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January 21, 2004

EC plans to extend shipbuilding subsidies

The European Commission is seeking to extend the temporary shipbuilding subsidies permitted as a "temporary defensive mechanism" (TDM) until March 31, 2005. The subsidies, introduced as part of a two-pronged response to alleged Korean "unfair" shipbuilding practices, are due to end in March this year.

The Commission decision to extend the subsidies will now go to the European Council and the European Parlament for approval. Announcing the Commission decision today, the EU Commissioner for competition, Mario Monti stated: "While State aid is certainly not the way forward to make EU shipbuilding more competitive globally, today's decision does show that the Commission recognizes the exceptional circumstances in cases where Community interests are at stake. The extension until March 2005 is justified because no solution has been found so far bilaterally or at WTO level"

Trade Commissioner Pascal Lamy called the decision "a clear signal that we are not ready to let European shipbuilders down while they suffer the consequences of unfair Korean practices." He said the EU "will continue to defend our case against these practices in the WTO" and said "I hope Korea will put an end to its subsidies so that this issue can be settled."

The scope and aid intensities allowed under the existing TDM provisions as set forth in Council regulation (EC) No 1177/2002 of 27 June 2002 will remain unaltered.

The principal provisions of the temporary defensive mechanism are the following

Maximum aid intensity of 6% of contract value;

Scope: containerships; product and chemical tankers and Liquefied Natural Gas (LNG) tankers.

The WTO panel considering the EU complaint against Korea did not start its work until December 2003 and its final report is expected not earlier than in August 2004. Taking into consideration a possible appeal by one of the parties, a final decision of the WTO Appellate Body is not expected before 2005.

The EC says the TDM would be desactivated, however, at any earlier date of conclusion of an agreed solution or suspension of the WTO proceedings.

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