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The selection of appropriate government assistance measures to encourage the development of a Canadian deep-sea fleet

University of British Columbia

The objective of this paper is to discuss "What federal government assistance measures, if any, might be appropriate for encouraging the development of a Canadian deep-sea fleet"? Appropriate assistance measures are those that are adequate, economically efficient, eguitable, acceptable and reliable. Sources of reference included government publications; newspaper articles; journals; general textbooks on shipping, economics, and tax law; personal correspondence with shipping operators and an interview program of Vancouver-based shippers and ship-operators. Virtually all Canadian exports and imports are carried on foreign-flag vessels. Canadian involvement in international shipping is mere substantial than the figures might suggest. The question nevertheless arises as to whether Canada should continue to depend on foreign-flag services in light of recent trends and developments that are occurring in international shipping. Assistance measures can be conveniently categorized as being either financial assistance in the operating phase, financial assistance in the capital phase, or nonfiscal assistance measures. Specific assistance measures that could be used to assist shipping include, operating subsidies, government provision of facilities and services, special subsidies, tax incentives, lean guarantees, government loans, construction subsidies, government support, or protected markets. Examples of each of these measures can be found in various forms throughout the world. In relation to ether maritime nations, Canada's assistance measures can not be considered as being very generous. Sn operating subsidy program is not an appropriate form of assistance for the federal government to introduce since it encourages inefficient usage of resources, is not adaptable, and is net acceptable to any major Canadian shipping interest group. It is estimated that such a program might cost the federal government $4 to 6 million annually. The social costs of such a program are represented by the increase in shipping revenues less the increase in costs, valued at their social opportunity cost. Taxes are ignored in the analysis, except to the extent that they may affect the allocation of resources. That is because taxes represent a transfer cf resources rather than an actual cost or benefit. Tax incentives are, perhaps, the most appropriate type of assistance measure examined since they are adaptable, reliable, and can be easily implemented. Increasing capital cost allowances from a 15 percent declining balance to a 33 percent straight-line method could result in present value cash flow savings to a shipowner of $2. 124 million on a $20 million vessel. The permittance of advance depreciation might be valued at 11.17 million and special depreciation at $1.25 million. A reduction in tax rates is only effective if sufficient taxable Income is being earned. A reserve fund is also an appropriate assistance measure for many of the reasons cited above. Such a program might cost the government $2 to $3 million annually. Government loan guarantees, allowing shipowners to secure letter credit terns may also result in substantial benefits to Canadian shipowners and would require a minimal outlay of funds on the governments behalf. A direct government loan program is not an appropriate measure because it is not adaptable, eguitable, or economically efficient unless the government can perform the lending function more efficiently than can private industry. Construction subsidies benefit shipbuilders, with the benefits accruing to shipowners being minimal and unreliable. Nonfiscal assistance measures such as flag discrimination and cargo preference, are considered economically inefficient, and unacceptable. Such measures are, at the present time, too harsh a reply to the flag discrimination and cargo preference problems that are developing elsewhere in the world. The one possible exception to this may be Canadian-flag carriage of cargoes to and from the Artie regions of Canada. It is possible that the intangible benefits associated with such a venture (i.e., security, sovereignty, pride) might justify the higher costs involved.

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2010-03-13

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http://hdl.handle.net/2429/21868

Business Administration

University of British Columbia

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