The CESA Complaint focuses on the period after 1997, which marked the start of the Asian crisis.

　

All of the newbuilding contracts with which the complaint is concerned are placed in US dollars, with the price being fixed on the date of contracting. Overall up to 80% of the materials and equipment will be sourced in Korea, with only 20% being sourced on the international market.

　

Accordingly, the dramatic fall in the value of the Won following the Asian crisis provided a dramatic boost to the competitive position of South Korean yards over all of their competitors including in particular Japan and Europe.

　

The impact of this can be seen from the graph below, which is based on monthly average exchange rate figures taken from the Financial Times:

It is apparent from this graph that Korean yards gained a huge advantage from the depreciation from an exchange rate of 800 Korean Won to the US dollar at the end of 1996 to 1,750 Won at the end of 1997. When the Won was at its lowest point in late 1997 Korean yards could have quoted a price over 40% below the prices at which they were quoting in 1996 and still received the same value in Won. Yearly average exchange rate figures from the IMF, which are shown in the Drewry Shipbuilding Report, show a lowest average exchange rate of 1,400 Won to the US Dollar during 1997. However, even on the basis of these averaged figures it is clear that Korean yards obtained a huge, and quite legitimate, advantage from the depreciation of the Won.

　

The exchange rate has not recovered to 1996 levels since the current rate is 1,300 Korean Won to the US dollar. This is still nearly 40% below the exchange rate of 800 Korean Won to the US dollar in 1996.

　

The CESA complaint focuses entirely on the period between 1997 and 2000, which matches the period following the collapse of the Korean Won against the US Dollar. It is clear against this background that one of the major factors which has allowed Korean yards to quote lower prices since 1997 was not illegal subsidies as alleged by CESA, but the depreciation of the Won against the US Dollar.

　

It is very clear that the depreciation of the Won against the US Dollar in 1997 made Korean yards more competitive and allowed them to quote lower prices than European and Japanese yards.

The CESA allegations are strongly denied. European Yards lost their dominant position in the Shipbuilding market to Japan in the 1960s and 1970s before Korea built up any significant market share.

　

European Yards had already lost the ability to compete with either Korea or Japan for larger series built vessels such as tankers, bulk carriers and large container vessels well before 1997. Lower labour costs, much higher productivity and lower materials costs give Korea a decisive, and completely legitimate, competitive advantage in competing for these types of vessel.

　

In addition, the cost of materials has fallen and Korean yards have made further productivity gains since 1997. As a result Korean yards have been able to further improve their ability to quote competitive prices.

　

The depreciation of the Korean Won from around 800 Won to the US Dollar in 1996 to a low of around 1,750 Won to the Dollar in 1997 (yearly average for 1997 1400 Won), gave Korean yards a very substantial further competitive advantage over European yards since shipbuilding contracts are priced in US dollars.

　

Korean Yards do not enjoy subsidies from the Korean Government, unlike European yards who have enjoyed a range of both open and hidden subsidies over many years. European Yards are unable to compete because of high labour costs, lack of investment, high material costs and failure to achieve productivity levels matching the best Korean and Japanese shipyards. Korean shipyards are not to blame for any of these factors.

　

In addition, the following factors are important:

　

　

For all the reasons set forth in the present paper and based on the economic analysis contained in the Drewry Shipbuilding Report, which should be read together with this Position Paper, the KSA submits that the complaint should be dismissed. Even if the EU wrongly concluded that Korea bestowed actionable subsidies upon its shipbuilding industry(which the KSA strongly denies), the facts prove that such subsidies can not have caused any injury or adverse trade effects. Hence, the prerequisite under the TBR Regulation foi the adoption of commercial measures is absent and no recourse to WTO dispute settlement is warranted.

　

At the same time. the KSA wishes to emphasise that the EU shipyards have for several decades benefited from openly granted or hidden EU subsidies, which the KSA submits are incompatible with the provisions of the WTO Subsidies Code. The TBR Regulation provides that in the assessment of whether to adopt commercial policy measures, the EU should take into account the broader Community's interests. The KSA believes that it would be against the EU's broader interests to challenge the compatibility of the alleged Korean subsidies for which sound legal arguments confirm the compatibility with the provisions of the WTO Subsidies Code while the EU itself has for years granted subsidies of which a substantial part are even contract-based.

　

The KSA, therefore, respectfully submits that the TBR examination procedure should be terminated upon a finding of absence of actionable subsidies inflicting injury or adverse trade effects.