An Unusual Historic State Aid Case.

The photograph above shows the ruins of the former penal colony of Port Arthur located on the Southern tip of Tasmania which I visited during the course of a recent trip to Australia. The large building in the centre is the remnants of the main penitentiary. It is an interesting place to visit and has an eventful if somewhat tragic history. Today it is a UNESCO World Heritage Site. Those imprisoned here included the Home Rule MP and Young Ireland leader William Smith O’Brien, who was sent to Port Arthur following a failed attempt to escape from another penal colony on Maria Island further up the Tasmanian coast. The remnants of his cottage are located a few hundred metres beyond the penitentiary. Today it is a UNESCO World Heritage Site. Port Arthur is also of interest from a competition economics perspective as it provides an unusual example of State Aid distorting competition.

In 1834 a shipyard was established in the Port Arthur penal colony. During its lifetime, the shipyard built a large number of ships. There were shipyards at two other Australian penal colonies -Sarah Island and the first Sydney shipyard – but neither of these operated for as long as the one in Port Arthur. During its lifetime more than 150 vessels were built at the Port Arthur shipyard. The largest of these weighed 286 tonnes and was more than 30 metres in length. The vessels built at Port Arthur were of a high quality and were found to have lasted much longer than other Australian and overseas built ships of this period.1 At one point, Port Arthur was the busiest shipyard in Van Diemen’s Land (Tasmania). One historic study observed:

“The most striking feature of the development of a shipbuilding industry in Tasmania was the role that Government played through the establishment and maintenance of dockyards using penal labour.”2

A key point about the Port Arthur shipyard was that the convict labour used was provided to the shipyard for free. This led to complaints from commercial shipyards who argued that they could not compete with the Government owned Port Arthur given its ready supply of free convict labour. Of course, Australia had no State Aid rules in the 1830s and 1840s and no equivalent of the European Commission to police them. However, it seems fairly clear that the provision of free labour to an undertaking by an arm of the State would come within the EU definition of State Aid.

The concept of State Aid is, after all, defined widely under EU State Aid rules and includes not only subsidies but any form of intervention or assistance which has the same or similar effect as a subsidy. Whether a measure constitutes State Aid depends on the effect of the measure, and in order to constitute State Aid the effect of the measure must be to confer a benefit on the recipient, where such benefit would not have been received in the normal course of events.

Under EU law there are five elements that make up State aid:

  • An advantage;
  • Granted by a Member State or through State resources.
  • Favouring certain undertakings of the production of certain goods;
  • Distorting competition and
  • Affecting inter-State trade.

It is also recognised that State Aid can take a variety of forms including:

  • state grants;
  • interest relief;
  • tax relief;
  • state guarantee or holding;
  • provision by the state of goods and services on preferential terms.

Although there do not appear to have been any EU cases involving the supply of free convict labour, from an economics perspective at least, it would appear that such arrangements would constitute illegal State aid. It was provided through State resources. It favoured the Port Arthur shipyard and gave it a significant competitive advantage over commercial shipyards. It certainly distorted competition and affected shipyards in other Australian colonies (affecting inter-state trade). Hobart newspapers regularly carried articles criticising the unfair competition that the shipyard provided to commercial yards located in Hobart. As early as 1835 one newspaper scathingly denounced Government plans to have a steamer built in Port Arthur.

“Miserable parsimonious meanness! Can it be possible that a Government boasting so often of its parental care and encouragement of free emigrants, should thus take the bread out of the mouths of a most meritorious class of artisans for the sake of pocketing a few hundred pounds.”3

While Australia had no prohibition on the provision of State Aid at the time, commercial shipyards successfully lobbied the Governor who ultimately ordered that the Port Arthur shipyard should close in 1848. The penal colony was closed down in 1877. It remains an interesting and thought provoking place to visit

  1. G. Jackon & P. Forbes, Were the boats built by convicts better than the rest?, June 2020. Available at ↩︎
  2. M. Nash, Convict Shipbuilding in Tasmania, Papers and Proceedings: Tasmanian Historical Research Association, 50(2), June 2003, 83-106 at 83. ↩︎
  3. Colonial Times  (Hobart) 29 May 1835, quoted in Jackson & Forbes ↩︎
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