Shipbuilding operates in a global market where instruments such as custom tariffs, quotas, anti-dumping protection and similar measures are not applicable, as it happens for other industrial sectors.

In this open scenario, while the European shipbuilding industry follows a philosophy of liberalisation of the market, our main competitors practice - de jure or de facto - aggressive competition and establish barriers to differentiate internal and external markets.

In this adverse economic environment, the European shipbuilding industry still achieved a remarkable performance and maintained a significant presence on the market thanks to its high technology and environmental safe products and its high productivity in design and production processes.

This result was achieved by our industry by strengthening its own excellence; however no effort can cope nowadays with the unprecedented aggressive competition from Korea.

The production in world shipbuilding during the last five years showed a steady increase.

The production in shipbuilding worldwide rose from 12.4 Mio. cgt in 1993 to 16.9 Mio. cgt in 1997 (1998 will show a figure of about 17.5 Mio. cgt according with the average January - September) . Deliveries are expected to keep a high level of 16 - 17 millions compensated gross tons p.a. for the next years due to the orders placed in 1997 and 1998.

The world order intake in 1997 showed the highest level ever. Whereas the Japanese and EU production (CGT) remained nearly constant from 1985 their market shares decreased from 46% and 23% respectively to 37.2% and 19% in 1997. The Republic of Korea increased from 11% to 23% during the same period of time, practically accounted the increase of production in the whole world within the period. The growth of the Korean shipbuilding industry (fig. 1) was about 80% p.a. To feed the unreasonable and giant shipbuilding capacities built up in Korea during the last decade the order intake aggressively conquered in 1997 was the highest in the short Korean shipbuilding history - and the price level showed first erosions. Presumably the production of the Korean shipyards in 1998 will supersede the total shipbuilding production of Europe for the first time, and despite the figures of new orders intake during the first half year 1998, which shows a good position for Europe, at the end of the year, Korea has doubled its new building orders from September, reaching the figure of about 10 million GT, practically at the same level of Japan for the first time ever.

The EU intake is mainly due to the contracts of passenger vessels, which are high value ships but concentrated in very few yards. The situation in general in the EU has became worst from summer 1998 and the contracting activity has become poor during the second half of 1998.

This tremendous expansion of the Korean shipbuilding capacity was generated through domestic debts, which had been impossible to obtain by any competitor in their own countries or outside.

The lack of profitability, however, lead to a heavy indebtedness of the yards which were disclosed at the end of 1997 when the Korean economy collapsed.

This motivated finally the intervention of the IMF.

During the second half of 1997 the currencies of the "Tiger States" showed dramatic losses in value. The Won e.g. fell from 800 Won/$ to 1,700 Won/$.

In Korea a standstill of the whole economy was expected. To avoid a disaster in this country, caused by the inability of Korea to pay debt service to foreign creditors and the bill for import products needed as feedstock for the Korean industry the highest credit ever of the IMF amounting to $ 58 billion, was given to this country to stabilize its financial situation.

Nobody could be interested in a domino effect causing a global financial crisis. The fast and consistent decision of the IMF in November/December 1997 was appreciated by all commercial partners worldwide.

The Korean economic collapse was a shock for the whole society of this country which some years ago had left the status of a developing country and joined the club of the industrial states. By the infusion of the IMF loan the Korean financial system - after some months of being paralysed in commercial activities - was enabled to revitalize its exports/import business, achieving to reduce imports, but to strengthen exports in form of an "export offensive" by the following measures:

All these measures simultaneously lead for the time being to a high proceeds in Won - and low prices in US$ on export markets. Korean yards lowered prices by 20 - 30%, causing a sharp increase of their world market share.

From a similar situation also other industries are benefiting. In other industries where the Korean market share worldwide is low the world community can temporarily accept such a policy. In shipbuilding, however, where the Korean order intake reached a market share of 30% (new orders), being the second largest "player" worldwide, this situation is damaging the European shipbuilding industry by distorting the global price level for shipbuilding fundamentally. This led simultaneously to a drop of the asset value of the shipping fleet.

The world shipbuilding market is a global one characterized by sharp competition. After the first Korean shipbuilding collapse ten years ago, the European shipyards had to make strong efforts to improve their productivity. In 1987 production aids had to be granted in the EU as a defence measure against foreign unfair practices. These were lowered significantly until 1993 when the Korean shipbuilding capacity expansion showed first impact on the market.

It is proper to remark that the decrease of the EU production aids was possible thanks to a significant restructuring process carried out within the last decade within the frame of an appropriate industrial policy. Production facilities, internal organisation and labour force were adjusted to the size and quality of a changing market lead to a dramatic improvement of the productivity (30% - 40%) of the European yards.

A deep outsourcing process has also taken place stimulating the employment in related industries other advanced sectors of the European economy.

Research and development also made the EU yards world technology leaders shown by extremely complicated ships like passenger cruises, ferries and ro-ro, large container ships, off shore units, shuttle multipurpose tankers, chemical and gas carriers, high standard fishing vessels, etc.

Unfortunately, simultaneously to these developments in Europe, other competing countries have maintained or increased some degree of protectionism with regard to their domestic shipping and shipbuilding, producing a competition in non equal foot by limiting the opportunities to the EU shipbuilders and, consequently, their access to the market.

Moreover, the unreasonable shipbuilding capacity increase of Korea put at stake all the advances and efforts carried out by the European yards, and now, the present Korean offensive will produce definitive and disastrous consequences to the European shipbuilding industry within this year 1999.

Because the shipbuilding position of Korea was already strong before the financial crisis the recovery measures provided by the world community to Korea now have to be paid in the shipbuilding sector by the European yards. They cannot compete with the present commercial framework in Korea, which was enabled by industrial practices, which are different of the accepted world standards.

What has to be done to avoid that the recovery of Korean shipyards is paid for by Europe?

The European shipbuilding industry has demonstrated its creativity and ingenuity during the last decade. The shipbuilding and supply industries include more than 300.000 employees directly and in related industries in Europe and many more considering the number of induced jobs in other sectors of the economy. Through taxes and social security payments involved, the received support is positively offset. To sacrifice them for the recovery of Korean hazardous policy cannot be justified. Therefore, the European Shipbuilders unanimously ask the Commission of the EU and national Governments to develop rapidly political measures and adequate trade policy in regard of Korea.

We are running short of time; without a rapid solution that must be also politically sustained, a very serious crisis in shipbuilding will develop in Europe in 1999.

The EU shipbuilding industry will propose to the EU National Governments and European Commission, measures to counter act the behaviours of the competitors, which are considered aggressive or unfair by the European yards.

　

15/01/99