Lamy makes waves with WTO over ‘unfair’ Korean ship prices

Date: 03/10/02

By Karen Carstens

PASCAL Lamy has urged the Council of Ministers to take South Korea to task by filing a complaint with the World Trade Organization over alleged unfair shipbuilding subsidies that have irked the European Commission for years.

The trade commissioner recommended the move on Monday (30 September) after high-level technical talks held in Brussels between South Korean and EU officials failed to resolve the long-standing dispute.

'South Korean shipbuilders continue to distort competition,' Lamy declared after meeting the Council. 'Despite those negotiations, we were unable to get a deal.'

The Council had already approved a twin-track strategy proposed by the Commission on 27 June, but put the measures on hold and gave both parties a 30 September deadline to resolve the dispute amicably.

The two strategies that are now to come into effect include the immediate launch of procedures for a panel against Korea in the WTO and the activation of a temporary defence mechanism for European shipbuilders.

The latter measure involves reinstating a system of public subsidies to the European shipbuilding industry of up to 6 of contract value for container ships and most types of tankers.

The regulation will expire on 31 March 2004, which was deemed a sufficient amount of time to allow the WTO panel to reach its conclusions. State aid formerly provided to EU shipbuilding industries was abolished in late 2000.

'The problem is that we do not import ships,' Lamy said. 'We import bicycles and televisions, they cross borders, but ships do not cross borders. So I am totally open to a system of subsidies to restore some kind of balance that is admittedly no longer the most modern kind of approach.'

According to reports, South Korea immediately threatened to countersue if the EU takes the issue to the WTO.

One proposal that was put forward by EU officials in the latest round of talks was a gradual increase in the price tags of Korean-built ships, Lamy spokeswoman Arancha Gonzalez said.

'We have talked about implementation, about transition periods, about phasing in, but despite this, they (the Koreans) have not agreed,' she said.

'The Koreans argue that they are pricing their ships according to market prices, but our investigations show that they are selling their ships far below production cost - this is costing EU producers a lot of money.

'The argument that market prices should prevail does not apply in this case because they are market leaders and they are selling their ships below cost,' she said.

According to a report published in April by the Commission, 2001 was 'a very problematic year for maritime industries world wide'. A decline in orders resulting from the recession in the United States and the terrorist attacks of 11 September primarily affected the container ship and cruise ship sectors, respectively, leading to a drop in overall market shares for Korea and the EU, which are particularly strong in these segments.

In the past decade, the EU has, on average, had about 20 of the global shipbuilding industry's market share, according to the same Commission report. From 2000 to 2001, the EU's share declined from 19 to 13, compared with a drop from 36 to 30 for South Korea. Japan, however, saw an increase from 26 to 33 of market share, as did China, from 7 to 11.

South Korea's Daewoo Shipbuilding & Marine Engineering Company is reported to have won a $76 million (€77m) order to build two 115,000-ton oil tankers for Canada's Teekay Shipping Corporation by 2004.

Daewoo, the world's second-largest shipbuilder after South Korea's Hyundai Heavy Industries, said it has secured more than $2 billion in orders so far this year. Last year, it booked $3.3 billion in orders.

The Commission also confirmed in July that it has opened an investigation into alleged unfair public subsidies to two South Korean computer chip makers, Samsung Electronics Co. Ltd. and Hynix Semiconductor Inc., according to online media reports.

Trade Commissioner Pascal Lamy has urged the Council of Ministers to take South Korea to task by filing a complaint with the World Trade Organisation over alleged unfair shipbuilding subsidies that have irked the European Commission for years.