Tighter rules to be imposed on JDB loans

PUBLISHED : Friday, 05 August, 1994, 12:00am
UPDATED : Friday, 05 August, 1994, 12:00am

LOANS for ship building by the Japan Development Bank (JDB) under the Japanese Government's plan for improving Japan's ocean-going merchant fleet are likely to be subjected to strict limitations.

This follows the basic agreement reached recently by the Organisation for Economic Co-operation and Development (OECD) working party on shipbuilding. Abolition of such loans was not requested outright.

According to the working party's draft international agreement worked out at its recent meeting, governmental measures for the shipbuilding industry which hinder normal conditions of competition will have to be reduced.

The draft agreement contains, in principle, a strict provision that prohibits even indirect aid measures, such as JDB loans, if more favourable lending terms than in the marketplace are provided.

However, an exception is stipulated - that loans extended on the same terms as those specified in the OECD's Understanding of Export Credits for Shipping be recognised.

The understanding presently provides for a repayment period of 8.5 years at an annual interest rate of eight per cent.

But the basic agreement calls for extending the repayment period to 12 years and the application of market rates.

As a result, the JDB loans will be allowed, provided they meet these terms.

However, since the interest rate of JDB loans is not tied to market rates, it remains to be studied whether the lending terms of the JDB loans can be adjusted to the terms specified in the OECD understanding.

The current interest of the JDB loans for building ocean-going vessels is set at 4.2 per cent.

Therefore, if market rates were adopted, the JDB loans could lose their advantage with regard to the interest rate.

The Ministry of Transport intends to study this issue from a viewpoint of shipping policy as well.

In the basic agreement, Japan proposed three options as an exception to provisions on indirect assistance.

It proposed that exception be allowed in the case of: A lending system in the nature of import promotion.

A system that has a completely open bidding system for international competition.

A system that is in consonance with the OECD's Understanding of Export Credits for Ships.

However, shipping industry sources pointed out that there is no financing system of an import-promoting nature in any other country than Japan.

They said it will also be difficult to introduce an open bidding system into the Japanese shipbuilding industry.

Moreover, ambiguity remains about the definition of the Understanding of Export Credits for Ships.

There is a view that because of these problems, the Japanese proposal will be technically difficult to implement.

The OECD council working party on shipbuilding will study the Japanese-proposed options by the middle of next year.