WORLD TRADE
ORGANIZATIONWT/DS273/1
G/L/579G/SCM/D50/1
24 October 2002
(02-5847)
Original:  English
KOREA – MEASURES AFFECTING TRADE IN COMMERCIAL VESSELS
Request for Consultations by the European Communities
The following communication, dated 21 October 2002, from the Permanent Delegation of the
European Commission to the Permanent Mission of Korea and to the Chairman of the Dispute
Settlement Body, is circulated in accordance with Article 4.4 of the DSU.
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The European Communities (EC) hereby requests consultations with the Government of the
Republic of Korea (Korea) pursuant to Article 4 of the Understanding on Rules and Procedures
Governing the Settlement of Disputes  (DSU), Article XXIII:1 of the General Agreement on Tariffs
and Trade 1994  (GATT 1994) and Articles 4, 7 and 30 of the Agreement on Subsidies and
Countervailing Measures  (SCM Agreement ) with regard to measures affecting trade in commercial
vessels.
The European Communities considers that the foll owing measures establish subsidies that are
inconsistent with Korea's obligations under the SCM Agreement :
• Korea, through government-owned and government-controlled banks, provided
corporate restructuring subsidies in the form  of debt forgiveness, debt and interest
relief and debt-to-equity swaps.  These subsidies were granted to at least three
shipyards (Daewoo Shipbuilding and Marine  Engineering, Samho Heavy Industries,
Daedong Shipbuilding Co) .
• The Special Tax Treatment Control Law, more specifically, the special taxation on
in-kind contribution (Article 38) and the special taxation on spin-off (Article 45-2)
scheme, establishes two tax programmes limited to companies under corporaterestructuring and provided tax concessions to Daewoo, the combined benefit of which
is estimated at won 78 billion.
• The state-owned Export-Import Bank of Korea ("KEXIM")
 provides all Korean
shipyards with (i) pre-shipment loans , i.e., pre-delivery loans at preferential rates to
finance shipbuilding production costs of export  contracts, such as raw material cost,
labour and overheads until delivery of the ships, (ii) advance payment  refund
guarantees, i.e., a guarantee at preferential premium rates that a foreign buyer will be
refunded any advance payments given to a Korean shipyard, including any accrued
interest on the advance payments, in case  the Korean shipyard fails to perform its
obligations under the relevant export contract.
• The subsidies in question were granted with respect to the production of commercial
vessels for international commerce, includin g: bulk carriers, container ships, oilWT/DS273/1
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tankers, product and chemical tankers,  LNG/LPG carriers, passenger and RoRo
ferries and other non-cargo vessels (including offshore units).
• The Korean shipbuilding enterprises which have benefited from these subsidies
include Samho Heavy Industries, Daedong  Shipbuilding Co., Daewoo Shipbuilding
and Marine Engineering, Hyundai Heavy Industries, Hyundai Mipo, Samsung Heavy
Industries and Hanjin Heavy Industries & Construction Co.
The European Communities considers that the Ko rean measures are in breach of Korea's
obligations under the provisions of the SCM Agreement , in particular, but not necessarily exclusively
of:
– Articles 3.1, 1 and 2 of the SCM Agreement , because, inter alia , the advance payment
refund guarantees and the pre-shipment loans provided by KEXIM are specific
subsidies within the meaning of Articles 1 and 2 of the SCM Agreement  and are
de jure  export contingent.
– Articles 5 (a), 1, and 2 of the SCM Agreement , because, inter alia , the corporate
restructuring packages and tax concessions are specific subsidies within the meaning
of Articles 1 and 2 of the SCM Agreement  and an evaluation of all relevant economic
factors has shown that their effects are causing injury to the Community industry, in
particular in the market for container ships, product and chemical tankers.
– Articles 5 (c), 1, 2, and 6.3 and 6.5 of the SCM Agreement , because, inter alia ,  the
corporate restructuring packages and tax concessions are specific subsidies within the
meaning of Articles 1 and 2 of the SCM Agreement  and cause serious prejudice to the
interests of the European Communities, in  particular through significant price
undercutting, price suppression, price depression or lost sales, in particular in the
market for container ships, product and chemical tankers.
The EC looks forward to receiving the reaction of the government of Korea to the present
request and to setting a mutually convenient date and place to begin consultations.WT/DS273/1
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Statement of Available Evidence
KEXIM Programmes
(i) Pre-shipment Loans
(ii) Advance payment refund guarantees
– The KEXIM ACT and its Enforcement Decree
– Financial statements of KEXIM 1997-1999
– Financing Programmes Manual by KEXIM
– Questionnaire response of Government of Korea
– Questionnaire response of Samho Heavy Industries
– Questionnaire response of Daewoo Shipbuilding and Marine Engineering
– Questionnaire response of Samsung Heavy Industries– Questionnaire response of Hanjin Heavy Industries & Construction Co.
– Questionnaire response of Hyundai Heavy Industries
– Questionnaire response of Hyundai Mipo
– Debt forgiveness, debt-for-equity-swaps an d interest relief by government-owned and
government-controlled banks .
– Letter of Intent (IMF Policy Matrix) by the Republic of Korea (ROK) to IMF dated
3 December 1997
– Letter of Intent (IMF Policy Matrix) by the ROK to IMF dated 24 December 1997– Letter of Intent (IMF Policy Matrix) by the ROK to IMF dated 7 February 1998
– Letter of Intent (IMF Policy Matrix) by the ROK to IMF dated 2 May 1998
– Letter of Intent (IMF Policy Matrix) by the ROK to IMF dated 24 July 1998
– Letter of Intent (IMF Policy Matrix) by the ROK to IMF dated 24 September 1998
– Letter of Intent (IMF Policy Matrix) by the ROK to IMF dated 13 November 1998
– Letter of Intent (IMF Policy Matrix) by the ROK to IMF dated 10 March 1999
– Letter of Intent (IMF Policy Matrix) by the ROK to IMF dated 24 November 1999– Letter of Intent (IMF Policy Matrix) by the ROK to IMF dated 12 July 2000
– Memorandum of Understanding with the World Bank dated 23 July 1998
– Memorandum of Understanding with the World Bank dated 18 November 1999
– GOK's shareholdings of financial institutions
– Corporate Restructuring Agreement of 25 June 1998 including its Enforcement Regulation
and its Operational Guidelines
– Questionnaire response of Government of Korea
– Questionnaire response of Korean Development Bank
– Questionnaire response of Korean Exchange Bank
DSME
– Comprehensive Agreement on Corporate Wo rkout of Daewoo Heavy Industries dated
20 January 2000
– Spin-Off Plan of DHI dated 12 May 2000 (executed on 23 October 2000)
– Decision of Creditor Financial Institution Committee of 4 December 2000WT/DS273/1
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– Questionnaire response of Daewoo Shipbuilding and Marine Engineering
– Audited financial statements 1997 to 2000
Samho
– Corporate Restructuring Plan dated 22 October 1998
– Revised Corporate Restructuring Plan dated 9 August 1999
– Questionnaire response of Samho Heavy Industries
– Audited financial statements 1997 to 2000
Daedong
– Liquidation plan for Daedong, Seoul District Court
Tax programmes
Special Tax Treatment Control Law of 1 January 1999 and its Enforcement Decree.
Adverse Effects
– Commission's monthly market monitoring reports for the period April 1999 through to and
including December 2001.
– OECD report on "Recent newbuilding price development", C/WP6(2002)6, 25.03.2000, p 7
– Lloyd's register list of shipping – market data
– Questionnaire responses from the following EU shipyards:
G. Assereto Fincantieri  - IT;
Astilleros Españoles Group - IZAR Construcciones Navales - ES;
Aker Finnyards Oy - FIN;
Ørskov Staalskibsvaerft A/S - DK;
Odense Steel Shipyard Ltd. - DK;
ALSTOM Chantiers de l'Atlantique - F;SSW Fähr-und Spezialschiffbau GmbH - D;
Lloyd Werft Bremerhaven GmbH - D;
J.L. Meyer GmbH - D;
Blohm&Voss GmbH - D;
Volkswerft Stralsund  - GmbH - D;Peene-Werft GmbH - D;
Lindenau GmbH - D;
Thyssen Nordseewerke  - GmbH - D;
Kvaerner Warnow Werft GmbH - D;
Aker MTW Werft GmbH - D;Kröger Werft GmbH&Co.KG - D;
Flender Werft AG - D;
Flensburger Schiffbau- GmbH&Co.KG - D;
Howaldtswerke-Deutsche Werft AG – D;
Merwede – NL.
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