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Tuesday, December 12, 2017

INTERTANKO to participate in OECD Working Party 6 on Shipbuilding

INTERTANKO will be represented at the Organisation for Economic Co-operation and Development (OECD) Working Party 6 (WP6) on Shipbuilding 21 June in Paris, which will be a special session on market-distorting factors.

The purpose of this special session of WP6 is to allow a back-to-basics review of factors that can distort normal competitive conditions in the shipbuilding industry. This will allow participants to explore some fundamental issues about the shipbuilding market, and to discuss market distorting factors from different perspectives.

INTERTANKO is invited to provide input on a session on the current status of the shipbuilding industry and its susceptibility to distortion, which will include: 

  • Following the 2008 economic downturn, is the shipbuilding industry performing well, or declining?
  • What is the expected supply/demand balance in the short-term?
  • Is shipbuilding facing a significant overcapacity problem in the near future?
  • Is shipbuilding more, or less, susceptible to distortions than other industry sectors?
  • Do regular boom-bust cycles exacerbate the risk of distortions in the market?
  • If there is overcapacity in the industry, can this act as a catalyst for distortion in the market?

Since its creation in 1966, the OECD’s Council Working Party on Shipbuilding has addressed factors that distort normal competitive conditions in the shipbuilding industry in accordance with its mandate.

The WP6 mandate specifically refers to “factors that distort normal competitive conditions in the shipbuilding industry, but there has never been a specific definition of the term ‘normal competitive conditions’”.

In theory, a completely undistorted market is one that is completely frictionless (for example, with perfect information, no entry/exit barriers, perfectly mobile factors of production etc.) but in practice such markets are exceedingly rare, and there is no suggestion that shipbuilding has ever operated as a perfect market, but rather as a market that allows for significant competition.

Neither a perfect nor a competitive market implies the absence of government regulation in those markets, principally because appropriate regulation may be necessary to prevent anti-competitive behaviour – for example collusive practices, or monopolistic behaviour. However, it is assumed that such regulation by government does in fact preserve the competitive nature of these markets, rather than hindering it.

It is suggested that the above approach could provide a general framework within which to discuss market distortions, and there are a number of possibilities. In a general context it is possible to refer to the World Trade Organization’s (WTO) Glossary of Terms, which defines distortion as:
Distortion: “when prices and production are higher or lower than levels that would usually exist in a competitive market.”

This definition is useful because its terminology is not far removed from that used in the OECD Council mandate for the Shipbuilding Agreement negotiations, which talks of factors that “distort normal competitive conditions”.

If you have any views on this issue, please contact Erik via erik.ranheim@intertanko.com

Contact: Erik Ranheim