SECOND REPORT FROM THE COMMISSION TO THE COUNCIL ON THE SITUATION IN WORLD SHIPBUILDING

　

Under Council Regulation 1540/98 establishing new rules on aid to shipbuilding the Commission is required to report on the situation of the world shipbuilding market. The first report (COM(1999) 474 final) was presented to the Council in October 1999 and was the subject of Conclusions by the Council in November, which invited the Commission to continue its examination of the situation. This is the second such report.

The world market for merchant ships continues to be in crisis. Supply clearly outstrips demand and there are only few indications that this situation may improve.

Consequently the comparatively stronger demand for ships in the period 1998 to 1999 has had no positive impact on prices. Rather prices for nearly all shiptypes have continued to decline.

The on-going depression in prices is caused by extremely low offer prices from Korean yards and at current price levels EU and Japanese market shares continue to shrink, although this effect is less pronounced for the EU.

The new detailed cost investigations for shipbuilding orders reported in this document have once more revealed the extent of the losses which Korean yards are willing to take in order to assure market share and cash flow. The calculated losses are between 11% and 32% of the actual building costs. This is slightly less than for the cost investigations contained in the Commission's first report on the situation in the shipbuilding market (COM (1999) 474 final)where losses were calculated to be between 13% and 40%, although this slight decrease is likely to be a result of a different selection of investigated orders. Moreover, with the exception of cruise vessels, all market segments are targeted by Korean yards, leaving only small domestic orders and highly specialised tonnage to EU yards. Therefore, this second report by the European Commission on the situation in the world shipbuilding market confirms the findings from the Commission's first report.

All lines of action to address the problem (as requested by the European Council of Ministers in its meeting of 9 November 1999) are currently being pursued (see chapter 1). In particular, strenuous efforts have been made by the Commission to secure binding commitments from the Korean Government in relation to its non-intervention in the financing of shipbuilding activities. After several rounds of consultations, the European Commission and the Korean Government finalised their talks and initialled on 10 April 2000 "Agreed Minutes relating to the World Shipbuilding Market". These Agreed Minutes are focusing on non-subsidisation, banking, financial transparency (with regard to international accounting standards), commercial pricing practices and an effective consultative mechanism. The overall aim is to promote fair and competitive market conditions in the world market and to work together to stabilise the market and thereby help raise the level of ship prices to ones that are commercially sustainable.

The evidence gathered within the framework of the market monitoring undertaken by the European Commission has helped the EU industry to compile sufficient elements which could lead to a complaint under the Trade Barriers Regulation and industry has recently announced its readiness to file such a complaint. The European Commission will continue with its market monitoring exercise.

It is recommended to