Lamy set to man lifeboats, claim Korean shipbuilders

Date: 26/07/01

By Laurence Frost

SOUTH Korean shipbuilders have scented victory in the trade dispute threatened by the European Commission over alleged unfair subsidies to the sector. Industry representatives believe EU Commissioner Pascal Lamy is seeking to withdraw from planned World Trade Organisation (WTO) action.

This comes after the trade chief failed to win support for temporary subsidies from foreign ministers meeting last week. Industry ministers earlier this year endorsed WTO action, but they too stopped short of backing the 'defensive' subsidies. "Lamy's in a dilemma," said Lee Song Deuk, director of the Korea Shipbuilders' Association (KSA). "He is not free to drop the WTO challenge on his own - but without the defensive subsidies there is no tangible benefit to European industry." Lamy's spokesman Anthony Gooch insisted governments had not ruled out subsidies, pointing out that a formal proposal had not emerged until yesterday (26 July). He said: "Member states have not been asked the question, so we don't yet know how they stand."

Gooch emphasised that subsidies were essential to support WTO action: "If in two-and-a-half years we win a [WTO] panel against Korea and we don't have an industry to pick up the benefits, what's the point of launching the panel?" Echoing the conclusions of their industry colleagues earlier in the year, the ministers endorsed WTO action but could not agree over the prospect of a temporary return operating subsidies abolished by the EU only last year. The Netherlands, the UK, Denmark, Sweden and Finland are understood to be opposed to the aid regime, fearing competition distortions within the EU between subsidised and unsubsidised yards. Germany and Spain are the fiercest advocates of defensive subsidies, with France so far remaining neutral.

The Commission's trade and industry departments maintain there will be agreement on the 'defensive mechanism' when detailed plans are put to ministers. "The meeting left the impression that it will be possible to secure a majority," said one official. "There weren't enough countries opposed to block it. There are countries like Austria and Luxembourg who don't have a strong interest in the issue who we would hope to persuade." Talks with Korea broke down earlier this month after the Commission rejected Seoul's offer of price rises around 5%. The Commission has asked for 15% increases after an investigation earlier this year found evidence of subsidies in the form of loans from government-controlled banks, underpinning the growth of Korea's market share from 33% in 1988 to almost 50% last year.