The world market for merchant ships continues to be in crisis. Supply clearly outstrips demand and there are few indications that this situation may improve (e.g. through regulatory schemes in the area of maritime safety that would foster tanker newbuilding). Indeed, the opposite is more likely: all shipyards in South Korea continue to operate, even those which have been under bankruptcy proceedings since 1997. Moreover Korean shipbuilders have announced the re-opening of idle dock capacity, apart from converting repair facilities to newbuilding. The pending re-structuring of the ailing Daewoo Group also does not seem to lead to any capacity decrease. It should, however, be noted that the Government of the People's Republic of China has announced a ban on yard newbuilding and on capacity expansion to avoid further over-capacities.

The comparatively strong demand for ships in the last 2 - 3 years has had no positive Impact on prices. On the contrary prices for nearly all shiptypes have continued to decline. This shows that normal market mechanisms do not apply in world shipbuilding. The on-going depression in prices is caused by extremely low offer prices from Korean yards which initially may have targeted Japanese and EU market shares. Recent developments, however, have shown that intra-Korean competition, in particular with regard to orders for large containerships, has a strong effect on attainable prices. At current price levels EU and Japanese shipyards clearly cannot compete.

The detailed cost investigations 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. Despite a certain narrowing of the gap between true costs and offer prices, the calculated losses are between 11% and 32% of the building costs. 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 pursued. 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 willingness to file such a complaint. Therefore, the Commission will continue with its market monitoring exercise.

Contacts with IMF representatives so far have not led to results which could be used to end unfair competition practices shown by Korean shipyards. It should be noted that Korea is re-paying its IMF loans ahead of schedule, thereby limiting the IMF's ability to influence Korean policy.

It is recommended to