Brussels, 08/05/2001 (Agence Europe) - One week after having published its 4th report on the situation in the sector, the Commission has defined a strategy aimed at countering the "illegal" trade practices of South Korean shipyards, while provisionally supporting the segments of European industry "considerably" affected by this unfair competition. Thus, as EUROPE predicted, the strategy on which the Council will be called on to decide on 14 and 15 May, rests on a dual mechanism that will be triggered on 30 June in the absence of an amicable solution with Seoul: a WTO arbitration procedure and, at the same time, one-off, temporary and targeted aid, for European shipyards.
"Following the results of our investigation that confirms the suspicions of the European industry, we shall recommend to the Council that the Union takes this affair to the WTO as early as 30 June. Without for that closing the door on an amicable solution (…) the countdown has now begun", stressed Pascal Lamy, when commenting on the approach initiated in close collaboration with Messrs. Monti and Liikanen. The conclusions of the five-month investigation on the basis of a complaint lodged by the European industry (Committee of European Shipyard Associations) in October, and the report on the situation in the sector (see EUROPE of 3 May, p.12) "are unambiguous: a considerable part of the South Korean market share", which went from 20 to 50% in 10 years, results from a system of "extremely complex" support by which Korean shipyards benefit from unfair assistance that distorts competition worldwide", he said.
Moreover, the procedure that has just finished allowed to collect elements of proof that the Commission considers sufficient to pass the test of a possible international arbitration. It feels able to demonstrate with validity before the court, for the time being only in certain segments of European industry, that there exists a serious prejudice resulting from South Korean practices and, more specifically, illegal subsidies according to international trade law. These subsidies represent "substantial amounts" and are derived from industry, mainly through export programmes by the national import-export bank, the cancellation of constructor debts or the conversion of these debts into equity through financial institutions held or controlled by the State, noted the investigators. They where able to identify the beneficiary yards, among which are Halla Engineering and Heavy Industries (today known under the name Samho Heavy Industries), Daedong Shipbuilding Co, and Daewoo Heavy Industries (now Daewoo Shipbuilding Marine Engineering). The information collected also allows to demonstrate that the subsidies denounced have an adverse effect on the European industry according to the multilateral agreement on subsidies issued from the Uruguay Round and that can be challenged under it. In the absence of certain information from Seoul, which the spokesperson qualified as "crucial", the Commission nevertheless continues its investigation, at the same time as the moves announced, in order to deepen the investigation and to publish a report "the time come" over the Korea export aid programmes and their impact. Such practices are usually handled and countered in the framework of antidumping rules, since they are seen in sale prices well below the production costs (from 7 to 40% in the case of boats built in Korea). Nonetheless, a "gap" in the legal arsenal of the WTO excludes ships from the annexes of the multilateral agreements and the possibility of invoking these rules in the case in hand. The Commission, speaking on behalf of the Union in Geneva, should therefore bring into play the requirement of fair competition in the case of South Korean shipyards. Usually, the decision to call for WTO intervention does not fall within the Council's field of competence, but since this aspect is linked to the "competition" and "industry" sections, "one can verify whether our Member States are following us", specified Mr Lamy.
The second part of the provision finalised by the Commission aims to reestablish, in parallel with the launching of the multilateral procedure, a temporary support mechanism in Community market segments for which there is convincing proof of "considerable prejudice caused by unfair Korean trade practices". For these segments, State aid will be authorised with a ceiling of 14% in certain circumstances.
The Commission will examine the eligibility of segments in the light of any new proof of injury that can be imputed directly to Korean practices. An "internal market safeguard clause" is also foreseen to prevent this mechanism from distorting competition within the Union. In addition to the normal rules for notification of State aid, the Member States must:
Individually notify the Commission of all planned aid exceeding the threshold of 6%; demonstrate that there has been a public call for tender for the contract in question or that an equivalent and sufficiently transparent procedure has been conducted; prove that the aid corresponds to at least the minimum required to retain the contract within the Union. These "specific, exceptional and targeted measures" will remain in force the time it takes for the multilateral settlement procedure to reach its end, or generally two years. It would be "absurd not to do anything for these segments, given the speed at which the Korean market share is increasing", Lamy stressed.
The Commissioner recalled that it was obviously still possible - and the history of trade conflicts demonstrate this - for an amicable solution to be found at the last minute before the dual mechanisms kicks in, put otherwise: a commitment by the Koreans "to practice prices that are not dumping". Seoul has so far refused, and the Commission whence proposes "to pass to a tougher phase of these negotiations, which nevertheless remain negotiations. We have two trumps up our sleeves and shall play them if necessary", Lamy stated.