Seoul prepares defence of ship aid against WTO action by EU

Date: 24/05/01

By Laurence Frost

SOUTH Korean shipbuilders say they are in a strong position ahead of talks next week over the EU's bid to take Seoul to the World Trade Organisation for alleged unfair subsidies to the sector.

A meeting of EU industry ministers last week gave the go-ahead for WTO action to begin next month, but pointed out divisions between governments over proposed emergency subsidies to European yards.

The Korean Shipbuilders' Association (KSA) condemned the WTO action. "KSA further regrets that the Council may jeopardise the present good relationship existing between the EU and South Korea," said Director Lee Song Deuk. He said cooperation to launch a global trade round and boosting trends in bilateral trade were at stake.

The negotiations will begin in Seoul on Monday (28 May) with a six-strong EU delegation led by Karl Falkenberg of the European Commission's trade directorate-general.

Lee believes Union ministers "totally neglected" the Korean submissions, including a report by London-based Drewry shipping consultants that argued European shipbuilders had lost competitiveness on world markets long before Korean subsidies came into play. "European and Korean shipbuilders' direct competition in most market segments is insignificant," he said.

Advisors to the Korean shipbuilders say there are now signs of weakness emerging in the EU position. "We've heard there are a number of member states that are not particularly keen on going to the WTO," said one, citing concerns over efforts to launch a new trade round. "That's what they're saying in the corridors - in public, of course, they're maintaining a united front."

EU governments are committed to WTO action after they issued a statement saying they would "strongly support" it. But their refusal to back emergency aid to European yards - instead they merely "noted" the proposal - could weaken the EU position ahead of next week's talks. Diplomats say Trade Commissioner Pascal Lamy had told ministers that adoption of 'defensive' subsidies would show that the EU was serious about its case.

A spokesman for Lamy maintained more specific emergency subsidy proposals would soon be on the table. "It will have to be ready by June 30," he said. "In the intervening period [before a WTO ruling] it's justified that we try to keep an industry in place to reap the benefits of WTO victory."

But Council of Ministers insiders hint that the complexity of devising a subsidy regime could delay the proposals.

"They have to be specific enough to target the people who have been damaged by South Korea but broad enough not to be seen as a retaliation against South Korea," said one diplomat. "Otherwise the defensive subsidies themselves might run into trouble with the WTO." Finland, the Netherlands and the UK are understood to oppose subsidies.

The diplomat said competition chief Mario Monti's officials were reluctant to draw up new subsidy proposals. "They think it's diminishing efficiency rather than helping," he said. "It's quite likely the panel will be launched without a defence mechanism having been agreed."

South Korean shipbuilders say they are in a strong position ahead of talks over the EU's bid to take Seoul to the World Trade Organisation for alleged unfair subsidies to the sector.