KSA has argued that because the updating investigation was limited to injury no causal link can be established with any subsidies found to have been granted in previous periods. In order to address this argument a distinction must be made between recurring and non-recurring subsidies.

　

Many types of subsidy are recurring in the sense that a subsidy is granted and a benefit is passed on to the beneficiary every time use of a particular subsidy program is made. For example in the case of the KEXIM export subsidy schemes investigated, a benefit is passed on to Korean shipbuilders every time an export loan or export guarantee is given on more favourable than market terms upon the signing of a specific contract. Thus, for recurring subsidies there are as many instances of subsidisation as there are export contracts using those schemes. In these cases the effect of the subsidy is felt immediately after granting and would normally be expensed over the life of the contract in question (i.e. in shipbuilding over a period ranging from 9 months to 2/3 years depending upon the contract).

　

In the previous TBR reports it had been established that all Korean shipyards were benefiting from the KEXIM export schemes. Therefore, the effect of the KEXIM subsidies granted over the previous period of investigation (1 January 1997 to 30 November 2000) would still be felt until all contracts entered into by 1 December 2000 are completed. Considering the important time lag between signature of a shipbuilding contract and actual delivery of the ship, the effect of the KEXIM subsidies is, as a result, likely to persist for the next 2/3 years.

　

Furthermore, the KEXIM programs in question continue to exist. It is, therefore, reasonable to assume that the programs continue to be used by Korean shipbuilders to their benefit. Unfortunately, Korean exporters had refused to provide the information on specific contracts at the time of the original investigation claiming confidentiality. In view of the fact that the confidentiality claim has not been withdrawn, the Commission must continue to rely on facts available with regard to its conclusions on the KEXIM schemes.

　

Non-recurring subsidies (i.e. subsidies which are granted on a one-off basis) are not, on the other hand, linked to any particular contract so that a different attribution method needs to be applied. In the Commission's countervailing policy non-recurring subsidies are normally linked to the acquisition of fixed assets and, therefore, the total value of the subsidy is spread over the normal life of the assets¹². The amount of subsidy from, for example, a grant in the form of debt-forgiveness (for which it is assumed that it is used by the beneficiary to improve its competitiveness in the long term, and thus to purchase product assets of one kind or another), can be spread over the normal period used in the industry involved for the depreciation of assets.

　

Allocation of a non-reeurring subsidy over a long period ensures that the injury caused by the subsidy is captured to its full extent; this is especially so with large subsidies the attribution of which to a short period would both defeat economic reality and place such subsidies beyond the reach of countervailing laws or WTO Panel recommendations.

　

The subsidies granted to Korean shipbuilders during the restructuring process (Daedong in 1998. Halla in 1999 and Daewoo in 2000) constituted one-off events involving large amounts which benefited their present and future production, Such subsidies should therefore, be attributed over the life of assets in the shipbuilding industry which, for example, for machinery and equipment is at the range of l0-12 years,

　

In view of the above considerations, therefore, KSA's argument cannot be accepted. As explained above, both the export and the restructuring subsidies, have continued to benefit Korean shipbuilders during the updating investigation period.

　

The KSA has claimed that if indeed the Community shipbuilding industry did suffer adverse trade effects during the current investigation period, these could not be attributed to the Korean shipbuilding industry. Some of their arguments have already been raised in the framework of the first investigation and mainly relate to the non competitiveness of the Community shipyands, the productivity gains of the Korean shipyards and the depreciation of the Korean won. Furthermore, they base their allegation on the fact that, during the year 2001, the number of new Korean orders has substantially decreased while their average ship prices per ton has increased during the same period, hence that there was no price depression due to Korean pricing behaviour. They futher argued that the increase of new orders from other countries, such as Japan, should be considered in the market development analysis.

　

The arguments that have already been raised during the previous investigation have been duly addressed in the first report and, in the absence of new elements or specific developments, the conclusions drawn in the first report are hereby confirmed.

　

As regards the depreciation of the Korean Won (KRW), the analysis has however been updated and the following graphs show the development of the KRW versus the USD and of the e/Bcu versus the USD during the first and the current investigation periods.

　

　

The KRW has indeed depreciated against the USD, particularly between October 1997 and January 1998. Given that a significant part of the costs of new vessels are denominated in KRW, this gave indeed an advantage to Korean shipyards in terms of USD prices. However, as has been shown above, during 1998, the year immediately following the currency depreciation, the Korean shipyards could not benefit from this situation, and their market share declined, as they were confronted with the non-availability of ship financing from domestic financial institutions. The KRW subsequently recovered from its lows and in November 2000, at the end of the investigation period, the depreciation versus the USD amounted to 36% since January 1997. However, the /Ecu also depreciated against the USD during the same period. This mitigated the advantage to Korea of the depreciation of the KRW

　

Compared to European shipyards the short term advantage of Korean yards in 1998 therefore decreased considerably during the first and the current investigation period. In addition, account has to be taken of the medium term inflationary effects of the sharp depreciation, which increased wage and material costs to be paid in KRW.

　

It is therefore concluded that the currency developments may have given a short term advantage to Korean shipyards in 1998, but they are not the cause of the aggressive Korean pricing policy and subsequent injury suffered by Community shipyards during the current investigation period.

　

The other allegations made by KSA are analysed below:

　

The decrease in Korean market share during the year 2001 should be seen in the light of their significant new ordering activity during the previous year, and a consequently more limited capacity to take new orders in 2001 due to a relatively full order book. As shown above, during the current investigation period, Korea still holds a position of market leader in terms of new orders in various sectors. In addition, and despite this decrease in market share in the period 2000 to 2001, the Korean yards still held in 2001 a higher market share than in 1997. Finally, evidence was found that it was the Korean shipyards' policy in 2001 to rather focus on higher value sectors such as the LNG sector, for which they secured 80% of new orders worldwide.

　

The above mention change in product mix most likely explains why the average Korean overall sales prices increased in the last year. In addition, the undercutting margins established in this report show that the Korean price level is still substantially lower than the prices practised by community shipyards.

　

As to the Japanese shipyands, it should be noted that they have indeed improved their market shares during the year 2001. However, over a longer time period, as can be seen from Table 3, the Japanese market share fell from 39.3% in 1997 to 33.8% in the current investigation period. The decrease in the Community market share during the same period cannot, therefore, be attributed to increased competition from Japan.

　

On the basis of the above, the claims made by KSA have to be rejected.

　

The Commission also analysed other factors as listed in Art. 15(5) of the ASCM

　

Concerning the non-subsidised sales volumes, in addition to the above analysis concerning Japan; it was found that Chinese shipyards increased their sales volumes and market shares both during the first and the current investigation, as shown in Tables 2 and 3 above. However their level remained significantly lower as compared to Korean sales volumes and market shares, of around one third, during the whole period. It can be concluded therefore that the Chinese sales volumes were not such as to have a significant impact on the situation of the Community industry.

　

As to the prices of non-subsidised sales, no detailed data per region are available. No conclusion could therefore be drawn in this respect.

　

No contraction in demand was observed the during the first and the current investigation periods. On the contrary the demand in the three sectors which suffered injury constantly increased, particularly as the LNGs sector is concerned.

　

The investigation did not established any change in the patterns of consumption in the shipbuilding market.

　

The investigation did not reveal any trade restrictive practises between shipyards.

　

The investigation did not reveal that Korean shipyards developed any particular technology that could give them a comparative advantage in the market. On the contrary, as concerns LNGs', the technology was developed by Community enterprises, which also hold the relevant patent. Therefore no injury can be attributed to this factor.

　

On the basis of the above, the conclusions of the original report are confirmed, namely that the substantial increase in volume and market share of Korean shipyards as well as the considerable decrease in their sales prices and the level of price undercutting found during the first investigation period coincided in time with the injury suffered by the Community industry. The other factors found which could have contributed to this injury were not such as to break the causal link between the subsidies and the injury suffered by the Community industry. The above findings are confirmed by the current investigation.