WORLD TRADE
ORGANIZATIONWT/DS273/2
13 June 2003
(03-3145)
Original:  English
KOREA – MEASURES AFFECTING TRADE IN COMMERCIAL VESSELS
Request for the Establishment of a Panel by the European Communities
The following communication, dated 11 June 2003, from the Permanent Delegation of the
European Commission to the Chairman of the Disp ute Settlement Body, is circulated pursuant to
Article 6.2 of the DSU.
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On 21 October 2002, the European Communities requested 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.  This request was circulated to the WTO Members on 24 October 2002 as
document WT/DS273/1, " Korea – Measures Affecting Trade in Commercial Vessels ".
Consultations were held on 22 November, 13 December 2002 and 7 May 2003.
Unfortunately, these consultations failed to settle the dispute.
The European Communities therefore requests that a panel be established pursuant to
Article 6 of the DSU, Article XXIII:2 of GATT 1994, Articles 4, 7 and 30 of the SCM Agreement  (to
the extent that Article 30 incorporates by reference Article XXIII of GATT 1994).
The measures that are the subject of this request are prohibited and actionable subsidies.  In
particular, the European Communities considers that the following measures are inconsistent with
Korea's obligations under the SCM Agreement :
• The Act Establishing the Export-Import Bank of Korea ("KEXIM"), any
implementing decrees and other regulations, that specifically allow and enable
KEXIM to provide Korean exporters of capital goods with financing at preferential
rates.
• The pre-shipment loan and advance payment refund guarantee schemes established
by KEXIM. Under the pre-shipment loans programme , KEXIM provides pre-delivery
loans at preferential rates to finance production costs of e xport contracts, such as raw
material cost, labour and overheads until delivery of the goods. Under the advance
payment refund guar antees programme, KEXIM provides guarantees at preferential
premium rates that a foreign buyer will be refunded any advance payments given to a
Korean exporter, including any accrued interest on the advance payments, if the
Korean exporter fails to perform his obligations under the relevant export contract.WT/DS273/2
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The individual granting of pre-shipment loans and advance payment refund
guarantees by KEXIM to Korean shipyards, including 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 provision by the Korean Government, through government-owned and
government-controlled banks, of corporate re structuring 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 (Daew oo 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 corporate
restructuring and provides tax concessions to Daewoo, the combined benefit of which
is estimated at won 78 billion.
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(a) and 3.2 of the SCM Agreement , because, inter alia , the KEXIM Act,
the advance payment refund guarantees and the pre-shipment loans provided by
KEXIM and the corporate restructuring packages and tax concessions are specificsubsidies within the meaning of Articles 1 and 2 of the SCM Agreement  and are
de jure  or de facto  export contingent.
– Article 5(a) of the SCM Agreement , because, inter alia , the above-mentioned KEXIM
subsidies, the corporate restructuring packages and tax concessions are specificsubsidies within the meaning of Articles 1 and 2 of the SCM Agreement  and are
causing injury to the Community industry.
– Article 5(c) of the SCM Agreement , because, inter alia , the above-mentioned KEXIM
subsidies, the corporate restructuring packages and tax concessions are specificsubsidies 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 within
the meaning of Articles 6.3 and 6.5 of the SCM Agreement .
The European Communities requests that a Panel be immediately established with standard
terms of reference, in accordance with Articles 4.4 and 7.4 of the SCM Agreement  and Article 7 of the
DSU.
The European Communities asks that this request for the establishment of a Panel be placed
on the agenda for the next meeting of the Dispute Settlement Body, which is scheduled to take place
on 24 June 2003.
The European Communities further requests th at the DSB at that meeting initiate the
procedures provided for in Annex V of the SCM Agreement  pursuant to paragraph 2 of that Annex.  In
particular, the European Communities requests that the DSB designate a representative to serve the
function of facilitating the information-gathering pr ocess of Annex V.  The European Communities is
prepared to propose names to the DSB and is consulting with Korea on this matter.  The EuropeanWT/DS273/2
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Communities also intends to put forward suggestions as to the information that should be sought
under this procedure once the panel is established.
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