Fresh battles ahead over state aid to shipping and aerospace sectors

Date: 21/09/00

By Bruce Barnard

THE EU is bracing itself for further skirmishes over subsidies, but the shipbuilding and aerospace industries at the centre of the fight will hardly notice that hostilities have begun because they are locked in life-or-death struggles for market share.

The Union's trade diplomats are resuming the offensive against South Korea's shipyards over alleged unfair pricing practices, even as they shore up their defences against a looming assault by the US on European government aid for Airbus' planned A3XX superjumbo.

The long-running dispute with South Korea is no nearer a settlement after months of consultations, but the Union's threat to file a complaint with the World Trade Organisation has also receded despite tough talk by European shipbuilders.

EU officials are preparing for another visit to Seoul to examine how Korean yards set their prices and whether they cover their costs before writing a report that will help Union industry ministers to decide whether to take trade action.

For European shipbuilders, the showdown with Seoul is eclipsed by a much more immediate issue: the expiry of the Union's subsidy regime at the end of the year. Indeed, some observers suspect that the industry is using Korea as a convenient whipping boy to win support for extending the regime, which permits subsidies worth up to 9% of the value of a contract.

European yards are indeed losing orders to Korea - and Japan - but they are still managing to hang on to their world market share and have fended off an attempt by the Asians to break their near monopoly of the high-margin cruise-ship business.

Straight tonnage figures exaggerate the Japanese and Korean lead as they have a quasi-monopoly over big tankers and bulk carriers. The gap in compensated gross tonnes (cgt), which measures the amount of labour used, is much narrower: Japan delivered 6 million cgt last year, Korea 4.4 million cgt and the EU 4.1 million cgt.

More important, Europe is ahead of its Asian rivals in terms of the value of ships delivered: 12.4 billion euro last year, against Japan's 10.5 billion euro and Korea's 8 billion euro. The furore over Korea may abate as the shipping market is on a 30-year high, sending shipowners scrambling to place orders at the few yards with spare building capacity.

And for the top European yards, the main danger does not come from Asia but from shipbuilders in neighbouring countries: Harland & Wolff, the Belfast

shipyard, faced the threat of closure after losing a life-saving 800-million euro order for a new Queen Mary to France's Chantiers de l'Atlantique in April.

Meanwhile, the Union can expect a US assault on the A3XX when Germany, France and Spain follow the UK by providing repayable loans towards the 12.5-billion euro development cost of the double-decker plane which will break the Boeing 747's

30-year monopoly of the jumbo passenger aircraft market. Airbus itself is not too worried by warnings from Washington that it is ready to challenge the A3XX aid at the WTO once European governments detail their financial support for the project.

The four-nation consortium is too focused on getting the 50 firm commitments for the A3XX - it has 22 in the bag - which will trigger the launch of the project, hopefully by the end of this year.

The fact that Airbus will probably reach its target just after the US presidential election means that any trade action and/or negotiations will be delayed until a new administration gets off the ground. And that could be well into 2001, when the new plane starts becoming a reality.

Article forms part of a survey on transport. The EU is bracing itself for further skirmishes over subsidies, but the shipbuilding and aerospace industries at the centre of the fight will hardly notice that hostilities have begun because they are locked in life-or-death struggles for market share.