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July 25, 2001

EC proposes "temporary" shipbuilding subsidies
The European Commission today adopted a proposal to put in place "a temporary defensive mechanism" for European shipbuilding..

The proposal is limited to containerships and product and chemical tankers, those market segments in which the Commission says its investigations found that EU industry had been considerably injured by unfair Korean trade practices.

The mechanism would authorize European governments to give a subsidy of up to 14 per cent of the contract value of ships in the protected market segments. However, the mechanism must not result in distortion of competition between European Union yards. To ensure this, there would be "special transparency rules" for all subsidies above 6%. Such aid would have to be individually notified to, and approved by, the Commission. The Commission would only authorize aid at these levels if it is clear that the aid amount was the minimum necessary to keep the contract within the EU. All potential Community competitors would be informed of the notifications made and would have the opportunity to submit observations directly to the Commission.

The subsidy proposal, which must be approved by the European Council, is one element of a two part Commission strategy to counter what it maintains are unfair Korean practices. It comes after a series of negotiations between the Commision and Korea, which, says the Commission, "failed to produce an agreement that would restore normal trading conditions."

The other part of the package is dispute settlement proceedings against Korea at the WTO. These will be initiated in the WTO as soon as the Council expresses its favorable position on the temporary defensive mechanism.

EU Competition Commissioner Mario Monti said: "This proposal is an exceptional response to a difficult problem: it does not at all represent a general reintroduction of operating aid to shipbuilding, which came to an end on December 31,2000, but will strengthen the Community's efforts to combat damaging anti-competitive practices by Korea."

The temporary subsidy regime will only remain in force for as long as it takes to conclude the WTO proceedings.

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