2001 Maritime

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May 8, 2001

EC sets out strategy to counter "unfair" Korean shipbuilding practices
The European Commission is recommending that, in certain circumstances, European yards be allowed subsidies of up to 14% to protect them against unfair pricing by Korean yards.

Following adoption of its fourth report on the state of the EU shipbuilding industry last week, the Commission today approved the strategy it will propose to the Council of Ministers on May14/15. to address the "persistent problems posed to the European shipbuilding industry by unfair trade practices by Korean shipyards."

The Commission says that investigation into subsidies carried out under the Trade Barriers Regulation (TBR) has established that substantial subsidies have been granted to Korean shipyards through both export and domestic programmes which contravene the WTO's 1994 Subsidies Agreement.

On this basis, the Commission will recommend that the matter be taken before the WTO through the initiation of a dispute settlement procedure by June 30 -- unless an amicable solution can be reached in the interim period.

In parallel, the Commission will propose accompanying measures in the form of a temporary support mechanism for European shipyards. It would be limited to market segments considerably injured by unfair Korean trade practices and would last for the period required for conclusion of the WTO procedure.

The support mechanism entering into force will be simultaneous with the effective start of the WTO action.

After today's meeting, EU Trade Commissioner Pascal Lamy said: "Following the results of our investigation which confirm the suspicions of EU industry, we will recommend to the Council that the EU should pursue this matter through the WTO by June 30. Although we have not closed the door to an amicable solution with the Korean authorities, the clock is now ticking"

TBR Investigation
The Commission's TBR investigation carried out over a five-month period, has revealed that Korea has granted substantial amounts of subsidies, mainly through export schemes by the state owned Korean Export-Import Bank and debt forgiveness and debt-to-equity swaps by government owned or government controlled financial institutions.

The following shipyards were found to be the main beneficiaries:

  • Halla Engineering and Heavy Industries (now called Samho Heavy Industries),
  • Daedong Shipbuilding Co., and
  • Daewoo Heavy Industries (now called Daewoo Shipbuilding Marine Engineering).

During the investigation the Commission services gathered information and comments from the EC producers, the Korean authorities, the Korean shipyards, certain Korean financial institutions and other third parties such as shipbrokers. Moreover, verification visits took place in the Community and Korea.

It was further shown, says the Commission, that the subsidies are causing adverse effects to EU industry within the meaning of the WTO Subsidies Agreement and are, therefore, actionable.

The Commission is to continue its investigation into the export subsidy schemes on which the Korean authorities and shipyards did not supply crucial information. A further report on these schemes, as well as on their impact, will be released in due course.
What the Commission terms "the defensive temporary support mechanism" would be limited to market segments "where it has been demonstrated that EU industry has been considerably injured by unfair Korean trade practices," namely containerships and product and chemical tankers.

For these segments, the mechanism would authorise a maximum aid ceiling of 14 per cent in certain circumstances.

The Commission will review the eligibility of market segments in the light of new evidence clearly proving that a specific market segment within the EU has been directly injured by unfair Korean trade practices.

The Commission warns that the new subsidies "must not result in distortion of competition within the European Union."

European Union member states would, in addition to normal notification rules always have to

  • individually notify to the Commission any proposals of aid above 6%;
  • demonstrate that there has been an open bid for the contract or an equivalent procedure which ensures the same level of transparency; and
  • prove that the aid is the minimum required to keep the contract within the EU.

The Commission would makes its decision within a reasonable period after notification.

Meantime Korean press reports say the Korea Shipbuilders' Association (KSA) has categorically rejected all allegations made in the EC's fourth report.

The KSA reportedly described the report's conclusions as "unfounded, arbitrary, fallacious and directly inconsistent with the data set forth by renowned maritime specialists."

Among other things, the KSA maintains that Korean success in the post panamax container vessels is largely due shipowners' requirement to build a relatively standard vessels efficiently in series.

KSA rejected the allegation that Korean vessels are produced at a loss on the grounds that the survey was based on 32 orders among hundreds of orders.

KSA also said the allegation of a price decrease for Korean-built vessels contradicted findings by specialists such as Clarkson.