European shipbuilders sound the alarm over South Korean aid package

Date: 08/01/1998

By Chris Johnstone shipbuilders have called on the European Commission to press for strict conditions to be attached to a multi-billion-ecu aid package for the South Korean economy to prevent local EU yards from being priced out of the market.

The Committee of EU Shipbuilders' Associations (CESA) has asked EU governments to demand that shipbuilding capacity reductions accompany the 50-billion-ecu International Monetary Fund (IMF) loan.

"The IMF loan could in part be used to ensure the maintenance of the aggressive shipbuilding capacity of South Korea. The industry is responsible for the striking distortion of the global market and the corresponding problems in Europe of job losses and yard closures," says CESA.

South Korea is the world's second biggest shipbuilder after Japan. Even before the 60% devaluation of the won, EU firms were complaining that Seoul was recklessly promoting extra building capacity although prices were already depressed. Asian shipyards were estimated to have a price advantage over their European counterparts of between 15%-20%.

The Commission is monitoring the situation and has demanded that Seoul keep it informed of its plans to save some of the troubled yards. However, there appear to be few practical steps the Commission can take to cushion the effects of the devaluation.

European aid for its shipbuilding industry has been fixed at 9% of the contract value for 1998 and at 4.5% for smaller vessels and conversions. That level cannot be changed pending an international Organisation for Economic Cooperation and Development accord aimed at phasing out all aid to the sector, although a large question mark hangs over whether the US will sign up to the deal.

Signals from the US are not encouraging. The Clinton administration has given its support to the reopening of the Philadelphia naval shipyard, with Anglo-Norwegian shipbuilder Kvaerner lured to manage the yard with a package of around 350 million ecu in aid.

The Commission has protested about the package although, ironically, it is other US yards which are making the most noise, complaining that the aid is putting them at a competitive disadvantage.