Shipyards call for temporary subsidies to help stay afloat

Date: 15/03/01

By Laurence Frost

SUBSIDIES to European shipbuilders could be reintroduced just six months after being phased out, if the EU complains to the World Trade Organisation over South Korean aid to its yards.

European Commission trade officials are now considering payments to support Union shipbuilders as they prepare for the return of an investigating team from Seoul next week.

"They're likely to come back with some evidence that the Koreans are receiving substantial subsidies," said one official at the EU executive. "Of course we're ready and keen to try to find a negotiated solution. But if we're forced to go to the WTO, we will have to come up with some mechanism in the meantime to help our industry survive."

Discussions are under way among Commission departments on proposals based on contract price subsidies, which were phased out last December after ministers axed aid to the sector, averaging €560 million a year.

Trade officials say a new support mechanism would be cheaper than the old aid scheme - under which Union states made payments amounting to 9% of shipbuilders' sales - since it could exclude cruise liners, which do not receive significant state aid.

The Commission is to submit the proposals along with its recommendations on WTO action when Union industry ministers meet in May.

European shipbuilders who brought the complaint against South Korea under the EU Trade Barriers Regulation stress that they are not seeking a permanent return to subsidies.

"There will probably have to be some sort of subsidy for the time being," said Reinhard Lüken, secretary-general of the Committee of European Shipbuilding Associations. "We need some kind of instrument to force Korea to the negotiating table and to buy time, so that our industry will still be there when a solution is found. But the subsidies would be dropped as soon as there's a deal."

Lüken dismisses recent comments by Korea's Hyundai Heavy Industries that suggested subsidies were justified by a global-capacity shortage.

An executive at the top-ranked shipbuilder made the remarks this month after trade chief Pascal Lamy warned of WTO action during a visit to Seoul. Lamy told Korean ministers that global over-capacity generated by Korea's cut-price vessels was responsible for the industry crisis.

Commission officials say the Korean undercapacity claims are based on inflated forecasts of demand for new vessels.

Korea argues its sector's recent success is due to falls in the national currency that have lowered export prices by as much as 40%.

Subsidies to European shipbuilders could be reintroduced just six months after being phased out, if the EU complains to the World Trade Organisation over South Korean aid to its yards.