Brussels, 27/04/2001 (Agence Europe) - On Wednesday 2 May, the European Commission may examine how appropriate it is to open proceedings at the World Trade Organisation against South Korean shipyards and to restore specific aid to European shipyards. Its decision, however, may be deferred in order to evaluate any positive signs that come from the South Korean authorities, on the fringe of the visit by the Troika to North and South Korea from 2 to 4 May (see above). The Industry Council is expected to tackle the issue at its meeting on 15 May.
Last November, the European Commission had decided not to extend the State aid system to European shipbuilding, which was to expire at the end of 2000 (see EUROPE of 30 November 2000). At the request of the Industry Council and under pressure mainly from Germany, it nonetheless pledged to envisage, in May 2001, two parallel measures to defend the European shipbuilding industry. These measures are: 1) the opening of procedure at the WTO, if it is found that South Korea is subsidising its shipyards at a loss. The Commission should release, in May, the results of an inquiry opened on 2 December last in the context of the EU regulation on trade barriers, on the basis of a complaint filed by the CESA (Committee of European Union Shipbuilders and Ship Repairers Association) (see EUROPE of 5 December); 2) a proposal of regulation allowing certain specific aid schemes for European shipyards threatened by unfair competition from South Korea, pending the results of the WTO proceedings (see EUROPE of 6 December 2000).
If the Commission's agenda is confirmed, the College of Commissioners will be expected to give its stance on the basis of three documents: 1) the fourth annual report on shipbuilding, presented by Industry Commissioner Erkii Liikanen; 2) a memorandum from Trade Commissioner Pascal Lamy on the results of an inquiry and latest negotiations with South Koreans; 3) a proposal of regulation from Competition Commissioner Mario Monti, giving a view on how appropriate it is to authorise, or not to authorise, specific aid.
The fourth report on shipbuilding from the Commission shows that, despite the progression of the world shipbuilding market, the position of European yards continues to deteriorate and the market shares of the South Koreans continue to grow. East German shipyards are particularly affected. According to a study by maritime broker Barry Rogliano Salles, the South Koreans carried off 43% of world orders in 2000, and the 60% rise in orders at world level has mainly benefited Korea but also China and Eastern Europe. In its latest report on shipbuilding, published last November, the Commission felt for its part that, with just a few exceptions, the Korean shipyards continue to accept orders at prices that do not fully cover the cost of production. The sales at a loss are said to represent from "4 to 39% of effective construction costs" (see EUROPE of 16 November 2000).
The association of South Korean shipyards, KSA, has launched a counter-offensive, by diffusing a report last week from the specialised consultants firm Drewry Shipping Consultants, whereby the competitiveness of Korean yards is reportedly due essentially to their low production costs, together with a better marketing strategy and a favourable rate of exchange between the Korean Won and the US dollar.
According to this study, diffused by the public relations firm Edelman, the "decline in the European industry began well before Korea entered the shipbuilding market" and "European shipyards had already withdrawn from the production of petrol tankers and bulk carriers in the seventies, in the face of Japanese competition" in order to specialise in the production of more sophisticated ships such as cruise ships. In addition, the cost of work and material gives Korea a comparative "decisive and legitimate" advantage. The study mainly reveals that labour costs were "from 2.5 to 4 times higher in Germany as compared to South Korea", while "South Korean productivity is 35% higher than Germany's". The economic situation has also been favourable for South Korean shipyards, stresses the consultancy firm, which remarks that demand has increased in the sector for large container and oil carriers (with a view to elimination of single hull oil tankers), "all sectors in which Korea has a significant competitive advantage".
Taking up the arguments developed over recent months by KSA, the consultants also challenge the method used by the Commission to calculate the Korean production costs and stress that the EU itself continues to subsidise its shipyards. It cites aid from Germany of $35.3 million for the year 2000 or Italian aid of $400 million over 15 years.