Further to adoption of its fourth report on the state of the EU shipbuilding industry last week, the Commission today approved the strategy it will propose to the Council of Ministers on 14/15 May, in order to address the persistent problems posed to the European shipbuilding industry by unfair trade practices by Korean shipyards. The investigation into subsidies carried out under the Trade Barriers Regulation (TBR) has established that substantial subsidies have been granted to Korean shipyards through both export and domestic programmes which contravene the WTO' s 1994 Subsidies Agreement. On this basis, the Commission will recommend that the matter be taken before the WTO through the initiation of a dispute settlement procedure by 30 June unless an amicable solution can be reached in the interim period. In parallel, the Commission will propose accompanying measures in the form of a temporary support mechanism to European shipyards for the market segments considerably injured by unfair Korean trade practices and for the period required for the conclusion of the WTO procedure. Its entering into force will be simultaneous with the effective start of the WTO action. After today's meeting, EU Trade Commissioner Pascal Lamy said: "Following the results of our investigation which confirm the suspicions of EU industry, we will recommend to the Council that the EU should pursue this matter through the WTO by 30 June. Although we have not closed the door to an amicable solution with the Korean authorities, the clock is now ticking"

　

The Commission's TBR investigation carried out over a five-month period, has revealed that Korea has granted substantial amounts of subsidies, mainly through export schemes by the state owned Korean Export-Import Bank and debt forgiveness and debt-to-equity swaps by government owned or government controlled financial institutions. The following shipyards were found to be the main beneficiaries: -Halla Engineering and Heavy Industries (now called Samho Heavy Industries), Daedong Shipbuilding Co., and Daewoo Heavy Industries (now called Daewoo Shipbuilding Marine Engineering).

　

During the investigation the Commission services gathered information and comments from the EC producers, the Korean authorities, the Korean shipyards, certain Korean financial institutions and other third parties such as shipbrokers. Moreover, verification visits took place in the Community and Korea.

It was further shown that the subsidies are causing adverse effects to EU industry within the meaning of the WTO Subsidies Agreement and are, therefore, actionable.

　

The Commission will, in parallel, continue its investigation into the export subsidy schemes on which the Korean authorities and shipyards did not supply crucial information. A further report on these schemes as well as on their impact will be released in due course.

The defensive temporary support mechanism would be limited to those market segments where it has been demonstrated that EU industry has been considerably injured by unfair Korean trade practices, namely container ships and product and chemical tankers. For these segments, the mechanism would authorise a maximum aid ceiling of 14 per cent in certain circumstances. The Commission will review the eligibility of market segments in the light of new evidence clearly proving that a specific market segment within the EU has been directly injured by unfair Korean trade practices.

　

In line with the Commission decision of 29 November 2000 and the Council Conclusions of 5 December 2000, the mechanism must not result in distortion of competition within the European Union. The mechanism will therefore include a single market safeguard whereby Member States would in addition to normal notification rules always have to individually notify to the Commission any proposals of aid above 6%; demonstrate that there has been an open bid for the contract or an equivalent procedure which ensures the same level of transparency; and prove that the aid is the minimum required to keep the contract within the EU. The Commission will take its decision within a reasonable delay after notification.

　

The establishment of this mechanism is subject to approval by the Council.

See IP/00/1379 "Commission takes clear position on aid to shipbuilding and reinforces its position against South Korean unfair price practices"

See IP/01/630 "Commission's fourth world shipbuilding report shows South Korea has consolidated its lead"

For background on the case and on the TBR procedure see MEMO/00/167

On 8 May 2001 the Commission announced that, following the findings of the TBR investigation, it would take the necessary steps to initiate a WTO procedure if a negotiated solution with the Koreans were not achieved by 30 June. In parallel, the Commission will propose a temporary support mechanism specifically designed to counter the situation of market distortion created by Korea and its anti-competitive practices. Last week the Commission also approved and transmitted to the Council the 4th Report on the situation in world shipbuilding.

　

　

　

The Commission's TBR investigation carried out starting with 02 December 2000 and lasting until today showed that Korea has granted substantial amounts of subsidies, mainly through export schemes by the state owned Korean Export-Import Bank and debt forgiveness and debt -to-equity swaps by government owned or government controlled financial institutions. A team of experts went to Korea in March 2001 for a three-week's mission to carry out controls and to talk to administration and company officials. The following shipyards were found to be the main beneficiaries of subsidies: -Halla Engineering and Heavy Industries (now called Samho Heavy Industries), Daedong Shipbuilding Co., and Daewoo Heavy Industries(now called Daewoo Shipbuilding Marine Engineering). Furthermore there is evidence that the subsidies have caused adverse effects to EU industry within the meaning of the WTO Subsidies Agreement and are, therefore, actionable¹. On the basis of the above results, the Commission will immediately pursue the matter with the Korean authorities in order to obtain the immediate withdrawal of the subsidies or the removal of the adverse effects. Steps are being taken so that, unless such a solution is achieved amicably by 30 June, the Commission will proceed with the initiation of a procedure within the framework of the WTO.

　

At the same time the Commission proposes a temporary support mechanism, which will be introduced in parallel with the initiation of the WTO procedure.

　

At this stage, the proposal of the Commission is limited to two market segments namely the "Containerships" and 'Product and chemical tankers". Other market segments could be added in the future in the light of new evidence clearly proving that a specific market segment in the EU has been directly injured by unfair Korean trade practices.

　

For the two market segments mentioned above, a maximum aid of 14% could be authorised by the Commission. In order for the mechanism to work properly and to avoid a situation where an efficient EU yard may loose the contract to a less efficient EU yard receiving a higher amount of aid, the Member States will have to notify to the Commission any proposal of aid above 6% and will have to prove that the aid is the minimum required to keep the contract within the EU.

　

The Commission will respond to such notifications in the shortest period of time possible.

　

The Trade Barriers Regulation (TBR - Regulation No 3286/94) is a trade policy instrument adopted when the Uruguay Round agreements were concluded. It allows EU industries and firms to appeal against practices adopted or conducted by third countries which appear contrary to the rules of international trade and have an adverse effect on it.

　

The TBR is one of the main instruments for implementing the Commission's market access strategy. 17 TBR procedures have been initiated to date. Some of the results obtained include WTO condemnation of the US Antidumping Act of 1916 and of various provisions of US copyright law, the amendment by the United States of its legislation on textile origin rules, the registration by Brazil of the appellation d'origine'Cognac' and changes in the Brazilian procedures for non-automatic import licensing.

　

Two other TBR procedures have already been initiated against Korea in the cosmetics and pharmaceuticals sectors. As a result of the cooperation shown by the authorities concerned and the changes introduced in the legislative and regulatory framework governing the import and sale of these products in Korea, the procedure in relation to pharmaceuticals has been suspended and is in the process of being suspended in relation to cosmetics.

　

Other TBR procedures are currently in progress in relation to practices conducted by Chile, Canada, Colombia, Japan and Brazil.

　

When a TBR procedure is initiated, the Commission carries out an examination, which must be completed within five months. The aim of the examination is to gather and analyse information concerning all legal and factual aspects of the practices of the third country. In the course of the examination, contacts are made with all interested parties, including the authorities of the third country concerned and other third countries. The Commission may decide on the basis of its findings to initiate international action, in particular consultations with the WTO.

　

As was repeatedly stated to the Koreans during the visit of Mr. Lamy to Seoul on February 2001 , the Commission remains open to any negotiated solution; however, it remains equally ready to protect and fight for the survival of its own industry, if no negotiated solution is found.