Shipbuilding: European Commission extends temporary defensive mechanism, June 2003

In response to the ongoing trade dispute between the EU and South Korea concerning the shipbuilding industry, the European Commission decided on 25 June 2003 to extend the temporary defensive mechanism to liquefied natural gas carriers (LNGs).

The decision will allow EU Member States to grant temporary and limited state aids to European LNG shipyards while the European Commission continues to pursue a case against South Korea at the World Trade Organisation. The row between South Korea and the EU over aid to shipbuilders has raged on for the last three years since state aid to shipbuilding was discontinued in the European Union in 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. However, the European Union believes that South Korean shipbuilders are continuing to sell ships below cost price, supported by state subsidies. As a result EU ministers agreed in September 2002 that the European Commission should launch a case against the World Trade Organisation for what the EU perceives as unfair shipbuilding practices and in the meantime activate a temporary defence mechanism for European shipbuilding.

These protection measures now offer producers of container ships, product and chemical tankers, and Liquefied Natural Gas tankers aid up to 6% of the contract value. The temporary defensive mechanism will remain in place until 31 March 2004 to give the WTO dispute panel time to rule in the case.

European shipbuilding has been in decline for the last few years in the face of stiff competition from shipbuilders in Asia. Hyundai Heavy Industries, Daewoo and Samsung, all based in South Korea, have experienced an increase in demand in the last year but claim that this reflects a steady recovery in the global shipbuilding industry rather than support from the state, as the European Union has suggested. This growth could be strengthened by the EU's decision to ban single hulled oil tankers after the sinking of the Prestige off the northern coast of Spain in 2002 caused widespread environmental damage. The new regulations will force companies to upgrade their fleet. But while the EU may be concerned about competition from South Korea, both parties should be concerned about the growth of the China's shipbuilding industry. In 2002, Chinese shipbuilders took 12.6% of new orders, overtaking the EU to become the world's third-largest shipbuilder, and it may soon be challenging South Korea's top spot.

Links:
European Commission:
	25.06.03:	Press Release: Shipbuilding: European Commission extends the temporary defensive mechanism to Liquefied Natural Gas carriers [IP/03/895]
	DG Trade: The Shipbuilding Sector
European Sources Online: Financial Times:
	25.06.03:	Europe fires WTO flare as S Korea yards steam ahead
European Sources Online: In Focus
	Shipbuilding: EU to take South Korea to the World Trade Organisation, October 2002
	27.05.03:	European shipbuilders could benefit from state aid if negotiations with South Korea fail once again, June 2002

Helen Bower

Compiled: Thursday, 26 June 2003

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