The difficulties in world shipbuilding are growing, as evidenced by a further decrease in orders for new vessels in the major shipbuilding regions in 2002, says the European Commission in its seventh report to the Council on the situation of the world shipbuilding market¹. This report, which completes the Commission's analysis of the shipbuilding market in 2002, attributes the slow market to past over-supply, slowing economies around the world, the effects of 11 September and political insecurity in the Middle East. In particular the most important market segments for EU yards developed negatively. For EU producers, order intake in 2002 was down by over 50% compared to 2001 and over 70% compared to 2000. As a result, EU shipyards are now rapidly running out of work and a number of bankruptcies and lay-offs have already occurred. The overall market share of EU shipyards has dropped to 7%, from 13% in 2001 and 19% in 2000.

　

Enterprise Commissioner Erkki Liikanen said: “When looking at the full picture for 2002, we have to recognise that the situation in the world shipbuilding market is not improving. The latest report demonstrates the slowdown in the industry over the last two years and once again confirms that the difficulties that unfair trading practices create for EU yards are becoming critical. The Commission, which has already taken action to defend the EU shipbuilding industry against unfair competition, will continue its efforts, together with industry, to enhance the competitiveness of EU yards, as initiated by the LeaderSHIP 2015 initiative.”

　

LeaderSHIP 2015 was launched by a high level Advisory Group in January 2003. A comprehensive strategy plan, currently under elaboration by industry representatives and the Commission, will be reviewed by the Advisory Group in July, seeking first concrete and effective measures to be implemented before the end of the year.

　

The Commission reports that world-wide, orders for new ships in 2002 were over 12% down on 2001, after dropping over 20% in 2000-2001. Worst affected are container ships and cruise ships, but demand is also lower for crude oil tankers and liquid natural gas (LNG) carriers. Demand has increased only in the product tanker segment, due to replacement needs stemming from new EU maritime safety legislation, and in the bulk carrier segment, where new design rules and domestic demand in Japan and China are creating some business for shipyards.

　

Ship prices hit new lows in 2002, close to 1989 levels. Yards in South Korea have further lowered offer prices, despite strong increases in all major cost factors and the appreciation of the Korean currency, in order to trigger fresh demand and cope with competition from China.

　

　

　

Increasingly Korean yards have to focus on the available demand for oil and oil product tankers, despite earlier statements that these market segments are no longer attractive for Korean shipbuilders due to the low value of those ships and the fading cost competitiveness of Korean producers.

　

The Commission's detailed cost investigations for orders placed with South Korean yards confirm the findings from previous reports, namely that ships are offered at prices that do not cover the full costs of production. In particular inflation and financing costs are not factored in. The investigations show that the gap between offer prices and calculated normal price is again widening.

　

Under Council Regulation 1540/98 establishing strict rules on aid to shipbuilding, the Commission is required to report on the situation of the world shipbuilding market. These reports analyse the latest developments in the world shipbuilding market and assess the results of the actions undertaken.

　

In June 2002 the Council took a decision on how to combat distortion of competition in the shipbuilding market. Korea was given another opportunity to come to a bilateral agreement by 30 September 2002. Ministers agreed that failure to reach such an agreement would automatically trigger a WTO trade complaint and the authorisation - through the Temporary Defensive Mechanism - of direct aid of up to 6% to EU shipyards for the construction of up to three ship types. These are container ships, certain specialised tankers and LNG carriers although the latter type has first to be confirmed through an updated investigation under the Trade Barrier Regulation.

　

In line with the Council decision, the Commission undertook to engage the Korean side in another round of talks. These talks failed in October 2002, without any indication that positions were narrowing. The Korean side failed to confirm the principles laid down in the "Agreed Minutes~ of June 2000, in particular to make efforts to assure that Korean yards price ships at a level that reflects all cost factors.

　

The request for dispute settlement was filed with the WTO on 21 October 2002, and within the EU, direct aid to shipyards can now be authorised as specified in Council Regulation No. 1177 of 2002, the so-called Temporary Defensive Mechanism.

　

For further information;

This seventh report from the Commission to the Council on the situation in world shipbuilding, covering market developments in 2002, follows the Commission’s obligation to report on the situation in the world shipbuilding market, laid down in Article 12 of Council Regulation (EC) No. 1540/98¹ and is in line with the previous six reports².

　

The Council decided on 27 June 2002 that the Commission should make a final effort to solve the problems stemming from certain business practices by Korean yards and achieve an amicable agreement with South Korea. As stated in the Commission's sixth report, no agreement with Korea could be reached.

　

In the absence of a negotiated solution, the Commission has initiated WTO action on 21 October 2002 and is now proceeding along this path. In addition and in line with the Council decision of 27 June 2002 a Temporary Defensive Mechanism to shipbuilding³ has entered into force on 2 July 2002. It authorises direct aid to shipyards of up to 6% for certain ship types⁴ and is applicable to contracts signed as of 24 October 2002.

　

On OECD level, negotiations for a new shipbuilding agreement started in December 2002. At this point in time it is, however, too early to predict the outcome of these negotiations which will continue until 2005 at the latest.

　

In response to an earlier Council request, expressed in the Council conclusions of May 2001, the EU shipbuilding industry has, in co-operation with the Commission, launched the LeaderSHIP 2015 initiative which is designed to develop new working structures and technology priorities and so sustain the Community's shipbuilding industry, in particular by establishing a level playing field world-wide and regionally. It brings together all major industry players, trade unions and key EU policy makers from the Commission and the Parliament. LeaderSHIP 2015 will look into all pertinent shipbuilding issues, from world trade to skill challenges to joint naval development and procurement. The initiative has already developed ideas for possible lines of action to safeguard the future competitiveness of European shipbuilding as a pro-active response to the situation in world shipbuilding. The results of this work will be presented to the Council in the course of this year.

　

In addition to summarising the market developments in 2002 this report provides an update of the previously undertaken cost investigations and adds some new cost investigations made since the presentation of the sixth report.

　

As with previous reports, certain underlying key elements, e.g. concerning scope and methodology of the market monitoring undertaken by the Commission, are not repeated here. Those elements are covered in the previous reports and are listed in the introduction to the fifth shipbuilding report.