  from  Figure  a cost  4.2,  the  the c o n s t r u c t i o n subsidy has r e s u l t e d i n a net  b e n e f i t to shipowners, e g u a l to the area  plB'Fp3.  The c a l c u l a t i o n s t o determine the b e n e f i t s that  accrue  to  s h i p b u i l d e r s from a c o n s t r u c t i o n subsidy are even e a s i e r and are shown  i n F i g u r e 4.3. The net b e n e f i t s a c c r u i n g t o t h i s group i s  simply  the  revenues totalled  increase  less  in  costs.  profits,  profits  defined  pg and t o t a l c o s t s were represented by the  area  A f t e r the subsidy,  be  seen  from  Figure  p r o f i t s have i n c r e a s e by the amount pBB'pl. T h i s area net  OMBq.  i n c r e a s e s t c p1g1, c o s t s t o 0MB*g1, and p r o f i t s are now  equal to the t r i a n g e l MB' pi.. As can  the  as  Before the subsidy shipowners*s revenues  P r o f i t s were t h e r e f o r e egual to t h e area pBM. revenue  being  benefits  4.3  represents  t h a t accrue to shipowners as a r e s u l t  c f the  i n t r o d u c t i o n of the c o n s t r u c t i o n s u b s i d y . , To c a l c u l a t e the net b e n e f i t s t o s o c i e t y one merely has sum  to  up the b e n e f i t s a c c r u i n g to shipowners and s h i p b u i l d e r s and  s u b t r a c t from t h a t t o t a l  the  cost  of  the  subsidy.  This  is  53  Figures  4.3  and  4.4  F i ' ^ . 4 . 3 : The. I n c r e a s e  I'M P r o d u c e r  ftcsul+in^from a Construction Subsidy Surplus  TVice o f new s k i p Construct! ana  H  Increase i Producer  n  the  Surplus  Quantity °f n**o sWip cons r r u c t i cms  Fi^  4 . 4 I Calculation, overall  P r i c e o$ new  ship  Net  of tKe  benefits to Society  fcesul+incj from  a. C o n s t r u c t i o n  Subsi c!y  Constructions Benefits  ictrtiiK^+o  S h i jjovJrvers. [IM]  8ene$i+3 atcruirvj to Shipb ui Mers, DeaJweiqWt +o S o c i e t y  Quantity °*  Loss  n e M J  SV\*p constructions  54  illustrated  in  F i g u r e 4.4.  were determined above and  shipbuilders  were  benefits accruing  to shipowners  found to be egual to the area  which i s egual t c the area to  Net  pBCp2 i n F i g u r e 4.4.  represented  by  the  The  area  net  cost  subsidy that  cf  the  c o n s t r u c t i o n subsidy  The  by the r e c t a n g l e  from  the  benefits  diagram  p1B*Cp2.  t o t a l c o s t s of the  by the amount B'BC  ships  As  can  be  can seen  T h i s area i s sometimes known as  i n t r o d u c t i o n of the c o n s t r u c t i o n The  constructed  program outweigh the  deadweight l o s s t c s o c i e t y , s i n c e s o c i e t y was the  the  t o t a l c o s t of the program  thus be represented the  p1B*BCp2.  program i s e q u a l to  payment CS times the t o t a l number of  q u a l i f y f o r the subsidy.  benefits  pBB*p1.,Total  b e n e f i t s to s o c i e t y are thus equal to the shaded area The  plB'Fp3  subsidy  better o f f  before  than i t i s now.  i n t r o d u c t i o n of a c o n s t r u c t i o n subsidy  need not  r e s u l t i n a deadweight l o s s to s o c i e t y , i t could  under  the  ;  always certain  c o n d i t i o n r e s u l t i n a net gain to s o c i e t y . Under what c o n d i t i o n s might t h i s be t r u e ? F i r s t , i t i s p o s s i b l e t h a t p r i v a t e c o s t s not  egual  t o s o c i a l costs,^ An wSw* case the i n t r o d u c t i o n cf a  c o n s t r u c t i o n subsidy society.  The  may  with a d i m i n i s h i n g As  accruing  was  result  second s i t u a t i o n  the s h i p b u i l d i n g i n d u s t r y faced  mentioned  was  in  a n a t u r a l monopoly  p r e v i o u s l y , the  that  i l l u s t r a t e d i n F i g u r e s 4,5  diagram,  the  accruinq  industry,  p o r t i o n of the  the p o r t i o n a c c r u i n g  demand curve i s drawn as being from  benefits  to  one  c a p i t a l cost structure.,  to shipowners, and  is  net  where t h i s might a l s o occur i s i f  depends on the e l a s t i c i t i e s of the This  are  supply and  and  4.6.  i n e l a s t i c , and  portion  of  the  benefits  to s h i p b u i l d e r s demand  curves.  In F i g u r e 4.5, as  can  subsidy's  be  the seen  benefits  55  F i g u r e s 4 . 5 and 4 . 6  Subsidy . ZneUv+fc  ^/cc o f /!<?*»» Shift  0e*a / nc  construction  $hr'pouJHers  ~to Bene  ft+t  ro ship  accruing but lci&n  beadcvei^hi  r  /oss  to Society  5flip con5-fruc.fiofi$  fteu> ship Com+ruetiorrs  *  1  o  f  Subsidy-  Coni+ncction  *  T„e{a«,  Supply.  c  9ccruiy  8e«e/W«  Benefits t  o  to  *  h  < r l >  i / c l e r f  u  Society  Quantify of ship  decru/n  heco  Cons+rtAt-f-ions  56  accruing  to the shipowners i s g r e a t e r than t h a t accruing  shipbuilders,  In  i n e l a s t i c , which  Figure  4,6,  results  in  i t i s the supply  benefits  to  to the  curve t h a t i s  shipbuilders  being  greater  than b e n e f i t s t o shipowners. The p o l i c y i m p l i c a t i o n s are  clear,  i f the  representing capacity)  supply  of  ships  a  construction  subsidy  are  could  used  firm?  To  answer  to  assistance  full assist  measure  illustrated  in  Figure  a f f e c t the behaviour cf the  this  i n d i v i d u a l shipowner faces a  guestion  cost  we assume t h a t the  structure  similar  4.7 below . The v e r t i c a l a x i s  c o s t per voyage, while the h o r i z o n t a l  axis  the  voyages that w i l l be made, ft p r i v a t e f i r m faced f u n c t i o n w i l l not provide rate  price  shipping  service  i n d i v i d u a l ship operator p2  construction  that  i n the s h o r t  as  subsidy  the  profit  number  of  t h r e s h o l d , i s the  minimal  will  by the  be  offered  run. At  i s introduced,  This  shipping  rates  (the p o i n t g2 i s  threshhold),  How  has  suppose  a  the e f f e c t o f  down the average t o t a l c o s t curve from AC t o A C , since  average c o s t s i n c l u d e c a p i t a l c o s t s . variable subsidy  represents  with such a cost  the f i r m w i l l begin t o earn a p r o f i t  thus r e f e r r e d to  shifting  that  j u s t equals the v a r i a b l e c o s t s of making a journey.  of  above  to  s e r v i c e s below a r a t e pi s i n c e a t t h i s  point g1, known as t h e production  amount  that  to  be used t o a s s i s t shipowners rather than s h i p b u i l d e r s . ,  individual  The  (perhaps  working  be  i s e l a s t i c , such an  How w i l l a c o n s t r u c t i o n subsidy  the  i s inelastic  a s i t u a t i o n where shipyards  s h i p b u i l d e r s . I f supply could  new  cost  curves  (see Figure  the  are  the  marginal  or  a f f e c t e d by the i n t r o d u c t i o n of the  4,8). The  production  Neither  new  threshhold  intersection  points  reveal  remains unchanged. Bates must  Figure 4 . 7  p i  Cost of  % - *•? .* C o s / S+ruc.Ur-e Indioidu&l  Ship Op<£ra~h  individual voyage  Quaniity 5 A/,  of  of  58  J  Fi ^.4.8'-  of a  Effez*  on  Subsidy  Cos+ o*  of an  Construd-fior*  Me  Individual  . me AC  j  p*  ^  «c' Vc  j  %  x  Quantity of SKippiA^ Services  s t i l l be above p1 i f the voyage. . However,  the  shipping  shipping  service  shipping subsidy  level  g*.  The  r a t e s are low, say  is  company  p r o f i t a t lower r a t e s than before lower  firm  undertake  i s now a b l e  (p* as opposed  to  the  to earn a p2)  at  a  p o l i c y i m p l i c a t i o n s are t h a t i f  below  p i ,  1  1  then  a  construction  w i l l be i n e f f e c t i v e i n i n c r e a s i n g the amount o f s h i p p i n g  services  that  are o f f e r e d . Instead  some other  be more e f f e c t i v e , ft c o n s t r u c t i o n subsidy amount  to  o f shipping  at any given uncharged.  not  form may  affect  the  s e r v i c e s s u p p l i e d by the i n d i v i d u a l operator  r a t e s i n c e the marginal  cost  curve  has  remained  12  One caveat concerning mentioned.  will  subsidy  c o n s t r u c t i o n subsidy  p o l i c y should  I t i s p o s s i b l e that the c o s t of a d o m e s t i c a l l y  ship i s c o n s i d e r a b l y  be  built  more expensive than a s i m i l a r ship b u i l t i n  59  f o r e i g n yards. Unless the subsidy i s l a r g e enough t o for  this  cost  compensate  d i f f e r e n c e shipowners w i l l continue t o purchase  ships from abroad  and no b e n e f i t w i l l accrue t o e i t h e r  domestic  s h i p b u i l d e r s or owners.  MJL Economic E f f e c t s Of Operating The  analysis  of  the b e n e f i t s r e s u l t i n g from an o p e r a t i n g  subsidy can be conducted used  before  shen  Subsidies  f o l l o w i n g the same reasoning  calculating  the  that  b e n e f i t s of a c o n s t r u c t i o n  subsidy.However, t h i s time the b e n e f i t s of the subsidy w i l l divided  between  shippers  c o n s t r u c t i o n subsidy and  ( r e c a l l t h a t with a  the two b e n e f i t t i n g groups were  effect  of  the  supply curve from SS t o  shipowners  lower  prices  than  new operating subsidy i s to s h i f t the  S'S*  o p e r a t o r s are new w i l l i n g  accruing  to  representing shippers  as  shown  in  4.9.  Figure  Ship  to o f f e r the same q u a n t i t y of s e r v i c e s before s i n c e they can recoup any l o s s e s  from the government through  the  shipowners  be  shipbuilders). The  at  and  was  the o p e r a t i n g s u b s i d y .  shipoperators  is  egual  to  the  the i n c r e a s e i n p r o f i t s . The b e n e f i t s  The  benefit  area  p2B*BP,  accruing  i s egual to the t r a p e z o i d p B C p 1 . & s was the case ;  construction  (triangle  B'BC)  subsidy, unless  a  there  deadweight exists  a  loss  will  to with  result  market i n e f f i c i e n c y ,  p r i v a t e c o s t s are not equal t o s o c i a l c o s t s , or the i n d u s t r y i s a  natural  between  the  elasticities The  monopoly i n d u s t r y . The apportionment of the b e n e f i t s two  groups  is  once  again  dependent  upon  the  e x h i b i t e d by the supply and demand curves.  effects  of  an  operating  subsidy  upon an i n d i v i d u a l  60  Fij.  4-9The  D em a W  Price  of  Ship/at  Ay  Eff&c-ton.  Supply  of fin Operating  Subsidy  |Jll)Hi dznefite  Services  •to  accruing operators  Ship  Banefits accruing to shippers t>e&dtuteif  fit  to Soc/ery  Quantify  of  S hi/of in f  operator are somewhat d i f f e r e n t construction  subsidy.  cost curve  i s lowered,  shown  figure  in  provide s e r v i c e s  With  those  a  Services  resulting  from  The  shipping  lower  rate,  VC  and  firm but  &C  curves  profit  at  lower  frieght  still  at  the  same  remains  presented  unchanged.  Finally,  r e p r e s e n t s the i n d i v i d u a l f i r m ' s markets, any are  mere  supply  earlier, because curve  in  the  profit  the MC curve competitive  s h i p p i n g s e r v i c e s than before w i l l be o f f e r e d at  rate s i n c e the MC curve has been lowered, that  earn  r a t e s than b e f o r e , but u n l i k e the  c o n s t r u c t i o n subsidy example , threshhold  as  i s now w i l l i n g t o  production t h r e s h h o l d q1. With the subsidy the f i r m can now a  a  an o p e r a t i n g subsidy, the marginal  hence so a r e the  4. 10. at  than  /oss  i f shipping  The  implications  r a t e s are low, perhaps due to depressed  markets, an o p e r a t i n g subsidy  could  be  used  to  assist  ship  61  Fty. 4.to: Effect Substety  of an Ofoe.r>aHnp>  on the  of An Inotfuictitkt  Structure  C W  $h//o P/aer-'afor  ices  operators breakeven  in  the  short  run, a t l e a s t u n t i l r a t e s returned  to  levels.  C. Economic E f f e c t s Of F l a g D i s c r i m i n a t i o n The  effects  competitive  of  shipping  discrimination  flag  discrimination  markets  eliminates  is  seme  fairly cheaper  upon  s t r a i g h t f o r w a r d . Flag sources  s e r v i c e s which r e s u l t s i n a decrease i n s u p p l y , leftward  shift  in  the  otherwise  of  shipping  represented  by a  supply curve from SS to S«S* i n Figure  4. 11. From a s o c i e t a l p o i n t of view the country i s worse o f f than before by the anscunt cheaper  foreign-flag  pOplBC  due  operators.  to This  the  elimination  type  of  the  of a n a l y s i s i s the  62  Price  of  Service.}  S oti»( fiaj  Cost of  clis c rim in a Hon  ©  Quantity of Shipping Serw'ces  prime argument advanced i n practices  to  encourage  opposition  the establishment  The c o s t s of d i s c r i m i n a t o r y not cost  as obvious as other foreign operators  shipping  choice  of  subsidy  upon  of a n a t i o n a l . f l e e t . but they are of  low  manifest i t s e l f i n higher  p r i c e s f o r consumers..  correct  r e q u i r e s an understanding c f measure  discrimination  measures. The e x c l u s i o n  w i l l eventually  the  flag  p r a c t i c e s are very r e a l  c o s t s , hence higher  The  of  the  shipping economic  assistance effects  measures  that  each  w i l l have upon the behaviour of the i n d i v i d u a l f i r m , and the  appropriate awareness shipping  overall  welfare  assistance cf  the  of  measures  conditions  society. is  also  prevailing  The  selection  dependent  upon  of an  i n the i n t e r n a t i o n a l  markets at the time. C e r t a i n measures,  appropriate  at  63  one  particular  time,  may  be t o t a l l y i n a p p r o p r i a t e at a l a t e r  p o i n t i n time. Because the i n t e r n a t i o n a l s h i p p i n g environment i s i n a constant monitor and  s t a t e of change, i t i s important f o r government to  re-evaluate  t h e i r s h i p p i n g a s s i s t a n c e programs.  64  V. J O R L D  SHIPPING ASSISTANCE MEASUBES  If the Canadian government assistance  measures  f l e e t i t must  hopes  to  introduce  effective  to encourage the development of a deep-sea  first;  a) f a m i l i a r i z e i t s e l f with the i n t e r n a t i o n a l s h i p p i n g environment b) i d e n t i f y a l t e r n a t i v e measures t h a t could he used t o achieve t h i s o b j e c t i v e and c) predict the impact that such measures would have upon the s h i p p i n g i n d u s t r y and other sectors of the Canadian economy. • This  chapter  examines the the  major  the  United  Italy,  is  devoted  v a r i c u s shipping maritime  to  the  first  a s s i s t a n c e measures that e x i s t  nations,  West Germany. On  in  i n c l u d i n g L i b e r i a , Japan, Greece,  Kingdom, Norway, Panama, the United  and  requirement, i t  occasion  States,  reference  France,  i s a l s o made to  a s s i s t a n c e measures that e x i s t i n c o u n t r i e s with which Canada i s a  major  trading  partner,  Netherlands, Sweden and  such  facilitate  the  discussion phase,  included  the  each  government-provided incertives. was  drawn  Most from  Maritime S u b s i d i e s given are i n U.S.  JL  Operating  of  the  separate  special  the i n f o r m a t i o n Maritime  of  following;  facilities, of  China,  Belgium,  OPERATING PHASE  measures i n the o p e r a t i n g for  Brazil,  Mexico.  V. FINANCIAL ASSISTANCE IN THE To  as  financial  assistance  sections  have  operating  been  subsidies,  subsidies,  and  tax  presented i n t h i s chapter  Administration's  publication.  . Unless otherwise s t a t e d , a l l d o l l a r f i g u r e s dollars.  Subsidies  65  The  country  most  involved  o p e r a t i n g s u b s i d i e s i s the United Marine Act of 1936,  in  the  States.  1  administration  Through the  routes.  The  the higher operating thus The  enabling  fair  and  was  reasonable  and  based on  "the  crews, and  c o s t s of these  under f o r e i g n r e g i s t r y . "  on  "essential  s u b s i d i e s were granted Amendments  to  c a r r i e r vessels owners eligible  who  the  between  the  trade  of  officers  same items i f the  and  vessel only  b u i l t i n the -U.S.., t h a t  are  2  routes".} P r i o r to 1970, the  1970  Act extended the p r i v i l e g e t o i n c l u d e  bulk-  rather  operators,  "essential than  own  but  these  services". their  Since  boats  may  1970, a l s o be  for operating subsidies.  P r i o r to 1970,  the s i z e of the subsidy  d i f f e r e n c e between the estimated the  operators,  These s u b s i d i e s a r e  o n l y to l i n e r  operating  lease  difference  subsistence  paid to s h i p s owned, r e g i s t e r e d and operating  American  offset  c o s t s of Insurance, maintenance, r e p a i r s ,  the estimated  were operated  by  to  to compete a g a i n s t f o r e i g n - f l a g operators.  wages of o f f i c e r s and crew  r e g u l a r s e r v i c e on  purpose of these s u b s i d i e s was  c o s t s experienced  them  subsidy granted  Merchant  o p e r a t i n g s u b s i d i e s were o r i g i n a l l y extended  to American s h i p p i n g companies which provided essential  of  actual  calculation  costs was  of  the  based  on  c o s t s of a f o r e i g n operator  American  cumbersome and  was  operator.  inefficient  since  the and  T h i s method of an  American  operator's  i n e f f i c i e n c y c c u l d be passed on to the government. In  response  to  this  (MAPAt) i n t r o d u c e d  shortcoming, a  new  formula  the for  Maritime  Administration  calculating  operating  subsidies. The  new  formula,  introduced i n 1971,  pays U.S.  operators  66  the  d i f f e r e n c e between t h e i r " s u b s i d i z a b l e c o s t s " and  of t h e i r f o r e i g n competitors. is  based  on an indexing  wage c o s t s  (the  difference).  most  Each  The  important  costs"  c o s t s . " With the acguiesce  to  to  new  component  of  get  in  keeping  down  his  d i f f e r e n c e between  the  labour  his  cwner may  the operator  themselves  to  become obsolete design the  for  can  and  these  longer  be reimbursed  then  is  he  by  the  successful  may  keep  the  "subsidizable"  costs., If  by more than the a l l o t t e d  percentage, effect,  f o r the excess amount.  operating  subsidies  reguirements.  must be r e p l a c e d by  government.* In 1977,  new  owners  Subsidized ships,  commit  vessels that  the  operating  the U.S. .government  number  distributed  s u s i d i e s to American s h i p subsidy  operators.  and  operators  over  the  next  five  s u b s i d i e s are granted to semi-public taken In the  5  years.*  to  merchant  These  operating  f i r m s engaged i n  "services  n a t i o n a l i n t e r e s t . " I f a company earns s u f f i c i e n t l y  p r o f i t s on i t s " r e g u l a r " trade  eligible  $344  program a l s o e x i s t s i n France where  government budgeted $222 m i l l i o n to be paid out  fleet  no  s p e c i f i e d i n the agreement between i n d i v i d u a l owners and  An  high  still  year's  only c l a i m " s u b s i d i z a b l e " c o s t s . In  certain  m i l l i o n i n operating  the  and  from  year's " s u b s i d i z a b l e  operators  costs,  actual  " f o o t s the b i l l "  In r e t u r n  ship  to  operating  previous  system, i f an operator  a c t u a l wage r a t e s i n c r e a s e then  the c u r r e n t  demands  government. Under the new  the  index, based on wage i n c r e a s e s  system,  labour's  costs  i s applied s p e c i f i c a l l y  s e v e r a l ether i n d u s t r i e s , i s m u l t i p l i e d by the "subsidizable  costs  concept of " s u b s i d i z a b l e  formula and  year the  the  routes,  7  then i t may  not  be  f o r s u b s i d i e s on i t s " n a t i o n a l - i n t e r e s t " r o u t e s even i f  67  an a c t u a l l o s s i s experienced. It i s a operating  popular  subsidies  practice  in  many  countries  to  offer  to companies t h a t undertake t r a n s p o r t a t i o n  s e r v i c e s i n the " n a t i o n a l i n t e r e s t " t h a t would not otherwise commercially v i a b l e . , I n the United some  of  the  cutlying  islands  servicing  of  outlying  districts  services  are  granted  government grants  Kingdom, s h i p p i n g  with  "adequate"  assistance.  In  required  Peru,  transport The  Italian  s u b s i d i e s t o companies o f f e r i n g "new  s e r v i c e s or the maintenance o f o l d ones which specifically  s e r v i c e s to  are s u b s i d i z e d . In Norway, the  financial  operating  be  are  by the n a t i o n a l economy."  economic  or  8  E r a z i l , the DSSB anc the Eastern Bloc  l o s s e s i n c u r r e d by the n a t i o n a l l i n e s  countries,  all  shipping  by  the government. S i m i l a r i l y , i n Spain, the f e d e r a l government  pays operating  subsidies  to two s h i p p i n g  companies  are  covered  engaged  in  s p e c i a l s e r v i c e s i n the n a t i o n a l i n t e r e s t , a l l l o s s e s on c o a s t a l shipping  are  are c l a s s i f i e d  JA  paid  by the government s i n c e such o p e r a t i o n s are  as being  a "public  Government-Provided  utility."  Facilities  In many of the c o u n t r i e s r e v i e w e d is  actively  9  involved  in  port  ( e s p e c i a l l y i n Singapore  and  the  1 0  the f e d e r a l  expansion South  and  American  government development countries).  However, the most common example o f government provided was that of research In  Japan,  services  funding. ,  there  are  two  ship research  departments that  r e c e i v e government funding;  the Ship Research I n s t i t u t e and the  Nuclear  agency. , In  Ship  Development  B r i t a i n , the government  68  supports  the  shipping  research,  p r o j e c t s and Eoth  National  the  shipping-related  percent In  and  and  Norway  research.  most  of  the  and  operators  may  insurance)  cover  the  partial  p r o j e c t s although only about 2 shipping-related research  projects.  i s done by  private  q u a l i f y for state assistance. including  marine  operators  premiums.  purchase  from  R&D  In F i n l a n d , the government may  ship  insurance  funds to s e l e c t e d  for  In I n d i a , a l l insurance,  subsidized  some  funding  shipping  such p r o j e c t s may  nationalized  does  provide  of such grants are used f o r  Norway,  which  Ship Researach A s s o c i a t i o n . ,  c f p a r t i c u l a r research  f i r m s but  been  laboratory  also apportions  Eritish  Finland  50 percent  Physical  In  are  the  insurance,  has  benefitting  from  United  States,  s p e c i a l types of insurance  government  that  U.S.  (i.e.,  war  otherwise  be  institutions  for  might  unavailable. Many  countries  t r a i n i n g seamen and program  of  provide  schools  o f f i c e r s . For  retraining  and  example,  shipyard  France  employees  who  supports move to  a  other  industries. Finally, designed  i n both B r i t a i n  to  protect  unpredictable"  C._ S p e c i a l The  most  escalations in builing  there  from  are  programs  "exceptional  and  costs.  Subsidies prevalent materials  form  of  duties and  taxes. In Spain and  to  France  shipbuilders  exemption  granted  and  of  special  subsidies  is  the  to be used i n s h i p b u i l d i n g , from custom Canada, t h i s  exemption  is  imported m a t e r i a l s t h a t are used f o r s h i p s t h a t  only are  69  to b€ exported. However, Italy,  West  Germany,  in  most  China,  Brazil,  Netherlands) t h i s duty exemption available  countries  on  (United  France, Belgium and  construction  to both domestic and exported  repair,  and  reconditioning  s h i p s . Quite o f t e n  custom rebate of 6 percent help  offset  the  Spain, a rebate  on new  generally  of 7 percent  of  is this  alteration,  s h i p s . In Norway, a  imported s h i p s i s  higher  the  material  duty exemption i s extended to m a t e r i a l s used i n the cleaning,  Kingdom,  granted  to  Norwegian custom t a x e s . In  i s given on m a t e r i a l s imported  and  used in the c o n s t r u c t i o n of domestic s h i p s . The  following  m a t e r i a l s and  countries  also  exempt  imported  ships,  s u p p l i e s from a value-added-tax; Belgium, Denmark,  France, West Germany, Netherlands, Sweden, I t a l y and  the  United  Kingdom. . Peru  is  a  good  example  cf  a  country  s u b s i d i e s , i n the form of d i s c r i m i n a t o r y that  country,  dry-docking ten  for  practices,  special  exist.  i t c o s t s P e r u v i a n - f l a g v e s s e l s $0.05 per  privileges, the  same  while f o r e i g n - f l a g v e s s e l s pay  s e r v i c e s . S i m i l a r l y , Peruvian  only h a l f of the r e g u l a r  prescribed  services.  vessels  foreign  where  Peruvian-flag flag  operators  for  rate  pay  the  for  40-50  following  ton f o r $0.15  operators  ship percent items;  In  a pay  clearance l e s s than mooring/  unmooring, wharf demurrage, docking f o r r e p a i r s , and f u e l i n g . Shipowners  i n Panama are not  crew members' s a l a r i e s provided  r e q u i r e d to withhold  they are not engaged i n  tax from coastal  trading. Special introduced  subsidies  abound  l e g i s l a t i o n intended  in  Greece  which  has  recently  to coax Greek s h i p p i n g i n t e r e s t s  70  tack  to Greece. In that country,  loans  to shipping  covering  banks  can  extend  short-term  companies f o r p a r t i c u l a r reasons; such as f o r  r e v i c t u a l l i n g , f o r compensating  discharged  seamen  or  making advance payments t c the  f a m i l y of crew members. Banks are  also  without a supporting  day  authorized  to d i s c o u n t ,  promissory notes of  under the  shipping  companies  operating  seamen and deposits  benefits  with  Greek above  vs, ,5 percent  for  commerical  t o open f o r e i g n  banks  at  domestic market r a t e s  savings  accounts).  rates (i.e.,  Also  s e r v i n g onboard sea  vessels)  p. Tax Taxes  6.25  percent of  Greek  ( i n c l u d i n g seamen  property  (11-  i n Greece through  the  of f o r e i g n exchange.  Subsidies are a prominent f a c t o r i n determining where s h i p p i n g  companies l o c a t e and  conduct t h e i r business.  s u r p r i s i n g to f i n d t h a t many c o u n t r i e s subsidies  tc  shipping  Therefore,  it  is  o f f e r very a t t r a c t i v e  companies that choose to l o c a t e i n  countries. One  offering  way  of  attracting  generous  shipowners  depreciation  to  allowances.  a  country  ship  percent  involved. t c 15 percent  In  China,  depreciation  f o r tankers and  is  by  In some c o u n t r i e s  d i f f e r e n t d e p r e c i a t i o n r a t e s are allowed depending on of  are  are exempt from t r a n s f e r taxes  13 percent) i f they purchase r e a l importation  currency  that  persons  descent, e s t a b l i s h e d abroad or employed abroad  their  vessels  are a l s o extended to Greek seamen. Greek  workers abroad are permitted  substantially  tax  90-  Greek f l a g .  Special  not  voucher,  the  type  allowances are  15 t o 20 percent  12  f o r cargo  71  carriers  while i n West Germany  1 1  active l i f e types. the  1 2  of 14 years f o r cargo  the  rates  v e s s e l s and  In the United Kingdon, up to a 100  first  year  may  are  based  percent d e d u c t i o n i n  be made on newly c o n s t r u c t e d v e s s e l s . The  The c a l c u l a t i o n of d e p r e c i a t i o n allowances be based  an  12 years f o r other  r a t e on second-hand s h i p s i s 25 percent s t r a i g h t  may  on  line.  1 3  f o r tax  on a s t r a i g h t - l i n e , d e c l i n i n g balance,  purposes  or  formula  b a s i s . In I t a l y a s t r a i g h t l i n e r a t e of 10 percent i s permitted. In  Eelgium  off  during the f i r s t  of  year c f a v e s s e l ' s l i f e ,  the next 2 years, and then  ship may  20 percent of a v e s s e l ' s c a p i t a l c o s t may  is  10 percent  each  year  until  a g a i n s t income during the f i r s t  life,  remaining  guarter over the next t h r e e y e a r s .  Swedish  one  ship  allowances,  a  30  guarter  over  operators percent  are:  percent on passenger, 5-7  Norwegian  may  operators  depreciation cr  three years of  next two years and  choice  of  balance  t a n k e r , ore  depreciation  or  a five-year  carriers  and  choose methods.  straight-line  depreciation,  v e s s e l s before they  are  other  percent on dry cargo s h i p s . However, between 17  method  twice t h a t of the s t r a i g h t - l i n e  Denmark,  the  1 5  In may  two  alternative  Germany, be  either  used,  but  d e c l i n i n g balance method i s used the r a t e a p p l i c a b l e i s  advance  a  In Norway, the o r d i n a r y d e p r e c i a t i o n allowances  s p e c i a l trade s h i p s and  accelerated  a  declining  life.  1 6  the  have  straight  to  the  1  vessel's  declining  15 percent i n each  f u l l y d e p r e c i a t e d . * In France, h a l f the v e s s e l ' s c o s t  te charged  6-8  be w r i t t e n  method.  allowing  actually  the  i f the limited  18  shipowners  received,  is  to d e p r e c i a t e permitted  in  Sweden, and the Netherlands. In Denmark, 30 percent of  72  a vessel's contracted signing  price  of the c o n t r a c t  and  may  be  period  investment allowances.  1966-60.2°  m  cost  be  Best  on s h i p s  depreciated  in  form  of  depreciation  or s p e c i a l d e p r e c i a t i o n  Germany, owners may  allowance methods.  regular  allowances permitted. .This p r i v i l e g e are using  cf the  v e s s e l s c o s t and  fund.  cost  may  be spread over the f i r s t  the  c o n t r a c t but year.  2 3  deductions  In  2 2  percent percent  can  in  only be  s h i p s over 3,000 g.r.t.)  may  effective  choose  15 percent  over  two  the  special  special  30  owner's  construction date in  of any  depreciation  egual to 20 March,  15  percent 1981.?*  of In  depreciation years period  not or  25  the amount not to exceed  50  income."  States, a reserve  of  be claimed  d e p r e c i a t i o n f o r the  four years,  of "otherwise taxable  In the United  by  of c o s t a l l o c a t e d over f o u r  times o r d i n a r y  cost  between  agree to  used i f a t l e a s t  may  until  the  depreciation  three y e a r s from the  more than 15 percent  year,  who  excess  of a s h i p ' s  (on  1 1/2 of  spread  i s only f o r German  losses  Japanese government grants  owners  to exceed  in  special  The  alternatives,  example,  The  I t a l y , 40 percent  not  c o s t s i n the f i r s t Norway,  is  For  of the c o n s t r u c t i o n c o s t s were f i n a n c e d  capital  one  assistance  s t r a i g h t - l i n e d e p r e c i a t i o n and  cannot be used to generate accounting  percent  regular  f i v e years of a v e s s e l ' s l i f e i n a d d i t i o n to  s h i p f c r at l e a s t e i g h t years.  percent  of  ship's  deduct allowances of 40 percent  first  keep the  during  of a  advance  over the  owners who  Similar  9  delivered  the Netherlands, o n e - t h i r d  the  21  Another accelerated  can  between  the a c t u a l d e l i v e r y date. *  c o n d i t i o n s e x i s t i n , Sweden but only the  written-off  2S  fund program known  as  the  73  Capital  C o n s t r u c t i o n Fund e x i s t s  CCF allow  the  realized  from  following the  (CCF). The r u l e s governing the  deposits  operation  of  proceeds from the s a l e or l o s s of investment  of  amounts  in  the  three separate accounts; the earnings  to  be  agreement a  vessel  fund.,The  ordinary  3)  2)  earnings  exist  deposits).  O.S. f o r e i g n  that  account  trade,  in  U.S..,  govern  Countries  (after  such  in  as  anual tonnage $2,50/n.r.t.)  the  O.S., Bules  different  base  vessel.  for 2 6  Panama, L i b e r i a , and Singapore: t o t a l l y  2  7  an  initial  the  operation  of  ships  registration  fee  (Liberia  Panama $1/n.r.t, Singapore $2.50/n.r.t. ) and an  fee of $ 1. 20/n. r. t . , Panama and  these  fees  Liberia will  years f o l l o w i n g the i n i t i a l  legislation  Singapore  exists  which  not be i n c r e a s e d during  the 20  legislation..  S e v e r a l other c o u n t r i e s have r e c e n t l y f o r shipping  Panamanian examples.  $1/n. r. t. ,  an annual tonnage fee of $0.10 per n . r . t . i n  both L i b e r i a and Panama. In that  operate  i n t e r n a t i o n a l trade. In place of income t a x , owners  and o p e r a t o r s must pay $1.20/n. r. t . ,  tax  from which accounts the funds f o r new ships  exempt from income tax, earnings from  exemption  of  noncontiguous domestic  determining the c a p i t a l c o s t of the newly a c q u i r e d  assures  into  Withdrawals from the fund must be used  drawn, since each account r e s u l t s i n a  engaged  from  (consisting  purchase U . S . - b u i l t and r e g i s t e r e d v e s s e l s that w i l l the  net  fund i s d i v i d e d  t r a d e , cn the Great Lakes, or the f i s h e r i e s of  are  earnings  from the o p e r a t i o n of s h i p s ) , the c a p i t a l gain account  depreciation  in  1)  vessels,  account  (gains from s a l e c f ships) and the c a p i t a l  to  made;  income  similar  introduced to  the  In China, income taxes a r e  tax-free  L i b e r i a n and  not  levied  on  74  newly  b u i l t Chinese  a ship's o p e r a t i o n . a  r e g i s t e r e d s h i p s f o r the f i r s t 4-5  In Cyprus "income d e r i v e d by the owner  2 8  C y p r i o t s h i p f c r a p e r i c d cf 10 years u n t i l  taxed.  1983"  will  of  not be  2 9  As  was  introduced  mentioned special  previously,  emergency  the  Greek  legislation  as  government  part of a major  e f f o r t t o r e p a t r i a t e the Greek f l e e t o p e r a t i n g abroad. among  these  for  laws waived a l l forms of t a x a t i o n ,  shipping  companies  Greek s h i p s are new Emergency  Included  l e g i s l a t i v e changes were s e v e r a l tax measures. For  example, the new fees  years o f  law  that  465,  "First  and  are e s t a b l i s h e d i n Greece.  taxed on a tonnage/age  So.  duties  base.  Category"  According  ships  to  are taxed  3 0  according to the f o l l o w i n g schedule; Ship Age  O.S.  Over 10 but l e s s than  $ charge/ net ton  20 years  $0.20  Over 20 but l e s s than 25 years  0.30  Over 25 years  0.40 /  Ships l e s s than ten years o l d are granted they  reach  that  age  enjoy a twelve-year years  old  that  exemption  until  while G r e e k - b u i l t and r e g i s t e r e d v e s s e l s  tax h o l i d a y . F i n a l l y ,  are  tax  reconstructed,  Greece are e l i g i b l e f c r p a r t i a l tax  ships  less  than  20  converted, or r e p a i r e d i n  exemption  for  a  ten-year  pericd, 2s. FINANCIAL ASSISTANCE IN THE As  was  CAPITAL PHASE  dene i n the previous chapter, f i n a n c i a l a s s i s t a n c e  i n the c a p i t a l phase  will  be  subdivided  into  the  following  t  75  categories;  lean  guarantees,  direct  loans,  construction  s u b s i d i e s and government ownership.  A loan Guarantees Since 1950s,  the r e c o n s t r u c t i o n of the Best German  the German  supported v a r i o u s such  governments,  both  are  usually  tied  c o n s t r u c t i o n , a t the f e d e r a l  level  national  of  Both  mortgages covering  levels  t o government a u d i t s before Belgium,  the  to they  the  Only  certain  guarantee p r o g r a m .  o f the  initial  may  Q u a l i f y i n g loans  and  government  kinds  guarantees  not  of  loans  and  may  31  only  the  administration  qualify  extended to shipowners by Greek  gualify  f o r the  financial  f o r t h e Greek Government Guarantee.  are those made f o r Greek b u i l t  and  of the v e s s e l ' s  bear a maximum r a t e of 7.5 percent  between  second  investment.  such guarantees a r e granted.-  Bank of Greece w i l l reimburse difference  to the  f o r such guarantees and a r e s u b j e c t  s h i p s t h a t do not exceed 80 percent cost  and  32  In Greece, l o a n s institutions  level  projects linked  reimbursement of p r i n c i p a l but a l s o i n t e r e s t and Charges.  s t a t e , have local  local are  i n the  government have issued  60 to 80 percent  Owners pay 0.75 to 1 percent  In  and  loan guarantee programs. At  guarantees  flag.  local  fleet  financial  the 7.5 percent  registered construction  . F u r t h e r m o r e , the  institutions  f o r the  r a t e a p p l i e d on these  loans  the r a t e at which these i n s t i t u t i o n s may have t o borrow.  addition, margin.  the  institutions  are  guaranteed a 2 percent  In  profit  33  In Norway, where i t has been estimated t h a t 80  percent  of  76  ship  financing  is  government  loan  shipowners  to  done  obtain  abroad  program.  the  government  ($98  applies  domestic or program  tc  guarantees  the  a  obtained  loan  by  institutions.  United  c l e a r i n g banks  and f o r ships  guarantee  Swedish  Since  are  Kingdom, eligible  loans for  program  s h i p y a r d s from  1977  the  guarantee  banks,  will  issue  a  principal  provides  payments  construction  of  ships. * 3  for  is  a  program  qualify  must  insurance on i n t e r e s t and  mortgages  used  certain  vessels.  To  to  be  finance  eligible  a l l be U.S. ..citizens.  3 7  v e s s e l s plus tankers, towboats,  dredges  Title  the  and  the  barges  may  fishing  that  are  p r i n c i p a l l y f o r r e s e a r c h or to be used i n the domestic  or f o r e i g n commerce of the U.S.  limit  and  the  for  The v e s s e l s which  f o r the loan guarantee are passenger, cargo, and  desicned  called  government  guarantee, the managing agent, the bareboat c h a r t e r e r , shipowners  The  f i n a n c i a l guarantee on l o a n s intended to  F i n a l l y , i n the United States there that  guarantees.  under arrangements with the  encourage the e x p e r t of B r i t i s h - b u i l t  XI  35  extended t o shipowners by  government  Export C r e d i t s Guarantee Department,  exceed  ships  has been extended to i n c l u d e loans to s h i p o w n e r s .  In  Title  for  million).  loans  foreign  Norwegian  at reasonable  m i l l i o n i n 1977)  Sweden i s another country with which  enable  required  issues  $308  e x i s t s an e x t e n s i v e  To  finanacing  (totalling  b u i l t domestically  there  3  guarantee  r a t e s , the Norwegian bought  abroad, *  75 may XI  percent  of  to  not  the c o s t ; however, i n s p e c i a l c a s e s the  be i n c r e a s e d to 87 is  Normally, the guarantee may  encourage  1/2  percent  private  .  3 8  The  enterprise  purpose rather  of than  77  government involvement i n the f i n a n c i n g of s h i p s . , As the  O.S.  government  approximately $5.8  J.  had  billion.  loan  advancing  outstanding  of  3 9  M i n i s t e r of  i n t e r e s t bearing  the c o n s t r u c t i o n maritime  of  equipment.  guidelines  limit  These  the  Commerce  or  and  if  a  project  for  renewing  or  developing  must meet the Opportunity f o r guidelines.,  of the loan to 70 percent such loans may  have  a  The  of  the  maximum  not have i n t e r e s t r a t e s of l e s s than 8  . I n t e r e s t - f r e e loans  Ministers  responsible  Development's (OECD)  amount  may  for  loans  v e s s e l ' s c o n s t r u c t i o n c o s t s , and of 7 years,  is  loans to s h i p b u i l d e r s to be used f o r  vessels  Economic Co-operation and  percent  1977,  D i r e c t Loans  In Belgium, the  term  guarantees  of  is  may  be approved by the C o u n c i l  deemed  as  being  i n the  of  national  interest. ° 4  In Denmark, the Ship C r e d i t Fund, approves loans t o owners  f o r ships  purchased e i t h e r d o m e s t i c a l l y  are also a v a i l a b l e t c vessels.  Also  maximum of 50  the  program was  the  for  The  construction  percent the  new  introduced  domestic yards.  owners  government may  percent  of s h i p s of f a i r l y  foreign  Danish  or abroad..Loans  purchasing  Danish-built  extend c r e d i t , amounting to a  of the t r a n s a c t i o n value, f o r the c o n s t r u c t i o n . In October, 1977 f o r Danish owners purchasing  purchase  a new  loan  ships  from  terms were a maximum c r e d i t of 30 percent costs,  a  ten-year  repayment p l a n , and  r a t e of i n t e r e s t . There a l s o e x i s t s supplementary difference  between  the  guidelines for ships constructed  domestic  i n foreign  program yards.*  1  and  of  an 8  credit OECD  78  In West Germany, i n d i v i d u a l government loans may $3  million  cnly  5.5  percent  twelve years and the i n t e r e s t  (1976  agreement provided f o r a  terms).  two-year  Provisions  grace  period  repayments cn p r i n c i p a l needed to be made.* Shipping companies i n West Germany may l e a n s cn c o n v e r s i o n s interest),  the  years, at 7.8 repairs  exceed  or 70 percent of the s h i p ' s c o n s t r u c t i o n c o s t s . The  maximum repayment period was was  not  i n the l o a n  in  which  a l s o be e l i g i b l e f o r  of c e r t a i n s h i p s *  percent with  a  2  1/2  no  2  (repayable over seven y e a r s , a t 7.5  building  rate  (twelve and  3  year  percent  grace  a half  period),  or  (up t c 80 percent at 9 percent r a t e s ) .  Japan  is  v e s s e l s and  the world's most p r o d i g i o u s producer of deep-sea  i t i s not s u r p r i s i n g to f i n d t h a t  the  industry  is  a s s i s t e d by a goverment l e a n program. T h i s program, administered under a u s p i c e s cf the Development Bank of Japan extends to  7G  percent  l o a n s ranged The  from  Japanese  associated  cf  a  6.5  s h i p ' s c o s t . The percent t c 7.5  government may  with exported  loans up  i n t e r e s t r a t e s on  percent as of  a l s o covers one  &pril  these 1977.  t h i r d of the c o s t s  v e s s e l s , and a f u r t h e r 27  percent  may  be paid as a loan d i r e c t l y to the s h i p y a r d . * * Three  European  c o u n t r i e s , I t a l y , P o r t u g a l and S p a i n , a l s o  have government loan programs.  In  Italy,  granted  of  the  up  tc  70  percent  shipowners  cost  of  repayable  s  fifteen  years  maximum at 15.5  i n t e r e s t expense i s s u b s i d i z e d 3,000  g . r . t . . In  by  be  construction,  modernization, or r e p a i r c f s h i p s . " * On these loans, over  "may  percent i n t e r e s t , h a l f the  the  government  greater  than  Portugal  the  extended  an open l i n e of c r e d i t t o cover the needs  on  vessels  government of  the  has two  79  government-owned  shipping  e s t a b l i s h e d by Royal  companies.  In Spain, a l o a n program  Decree grants e i g h t to twelve year l o a n s on  c e r t a i n v e s s e l s at i n t e r e s t r a t e s of 7 . 5 - 8 Among the Scandanavian permitted  the  terms  purchase  of  attractive rates  on  to  l e s s e r developed  Norwegian-constructed  vessels  9  percent  were  7  especially interest  o f 5 - 6 percent with a 3 - y e a r grace p e r i o d ) . .Loans made t o  and  may  be  facilities  are  twelve-year  i n t e r e s t f r e e . In Sweden, there i s somethng  c a l l e d the " w r i t e - o f f l o a n " f o r Swedish owners purchasing from domestic 25  .*  c o u n t r i e s f o r the  ( 9 0 percent of the c o s t s , 1 5 years to repay,  shipyards f o r the r e s t r u c t u r i n g of loans  March 1 9 7 7  mortgages up to 8 0 percent o f  r a t e s i n the range 8 1 / 2 t o loans  6  c o u n t r i e s , Norway as of  issuance of second  c o s t s with i n t e r e s t Credit  percent.*  yards. The  f i v e - y e a r loan may  be granted f o r up to  percent Gf the v e s s e l ' s c o s t . I f at the end of f i v e  assessed  value of the s h i p i s g r e a t e r than the o r i g i n a l  c o s t , then the g a i n must be shared  5 0 / 5 0  ships  years the purchase  with the government.*  8  F i n a l l y , i n B r a z i l the government g r a n t s c r e d i t to s h i p p i n g lines  up  to  85  ship constructed rates.*  percent of the c o s t s a s s o c i a t e d with having a in  Brazilian  yards  at  8  percent  interest  9  £s. C o n s t r u c t i o n S u b s i d i e s In B r a z i l , help  finance  the Marine B e f i n a n c i n g F u n d , the  construction  5 0  s u p p l i e s funds to  of cargo v e s s e l s b u i l t i n that  country. The shipowners are able t o borrow money from and  must  repay  to  the  fund  the fund.an amount e q u i v a l e n t t o estimated  c o n s t r u c t i o n c o s t s of a s i m i l a r s h i p b u i l t  abroad. , I n  effect,  80  the  Erazilian  government  is  d i f f e r e n c e between the higher lower  foreign  accruing  yard's  subsidizing  shipowners  B r a z i l i a n building costs  costs.  Obviously,  no  real  f o r ships that they would have paid i f there had they had  can  higher  intended  construction ordered,  5 1  1980,  for  subsidy The  containerships,  French that  subsidy  on  small  orders  ordering  varies  with  rates  are,  carriers.  may  5 2  the  kind  (15  i n foreign  for  of  percent  ship  percent)  on bulk c a r r i e r s  A modernization subsidy  a  for for  and  3  exists in  to put  with the  such a i d of  must  be  repayed  (4-year  limit  on  a f t e r 1979). A f t e r s i x years, the amount of  to be r e p a i d  d e c l i n e s by  Dutch government has  construction  cost.  Dutch-built,  registered,  interest  best  SO/RO v e s s e l s , 10 percent  20 percent  per  percent  To g u a l i f y f o r the subsidy, and  of  rates.  5 3  a  ship's  v e s s e l s must be  crewed. , S h i p b u i l d e r s  s u b s i d i e s that are intended  extend c r e d i t at competitive  year.„  undertaken to repay shipowners f o r  f i v e years an annual amount egual to 4.75  receive  if  I f these v e s s e l s are s o l d w i t h i n s i x years the  constructed  the subsidy The  abroad  French-rbuilt  i s paid to German owners agreeing  amount of the subsidy  vessels  subsidy  gualify  under German r e g i s t r y v e s s e l s c o n s t r u c t e d  such s u b s i d i e s . full  place  registry,  barge c a r r i e r s and  West Germany, and ships  only  shipowners  v e s s e l s with s e v e r a l decks, 2-8 percent  been no  than f o r a s i m i l a r s h i p c o n s t r u c t e d  Between 19 76 and  ships  same p r i c e  show t h a t domestic c o n s t r u c t i o n c o s t s would be at  10 percent yards.  the  been allowed to purchase s h i p s abroad. .  In France, French owners may they  and  benefit i s  to the shipowners, s i n c e they are paying the  program and  f o r the  also  may  to enable them to  81  In I t a l y , i n a d d i t i o n to the paid  cn  subsidy  Italian-built program.  replace  them  s h i p s , there  Shipowners  with  regular  who  approved  30  percent  subsidy  i s a l s o a "scrap and  scrap  vessels  obsolete may  build"  vessels  and  r e c e i v e a subsidy of  30,000 l i r e per weight ton ($417 Cdn/ton). V e s s e l s scrapped must be at l e a s t put  15 years  under I t a l i a n In  first  the  o l d and the new  vessel constructed  r e g i s t r y f o r a minimum f i v e - y e a r  United  Kingdom, new  period.?  Act  of  1975  5  provides  extensive States  f o r government c r e d i t t o help by  U.K.  shipyards  construction  subsidy  program e x i s t s i n the  pursuant t o T i t l e V of the Merchant Marine Act  1936. . According  actual  The  5  An United  4  (ECC).  f i n a n c e the c o n s t r u c t i o n of ships i n U.K. .yards ordered owners. '  be  s h i p b u i l d i n g and programs must  be approved by the European Community C o u n c i l  Industry  must  to  the  Act,  f o r an amount egual  the  to  government  the  will  difference  of  subsidize  between  the  U.S. c o s t s and a r e p r e s e n t a t i v e f o r e i g n c o n s t r u c t i o n , up  to a maximum cf 50 percent  of  the  vessel's  actual  cost.  To  q u a l i f y , the f o l l o w i n g c o n d i t i o n s must be met, the owner must be a U.S. r e s i d e n t , the s h i p must be placed under U.S. at  least  twenty  years,  and  i t  seamen. * M i l i t a r y f e a t u r e s b u i l t 5  must  be  registry for  crewed by American  i n t o a s h i p ' s design are f u l l y  paid by the government.  Jk Government  Ownership  E r a z i l , i s probably ownership  in  one of the best examples of  international  c o n t r o l s 80 percent  s h i p p i n g . , The  government  government  of the merchant f l e e t tonnage  and  there  a l l the  82  operating  losses  of  L l o y d B t a z i l e i r o , the country's  f o r e i g n trade s h i p p i n g company, are covered  by  The  shareholder i n Lloyd  government  is  by  far  the  largest  the  principal  government.  B r a z i l e i r c , the Vale de B i o Dcce Nabegacao (DOCEHAVE iron  ore)  nation's  and  i n F r o t a Nacionale de P e t e r c l e i r o s  largest  involvement  tanker  fleet.,  Government  oil  (FBQNAPE) the  ownership  France  5 7  i s another  country where the government i s a c t i v e l y  i n v o l v e d i n s h i p p i n g . The  government of t h a t  any  by the n a t i o n ' s l a r g e s t s h i p p i n g  losses  experienced  the Ccmpagnie Generale contributes  Maritime.  In F i n l a n d , the  Furthermore,  the  makes  up  line,  government  Ltd.  5 8  government  has  Valmet  a  minority  interest  in  (a F i n n i s h s h i p p i n g company), and has e q u i t y i n  s e v e r a l non-commercial s h i p s , such ships.  country  a s u f f i c i e n t subsidy to pay a small dividend to i t s  shareholders.  Finnlines  and  e x i s t s t o the same extent i n most of the other South  American c o u n t r i e s .  public  and  Oy,  the country's  as  icebreakers  and  survey  l a r g e s t s h i p producer,  i s also  c o n t r o l l e d by government i n t e r e s t s . In Sweden the s h i p y a r d s have been n a t i o n a l i z e d under a h o l d i n g Corporation.  In  Denmark,  company  government  known  ownership  f e r r y s e r v i c e s cn i n t e r n a l routes or o p e r a t i n g and  as  Swedyards  i s l i m i t e d to  between  Denmark  Sweden or Germany. The  government  s h i p p i n g through  i n L i b e r i a has r e c e n t l y become i n v o l v e d i n  the L i b e r i a n Shipping C o r p o r a t i o n  become a 50 percent p a r t n e r i n two T o t a l Involvement and The A  (LSC)  L i b e r i a n Shipping  Providence  and  has  companies,  Shipping Company.  59  high degree of B r i t i s h government ownership i s vested i n  83  the  B r i t i s h Shipbuilding Corporation  1977.  The  corporation  c o n s i s t s of  d i e s e l marine engine companies and t o t a l l y government owned, The BP  Tankers  Petroleum,  (BSC)  established  July  1,  19 s h i p b u i l d i n g companies, 5 3 t r a i n i n g companies  and  is  government a l s o has an i n t e r e s t i n  through i t s i n t e r e s t i n the  parent company, B r i t i s h  60  Is. - NONFISCAL ASSISTANCE MEASURES The  l a s t form of a s s i s t a n c e measure to be examined i n  chapter i s n o n f i s c a l measures. N o n f i s c a l measures do not any  direct  as being,  cash t r a n s a c t i o n s or c r e d i t , and a)  cargo  preference,  b i l a t e r a l agreements and  JU  d)  b)  flag  can be  this  reguire  categorized  discrimination,  c)  others.  CARGO PREFERENCE  In  most  practices  of  were  cargoes.  the  countries  restricted  However,  in  some  to  studied,  government  cargo aid  preference  and  military  c o u n t r i e s cargo preference  extended to cover s p e c i f i c commodities  thought  to  be  i s also in  the  national i n t e r e s t . In  B r a z i l , and  imports and  most of the other South American  exports i n which the government  provides  countries, financial  a s s i s t a n c e must be c a r r i e d i n n a t i o n a l - f l a g s h i p s when a v a i l a b l e (unless a 50-50 b i l a t e r a l agreement i s i n e f f e e t ) . The government  also  petroleum and  has  has  a  monopoly  proclaimed that a l l  Peru,  the  the  products  Compagnie Peruana de Vapores (CPU)  i s to be  bottoms.  ordinary  t r a n s p o r t a t i o n of paper  must be c a r r i e d i n n a t i o n a l In  over  Brazilian  61  8a  given preference also,  In the  a l l cargoes  carriage  France,  domestic  a l l government  cargoes,  that are exempted from import d u t i e s must be  c a r r i e d i n Peruvian s h i p s . * In  of  2  two-thirds  of  the  crude  o i l imported  usage must be c a r r i e d i n F r e n c h - f l a g s h i p s or i n s h i p s  belonging to approved c h a r t e r p a r t i e s , .ftn a n t i g u a t e d law in  for  1931  d i c t a t e s that 50 percent of French  be c a r r i e d i n French  v e s s e l s ; however,  passed  c o a l e x p o r t s are t o  waivers  are f r e g u e n t l y  granted t o f o r e i g n o p e r a t o r s wishing to c a r r y c o a l e x p o r t s , Four  countries  that  have  p r e f e r r e d cargo are: Korea, Saudi Saudi  designated  petroleum  6 3  as  A r a b i a , Mexico, and Spain.  a In  Arabia, 25 percent of t h a t country's o i l e x p o r t s a r e to be  carried  i n Saudi-owned t a n k e r s . In Korea and Spain, o i l i s only  one  several  of  Ministry  of  protected  Korea  commodities.  stipulates  that  The  imported  l o g s , g r a i n s , and f e r t i l i z e r s are to be c a r r i e d ships  whenever  Spanish  imports  Mexico, the  p o s s i b l e . Petroleum,  tobacco  Transportation crude, i r o n o r e , in  Korean-flag  and c o t t o n a r e the  that are r e s t r i c t e d t o n a t i o n a l f l a g v e s s e l s . I n  government  nation's o i l tanker  agency  PEMEX  owns  and  operates  the  f l e e t t h a t moves a l l the o i l e x p o r t s o f that  country. In  the  United  States,  the Cargo Preference A c t o f 1954  provides t h a t 50 percent c f s p e c i a l i z e d goods must be c a r r i e d by privately-owned goods  are  U.S.-flag ships  avaiable.  as  including  "goods  government  f o r i t s own  accounts,  goods  government  f o r the account  which  government  the  defined  when  has  the  purchased provided  specified by the by  the  of any f o r e i g n n a t i o n , and goods f o r advanced  funds."**  The  Military  85  Transportation sea  Set  for the U.S.  dictates that a l l supplies transported  6 5  armed s e r v i c e s  must  be  carried  aboard  by  U.S. „  r e g i s t e r e d or owned v e s s e l s .  Jk ELAG DISCRIMINATION Flag d i s c r i m i n a t i o n r e f e r s to "a v a r i e t y of p o l i c i e s , laws, regulations, favour  or t r a d i n g p r a c t i c e s that some c o u n t r i e s employ t o  t h e i r own  practices  shipping  industries."  It  6 6  seems  are becoming mere and more p r e v a l e n t  s h i p p i n g , e s p e c i a l l y i n the South American  that  such  in international  countries.  In B r a z i l , i t i s government p r a c t i c e to approve o n l y conferences  in  vhich  Lloyd  Brasileiro  conferences that are approved may  those  i s a member, and  engage i n s h i p p i n g  operations  i n B r a z i l . Such r u l e s guarantee a p o r t i o n of the B r a z i l i a n trade f o r the B r a z i l i a n - f l a g v e s s e l s of L l o y d In  Peru,  Decree Law  p u b l i c bodies are Vapores export.  (CPV) Fifty  monthly basis) In  the  No. .50759 (Oct.  to give  in  the  percent  preference  of imports and  Phillipines,  income f o r tax purposes, 150 they use 200  Phillipian-flag  percent  Investments.  if  the  of  exports  exporters  (calculated  if  on  is  a  ships.  are allowed t o deduct from of t h e i r shipping  costs  vessels. This p r i v i l e g e i s increased  company  de  goods f o r import or  if to  r e g i s t e r e d with the Board of  6 9  In Mexico, a cheaper export tax i s charged cotton  6 7  d i c t a t e s that a l l  for Peruvian-flag  percent  liner  to the Compania Peruana  transportation  must be r e s e r v e d  Brazileiro.  74)  only  they  P r o v i s i o n s under the  are  transported  Mexico Expert Tax  in  for  Mexican-flag  allow  honey  and  vessels.  s p e c i a l rebates  if  86  Mexican insurance Cabotage  agents or c a r r i e r s are  is  another  form  of  used.  flag  7 0  discrimination  that  "denotes the widespread p r a c t i c e of r e s e r v i n g the t r a d e a l o n g nation's  coast  perhaps the  to  s h i p s of the  oldest  and  most  national f l e e t " .  common  form  of  a  Cabotage i s  7 1  assistance  to  s h i p p i n g . In Europe, the f o l l o w i n g n a t i o n s have invoked cabotage legislation; Greece,  Denmark,  Finlnd,  France,  West  Germany,  Spain,  Italy.  Some c o u n t r i e s may  make allowances to cabotage r e s t r i c t i o n s  i n case of a shortage of n a t i o n a l - f l a g v e s s e l s . For example, Brazil,  coastwise  trade i s reserved  for national ships  p u b l i c i n t e r e s t demands an i n c r e a s e i n s e r v i c e s vessels  cannot  allowed  supply."  In  7 2  i n domestic trade only  which  coastwise  trade  is  reguired  them  tc  restricted  take  to  United  U.S. , b u i l t .  U.S.?  4  £A  to  vessels,  obtain  a  permit  providing  the  States,  vessels  must  not  only  be  U.S. ,  coastwise trade, but they must a l s o  Other l e g i s l a t i o n extends the c o a s t i n g laws to  t e r r i t o r i e s and  possessions.  BILATERA1 TRADE AGREEMENTS  Many c o u n t r i e s their  In Panama,  A  r e g i s t e r e d to engage i n U.S. be  7 3  are  available  Panamanian-flag  part i n c o a s t a l s h i p p i n g  fee i s p a i d .  In the  national  i f no German s h i p s are  however, i t i s p o s s i b l e for f o r e i g n s h i p s enabling  "unless  West Germany, f o r e i g n s h i p s  or i f only a v a i l a b l e at s u b s t a n t i a l l y higher r a t e s .  in  national  7 5  , i n an endeavour t o guarantee  f l e e t s , have signed  c o u n t r i e s . These agreements g e n e r a l l y  cargo  trade agreements with apportion  trade  for other  between  87  the c o n t r a c t i n g s t a t e s on a 50/50 b a s i s . , In  Brazil,  Resolution  3669, dated  April  1974, o r i g i n a l l y  s t i p u l a t e d t h a t c o f f e e and cargo shipments from U.S.. were  to  be  O.S.-flag v e s s e l s . 40/4 0/20  basis  reserved The  (40  Brazil  to  on a 50/50 b a s i s f o r B r a z i l i a n and  rule  was  percent  actually  reserved  implemented  on  agreements  Uruguay  and  Algeria.  Further  have a l s o been signed with the USSR, Poland, Romania  West Germany. France  a  1971  a 50/40/10 p l a n . B r a z i l a l s o has 50/50 trade agreements with  Argentina, C h i l e , Mexico, Peru,  and  a  f o r B r a z i l i a n s h i p s , 40  percent American and 20 percent others) but was changed i n to  the  has 50/50 agreements with T u n i s i a n and A l g e r i a  40/40/20  agreement  with  the  plus  Ivory Coast. Germany has a l s o  signed a s i m i l a r agreement with the Ivory Coast. As o f 1978, Greece had signed s h i p p i n g agreements with  the  f o l l o w i n g c o u n t r i e s ; the O.S.S.E., Poland, China, and Singapore. I n d i a has agreements with B u l g a r i a , t h e S o v i e t Onion, Poland and the German Democratic the  R e p u b l i c . I n d i a a l s o has an agreement with  United Arab Republic which s t i p u l a t e s 50-50 p a r i t y i n terms  of cargo  tonnage and earnings. Agreements among other  include  South  Korea  and  the  countries  f o l l o w i n g c o u n t r i e s ; the United  S t a t e s , Best Germany, and Japan. . Finally, already  the  mentioned,  U.S., has, an  in  addition  understanding  to  the  with B r a z i l t h a t ensures  egual access to government c o n t r o l l e d cargoes  traded between the  two c o u n t r i e s . There even e x i s t s a trade agreement two  super  powers,  the  U.S.  agreements  between  the  and USSR that p r o v i d e s t h a t each  country s h a l l c a r r y a " s u b s t a n t i a l share"  {33 1/3 percent  )  of  88  the  b i l a t e r a l cargo traded between  them.  £ * 0 2 HJB NON FISCAL BEASU EES Included  in  this  section  are  measures that d i d not seem t o f i t three  categories.  These  flag-related  under  include  any  of  legislation  assistance  the  previous  r e s t r i c t i n g the  i m p o r t a t i o n of s h i p s , r e p a i r s t i p u l a t i o n s , and measures to combat  f l a g d i s c r i m i n a t i o n . In France,  statutory authority t c  restrict  the  the government has the  charter  agreements  French owners may  have with  f o r e i g n i n t e r e s t s . In Spain,  import  must  obtained  licenses  country  and  reluctance.  such  licenses  In  7 6  be  both  Peru  are  that  special  f o r s h i p s brought i n t o the  granted  and  intended  the  only  Onited  with  great  S t a t e s there i s  l e g i s l a t i o n t h a t favours  the r e p a i r of n a t i o n a l - f l a g v e s s e l s  domestic  late  yards.  introduced register  In  legislation their  circumstances  1 9 7 5 , the  allowing  ships  under  Norwegian  Norwegian foreign  ship  flags  government owners  under  national-flag  fleets  from  Shipping  s p e c i f i e s that  the  contracts  "government between  c o u n t r i e s which exclude Contracts  with  Policies  of can  German  Foreign restrict residents  German s h i p s from  carriers  protect  the d i s c r i m i n a t o r y a c t i o n o f  other c o u n t r i e s . In west Germany there e x i s t s "Measures  freight  certain  7 7  F i n a l l y , at l e a s t three c o u n t r i e s have measures t o  Detrimental  to  ( i . e . , Norwegian manning c o s t too high or t o avoid  flag discrimination p r a c t i c e s ) .  their  in  free  Countries"  Against which  conclusions and  of  c a r r i e r s of  competition."  r e s i d e n t i n B r a z i l , Burma,  7 8  Indonesia,  Uruguay, Venezuala and the East Block c o u n t r i e s must be l i c e n s e d  8 9  by the West German government. S i m i l a r also  exists  restrict  in  Italy  7 9  and J a p a n  8 0  retaliatory  legislation  where the governments may  the use of s h i p s , or p r o h i b i t t h e i r l o a d i n g /  unloa-ding  i f German ships are excluded from trade i n those c o u n t r i e s .  These the  are  the  shipping a s s i s t a n c e measures t h a t e x i s t i n  major maritime n a t i o n s , and i n some of  are  principal  trading  demonstrates how, and  to  partners what  with  extent,  naticrs  assist  guestion  c f , "Which c f these measures,  attempt  to  first  match"?  entitled  exist "Shipping  To  countries  Canada.. The governments  t h e i r shipowners and o p e r a t o r s .  necessary  currently  the  if  any,  that  chapter of  other  T h i s r a i s e s the should  Canada  be able t o t a c k l e t h i s g u e s t i o n , i t i s  to  examine  the  in  Canada.  This  assistance  P o l i c y i n Canada."  measures  i s done i n the next  that chapter  90  VI. SHIPPING POLICY IN CANADA The  previous  measures  examined  that e x i s t throughout the  what shipping discusses  assistance  current  important  world. Now  assistance  i t i s time to  p o l i c y , and  shipping  studies  of t h i s  nation's  shipping  with  see  chapter  some of the more  that have i n f l u e n c e d policy.  a presentation  Finally,  of the s p e c i f i c  the this  shipping  measures t h a t e x i s t i n Canada today.  - U ,HAJCF CANADIAN SHIPPING STUDIES OF THE Since oriented  shipping  measures e x i s t i n Canada. This  Canadian s h i p p i n g  finishes  assistance  the  Canadian  formulation chapter  chapter  1970  there  studies  have  conducted  been  two  PAST DECADE major  quantitatively-  i n v e s t i g a t i n g p a r t i c u l a r f a c e t s of  the Canadian merchant marine i s s u e . The  first  Associates  cf these,  produced i n 1970  f o r Transport  Canada, was  by  &  e n t i t l e d Canadian Merchant  Marine: A n a l y s i s of Economic P o t e n t i a l . , One study  Hedlin-fienzies  objective  of  the  was; To evaluate the p o t e n t i a l b e n e f i t s and c o s t s to the Canadian economy that would be a s s o c i a t e d with the o p e r a t i o n of p r i v a t e l y owned deep-sea Canadian s h i p s . 1  The  study a l s o attempted to q u a n t i f y  assistance  measures  that  could  the p u b l i c c o s t of be  used  to  various  encourage  the  development of a privately-owned Canadian deep-sea f l e e t . One benefits  of the c o n c l u s i o n s generated  by  also  commercially  report  was  that  a Canadian merchant marine are  s e n s i t i v e to assumptions and study  of the  cost  projections  the  "net  extremely  adopted."  2  The  i n v e s t i g a t e d the type cf v e s s e l s that would be most v i a b l e . In t h i s category  were  ships  over  45,000  91  d.w. t . oil  designed to t r a n s p o r t i r o n ore and  imports. These c o n c l u s i o n s  discount  rate,  However,  if  c o a l exports o r crude  sere based on a 6 percent a  higher  d i s c o u n t r a t e were used  (egual t c a p r i v a t e i n v e s t o r ' s expected return)  then none of  v e s s e l s i n v e s t i g a t e d would be economical. Furthermore, benefit  a n a l y s i s using the higher  efficiency  loss  if  Canadian  social  discount  the  a  cost-  r a t e showed a  social  privately-owned  ships  were  introduced. The  Hedlin-Menzies  study  also  conducted  sensitivity  a n a l y s i s on s e v e r a l of the model's key  v a r i a b l e s . These i n c l u d e d  the  private  usage  varying and  of  different  social  assumptions regarding  the  various other c o s t assumptions  sizes, scrap  vessel  costs,  interest  and  opportunity (i.e. rates,  discount  rates,  c o s t s of crewing,  fueling  costs,  v e s s e l l i f e and  crew vessel  value). with regards to s p e c i f i c measures intended  to encourage  development of a Canadian f l e e t , the study concluded by  the  saying;  The preceeding a n a l y s i s i n d i c a t e s that p r e f e r r e d forms cf a s s i s t a n c e would i n c l u d e l o a n guarantees as a b a s i c measure. In a d d i t i o n , investment grants, investment allowances, and direct government loans provide e f f e c t i v e methods f o r g r a n t i n g f i n a n c i a l a s s i s t a n c e to merchant s h i p p i n g . 3  and  furthermore  that;  The s e l e c t i o n of a p a r t i c u l a r type or form of assistance i s beyond the scope of t h i s study, and could involve consideration of non-economic goals r e l a t e d to Canadian merchant s h i p p i n g . * The  second  published Centre  major  i n September  cf Transport  following;  shipping 1977,  study done was  f o r the  Research  the and  Alcan  Study  Development  Canada. L i s t e d among the o b j e c t i v e s was  the  92  To q u a n t i f y and compare d i r e c t b e n e f i t s and costs which would accrue to the Canadian economy from the c a r r i a g e of bulk, neo-bulk, general carqo and c o n t a i n e r s i n s e l e c t e d commodity t r a d e s using: 1 . foreign shipping services 2. Canadian managed and operated f o r e i g n - f l a g ships 3. Canadian managed and operated Canadianf l a g s h i p s with v e s s e l s being purchased from the cheapest source of supply. , 4. Canadian built, managed, and operated Canadian-flag s h i p s 5  The listed  report p r o j e c t e d c o s t s and above  then  above,  Substantially  which  3.  2* .COJHENT CAMAPI AN The  major  Canada Shipping shipping ships of  was  followed  Act.  option closely  option 4  (PAST  I X ) , and In  7  statute  intended Shipping ships and  the  T h i s Act covers the  update  III),  Liberal  2 1.  followed  pilotage  (PABT  as  Canadian  l i c e n s i n g of  (PAET  was  safety  air  (PABT  XV).  introduced the  rights  VI),  ana  Bill  Maritime  the r e g i s t r a t i o n and Bill,  i s the  (PAST I I ) , the  rules  government  the c o a s t i n g t r a d e . The  of  r e g i s t r y and  c e r t a i n p r o v i s i o n s contained  Act that d e a l t with  because  was  many aspects  recording,  T h i s b i l l , r e f e r r e d to  to  option  d e a l i n g with s h i p p i n g  the c o a s t i n g trade of Canada  parliament.  which  (PABT V I I I ) , p o l l u t i o n of the water  1975  by  option  SHIPPING POLICY.  (PAET I ) , c e r t i f i c a t i o n o f o f f i c e r s seamen  was  under  6  Canadian  including;  legislation  form  most a t t r a c t i v e  l e s s a t t r a c t i v e was  c l o s e l y by option  options  c a l c u l a t e d t h e i r commercial v i a b i l i t y  varying assumptions. The listed  revenues of the f o u r  C-61  Code  in was  i n the Canada licensing  of  never passed i n t h a t  of the o p p o s i t i o n r a i s e d t o the  proposed s e c t i o n s  on the c o a s t i n g t r a d e . These s e c t i o n s were subsequently  removed  .93  from  the  Maritime  parliament  and  the  Act  was  reintroduced into  where i t f i n a l l y r e c e i v e d r o y a l assent  s e s s i o n of The  Code  in  the  30th  parliament. objectives  S e c t i o n 2 of the new Canadian shipping  of the Maritime Code are s t a t e d i n Book I , Act. The  objectives  are  to  ensure  that  laws;  (a) more adequately r e c o g n i z e and provide for the interrelationship between the interests of Canadians i n the continued and expanded use of that mode of t r a n s p o r t and in other economic, sociological and environ mental considerations, including t r a d i t i o n a l considerations r e l a t e d to the s a f e t y c f l i f e at sea; (b) express the extent to which such law must, under c u r r e n t c o n d i t i o n s , apply to ships and to persons on board s h i p s both within and o u t s i d e Canadian waters i n order to adequately p r o t e c t l e g i t i m a t e Canadian i n t e r e s t s ; and (c) e s t a b l i s h a more e f f e c t i v e base of Canadian law from which to seek i n t e r n a t i o n a l r e g u l a t i o n of s h i p p i n g f o r the p r o t e c t i o n of the environment. 8  The  Act  outlines  the  r e g i s t e r i n g s h i p s i n Canada the  rights,  privileges  Canadian recorded,  requirements  (Book I I of the  and  for  Code)  owning and  defines  r e s p o n s i b i l i t i e s of the owners o f  r e g i s t e r e d , and l i c e n s e d s h i p s . S e c t i o n  Book II d e c l a r e s t h a t the only groups t h a t are q u a l i f i e d Canadian  and  19 of  to  own  r e g i s t e r e d ships are "Canadian c i t i z e n s d o m i c i l e d i n a  province" concerning  and  corporations  place  of  that  meet  incorporation,  certain  requirements  place of business  and the  degree of Canadian management and d i r e c t o r s h i p (see Appendix 5). The new  r u l e s concerning  the r e g i s t r a t i o n of Canadian s h i p s  are  much more s t r i n g e n t that they p r e v i o u s l y were under s e c t i o n 6 of the  Canada  Shipping  Act (see appendix 6). Canadian r e g i s t r y i s  no longer extended t o other B r i t i s h Commonwealth s u b j e c t s  as i t  94  was  previously. In  March  1979,  the government of Canada published  awaited p o l i c y paper on Canadian deep-sea s h i p p i n g . A  S hipping  Pclicjy.  deep-sea s h i p p i n g and  for  p o l i c y f o r Canada, taking i n t o account  the nature of Canadian waterbourne t r a d e , recent  trends  and i n t e r n a t i o n a l  shipping  issues. Section  shipping,  i t could be  Canada's  availability  other  i t s commercial  deep-sea  of adequate  of  federal  t r a d e , "to ensure the  and economic  shipping  objective  significant  '"adequate  and  i s identified  opportunities." economic  phrasing,  the  report  the f e d e r a l government's  conclusion  viability,  as "being  The  exact  government continuing  10  part  A second  able t o c a p i t a l i z e interpretation  of  s h i p p i n g " or " c a p i t a l i z e on s i g n i f i c a n t  o p p o r t u n i t i e s " i s not e l a b o r a t e d ambiguous  the  s e r v i c e s as  cf the o v e r a l l t r a n s p o r t a t i o n system s e r v i n g C a n a d a . " ancillary  major  encouraged.  The paper expresses the o b j e c t i v e s concerning  and  5 of the r e p o r t d i s c u s s e s  guest ion of a Canadian deep-sea f l e e t ,  extent,  recent report  Canadian  cn  report,  i n Canada and abroad."* The  and developments  and hew  The  Canada " s e t out the main elements of a  a n t i c i p a t e d developments  examines  i t s long  on i n the report. Despite does  clarify,  to  this  a certain  stance on the i s s u e . The  basic  of the r e p o r t i s ;  that present circumstances do not warrant the p r o v i s i o n of new tax or f i n a n c i a l measures to support the development of a Canadian deep-sea f l e e t . 1 1  finally,  the  report  mentions  possible  government study. These i n c l u d e ; C a n a d i a n - f l a g government development,  aid  cargoes,  Canadian-flag  areas o f f u r t h e r participation in  participation in arctic  and l e g i s l a t i o n to p r o t e c t Canadian i n t e r e s t s  when  95  they  are  threatened  by  the  a c t i o n of f o r e i g n governments or  carriers. The power,  Conservative  government, during i t s  p u b l i s h e d , i n October 1979,  brief  sojourn  a report e n t i t l e d  Background  Paper on Deep-Sea Shipping  . The  conclusions  report  those  reached i n the e a r l i e r  are  contrary  r e p o r t A Shipping  to  P o l i c y f o r Canada. The  the Conservative  reached  conclusion  in  in  this  Liberal  reached  in  repcrt i s ;  ... i n a d d i t i o n to steps to i n c r e a s e governmental competence and c a p a c i t y i n the shipping field, i t would be d e s i r a b l e to put i n place measures t c encourage the gradual development of a Canadian deepsea f l e e t , * 2  During  the  Progressive Canadian  May  1979  Conservative  deep-sea  e l e c t i o n , one party  fleet,  so  was it  of the  the  was  platforms  of the  encouragement  of  not s u r p r i s i n g t h a t  background paper reached the c o n c l u s i o n s i t d i d . .Once again Canadian  merchant  marine  guestion  has become a p o l i t i c a l  a the the  'hot  potato'. The  most r e c e n t  Transport  Canada  publication  on  deep-sea  s h i p p i n g i s a c o l l e c t i o n of b r i e f s from v a r i o u s s h i p p i n g p a r t i e s on  the, t o p i c of Measures to  a  Canadian  Deep-sea  Encourage the Gradual Development of  F l e e t . The  purpose o f t h i s p u b l i c a t i o n i s  o b v i o u s l y as a f o l l o w up to the Background Paper the  guestion  encourage fleet"?*  the  "Rhat  measures  gradual  should  development  the of  a  and  government Canadian  addresses use  to  deep-sea  3  Once again the p o l i t i c a l  c l i m a t e i n Canada has changed  the r e - e l e c t i o n cf the L i b e r a l party. Transport  Canada  with  officials  have once again begun d i s c u s s i o n s with i n d u s t r y l e a d e r s i n v o l v e d  96  in of  shipping.  I t should  be very i n t e r e s t i n g t o see which  a c t i o n T r a n s p o r t Canada w i l l f o l l o w  regime.  under  the new  K i l l they r e v e r t back to t h e i r o r i g i n a l  stance promulgated e a r l i e r  or  will  they  course liberal  *no a s s i s t a n c e *  continue  along  the  C o n s e r v a t i v e ' s l i n e c f t h i n k i n g ? In the meantime the i n d u s t r y i s left  i n a s t a t e of limbo and does not know what to expect.  3. THE CJNflDI&N H EBCHANT J J J I N J  ISSJE  Ro d i s c u s s i o n on Canadian s h i p p i n g p o l i c y would be complete without basic  mention dispute  measures  to  of is  the Canadian merchant marine i s s u e . * The 1  whether  government  should  undertake  encourage the establishment o f a Canadian merchant  marine (ships r e g i s t e r e d has  the  i n Canada). The merchant  marine  dominated Canadian s h i p p i n g p o l i c y d i s c u s s i o n s f o r t h e past  t h i r t y years and, as can be still  seen  from  the  previous  section,  remains an unresolved i s s u e . , The  -two  most  commonly  cited  reasons  against  establishment of a Canadian merchant marine are that involved  would  be  prohibitive  and,  f o r e i g n f l a g s has worked w e l l i n the status  reliance  past,  guc? Proponents of the free-market  needs of Canadian s u p p l i e r s and through  reliance  on  government involvement competitive The all  issue  why  upset  the  system argue t h a t the a r e best  shipping  i s seen as i n t e r f e r e n c e i n  fulfilled  markets. , Any an  otherwise  market.  advocates  the b e n e f i t s  considered  costs  on c o m p e t i t i v e  so  consumers  international  the  the  and  of a Canadian merchant marine argue t h a t not  associated that  with  international  such  a  project  shipping  are  i s no  p e r f e c t l y c o m p e t i t i v e market. These supporters of  the  being  longer a merchant  97 marine  argue  that  i f i t was  possible  to  guantify  i n t a n g i b l e b e n e f i t s , then s o c i a l b e n e f i t s would s u r e l y the  social  costs  c f such a program. The guestion  what are these n o n g u a n t i f i a b l e enough  to  establishment and  justify  the  costs  b e n e f i t s and are generally  a l l the outweigh  thus becomes  they  associated  important with the  of a Canadian merchant marine? The major arguments  counterarguments f o r a merchant marine are presented below., Employment E s t a b l i s h i r - g a merchant marine w i l l generate jobs f o r Canadian o f f i c e r s , seamen, and people i n v o l v e d i n related i n d u s t r i e s such as s h i p b u i l d i n g , i n s u r a n c e , and freight forwarding. Through the economic multiplier the b e n e f i t s w i l l spill-over i n t o many other s e c t o r s as w e l l . The counter t o t h i s argument i s that the l a b o u r and resources a t t r a c t e d to s h i p p i n g because of the new government incentives must u l t i m a t e l y be drawn from ether s e c t o r s i n the economy. P r o d u c t i v i t y gains will cccur i n s h i p p i n g but they w i l l be o f f s e t by a d e c l i n e in p r o d u c t i v i t y i n the i n d u s t r i e s from which t h e f a c t o r s of production are drawn. , Ealance of Payments Shipping because o f i t s i n t e r n a t i o n a l s t r u c t u r e is an e x c e l l e n t earning source of f o r e i g n c u r r e n c y . Canada pays $2.5 b i l l i o n i n s h i p p i n g b i l l s t o f o r e i g n shippers every year. I f t h i s money were kept i n t h e country and paid t o Canadian s h i p operators instead then the balance o f payments problem would be lessened. The specious l o g i c behind t h i s argument i s t h a t although a national fleet would generate foreign currency i t would a l s o have t o pay out many of i t s expenses i n f o r e i g n currency . Thus i n t e r n a t i o n a l shipping would not help the balance of payments problem as much as o r i g i n a l l y proposed, & 1966 U.S. Maritime fldministration study done of the U.S. Merchant Marine i n d i c a t e d t h a t only $0.30 of every $1 of shipping revenue would be r e t a i n e d by U.S. operators. This 30 percent contribution represents only the impact of the merchant marine on the balance of payments, i t does not r e p r e s e n t the value of t h a t impact. . Defence  98  In case of war, o r a t h r e a t o f war, Canada would have need c f a merchant marine t h a t would he capable cf f u l f i l l i n g t h e l o g i s t i c reguirements o f m i l i t a r y operations. The n a t u r a l counter to t h i s i s t h a t Canada does net need a merchant marine to support her during t i m e s of war because she can r e l y on her NATO allies. Secondly, Canada cannot a f f o r d the luxury of a m i l i t a r y standby merchant f l e e t . , Continuity cf Service I f Canada has a merchant f l e e t then there will always be a supply of s h i p s to c a r r y Canadian goods to market r e g a r d l e s s of the p o l i t i c a l s i t u a t i o n . The counter to t h i s type o f reasoning i s t h a t shipping s e r v i c e s a r e o f f e r e d by many c o u n t r i e s and that i f one source o f s h i p p i n g were withdrawn then numerous other sources can be found.„ Prestige Shewing the Canadian f l a g on international vessels brings prestige and honour t o Canada and a d v e r t i s e s the f a c t that Canada can compete i n the international markets. Canada i s the tenth most important country f o r waterbourne trade, y e t only has the f o r t y - t h i r d l a r g e s t n a t i o n a l f l e e t , does t h i s have to be? The rebuttal to t h i s i s t h a t Canada can g a i n p r e s t i g e and honour i n a host of other a c t i v i t i e s i n which we have a c o m p e t i t i v e advantage such as communications or e l e c t r o n i c s . A merchant marine i s an expensive method of g a i n i n g world r e c o g n i t i o n . ., P r o t e c t i o n from D i s c r i m i n a t i o n With the i n c r e a s i n g amount of f l a g d i s c r i m i n a t i o n t h a t i s o c c u r r i n g the only way of p r o t e c t i n g Canadian interests i s through the establishment o f a Canadaian merchant marine. A strong merchant marine would dissuade foreign countries from implementing discriminatory measures against Canadian ship operators. The c o n t r a r y reasoning i s that Canada can always designate C a n a d i a n - c a r r i e r s and that they need n o t be flying the Canadian f l a g . The e s t a b l i s h m e n t of a Canadian merchant marine i s a more d r a s t i c measure than i s r e g u i r e d . These  are  the  arguments  f o r and  against  a  merchant  9.9  marine. the  The i s s u e s t i l l  1S  remains unresolved  and  judging  l a t e s t government developments the controversy  from  i s l i k e l y to  continue. 4., EXISTING CANADIAN GOVEBNHENT ASSISTANCE MEASOBES To  facilitate  the  comparison  between  the  assistance  measures that e x i s t i n Canada and those that e x i s t elsewhere the same  three  will  class  be used,  c a t e g o r i z a t i o n , as i n t r o d u c e d  financial  financial  assistance  assistance  measures.  assistance  i n the  In operating  no  operating  engaged  subsidies  are paid  on  "essential  and  because  such  a  on the grounds  service  of  operators  Canarctic  Shipping  H.V.Artie,  an experimental  Gove rn men t - provided  facilities  7  t o a few waters"  Canada  1 6  officials  convenience  Domestically,  are i n r e c e i p t of subsidy  "of the excess of the expenditures  Canadian  public  ships  or  w i l l promote trade and be of economic  s e r v i c e t o the communities s e r v i c e d . *  The  to  coastal  a p p l i c a t i o n s a r e reviewed by Transport  are only granted  ferry  Phase  i n f o r e i g n trade. Some s u b s i d i e s a r e granted  s h i p s t h a t are  and  phase,  Subsidies: Canada,  Subsidy  operating  i n the c o n s t r u c t i o n phase and n o n f i s c a l  JU F i n a n c i a l A s s i s t a n c e In The Operating  Operating  i n c h a p t e r IV,  Company  who  major  payments and payments  over revenue "  Limited  the  own  are  made  to  and o p e r a t e the  ice-breaking b u l k - c a r r i e r .  1 8  Facilities: government  provides  mcst c f which are intended  many  shipping  t c a i d domestic  related shipping,  100  but  many  of  operations  as  A t l a n t i c and Harbours  these  facilities  well.Transport  the  are  program.  used  for  c o n s t r u c t i o n of c a n a l s , channels, search The  and  used  provides  for  The  a  Seaway funds  variety  by  deep-sea  funds  to  uses  of  to  these  aids,  i c e b r e a k i n g , and  the  the ship  traffic  P u b l i c works a l s o a l l o c a t e s funds  1977-78  construction  National  including  maintenance of n a v i g a t i o n a l  Department  the  A u t h o r i t y , and allocated  of  rescue o p e r a t i o n s ,  ($52.76 m i l l i o n i n the program  Canada  S t . . Lawrence  Marine T r a n s p o r t a t i o n  control.  also  the Great l a k e s P i l o t a g e A u t h o r i t i e s , the  Board,  programs  axe  fiscal  year) *  to  9  projects associated  its  marine  with harbours  and  rivers. Special  Subsidies:  S p e c i a l s u b s i d i e s , as defined from  custom  duties  and  earlier,  value-added  include  taxes f o r s h i p s and  c o n s t r u c t i o n m a t e r i a l s , d i s c r i m i n a t o r y dues and national-flag  ships,  special  a v a i l a b i l i t y of short-term The  only s p e c i a l subsidy  d u t i e s need not to  he  used  exchange  operating  exclusively  in  from  customs  subsidy  t o shipping  exempt  from customs d u t i e s any intended  same as any  of  r a t e b e n e f i t s , and  for  to  be  d u t i e s . T h i s i s not,  since  it  expert.  is  general  trade. , Materials  exported  industry  are  that may  Canadian  shipbuilding  be  also  i n the t r u e sense, a  a " s p e c i a l r i g h t or p r i v i l e g e " and  other  custom  which are  policy  m a t e r i a l s t h a t are to be Thus  the  loans.  international ships  ship  favouring  e x i s t i n g i n Canada i s t h a t  exempt  recipient  fees  be p a i d on s h i p s t h a t are imported and  imported f o r the b u i l d i n g of  goods  exemptions  involved  is  used i n  not  the  i s treated in  the  to  the  export  10 1  trade. Vessels  that  are  constructed  Commonwealth country are admitted are  permitted  Commonwealth  to  operate  registered  and  registered  in  a  i n t o the country duty f r e e and  in  the  vessels  Canadian  that  coasting  were  built  Commonwealth country must pay a duty of 25 percent  trade.  in  a non-  before  they  may engage i n c o a s t a l t r a d i n g . Tax  Subsidies: Before  investigating  i t i s appropriate fax  the tax s u b s i d i e s e x i s t i n g i n Canada  to provide  a little  background on the Canadian  law system. The f i r s t  item  of  importance  is  who  is  liable  to  pay  Canadian income tax. The Income Tax Act s t a t e s t h a t a PAST I tax will  be  l e v i e d on "the taxable income f o r the t a x a t i o n year of  every p e r s o n  2 0  r e s i d e n t i n Canada at any time i n the  a l s o upon taxable important  year"  and  income earned i n Canada by a non-resident.  The  difference  is  t h e i r world income while  that  Canadian r e s i d e n t s are taxed on  residents  are  only  taxed  on  their  Canadian-source income. The  t e s t s f o r determining the r e s i d e n c y  of i n d i v i d u a l s are  g u i t e d i f f e r e n t from those t h a t a r e a p p l i e d t o c o r p o r a t i o n s . , An individual  will  be  considered  a  r e s i d e n t i n Canada, f o r the  purpose of the Income Tax Act, i f they time the  ordinarily  resident  i n Canada,"  extended scope of r e s i d e n c y  "Ordinarily "where  1  in  normally,  resident"  "were  has  the  settled  and  customarily  21  routine  in  interpreted of  lives.''  the  relevant  or i f they f a l l  as defined  been  at  his  life  Factors  section  within 250(1).  by the c o u r t s as he  regularly,  considered  when  10 2  determining the  " o r d i n a r i l y r e s i d e n t " may  person stayed  i n Canada, t h e i r  Canada, the person's background held,  and  ether  250(3),  section resident  cf  factors  an  if  reasons f o r being i n (cut of)  and  family  indicating  individual  Canada  i n c l u d e the l e n g t h of time  may  ties,  citizenship  permanence.,according to  also  be  they were, during  deemed  to  be  a  the year, p h y s i c a l l y  i n Canada f o r 183 days or more, or i f they were a member  present  of the Canadian armed f o r c e s , a c o r p o r a t i o n i s deemed a r e s i d e n t if  its  'mind  corporation  and was  specific r u l e s .  management' incorporated  meet  in  Canada  i n . Canada  or  if  the  according  to  some  2 2  Kany Canadian companies are able to defer Canadian  taxes  haven country. Canada  and  by  payment  of  e s t a b l i s h i n g a f o r e i g n s u b s i d i a r y i n a tax-  Since  the  the  the new  mind  c o r p o r a t i o n i s not i n c o r p o r a t e d not meet t h e r e ,  the  s h i p p i n g company i s only l i a b l e f o r tax on any income earned  in  Canada,  providing  operation  as being  avoidance. may  and  that one  However,  management  Revenue established  even  Canada for  the s h i p p i n g  not be taxable because of a s p e c i a l  which  states  that  from the operation traffic"  shall  of  2 3  a  country  Thus,  does the  not purpose  ship  or  provision  in  any  one  of  the  the  of  tax  aircraft  i n taxable  extends s i m i l a r  in  the  international  income provided relief  act  non-resident  to  that  Canadian  i t i s p o s s i b l e t o d e f e r payment of Canadian  tax e n t i r e l y by e s t a b l i s h i n g a h e a d - o f f i c e i n Bermuda, or  view  income earned i n Canada  earned i n Canada by a  not be i n c l u d e d  the non-resident's operators.  "income  do  in  Bahamas,  many so c a l l e d "tax haven" c o u n t r i e s  extend s i m i l a r r e l i e f . N a t u r a l l y the company  must  pay  tax  that in  10 3  that  other  country  but  the tax r a t e i s c o n s i d e r a b l y lower or  s h i p p i n g income i s exempt from t a x . It  i s important  deferred,not  to  entirely  stress  avoided  When p r o f i t s from these  that  in  Canadian  these  elects  to  are  kind of arrangements.  ' o f f - s h o r e ' o f f i c e s a r e r e p a t r i a t e d back  to Canada a tax must be paid on- them then. company  taxes  repatriate  However,  i t s shipping  until  profits  accumulate and r e i n v e s t i t s p r o f i t s i n s h i p p i n g  the  i t may  virtually  tax  free. * 2  Unless  specifically  c l a s s 7 that allows a (CCA)  of 15 percent  from i n c o m e . acquired  25  excepted, s h i p s are i n c l u d e d i n asset  maximum  The e x c e p t i o n s  by fishermen  before  a 33 1/3 percent  i) new s h i p s that were registered  conversion fulfilling class  the  costs these  and  then  cost  allowance  t o be deducted  t o t h i s general r u l e are i ) v e s s e l s 1972 and i i ) v e s s e l s f u l f i l l i n g the 1100 (1) (v) . , R e g u l a t i o n  1100(1) (v)  s t r a i g h t - l i n e c a p i t a l c o s t allowance on constructed  i n Canada  conditions of  capital  based on a d e c l i n i n g balance  reguirements set cut i n Beg allows  annual  or  British done  in a  i n Canada country  Shipping  i n Canada.  under  Agreement * 2  27  to  which  are  satisfactory and  i i ) on  Each v e s s e l or c o n v e r s i o n  requirements i s s e t up as an subject  and  individual  the usual r u l e s regarding  asset capital  gains and recapture. Ships do n o t g u a l i f y f o r the credit and  that  government's  investment  tax  i s a p p l i e d t o the purchase of p r e s c r i b e d machinery  eguipment. Ihe b a s i c costs  total and  credit  is 5  i s deductible  percent  asset's  capital  payable.  Ships, however, do not q u a l i f y f o r the  o f the  from tax otherwise credit  because  10 4  they  are net  in section  used i n Canada i n a designated  127(10).  substantial  if  The  the  advantages  Investment  i n c l u d e ships s i n c e the  tax  that are used to acquire  capital  of, the  gain  capital  f u l l recapture  gain.  extended to  insurance  an amount known as r e c a p t u r e  may  amount recaptured  which the s e l l i n g p r i c e  c o s t . I f the s a l e p r i c e was  (adjusted c o s t base) then there  cost  the excess of the would  be  capital  gains  on  were not taxable Canada has these  treaties  recaptured  p o s s i b l e f o r i n d i v i d u a l s who or c a p i t a l gains  a  P r i o r to 1972,  i t was  portion  own  of  a  in force. ships  to  income  a l s o p o s s i b l e to  avoid  the d i s p o s i t i o n of s h i p s s i n c e c a p i t a l  gains  at that time., tax t r e a t i e s with many c o u n t r i e s and  i n some  of  shipping income r e c e i v e s s p e c i a l treatment.  For  i s the Canada-United States Tax  states  "shipping  operation  as  by purchasing an  example there that  selling  used to be tax l e g i s l a t i o n i n Canada t h a t  on recapture  averaging annuity.  would  treated  cost but these s e c t i o n s are no longer  tax  the  i n excess of  ship's  defer  would  exceeded  to defer taxes on the  However, i t i s s t i l l  proceeds  within a s p e c i f i e d  made i t p o s s i b l e capital  8  any  of d e p r e c i a t i o n and  There  be  taxes on h a l f of  p r i c e over the o r i g i n a l c a p i t a l capital  were  would  income. Otherwise i f a s h i p  brought i n t o income. The  the o r i g i n a l c a p i t a l c o s t be  ships,  owner i s s u b j e c t to pay  be egual t c the amount by undepreciated  of  i n taxable  experienced, and  a l s o have t c be  credit  replacement property  not be i n c l u d e d  i s disposed  shipowners  defined  i n d u s t r y i s very c a p i t a l i n t e n s i v e . ?  Concerning the d i s p o s i t i o n  time w i l l  to  a c t i v i t y as  income  earned  in  Convention one  State  which  from  the  cf ships r e g i s t e r e d i n t h a t s t a t e s h a l l be exempt from  105  taxation  i n the other  company  that  is  contracting  deemed  to  State."  be  a  This  2 9  means  0. S . - f l a g  v e s s e l that i t might operate. S i m i l a r  e x i s t i n the Canada-U.K. Tax that  Canada  has  signed  Treaty  and  with other  Treaty  that o v e r r u l e s the  There are s e v e r a l other Canadian shipowners and leasing.  These  3 0  Act and  described  the f i r s t  charter  financing  capital.  which may  be claimed  tax to c h a r t e r and  and  the  percent  threatened rental  XIII to  industry an  unattractive  such  as  alternative  l e v i e s a 15 percent  non-residents. debate  withholding  is  One  for  shipping source  of  whether  it  has  tax  on  these  is  some  types  of c h a r t e r  payments and  tax.  withholding  of  Although  t c i n t e r p r e t c h a r t e r arrangements  payments  by the owner of  i s s u e i s the a p p l i c a b i l i t y of PAST XIII  arrangements are i n f a c t lease 15  the  l e a s i n g arrangements with non-residents. . The  PAPT  payments  it  (as  to become i n v o l v e d i n l e a s i n g  eliminate  Another c o n t e n t i o u s  payments  agreements  i n chapter I I ) . These p a r t i c u l a r s e c t i o n s cf  restrictions  certain  it  that  In a c a p i t a l i n t e n s i v e  through  Treaty  s e c t i o n s are r e l e v a n t because many s h i p s  leasing  Act  a Tax  with  other i n t e r m e d i a t a r i e s  operations.  agreements  of these d e a l s  leased eguipment. These r e s t r i c t i o n s make and  provisions  tax p r o v i s i o n s that d i r e c t l y a f f e c t  operators,  Act l i m i t the amount of CCA  tanks  by  Act.  are operated i n Canada are on l e a s e or was  i n other tax  U.S.  r e c i p r o c a t i n g n a t i o n s . , When  c o n f l i c t s a r i s e between the Income Tax i s the Tax  a  r e s i d e n t i n Canada f o r tax  purposes i s not s u b j e c t t o tax on income earned i n the any  that  thus subject the as  yet to a c t u a l l y apply  rental  to  the  government  has  consisting  of  this particular  106  part of the act created  by  to  the  such  payments.  entire  matter,  However,  has  the  forced  uncertainty  many  chartering  arrangements t c be done through " o f f s h o r e " s u b s i d i a r i e s . , la  FINANCIAL ASSISTANCE IN THE The  Canadian  CAPITAL PHASE  government  does  not  have  any  government  guarantee programs t o a s s i s t domestic s h i p owners and Canadian  shipyards,  program provided This  program  provided  "consists  Development  of insurance  by Canadian c h a r t e r d banks  The  EDC  also  f o r e i g n owners and  operators  years, or carry  of  must  The  the  less  of export c r e d i t normally five  years"  c r e d i t terms to  and  raise  an  shipbuilding  s u b s i d i e s from the These  funds  Industry million)  purchase  8  that loans  not  and  and  from  percent are  through  rate  be  two  basic  (the Trade  susidy  33  As  can  be  meet  greater  of  interest.  e l i g i b l e f o r thes the  usual  sources,  Industrial  seen  from  EDC  commercial  countries. construction million.  the Department of  the Department of the Environment  Marine P r o g r a m ) .  construction  vessels  f e d e r a l government amounting to $75  came  to  c o s t s , do not exceed seven  i n d u s t r y l a s t year r e c e i v e d  Trade 8 Commerce 3 2  foreigners  c r e d i t terms of these l o a n s  operators  capital  to  channels or from the export l o a n programs of other The  and  3 1  providing d i r e c t loans  contract  vessel's  than  shipowners  loans and  who  in  (1977) which i n s i s t  percent  Canadian  involved  shipyards.  OECD g u i d e l i n e s 70  (EDC).  i n t h i s country.  is  Canadian  Corporation  beyond  to o f f e r favourable  purchasing ships  than  do b e n e f i t from a guarantee-type  by the Export  enables shipyards  from  however,  operators.  Program  $59.2  (the F i s h e r i e s  Appendix  r a t e o f f e r e d by IT5C has f l u c t u a t e d  7  the  widely  107  from a high of 40 percent February  3,  1965  Effective  to December 31, March  6,  a s s i s t a n c e Program was was  i n 1961-62 to a low of 0 percent  year  on March 1, 1977 measures  1965.  1975  the  Ship  was t o be reduced  u n t i l i t reached the government  t c l a p s e , and on J u l y with a planned  Order a 1976 modernization  of  by  introduced  r a t e to 20 percent. These temporary  9 percent  1,  1  percent  temporary  measures  1980  have  be  matched  year. * 3  by  Government ownership i n s h i p p i n g i s almost and  i s restricted  the  has  51  percent  for  the  federal  costs.  non-existent  3 5  in  to the ownership of s i x f e r r y v e s s e l s  t h a t are on c h a r t e r t o p r i v a t e f e r r y o p e r a t o r s . also  been  the r a t e r e v e r t e d back to  program, money spent by s h i p b u i l d e r s will  subsidy  since  r e d u c t i o n to 8 percent next  equipment  each  stimulus  i n c r e a s e d the  government up to a maximum of 3% of the modernization  Canada  Industry  the 8 percent l e v e l . .However,  f o r the s h i b u i l d i n g i n d u s t r y and  allowed  Building  i n t r o d u c e d . The c o n s t r u c t i o n s u b s i d y r a t e  set a t 14 percent and  subsequent  from  The  government  e q u i t y i n C a n a r t i c Shipping Company l t d .  which operates the M*V.  A r c t i c the  world's  first  ice-breaking  bulk-carrier. £i HCN-FISCAL ASSISTANCE MEftSOFES In  Canada,  agreements or government  from  cargo  has  possibilities Canada  there  do  not  exist  any  preference  laws,  although  recently  f o r Canadian-flag p a r t i c i p a t i o n of  aid  and  processed  the  Canadian  s t a t e d t h a t i t " i n t e n d s to assess  certain  government a l s o i n t e n d s to r e s t r i c t partially  b i l a t e r a l shipping  resources  in  commercial  the  shipment  cargo."  3 6  the c a r r i a g e of processed  from  the  Arctic  the  regions  The or to  108  v e s s e l s "where they are a v a i l a b l e at a  Cana dian - f l a g pric  7  Can ada,  s i m i l a r ' t o many other  that  re serves  only .  Tra f f i c between Canadian  and  some areas o f  the St.Lawrence  Vess e l s enga ee in  other  than  the  countries,  has  legislation  shipp ing f o r n a t i o n a l - f l a g v e s s e l s port s l o c a t e d i n the Great Lakes,  restricted  Commonwealth coasting  to  Canadian-flag  vessels.  r e g i s t r y are not e n t i t l e d trade.  3 8  Vessels  that  r e g i s t e r e d In Commo nwealth c o u n t r i e s are  tbe  the  St.Lawrence r e g i o n s .  The e n t i r e  to are  allowed  oper ate i n the Canadian c o a s t i n g trade with the e x c e p t i o n  the Grea t l a k e s and of  is  Canadian  cons true ted and to  reasonable  of  subject  Canadian c o a s t i n g trade i s c u r r e n t l y being i n v e s t i g a t e d  by t he f e d e r a l government a u t h o r i t i es. Thi s Cana da;  chapter the  sea s h i p p i n g next  chapter  has  examined  current  shipping  f a c t o r s a f f e c t i n g i t s formulation, i s s u e s , and evaluates  proposed a s s i s t a n c e  the s p e c i f i c a s s i s t a n c e the appropriateness  measures,  policy  in  the major deepmeasures.  of these,  and  The other  109  vii This chapter "What a s s i s t a n c e  A  caNADiaN P L a j  OF  ACTION  addresses the c e n t r a l question measures, i f any,  would  be  of t h i s t h e s i s , appropriate  encouraging the development of a Canadian deep-sea The  word  "appropriate",  fleet"?  used i n the q u e s t i o n , was chosen  a f t e r great d e l i b e r a t i o n because i t could be defined i n manner an  so  assistance  measure  should  possess..  place."*  an  appropriate  Thus  the  word  and  reliable.  characteristics  2  to the person, circumstance  a s s i s t a n c e measure i s seen as one  that i s adequate, economically  fulfilling  a  as used i n t h i s t h e s i s , transcends i t s d i c t i o n a r y  meaning, " s u i t a b l e f o r , or belonging  adaptable  such  as t o encompass a l l the d e s i r e d c h a r a c t e r i s t i c s that  "appropriate",  or  for  e f f i c i e n t , eguitable,  The  meaning  i s discussed  below.  of an  acceptable,  each  of  assistance  these measure  the m a j o r i t y of these c h a r a c t e r i s t i c s i s h e l d t o be a  more appropriate  a s s i s t a n c e measure than one t h a t f u l f i l l s  just  a few. Adequate: adequate  means  adequate s h i p p i n g to  achieve  being  "equal  to  what  i s required.'?  a s s i s t a n c e measure i s one that has  the  3  An  power  the d e s i r e d o b j e c t i v e , i n t h i s case, the development  of a Canadian deep-sea f l e e t .  An  assistance  measure  must  be  adequate i n two r e s p e c t s . F i r s t , i t must be adeguate i n r e l a t i o n to  assistance  measures that are o f f e r e d i n other c o u n t r i e s and  second, I t must be adeguate i n r e l a t i o n to i n c e n t i v e s o f f e r e d to other  Canadian  inadequate  in  industries.  If  an  assistance  measure  e i t h e r r e s p e c t , then i t w i l l not be equal  task r e q u i r e d ; the establishment  is  to the  o f a Canadian deep-sea f l e e t .  110  Economically  Efficient:  Economically waste,  in  terms  e f f i c i e n t has been d e f i n e d as the "absence of of  s a t i s f a c t i o n people d e r i v e from consuming  goods and s e r v i c e s . " * Economic e f f i c i e n c y  i s achieved  when a l l  r e s o u r c e s are employed i n t h e i r most p r o d u c t i v e use. . Equitable: Any  assistance  measure  that  e q u i t a b l e i n two r e s p e c t s . F i r s t , discriminatory  i t should  be  should  fair  and  be non-  towards i n d i v i d u a l Canadian o p e r a t o r s engaged i n  i n t e r n a t i o n a l s h i p p i n g . Second, reasonable  i s introduced  i t should  also  be  fair  and  i n r e f e r e n c e to a s s i s t a n c e measures o f f e r e d to ether  s e c t o r s i n the Canadian economy, For  example,  overly  generous  a s s i s t a n c e t o i n t e r n a t i o n a l s h i p p i n g o p e r a t o r s may be c o n s i d e r e d ineguitable similar  (and probably  assistance  economically  i s . not  extended  inefficient to  also) i f  coastal  shipping  o p e r a t o r s , or i n t e r n a t i o n a l a i r c a r r i e r s . Acceptable: Finding all  the  an  groups  impossible  a s s i s t a n c e measure that would be a c c e p t a b l e to involved  task.  i n Canadian  shipping  I t i s p o s s i b l e , however, t o i d e n t i f y  that are acceptable to many of these p a r t i e s , are  not  acceptable  to  any  even  the  most  economically  i n e f f e c t i v e i f net accepted acceptability  cf  a  and  measure  efficient  by the p a r t i e s  measures that  i s a very to  possess  programs may be  involved.  Thus  the  p a r t i c u l a r measure depends upon how and i f  b e n e f i t s can be d i s t r i b u t e d i n a manner such as t o to parties better o f f .  near  others  group,, A c c e p t a b i l i t y  d e s i r a b l e c h a r a c t e r i s t i c f o r an a s s i s t a n c e since  is a  make a l l  111  adaptable:  Seme  assistance  than ethers. In developments  measures  Chapter  II,  are some  have  be  a  the  a s s i s t a n c e measure should  adapt e a s i l y t o these changes and able  appropriate  of  major  new  have  determine  f o r developing  chapters. the  ability  a Canadian deep-sea f l e e t ,  For  example,  it  would  one  presented  be  (Chapter  V).  A  discussion various  that of  exist  to  of the economic i m p l i c a t i o n s a s s o c i a t e d  measures  demands  be  a p p r e c i a t e i c n of how  difficult  to  ascertain  the  major  parties  involved  in  the  I I I i n the s e c t i o n s d e a l i n g with  an  Canada,  (Chapter  A d a p t a b i l i t y i s founded on the p r i n c i p a l s of change as in Chapters I I and  of  without  the s h i p p i n g i n d u s t r y operates  an  with each  (Chapter I V ) . S i m i l a r i l y , the e g u i t y and acceptableness would  in  the economic  understanding  are  i n the  adeguacy of proposed a s s i s t a n c e measures without  r e l i a b i l i t y of the  who  must  impossible  e f f i c i e n c y and  or  to  t o d i s c u s s which a s s i s t a n c e measures might be  countries  measures  and  circumstances.  knowing something about the a s s i s t a n c e measures other  trends  the  b a s i c understanding of the i n f o r m a t i o n  previous  flexible  o c c u r r i n g i n i n t e r n a t i o n a l s h i p p i n g were examined.  An a p p r o p r i a t e  To  more adaptable and  I'll) . .  portrayed  trends  and  developments. The  analysis  evaluation  of  measures i s conducted using the, by  now  classification, financial  and  financial  assistance  in  assistance the  capital  the  various  familar, in  three  group  the operating  phase,  phase  a s s i s t a n c e measures. 1. FIN ANCI AL  ASSISTANCE IN THE  assistance  OPEBATING PHASE  and  nonfiscal  112  As  was  done i n p r e v i o u s chapters, f i n a n c i a l a s s i s t a n c e i n  the o p e r a t i n g phase w i l l subsidies, and  be subdivided  government-provided  into,  facilities,  direct  operating  special subsidies,  tax-incentive subsidies.  JL. 0 p e r a t i n q S u b s i d i e s Judging  from  the example o f the American subsidy program, a  similarily  designed  successful  i n a t t r a c t i n g more s h i p s to Canadian r e g i s t r y .  d o u b t f u l that could  be  Canadian  American  competitive  program  operators  would  probably  U.S.-registered  of  be It i s  vessels  with f o r e i g n o p e r a t o r s , i f the o p e r a t i n g  subsidy were ever withdrawn.  5  To  remain  competitive,  American  o p e r a t o r s would be f o r c e d to f o r s a k e American r e g i s t r y i n favour of  the cheaper o p e r a t i n g c o s t s a s s o c i a t e d with f o r e i g n A  to  Canadian  eguate the  vessels,  program. I f ever i n t r o d u c e d , would be designed  higher  with  the  costs  of  operating  lower  costs  costs.  6  and  wages,  Of these  repairs  and  three the l a r g e s t  Canadian-registered  experienced  r e g i s t r y . The major s u b s i d i z a b l e c o s t s would salaries  registry.  under  foreign  probably  maintenance differential  and  be  crew  insurance  would  probably  be  i n t h e area c f crew s a l a r i e s and wages. In the O.S. program,  the  wage and s a l a r y d i f f e r e n t i a l accounted  five reason wage  eighty-  percent of the t o t a l o p e r a t i n g subsidy payments made. The 7  f o r t h i s a l a r m i n g l y high  percentage  r a t e s were three times higher than  wages c o n s t i t u t e d approximately costs.  f o r almost  thirty  was  that  American  f o r e i g n wages, and that  percent of  total  voyage  113  Data that  collected  from Canadian  C a n a d i a n crew c o s t s a c c o u n t  total  voyage  operators  fourteen  to  costs  than  European  that  study,  were  the  are  in  and  probably  some  has  which has  foreign  manning  to f i f t y  the  comprised  a  that  Canadian  to s e v e n t y - f i v e percent  dollar  of  cf  costs  revealed  percent  forty  suggest  operating expenses or  revenue.  1976,  to  percentage  by  manning  (see A p p e n d i x  Canadian  tend  similar  of t o t a l  sixty-five  fifteen  between C a n a d i a n costs  , done  would  supplied  operating  manning c o s t s  approximately  a  that  percent  of t o t a l  Alcan Study  manning  reveal  thirty  percent  The  for  costs. , Statistics,  interviewed,  twenty-five  sources  8). Since  the  higher  time  of  depreciated i n value tended  t o narrow  c o s t s . , Today,  percent  higher  the  by gap  Canadian  than  foreign  manning c o s t s . If  the  operators then  Canadian for  these  only  the  operators  percent  decrease  increase  in their  see  government  Appendix  in  their  operating  Canadian  operators  The  cost to  the  depend  operating  subsidy.  the  the  same  operating  on  the For  ones t h a t viable  Canadian  margin  and  (after tax a fairly  would  number the  a 4.8  substantial  of such  ships  under o p t i o n  3 at  i n the the  after  tax  more  a program  qualifying  would  for  the  i t i s assumed subsidy  Alcan Stnd y as ten  2*6%  activities.  f o r the operating  were i d e n t i f i e d  7.6  percent  encourage  purpose of a n a l y s i s ,  gualify  a  b e n e f i t s of  undoubtedly  of  wages,  approximately c o s t s and  f e d e r a l government  s h i p s t h a t would  commercially  subsidize  t o become i n v o l v e d i n d e e p - s e a  inherently  that  experience  10). T h i s r e p r e s e n t s  in profitability  to  d i f f e r e n c e i n crew s a l a r i e s and  would  increase  were  percent  are being  cutoff  114  rate.  The  9  routes  covered  by  this  fleet  and  the  requirements to s e r v i c e these r o u t e s are presented 11.  By  hypothesizing  o p e r a t i n g subsidy, and  the  number  in  vessel Appendix  of s h i p s q u a l i f y i n g f c r the  knowing the d i f f e r e n c e i n Canadian  f o r e i g n manning c o s t , i t i s p o s s i b l e to estimate  versus  the c o s t  of  a  Canadian d i f f e r e n t i a l o p e r a t i n g subsidy program. I t i s estimated that such a program would c o s t the f e d e r a l government a t o t a l of $5.5  million  annually,  f i v e years hence and Appendix  with  to $9.9  c o s t s e s c a l a t i n g to $7.7  m i l l i o n by  13 shows another way  i n a b r i e f presented  (see Appendix  of c a l c u l a t i n g the  c o s t s of a Canadian o p e r a t i n g subsidy Ltd.,  1990  million  estimated  program. Saguenay  to the f e d e r a l government,  Shipping estimated  that Canadian annual wage c o s t s were $250,000 to $350,000 per the  v e s s e l than f o r e i g n v e s s e l s . I f such f i g u r e s are estimated  annual  cost  of  the  1S85  which tends to support  The  federal  represented  government.  government  are  not  by  In  the  fact,  really,  shipowners  1  cost the  in  g a i n . , However,  program, the government may programs.  $7.9-11.1  to  e i t h e r have  considered  when c a l c u l a t i n g the s o c i a l  program i s the  value  Both  the  direct loss  finance  other  The  of  program  paid  presumably  increase of  costs  the  inputs  that  to the  by  the operating  courses  not  the  sense, a c o s t to  is  to  above. are  an  are  subsidy or  must  be  action of  the  taxes  operating  true s o c i a l c o s t of an o p e r a t i n g of  then  million  program  subsidies  the  eliminate  program.  used  the cost f i g u r e s obtained  s o c i e t y at a l l s i n c e the government»s  subsidy  and  s o c i a l c o s t s of an o p e r a t i n g subsidy  necessarily  higher  program would be $4.4-6.2  m i l l i o n i n 197.9, $6.2-8.6 m i l l i o n i n 1985, in  12)..,  subsidy  committed  to  115  shipping concept  that that  resources cost  of  Thus, who  might  economists  would  using i f an  have  been  refer  operating  of employing  elsewhere.. This  as  opportunity  remained  operations  subsidy  otherwise  used to  otherwise  them i n s h i p p i n g  might have  society  have  I d l e then is  in  program g e n e r a t e s  been  unemployed  is  the  costs.  If  the  social  fact jobs  zero.  for  then . the  these i n d i v i d u a l s i n s h i p p i n g  1 0  people  cost  to  activities  is  zero. Therefore, associated  with an  shows t h e  total  required  to  we  Similar inputs  used  is  other  encourage  the such a of  an  to estimate the deep-sea  and  identified of  the  one  earlier  and  in  would  i n Appendix  of  the  a l s o have t o  {see be  Appendix made f o r  Another  social  cost  that  associated  with  establishing  costs  services  If  have  program d e c r e a s e s  dollars  14 be  11.  shipping  by 15).,  ether {i.e.,  must a l s o  be and  program. operating  and  subsidies the  that  of  subsidy  benefits  reliability pride  Appendix  production  intangible  in  employment  manpower would o t h e r w i s e  million  would  fleet.  officers  program  i n revenues experienced  Operating assistance  the  crew  annual c o s t  to  eguipment).  increase  security,  the  adjustment  Eenefits  increases  percent  one-half  administering  any  of  fleet  then  in  considered  by  ten  cost  capital,  the  the  unemployed  approximately  expanded C a n a d i a n  number  man  assume t h a t  been  i t becomes i m p o r t a n t  of  represented  by C a n a d i a n o p e r a t o r s  that  might  service,  occur,  increases  in  such  by and as  national  prestige. are  an  Canadian  ship operators  are  t o use  inappropriate situation resources  form  because in  an  of they  shipping do  not  economically  116  efficient  manner. Operators tend to use more o f the s u b s i d i z a b l e  resources  than they would normally use,.For example, i n the U.S.  of every $1.00 i n wages paid aboard American s u b s i d i z e d $0.67  is  paid  by  the  government.M The d i s t o r t i o n of c o s t s ,  caused by the i n t r o d u c t i o n encourages optimal  operators  of  to  use  an  operating  more  labour  subsidy  program,  resources  than i s  from a s o c i e t a l p e r s p e c t i v e .  y  Operating s u b s i d i e s are a l s o not  an  appropriate  a s s i s t a n c e because they are not acceptable involved  backlash,  at a l l .  The  program,  simply  government  not  want  to  subsidies  implement  such  a  because o f the c o s t s i n v o l v e d , the amount of data that  needs to be c o l l e c t e d , and the strong o b j e c t i o n s t h a t voiced  of  perhaps f e a r i n g a  have not asked f o r o p e r a t i n g does  form  t o many of the groups  i n Canadian s h i p p i n g . Ship o p e r a t o r s ,  public  vessels,  by  operating average  Canadian shippers  subsidy freight  would  be  opposed to such a program. A l s o an  program does not  guarantee  that  either  the  r a t e w i l l d e c l i n e o r that shipped tonnage w i l l  increase. F i n a l l y , operating test.  Once  subsidies  an o p e r a t i n g  subsidy  also  fail  the a d a p t a b i l i t y  i s i n place  , i t s becomes very  d i f f i c u l t t c remove a t a f u t u r e date. A good example o f t h i s the  O.S.  program  which  has now been i n e f f e c t f o r f i f t y - f o u r  years and which shows no signs of being  E. Government-provided  industries  by  providing  Canada i s nc e x c e p t i c n . , F o r  terminated.,  Facilities  We have seen t h a t many n a t i o n a l shipping  is  governments  assist  their  funds f o r s h i p p i n g and that  t h e f i s c a l year 1979-80 the Research  117  Branch o f the Canadian Transport $2.5  mil l i e n ,  a  marine-related  percentage  studies.*  Increasing  research  Commission has  of  which w i l l  been  allocated  be used to f i n a n c e  2  expenditures  would  not  attract  many  s h i p s . I f any , to Canadian r e g i s t r y . T h i s i s because shipowners prefer  tangible  benefits  that  cents. Benefits associated are  difficult  accrue  over  impossible  tc an  to  unreliable  b e n e f i t ship  nearly  indeterminant identify  an  horizon.  optimal  level  In t h i s sense r e s e a r c h form  of  expenditures  impossible  time  t o v a l u e , and Thus,  i t is  f o r research funding  and  i s also  a  a s s i s t a n c e which many or may not  operators.  Some areas c f s h i p p i n g r e s e a r c h more  be counted i n d o l l a r s and  with i n c r e a s e d r e s e a r c h  identify,  development funding. somewhat  can  appear t h a t they  might  be  b e n e f i c i a l to s o c i e t y than o t h e r s . I am r e f e r r i n g h e r e , to  areas such as A r c t i c s h i p p i n g , o f f s h o r e d r i l l i n g technology, and i c e - b r e a k i n g . In these areas Canada seems t o hold a advantage  and i n c r e a s i n g research  result i n substantial sovereignty,  benefits  competitive  and development funding  to  Canadian  society  could  such  as  s e c u r i t y , and p r e s t i g e .  £jt S p e c i a l S u b s i d i e s We  have  already seen t h a t v e s s e l s imported i n t o Canada t o  be used e x c l u s i v e l y i n i n t e r n a t i o n a l trade, are admitted f r e e of any  customs  exclusively  duties. in  trade.  On  an  imported  international  amounting t o 25 percent paid,  If  trade,  of i t s appraised  imported  vessel  vessels  then  i s not customs  to be duties,  Canadian v a l u e , must be  that  will  not  be  used  118  exclusively  i n i n t e r n a t i o n a l t r a d e , customs d u t i e s amounting to  twenty-five  percent do  c f the v e s s e l ' s  How  much  operators  from  t h i s customs duty exemption?  appraised  a 28,000  substantial,  dwt  construction  17 show t h a t , f o r a shipowner  bulk-carrier,  amounting  c o n s t r u c t i o n subsidy  value.  of i n t e r n a t i o n a l trade v e s s e l s b e n e f i t  C a l c u l a t i o n s done i n Appendix purchasing  Canadian  to  about  $3  the  benefit  million  is  ( i f a 20  percent  i s assumed). In the case of a nine  subsidy  the  benefits  guite  percent  are even l a r g e r , t o t a l l i n g  almost $6 m i l l i o n . The e x c l u s i o n from customs d u t i e s , r e s u l t s i n Canadian owners purchasing standpoint  is  them purchase prices  probably vessels  (before  abroad,  perspective. committed be  more economically from  domestic  construction  approximately f i f t y vessels  s h i p s abroad which  percent  both  Why  from  should  an  is  from  of  the  have otherwise been increased  yards  unemployed?  employment,  generalted  societal  i f the same  f o r $19  million?  ship 1 4  employment,  Unless by  the  benefits  building  be can  Granted, but  how would  of  the  these s h i p s i n  to have the s h i p b u i l t abroad. .  C u r r e n t l y , m a t e r i a l s imported the  and  m i l l i o n then i t makes sense from an  economic e f f i c i e n c y standpoint  in  being  employed i n s h i p b u i l d i n g a c t i v i t i e s  Canada, t o t a l more than $8.5  used  Canadian  $27.5 m i l l i o n i n Canadian r e s o u r c e s  foreign  people  With  having  considered)  individual  b u i l d i n g the s h i p i n Canada w i l l generate many  Canadian  i t makes sense to purchase  1 3  to b u i l d i n g a s h i p d o m e s t i c a l l y  purchased  a  e f f i c i e n t than  sources.  subsidy  higher,  from  i n t o Canada, that are  to  be  b u i l d i n g of s h i p s to be exported, are a l s o exempt  from customs d u t i e s . I f customs d u t i e s were  eliminated  on  all  119  shipbuilding  materials,  r e g a r d l e s s of whether the s h i p i s t o be  exported, would  t h i s b e n e f i t shipowners? No doubt such  measures  would  shipbuilders  them  benefit  purchase  their  material  since  from  it  the  would  enable  cheapest  source,  to  whether  Canadian or f o r e i g n . Presumably,  the  lower  costs  would be r e f l e c t e d i n lower  s h i p b u i l d i n g p r i c e s and the c o s t d i f f e r e n c e between ship  here and b u i l d i n g abroad would  shipbuilding  prices  conditions,  such  fall as  the  would  for  new  be  dependent  portion  of  upon  shipbuilding  the  blanket  exemption  m a t e r i a l from customs d u t i e s , they are able  this  assistance  type c f a s s i s t a n c e  of  the  extended to i n c l u d e used  in  remembered, privilege  exemption  however,  that  or  shipowners.  limit  from  import  domestic  domestic  shipping  d u t i e s should be  trade.  ship  have  It  to  be  should  be  operators  enjoy  a  that i s not a f f o r d e d to Canadian o p e r a t o r s engaged i n  i n t e r n a t i o n a l s h i p p i n g , t h a t of operators  shipbuilding  a l l imported s h i p s , whether they a r e  international  vessels  measure i s not a r e l i a b l e form of  with which to a i d Canadian  that  and  occur i s u n c e r t a i n ,  Kany Canadian o p e r a t o r s engaged i n domestic complained  supply  to purchase s h i p s at  lower p r i c e s than b e f o r e . Whether t h i s would thus  of  market material  s h i p s . . B e n e f i t s to owners o f deep-sea  will result i f , after  a  narrow. The degree t o which  purchased here and abroad, and the e l a s t i c i t i e s demand  building  the  protected  market.,  Domestic  p r o t e c t i o n of cabotage r e s t r i c t i o n s ,  that  and i n some cases excludes f o r e i g n c o m p e t i t i o n . , Thus  the  exemption  enjoy  a  of only ships t o be used e x c l u s i v e l y i n i n t e r n a t i o n a l  t r a d e , i s not i n e g u i t a b l e  in  this  sense,  i t  merely  enables  120  Canadian  to  engage i n s e r v i c e s from which they might  otherwise  be excluded.  'HA ,212  INCENTIVES  There are f c u r g e n e r a l areas i n the Canadian that could be development investment rates  modified of  for  a Canadian  tax c r e d i t  applied  tc  the  purpose  deep-sea  of  tax law  encouraging  income,  the  f l e e t . These a r e a s a r e , the  (ITC), c a p i t a l cost allowances  taxable  system  (CCA) ,  tax  and replacement  or r e s e r v e  and o p e r a t o r s of a tax  incentive  funds. Ihe measure  benefit  to shipowners  i s represented by the present value of taxes that would  otherwise have been payable, i f not f o r the particular  tax  incentive.  Of  existence  of  that  c o u r s e , any b e n e f i t a c c r u i n g t o  shipowners  and o p e r a t o r s r e p r e s e n t s a cost to the government  the  of taxes foregone. The c o s t to the f e d e r a l government  form  of the f o u r tax subsidy areas  is  examined  in  the  in  subseguent  sections. Hhen  examining  the  economic  efficiency  of  tax subsidy  programs, taxes saved or taxes foregone become almost to  the  discussion  distortions  in  except  other  to  the  sectors  extent  of  society  t c another group  operators)  resources  from  such, they do not r e s u l t i n any change i n the Canadian  they  cause  o f the economy. T h i s i s because  taxes represent a t r a n s f e r (ship  that  irrelevant  one  sector  in  (government) and as total  wealth  of  society.  This whatsoever  is on  not the  to  infer  welfare  that tax s u b s i d i e s have no of  society.  The  effect  decrease  or  121  elimination  cf  taxes  otherwise  payable,  o p e r a t o r s to compete i n more markets, thus Canadians are  enables  benefits  Canadian accrue  i n the form of i n c r e a s e d s h i p p i n g revenues.  the  corresponding  services  social  costs?  To  , more Canadian resources s i l l  to  What then  increase  shipping  have to be committed to  s h i p p i n g . T h e r e f o r e , the s o c i a l c o s t s are egual to the value opportunity  cost  of  these  resources  in  a l t e r n a t i v e use. I f r e s o u r c e s , that might unemployed  ,  are  used  or  t h e i r best p o s s i b l e have  otherwise  been  to produce s h i p p i n g s e r v i c e s , then  the  cost • of these resources i s zero. Sometimes the b e n e f i t s a s s o c i a t e d with tax not  be  measurable. , In  i r t a r g i b l e s and benefit  is  the  nature,  discussed.  valued at t h e i r  these  cases  rather  incentives  the b e n e f i t s are l e f t than  the  value,  of  pre-tax value, and  d i s c c u n t rate i s assumed.* adeguacy  discounted by an  are a f a i r l y  are  sill,  i s also discussed i n  s u b s i d i e s , are a l s o  perhaps  the  most  form of a s s i s t a n c e , s i n c e the i n f r a s t r u c t u r e r e g u i r e d  to administered  direct  social  5  n a t u r a l l y , vary from measure to measure and  adaptable  the  appropriate  of the various tax a s s i s t a n c e measures  subsequent s e c t i o n s . Tax  as  A l l s o c i a l b e n e f i t s and c o s t s are to be  d i s c c u n t r a t e . For the purpose of a n a l y s i s , a ten percent  The  may  them i s already i n p l a c e . F i n a l l y , tax s u b s i d i e s  r e l i a b l e form of a s s i s t a n c e  in  that  they  are  b e n e f i t to shipowners and o p e r a t o r s , provided t h a t  otherwise  payable.  A  brief  submitted  to  the  a  taxes  federal  government by the C o u n c i l of Marine C a r r i e r s i s quoted as saying the  "Canadian companies achieve a pre-tax p r o f i t r a t e of r e t u r n  on s a l e s of only two  to three percent.'!  16  S t a t i s t i c s Canada data  122  suggests  a  percent.  somewhat For  1 7  sales cf five Investment  higher  of  return,  about  eight  the purpose o f t h i s t h e s i s an average r e t u r n on  percent w i l l  Tax  rate  be used.  Credit  S h i p p i n g i s a rather  captial  intensive  industry  and  it  would seem that an investment tax c r e d i t would be an a p p r o p r i a t e assistance Canadian of  an  measure,  one  capable  of  a t t r a c t i n g more s h i p s to  r e g i s t r y . However, upon c l o s e r i n s p e c t i o n the investment  might i n i t i a l l y otherwise  tax  credit  may  not be as b o u n t i f u l as they  appear. Tax c r e d i t s are  payable.  However,  applied  against  deduction  subseguent shipping  can  years when  not  be used and  taxes  might  then  the  be  payable. , I f  pre-tax p r o f i t s are only two to t h r e e percent on  it  is  questionable  tax  must be c a r r i e d over to  otherwise  s a l e s as suggested by the C o u n c i l of then  taxes  i f the company that q u a l i f i e s f o r  the tax c r e d i t , i s not e a r n i n g s u f f i c i e n t income credit  benefits  Marine  Carriers'  total  report,  as to when such tax c r e d i t s c o u l d be  used. How a  five  much tax revenue percent  introduced.  would the f e d e r a l government forego i f  investment  tax  credit  on  new  ships  were  That would depend on the number of s h i p s t h a t would  g u a l i f y f o r such  a  credit  and  when  such  credits  could  be  Griffin,  Marketing  claimed. Using  the  data  collect  by  Mr. . K.C.  D i r e c t o r Overseas Trade S Petrochemicals with estimated  CP  Bail,  it is  that twelve s h i p s (valued at $ 1 8 4 m i l l i o n ) would have  q u a l i f i e d f o r the tax c r e d i t deduction i n 1977 (see appendix for a l i s t  16  cf the s h i p s t h a t would have q u a l i f i e d f o r such a tax  123  credit), (value  Fcr the $125  millicn).  year  Billion)  The  1978, seven s h i p s would have q u a l i f i e d and  following  in  1979  analysis  seven  ships  assumes  that  (value only  newly-  c c n s t r u c t e d Canadian-owned s h i p s engaqed i n i n t e r n a t i o n a l would  q u a l i f y f o r the deduction. Based  credits  f o r the  1977, 1978, and 1979, would have been $9.2 m i l l i o n , $6.75  m i l l i c n , and $4.75 m i l l i o n r e s p e c t i v e l y must  be emphasized  advantage  taxes  of an investment  benefits  (see Appendix  It  otherwise  payable.  Thus,  one  t a x - c r e d i t a s s i s t a n c e program i s that  accrue p r i m a r i l y t o Canadian-resident i n d i v i d u a l s  and c o r p o r a t i o n s . Unclaimed  c r e d i t s c o u l d , n a t u r a l l y , be c a r r i e d  over and claimed i n subseguent  years.  The c o s t to the f e d e r a l government credit  16).,  that the investment tax c r e d i t c o u l d only be  claimed a g a i n s t Canadian  the  trade  on such an assumption i t  i s estimated that t h e e l i g i b l e investment tax years  $95  of  an  investment  tax  program f c r new s h i p s would be m a r g i n a l l y lower than the  f i g u r e s gucted above s i n c e c l a i m i n g decreases  the  capital  an  investment  tax  credit  cost base c f the newly acquired vessel.,.  T h i s means t h a t c a p i t a l c c s t  allowance  claimed  in  subseguent  years w i l l be s m a l l e r than they would have been i f no tax c r e d i t had  been  claimed..  Thus  the  c o s t of an investment tax c r e d i t  program may have ranged from $3 m i l l i o n to $8 m i l l i o n on  when  investment  such tax  credits credit  could program  have  been  i s only  depending  c l a i m e d . . Thus, a  reliable  form  an of  a s s i s t a n c e i f taxes are otherwise payable. The  social  b e n e f i t s and c o s t s of a tax c r e d i t  s i m i l a r to those d i s c u s s e d p r e v i o u s l y . Taxes represent  neither  a  paid  program are or  foregone  c c s t or b e n e f i t to s o c i e t y , except t o the  124  extent t h a t they cause economy.  The  distortions  in  other  sectors  of  the  true s o c i a l c o s t of such a program i s equal to the  i n c r e a s e i n revenues l e s s the corresponding  increase  {adjusted  a s s o c i a t e d with  to  reflect  opportunity  costs)  i n t r o d u c t i o n of the program. These  increases  in  in  costs the  revenues  and  c o s t s should be discounted using the s o c i a l d i s c o u n t r a t e of ten percent. C a p i t a l Cost  Allowances  Chapter exist  V  examined  i n ether maritime  rates  exist,  33.3  the  n a t i o n s . In Canada, we saw  percent  v e s s e l s b u i l t and  registered  other  vessels.  types  intended here $20  Canada  million  experience  This  value  cost  cash  registered  the  large  percent -  flow  ships  savings may in  enough  to  a s s o c i a t e d with Canadian The  cash  fifteen  Canadian  see  dual r a t e system was  obviously  build  and  register  f o r the 33.3 flow  tax  percent  ships  operates a  percent r a t e saving  rate  of  will  $2. 124  v e s s e l t h a t must (assuming  a  12  Appendices  18  and  19) .  The  a s s o c i a t e d with C a n a d i a n - b u i l t and  partially Canadian  $3.45 m i l l i o n on a 28,000 dwt not  for a l l  of c a p t i a l , a v e s s e l l i f e of f i f t e e n y e a r s , and a  vessel  constructing  CCA  15 percent  compared to an operator with a s i m i l a r  tax r a t e of f i f t y present  i n Canada, and  vessel that q u a l i f i e s  be d e p r e c i a t e d at percent  t h a t two  r a t h e r than abroad. A shipowner who  a present  that  s t r a i g h t - l i n e on newly c o n s t r u c t e d  t c encourage shipowners t o  in  million  of  d e p r e c i a t i o n tax allowances  offset yards  bulk c a r r i e r  the  higher  cost  (estimated t o be 1 8  ) , however,  o f f s e t the higher annual  of  about it  is  operating costs  registry.i'  fifteen  percent  declining  CCA  rate  is  125  approximately  equal to a ten percent r a t e under the assumptions  l i s t e d above. Thus the Canadian system i s approximately e g u a l to the r a t e s allowed i n I t a l y .  Belgium  systems  are  appendix  19 shows the cash flow s a v i n g s  Canadian  eguivalent  The  percent  and  French  formulae  to about a f i f t e e n s t r a i g h t l i n e that  shipowners i f the CCA  would  rate,  accrue  to  r a t e s were i n c r e a s e d to  l e v e l s t h a t e x i s t i n some of these other c o u n t r i e s . Changing from a f i f t e e n percent d e c l i n i n g balance a fifteen value  percent s t r a i g h t - l i n e method would r e s u l t  cash  flow  savings  of  $886,000 per $20  method to  in  present  million  vessel.  Changing t c a twenty percent s t r a i g h t - l i n e method, such as i n Sweden, would r e s u l t i n a $1.4 from  the  was  fifty  percent s t r a i g h t - l i n e r a t e then a cash flow saving of would accrue to  The CCA  a  saving.. I f  rate  millicn  changed  million  found CCA  f i f t e e n percent d e c l i n i n g r a t e t o a $2.5  shipowners.  r a t e allowed on C a n a d i a n - b u i l t and  registered  new  s h i p s i s f a i r l y generous i n comparison t o r a t e s allowed i n other countries. from  33.3  $397,000  If  the  r a t e f o r t h i s type of v e s s e l were i n c r e a s e d  percent to 50 percent would  result.  percent r a t e , sucb as  If  found  then  increased in  incentive  for  cash  flow  still  Britain,  b e n e f i t of $327,000 would accrue t o Another  a  saving  of  f u r t h e r to a  100  then  an  additional  shipowners.  encouraging  the  development of a  deep-sea f l e e t i s to allow s p e c i a l or advance d e p r e c i a t i o n . example,  suppose  Canadian  tax  authorities  l e g i s l a t i o n which would allow t h i r t y to  be  written  For  were to i n t r o d u c e  percent of a v e s s e l ' s  c f f between the c o n t r a c t and d e l i v e r y  Appendix 20). Under s i m i l a r assumptions as before  (and  date  cost (see  assuming  126  a  one  year  gap  between date of c o n t r a c t and  cash flow b e n e f i t s amounting to $1. 17 m i l l i o n shipowners, percent  an  benefits  substantial  if  would accrue  2 0  an amount comparable to changing from a  t c twenty-five  The  date of d e l i v e r y )  percent  accruing  special  2 1  accrue The  to  shipowners  depreciation  could  were  to Canadian shipowners on each v e s s e l  would  certainly  be  a  or  start  advance  a  CCA  can  create  (see Appendix  CCA  business  income  and  income  of  attractive  system  dependent  deductions might  any  assistance  measure, one  used  applied  to  be  then be against  emanating a  fairly  that would be a c c e p t a b l e  "V, we  saw  exempt from income t a x e s .  taxed  and  Canadian  to  Bates t h a t i n s e v e r a l c o u t r i e s income earned  from the o p e r a t i o n of v e s s e l s engaged i n i n t e r n a t i o n a l trade  exist  to  private industry.  I n d u c t i o n i s Ipcpje Tax In chapter  be  those years. Thus the f l e x i b i l i t y  a s s i s t a n c e program makes i t appear  both government and  can  l o s s f o r tax purposes. T h i s l o s s can  year or forward f i v e years and  from a CCA  20).  foreign shipping c o s t s . ,  c a r r i e d back one in  were  e f f e c t i v e a s s i s t a n c e measure than tax c r e d i t s s i n c e  be deducted from taxable a  a  m i l l i o n would  o v e r a l l c o s t to the government i s once again  more  If  system  depreciation  on the number of s h i p s i n v o l v e d . I n c r e a s i n g be  be  at narrowing the gap t h a t e x i s t s  between Canadian s h i p p i n g c o s t s and The  also  introduced.  cash b e n e f i t s of approximately $1.25  i n t r o d u c t i o n of a s p e c i a l  fifteen  declining rate.  s p e c i a l d e p r e c i a t i o n system s i m i l a r to the I t a l i a n introduced ,  to  2 2  is  In Canada, such a p r o v i s i o n does not  earnings  i n a s i m i l a r manner as any  from  i n t e r n a t i o n a l shipping  other Canadian  source  are  income.  127  How  s e r i o u s a disadvantage does t h i s pose f o r Canadian  trying  tc  compete  in  removal c r r e d u c t i o n of a s s i s t a n c e It  is  international  -  interesting  the  to  notice  Gradual  Industry  reduction  cf  Submissions  the  present  that  t h e i r taxable  i s a p p l i e d . The  seem  federal  tax  be  income r a t h e r  of  the  to  reduce  of a Canadian  DeejD-Sea  the  elimination  that  could  be  than a r e d u c t i o n  rates.  This  income  would  be  viewed  or  the  used  i n the  preference  income-reducing  international  shipping  briefs  Measures  reason f o r t h i s apparent  decreasing  which  form  r a t e . I t seems t h a t shipowners  measures  more w i l l i n g to grant  would  the  government's  reguests  a t t i t u d e to take, s i n c e  one  none  to stem from the b e l i e f of shipowners, that the  would be it  that  Development  would r a t h e r have a s s i s t a n c e reduce  would  t c implement?  Encourage  Fleet  And  i n income tax r a t e s be an a p p r o p r i a t e  submitted f o r p u b l i c a t i o n i n the tc  markets?  operators  rate would  government  incentives  i s probably a tax  rate  to  than  realistic  applied  to  might be a dangerous precedent,  by  ether  industry^  officials  as  favouritism. There i s a l s o a guestion  of how  r a t e s might be i n encouraging the sea  fleet.  taxable  earnings  incentive shipping during  Such an a s s i s t a n c e  during  markets, but of  patterns  when and  reductions  i f rate  of  they would l i k e l y  display c y c l i c a l  supply.  and  tax  measure would only be e f f e c t i v e i f  periods  excess  in  develoment of a Canadian deep-  e x i s t . Seducing tax r a t e s may  measure  periods  r e l i a b l e a reduction  an e f f e c t i v e  demand  in  the  have a n e g l i g i b l e e f f e c t  Shipping  so i t may  should  excess  be  profits  be d i f f i c u t  be a p p l i e d .  tend to  to determine  Because . of  the  128  uncertainty  associated  with s h i p p i n g  p r o f i t s a reduction  i n tax  r a t e s on i n t e r n a t i o n a l s h i p p i n g income wpuld probably not  be  a  p a r t i c u l a r i l y r e l i a b l e fcrm of a s s i s t a n c e . , Suppose  that  the  government  from income tax, shipping operations domiciled program  and  that  this  the  million  conditions  close  would  extended  exempt  shipping  t o Canadian assistance  a r e that the f e d e r a l forego  approximately  2 1 ) . I f the tax exemption were registered  to  $4.5  revenue per s h i p of $2.5 m i l l i o n  and  sales).  cost  was  Estimates  (see Appendix  might  international  Hhat would such a s h i p p i n g  r e s t r i c t e d t c Canadian-owned and progiam  on  benefit  government?  government under these $6.74  earnings  ship operators. cost  d i d agree t o t o t a l l y  vessels  million a  5  then  (assuming  percent  the  average  return  on  2 3  Bese1ye Funds Reserve taxes  funds  otherwise  requirements  deposits  payable,  are  country but they  enable  met.  shipowners on  the  t o d e f e r the payment of  condition  These requirements vary  that  certain  from country to  u s u a l l y s p e c i f y who may c r e a t e such f u n d s , what  may be made to the fund, and under what c o n d i t i o n s  the  funds can be withdrawn. If  a  reserve  fund program s i m i l a r t o the c u r r e n t  program were introduced would  probably  the r e s e r v e ; vessels  in  be  permitted  shipping  profits  international  experienced from accruing  here i n Canada, then Canadian  operators  to make the f o l l o w i n g d e p o s i t s t o earned trade,  from  the o p e r a t i o n  taxable  capital  the s a l e of s h i p s , CCA deductions,  on the reserve  American  i t s e l f . Earnings,  of gains  and i n t e r e s t  taxable c a p i t a l  gains  129  and  accrued  i n t e r e s t deposited  i n t o the fund  shipowner's immediate tax l i a b i l i t y . base c f the newly acquired  would decrease the  However, the c a p i t a l  cost  v e s s e l would be reduced t o the extent  that these funds were used to purchase the new v e s s e l . T h i s result  i n smaller  CCA  deductions  d e p o s i t of CCA deductions immediate tax l i a b i l i t y normally  i n t o the reserve  y e a r s . The  would not e f f e c t  the  o f the shipowner s i n c e these amounts are  from taxable income anyhow. Thus, they  would  not a l t e r the c a p i t a l c o s t base o f the new a s s e t purchased  with  such  deducted  i n subsequent  will  funds.  An  example  may  help  clarify  how such a reserve  Suppose that a shipowner made $3 m i l l i o n  i n international  proqram would f u n c t i o n .  shippinq  earnings,  that h i s CCA allowances t o t a l l e d  $1 m i l l i o n  and  that a $1.5 m i l l i o n c a p i t a l gain had r e s u l t e d from the  of  a  s h i p . I f no reserve fund program e x i s t e d , the owner's tax  liability reserve  would be $1,265,0002* assuming a 46% tax r a t e . With fund  program,  earnings  (assuming t h a t a maximum of twenty percent deposited  into  the f u n d ) . . The  into  Accordingly,  reduced t o $644,000 $621,000., However,  2S  the  operator  could  an immediate  withdrawls  will  can be  deductions  tax  to  would be  saving  of  are made from the fund to  purchase a new s h i p the CCA deductions will  reserve  a l s o deposit  owner's tax l i a b i l i t y  representing when  the  t o t a l earnings  $750,000 i n c a p i t a l gains and $1 m i l l i o n i n CCA reserve.  a  s i m i l a r t o the one d e s c r i b e d above, the  operater could d e p o s i t $600,0 00 o f  the  sale  made i n subsequent  years  be smaller because the c a p i t a l cost base of the new v e s s e l be $621,000 l e s s than i t  continuously  reinvesting  would  shipping  otherwise earnings  have  been.  By  i t i s possiblefor  130  the shipowner to avoid paying the  reserve How  fund.  much would such a program cost the f e d e r a l government?  Based cn s t u d i e s done allowing one  taxes e n t i r e l y through the use of  on  the  American  reserve  program,  and  f o r the f a c t t h a t the Canadian r e g i s t e r e d f l e e t i s only  s i x t e e n t h the s i z e of the O.S. r e g i s t e r e d f l e e t , a Canadian  reserve fund million  program might  cost  t c $3 m i l l i o n annually  i n the  neighbourhood  of $2  (see Appendix 2 2 ) . .  Other l a x S u b s i d i e s In  Canada,  permitted. losses  If  could  the  filing  i t were  of consolidated  allowed,  international  i s not  shipping  be w r i t t e n - o f f a g a i n s t other forms of income thus  m i t i g a t i n g the payment of income occur,  then  tax r e t u r n s  taxes. .. T h i s  however, s i n c e i t would r e p r e s e n t  i s unlikely  to  a r a t h e r abrupt change  i n Canadian tax p o l i c y . Another c o n t e n t i o u s shipping,  Canadian tax law a r e a ,  i s the a p p l i c a b i l i t y o f withholding  payments made t o f o r e i g n e r s . Supposedly, a fifteen  percent  foreigners. hesitant  In  i s to be withheld practice,  i n respect  taxes to c h a r t e r  withholding  the  government  to  enforce  the tax. I f the withholding  were enforced  then a  couple  foreigners  might  increase  t a x of  from c h a r t e r payments made t o  however,  of  to  things  charter  might  prices  has  been  tax p r o v i s i o n s happen. , F i r s t ,  so t h a t they could  s t i l l earn the same a f t e r tax p r o f i t as b e f o r e .  Second, Canadian  s h i p p i n g companies might e s t a b l i s h " o f f - s h o r e "  subsidiaries to  conduct  t h e i r c h a r t e r business. I n e i t h e r case, the a p p l i c a t i o n  of the withholding  tax does not r e s u l t i n any  net  Canadian s o c i e t y . Furthermore, the c u r r e n t c o n f u s i o n  benefits  to  that e x i s t s  13.1  concerning  the a p p l i c a t i o n of the  withholding  tax does not make  f o r a s i t u a t i o n t h a t i s conducive f o r s t a b l e c h a r t e r agreements, finally, Income Tax losses  i n 1976,  Regulations  1100(15) to 1100(20)  could  be  claimed.  u n a t t r a c t i v e f o r banks, institutions  to  trust  become  These  Regulations  companies  involved  and  other  and  commercial  (created by the years) a g a i n s t of  other  these  from  the  to  offset  deductions permitted  income thus decreasing  savings  lower i n t e r e s t r a t e s vessels  enterprises  l a r g e CCA  make  it  financial  i n s h i p l e a s i n g arrangements.  Before the i n t r o d u c t i o n of these p r o v i s i o n s i t was  Seme  the  Set were added which r e s t r i c t e d the amount of l e a s i n g  that  banks  of  possible  leasing  for  losses  during the  first  t h e i r t a x e s payable,  would would be passed on i n the form of  to  the  operators  bank. Leasing  popular i n many i n d u s t r i e s , and  who  are  leasing  the  i s a form of f i n a n c i n g t h a t it  is  unlikely  that  was  shipping  would r e c e i v e a s p e c i a l exemption from these p r o v i s i o n s .  Is.  FINANCIAL ASSISTANCE IN THE Chapter  V  examined  some  measures t h a t e x i s t i n the In seme of these nations i n e s t a b l i s h i n g and countries.  Included  loan  of the c a p i t a l phase a s s i s t a n c e  various  nations  throughout the  such programs have been very  promoting among  d i r e c t leans, construction  JU  CAPITAL PHASE  the  the  national  measures  s u b s i d i e s and  fleets  are  world.  successful of  those  loan guarantees,  government-ownership.  Guarantees  Extensive  loan guarantee programs  for  shipping  exist  in  132  most  of  the  major  maritime  n a t i o n s , i n c l u d i n g West Germany,  Greece, Norway, the United Kingdom and the United S t a t e s . loan guarantee program, the government, i n the event o f by  the  shipowner,  guarantees  payment  of  i n t e r e s t on the o b l i g a t i o n . Such programs 'Shipowners on  because  their  any  are  With a default  p r i n c i p a l and  advantageous  i t enables them to secure b e t t e r c r e d i t  loans. These  repayment p e r i o d s , o r  to  terms  may i n c l u d e lower i n t e r e s t r a t e s , longer larger  loans  than  might  otherwise  be  p o s s i b l e without the guarantee. A n a l y s i s done i n the Alcan Study i n d i c a t e d that a change i n loan  terms  could,  depending  Canadian-flag o p t i o n s options,"Canadian financing c o s t , " shipowner  more  on  the  profitable  competitiveness 2 6  Appendix  p r e c i s e terms, make the than  is  the  highly  foreign-flag sensitive  23 shows that b e n e f i t s a c c r u i n g to a  from a decrease i n borrowing c o s t s from 13 percent  12 percent could amount t c $3.1 m i l l i o n on a $20 m i l l i o n Measuring  the  guarantee program benefit  since  costs  and  i s a little  they  will  benefits  more  be  to  difficult.  able  to  more  markets.  From  these  benefits  to  tc  a  loan  compete  t o shipowners must be (usually  one percent of the t o t a l loan value) by shipowners not  benefit  guarantee program. They w i l l be r e c e i v i n g  smaller  repayment amounts from repayments  will  o b t a i n l o a n s with more  secure the loan guarantee. The banks may or may  from  lean..  Shipowners  s u b t r a c t e d the premium payments made to the government one-half  to  s o c i e t y of a loan  f a v o u r a b l e repayment terms, which should enable them t o in  to  is  shipowners  increased  government. F i n a l l y ,  due  the government  but to  the  certainty  the guarantee  receives  benefits  of the from  the  i n the  133  form  c f premium payments r e c e i v e d  must pay out some of these repaymants. guarantee  from the shipowners, b u t then  benefits  to  cover  defaulted  loan  Thus the c o s t or b e n e f i t t o the government of a loan program  will  depend  on the premium r a t e charged t o  owners f o r the guarantee p r i v i l e g e and the s t r i n g e n c y  exercised  by the government i n g r a n t i n g the guarantees. In  the case of f o r e i g n borrowing, the a n a l y s i s i s s l i g h t l y  d i f f e r e n t . Shipowners which  neither  must s t i l l  represents  a  pay premiums t o the  cost  government  or b e n e f i t t o s o c i e t y . As a  r e s u l t of the government guarantee shipowners are a b l e to secure lower i n t e r e s t r a t e s from represents operators  a  gain  foreign  lending  d e f a u l t on t h e i r payments then the Canadian government  government t c f o r e i g n lending  social will  This  or b e n e f i t to s o c i e t y . However, i f Canadian  would be o b l i g a t e d to pay the d e f a u l t e d the  institutions.  cost  depend  to  amounts. The payment  by  i n s t i t u t i o n s thus r e p r e s e n t s a  Canada. Whether a net b e n e f i t s i t u a t i o n a r i s e s  upon the number o f payments t h e government must make  on d e f a u l t e d  loans and t h e savings  experienced by the shipowners  through lower i n t e r e s t r a t e s . Suppose that the Canadian government decided loans  made  to  to  guarantee  Canadian shipowners by f o r e i g n i n s t i t u t i o n s and  that because of these guarantees  shipowners  are  now  able  to  secure a lower r a t e of i n t e r e s t on t h e i r f o r e i g n borrowings (say 12 percent 23  reveal  i n s t e a d o f 13 p e r c e n t ) . C a l c u l a t i o n s done i n Appendix t h a t net b e n e f i t s a c c r u i n g  t o shipowners might  total  almost $1 m i l l i o n per v e s s e l . S i m i l a r net b e n e f i t s t o  Canadians  might  longer  repayment  loan  guarantee  periods  also  result  i f owners  or l a r g e r l o a n s .  Another  could  obtain  advantage  of  13 4  programs  i s that they r e t a i n i n c e n t i v e f o r shipowners to manage  t h e i r operations  efficiently.  2 7  loan guarantee programs would probably be one acceptable This  assistance  measures  i s because l e a n guarantee programs do no  form  of  involvement i n s h i p p i n g The  the  the  direct  foregoing  assistance  were intended  In  since  priority it  and  keeps  is  a an  government  to a minimum.  f a c t t h a t r a t e s , terms and  IA  high  a d a p t a b i l i t y of loan guarantee programs i s  conditions  and  From a shipowner's p e r s p e c t i v e  ensured  by  c o n d i t i o n s can be changed t c meet  p r e v a i l i n g at the time, a l s o guarantee programs  are r e l i a b l e , i n t h a t they d i r e c t l y to b e n e f i t , the  b e n e f i t the group  that  they  shipowners.  Government Loans the  conclusions lean  i n v o l v e any  they i n v o l v e  guarantee program t a k e s f a i r l y  attractive  the  more  tax revenues. These programs are a l s o easy to a d m i n i s t e r  e a s i l y understood by operators. loan  the  from a governmental viewpoint,,  o u t l a y s of government funds, nor do of  of  Hedlin-Henzies  study  were reached concerning  dated  1970,  the  following  the adeguacy of a government  program to a i d shipowners;  ... a programme of government loans would by itself not previde an adeguate amount of a s s i s t a n c e f o r Canadian shipowners (unless subsidized interest rates were provided to shipowners that were s i g n i f i c a n t l y below s i x per cent). Government loans utilized in co-ordinatiorf with another form of a s s i s t a n c e ( i . e . , moderate i n c r e a s e in c a p i t a l cost allowance rates), however, c o u l d generate adeguate a s s i s t a n c e f o r many of the v e s s e l s examined. 28  although general  c o n d i t i o n s may  have  changed  in  shipping  and  135  financial  markets,  there i s no reason t o doubt the v a l i d i t y of  t h i s statement when a p p l i e d t o today's s i t u a t i o n . Shipowners have l i s t e d the implementation of loan  program  as  one  of  t h e i r top p r i o r i t i e s  a  government  (along with tax  i n c e n t i v e s ) . Shipowners v i s u a l i z e a government loan agency  that  would provide f i n a n c i n g to Canadian o p e r a t o r s at r a t e s and terms s i m i l a r t c those extended by the Export Development Such  loans  would be l i m i t e d  Corporation.  to seventy percent of the v e s s e l ' s  c o s t , would not exceed seven years, nor bear a r a t e of lower  than  eight  percent,  2 9  On  interest  the government's p a r t , there  seems to be general r e l u c t a n c e to e s t a b l i s h such a program, , The government would p r e f e r not t o become i n v o l v e d i n s h i p  financing  leaving  financial  the  responsibility  to  private  Canadian  Institutions, I f t h e government decided t o implement a loan  program  shipowners, the c o s t o f such a program would, once again, on  a  couple  of  factors.  s t r i n g e n t the government rates  These  factors  for  depend  would  include  how  decides t o be i n g r a n t i n g  credit,  the  and terms at which these l o a n s are made, and the r e l a t i v e  l e v e l of i n t e r e s t r a t e s elsewhere i n the world. h d i s c u s s i o n concerning the economic e f f i c i e n c y government  loan  programs  i s s u e of which s o c i a l  seems  to  of  direct  evolves about the c e n t r a l  discount r a t e should  be  used.; Take  example a statement taken from the Hedlin-Menzies study; ... assuming that i n t e r e s t charged f o r f o r e i g n financing i s l e s s than the opportunity cost of Canadian c a p i t a l (the n a t i o n a l d i s c o u n t r a t e ) , the Canadian economy would clearly be penalized by utilizing relatively more c o s t l y Canadian capital resources. 3 0  for  136  A numerical example may ship  costing  $25  eight  year l o a n . The here  help to e l u c i d a t e t h i s i d e a .  millicn money  i s to be b u i l t and  financed  can  abroad  Canada  be  borrowed  percent  or  financed  i n Canada then the Canadian*  immediately  in  committed  vessel's construction with (say  this  to  made tc these represented ship  ($5  foreign by  the  million  assumptions,  i s the  Canadian  per  the  m i l l i c n i f a ten  borrowing  benefits  between the lending  and  benefits  is  the  associated  borrowed  Benefits  of the  benefits  Canada  abroad,  are,  once  s e r v i c e s provided  of  borrowing of  again,  by the under  such  abroad are  discount  is  new  $0.9  applied.  r a t e i s lowered to e i g h t  percent  becomes more economically e f f i c i e n t Therefore,  the d e t e r m i n a t i o n of  the  t o Canadian s o c i e t y depends upon the r e l a t i o n s h i p Canadian  in  result  social  discount  rate  and  i n e i t h e r negative or p o s i t v e  rate i s eleven percent, the Canadian i s  the Canadian s o c i a l discount  it  net  the f o l l o w i n g set of examples. In case A,  s e t c f circumstances, since  effect,  the  foreign  i n t r o d u c t i o n of a Canadian government loan program  therefore  lending  in  rate. .  The  shown  has,  annum). Appendix 24 shows that  from s o c i e t y ' s p e r s p e c t i v e . net  economy  money  percent s o c i a l r a t e  in  nine  value of the s e r v i c e s i t p r o v i d e s  interests.  However, i f the s o c i a l discount then  at  economy occur when loan repayments are  value  net  with an  m i l l i o n i n c a p i t a l r e s o u r c e s to  per annum). I f the  the  a  at eleven p e r c e n t . If the loan i s  (a s o c i a l c o s t ) . The  investment  $5 m i l l i o n  costs  $25  Suppose  is  cheaper  shipowners to  them.  benefits the  twelve  r a t e i s ten percent. In sill  seek  However,  financing because  the  can as  foreign percent such a abroad social  137  disccunt be  r a t e i s l e s s than the f o r e i g n borrowing r a t e , i t  mere advantageous from s o c i e t y ' s view i f shipowners borrowed  funds here i n Canada. program say,  would  If  the  government  so t h a t shipowners could  10.5  percent  shipowners  started  l o a n s . In case borrowing rate i s  a  E  only  assumed  to  this  be  result  as  Canadian  rather  that  foreign  and  foreign  time the Canadian s o c i a l  disccunt  the  twelve  same  Canadian  percent.  Under  Canadian  this  set  of  shipowners would, as b e f o r e , borrow abroad which i s  i n agreement with s o c i e t y ' s d e s i r e s s i n c e the borrowing  loan  would  cut  assume  a  now borrow funds i n Canada a t ,  benefit  taking we  rates,  assumptions  net  implemented  is  foreign  l e s s than the Canadian s o c i a l discount  government loan program were introduced,  and l o a n s  cost  of  r a t e . If a  were  issued  at a 10.5 percent r a t e of i n t e r e s t then shipowners would seek to borrcw  in  Canada which wculd be c o n t r a r y  t o the s o c i a l d e s i r e .  Hence, such a program would generate negative  net  benefits  to  the Canadian economy. Loan  programs  would  be  a r e l i a b l e form of a s s i s t a n c e to  shipowners s i n c e they d i r e c t l y a i d t h i s group by d e c r e a s i n g cost  of  capital.  adaptability  Loan  programs,  characteristic,  probably  since  once  e s t a b l i s h e d i t would be very d i f f i c u l t Establishing  a  lack  such  a  the  the d e s i r e d program  p o l i t i c a l l y t o terminate.  loan program to a s s i s t shipowners would  involve  s e t t i n g up the a d m i n i s t r a t i v e s t r u c t u r e necessary to run such program, which i n i t s e l f it  is  would r e p r e s e n t a s o c i a l c o s t .  a  Finally,  seems redundant t h a t i n a country l i k e Canada, that has such  a w e l l - e s t a b l i s h e d banking i n s t i t u t i o n ,  the  a l s o have t c become i n v o l v e d i n the l e n d i n g  government function.,  should  1.38  C. C o n s t r u c t i o n It  is  a  Subsidies  generally  accepted  p r i n c i p l e that  construction  s u b s i d i e s are more an a i d t c s h i p b u i l d e r s than they are t o purchasers.  Gerald  Jantscher  i n h i s book Bread Upon the  ship Waters  comments, It [ a c o n s t r u c t i o n d i f f e r e n t i a l subsidy J i s i n fact a subsidy to U.S. s h i p b u i l d e r s , d e s p i t e the purely t e c h n i c a l f e a t u r e that u n t i l 1970 i t was given upon a p p l i c a t i o n by the purchaser of the v e s s e l - not the b u i l d e r . Buyers do not b e n e f i t from i t , because the subsidy only l o s e r s the p r i c e of a new v e s s e l t o what the buyer would pay i f he ordered the v e s s e l from a foreign yard. * 3  In Canada, we subsidy  but  do  not  rather  a  have  a  construction  straight-rate  form  differential  of  construction  a s s i s t a n c e . Such s u b s i d i e s are c a l c u l a t e d as a percentage of vessel's the  p r i c e and  Canadian  construction  paid t c Canadian  Shipbuilding  shipbuilders  Industry  assistance  paid t o s h i p b u i l d e r s i s passed on  in  of  form  lower  shipowners the subsidy effective pay  Program. . The  to  v e s s e l p r i c e s . To be of any  must have  the  Canadian p r i c e below the  effect  of  shipowners b e n e f i t to  lowering  the  p r i c e t h a t a shipowner might  abroad f o r the c o n s t r u c t i o n of a s i m i l a r s h i p . , The  Alcan  study compared s h i p b u i l d i n g p r i c e s i n Canada with  those c f ether n a t i o n s  and  yards ( a f t e r c o n s i d e r i n g percent Canadian to  to  s u b s i d i e s are only a b e n e f i t t o Canadian shipowners  i f the subsidy the  according  the  110  higher and  found t h a t p r i c e s quoted by  the subsidy) were twenty t o  than most European yards. Japanese yards was  percent  higher.  3 2  Bith  The  a  twenty-five  discrepancy  even l a r g e r , ranging such  Canadian  between  from  substantial  sixty price  139  difference  it  is little  wonder t h a t two-thirds  owned deep-sea tonnage i n 1978 be c o m p e t i t i v e have  tc  of Japanese c o n s t r u c t i o n .  with Japanes yards,  offer  s i x t y percent increase  was  construction of  the  equivalent  e q u a l to f o r t y - f i v e to  Canadian  cost  program to $150  which  might  to $200 m i l l i o n  a year. In view cf the f a c t t h a t the f e d e r a l government has recently percent  allowed  construction  to nine percent,  To  the Canadian government would  subsidies  the cost of the present  of the Canadian  subsidies  to  fall  just  from twenty  i t i s d o u b t f u l t h a t Canadian shipowners  would ever experience s u b s t a n t i a l decreases i n v e s s e l p r i c e s . , Even i f a introduced  tc  f o r e i g n yards, ever  be  large  enough  construction  allow  Canadian  i t i s guestionable  passed  on  to  yards  subsidy  to  be  whether  shipowners.  The  IV),  And  so,  construction assistance  supply  (see  i n a d d i t i o n to being  were  competitive  the  benefits  with would  benefits accruing  shipowners from a l a r g e c o n s t r u c t i o n subsidy e l a s t i c i t i e s of demand and  rate  would depend  discussion  inadeguate and  s u b s i d i e s are a l s o an u n r e l i a b l e form  in  cn  to the  Chapter  inefficient, of  shipping  measure.  p. Government Ownership While  governments  South American c o u n t r i e s and  operations  I I the Canadian  interference  the Eastern  Block c o u n t r i e s and  are d i r e c t l y i n v o l v e d  i n the  the  ownership  c f ships i t i s h i g h l y u n l i k e l y that the Canadian  government would c o n s i d e r War  in  s i m i l a r a c t i o n . S i n c e the end  government  has  elected  i n i n t e r n a t i o n a l shipping  to  of World  abstain  matters. Today, the  examples cf government ownership i n Canadian  shipping  are  from only six  14 0  v e s s e l s that are cn c h a r t e r to p r i v a t e f e r r y c o r p o r a t i o n s , and a centtelling  interest  breaking b u l k - c a r r i e r , arctic  shipping  expressed  no  i n the H .V.  a r c t i c , the e x p e r i m e n t a l i c e -  although i t  may  technology  intention,  in  for  become  more  active  in  the f u t u r e , the government has the  time  being,  of  becoming  shareholder i n any s h i p p i n g com panies. Thus government-ownership assistance  is  a u t o m a t i c a l l y r uled out as being unacceptable to  the government.  .3. joNFiscai  assisfawcE  C u r r e n t l y , Canada makes measures  (other  than  no  cabotage  use  of  nonfiscal  restrictions)  to  assistance promote i t s  n a t i o n a l f l a g fleet.,However, i n i t s most r e c e n t s h i p p i n g p o l i c y paper, a Shipping P o l i c y f o r Canada the government  stated  that  it, ... intends to assess the p o s s i b i l i t i e s f o r Canadian f l a g p a r t i c i p a t i o n i n the shipment from Canada of a i d and c e r t a i n commercial cargoes. With r e s p e c t t o a r c t i c s h i p p i n g , the government i n t e n d s t h a t , as a c o n d i t i o n of approval to export unprocessed or partially processed r e s o u r c e s , Canadian r e g i s t e r e d v e s s e l s must be used i f they are a v a i l a b l e at reasonable c o s t , 3 3  In s h o r t , the government intends t o examine the disadvantages  cf  cargo  preference  measures  foreign  would  adeguate form of a s s i s t a n c e f o r v e s s e l s  an  implemented  and  measures  be  ever  for  and  A r c t i c cargoes. I f such prcbably  were  advantages  they  operating i n those a r e a s . However, measures  fail  notably those  ether tc cf  than satisfy  economic  the  adequacy  criteria,  nonfiscal  any o f the remaining c r i t e r i a , most efficiency  and  acceptability.  If  n o n f i s c a l s h i p p i n g a s s i s t a n c e measures were ever i n t r o d u c e d they  14 1  would have the e f f e c t of r e p l a c i n g services  with more expensive C a n a d i a n - f l a g s e r v i c e s . The  c o s t s to the the  Canadian economy would thus be  shipping  costs  the  social  difference  of the Canadian versus f o r e i g n f l a g  Today, C a n a d i a n - f l a g shipping twenty  cheaper f o r e i g n - f l a g s h i p p i n g  c o s t s have been  ships.  estimated  to  would be r e g u i r e d  prices  could  incurred  not  be  avoided.  Further  a Canadian ship i s a v a i l a b l e to c a r r y the  several  key  opposition  shipping  to the  discrimination shippers.  groups.  establishement of  measures  would  goods  assistance  to  will  A s s o c i a t i o n , The  c o s t s . . Thus Canadian  Forest  most  flag  oppose  to  any  get  proposed  increase  in  their  groups such as the Canadian Export  Ha.nufactu.rers*  Industries  association  be  and  the  of B.C..vehemently oppose cargo p r a c t i c e s i n any  form. measures would  be unacceptable, i s f o r e i g n governments. . although always  or  come from Canadian  another group, to which n o n f i s c a l a s s i s t a n c e  should  to  vociferous  transportation  naturally  preference or f l a g d i s c r i m i n a t i o n  government  until  acceptable  preference  undoubtedly  measures that might r e s u l t i n an  transportation  cf  market  be  The  cargo  Groups t h a t depend on s h i p p i n g  must wait  preference c a r g o . ,  measures would not  interest  higher  s o c i a l c o s t s might be  In the form cf time d e l a y s , i f s h i p p e r s  Nonfiscal assistance  no  with n o n f i s c a l measures  the i n d i r e c t c o s t s of higher t r a n s p o r t a t i o n c o s t s , hence  Council  be  to t h i r t y percent higher than f o r e i g n c o s t s , although  immediate cash o u t l a y s  their  in  guided  by  the  federal  desires fact  the  nevertheless  foreign  take r e t a l i a t o r y a c t i o n , thus a f f e c t i n g  Canadian i n t e r e s t s .  the  of  Canadian p u b l i c i t must governments may  consider  the  that  142  Shipowners, probably never  be  met,  assistance that  realizing  have  that  refrained  measures. Thus there  from  such  requesting  i s really  no  criteria.  By  setting  also up  fail  to  a protected  meet  a  corresponding  reduction  in  ships to respond to changes i n the  Canada  justified  shippers  a  foreign shipping  Canadian  shippers  result in  shipping  lower  had  conceivably i f Canadian  the  monopolistic  choice  of  p o s s i b l e i n a competitive  in  company  shipping  shipping  only  rates  rates  for  would  particular Canadian represent  charge  situation.  s e r v i c e supply or  from  one  excluding  markets might s h i p p e r s . , Any  a net  benefit to  society.  their  very  favours  Canadian-ship  we  could  saw,  could  company enjoying  F i n a l l y , f l a g d i s c r i m i n a t i o n and by  there  market.  another source of s h i p p i n g  foreign  Canadian  markets and  company to choose from, then that company could  higher p r i c e s than would be  decrease  adaptability  from an economic e f f i c i e n c y standpoint,  to  pricing. If  Creating  the  were, before the i n t r o d u c t i o n of such measures, c a p t i v e  customers  shipping  fleet.  the f l e x i b i l i t y of Canadian  Cargo preference or f l a g d i s c r i m i n a t i o n  are  in  market f o r n a t i o n a l - f l a g  v e s s e l s the government upsets the competitive  the  nonfiscal  group  development of a Canadian deep-sea  N o n f i s c a l measures  be  would  advocates cargo preference or f l a g d i s c r i m i n a t i o n measures  to encourage the  is  demands  nature  cargo preference  inequitable.  Flag  practices  discrimination  c a r r i e r s over f o r e i g n - c a r r i e r s which, as  conceivably  lead  to  retaliatory  measures  f o r e i g n governments. However, cargo preference measures are inequitable  in  that  by also  they d i s c r i m i n a t e among Canadian c a r r i e r s . ,  143  Those companies i n v o l v e d i n cargoes  will  the  transportation  of  preference  b e n e f i t while these i n ether markets w i l l n o t .  should one group of s h i p o p e r a t o r s be favoured over  another?  Hhy  144  VIII  SUMMARY  AND  CONCLUSIONS  Eecent trends and developments have  prompted  many  national  in  international  governments to r e - e v a l u a t e  i n t e r n a t i o n a l s h i p p i n g p o l i c i e s , Canada, because reliance  on  foreign-flag  shipping  shipping  should  of  be  their  i t s heavy  particularily  concerned over these changes that are o c c u r r i n g . One proposed s o l u t i o n to deal with developments  is  shipping  a g a i n s t the carriage there  of  fact,  more  Canadian  how  vessels.  The  controversy  of a Canadian f l e e t  such  a  recent  fleet  i t has  dominated  can  N a t u r a l l y , each group i n v o l v e d  more  arises  and imports,  nor i s  ships  flying  the  over  whether  the  warrants the  most  No one i s  p a r t i c i p a t i o n i n the  i n t e r n a t i o n a l seaborne exports  establishment  these  f o r the past t h i r t y years.  anyone who would not care to see  Canadian  and  policy  concept  cf  of  through the development of a Canadian deep-sea  f l e e t . The i s s u e i s not a new one, i n Canadian  some  costs  involved,  a p p r o p r i a t e l y be developed.  i n Canadian s h i p p i n g  has i t s  own  views on the matter. Shippers,  are  not  opposed  to  Canadian deep-sea f l e e t i f they are using  either  probably could  Canadian  support  or  left  establishment with  flag  choice  the notion o f a Canadian deep-sea f l e e t  terms. Meanwhile, shipowners are seeking  competition  a  Canadian  deep-sea  of  who  fleet  i fi t  enjoy  the  footing  assistance with  their  b e n e f i t s of v a r i o u s  a s s i s t a n c e measures o f f e r e d i n t h e i r home c o u n t r i e s . The for  a  and i f i t could be j u s t i f i e d on  measures which would put them on e q u i t a b l e foreign  the  of  f o r e i g n s e r v i c e s . Governments would  be i n e x p e n s i v e l y achieved  cost-benefit  the  appeal  i s seen by many as one way i n  145  which t h i s e q u a l i t y can be a c h i e v e d . It  is  emcompass  these  in  its  criteria  that  this  thesis  endeavours  to  analysis  and i t i s f o r t h i s reason t h a t the  word ' a p p r o p r i a t e * was chcsen t c be used in the c e n t r a l q u e s t i o n of t h i s t h e s i s . T h i s t h e s i s i s founded on the premise t h a t i f an assistance  measure  economically  could  efficient,  be  found  which  is  a c c e p t a b l e t o a m a j o r i t y of the p a r t i e s  i n v o l v e d , adaptable, e q u i t a b l e , and r e l i a b l e i n end,  then  such  an  assistance  achievinq  measure should be  R e a l i z i n g that f i n d i n g an a s s i s t a n c e measure that these  criteria  is  somewhat  like  chasing  than  others  Canadian deep-sea f l e e t .  for It  its  implemented. fulfills  dreams,  n e v e r t h e l e s s p o s s i b l e to i d e n t i f y some measures appropriate  adequate,  that  all  it is  are  more  encouraging the development  is  along  these  lines  of a  that  the  a n a l y s i s i n Chapter VII i s conducted.. Operating  s u b s i d i e s were considered t o be an i n a p p r o p r i a t e  s h i p p i n g a s s i s t a n c e measure p r i m a r i l y been  reguested  qroups,and  they  had  never  by shipowners or are not supported by any other  because  inefficient.  because  they  were  shown  be  economically  f a c i l i t i e s and s e r v i c e s  assist  i n t e r n a t i o n a l s h i p p i n q but by themselves are not adequate  forms  of  Government-provided  to  assistance.  However,  if  a  Canadian  deep-sea  e s t a b l i s h e d then such government-provided s e r v i c e s and  is  research  port management w i l l take on i n c r e a s i n g importance. , S p e c i a l  subsidies  (i.e.,  be  in  used  the  removal of customs d u t i e s on a l l m a t e r i a l s construction  special  to  of v e s s e l s ) are another form of  a s s i s t a n c e which by themselves are not adequate. the  as  fleet  With  some  of  subsidy measures i t i s q u e s t i o n a b l e t o what degree  146  they w i l l a s s i s t  shipowners,  measures i s a l s o  questioned.  Tax  subsidies  operating  phase  government  are  hence  perhaps  assistance  would  the  the most  measures  probably  reliability  a  these  promising group of  examined.  oppose  of  although  special  the  status for  i n t e r n a t i o n a l s h i p p i n g income i t might be w i l l i n g t o grant other s p e c i a l tax i n c e n t i v e s , f o r e g o i n g short-term tax revenue i n the hcpe  of  long-term g a i n s . When compared to ether c o u n t r i e s , the  c a p i t a l allwance r a t e s allowed i n Canada on s h i p s i n e l i g i b l e f o r the  33.3  percent  c c a deductions  were  rather  low. I t  is  recommended that c a p i t a l cost allowance deductions be m a r g i n a l l y increased  or  that  special  or advance d e p r e c i a t i o n methods be  i n t r o d u c e d . Both  investment  would  e f f e c t i v e i f taxes were otherwise payable. With  only  be  tax c r e d i t s and t a x r a t e  s h i p p i n g earnings that t r a d i t i o n a l l y d i s p l a y c y c l i c a l the r e l i a b i l i t y  c f such measures i s i n doubt. In  profits  measures  these  would  also  be found  reductions  tendencies  times  to be inadeguate  forms of s h i p p i n g a s s i s t a n c e , Reserve funds, permitted other  maritime  efficiency  industry,  whether  funds  assist  shipping  current leasing is  that  a  sufficiently  long  cf s h i p p i n g o p e r a t i o n s and would a s s i s t owners i n  although  measure to  provided  p e r i o d i s allowed. Such a measure would not a f f e c t  the e f f i c i e n c y accumulating  i n many  n a t i o n s , do seem to make sense from an economic  argument  accumulation  of low  to  be  used  leveraged shipowners  i n this  leasing and  capital  intensive  would  be an a t t r a c t i v e  operators  i t i s doubtful  would be granted a s p e c i a l exemption from the  p r o v i s i o n s . The f i l i n g of  consolidated  not allowed i n Canada nor i s i t expected  reports  to become a p a r t of  14 7  the Canadian tax system. F i n a l l y , application  of  the  payments should that only  they  15  percent  be c l e a r e d up  should  net be  i n c h a r t e r companies going is  difficult  cf  a  tax  immediately., I t  e f f i c i e n c y and industry and  i s seen  the  present  Canadian  time  measures  deep-sea  assistance  to to  fleet,  measures  acceptability tests.  the  encourage  the  although  some  regions  fail  Interviews  such of  the economic  conducted  with  preference  i n t e r e s t s . Thus the i n t r o d u c t i o n of n o n f i s c a l measures as  a  premature  worsen,  solution  cargo preference.  finally  posing  present  protect  Canada  Canadian  the  or  flag  justified.  At  seem to be the case. However, i t  begin  interests  Japan  of  I f such problems do p e r s i s t  to  prepare  from  d i s c r i m i n a t o r y a c t i o n . Canada might look Germany,  problems  measures might be  time t h i s does not  i s recommended that  to  a t h r e a t to Canadian i n t e r e s t s then  possibly nonfiscal r e t a l i a t o r y  West  justify  personnel suggest that the problems of cargo  d i s c r i m i n a t i o n and  the  result  f l a g d i s c r i m i n a t i o n have not yet s e r i o u s l y a f f e c t e d Canadian  shipping  and  recommended  off-shore*  at  world., N o n f i s c a l  is  charter  i n Canadian c h a r t e r c o s t s and  p r a c t i c e s do seem to be g a i n i n g p o p u l a r i t y i n the  to  the  to such a tax since t h i s would  i m p o s i t i o n cf n o n f i s c a l a s s i s t a n c e development  surrounding  withholding  subject  r e s u l t i n an i n c r e a s e  It  the c o n f u s i o n  for  examples  legislation  detrimental to  the of  foreign  countries  such  to  of  protective  legislation. In c o n c l u s i o n , encourage owned and  the  the  federal  government,  if  it  hopes  development of a Canadian deep-sea f l e e t -  registered in  Canada  -  then  it  should  to  ships  marginally  148  increase  the  CCA  rates  d e p r e c i a t i o n p r e v i s i o n s . The use  or  introduce  special  government should  or  advance  reintroduce  the  of tax reserve funds f o r tax purposes. Such a program could  he s i m i l a r to the one patterned assist  shipowners  government  program, one also  be  on the c u r r e n t American C a p i t a l C o n s t r u c t i o n Fund. , To  the  federal  that e x i s t e d before i n Canada, or c o u l d  from  should  which covers foreign  conjunction  with  i n c r e a s e research and  areas  the  Arctic.  o b t a i n more favourable c r e d i t  and  which may  a  government  guarantee  v e s s e l s purchased from l o c a l yards  yards.  these  establish  terms the  other  It  would  measures  also for  and  be  beneficial  in  the  government  to  development i n areas of Canadian e x p e r t i s e  promote Canadian s o v e r e i g n t y  and  security in  These are the recommended a s s i s t a n c e measures t h a t would be a p p r o p r i a t e f o r the the the  f e d e r a l government to i n t r o d u c e  development cf a Canadian deep-sea f l e e t . .Such measure's f o r most  part  efficient,acceptable,  will  be  adeguate,  adaptable,  e g u i t a b l e and  done t h i s the government can their  to encourage  part.  operators  It  would  then  r e s t assured be  that  r e l i a b l e . , Having they  have  done  up to Canadian shipowners and  to determine whether they can s u r v i v e  competitive  economically  in  the  highly  i n t e r n a t i o n a l s h i p p i n g i n d u s t r y . I f s u c c e s s f u l they  w i l l f l o a t , i f u n s u c c e s s f u l they w i l l s i n k .  149  NOTES  150  Notes f o r Chapter I Institute of Shipping Economics S t a t i s t i c s (Bremen, Germany; number 4, A p r i l 1  Bremen, Shipping 1980), p. 9.  Transport Canada, A Shipping P o l i c y f o r Canada M i n i s t e r of Supply and S e r v i c e s Canada, 1979), p. 15. . 2  (Ottawa:  Maritime A d m i n i s t r a t i o n o f the U.S. Department of Commerce, Maritime Subsidies (Washington D.C: Government P r i n t i n g O f f i c e , October 1976), p. 30. 3  * Transport Canada, Background Paper on (n.p., October, 1979), p. 7.  Deep-sea  Shipping  "Once Again, Tough Talk F i n a n c i a l Pest, 14 A p r i l , 1979.  Merchant  Marine,"  s  about  a  K.C. Griffin, "Canada's Deep Sea F l e e t is Hidden Offsfccre," Seaports S the Shipping World (February 1979), p. 23. 6  7  T r a n s p o r t Canada, Background Paper , p. 7.  i  151  Notes f o r Chapter  II  Thorsten 'Bin-man and Eigmcr Linden, Shipping - How Works (Gothenburg, Sweden: Binman S Linden AB, 1978), p.,14. 1  It  In 1975, world t r a d e , i n terms of t o n - m i l e s , decreased by seven percent. T h i s was a t r i b u t a b l e to an e i g h t percent decrease i n wcrld o i l trade experienced that year; the r e s u l t of t h e Arab o i l boycott and a world r e c e s s i o n . 2  Deadweight tonnage (d.w.t.) expresses the number o f tons (of 2240 l b s . ) a v e s s e l can t r a n s p o r t of cargo, s t o r e s and bunker f u e l . I t i s the d i f f e r e n c e between the number of tons of water a v e s s e l d i s p l a c e s 'Might" and the number of tons i t d i s p l a c e s when submerged to i t s l o a d l i n e . 3  * Tramp s h i p p i n g i s " c a r r y i n g cargoes on a time or voyage c h a r t e r b a s i s u s u a l l y c a t e r i n g to a s i n g l e customer and c a r r y i n g one or two commodities a t a time.'! 5  .Binman and Linden, Shipping - How  i t Works , p.  16.  6  Binman and Linden, Shipping - flow I t Works , p.,55.  Samuel A. Lawrence, I n t e r n a t i o n a l Sea T r a n p o r t : The Years Ahead Lexington, Kassachusetts: L e x i n g t o n Books, 1972), p. 7. , 7  B i c h a r d lienow. The Test of the N a t i o n a l i t y of a Merchant Vessel , as guoted i n Boleslaw Adam Boczek, F l a g s of Conveneince: An International Legal Study (Cambridge, Massachusetts: Lexington Books, 1972) p. .16. 8  s Bienow, N a t i o n a l i t y of a Merchant V e s s e l , as quoted i n Boczek, F l a g s of Convenience , p. 215. L i b e r i a n Code of Laws 1956,  1 0  v o l . II  t i t . , 22,  Maritime  Law. »i Commercial Code c f Panama, UNLS, - p  t  129.  * These c o u n t r i e s i n c l u d e the O . K . , B r a z i l , Mexico, Peru, the U.S., Germany, Norway, and the USSR., 2  1 3  The  1 4  S.A.  most notable example being the United States.„ Lawrence, I n t e r n a t i o n a l Sea Transport , p. 5.  Hedlin Menzies S a s s o c i a t e s L t d . , Marine A n a l y s i s of Economic P o t e n t i a l , Canadian Transport Commission, Government o f Government of Canada, 1970), p. ,44. , 1 5  1 6  1 7  Binman and Linden, Shipping - How Alan  E.  Branch,  The  Elements  Canadian Merchant prepared for The Canada (Winnepeg:  I t Works , p. ,73. of  Shipping  (London,  152  England:  1977), p.  238.  Lawrence, I n t e r n a t i o n a l Sea Transport  1 8  *  Chapman S H a l l ,  9  , p. 13. •  I b i d . , p. 36. ,  As cf June 1978, 29 c o u n t r i e s had become c o n t r a c t i n g parties r e p r e s e n t i n g 6% of the world tonnage. To become e f f e c t i v e the Agreement must be supported by at l e a s t 24 c o u n t r i e s and 25% of the world tonnage, 2 0  2 1  T r a n s p o r t Canada, Shipping P o l i c y f o r Canada , p.  31,  I f the EEC decides to support the Code then i t w i l l have s u f f i c i e n t 'tonnage support to b r i n g i t i n t o e f f e c t . , 2 2  1  2 3  Transport Canada, Shipping P o l i c y f o r Canada , p.  14,  In 1975, f l a g c f convenience v e s s e l s c a r r i e d c l o s e t o 199? of Canadian e x p o r t s and 231 of Canadian imports by tonnage ( i n c l u d e s trade with US), 2 4  2 5  Eranch,  .Elements of Shipping  , p,  214,  26 Transport Canada, Shipping P o l i c y f o r Canada , p. These Argentina. . 2 7  practices  exist  in  Peru,  China,  17.  Brazil  and  C . i . f . (cost, insurance, freight) refers to selling arrangements where I t i s the r e s p o n s i b i l i t y of the s e l l e r t o arrannge t r a n s p o r t a t i o n , insurance, and documentation of the cargo. With f.o.b. (free on board) these r e s p o n s i b i l i t i e s are bourne by the buyer. 2 8  S.H. H i l l , Study of Measures to Promote N a t i o n a l F l e e t s A f f e c t i n g Trade S Shipping . ,. 2 9  or  Protect  Transport Canada, Shipping P o l i c y f o r Canada ... p. 24. I b i d , , p, 79. 3 0  3 1  153  Notes f o r Chapter I I I T r a n s p o r t Canada, Shipping P o l i c y f o r Canada , p. 4.  1  2  H e d l i n Henzies, Canadian Merchant  3  I b i d . , p. , 28. ,  Marine , p. 24.  * I b i d . , p. ,3 2. Institute S t a t i s t i c s , p. 9 .  of  5  Shipping  Transport Canada, Background  6  Economics  Host of the m a t e r i a l of t h i s section Transport Canada's Background Paper , pp..2-8. ft breakdown presented i n Appendix  of 4.  these  Shipping  Paper , pp. ,7-8.  7  8  Bremen,  major  Great  was Lakes  drawn  from  cargoes i s  Tonnes r e f e r s to metric ton u n i t s .  9  C.I.F. <ccst, i n s u r a n c e , and f r e i g h t ) terms are where the seller of the cargo must arrange the transportation, insurance and documentation of the cargo. I f more Canadian exports were s o l d on a c . i . f . , b a s i s r a t h e r than an f.o.b. b a s i s there would probably be more Canadian participation in i n t e r n a t i o n a l shipping. 1 0  Making a voyage i n b a l l a s t r e f e r s to a s h i p t h a t i s not c a r r y i n g commercial cargo and which must c a r r y sand, g r a v e l , or water to steady i t on i t s r e t u r n voyage. 1 1  Neo-bulk products are goods that can be shipped e i t h e r i n loose bulk or packaged form. 1 2  "Ottawa moves t o Encourage Buy Canadian Marine Insurance," Globe 6 Mail , 22 May 1980. 1 3  Policy  for  F.O.B. stands f o r free-on-board which means that i t i s the buyer's r e s p o n s i b i l i t y to arrange f o r the transportation, insurance and documentation of the cargo. 1 4  "Windfall  1 5  fcr  Exporters,"  Financial  Post , 14  April  1S79. 1 6  T r a n s p o r t Canada, Shipping P o l i c y f o r Canada , p. .8.  1 7  Transport Canada, Background  *  8  Paper , p. ,8.,  "Conference C a l l s , " F i n a n c i a l Post , 1 4  April  1979,  p.  35. 19  Mest of the m a t e r i a l f o r t h i s s e c t i o n i s taken from  K.C.  154  Griffin's article entitled "Canada's Deep Sea F l e e t i s Hidden O f f s h o r e " p u b l i s h e d i n Seaports S the S h i p p i n g World . 2 0  These suggested  measures are examined l a t e r  in  Chapter  VII.  The responsibilities and o b j e c t i v e s l i s t e d here are a summarization c f the o b j e c t i v e s l i s t e d i n the C o u n c i l of Marine Carriers' corporation charter. 2 1  2 2  "Conference C a l l s , "  F i n a n c i a l Post , 14 A p r i l  197 9.  Canadian Manufacturers A s s o c i a t i o n ' s b r i e f submitted to Transport Canada and contained in the Background Paper . 2 3  Receiver General, The P u b l i c Accounts of Canada z J979 , v c l . I I (Ottawa: m i n i s t r y of Supply and Services, 1979), pp. 27.3-27.5. 2 4  Canada, laws, S t a t u t e s , e t c . T r a n s p o r t Act . Chapter 14 of the Revised S t a t u t e s of Canada 1970. 2 5  2 6  2 7  April  S t a t i s t i c Canada, Water T r a n s p o r t a t i o n 54-202, p. " S e a f a r e r s s t e e r calm course now," 1979.  2 8  financial 8 May  F i n a n c i a l Post  "Ihey're S u b s i d i z e d but Shipyards Post , 26 January 1980, p. 1.  Humming  T-  28.. ,  14  Along,"  "Shipyard Production Value Rises 17.4X," Globe S K a i l 1980, p. E12.  ,  155  Notes f o r Chapter IV Gerald B. J a n t s c h e r , Bread Upon the Waters: f e d e r a l Aids to the Maritime I n d u s t r i e s Studies i n the Regulation of Economic A c t i v i t y (Washington, D.C.: The Brookings I n s t i t u t i o n , 1 9 7 5 ) , p. 1  10.  T h i s c l a s s i f i c a t i o n scheme i s s i m i l a r to that used i n the Hedlin-Menzies' study, Canadian Merchant Marine with the exception of a couple of m o d i f i c a t i o n s 2  3  Jantscher,  Bread Upon the Waters , p.  20.  54.  * I b i d . , p.  G.E. Germane, "Subsidy Mechanisms - The U.S. Experience" Transportation Subsidies Nature and Extent , ed. Karl Buppenthal (Vancouver, British Columbia: Centre for T r a n s p o r t a t i o n S t u d i e s , U n i v e r s i t y of B r i t i s h Columbia, 1974), 5  PP-  .3-20., 6  7  Hedlin Menzies, Canadian Merchant Marine , p. ,69. . Transport  Canada, Shipping  * I b i d . , p.  P o l i c y f o r Canada , p. .17  17.  For a more r i g o r o u s treatment on the economic e f f e c t s of c o n s t r u c t i o n and o p e r a t i n g s u b s i d i e s the reader should consult franz Eversheim*s book entitled: Effects of Shipping S u b s i d i z a t i o n (Bremen, Germany: I n s t i t u t e f o r Shipping Research Bremen, 1958). 9  10 This s i t u a t i o n could only e x i s t i n the short run. Some s h i p p i n g companies would e v e n t u a l l y go bankrupt or decide not to r e p l a c e obsolete v e s s e l s thus r e s u l t i n g i n a decrease i n long run supply. T h i s would e v e n t u a l l y lead to an i n c r e a s e i n p r i c e s i n the long run. i*  I b i d . , pp.  12  Ibid.  29-36.  156  Notes f o r Chapter V 1 An e x c e l l e n t d e s c r i p t i o n of the OS d i f f e r e n t i a l o p e r a t i n g subsidy program i s provided i n J a n t s h e r ' s book, Bread Upon the Waters chapter 3. 2 J a n t s c h e r , Bread  Upon the Waters , p. 20.  An " e s s e n t i a l s e r v i c e " i s a commodity trade route or area that i s determined by the Maritime A d m i n i s t r a t i o n to be o f v i t a l national interest. 3  * For a more thorough description of the r i g h t s and r e s p o n s i b i l i t i e s of s u b s i d i z e d o p e r a t o r s , the reader i s r e f e r r e d to Richard E. Madigan•s book; T a x a t i o n of the Shipping Industry (Cambridge, Maryland: C o r n e l l Maritime Press I n c . , 1971) Maritime  5  Admin., Maritime  S u b s i d i e s , p. 170.  t  I b i d . , p. 47.  8  A "regular" i n t e r e s t " route. 7  Maritime  8  trade route i s one t h a t i s not a " n a t i o n a l  Admin., Maritime S u b s i d i e s , p. 86.  a I b i d . , p. , 150. io Most of the i n f o r m a t i o n presented i n drawn from v a r i o u s s e c t i o n s o f Maritime Subsidies . n  this s e c t i o n was Admin., Maritime  I b i d . , p. 29.  »2 I b i d . , p. 56. Frank M. F i s s e r , " F i n a n c i a l F a c t o r s to be Considered before Venturing Into the I n t e r n a t i o n a l Arena," paper presented at the T h i r d N a t i o n a l Marine Conference, Ottawa, 22-23 May 1980. 1 3  *• Maritime  Admin., Maritime  is I b i d . , p. 48. »  8  I b i d . , pp. 155-156.. I b i d . , p.,123.  *  8  I b i d . , p. 56. ,  »» I b i d . , p. 36. 2 0 I b i d . , P. , 156. , 21 I b i d . , P. 115.  S u b s i d i e s , p. ,88.  157  a* I b i d . , P. 56. 23  i b i d . , p. 88.  24  I b i d . , p. 93.  as i b i d . , p. 121. 2 * IBID. , P.87. . 2 7 J a n t s c h e r , Bread Dpon the Waters , pp. ,54-6 2. in  2 8 Tonnage fees guoted are f o r the year 1976 tbe Maritime s u b s i d i e s . 29  as  published  I b i d . , p. 29.  3 0 I b i d . , p. 34. and  ai "First Category" s h i p s a r e dry cargo v e s s e l s , r e f r i g e r a t o r s h i p s g r e a t e r than 3000 g . r . t .  3 2 F i s s e r , "Financing Factors," N a t i o n a l Marine conference. ,  paper  presented  tankers, at  Third  3 3 Maritime Admin., Maritime S u b s i d i e s , pp. ,12-13. 3 * I b i d . , pp. 66-67. 35 ibid.,  p. 120.  3 6 I b i d . , P . 154. 3 7 I b i d . , pp. 165-166. , 3 8 I b i d . , p. 17 3. 3 9 i n cases where s p e c i a l m i l i t a r y f e a t u r e s are t o be b u i l t into a ship 's design guarantees f o r up t o 87.5% of the ship's, c o n s t r u c t i o n c c s t may be i s s u e d . «o Maritime Admin., Maritime S u b s i d i e s , p. 174. I b i d . , pp. ,12- 13. •2  i b i d . , p. 36.  *3 ibid.,  pp. ,54-55.  4* I b i d . 45 I b i d . , pp.92-93., 4* I b i d , , p. 151  158  47  I b i d . , PP- .120-121.  48  I b i d . , p. 155  4 9  I b i d . , P-  SO  I b i d . , P. •16. ,  S 1  I b i d . , P- 47. ,  S2  I b i d . , P- 54.  S3  I b i d . , p. ,114  54  I b i d . , P- 87.  SS  I b i d . , F- 165.  56  Madigan, Taxation of S h i p p i n g .  17.  Maritime admin., Maritime S u b s i d i e s , p. 19. sa I b i d . , p. .50. 5 9 I b i d . , p. 104. so I b i d . , p. 167. 6i  I b i d . , p. 15  « 2 I b i d . , p. 130., 6 3 ibid,., p. 50. ** J a n t s c h e r , Bread Upon the Haters , p.,78. 6 5 act c f a p r i l 28, 1904, e d i t i o n , s e c t i o n 2631.  33  Stat.518,  10  U.S.C. ,  1970  6 6 T r a n s p o r t Canada, Shipping. P o l i c y f o r Canada , p. 17. 67  Maritime  6«  I b i d . , p.,130.  admin., Maritime S u b s i d i e s , p. 18.  6 9 I b i d . , p. ,134. 70  ibid.,  p. 110.  J a n t s c h e r , Bread Uo_on t h e Waters , p. 45. 72  Maritime admin.. Maritime S u b s i d i e s , p. 18..  73  i b i d . , p. 58. .  7 4 I b i d . , p. 176.  159  The b i l a t e r a l trade agreements presented In t h i s s e c t i o n were taken from v a r i o u s s e c t i o n s o f Maritime S u b s i d i e s ., 7 5  7  *  I b i d , , p. 152.  7 7  I b i d . , p. 121. ,  7 8  I b i d . , p. 58. ..  7 9  I b i d . , p. 88.  *o I b i d . , pp.,93-94.  160  Notes f o r Chapter VI 1 H e a i i n Menzies, Canadian Merchant 2 I b i d . , p.  Marine , p. 3,  227.  3 I b i d . , pp. 30 4-30 5. . * Ibid. alcan Shipping S e r v i c e l t d . i n a s s o c i a t i o n with the Economist I n t e l l i g e n c e Unit Limited, Shipping Options f_or Canadian I n t e r n a t i o n a l Deej3 Sea Trade (n. p., 1977), p. ,1.2. , 5  alcan Shipping S e r v i c e L t d . , Shipping Options , p.  6  3.16.  The Canada Shipping Act of 1952; Chapter 29 of the Sevised Statutes of Canada (Ottawa: Queen's Printer and C o n t r o l l e r of S t a t i o n e r y , 1953). 7  The  8  Maritime  Code, Bkl s e c t i o n 2, paragraphs (a) , (b) ,  and ( c ) . T r a n s p o r t Canada, Shipping P o l i c y f o r Canada , p.  9  1.  10 I b i d . p. 51. . n  1  Ibia. 2  Transport Canada, Background  Paper , p. .40. ,  Submission were r e c e i v e d from the Dominion Marine a s s o c i a t i o n . Upper Lakes Shipping, the B o y a l Bank, the Canadian Export A s s o c i a t i o n , the Canadian Manufacturers a s s o c i a t i o n , the Council of F o r e s t I n d u s t r i e s o f B.C., The Canadian Merchant S e r v i c e G u i l d , and Saguenay Shipping L t d . , 1 3  i * The term "Canadian propelled ships of 1000 registry.  merchant marine" refers to selfgross tons and over on Canadian  is For a more thorough d i s c u s s i o n on the advantages and disadvantages of a Canadian Merchant Marine, the reader i s r e f e r r e d to S.G. Sturraey, a C o n s i d e r a t i o n o f the Ends and Means of N a t i o n a l Shipping Policy (Bergen, Norway: I n s t i t u t e of Shipping Research - The Norwegian School of Economics & B u s i n e s s A d m i n i s t r a t i o n , 1965), l  *  *  7  Maritime Admin,, Maritime S u b s i d i e s , p. 21., Ibid.  1 The M.V. A r c t i c i s the world's f i r s t i c e - b r e a k i n g (Class II) t u l k - c a r r i e r ana i s designed f o r o p e r a t i o n i n the High Arctic. 8  161  1 9  P u b l i c Account of Canada .  20 The terns "person" as used i n the Income Tax to e i t h e r an i n d i v i d u a l or a c o r p o r a t i o n . ,  Act  refers  Income Tax A c t , 9th Tax reform e d i t i o n , 1978, ed. , H. Heward Stikeman (Toronto: Richard DeBoo L i m i t e d , 1978), s e c t i o n 250 (3). 2 1  2 2  Income Tax Act, s e c t i o n  250(4).  23 I b i d . , s e c t i o n 8 1(1) ( c ) . A prime example of an " o f f s h o r e " s h i p p i n g Canada i s CP Ships (Eermuda). 2 4  25 See schedule  » B * of the Income Tax  operation  in  Act.  26 Members of the B r i t i s h Shipping Agreement "Conversion c o s t s " are d e f i n e d i n s e c t i o n Income Tax Act. 2 7  13(14) of the  For example, the investment tax c r e d i t on a $20 million ship would be $1 millicn. The annual deduction allowed from taxes otherwise payable would be limited a c c o r d i n g to the p r o v i s i o n s contained i n s e c t i o n 127(5), the s e c t i o n d e a l i n g with the investment tax c r e d i t . 2 8  See e i t h e r the Canada-O.S. Tax Convention, A r t i c l e V or the Canada-U.K. Tax Agreement, A r t i c l e 7. , 2 9  3 0 Leasing r u l e s are covered i n the Income Regulations 1100(15) to 1 100(20).  Tax  3 1  Maritime Admin., Maritime S u b s i d i e s , p. 22. ,.  3 2  P u b l i c Accounts of Canada , vol.11, 1978,  Act  under  p 12-12.  Only commercial fishing v e s s e l s are e l i g i b l e f o r the Department of the Environment s u b s i d i e s . , 3 3  " S h i p b u i l d e r s C r i t i c i z e Drop In Subsidy," Globe 6 K a i l Report on Business , 3 J u l y 1980. 3 4  3 5  Maritime Admin., Maritime S u b s i d i e s , p. ,23. ,  3 6  Transport Canada, Shipping P o l i c y f o r Canada , p.,30,  3 7  Ibid.  3e Temporaty use of non-Commonwealth r e g i s t e r e d v e s s e l be allowed i f no s u i t a b l e Canadian v e s s e l s are a v a i l a b l e . ,  may  162  Notes f o r Chapter  VII  The Beader's Digest Great E n c y c l o p e d i c D i c t i o n a r y , ( 1 9 7 5 ) , s.v.."appropriate." 1  S.A.  2  Lawrence, I n t e r n a t i o n a l Sea T r a n s p o r t , p. 20 1. ,  The Reader's s. v„"adeguate." 3  Digest  Great  Encyclopedic  Dictionary,  * Leonard G. Schi.fr in et a l . , Encyclopedia of Economics ( G u i l f o r d , C o n n e t i c u t : The Dushkin P u b l i s h i n g Group Inc., 1973), s.v. "economic e f f i c i e n c y . " Container s h i p p i n g i s perhaps, the only area i n which American shipowners have remained c o m p e t i t i v e without the a i d of an o p e r a t i n g subsidy. T h i s i s probably due to the fact that c o n t a i n e r s h i p p i n g has a very high c a p i t a l / l a b o u r r a t i o . s  Since these are the areas i n which a Canadian operator might be at a s u b s t a n t i a l disadvantage. 6  7  J a n t s c h e r , Bread  Upon the Waters , p. ,20. ,  B  S t a t i s t i c s Canada, Water T r a n s p o r t a t i o n 1977,  p. ,15. ,  Alcgn Study , Summary Beport, p. ,3.10. , Option Canadian owned, r e g i s t e r e d and manned v e s s e l s . 9  3  was  a  For a more thorough d i s c u s s i o n of s o c i a l d i s c o u n t r a t e s , and the theory behind them the reader i s r e f e r r e d to the book Cost--Eenef.it A n a l y s i s : S e l e c t e d Readings , comp. Richard Layard (flamondwor ths ,Penguin , 197 2). x  In the case of unemployed l a b o u r the o p p o r t u n i t y c o s t of that labour would not i n f a c t be zero s i n c e people place some value on t h e i r i d l e or l e i s u r e time. , 1 0  n  JantscherBread  Upon the Waters , p.  15.  1 Budget f i g u r e s were obtained through c o n v e r s a t i o n with T r a n s p o r t Canada o f f i c i a l s . 2  1 3  Alcan Study. , v o l . 1 ,  a  telephone  pp. 4.1-4.10.  i * fl.E. B e l l i n h i s address to the T h i r d Marine i n Ottawa, May 22-23, 1980. ,  Conference  The c h o i c e of a 10% s o c i a l d i s c o u n t rate i s somewhat a r b i t r a r y due to the c o n t r o v e r s y surrounding the theory and selection of an a p p r o p r i a t e d i s c o u n t r a t e . In some c a s e s , i t i s assumed t c be egual to the government's average c o s t o f borrowing (sometimes even l e s s ) while i n other s i t u a t i o n s i t i s eguated with the c o s t of c a p i t a l experienced by a p r i v a t e f i r m engaged in similar p r o j e c t s . In both the A l c a n and H e d l i n 1 5  16 3  Menzies s t u d i e s , a 10% r a t e i s one of the s o c i a l discount rates that are applied, and so i t was f e l t that using a 10% r a t e i n t h i s t h e s i s would a l s o be a p p r o p r i a t e . , C o u n c i l of Marine C a r r i e r s et a l . , J o i n t Canadian Shipping Industry , p. 2. 1 6  * tax  7  S t a t i s t i c s Canada, Hater T r a n s p o r t a t i o n  »* The s h i p s t h a t would have q u a l i f i e d c r e d i t are l i s t e d i n appendix 16.  Brief , p.  f o r the  on  the  26. investment  » H.E. B e l l i n h i s address t o the T h i r d Marine Conference in Ottawa, May 22-23, 1980, estimated that "the c o s t of a C a n a c i a n - b u i l t bulk c a r r i e r , a f t e r subsidy (20%) might be around $22 m i l l i o n OS ($25.3 m i l l i o n Cdn.), compared to $19 m i l l i o n OS ($21.85 m i l l i o n Cdn.) i n Japan. 9  20 Canadian o p e r a t i n g c o s t s , according to H.E. B e l l would be approximately $950,000 Cdn. per year on a 28,000 dwt bulk carrier. 2* T h i s i s s i m i l a r to the e x i s t s i n Denmark.  advance d e p r e c i a t i o n program that  22 The I t a l i a n s p e c i a l d e p r e c i a t i o n allowance permits 40% of the v e s s e l ' s c o s t to be w r i t t e n o f f over the first three y e a r s , not to exceed 15 % per year. , These c o u n t r i e s include Liberia, Panama, Singapore, Bermuda, Bahamas, China (4-5 years), Cyprus (10 years), and Greece (10 y e a r s ) . 2 3  * according to Br. G r i f f e n 78 s h i p s with ocean-going c a p a b i l i t i e s are cwned by Canadians under Canadian r e g i s t r y . , I f we assume that only these v e s s e l s would be e l i g i b l e f o r the tax exemption, and that each vessel generates on average $2.5 million ( f i g u r e s provided by industry o f f i c i a l s ) then taxes otherwise payable would have been egual t o ; = $2.5 m i l l i o n x .05 x .46 (per ship) = $57,500 / s h i p T h i s f i g u r e times the 78 s h i p s y i e l d s a t o t a l of $4,485 million which represents the t o t a l tax revenue foregone by the f e d e r a l government. 2  2s Taxable income million, l e s s $1 m i l l i o n $1.5 m i l l i o n c a p i t a l gain ($3 million m i l l i o n ) ) x .46  from business sources would i n CCA deductions plus one-half times a tax r a t e of 46%. 1 million + (1/2 x 1.5 •= $1,265 m i l l i o n ) .  be of  $3 the  6 Taxable income would be $3 m i l l i o n l e s s $1 m i l l i o n i n CCA deductions l e s s $600,000 i n allowable earning d e p o s i t s made to the reserve fund times a tax r a t e of 46$. 2  2 7  Transport  Canada, A Shipping  P o l i c y f o r Canada , p.  44.,  164  2  8  Hedlin  Menzies, Canadian Merchant  Marine A n a l y s i s , p.  301. Hid.  3 0 These c r e d i t terms sere i n agreement guidelines. 31  Hedlin  with the 1977  OECD  Menzies, Canadian Merchant Marine A n a l y s i s , p.  224. ,  3 2 J a n t s c h e r , Bread Upon the Haters , p. 36.„ 3 3 Alcan Study , p. 3 4  4.7.  Transport Canada, Shipping P o l i c y i n Canada , p.,5 1.  165  BIBLIOGRAPHY  Alcan Shipping Services l t d . i n association with Economist Intelligence Unit Limited, Shipping O p t i o n s f o r Canadian I n t e r n a t i o n a l Deep Sea Trade . prepared f o r Transport Canada Research and Development Centre, n.p., December 1977. Baker, fi. Palmer., .Jr. "Flags of Refuge f o r the Shipping Industry - Federal Income Tax Consideration.'* Tax Law Review 13. (New York: New York U n i v e r s i t y , School o f Law, 1957-58)3137-166. Boczek, Boleslaw Adam. . F l a g s of Convenience:An I n t e r n a t i o n a l l e g a l Study . Cambridge, Massachusetts: Harvard University Press, 1962: c h a p t e r 2. ., Branch, Alan E. H a l l , 1977.  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" C o n s i d e r a t i o n to Ponder before Deepsea Operations." Regan, Joseph M.  Newspaper  "Financing  and  Before  the  Missing  Venturing  into  Shipping."  Articles;  "Alg cma C e n t r a l R a i l way Expected to Order a Conventional Bulk C a r r i e r . " Gl cbe and Mail - Report on Business, 3 J u l y 1980.  168  "Conference 1979. "End  C a l l s . " F i n a n c i a l Post - S p e c i a l Beport,  of A i d W i l l Hurt B.C. 1980.  Yards."  Vancouver Province  14  , 23  "Harn Seen i n Seduced Subsidy." Globe and H a i l - Beport Eusiness, 10 J u l y 1980, p. B11. "Improved Taxation Climate Urged." Globe and Eusiness, 5 J u l y 1980.  flail  April July  on  - Beport  on  "Industry B l a s t s Ottawa's Shipping Policy.'» Globe and January 1979.  M a i l . 26  "Narby Cast h i s Lot with Mixed Cargo." F i n a n c i a l Post August 1979, p. 1.  , 11  "Once Again, Tcugh Talk About a Merchant Marine." F i n a n c i a l - S p e c i a l Beport, 14 A p r i l 1979.  Post  "Ottawa Forced t o t u r n B l i n d Eye t o O f f i c e r s Lacking Emergency T r a i n i n g . V Globe and Mail - Beport on Business, 15 May 1980, p. B12. "Ottawa Moves to Encourage Buy Canadian P o l i c y f o r Marine Insurance." Globe and J a i l - Beport on Business, 22 May 1980, p. B12. "Owner's C h a r t e r e r s Uncertain over which D i r e c t i o n Ocean F r e i g h t Market w i l l take." Globe and M a i l - Beport on B u s i n e s s , 24 A p r i l 1980. "The  Bo-Bo Twins." Vancouver Province , 23 J u l y  " S e a f a r e r s Steer Calm Course Now." Beport, 14 A p r i l 1979. ,  1980,  p.  D4.  F i n a n c i a l Post - S p e c i a l  " S h i p b u i l d e r s C r i t i c i z e Drop i n Subsidy." Globe and M a i l i e p c r t on Business, 3 J u l y 1980, p. ,B11. , "Shipyard Production Value Bises 17.4%. '• Globe and M a i l - Beport on Business, 8 May 1980, p. B12. "They're S u b s i d i z e d , but Shipyards Humming Along.'? F i n a n c i a l Post , 26 January 1980, p. 1. " V e s s e l May 1879.  Get Canadian Crew..',' Vancouver Province , 12  October  " W i n d f a l l f o r E x p o r t e r s . " F i n a n c i a l Post - S p e c i a l Beport, A p r i l 1979. "Yards Obtain Orders." Globe and M a i l - Beport July 198 0, p. B11.  on B u s i n e s s ,  14 10  APPENDICES  Appendix 1 World Bulk Trade F i g u r e s  W o r l d Seaborne C r u d e G i l Trade Yvur  7<<ll.  W o r l d Seaborne Coal Trade  7 . n-.Mi'/i-'  IV.ir  !'«>(. l'lh7  <>(|7 O'KI Will  I'Wi 1 W.<) I170  7 0 S IKK) (»HI (? 71 (MMi OOO 9 ' i ; IKIO .'KM)  1771 197:  1 Ik.H IHKI (KHI 1 1HI I S O " ( K I O  l'17-l  1 V i ? (Kill 'l-HI 1 3 i . l l IKK) (KKI  5-'7 (KMt (l 5 5 4 (Kill 7 7 1 7 (Kill 4 : I X I (-.Oil ' 0 ( A O dim  1 2 5 ' l O i l i l (KKI 1 4 1 7 5IKI OOO  H KM: ( K M IW.-.I IXXi III 221 I K K I 1HM) (Kill  r>7r. l'»7ii  (.72 00-1 OOO  2 i . 21 no:) ooo 3 41)11 OIHI W O 4 117 IV.MI t'.IXI 4 (15.1 OOO (Mid  HIKI  1 >>W> IK.7  Will IHKI lliHl  I'.'M  W i l l (KXt OvKI OOO  l'l;(l 1171  IMKI IK.1i (KM! (SOU  i-;;:: l"7.i  m«; c;>a  l<)74 1-175  Hi.','  I17f.  W o r l d Seaborne Grain T r a d e 1 ,;„•  VV-ris  Tun  • Mil  om ooo  7(, ( K M (KHI  4 0 H (MKI  (..'! OOO ('.IN)  .ISO WMI (MKI OOO  ]>H,H  <i5 (KXi (UK) 0 0 OIHI (KKI 7 3 IKIO (KXI  .140 (KKl 0 0 0 (KM) .107 (Kid IHKI 0110 .1''.' 1100 IHKI IMHl  7(i IHIO IKKI  1172 1 173  X'J IMIil (MKI 1 .'7 (Hill ( M l  411ft IHKI IMKI (NKI 4 5 1 OIHI O l d IMHl 7(H) M M IMKI (MKI  1171  130 W l (>0i) IKIO OOO 1  (.'15 01 111 I.«I mm 7 3 4 (Hid (NKI ('.HO  141. OOO IKKI  7 7 1 IKKI 0 0 0 0 0 0  l«75 IV'70  7 3 o«:;i "t(h> 8.'. l)(KI 0 0 0 101 IMKI I H K I •J.J IKIII I K U ; 1i» I'O.'I (loo 104 ikKI IKIO 1 I ' l (M<1 (KM: 1 !7 OOO (HK) IH«I m i o  \y>  1 tUI\  l'«,7  1<I71  d i (KM) 0011 i't7 IHKI I ' d )  I1M 1 11.7 iW.K l'K.-l  ?44-  117(1  247 (10(1 IKKI 750 (NN) OOO  tm\  2 1 4 IHKI (IIMI  1 4 6 1 (MM)  27 IMKI 0 0 0 2K (Kl.l (KHI .12 (KKI tK-0  1(i (KIO !«KI (KKI 103 (HK) (KKI IHKI 1 I ' l IKKI IKKI (KKI  !')A<< 11(.7  23 l i l U l (KKI  IK-V 1170  .12 INX1 IKKI .1 ! IKKI (KHI  1  1171  .15 IKKI (KHI  121 (MKI (1(1(1 (MM)  117.?.  0110 0 0 0 4.1 (MM 00(1  159 !K;I! (KKI (KKI  1 ^,'.B  IK (Hit) (KKI <»;<)  1Kil  i 10 (KKI (Kill - K i d  11711  135 (KKI (I.W) (KHI  l'!7<i  I J S ' ( H U ) Will (KXI  (Hill  W o r l d Seaborn* B a u x i t e and Alumina T r a d e  I'K-O  1 tl (((HI IHKI 01 Ki  ( I ' l l ( K M O K I (KHI INS( K M mm 0 0 0  2 1 2 (KM) IKK)  l'K.7 I'WiS  If.g IHIO dim (KKI  OKI IKMI  H75 I17A  IV-ll.  i i : ^ i n.K>  1 1 1 1  llv.il 000  157. (KM) OIHI IKIO . I W(KKI w o (KHI 1 5711 0 0 0 (HK) (KKI 1 471 IHKI (MKI i«HI  .12" (Kill (1(10  Yvar  •111 (K..1I (mil <X INK) m u l  5 7 5 (KXI OIHI (.51 IHKI (MMI 7 7 5 (HfO (KHI ' i | 1 (KM(KHI  2 4 7 (HWI IHKI ' 2 « IN'-.') (KMt  /'oll-.Ulfcs  1175  Ton-Milt".  !972 197.1 1174  7V>m  ii  i.oo  •1*7 IK HI IhM! (KKI 55K I K K : OOO (MX) ( i l l 0 0 0 <K)0 110.1 S'l 1 ( K K I m m (MKI  (mo mm  1 car  1174  m  .H.1 ooo (Hill 0 0 0 . ' M l I'M, ( H K I I;IXI IKK, (Kill 0 0 0 (KMI 0 0 0 0 0 0 4<4 0 0 0 0 0 0 ooo •III • MO (H):l (MM  I5.< ( K M (MM) I W (Klii IHKI IS.'i IKK) 0 0 0  i!»7l  W o 1-1(1 S e a b o r n e /Phosphate T r a d e  I'»73  I . . ' • \ «-'  W o r l d Seaborne. Iron O r e Trade  I'K'.O  1 tIM l''70  I'tit  117 2 117.1  i  1174 1-175 I-I7d>  I . " (Hill (KHI • 26 (MM! K H I  3d  (.0(1 (KKI 3-1 OiKl (KKI .1? (KHI 0 0 0 . ' 5 00(1 K X I  •f..n-A/i7,-% 5 5 O'.MI OIHI (KKI Ijl (KHI 001) OiHI 70 IHKI IKHI OIK) H I (Klli (KKl ( k i l l 'CI (K.-O IKK) IKKI 1(1)1 0011 (KKI (MKI  .<•( IMKI (V.KI  1111 IK HI lt.\< IIV'.I l ^ i OIHI IHIO (KHI  4.' (KKl (/.>:! J ! (KK! (Kill  IStf IKOI I K ' d IKKI JiiS IKKI I'lH) (KHI  4 2 IHM O'KI  i - 5 i x ' : i mm IKKI  171  Appendix 2 The World Merchant 1.  TOTAL  WORM)  MERCHANT  WELTHANDEI.SFLOTTE  No of  No l.fd.  Nr.  Flag  BY H . A C S  NACH  del  (b)  A M 1.  1ST,  JANUAR  Nr.  Flag  Birr  1980  1980  No of  No Lfd.  Anz.ilil  AS OP J A N U A R Y  FLAGGEN  ships  Schiffe  ships  Anzahl  der  98  718  074  99  677  912  2  321  76  756  9 01  46  2 Japan  4  086  37  HI 7  616  4 7 Cuba  3  3  075  35  144  550  48  Rep.  44  645  751  565  25  72 6  93 5  49  Malaysia  94  584  337  9 04  22  056  747  50  Peru  63  516  42 6  Pakistan  65  482  829  4 81  911  Gieece  i  1  Norway 2  - G Tan am a 7 USSR  2  S US  1  9 10 11 12 • 13 14 15  France Italy FR of  Germany  1  786  677  51  South  938  17  121  357  52  Egypt  047  15  5'13  512  53  Israel  51  431  983  435  1 1 69 0  748  54,Chile  59  410  607  966  11  162  56  Nigeria  36  3 58  791  618  56  Thailand  90  338  101  Morocco  47  308  080  50  3 03  4 31 709  168  053  8  092  7  63 4 5 29  57  Singapore  737  7 072  887  58  PR C h i n a  714  6  055  705  59  Bangladesh  393  5  629  183  60  Lebanon Switzerland  India  , .  Africa  109  733  Spain  2 1 302  Venezuela  (b) BRT  Schiffe  - 1 Liberia  4 UK  16  Netherlands  690  5 336  930  61  17  Denmark  668  5  372  62  121  Columbia  Cayman  Is 1.  86  266  1 65  253  130  27  250  267  106  239  514  37  217  425  18  Sweden  3 61  4  652  603  63  New  19  Brazil  3 65  3  901  780  64  Ecuador  30  187  707  20  South  21 22 23  442  3  59  463  65  Vietnam  50  180  859  Poland  3  132  2 75  66  Honduras  80  180  598  Kuwait  117  2  39 6  083  67  Uruguay  24  171  505  312  2 370  6S  Eire  59  169  604  20  158  538  17  155  178  23  133  855  39  127  441  25  125  194  74 U A E  47  116  184  651  75  Malta  35  113  174  Yugoslavia  7  690  24  Finland  216  2 307  949  69  Ivory  25  Argentina  221  2 22 6  409  70  CSSR  • 27 28 29  Zealand  334  Korea  • 2G C y p r u s  |  FLEET  GESAMT  Fleet  Bermudas Belgium Romania  631  1 y&8  544  71  87  1 753  581  72  902  73  80 183  1  624  1 573  289  Coast  Ghana Maledives Tunisia  30  Taiwan  164  1 57]  31  Hong Kong  107  1 557  137  76  North K o r e a  20  112  048  87  1 504  952  77  Sri L a n k a  16  83  749  279  1 472  064  78  Qatar  6  83  025  5  81  497  13  80  193  32  Australia  33  Philippines  34 G D R  194  1 364  164  79  Cameroon  35  Turkey  291  1 34 6  885  80  Austria  36  Saudi A r a b i a  110  1 23 7  960  81  Zaire  9  77  951  37  Iraq  229-159  82  Gabon  3  74  926  917  83  Hungary  21  73  031  333  84  Iceland  49  72  055  51  427  38 39  Portugal Indonesia  41 108 550  1  1 204 1  150  40  Bulgaria  120  1 141  718  85  Angola  18  41  Algeria  76  1 126  634  86  Albania  14  51  338  42  Iran  93  977  477  87  Nauru  32 0  88  '13 44 45  Canada Libya Mexico  2 04 36 78  9 63 831 739  170 004  S9 90  4  50  738  Bahamas  28  50  440  Madagascar  16  47  348  46  389  Burma  Rep.  •  14  Appendix 3 The Canadian Registered Merchant  Fleet  number of v e s s e l s  Eegicn  dwt tonnage  A t l a n t i c Coast tankers general cargo dry-bulk passenge r/cargc ferries  25 22 14 6 16  202,000  l e t a I A t l a n t i c Coast  83  261 ,700  P a c i f i c Coast: ferries passenger general cargo dry-bulk tankers  28 1 3 2 2  Total Pacific  36  Coast  Inland Waters ( i n c l u d i n g Great Lakes): dry-bulk 115 tankers 11 g e n e r a l cargo 5 ferries 8 passenger 1 T o t a l Inland Waters T o t a l Deep-sea  140 4  85,000 2,300,000  2,400,000  appendix 4 The Canadian Great Lakes F l e e t Dry Bulk Cargoes - 1973 X  H-  •  o 3  P  to  o c H o re  re O  n  Cl  *: V)  ni  (/)  c  *o 1  0  (-<•  n  to  re  O 3  o x- s  re X)  nt  o  re  Ir  o  H  Z  "O  HU)  rt  n  CO B>  o  o  >—  Ci H  re BH)'  rt  3  rt>  3  rt-  e  o H  M-  3 era 13  re  -O tO  O  I*  --4 O  ID  o* tM  H  tn OO  o ~J -u  ^00 to  C7» ~o  W <£>  CO tn O  to Cf  00  tn  -o o o  to  /  N  O  o o  </l  to  o o o  H  tn CO  to  ii  -o in 10  to rtc a.  to o o  o  o  <i3  •—»  *  t3 O  tn  O  O O  to  o  O  o\ 00  ID to  -i i -o o o  O  o  -J CD -O.  -a o o  o <i>  -£>. o o  •O t/J —1  VI tn Ul  A. tn  o o  o  tn O tn  1—' CO  Vo.  tn  CTN i»  10 „  o  o o  o o  o  ii ii  1-*  t-" Ol  w  to  to -J  o  CTv  ^4  ii  O  •"•  *^  ~J  •—  o  o  o  o  O  o  o  o  o  ii cr>  •o i—•  to t/J  to tn  i» o  ii  t/4  ii o  o  00  to to  o in  >—'  tn  ii  CO  t*  to ii o  <o o  -J  Ji 00 tn  O  to  o  to  00  t->  ro  i>  00  o o o  o  o to  »  tn  o o o  w  o  a *  re  Appendix 5 S e c t i o n BII-19 of the Maritime Code fill-19.(1) The f o l l o w i n g c l a s s e s of persons are q u a l i f i e d . t o own Canadian r e g i s t e r e d s h i p s , namely, (a) Canadian c i t i z e n s d o m i c i l e d i n a provi n c e ; and (b) c o r p o r a t i o n s i n c o r p o r a t e d by or pursuant t c an Act of Parliament or of the l e g i s l a t u r e of a p r o v i n c e , (i) the p r i n c i p a l places of business of which are i n Canada, ( i i ) at l e a s t two-thirds of the d i r e c t o r s of which are Canadian c i t i z e n s r e s i d e n t In Canada,and ( i i i ) at l e a s t two-thirds of the persons who, pursuant to the by-laws or r e s o l u t i o n s of the boards of d i r e c t o r s or other governing bodies of the c o r p o r a t i o n s , perform f u n c t i o n s normally performed by the p r e s i d e n t , chairman of the board of d i r e c t o r s or other governing body, secr e t a r y and t r e a s u r e of a c o r p o r a t i o n are Canadian c i t i z e n s o r d i n a r i l y r e s i dent i n Canada.  175  Appendix 6 S e c t i o n 6 of The Canada Shipping Act "6. A ship s h a l l be deemed not t o be a B r i t i s h s h i p unless i t i s owned wholly by a person q u a l i f i e d to be an owner of a E r i t i s h s h i p , namely, (a) a B r i t i s h s u b j e c t ; or <b) a body c o r p o r a t e i n c o r p o r a t e d under the law c f a country c f the Commonwealth or of the Republic of I r e l a n d , and having i t s p r i n c i p a l place o f business i n t h a t country.,  176  Appendix 7 Canadian Ship C o n s t r u c t i o n Subsidy Hates 1961-80 t c March 31, 1963 March 12 , 1961 to February 2, 1965 A p r i l 1, 1963 to December 31, 1965 February 3, 1965 to May 31, 1969 January 1, >1966 to Man 31, 1970 June 1, 1969 June 1, 1970 to May 31, 1971 to March 5, 1975 June 1, 1971 to December 31, 1975 March 6, 1975 t o December 31, 1976 January 1, 1976 t o February 28, 1977 January 1, 1977 to August 31, 1977 March 1, 1977 September 1, 1977 t o October 31, 1977 to June 30, 1980 november 1, 1977 tc J u l y 1, 1980 keypunch has LC no c a p i t a l a u t o m a t i c a l l y  uo% 35%  Nil 25% 23% 21% 193S 14% 13* 12S 20% 20%  2 0% 9%  177  Appendix 8 D i f f e r e n c e Between Canadian and Foreign Manning C o s t s i  Vessel  Foreign Portage  Difference  1, 350,000 $1 ,104,535 (tanker) 1 ,048,045 2. 17 5,000 dwt ((CBC) 3. 150,000 dwt 1,048,045 (bulk-car.) 4. , 8G,000 dwt 1,002,945 (tanker) 5. 65,00 0 dwt 946,455 (bulk car.) 911,470 40,000 dwt 6. (bulk car.) 20,000 dwt 910,465 •7. (bulk car.) 910,465 8. Keo-bulker  $617,688  $394, 194  545,808  282,786  847,545  488,460  285,816  944,080  533,976  -  9.  Container  10. General  Cdn Portage  588,456  - 2  588,456  —  591,912  -  562,6 80  299,373  543,040  -  542,040  1  —  1. To r e f l e c t the f a c t t h a t the Canadian d o l l a r has d e p r e c i a t e d b approximately f i f t e e n percent s i n c e these f i g u r e s were compiled, f o r e i g n portage f i g u r e s were m u l t i p l i e d by 1.15 t o compensate f o r t h i s . Thus the amcunts given i n the " d i f f e r e n c e " column were c a l c u l a t e d i n the f o l l o w i n g manner; Cdn.manning c o s t s - (Foreign manning c o s t s x 1.15) 2. E n t r i e s marked with a dash are unimportant to the f o l l o w i n g a n a l y s i s s i n c e none of these s h i p s were found to be commercially acceptable; Cargo Source: Alcan Study , v o l . I , pp. ,4.27-4.28. , Manning Cost Hatios (1976 Cdn$ = 0S$) ( c a l c u l a t e d as Cdn..portage / Foreign portage) 1. 2. 3. 4. 5.  1.788 1.781 1.781 1.694 1.682  6. 1.676 7. 1.680 8. , 1.668 9. 1.735 10. 1.768  ranges 1.668-1.788  178  Appendix .9 Breakdown of Canadian  Shipping  Jmillion Purchased t r a n s p o r t Crew Wages and S a l a r i e s F u e l and G i l Maintenance and Repair Be p r e c i a t i o n Agency f e e s and berthage V e s s e l and cargo i n s u r a n c e Provisions Other Total * = subsidizable  $17 1. 2 167.4 116. 9 70. 3 51.6 49.9 34. 8 11.8 56. 9 $730.7  Expenses as % of t o t a l 23.4% 22.9 15.9 9.7 7. 1 6.8 4.7 1.6 7.9 100.0  items  Source: S t a t i s t i c s Canada, Water T r a n s p o r t 1977,  54-202, p.15. ...  Crew wages as a percentage of t o t a l o p e r a t i n g revenue = $167.4 / 1180 = 14%  179  appendix 10 C a l c u l a t i o n s f o r Change i n Operating Margin a s s o c i a t e d with an Operating Subsidy Subsidy  rate =  (Cdn. manning c o s t s - f o r e i g n manning c o s t s ) d i v i d e d by Cdn. manning c o s t s  = (1.5 - 1 ) / 1.5 = 335? (assuming Cdn manning c o s t s are 1,5 times f o r e i g n manning c o s t s see appendix 8) T o t a l subsidy payments: = Cdn. manning c o s t s x 33% subsidy r a t e = 167.4 x 335? = $55.24 m i l l i o n Operating subsidy without  subsidy:  = t o t a l revenue l e s s o p e r a t i n g expenses / t o t a l revenue = ($1180 m i l l i o n - $731 m i l l i o n ) / $1180 m i l l i o n = 385? Operating margin with subsidy = ( t c t . r e v . - (op. exp. • subsidy)) / t o t . r e v . , = ($1180 m i l l i o n - (730.7 m i l l i o n - 55.24 m i l l i o n ) ) / 1180 m i l l i o n =42.8% Change i n o p e r a t i n g revenue: = 42.8% - 38% = +4.8 5I Change i n a f t e r tax p r o f i t : = before o p e r a t i n g margin change x (1 - tax rate) , = 4.8 x .54 = 2.6%  9  180  Appendix 11 Proposed S u b s i d i z a t l e Routes and V e s s e l s BOUt €  Type of V e s s e l  Trade route  Cargo  Bulk - 150,000 dwt  Pacific  B6  Bulk -  65,000 dwt  St.lawrence/W.Europe  Grain/ballast  B9  Bulk -  65,000 dwt  St.  Grain/bauxite  N3  Neobulk-25,0 00 dwt  St.Lawrence/W.Europe  N4  Neobulk-25,000 dwt  Maritiraes/W.Europe  C2  Container 1,750 TETJ* Container 800 TEU  Baritimes/W.Europe  C4  Coast/Japan  Coal/ballast  E3  Lawrence/S.amer.  St.Lawrence/W.Europe  F o r e s t products /steel F o r e s t products /steel Container S Bo-Bo Container S Bo-Ro  {* TED = Twenty f o o t e q u i v a l e n t u n i t s ) Source: alcan Study , Summary Beport, p. 3.10, V e s s e l Beguirements of Proposed F l e e t Boute E3 B6 B9 N3 N4 C2 C4  Type of V e s s e l Bulk-150,000 dwt Bulk- 65,000 dwt Bulk- 65,000 dwt Neobulk-25,00 0 dwt Neobulk-25,000 dwt Container-1750 t e u Container- 800 t e u  T o t a l # of V e s s e l s  1979 3 1 1 2 3 1 tt  15  Ships i n f l e e t 1995 1985 1990 6 6 5 1 1 1 1 1 1 3 2 2 4 5 7 4 2 3 6 12 9 21  27  34  181  Appendix 12 C a l c u l a t i o n of Cost A s s o c i a t e d with an Operating Subsidy Program Per the year  1979:  Type of Vessel  Number  Eulk - 150,000 dwt  3  $394,000  Bulk  65,000 dwt  2  299,000  598,000  Neotulk-25,000 dwt  5  283,000  1,415,000  Containerships  5  286,000  1,430,000  -  Difference i n Manning Costs  T o t a l Banning Dif.(subtotal) f  T o t a l S u b s i d i z a b l e Manning Costs  $ 1 , 182,000  $4,625,000  According to f i g u r e s presented i n Gerald Jantscher's book. Bread Upon the Waters , p.,20, the wage component c o n s t i t u t e d , approximately e i g h t y - f i v e percent of the t o t a l o p e r a t i n g subsidy payments that were made. T h e r e f o r e , t c estimate t o t a l subsidy payments f o r the Canadian program; T o t a l s u b s i d i z a b l e manning c o s t s x $4,625 m i l l i o n x  =  =  .85 1.00  . 85 1.00  S i m i l a r f i g u r e s can be c a l c u l a t e d f o r the years  1985,1990,and 199  T o t a l S u b s i d i z a b l e Manning c o s t s : Year Tot Sub. manning c o s t s T o t a l operating 1985 1990 1995  $6,554 m i l l i o n $8,375 m i l l i o n 10.368 m i l l i o n  1. See appendix £ 2. ,See appendix 11  Subsidy  $7.06 m i l l i o n 9.02 m i l l i o n 12.19 m i l l i o n  182  Appendix 13 A l t e r n a t i v e Method f o r C a l c u l a t i n g the Costs A s s o c i a t e d With an Operating Subsidy Program Saguenay Shipping L t d . i n i t s 1979 submission  t o Transport  Canada on the q u e s t i o n of a Canadian deep-sea f l e e t ,  estimated  that Canadian crew c o s t s were $250,000 t o $350,000 higher per annun per v e s s e l then  were f o r e i g n crew c o s t s . The c o s t o f a  Canadian d i f f e r e n t i a l subdidy can thus be estimated by m u l t i p l y i n g the manning cost d i f f e r e n c e by the number of v e s s e l s r e c e i v i n g such a subsidy f a c t o r or 1.176 approximately  (see appendix 11) then m u l t i p l y i n g by a  (since s u b s i d i z e d wages account f o r  eight-five  percent of t o t a l s u b s i d y payments  made) .  Cost of Subsidy for  program  1979: high low  (15 x $350,000) x 1.176 = $6.17 m i l l i o n (15 x $250, 000)  x 1. 176 = 14.41  million  f o r 1985:  high low for  (21 x $350,000) x 1. 176 = $8.64 m i l l i o n (21 x $250, 000)  x 1. 176 = $6.17 m i l l i o n  1990:  high lew  (27 x $350,000) x 1. 176 = $11.11 (27 x $250, 000)  million  x 1. 176 = $7.94 m i l l i o n )  183  Appendix  14  Crewing B e n e f i t s Associated with  the  Proposed F l e e t  Year  # of v e s s e l s  # of o f f i c e r s  # of crew  1979  15  387  446  833  1985  21  618  729  1347  19SC  27  821  972  1793  1995  34  1022  1206  Source: Alcan Stud_j , Summary Beport, p.  total  2228  4.14  184  appendix 15 S o c i a l Costs of Labour a s s o c i a t e d with an Operating Subsidy Program S o c i a l CGSt = S u b s i d i z a t l e Manning x .90 + Other S u b s i d i z a b l e of Labour Costs Items for  1979:  = ($4,625 m i l l i c n x .9) + ((1/.85 -1) x $4,625 m i l l i o n ) = $4.97 m i l l i o n f o r 1985: = ($6, 554 m i l l i c n x .9) • {(1/.85 -1) x $6,554 m i l l i o n ) = $7.06 m i l l i o n f c r 1990: = ($8,375 m i l l i o n = $9.0 2 m i l l i c n  x .9) + ( ( ! / . 85 -1) x $8,375 m i l l i o n )  1, See appendix 12 2. Estimated to be 155? of t o t a l payments. See appendix 12  185  Appendix 16 Vessels Q u a l i f y i n g f o r a F i v e Percent Investment Tax C r e d i t V e s s e l Name  Registry  Type  Country of Build  Size  Japan Japan Denmark Denmark S.Korea S.Korea Japan S.Korea S.Korea Japan Netherlnds Japan  28,320 28,320 60,850 60,850 43 ,630 35,925 40,200 35,925 35,925 56,090 56,090 9,505  $15, 15 22 22 15 13 13 13 13 15 22 6 $184 22 17 17 22 19 17 19 $133  f o r 1S77: Fort V i c t o r i a F o r t Yale Fort Quebec Port Vancouver F e d e r a l Calumet F e d e r a l Clyde F e d e r a l Fraser F e d e r a l Rhine F e d e r a l Schelde H e l l e s p o n t Cong. Sanko T r u s t Texaco Brave Total  Br Br Br Br Li Li Li LI Li Li Li Li  Bulk Bulk Bulk Bulk Bulk Bulk Bulk Bulk Bulk Bulk Tanker Tanker  f o r 1S78: Algcbay Fort Carleton F o r t Walsh Arctic F e d e r a l St.Laurent Fort Hamilton F e d e r a l Saguenay Total  Ca Br Br Ca i LL i Br Li  Bulk Bulk Bulk Bulk Bulk Bulk Bulk  Canada Japan Japan Canada S.Korea Japan S.Korea  31 ,000 22,175 22,175 28,600 30,000 22,175 30,000  f o r 197:9 3 F e d e r a l Hudson Federal Huron A mste I s l e t Amstelsluis Amstelstadt Tctal  Li Li Ne Ne Ne  Bulk Bulk Cargo Cargo Cargo  E. Ger. , E. Ger. Canada Canada Canada  23,730 23,73 0 17,500 17,500 17,500  Estimated Constr ucti Cost ($mill  18 18 23 23 23 $105 m i l .  186  Appendix Sew  16 (cont'd)  Summary of  Vessels Type of V e s s e l  1977  1978  1979  10  7  2  Cargo  0  0  3  Tanker  2  0  0  12  7  5  Estimated value of new ships ($mil.) 184  133  95  Eulk  Total  Estimated ITC (in $ m i l l i o n s )  9.2  6.75  4.  187  Appendix  of  17  Savings A s s o c i a t e d with the Customs Exemption Imported Ships to be Used i n I n t e r n a t i o n a l Trade  Assuming a 20% Canadian C o n s t r u c t i o n  Subsidy:  with no customs tax; -cwner may purchase a ship from e i t h e r Canadian yards or from f o r e i g n yards with c o s t s being as f o l l o w s , Cdn. yard (befcre subsidy) $27.5 m i l l i o n Cdn. yard ( a f t e r subsidy) 22.0 m i l l i o n f o r e i g n yard <no customs duties) 19.0 m i l l i o n The owner w i l l n a t u r a l l y e l e c t to purchase from the cheap source of supply (assuming a l l other c o n d i t i o n s are s i m i l a r ) and w i l l purchase the v e s s e l abroad f o r $19 million. with a 25% customs tax on imported -cwner now  ships;  has the f o l l o w i n g c h o i c e to make,  Cdn. yard ( a f t e r subsidy) $22.0 m i l l i o n F o r e i g n yard ( a f t e r 25% import tax) f 19 m i l l i o n + (. 25x$27.5m) 25.9 m i l l i o n The owner w i l purchase from the Canadian yard and pay a p r i c e of $22.0 m i l l i o n f o r the v e s s e l . .  will  The d i f f e r e n c e i n the p r i c e t h a t the owner must pay with and without the 25% customs d u t i e s tax r e p r e s e n t s the b e n e f i t s to the shipowner c f t h i s p a r t i c u l a r form of subsidy.  188  Appendix 18 C a p i t a l Cost Allowance Deductions Associated With V a r i o u s Bates and Methods {in $,000s)  2 3 4 5 6  7 8 9 10 11 12 13 14 15 16  50% SL  151 dec  30 51 dec 10% SL  15$ SI  20% SI  33% SL  $3,000 2,550 2, 168 1,842 1,566 1,331 1,131 962 818 695 591 502 427 363 2,054  $6,000 4,200 2,940 2,058 1,441 1 ,008 706 494 346 242 169 11 9 83 58 135  $3,000 3,000 3,000 3,000 3, 000 3,000 2,000  $4,000 4,000 4,000 4,000 4,000  $6,666 $10,000 10,000 6,666 6,666  $2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000  -  -  -  -  -  -  —  -  -  --  -  Assumptions, 1. Ship purchase value i s $20 m i l l i o n 2. Discount r a t e used i s 12%. 3. L i f e o f the v e s s e l i s f i f t e e n y e a r s . 4. CCA begins at end of second year ( f i r s t two years of the v e s s e l ' s l i f e are spent i n the s h i p y a r d ) . 5. Onclaimed D e p r e c i a t i o n i s claimed at the end of the f i f t e e n year p e r i o d . 6. F i f t y percent tax r a t e i s assumed  -  -  -  -  —  -  -  —  189  Appendix Yr. . Fcrmula (Belgium) 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16  $4,000 3,000 3,000 2,000 2,000 2,000 2,000 2,000  -  -  -  Formula (France) 3,333 3,333 3,333 2,500 2,500 1 ,667 1 ,667 1, 667  -  --  -  18 (cont'd) PV f a c t o r s (12%) .79719 .71178 .63552 .56743 .5066 3 .45235 .40388 .36061 .32197 .28748 .2566 7 .22917 . 2046 2 . 18270 . 16 312  Appendix 1.9 Present Values of D i f f e r e n t i a l Cash Flow Savings of Various Bates Yr.  15% SL 15% dec  2 3 4 5 6 7 8 9 10 11 12 13 14 15 16  $0 160. 2 264.4 328.5 36 3.3 37 7.5 175.5 (173.5) (131.7) ( 99.8) ( 76.0) ( 57.5) ( 43.6) ( 33.6) (1675.5)  T o t a l s $886.2  10% SI 15% dec $ (398.6) (195.7) ( 53.4) 44.4 109.9 ' 15 1.3 175.5 187.2 190.3 187.6 ( 76.0) ( 57.5) ( 43.6) ( 33.6) (1675.5) $20.7  20% SL 15% dec $398.6 516.0 582. 1 6 12.3 661.6 (301.0) (228.6) (173.5) (131.5) ( 99.8) ( 76.0) ( 57.5) ( 43.6) ( 33.6) (1675.5) $1412.8  33% SL 15% dec  50% SL 15% dec  $1,461.2 1,465.2 1,429.6 (522.6) (396.7) (301.0) (228.6) (173.5) (131.5) ( 99.8) ( 76.0) ( 57.5) ( 43.6) ( 33.6) (1675.5)  $2,790.2 2,651.4 (688.9) (522.6) (396.7) (301.0) (228.6) (173.5) (131.5) ( 99.8) ( 76.0) ( 57.5) ( 43.6) ( 33.6) (1675.5)  $2412. 1  $2520.8  SL = s t r a i g h t - l i n e d e p r e c i a t i o n method dec = d e c l i n i n g balance method  19 1  Appendix Yr.  B e l g i a n formula 15 9! d e c l i n i n g  2 3 4 5 6 7 8 9 10 11 12 13 14 15 16  $398,6  Totals  $882.2  160.2 264.4 44. 8 109. 9 151.3 175.5 187.2 (131.7) ( 9 9.8) ( 76.0) ( 57.5) { 4 3.6) ( 3 3.6) (167.5)  19 (cont'd)  30% d e c l i n i n g 15% d e c l i n i n g $1195.8 587.2 245.3 6 1.3 ( 31.7) i 73.1) ( 85.8) ( 84.4) { 76.0) ( 65.1) < 54.2)  ! 43.9)  ( 3 5.2) ( 27.9) (156.5) $1355. 8  50% SL 33% SL $1328.9 1186.6 (2118.5)  — —  —  $397.0  192  Appendix 20 D i f f e r e n t i a l PV Cash Plows f o r Advance and S p e c i a l D e p r e c i a t i o n Methods yr.  Method A  1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16  $6000 2100 1785 1517 1290 1096 932 792 673 572 486 413 351 298 253 1437  Totals  15% dec —  3000 2550 2168 1842 1566 1331 1131 96 2 818 69 5 591 502 429 363 2 054  Method A 15% dec $2679 (358) (272) (207) (157) (119) ( 90) ( 68) ( 52) J 40) ( 30) ( 23) ( 17) ( 13) ( 10) ( 50)  Method B —  5000 5000 4000 2000 2000 2000 -  , --  —  $1173  Method 15% dec  -  797.2 871.9 582. 1 44. 8 109.9 151. 3 (301.0) (228.6) 173.5 131.5 99.8 76. 0 57. 5 43.6 33.6 $1244.0  Method A: 30% advance d e p r e c i a t i o n with r e g u l a r  15% d e c l i n i n g .  Method B: 40% s p e c i a l d e p r e c i a t i o n with r e g u l a r  15% d e c l i n i n g .  Appendix 21 C c s t s A s s o c i a t e d with a Zero Tax Bate On Shipping Earnings T o t a l Beveime of Canadian domiciled s h i p  operators.  Between Canadian and U.S. Ports {ether than Great Lakes ports)  $47,272,174  Between Canadian and other f o r e i g n ports  197,588,466  Between two f o r e i g n ports 48,140,072 Total  $293,000,712  Assuming a 5% r e t u r n on revenue (see e a r l i e r d i s c u s s i o n on o p e r a t i n g s u b s i d i e s ) and using a 46% tax r a t e : Taxes otherwise  payable = $293 m i l l i o n x .05 x .46 = $6.7 4 m i l l i o n  1. Data taken f r c n S t a t i s t i c s Canada, Hater T r a n s p o r t a t i o n 1S77, p. 37 . Figures l i s t e d above i n c l u d e f o r - h i r e and p r i v a t e c a r r i e r s but exclude data f o r government and sightseeing operators.  194  Appendix 22 Costs A s s o c i a t e d with a V e s s e l Reserve Fund The U.S.  registered  15,513,512 g . r . t .  f l e e t as of A p r i l  1980  totalled  while the Canadian f l e e t t o t a l l e d  963,320  g . r . t . or approximately one-sixteenth the s i z e of the l a r g e r O.S.,, f l e e t . Gerald Jantscher i n h i s bock Bread Upon the Haters , pp. 54-6€, estimated the cost i n 1974 of the U.S. C o n s t r u c t i o n Fund to be $35  Capital  million.  Thus the e s t i m a t e d c o s t of a s i m i l a r Canadian program cost  i n the neighbourhood of $2.17  might  million..  I f such a program was i n t r o d u c e d i t would undoubtedly u  encourage the r e g i s t r a t i o n of more s h i p s i n Canada. Suppose the Canadian r e g i s t e r e d f l e e t f i v e percent f c r the U.S.  grew by 15 percent compared  that  to  f l e e t . Under such assumptions the  Canadian f l e e t wculd be o n e - f i f t e e n t h the s i z e o f the American f l e e t one year hence. The c o s t of the Canadian program c o s t approximately $2.38 m i l l i o n .  might  195  Benefit  Appendix 23 to Shipowners of a Loan Guarantee  Program  Assumptions. 1. Average s h i p c o s t i s $20 m i l l i o n . 2. F i f t e e n s h i p s are ordered 3. F i f t y percent of borrowing i s done abroad. 4. l o a n s cover e i g h t y percent o f the s h i p s c o s t s . Under such a s e t c f assumptions borrowed abroad. (15x $20  $120  m i l l i e n ) x .5 x .8 = $120  m i l l i o n w i l l be  million  without the government guarantee, the owners must make repayments amounting to $20,693,936 per annum i f the terms of c r e d i t are a 13% i n t e r e s t r a t e and an e i g h t year repayment period. If because of the government guarantee program the owners are now able tc o b t a i n l o a n s at a lower i n t e r e s t r a t e (say a t 12% ever e i g h t years) then annual repayments w i l l be reduced to $20, 108,586. , t h i s r e p r e s e n t s a r e d a c t i o n of $585,000 a year i n annual repayments. Spread over the e i g h t year period of the loan and discounted by the f i r m ' s cost o f c a p i t a l (assumed t o be 1055) t h i s y i e l d s a t o t a l b e n e f i t of $3.1 m i l l i o n to owners., C a l c u l a t i o n s of y e a r l y Payments 12% i n t e r e s t r a t e  13% i n t e r e s t r a t e  196  The  Appendix 24 S o c i a l E e n e f i t s A s s o c i a t e d with a Loan Guarantee Program  As sum p t i o n s . 1. Foreign borrowing r a t e eguals 9% percent 2. Canadian borrowing r a t e i s 11%. 3. The loan i s an e i g h t year l o a n . 4. The loan i s f o r a t o t a l of $25 m i l l i o n . 5. S o c i a l D i s c c u n t Bate equals 10 percent. , I f borrowing occurs Yr.  Item  0  loan outlay  I f borrowing occurs Yr  Item  1-8  i n Canada the s o c i a l c o s t s and b e n e f i t s a r e ; Amount $25 m i l l i o n  ${25 m i l l i o n )  abroad the s o c i a l c o s t s and b e n e f i t s a r e ; Amount  loan repayments Ket  PV (using 10%)  Pv (using 10%)  $4,517 m i l . ${24,097 m i l l i o n )  s o c i a l b e n e f i t s i n t h i s case from borrowing abroad  i n Canada are egual t o the d i f f e r e n c e i n the c o s t s a s s o c i a t e d with each. T h i s d i f f e r e n c e t o t a l s $0,90 3 m i l l i o n per v e s s e l . ,  

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