Shipbuilding: EU to take South Korea to the World Trade Organisation, October 2002

Foreign ministers from across the European Union agreed on 30 September 2002 that the EU should take South Korea to the World Trade Organisation for what it perceives as unfair shipbuilding practices. In addition, the European Commission will activate a temporary defence mechanism for European shipbuilding.

The decision comes after months of negotiations between the European Commission and Korean authorities to resolve the dispute amicably broke down on 27 September 2002 when Korea rejected the proposals tabled by the EU. In presenting the case to the Council, European Commissioner for Trade, Pascal Lamy, said:

'We have negotiated in good faith to find an amicable solution to this problem with Korea but this has not proved to be possible. The Korean delegation has indicated that there is no support in the Korean industry for any of the proposals discussed with the EU. Korea has left us with no option than to go to the WTO'.

The Council had previously agreed that if a solution to the problem had not been found by 30 September 2002 then the European Commission could launch its twin-track strategy of lodging a complaint with the World Trade Organisation and reintroducing temporary and limited state aid to the industry.

The row between South Korea and the EU over aid to shipbuilders has raged on for the last two years. State aid to shipbuilding was discontinued in the European Union from the start of 2001 following an agreement between the EU and South Korea in June 2000 which included commitments to avoid financially non-viable over-investments and price undercutting and an agreement that ship prices should reflect all cost factors. However, Korea did not fully honour this agreement and by the end of 2000 the European Commission reported that unfair competitive practices were still continuing on the international market which were seriously affecting European shipbuilding.

Under the European Commission's proposed twin-track strategy a notice should appear in the Official Journal of the European Communities in the days following the decision announcing the EU's intention to launch a WTO Panel against Korea's unfair trade practices in the shipbuilding sector and triggering the temporary defensive mechanism (TDM). The principal provisions of the TDM are the following:

• Maximum aid intensity of 6% of contract value;

• Aid to cover container ships and product and chemical tankers;

• Entry into effect of the possibility to grant aid to Liquefied Natural Gas (LNG) tankers on the basis of a new Commission investigation under the Trade Barriers Regulation (TBR) covering the full year 2002 confirming that yards building this type of ship suffer from unfair Korean practices;

• The new Regulation will expire on 31 March 2004 to take account of the time necessary for a WTO panel to reach its conclusions.

Meanwhile, Korean authorities continues to deny EU claims that it is using subsidies to support its industry. They maintain that the relative success of the country's shipbuilding sector is due to the high level of efficiency within the industry.

Links:

European Commission:

• 30.09.02: Press Release: EU to take Korea to the WTO over unfair shipbuilding practices [IP/02/1395]
• 27.09.02: Press Release: Korea rejects EU call to put an end to unfair shipbuilding practices [IP/02/1389]
• DG Trade: Bilateral relations with North Korea
• DG Trade: Bilateral relations with South Korea

Council of the European Union:

• 30.09.02: Press Release: External Relations Council, Brussels, 30 September 2002

BBC News Online:

• 27.09.02: Probe urged into Korea shipyard aid

European Sources Online: Financial Times:

• 27.09.02: EU to target Seoul over ships

European Sources Online: In Focus:

• 25.06.02: European shipbuilders could benefit from state aid if negotiations with Korea fail once again

Helen Bower
Compiled: Wednesday, 2 October 2002

The EU will take South Korea to the World Trade Organisation for what it perceives as unfair shipbuilding practices following a decision by EU foreign ministers on 30 September 2002. In addition, the European Commission will activate a temporary defence mechanism for European shipbuilding.