EXAMINATION PROCEDURE CONCERNING AN OBSTACLE TO TRADE, WITHIN THE MEANING OF COUNCIL REGULATION(EC)No 3286/94, CONSISTING OF TRADE PRACTICES MAINTAINED BY KOREA AFFECTING TRADE IN COMMERCIAL VESSELS

　

SUPPLEMENTARY REPORT ON ADVERSE EFFECTS

　

COMPLAINT SUBMITIED BY:

(CESA)

　

On 24 October 2000, CESA (Committee of EU Shipbuilders' Associations) lodged a complaint pursuant to Articles 3 and 4 of Council Regulation 3286/94 (the Trade Barriers Regulation, "TBR") against subsidies granted to Korean shipbuilding companies in violation of Articles 3 and 5 of the WTO Agreement on Subsidies and Countervailing Measures ("ASCM"). The Commission, after consulting the TBR Committee, initiated the investigation on 2 December 2000. The investigation showed that Korea has granted substantial amounts of subsidies, mainly through export schemes by the state owned Korean Export-Import Bank (KEXIM) and debt forgiveness and debt-to-equity swaps by government owned or government controlled financial institutions.

　

Furthemore there was evidence that the subsidies in question were causing adverse effects to Community industry within the meaning of the WTO Subsidies Agreement and were, therefore, actionable. In particular, the evidence showed that, during the first investigation period, the Community industry suffered adverse effects within the meaning of Article 5 of the ASCM and Article 2(3) and Article 2(4) of the TBR, in the form of material injury¹ within the meaning of Article 5(a) of the ASCM, namely, significant price undercutting, negative effects on market share, capacity utilisation, profit, sales prices, employment, investments and serious prejudice within the meaning of Article 5(c) of the ASCM, namely, significant price undercutting, price depression and lost sales.

　

By sector, material injury and serious prejudice were found to be suffered in container ships and product and chemical tankers sectors. Injury and serious prejudice was suffered also, albeit to a lesser extent, in the bulk carrier and oil tanker sectors and passenger and RoRo ferries, while no injury or serious prejudice was found in the remaining sectors. Finally, no threat of injury or serious prejudice was established for cruise ships.

　

On 26 November 2001, CESA requested the Commission to update the analysis of the adverse effects aspect of the TBR report so as to examine injury/serious prejudice allegedly suffered in the period from 1 December 2000 to 31 December 2001, i.e. the thirteen months following the end of the first investigation period ("the current investigation period").

　

In particular, CESA has claimed that, during this period, important developments have taken place in the shipbuilding market. Firstly, CESA has claimed that the impact of the Korean subsidies has become more acute given the expiry on 31 December 2000 of the EC operating aid on shipbuilding. Secondly, that the impact of the Korean subsidisation was now felt in market segments which, in comparison to previous years, have shown considerable growth. The Commission accepted CESA's request and launched the updating exercise on 4 December 2001.

　

The situation of the Community industry slightly improved in the current investigation period compared to the previous year, but is still unfavourable. In addition, when considering the development during the period from 1997 to the new investigation period, it can be seen that the situation of the Community industry significantly deteriorated. Therefore the slight improvement experienced by the Community industry during the current investigation period is not such that it can alter the conclusions of the previous report. On this basis it is confirmed that the Community industry suffered adverse effects within the meaning of Article 5 of the ASCM and Article 2(3) and Article 2(4) of the TBR.

　

On a sectoral basis, it is confirmed that the Community industry suffered material injury and serious prejudice in the following sectors: container ships, product and chemical tankers. As regards developments in 2000 and 2001 in the LNG sector, further examination is necessary to determine whether a consistent trend emerges over the long term. The Commission will continue to monitor the market, particularly as regards the sectors of container ships, product and chemical tankers and LNG's.