ITF on Maritime Subsidies: Do They Provide Value for Money?

The International Transport Forum (ITF), associated with the OEDC, issued its report ‘Maritime Subsidies: Do They Provide Value for Money?’. The report gives an overview of direct and indirect subsidies available to maritime transport in OECD countries. It assesses whether they provide value for taxpayers’ money and offers recommendations how policy makers can increase the effectiveness of maritime subsidies. Maritime subsidies relate to support for national flags, seafarer employment, the competitiveness of maritime clusters, promoting high quality standards and maintaining maritime connectivity. They can take the form of budgetary expenditures, tax expenditures and transfers of financial risk to governments. 

Maritime subsidies have existed for centuries, with applications as diverse as overseas maritime expeditions and the development of steamship companies. Studies on maritime subsidies of the past can fill a medium-sized library, but recent studies on the subject are scarcer, if not non-existent. This report aims to fill that gap by providing an overview of existing maritime subsidies and their effectiveness. This is relevant for policy makers who have to be able to justify public support to this specific sector, and be able to improve the effectiveness of its policies.

The report classifies and identifies the different sorts of maritime subsidies that exist today. The main maritime subsidy categories are described within and include direct subsidies, tax expenditures, and transfer of financial risk to governments.

Classification of maritime subsidies

A subsidy is a monetary transfer from a government to a private or public company active on the market, with or without conditions for services to render. Subsidies can take different forms and will in this report be classified along two indicators: the transfer mechanism – how a transfer takes place – and the statutory incidence – to whom and for what a transfer is first given.

We distinguish five different transfer mechanisms:

• Direct subsidies: these direct transfers of funds are budgetary expenditures by governments.
• Tax expenditure (also referred to as tax revenue foregone). This refers to favourable fiscal treatment of the shipping sector that results in revenue foregone, namely revenue that would have been collected were shipping treated as other economic sectors.
• Other government revenue foregone; this is a similar category as tax expenditure, except that it applies to other government revenue, such as tariffs, fees and charges.
• Transfer of risk to government; such as favourable loans and loan guarantees.
• Induced transfers; transfers from consumers to producers that result from constraints on competition contained in shipping regulation.

This report mainly focuses on the first three categories. Information on the transfer of risk to governments will also be included when this can be quantified. Induced transfers will not be covered in this study.

The classification of subsidies applied here has been influenced by other OECD inventories of support measures. These OECD support inventories have generally used the producer and consumer support estimates (PSE and CSE) framework that distinguish between support measures that benefit producers and consumers. The framework also covers a third category of support, namely the support that benefits producers and consumers collectively, or that do not support current production, such as industry-specific research and development. In the context of this report, ship-owners and operators receiving subsidies are the “producers” of maritime services. We do not cover subsidies for “consumers” of maritime services, such as shippers or passengers –these seem to be quite rare.

Production is relevant for the second indicator used to classify maritime subsidies, namely statutory incidence, that is: to whom and for what reason a transfer is first given. Production factors considered are labour, capital (ships), energy (fuel), infrastructure and knowledge. The income of the shipping enterprise and the different factors of production for shipping services are considered when defining the statutory incidence.

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