Proposal for a COUNCIL REGULATION concerning a temporary defensive mechanism to shipbuilding

(presented by the Commission)

EXPLANATORY MEMORANDUM

Background

1. In recognition of the problems in the world shipbuilding market, particularly overcapacity and steadily decreasing prices, the European Commission and the Korean Government, as two of the significant actors in the world shipbuilding market, held talks in March 2000, with a view to promoting stability and fair competition within the market.

2. Both sides signed up to Agreed Minutes relating to the world shipbuilding market (the "Agreed Minutes") on 22 June 2000. The Agreed Minutes include, among other things, commitments to avoid financially non-viable over-investments and price undercutting; agreement that ship prices should reflect all cost factors; and regular consultations between the two sides. Considering that these commitments have not been fully honoured by Korea, and that unfair competitive practices still continue on the international market, the Commission notes that the situation in certain segments remains problematic.

3. Being aware of these difficulties, in November 2000, the Commission accepted to propose to the Industry Council of 5 December 2000 that it would negotiate with Korea to reach a satisfactory agreement, that it would report to the Council by 1 May 2001 on the state of negotiations; and that it would propose to bring the case to the WTO in order to seek a remedy against unfair Korean practices if no negotiated solution were reached. In such a situation, the Commission further accepted to propose a temporary defensive mechanism specifically designed to counter unfair Korean practices for a period necessary for the conclusion of the WTO procedure. The Industry Council took note of the Commission's proposal in its Conclusions of 4 December 2000.

4. The Commission's position on shipbuilding of 8 May 2001 was reported to the Council of 14 and 15 May 2001. Despite efforts to negotiate with Korea, no agreement had been reached. The Council strongly supported the Commission's intention to start WTO proceedings, should no satisfactory solution with Korea be agreed by 30 June 2001. The Council also noted the Commission's intention to introduce, at the same time, a temporary defensive mechanism.

5. Given that no negotiated solution has been reached with Korea, the Commission now considers that it should bring the case to the WTO and propose a temporary defensive mechanism.

the proposal

6. In making this proposal, the Commission emphasises that operating aid has not been an effective tool in defending Community ship yards from unfair international competition. For this reason, and under the terms of Article 3 of the Council Regulation establishing new rules on aid to shipbuilding [1] operating aid was discontinued as from the start of 2001.

[1] OJ L 202, 18.7.1998, p.1

7. In line with the Commission's position on shipbuilding of 8 May, the proposal is for an exceptional and temporary measure that will be strictly limited in scope to those market segments where it has been demonstrated that the EU shipbuilding industry has been considerably injured by unfair Korean trade practices, namely container ships and product and chemical tankers. For these segments, the proposal foresees, in certain circumstances, a maximum aid intensity limit of 14% of contract value before aid.

8. Under the proposal, all offers of aid above 6% must be notified to and approved by the Commission. The Commission will only be able to authorise such offers if it is clear that the aid amount is the minimum necessary to keep the contract within the EU. In order to ensure that the aid is the minimum necessary and to assist the Commission in assessing such notifications efficiently, the proposal provides that the Commission shall, on receipt of a notification, transmit information relating to the shiptype and size, the parties to the contract and the aid amount to all Member States, who must make it available to all shipyards in their territory who are capable of building that shiptype.

9. In line with the Industry Council Conclusions of 5 December 2000, the proposed temporary defensive mechanism should accompany the Community's actions against Korea in the WTO. It should apply only after the Community initiates the WTO proceedings by requesting consultations with Korea in accordance with the World Trade Organisation's Understanding on the Rules and Procedures for the Settlement of Disputes, and should only exist for as long as it takes to conclude the WTO proceedings. It is therefore proposed that it will not apply after the WTO proceedings are resolved or suspended and that it will, in any case, expire on 31 December 2002.

2001/0153 (CNS)

Proposal for a COUNCIL REGULATION concerning a temporary defensive mechanism to shipbuilding

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Articles 87(3)(e) and 89 thereof,

Having regard to the proposal from the Commission [2],

[2] OJ C .., , p. .

Having regard to the opinion of the European Parliament [3],

[3] OJ C .., , p. .

Whereas:

(1) The European Commission and the Government of Korea signed the Agreed Minutes relating to the world shipbuilding on 22 June 2000 ("the Agreed Minutes"), with the aim of restoring fair and transparent competitive conditions; however, the commitments under the agreed minutes, notably the commitment of ensuring an effective price surveillance mechanism, have not been effectively implemented and therefore a satisfactory result has not been obtained;

(2) Operating aid has not been effective in ensuring that the European shipbuilding industry is not injured by competition not respecting normal competitive conditions in the shipbuilding market. Accordingly, and as provided for by Article 3 of Council Regulation establishing new rules on aid to shipbuilding [4] ("the 1998 Shipbuilding Regulation"), contract-related operating aid to shipbuilding may not be granted in respect of contracts agreed as from 1 January 2001;

[4] OJ L 202, 18.7.1998, p.1

(3) However, as an exceptional and temporary measure, by way of derogation from Article 3 of the 1998 Shipbuilding Regulation and in order to assist Community shipyards in those segments that have been considerably injured by unfair Korean competition, the temporary defensive mechanism should be authorised for limited market segments and for a limited period only, until the Agreed Minutes have been effectively implemented;

(4) The situation in the Community shipbuilding industry is heterogeneous; whereas according to the Commission's Fourth Report on the Situation in World Shipbuilding, approximately half of compensated gross tonnage ("cgt") produced in Community shipyards concerns the market segments, in which Community shipyards are in a strong position on the international market; however, in other segments, there is evidence that the Community shipyards are being considerably injured by unfair Korean competition. Therefore, contract-related temporary support may be authorised in certain circumstances in those segments, namely container ships and product and chemical tankers;

(5) Support of 6% of contract value before aid may be authorised in order to effectively enable Community shipyards to overcome unfair Korean competition. Support of up to 14% of contract value before aid may be necessary in certain circumstances;

(6) The temporary defensive mechanism must not result in distortions of competition between Community shipyards. Support above 6% may only be authorised if it is the minimum necessary to enable a Community shipyard to compete in a fair way for a particular contract, and if it respects the transparency requirements;

(7) In order to ensure that the aid is the minimum necessary and to ensure the provision of information that is as complete as possible, all Community shipyards capable of building the shiptype for which a notification is received should be informed of the notification and have the opportunity to submit observations directly to the Commission on such notifications;

(8) The temporary defensive mechanism should only be authorised after the Community initiates dispute settlement proceedings against Korea, by requesting consultations with Korea, in accordance with the World Trade Organisation's Understanding on the Rules and Procedures for the Settlement of Disputes and may no longer be authorised if these dispute settlement proceedings are resolved, or suspended on the grounds that there is an agreement between Korea and the Community that the Agreed Minutes have been effectively implemented;

HAS ADOPTED THIS REGULATION:

Article 1

1. For the purposes of this Regulation, the definitions listed in Article 1 of the 1998 Shipbuilding Regulation shall apply. Additionally, the following definitions shall apply:

a) "containerships" shall mean ships designed with a single deck hull with an arrangement of holds to carry containers (standard or non-standard; refrigerated or non-refrigerated), whose holds are fitted with cell guides to facilitate the positioning of the containers, as may be some of the deck storage space. Other ships combining cargo carrying capacity for containers and other cargo are considered as containerships if the larger part of the cargo carrying capacity is dedicated to containers;

b) "chemical tankers" shall mean ships designed with a single deck hull with an arrangement of integral and/or independent tanks suited to carry chemical products in liquid form. Chemical tankers are characterised by the ability to carry and handle several substances at the same time and the particular equipment of the tanks with coatings, reflecting the nature and hazard of the cargo carried;

c) "product tankers" shall mean ships designed with a single deck hull with an arrangement of integral and/or independent tanks suited to carry refined petroleum products in liquid form.

Article 2

1. Subject to the following paragraphs, and by way of derogation from Article 3 of the 1998 Shipbuilding Regulation, direct aid in support of contracts for the building of containerships and product and chemical tankers, may be considered compatible with the common market when there has been competition for the contract from a Korean shipyard offering a lower price.

2. Aid under this Article may be authorised for shipbuilding contracts up to a maximum intensity of 6% of contract value before aid.

3. The aid referred to in paragraph 2 may be increased if a Member State demonstrates that a higher aid intensity is necessary to ensure that the contract in question is awarded to a Community shipyard. The proposed aid amount must be the minimum necessary to achieve this purpose and may in no case exceed 14% of contract value before aid. The conditions set out in Article 3(2) must be satisfied.

4. For shipbuilding contracts with a contract value before aid of less than Euro 10 million, the ceiling shall be half of the ceiling mentioned in paragraphs 2 and 3.

5. This Regulation shall not apply in respect of any ship delivered more than three years from the date of signing of the final contract. The Commission may, however, grant an extension of the three-year delivery limit when this is found justified by the technical complexity of the individual shipbuilding project concerned or by delays resulting from unexpected disruptions of a substantial and defensible nature in the working programme of a yard due to exceptional circumstances, unforeseeable and external to the company.

6. The Commission will keep under review the market segments eligible for aid under paragraph 1, with regard to evidence clearly proving that a specific market segment within the Community has been directly injured by unfair and intransparent competitive conditions.

Article 3

1. Aid covered by Article 2 shall be subject to the provisions of Article 88 of the Treaty.

2. Any aid under Article 2(3) whether granted on the basis of a scheme or outside any scheme, shall be subject to individual notification and may be compatible with this Regulation only subject to the following conditions:

a) On receipt of a complete notification the Commission shall without delay transmit the following information to all Member States: the name and address of the applicant shipyard and prospective purchaser; the relevant shiptype and size; and the amount of aid notified;

b) Each Member State shall immediately transmit this information to all shipyards within its territory that are capable of building the shiptype in question and shall inform such shipyards that they may submit to the Commission observations on the notification within ten working days;

3. The Commission shall communicate to the Member States a standard form type to be used for the purposes of paragraph 2(a) above.

4. The Commission shall adopt a decision in accordance with Council Regulation (EC) No. 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 88 of the EC Treaty [5].

[5] OJ L 83/1 of 27 March 1999

Article 4

The Regulation shall be applied to final contracts signed from the entry into force of this Regulation until its expiry, with the exception of final contracts signed before the Community gives notice in the Official Journal of the European Communities that it has initiated dispute settlement proceedings against Korea by requesting consultations in accordance with the World Trade Organisation's Understanding on the Rules and Procedures for the Settlement of Disputes and final contracts signed one month after the Commission gives notice in the Official Journal of the European Communities that these dispute settlement proceedings are resolved, or suspended on the grounds that there is an agreement between Korea and the Community that the Agreed Minutes have been effectively implemented.

Article 5

This Regulation shall enter into force on the day following that of its publication in the Official Journal of the European Communities and shall expire on 31 December 2002.

This Regulation shall be binding in its entirety and directly applicable in all Member States.

Done at Brussels,

For the Council

The President