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 period covered the period from 1 January 1997 to 30 November 2000("the first investigation period").

　

The Commission's TBR investigation report was presented to the Member States Advisory Committee in May 2001. A supplementary report on Export Subsidies was presented in July 2001. 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.

　

The Korean shipbuilding enterprises claimed to have benefited from Korean Government subsidies included Halla Engineering and Heavy Industries (now called Samho Heavy Industries), Daedong Shipbuilding Co., Daewoo Heavy Industries (now called DSME), Hyundai Heavy Industries, Hyundai Mipo, Samsung Heavy Industries, and Hanjin Heavy Industries & Construction Co.

　

Furthermore 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 injury² 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 also suffered, albeit to a lesser extent, in the bulk carrier, oil tanker and passenger and RoRo ferries sectors, while no injury or serious prejudice was found in the remaining sectors. Finally, no threat of injury or serious prejudice was established for i 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.

　

In order to update the injury assessment the Commission services addressed questionnaires to the 21 shipbuilding companies in the Community that co-operated in the original investigation. All companies replied to the questionnaire, with the exception of one. In addition, one company, Kvaerner Massa-yards, Finland, that did not co-operate in the first investigation, spontaneously replied to tho questionnaire, Commission officials carried out verification visits at the premises of six of these companies, which are marked with an asterisk in the table below.

　

　

In addition, the Korean Shipbuilders Association ("KSA") and the CESA were heard by the Commission upon their request.

　

As mentioned above, the request for the updating investigation was made by CESA, on behalf of the European Community ("Community" or "EC") shipbuilding industry and EC shipbuilding enferprises. It is recalled that CESA is an association of Community enterprises pursuant to Articles 3 and 4 of the TBR. CESA consists of national shipbuilders and ship repairiers associations with registered offices and principal places of business throughout the EC. No significant production of ships takes place in companies not associated with CESA. CESA, thus, represents the major proportion of total commercial shipbuilding and ship repairing in the EC.

　

The products concerned by the updating investigation are the same as those covered by the original investigation, and consist of commercial vessels, namely:

　

- bulk carriers

- product and chemical tankers

- container ships

- oil tankers

- passenger and RO/RO ferries

- liquefied natural gas carriers (LNGs)

- liquefied petroleum gas carriers (LPGs)

- other cargo vessels

- other non cargo vessels

　

As concerns cruise ships, the updating investigation confirmed that Korean producers did not produce any cruise ships during the current investigation period, and consequently this type of vessels has been excluded from the injury analysis. However, in order to give a complete view of the commercial vessels market, data on cruise ships have been included for information in the tables describing the evolution of world-wide new orders.

　

As compared to the first investigation, the LNGs vessels, in view of their alleged important development in the market, have been individualised into one single sector. For sake of clarity also the LPGs vessels have been individualised in one single sector.

　

On behalf of the Korean shipyards, KSA have argued that their right to a fair hearing and the Commission's obligation to exercise due diligence have been violated because no information has been sought from the Korean Government or shipyards on the existence of subsidies and on market developments during the current investigation period. With regard to the existence of subsidies the issue is addressed further below under the "Causal Link" aspects.

　

With regard to the due process claims it must first be noted that the investigation was limited to the injury aspects of the report as requested by CESA. As a result questionnaires were only addressed to Community shipbuilding companies allegedly suffering injury during the current investigation period, and that co-operated to the first investigation.

　

Secondly, the Commission services consider that ample opportunities were given to both the Korean Govermment and exporters to present their views. Both parties were informed of the initiation of the updating investigation and were invited to submit comments on developments during the current investigation period. Moreover a copy of the questionnaire addressed to Community shipbuilding companies was provided showing the type of information sought by the Commission services. In response to the above, KSA submitted extensive comments both in writing and orally in a hearing with the relevant Commission services. Consequently, the claim of a violation of the right to a fair hearing cannot be substantiated.

　

Similarly, the argument concerning the alleged failure of the Commission to request detailed information from the Korean Government and/or exporters on the subsidy issues must be rejected. Firstly, no request for an extension of the investigaton to the subsidy aspects was ever made by the Korean Government or exporters. Secondly, the Commission services have concluded their analysis of the subsidy issues in two reports; no information has been brought to the Commission's attention of developments justifying a re-examination of the Commission's findings. Thirdly, KSA's comments were limited to generally indicating that developments might have occurned without, however, specifying the nature or type of these developments or their impact on the subsidy analysis of the Commission. Lastly, the absence of a specific questionnaire addressed to the above parties has not prevented them from raising issues which they might have considered to be in their interest.