Koreans demand evidence over Bangemann shipbuilding claims

Date: 22/07/1999

By Peter Chapman

KOREAN diplomats have challenged the European Commission to come up with evidence to justify its claims that the country has unfairly subsidised its ailing shipbuilding industry with International Monetary Fund cash earmarked for other purposes.

This follows warnings from suspended Industry Commissioner Martin Bangemann last month that uneconomic Korean shipyards on the verge of bankruptcy were being propped up by the Korean banking sector, using IMF loans intended to fund reforms of the country's banking sector and capital markets.

Bangemann said one yard, Halla Heavy Industries, which is for sale but has so far been unable to find a buyer, had continued to receive bank loans to keep it afloat even though it was unable to pay its existing debts.

"There seems to be no justification based on free-market criteria that would explain why a market-oriented bank would give such loans under these conditions," he said.

Bangemann added that the firm's main creditors, including the Korean Exchange Bank (KEB), had offered to write off most of Halla's debts last year. He claimed that KEB had illegally received IMF money via a second state bank EXIM, which was itself funded by the Bank of Korea. EXIM was also implicated, he added, because it continued to offer Halla export guarantees when private banks refused to offer them.

Bangemann pointed out that EU taxpayers were direct contributors to the IMF and had a right to ensure that its cash was not being used to bail out the shipbuilding sector.

But the warning, which was Bangemann's last act as industry chief before he quit his post to take a new job with Spanish telecoms firm Telefónica, has infuriated the Korean government.

"If there is any evidence, let them provide it," said a senior Brussels-based Korean diplomat, who said Seoul was still preparing its response to the Bangemann letter. "We have already confirmed that the Koreans have not granted any subsidies to shipbuilding and that we have not misused the IMF loan."

Aides to Acting Trade Commissioner Sir Leon Brittan have also privately expressed misgivings about whether the accusations levelled against Korea are justified. "There is no clear evidence one way or another. But given the doubts, it is important that they are seen to be whiter than white," said one.

A spokesman for Bangemann said that industry officials had already launched an independent study into the Korean shipbuilding market, but added that it would take months to collate the results.

Bangemann has not been alone in expressing concern over the shipbuilding issue. EU industry ministers warned at a meeting in Finland earlier this month of a souring of EU-Korean trade relations and possible World Trade Organisation sanctions if the dispute was not settled.