Proposal for a Council Decision on the conclusion of the Agreement respecting normal competitive conditions in the shipbuilding and repair industry (94/C 375/01) (Text with EEC relevance) COM(94) 460 final - 94/0246(ACC)

(Submitted by the Commission on 8 November 1994)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 113 thereof together with the first sentence of Article 228 (2),

Having regard to the negotiating directives given to the Commission within the framework of the mandate of 20 July 1990,

Having regard to the proposal from the Commission,

Having regard to the opinion of the European Parliament,

Whereas the Commission has negotiated on behalf of the Community, an Agreement respecting normal competitive conditions in the commercial shipbulding and repair industry, together with an Understanding on export credits for ships; whereas this Agreement should be approved,

HAS DECIDED AS FOLLOWS:

Article 1

The Agreement between the European Community and certain third countries on the normal competitive conditions in the shipbuilding and ship repair industry is hereby approved on behalf of the Community.

The text of the Agreement is attached to this Decision.

Article 2

The President of the Council is hereby authorized to designate the person empowered to sign the Agreement referred to in Article 1 in order to bind the Community, and to designate the person empowered to deposit the instrument of approval in accordance with Article 12 (3) of the Agreement.

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(a): Data 1992.

(b): Including jobs in Ex-GDR's yards.

Table compiled from national sources.

AGREEMENT RESPECTING NORMAL COMPETITIVE CONDITIONS IN THE COMMERCIAL SHIPBUILDING AND REPAIR INDUSTRY

TABLE OF CONTENTS

Page

Preamble . 3

Text of the Agreement . 4

Annex I: Measures or practices inconsistent with normal competitive conditions in the commercial shipbuilding and repair industry . 10

Accompanying Notes to Annex I . 12

Annex II: Special provisions relating to measures of support . 16

Accompanying Notes to Annex II . 17

Annex III: Injurious pricing charges . 20

Annex IV: Dispute settlement pursuant to Article 8 . 32

PREAMBLE

THE PARTIES TO THIS AGREEMENT

CONSCIOUS of the importance to international and national commerce of a healthy commercial shipbuilding and repair industry,

HAVING REGARD to the aims of the Organization for Economic Cooperation and Development and considering the important role of its Council Working Party on shipbuilding in promoting normal competitive conditions in the shipbuilding industry and noting in particular its work concerning the 'Revised general arrangement for the progressive removal of obstacles to normal competitive conditions in the shipbuilding industry' (RGA), the 'Understanding on export credits for ships' and the 'Revised guidelines for government policies in the shipbuilding industry',

TAKING into account principles governing international trade as set forth in the General Agreement on Tariffs and Trade 1994 (hereafter referred to as GATT 1994),

NOTING the severe structural disequilibrium and market trends which depressed for many years the world shipbuilding and repair industry, the increased competition, the deteriorating price levels and the implementation of measures of public assistance,

DESIRING to improve transparency regarding obstacles to normal competitive conditions in the commercial shipbuilding and repair industry and to have the Organization for Economic Cooperation and Development reinforce its collection of data about and monitoring of the market situation, prices, and policies in that industry,

RECOGNIZING the need to intensify their commitment to reach normal competitive conditions and to provide for an effective means of protection against sales of ships under their normal value which cause injury,

RECOGNIZING also that special characteristics of ship purchase transactions have made it impractical to apply countervailing and anti-dumping duties, as provided pursuant to Article VI of GATT 1994, the Agreement on subsidies and countervailing measures, and the Agreement on the implementation of Article VI of GATT 1994,

RECOGNIZING further the need to provide for a speedy, effective and equitable resolution of disputes about these matters,

HEREBY AGREE AS FOLLOWS:

Article 1

Restoration and maintenance of normal competitive conditions

1. The Parties shall, in accordance with the specific provisions set out in Annex II, eliminate all existing measures or practices which are inconsistent with normal competitive conditions in the commercial shipbuilding and repair industry pursuant to Annex I (hereafter referred to as 'measures of support').

2. The Parties shall not introduce any new measures of support.

3. The Parties recognize that the sale of commercial ships at less than their normal value is to be condemned if it causes or threatens material injury to an established shipbuilding and repair industry in the territory of another Party, or materially retards the establishment of a domestic shipbuilding and repair industry. In order to remedy or prevent such injurious pricing, Annex III is applicable.

Article 2

Scope of the Agreement

1. This Agreement covers the construction and repair of any self-propelled seagoing vessels of 100 gross tons and above used for transportation of goods of persons or for performance of a specialized service (for example, ice breakers and dredgers) and tugs of 365 kW and over.

2. This Agreement excludes:

(a) military vessels and modifications made or features added to other vessels exclusively for military purposes. This exclusion is subject to the requirement that any measures or practices taken in respect of such vessels, modifications or features are not disguised actions taken in favour of commercial shipbuilding and repair inconsistent with this Agreement. If a Party considers that this requirement has not been met, it may, without prejudice to its rights to initiate the other procedures foreseen in this Agreement, request further information, which the other Party shall cooperate to provide as fully and quickly as possible;

(b) fishing vessels destined for the building or repairing Party's fishing fleet. This exclusion is subject to the requirement that the Party provides full transparency in accordance with Article 4.

3. For purposes of this Agreement:

(a) a vessel is considered 'self-propelled seagoing' if its permanent propulsion and steering provide it with all the characteristics of self-navigability in the high seas;

(b) 'repair' includes, inter alia, conversion and reconditioning of self-propelled seagoing vessels as defined in subparagraph (a); and

(c) 'military vessels' are vessels which according to their basic structural characteristics and ability are intended to be used exclusively for military purposes.

Article 3

Parties Group

1. A Parties Group, composed of a representative of each of the Parties to this Agreement, shall examine the functioning of the Agreement and carry out the other functions provided for in this Agreement.

2. The Parties Group shall annually elect a chairman, who will serve in his personal capacity. The chairman shall convene meetings of the Parties Group annually or, upon request of a Party, more frequently. If the country of which the chairman is a national, or in which the chairman has his usual residence or is employed, is an interested Party in any advisory opinion, derogation, or dispute settlement procedure pursuant to Articles 5 or 8, the Parties Group shall, at the request of any Party, elect an alternate chairman to perform the functions of chairman relating to those procedures.

3. The Parties Group shall act by consensus, except as otherwise provided. A Party may abstain and express a differing view without barring consensus.

4. The Secretary-General of the OECD shall provide the secretariat for the Parties Group, the costs for which shall be borne by the Parties as approved and apportioned by the Parties Group.

Article 4

Provision and review of information

1. In order to ensure transparency, each Party shall provide the Parties Group, through the secretariat:

(a) every six months, all publicly available information on contract price trends and on the credit terms and conditions of all ships covered by this Agreement and sold during the previous six months;

(b) as far in advance as possible, relevant information on any assistance it proposes to provide specifically to the commercial shipbuilding and repair industry, including relevant information on assistance excluded from the prohibitions of this Agreement by Annex I, Section B.1.h and prompt supplementary information on any such assistance it has so provided and assistance provided pursuant to Annex II A;

(c) information and notifications regarding credit terms and facilities which are called for by the Understanding on export credits for ships, as defined in Annex I, Section A.1. and corresponding information and notifications for the Home Credit Schemes authorized by Annex I, Section B.2.2.;

(d) for yards able to build merchant ships over 5 000 gross tons, publicly available information on capacity developments and on the structure of ownership (capital structure, share of direct and indirect public ownership); financial statements (balance sheet, profit and loss statement) including, if available, separate accounts covering the shipbuilding activities of holdings; transfer of public resources (including debt guarantees, bond infusion, etc.); exemptions from financial or other obligations (including tax privileges, etc.), capital contribution (including equity infusions, withdrawal of capital, dividend, loans and their refunding, etc.), debt write-off; and transfer of losses.

2. Any Party may request from any other Party, either directly or through the secretariat, information that it believes to be relevant to the provision of any measures of support and may provide the Parties Group with information on measures of support maintained or permitted by another Party.

3. The Parties Group shall, once every three years, review in depth the competitive conditions prevailing on each Party's territory. This will include the examination of the possible impact on normal competitive conditions of the evolution in ownership of yards. Information required for this review may be requested from the Parties by the Secretariat.

4. Each Party shall cooperate fully in the effort to obtain information requested under this Agreement.

5. The provisions of this Article shall not require any Party to disclose confidential information which would impede law enforcement or otherwise be contrary to the public interest or would prejudice the legitimate commercial interests of particular enterprises, public or private. Information provided on a confidential basis shall not be disclosed without the express consent of the Party supplying the information.

Article 5

Opinions and derogations

1. Any Party may request that the Parties Group provide a written opinion on the consistency with this Agreement of measures or practices (1):

(a) it proposes or has taken or engaged in; or

(b) taken or engaged in by another Party.

The Parties Group shall provide such an opinion within 60 days of the request.

2. An opinion adopted by consensus of all the members of the Parties Group shall be final and binding upon all the Parties regarding that particular measure or practice.

3. If, with respect to an opinion requested under subparagraph 1(b) there is an objection by a requesting Party or by the Party the measure or practice of which is the subject of the opinion, the Parties Group shall act by consensus of the other Parties. An opinion adopted in this manner shall be advisory.

4. The initiation of an opinion proceeding by a Party shall not prejudice the right of any Party to initiate a panel pursuant to Article 8. If a disputed measure or practice is submitted for panel consideration, opinion proceedings shall terminate upon request by a Party to the dispute made to the Parties Group within 15 days of the request to establish a panel or of the request for the opinion.

5. A Party which considers that, in response to extraordinary circumstances, it must temporarily take a measure or engage in a practice inconsistent with this Agreement, may do so only in conformity with the terms and conditions of a derogation which may be granted by the Parties Group. In critical circumstances which do not allow time for prior consideration by the Parties Group, action may be initiated provisionally, on condition that any action taken shall be rescinded no later than 30 days from initiation, and any benefit provided shall be recovered, unless its continuation is approved by the Parties Group which shall meet within this period.

Article 6

Notification of inconsistent measures

Whenever a Party has reason to believe that a measure or practice has been introduced or is being maintained by another Party, contrary to the terms of Article 1, paragraph 1 or 2, that Party shall notify the Parties Group, specifying the section or sections of Annex I and II with which it believes the measure or practice is inconsistent.

Article 7

Consultations

1. A Party which has reason to believe that a measure of support has been or is being introduced or maintained by another Party, contrary to the terms of Article 1, paragraph 1 or 2, may request consultations with the other concerned Party. The request shall include a statement of available information with regard to the existence and nature of the measure of support in question.

2. If a Party considers that an injurious pricing charge proceeding has been carried out regarding a shipbuilder in its territory by another Party in a manner not in conformity with Article 1 (3) and Annex III, it may request consultations with that other Party no later than 60 days after the notification to the shipbuilder of the decision imposing the injurious pricing charge.

3. A Party may request consultations with any other Party or Parties concerning any other matter respecting the operation of this Agreement, including possible initiation of a proceeding pursuant to Annex III.

4. The requesting Party or Parties shall inform the Parties Group of the request for consultations and of the reasons for the request.

5. The requested Party or Parties shall provide adequate opportunity for such consultations and shall enter into them within 30 days of such a request. The purpose of the consultations shall be to clarify the facts of the situation and to arrive at a mutually acceptable solution in conformity with this Agreement.

6. The parties to the consultations shall inform the Parties Group of significant developments in the consultations as they occur and of their results.

Article 8

Dispute panel proceedings

1. If a mutually acceptable solution has not been reached in consultations pursuant to Article 7 (1) on a measurs of support introduced, or pursuant to Article 7 (2) on a charge imposed, within 30 days after the beginning of consultations or 60 days after the date of the request, whichever is sooner, any Party to the consultation may request the establishment of a panel to consider the dispute, in accordance with Annex IV. This right is independent of whether an affected shipbuilder has taken an appeal to the Courts of a Party.

2. A Party seeking to redress a violation by another Party of the obligations subject to the provisions of this Article and Annex IV of this Agreement, shall have recourse to, and abide by, the rules and procedures of this Agreement. In such a case, the Party shall not make a determination to the effect that a violation has occurred except in accordance with the abovementioned provisions. Each Party shall ensure the conformity of its laws, regulations and administrative procedures with its obligations under this paragraph.

3. If a party to the dispute seeks, as a remedy, the collection of a charge from a shipbuilder, or is contesting the imposition of an injurious pricing charge on its shipbuilder, that shipbuilder shall, subject to the consent of its Party, be entitled to participate in the panel proceeding and shall be given a full and fair opportunity to present its case against the imposition of the charge. The shipbuilder may be excluded from government-to-government aspects of the proceeding by agreement of the parties to the dispute.

4. Any other party to this Agreement with an interest in the dispute shall be provided an opportunity to make its views on the dispute known to the panel.

5. If the dispute involves a measure of support in Annex I, the panel shall determine whether such measure of support is inconsistent with this Agreement. If the panel finds the measure of support to be inconsistent:

(a) the Party responsible for such measure of support shall eliminate or modify it to conform with the Agreement, within a time limit set by the panel;

(b) the panel shall include in its findings a determination of

(i) which shipbuilders benefited from the measure of support,

(ii) the amount of the benefit received by each shipbuilder concerned under such measure of support, and

(iii) interest on the benefit at the Commercial Interest Reference Rate (CIRR) of the country in question from the date of receipt of the benefit.

For subsidies within the meaning of Article 1 of the GATT Agreement on subsidies and countervailing measures, the benefit shall be determined in accordance with Article 14 of that Agreement. For other measures, the panel shall follow any generally accepted trade practice and/or understanding.

(c) the Party responsible shall, within a time limit set by the panel, collect from the shipbuilders concerned a charge in the amount determined under subparagraph (b), or if collection is not legally possible, it may, with the agreement of the adversely affected Party or Parties, take other appropriate action to remove or offset the benefits obtained.

6. If the dispute involves an injurious pricing charge, the panel shall examine whether the charge was imposed in accordance with Annex III.

(a) The panel shall, in its assessment of the facts of the matter, determine whether the authorities' establishment of the facts was proper and whether their evaluation of those facts was unbiased and objective. If the establishment of the facts was proper and the evaluation was unbiased and objective, even though the panel might have reached a different conclusion, the evaluation shall not be overturned;

(b) The panel shall interpret the Agreement in accordance with customary rules of interpretation of public international law. Where the panel finds that a relevant provision of the Agreement admits more than one permissible interpretation, the panel shall find the authorities' measure to be in conformity with the Agreement if it rests upon one of those permissible interpretations (2); and

(c) Where the panel finds that imposition of a charge was inconsistent with the Agreement, the panel may recommend, in light of the nature of the inconsistency, either that the investigating authority terminate the investigation or that it reconsider its determination in light of the panel's findings. If the panel recommends reconsideration, it may suggest ways in which the investigating authority could implement the recommendation. The investigating authority shall make its determination consistent with the findings of the panel.

7. If the amount required is not paid within the time limit set by the panel, interest shall accrue at the CIRR of the currency of the charge from, in the case of a charge pursuant to paragraph 5, the expiry of that time limit and, in the case of a charge pursuant to paragraph 6, the expiry of the time limit for payment provided in Annex III, Article 7 (3) until the date of payment.

8. The decisions of the panel shall be final and binding upon the parties to the dispute, unless rejected by the Parties Group within 30 days.

9. With regard to a dispute concerning a measure of support in Annex I, in the event a party to the dispute does not implement the panel's decisions as provided in paragraphs 5 (a) and 5 (c), or implement appropriate alternative compensation or remedial action by agreement with the adversely affected party or parties, and until implementation occurs, the following actions may be taken, and shall not be subject to complaint under any other agreement:

(a) The Parties Group, acting by consensus minus one, may deny benefits of Article 1 (3) and Annex III to shipbuilders which received the benefit but did not pay the charge or comply with the agreed alternative compensation or remedial action, by making such shipbuilders ineligible to be considered injured by the pricing of vessels sold by shipbuilders of other Parties.

(b) The adversely affected party or parties to the dispute may suspend equivalent concessions pursuant to the GATT, subject to disapproval of the amount of the concessions suspended by the Parties Group acting by consensus minus one. In determining such suspensions, preference shall be given to those that are related to the product or products associated with the violation. If a Party concerned objects to the amount or the product related to the suspension of concessions proposed, it may refer the matter to the panel.

10. In the event the shipbuilder concerned does not pay a charge imposed pursuant to Annex III, void the sale of the vessel at a price below normal value, or comply with another lawful alternative equivalent remedy acceptable to the investigating authority in the applicable time limit (3), the investigating Party may deny onloading and offloading privileges to certain vessels built by the shipbuilder in question, to the extent sufficient but not excessive to achieve the purpose of Annex III. Such denial of onloading and offloading privileges shall not be subject to complaint under any other agreement:

(a) The investigating Party may initially impose this countermeasure, subject to 30 days prior public notice, and pending compliance by the shipbuilder, for a maximum period of four years after delivery on vessels contracted for during a maximum period of four years from the end of the public notice period.

(b) A party to the dispute may request the establishment of a panel to consider countermeasure cases, where there is no panel already in existence to consider the underlying injurious pricing determination:

(i) a panel shall increase or decrease the periods and/or authorize additional Parties to apply the countermeasure, if necessary for the countermeasure to be sufficient but not excessive to achieve the purpose of Annex III;

(ii) in accordance with Section 11 of Annex IV, a panel may provisionally suspend or reduce the imposition of a countermeasure, pending completion of its consideration of the matter if, considering the prospects of the Party complaining about the countermeasure prevailing on the merits, such action is necessary to preclude irreparable harm.

(c) The secretariat will prepare, update periodically and circulate to the Parties, the lists of the vessels which are subject to the countermeasure or remedial action. The Parties shall supply information to the secretariat on the vessels concerned.

Article 9

Dispute settlement for export credits

1. Whith respect to any dispute with regard to measures of support covered by Annex I, Section A.1, the Parties shall make full use of the consultation mechanisms provided by the Understanding on export credits for ships, referred to in Annex I.

2. If, however, any such dispute is not satisfactorily resolved through a full use of the mechanisms, and a party to the dispute believes that such a measure of support significantly undermines the balance of rights and obligations under this Agreement, that party may seek review of the matter by the Parties Group in order to establish if the measure of support has significantly undermined the balance of rights and obligations under this Agreement. If an affirmative determination is made, the Parties Group shall establish the conditions under which the offending party is to discontinue the measure of support giving rise to the dispute.

3. If appropriate, the Parties Group may recommend amending the Agreement or the Understanding.

Article 10

Security interests

1. Subject to the requirement that measures or practices with respect to security interests are not disguised actions taken in favour of the commercial shipbuilding and repair industry inconsistent with the Agreement, nothing in this Agreement shall be construed:

(a) to require any Party to furnish any information the disclosure of which it considers contrary to its essential security interests;

(b) to prevent any Party from taking any action which it considers necessary for the protection of its essential security interests:

(i) relating to fissionable materials or the materials from which they are derived;

(ii) relating to traffic in arms, ammunition and implements of war and to such traffic in other goods and materials as is carried on directly or indirectly for the purpose of supplying a military establishment;

(iii) taken in time of war or other emergency in international relations; or

(c) to prevent any Party from taking any action in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security.

2. If a Party is of the opinion that measures or practices taken by another Party are disguised action taken in favour of the commercial shipbuilding and repair industry, it may, without prejudice to its right to initiate the other procedures foreseen in this Agreement, request further clarification. The other Party shall cooperate to discuss whether or not a measure or practice relates to essential security and to provide the available information as fully and quickly as possible through the appropriate responsible government channels.

Article 11

Review and amendment of the Agreement

1. The Parties Group shall review this Agreement triennially. The Parties Group shall also review this Agreement if the market share in terms of world production represented by the Parties to the Agreement falls below 70 % of gross tonnage.

2. Any Party may propose to the Parties Group amendments to this Agreement.

Any amendment adopted by the Parties Group shall enter into force upon the deposit of an instrument of acceptance by all the Parties, or at such later date as may be specified by the Parties Group at the time of adoption of the amendments.

Article 12

Signature, ratification, acceptance, approval and accession

1. Until its entry into force, this Agreement shall be open for signature at the OECD by the European Community, Finland, Japan, Republic of Korea, Norway, Sweden, the United States of America, and any State invited by them which has a commercial shipbuilding and repair industry. This Agreement shall be subject to ratification, acceptance or approval which the signatories shall seek to accomplish before 1 January 1996.

2. After entry into force, States with a commercial shipbuilding and repair industry may, subject to the approval of the Parties Group, become Party to this Agreement by accession.

3. Ratification, acceptance, approval and accession shall be effected by the deposit of a formal instrument to that effect with the Depositary.

Article 13

Entry into force

1. This Agreement, of which the Annexes form an integral part shall enter into force on 1 January 1996, subject to deposit of instruments of ratification, acceptance or approval, in accordance with Article 12, by the European Community, Finland, Japan, Republic of Korea, Norway, Sweden and the United States of America (4). If one or more of them has not deposited such instrument by that date, the Agreement shall enter into force 30 days after the last instrument has been deposited.

2. Parties accept the Understanding on export credits for ships, referred to in Annex I, Section A.1. of this Agreement.

Article 14

Withdrawal

Any Party may withdraw from this Agreement by giving written notice of its intention to do so to the Depositary, such withdrawal to take effect one year from receipt of such notice. Within this period, at the request of any of the Parties, the Parties Group shall meet to review this Agreement. Within 30 days after such a Parties Group meeting, any other Party, by written notification to the Depositary, may withdraw from this Agreement as of the date of withdrawal of the Party which first gave notice.

Article 15

Depositary

The Secretary-General of the OECD shall be the Depositary of this Agreement.

(1) 'Measures or practices' include matters falling under Article 1, paragraph 1 and 2, as well as under paragraph 3.

(2) For the purpose of this Agreement, the phrase 'permissible interpretation' means 'permissible method of implementation'. In determining the permissibility of an implementation method, due regard shall be given to special characteristics of commercial shipbuilding and of the provisions of this Agreement relating to injurious pricing, including, particularly, its provision for payment of an injurious pricing charge by the concerned shipbuilder. Where the panel finds that the relevant provision of this Agreement relating to injurious pricing admits more than one permissible method of implementation, the Parties Group shall, in order to prevent future disputes from arising, endeavour to reach a unified method of implementation and, if necessary, to make an amendment to the relevant provision.

(3) For a charge which has been brought before a panel for examination, the applicable time limit is that set by the panel for compliance.

(4) If Finland, Norway or Sweden becomes a Member of the European Community, its ratification of this Agreement will not be required for entry into force. Upon its entry into the European Community, it will adopt the same status with respect to this Agreement as the Members of the European Community prior to the entry of any one of them.

ANNEX I

MEASURES OF SUPPORT INCONSISTENT WITH NORMAL COMPETITIVE CONDITIONS IN THE COMMERCIAL SHIPBUILDING AND REPAIR INDUSTRY

The following measures of support (1) are inconsistent with normal competitive conditions when specifically provided (2), directly or indirectly, to the commercial shipbuilding and repair industry by a Party, including the constituent states or regional or local authorities of a Party or their agencies or instrumentalities, or through public resources or public intervention in any form:

A. EXPORT SUBSIDIES

1. Officially supported export credits (3)

Export credit facilities inconsistent with the provisions of the Understanding on export credits for ships, as set out in C/WP6(94)6, and amendments thereto adopted in accordance with clause 14 of that Understanding.

2. Export subsidies

Subsidies contingent, in law or in fact (4), whether solely or as one of several other conditions, upon export performance, including those illustrated in Accompanying Note 8 to this Annex (5).

B. DOMESTIC SUPPORT (6)

1. Direct domestic support

The following measures of support are inconsistent when provided directly to the shipbuilder or ship repairer:

(a) grants;

(b) loans on terms and conditions more favourable than those of a comparable commercial loan which a firm can actually obtain on the market;

(c) loan guarantees that support loans on terms and conditions more favourable than those that the firm would obtain on a comparable commercial loan absent the government guarantee, or on terms and conditions more favourable than those otherwise permitted by this Agreement;

(d) forgiveness of debts;

(e) provision of equity capital inconsistent with the usual investment practice (including for the provision of risk capital) of private investors in the territory of that Party;

(f) provision of goods and services at less than the adequate remuneration;

(g) tax policies and practices benefiting the shipbuilding and repair industry, such as tax credits;

(h) other assistance except for:

(i) assistance to cover the cost of measures for the exclusive benefit of workers who lose retirement benefits or who are made redundant or otherwise separated permanently from employment in the respective shipbuilding enterprise, when such assistance is related to the discontinuance or curtailment of shipyards, bankruptcy, or change of activities away from shipbuilding and

(ii) research and development assistance granted in accordance with the provisions in Section B.3.

2. Indirect domestic support (7)

(1) The following measures of support are inconsistent where the benefit is passed or may reasonably be expected to be passed to the shipbuilder or ship repairer indirectly, through a shipowner or other third parties (8). Domestic build requirements, in law or in fact, are inconsistent:

(a) grants;

(b) loans and loan guarantees:

(i) home credits, linked to the contract value of a new vessel, granted to a domestic shipowner or other domestic third parties placing orders for such vessel on terms and conditions more favourable than those of a comparable commercial loan which a firm can actually obtain on the market, subject to paragraph 2 and paragraph 3;

(ii) other loans, on terms and conditions more favourable than those of a comparable commercial loan which a firm can actually obtain on the market;

(iii) loan guarantees that support loans on terms and conditions more favourable than those that the firm would obtain on a comparable commercial loan absent the government guarantee, or on terms and conditions more favourable than those otherwise permitted by this Agreement;

(c) forgiveness of debts;

(d) tax policies and practices benefiting the shipbuilding and repair industry such as tax credits;

(e) any assistance provided to suppliers of goods and services to the shipbuilding and repair industry if such assistance specifically provides benefits to that industry of a country; or

(f) any indirect assistance that is similar to measures and practices (a) through (e) of this paragraph, except for research and development which is dealt with under Section 3.

(2) Paragraph 1 (b) (i) and (iii) shall not apply to loans and loan guarantees to domestic purchasers on the same terms and conditions as may be granted pursuant to the Understanding on export credit for ships (C/WP6(94)6), including, inter alia, terms and conditions regarding interest rate, downpayment, grace period, duration, equal instalments and guarantee premiums. Eligibility for such loans and loan guarantees may be limited to purchase of ships from domestic shipyards.

(3) In accordance with terms and conditions to be agreed upon by the Council Working Party, paragraph 1 (b) (i) and (iii) shall also not apply to loans and loan guarantees which:

(a) provide more favourable terms and conditions for a domestic shipowner placing an order for a new vessel at a foreign shipyard than those placing an order at a domestic shipyard; or

(b) make such schemes subject to an open international bidding procedure; or

(c) provide a total 'soft' or concessional element no greater than that of the loans permitted under paragraph 2.

3. Research and development (9)

(1) Assistance provided by public authorities in the form of grants, preferential loans, preferential tax treatment or other means for research and development to the shipbuilding and ship repair industry, except for:

(a) fundamental research as defined in Accompanying Note 5 (b);

(b) basic industrial research, where the aid intensity is limited to 50 % of the eligible costs;

(c) applied research, where the aid intensity is limited to 35 % of the eligible costs;

(d) development, where the aid intensity is limited to 25 % of the eligible costs.

(2) The maximum allowable aid intensity for research and development related to safety and the environment may be 25 percentage points higher than those percentages mentioned under (b), (c) and (d) under the condition that the Parties Group has approved the project by consensus minus one, or more than 25 percentage points higher if the Parties Group has approved the project by consensus.

(3) The maximum allowable aid intensity for research and development carried out by small and medium-sized shipbuilding enterprises shall be 20 percentage points higher than those percentages mentioned at (b), (c) and (d). Small and medium-sized enterprises are those with less than 300 employees whose yearly sales figure does not exceed ECU 20 million and which are not more than 25 % owned by a large company.

(4) Information on the results of research and development is to be published promptly, at least annually.

C. OFFICIAL REGULATIONS AND PRACTICES

1. Administrative acts, guidance, or practices which authorize, encourage or require shipbuilders or ship repairers to enter into anti-competitive arrangements with competitors including but not limited to agreements to fix prices, rig bids, allocate markets, restrain production or sales, or engage in predatory practices (10).

2. Domestic build or repair or domestic content requirements that discriminate in favour of the commercial shipbuilding and repair industry of the Party, or official regulations or practices that have similar effects including, inter alia, cargo reservation schemes directly linked with domestic shipbuilding or repair requirements (11).

Accompanying notes to Annex I

Note 1. Disciplines in Annex I include measures of support provided to related entities, where a 'related entity' is any natural or juridical person

(i) who owns or controls a shipbuilder or

(ii) is owned or controlled by a shipbuilder, directly or indirectly, whether through stock ownership or otherwise. A rebuttable presumption of control arises when a person or shipbuilder owns or controls an interest of 25 % in the other.

Note 2. Section B does not apply to measures of support dealt with in Section A.

Note 3. ITEM A (1) AND B (2):

Transparency and review of export and home credit schemes.

Within two years of entry into force of this Agreement, the Parties Group shall set up a Working Group to review the functioning of Annex I, Sections A.1 and B 2.2:

(i) examining the reports submitted each year on the value, tonnage, interest rates, etc. on all ships financed through officially supported export credits and home credit schemes; and

(ii) evaluating the adequacy of the notification procedures provided for in Article 4 (1) (c) in terms of revealing measures or practices that are inconsistent with the Agreement.

The Working Group is to examine whether the use of such measures has significantly undermined the balance of rights and obligations of this Agreement. If this is the case, the Working Group may recommend to the Parties Group appropriate amendments to the Agreement or the Understanding.

Note 4. ITEM B (2):

A measure of support is understood to be provided through a shipowner or other third parties where, e.g. the benefit is passed or may reasonably be expected to be passed to the shipbuilder or ship repairer or where the work is required by law or encouraged in fact to be carried out at the yards of a specific country.

Note 5. ITEM B (3):

The following definitions apply to research and development:

(a) Eligible costs:

(i) costs of instruments, materials, land and buildings to the extent that they are used for the specific research and development project;

(ii) costs of researchers, technicians and other supporting staff to the extent that they are engaged in the specific research and development project;

(iii) consultancy and equivalent services including bought in research, technical knowledge, patents, etc.;

(iv) overhead costs (infrastructure and support services) to the extent that they are related to the research and development project, on condition that they do not exceed 45 % of the total costs of the project for basic industrial research and 20 % for applied research and 10 % for development.

(b) The term 'fundamental research' means research activities independently conducted by higher education or research establishments for the enlargement of general scientific and technical knowledge, not linked to industrial or commercial objectives.

(c) Basic industrial research is understood to mean original theoretical and experimental work whose objective is to achieve new and better understanding of the laws of science and engineering in general and as they might apply to an industrial sector or to the activities of a particular undertaking.

(d) Applied research is understood to mean investigation or experimental work on the basis of the results of the basic research with a view to facilitating the attainment of specific practical objectives such as the creation of new products, production processes and services. It normally ends with the creation of a first prototype and does not include efforts whose principal aim is the design, development or testing of specific items of services to be considered for sale.

(e) Development is understood to mean work based on the systematic use of scientific and technical knowledge in a design, development, testing or evaluation of a potential new product, production processes or service or of an improvement of an existing product or service to meet specific performance requirements and objectives. This stage will normally include pre-production models such as pilot and demonstration projects but does not include industrial application and commercial exploitation.

(f) Public assistance for research and development specifically provided to the shipbuilding and repair industry includes, but is not limited to, the following cases:

(i) research and development projects carried out by the shipbuilding or ship repair industry or research institutes controlled by or financed by this industry;

(ii) research and development projects carried out by the shipping industry or research institutes controlled by or financed by this industry when the project is directly related to shipbuilding or repair;

(iii) research and development projects carried out by universities, public or independent private research institutes and other industrial sectors in collaboration with the shipbuilding industry;

(iv) research and development projects carried out by universities, public and/or independent private research institutions and other industrial sectors, when at the time the project is carried out, it is reasonably anticipated that the results will be of substantial specific importance for the shipbuilding and repair industry.

Note 6. ITEM C (1):

The Parties recognize that differences exist among its competition policies or laws and regulations. The provision of Item C (1) is not intended to unify competition policies among the Parties to this Agreement nor to compel a Party to amend its national competition laws and regulations.

Note 7. ITEM C (2):

While customs duties on newly built vessels or vessel repairs are included within the scope of Item C (2), the Parties do not intend thereby to characterize customs duties as obstacles to normal competitive conditions in the commercial shipbuilding industry.

Note 8. ITEM A (2):

Illustrative list of export subsidies:

(a) The provision by governments of direct subsidies to a firm or an industry contingent upon export performance.

(b) Currency retention schemes or any similar practices which involve a bonus on exports.

(c) Internal transport and freight charges on export shipments, provided or mandated by governments, on terms more favourable than for domestic shipments.

(d) the provision by governments or their agencies either directly or indirectly through government-mandated schemes, of imported or domestic products or services for use in the production of exported goods, on terms or conditions more favourable than for provision of like or directly competitive products or services for use in the production of goods for domestic consumption, if (in the case of products) such terms or conditions are more favourable than those commercially available (12) on world markets to their exporters.

(e) The full or partial exemption, remission, or deferral specifically related to exports, of direct taxes (13) or social welfare charges paid or payable by industrial or commercial enterprises (14).

(f) The allowance of special deductions directly related to exports or export performance, over and above those granted in respect to production for domestic consumption, in the calculation of the base on which direct taxes are charged.

(g) The exemption or remission in respect of the production and distribution of exported products, of indirect taxes (15) in excess of those levied in respect of the production and distribution of like products when sold for domestic consumption.

(h) The exemption, remission or deferral of prior stage cumulative indirect taxes (16) on goods or services used in the production of exported products in excess of the exemption, remission or deferral of like prior stage cumulative indirect taxes on goods or services used in the production of like products when sold for domestic consumption; provided, however, that prior stage cumulative indirect taxes may be exempted, remitted or deferred on exported products even when not exempted, remitted or deferred on like products when sold for domestic consumption, if the prior stage cumulative indirect taxes are levied on inputs that are consumed in the production of the exported product (making normal allowance for waste) (17). This item shall be interpreted in accordance with the guidelines on consumption of inputs in the production process contained in Annex II of the Agreement on subsidies and countervailing measures.

(i) The remission or drawback of import charges (18) in excess of those levied on imported inputs that are consumed in the production of the exported product (making normal allowance for waste); provided, however, that in particular cases a firm may use a quantity of home market inputs equal to, and having the same quality and characteristics as, the imported inputs as a substitute for them in order to benefit from this provision if the import and the corresponding export operations both occur within a reasonable time period, not to exceed two years. This item shall be interpreted in accordance with the guidelines on consumption of inputs in the production process contained in Annex II of the Agreement on subsidies and countervailing measures and the guidelines in the determination of substitution drawback systems as export subsidies contained in Annex III of the Agreement on subsidies and countervailing measures.

(j) The provision by governments (or special institutions controlled by governments) of export credit guarantee or insurance programmes, of insurance or guarantee programmes against increases in the cost of exported products or of exchange risk programmes, at premium rates which are inadequate to cover the long-term operating costs and losses of the programmes.

(k) The payment by governments (or by institutions controlled by and/or acting under the authority of governments) of all or part of the costs incurred by exporters or financial institutions in obtaining credits, in so far as they are used to secure a material advantage in the field of export credit terms.

(l) Any other charge on the public account constituting an export subsidy in the sense of Article XVI of the GATT 1994.

Footnotes to the illustrative list of export subsidies

(1) See Accompanying Note 1 to this Annex.

(2) Specificity shall be determined in accordance with the principle set out in Article 2 of the GATT Agreement on subsidies and countervailing measures.

(3) See Accompanying Note 3 to this Annex.

(4) This standard is met when the facts demonstrate that the granting of a subsidy, without having been legally contingent upon export performance, is in fact tied to actual or anticipated exportation or export earnings. The mere fact that a subsidy is accorded to enterprises which export shall not for that reason alone be considered to be an export subsidy within the meaning of this provision.

(5) Measures referred to in the Accompanying Note 8 to this Annex as not constituting export subsidies shall not be prohibited under this Agreement.

(6) See Accompanying Note 2 to this Annex.

(7) See Accompanying Note 3 to this Annex.

(8) See Accompanying Note 4 to this Annex.

(9) See Accompanying Note 5 to this Annex.

(10) See Accompanying Note 6 to this Annex.

(11) See Accompanying Note 7 to this Annex.

(12) the term 'commercially available' means that the choice between domestic and imported products is unrestricted and depends only on commercial considerations.

(13) For the purpose of this Agreement:

- the term 'direct taxes' shall mean taxes on wages, profits, interests, rents, royalties, and all other forms of income, and taxes on the ownership of real property,

- the term 'import charges' shall mean tariffs, duties, and other fiscal charges not elsewhere enumerated in this note that are levied on imports,

- the term 'indirect taxes' shall mean sales, excise, turnover, value added, franchise, stamp, transfer, inventory and equipment taxes, border taxes and all taxes other than direct taxes and import charges,

- 'prior stage' indirect taxes are those levied on goods or services used directly or indirectly in making the product,

- 'cumulative' indirect taxes are multi-staged taxes levied where there is no mechanism for subsequent crediting of the tax if the goods or services subject to tax at one stage of production are used in a succeeding stage of production,

- 'remission' of taxes includes the refund or rebate of taxes,

- 'remission or drawback' includes the full or partial exemption or deferral of import charges.

(14) The Parties recognize that deferral need not amount to an export subsidy where, for example, appropriate interest charges are collected. The Parties reaffirm the principle that prices for goods in transactions between exporting enterprises and foreign buyers under their or under the same control should for tax purposes be the prices which would be charged between independent enterprises acting at arm's length. Any Party may draw the attention of another Party to administrative or other practices which may contravene this principle and which result in a significant saving of direct taxes in export transactions. In such circumstances the Parties shall normally attempt to resolve their differences using the facilities of existing bilateral tax treaties or other specific international mechanisms, without prejudice to the rights and obligations of Parties under this Agreement, including the right of consultation created in the preceding sentence. Paragraph (e) is not intended to limit a Party from taking measures to avoid the double taxation of foreign source income earned by its enterprises or the enterprises of another Party.

(15) Paragraph (h) does not apply to value-added tax systems and border-tax adjustment in lieu thereof; the problem of the excessive remission of value-added taxes is exclusively covered by paragraph (g).

ANNEX II

SPECIAL PROVISIONS RELATING TO MEASURES OF SUPPORT

Existing measures of support that are inconsistent with the Agreement are to be eliminated at the time this Agreement enters into force, except as provided in Sections A and B. Support committed before the entry into force of the Agreement may be paid after entry into force, provided that it complies with the provisions of the understanding set out in paragraph 3 of the Final Act of the negotiations concerning this Agreement.

A. SUPPORT FOR RESTRUCTURING

Support may be provided in accordance with the following notification to the Council Working Party:

(i) The Republic of Korea's ongoing programme for Daewoo and KSEC described in (C/WP6(91)58).

(ii) Restructuring assistance in Belgium, Portugal and Spain information on which is set out in (C/WP6(93)31) and the Accompanying Note 1 to this Annex.

B. OFFICIAL REGULATIONS AND PRACTICES

Coastwise laws of the United States of America

1. The United States of America reserves the right to retain the domestic build requirements incorporated in the public laws referred to in the Accompanying Note 2 to this Annex.

2. Regarding the coastwise laws of the United States of America which reserve the domestic market for US shipyards, the following will apply:

(a) Any domestic build, rebuild, or repair requirements found in United States laws other than those specified in Accompanying Note 2 to this Annex (hereafter 'the coastwise laws') that are inconsistent with the Agreement are subject to elimination as of entry into force of the Agreement.

(b) Recognizing that a permanent derogation for the coastwise laws could undermine the balance of rights and obligations of the Parties under the Agreement and is unacceptable to the other Parties, the Parties agree that responsive measures may be taken as provided below and on the special review and monitoring procedure.

(c) The United States of America agrees to cooperate in an annual review by the Parties Group and to ensure full transparency regarding the construction of such vessels, including the provision of information on new orders and ratified contracts (both adjusted subsequently for cancellations), expected and actual delivery dates, by tonnage and type of ship. The United States of America will provide such information no less than annually, and more frequently when requested or appropriate (e.g., when it appears that annual actual and expected deliveries may increase beyond the threshold described under (e)).

(d) The United States of America estimates the average annual deliveries for vessels subject to the Agreement constructed under the provisions of the coastwise laws following adoption of the Agreement will not exceed 200 000 gross tons.

(e) The Parties Group will carefully monitor the information provided under (c). It may be consensus minus one make determinations and authorize responsive measures as specified in subparagraphs (i) and (ii).

(i) Until three years after entry into force of the Agreement:

If the Parties Group determines that actual or expected deliveries in any year after the entry into force of this Agreement exceeds 200 000 gross tons (1) and that such deliveries will significantly undermine the balance of rights and obligations under the Agreement, the Parties Group may authorize one or more affected Parties to take responsive measures (e.g., impose a charge or restriction on bids or contracts) with respect to shipyards that in the year in which the threshold is exceeded benefited from the construction of coastwise vessels, aimed at effecting a loss of sales opportunities comparable to that resulting from deliveries of coastwise vessels in excess of the threshold.

For purposes of the paragraph, actual or expected deliveries in excess of the threshold, as defined above, in any one year establishes a rebuttable presumption of significantly undermining the balance of rights and obligations under this Agreement.

(ii) After three years following entry into force:

If the Parties Group determines that actual or expected deliveries will significantly undermine the balance of rights and obligations under the Agreement, the Parties Group may authorize one or more affected Parties to take responsive measures (e.g., impose a charge or restriction on bids or contracts) with regard to shipyards benefiting from the construction of coastwise vessels, aimed at effecting a loss of sales opportunities or other commercial advantages comparable to that resulting from deliveries of coastwise vessels.

For purposes of this paragraph, there is a rebuttable presumption that the balance of rights and obligations under this Agreement is significantly undermined.

(f) If the United States of America believes that the level, kind, or duration of the measures taken by a Party or Parties under subparagraph (e) result in a loss of sales opportunities for its shipbuilders greater than that caused by the delivery of coastwise vessels, it may invoke dispute panel proceedings pursuant to Annex IV of the Agreement. The panel shall determine whether the measures taken under subparagraph (e) are disproportionate or excessive and make appropriate recommendations. Measures taken by the Parties must be made consistent with the panel's recommendations.

(g) As part of and in sufficient time prior to the first triennial review provided for in Article 11 of the Agreement, the Parties Group shall examine whether the conditions which created the need for Part B of Annex II still prevail and whether the measures provided for under subparagraph (e) are adequate to maintain the balance of rights and obligations under the Agreement. On the basis of that review and with the aim of maintaining the balance of rights and obligations under the Agreement, the Parties Group may decide to:

- modify the provisions of subparagraph (e),

- withdraw other rights under the Agreement,

- authorize the withdrawal of GATT concessions, or

- take other appropriate action.

(h) If, after the review called for in subparagraph (g) is completed, a Party continues to believe that the responsive measures available to it are unsatisfactory, such Party may withdraw from this Agreement three months after submitting a notification of its determination to this effect to the Parties Group. The same procedures for termination are available to a Party entitled to take the abovementioned responsive measures at any time after four years from entry into force of this Agreement, if Part B of Annex II remains in effect.

Accompanying notes to Annex II

Note 1. ITEM A (ii) Restructuring support

(a) The total amounts of assistance included in the restructuring plans of item A (ii) are as follows:

- Spain Pta 180 billion,

- Portugal Esc 17,7 million,

- Belgium Bfrs 2 369 million.

(b) These total amounts of assistance consist of the following:

(i) assistance for social measures exempted under Annex I B (1) (h);

(ii) assistance for restructuring costs incurred before the date of signature of the present agreement, committed by the respective national governments and approved by the Commission of the European Community before that date, but have not been paid due to budgetary problems;

(iii) other assistance for restructuring measures committed and paid, on the basis of costs incurred before 1 January 1996;

(iv) assistance for restructuring measures paid after 1 January 1996, broken out in two categories:

(a) investment assistence; and

(b) any assistance for social measures not exempted under Annex I B (i) (h).

(c) The European Community will provide to the Parties Group, in accordance with Article 4 (1) (b) of the present Agreement informatio which splits up the amounts mentioned in point (a) into the categories referred to in point 2 above, allowing the Parties Group to monitor the restructuring plans.

(d) The European Community can state that assistance paid after the 1 January 1996 and not falling under (b) (i) and (ii), will be subject to maximum limits and payment deadlines particular to each country as follows:

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(e) The European Commission has not yet received complete notifications of these restructuring plans as required by the internal legislation of the Community. The Commission will ensure that the above limits and restrictions on the aid will be fully respected when it takes its final decisions authorizing these aids.

Note 2. ITEM B: Coastwise laws of the United States of America

The United States of America reserves the right to retain the domestic build requirements incorporated in the legislation listed below.

(a) Laws that prohibit the transportation of merchandise between points in the United States of America except on US built vessels documented under US law and owned by citizens of the United States of America:

Section 27 of the Act of June 5, 1920 (41 STAT. 999), as amended by the Act of April 11, 1935 (49 STAT. 154); the Act of July 2, 1935 (49 STAT. 442); Section 1 of the Act of July 14, 1956 (70 STAT. 544); Section 27 (a) of Public Law 85-508 (72 STAT. 351); Section 1 of Public Law 86-583 (74 STAT. 321); Public Law 89-194 (79 STAT. 823); Section 1 of Public Law 86-583 (74 STAT. 321); Public Law 89-194 (79 STAT. 823); Public Law 90-474 (82 STAT. 700); Section 1 of Public Law 92-163 (85 STAT. 486); Section 213 of Public Law 95-410 (92 STAT. 904); Section 4 of Public Law 96-112 (93 STAT. 848); Section 12 (49) of Public Law 97-31 (95 STAT. 157); Sections 502 and 504 of Public Law 97-389 (96 STAT. 1954, 1956); Section 6 (c) (1) of Public Law 100-239 (101 STAT. 1782); Section 1 (a) of Public Law 100-329 (102 STAT. 588); and Section 5501 (b) of Public Law 102-587 (106 STAT. 5085).

(b) Laws that prohibit the transportation of passengers between points in the United States of America except on US built vessels documented under US law and owned by the citizens of the United States of America:

Section 8 of the Act of June 19, 1886 (24 STAT. 81), as amended by Section 2 of the Act of February 17, 1898 (30 STAT. 248).

(c) Laws requiring that dredges must be built and registered in the United States of America:

Section 1 of the Act of May 28, 1906 (34 STAT. 204), as amended by Section 5501 (a) (1) of Public Law 102-587 (106 STAT. 5084).

(d) Laws requiring that towing vessels must be US built and documented under the laws of the United States of America and owned by citizens of the United States of America to engage in towing vessels from any port or place in the United States of America to any other port or place in the United States of America:

Revised Statute No 4370 (54 STAT. 304), as amended by Section 10 of Public Law 99-307 (100 STAT. 447); and Section 2 of Public Law 100-329 (102 STAT. 589).

(e) Though fishing vessels destined for a country's fishing fleet are excluded from the scope of the Agreement, listed below for the sake of completeness are laws requiring that fishing vessels, fish tender vessels and fish processing vessels operating in US waters, or in the waters of the United States of America. Exclusive Economic Zone (unless operating under a permit pursuant to a governing international fishing agreement), must be built in the United States of America and documented under US law and owned by citizens of the United States of America:

Section 1 of Public Law 98-89 (97 STAT. 587), as amended by Section 301 (c) of Public Law 98-454 (98 STAT. 1734); Section 3 (4), (5), 6 (a) (6) of Public Law 100-239 (101 STAT. 1779, 1782); and Section 301 (a) (8) of Public Law 101-225 (103 STAT. 1921).

(1) The threshold for any given year may be increased by carrying over an unused amount of a maximum of 50 000 gross tons from the previous year and by borrowing 50 000 gross tons from the next year.

ANNEX III

INJURIOUS PRICING CHARGES

A. BASIC PRINCIPLES

1. The Parties recognize that injurious pricing, by which vessels covered by Article 2 of the Agreement respecting normal competitive conditions in the commercial shipbuilding and repair industry ('vessels') of one country are sold (1) directly or indirectly to one or more nationals or companies of another Party (2) or to one or more companies owned (3) or controlled (4) by such nationals or companies (5) at less than the normal value of the vessels, is to be condemned if it causes or threatens material injury to an established industry in the territory of a Party or materially retards the establishment of a domestic industry.

2. In order to remedy or prevent injurious pricing, a Party may impose on the producer of any injuriously priced vessel an injurious pricing charge not greater in amount than the margin of injurious pricing in respect of such vessel.

3. No vessel of the territory of any Party sold to a buyer of any other Party shall be subject to injurious pricing charges by reason of the exemption of such vessel from duties or taxes borne by the like product when sold to a buyer of the Party in which the vessel originates, or by reason of the refund of such duties or taxes.

4. (a) No Party shall impose any injurious pricing charge on a shipbuilder that is a national or company of another Party unless it determines that the effect of the injurious pricing is such as to cause or threaten material injury to an established domestic industry, or is such as to retard materially the establishment of a domestic industry.

(b) The Parties may waive the requirement of subparagraph (a) of this paragraph so as to permit a Party to impose an injurious pricing charge on a shipbuilder with regard to the sale of any vessel to a buyer which is its company or national for the purpose of remedying injurious pricing which causes or threatens material injury to an industry in the territory of another Party exporting the product concerned to the Party of the buyer.

5. The Parties agree to take action only pursuant to this Annex with regard to transactions involving the injurious pricing of vessels covered by this Agreement. A Party shall withhold action pursuant to this Annex if any member of the World Trade Organization not a Party to this Agreement has previously initiated an anti-dumping action pursuant to Article VI of GATT 1994 and the Agreement on the implementation of Article VI of GATT 1994 with regard to a particular transaction. If subsequent to the initiation of an action pursuant to this Annex, a member of the World Trade Organization who is not a Party to this Agreement initiates an anti-dumping action pursuant to Article VI of GATT 1994 and the Agreement on the implementation of Article VI of GATT 1994 with regard to a particular transaction, the Party that had initiated an action pursuant to this Annex shall suspend the action. If the anti-dumping investigation is concluded by the imposition of measures or a negative finding, a Party shall not initiate or continue action pursuant to this Annex. If the anti-dumping investigation is not concluded within a reasonable period of time, but not less than one year, or if, in the event of an affirmative finding, action is not taken, the Party to this Agreement may initiate or continue its investigation, but in no case may both an injurious pricing charge pursuant to this Agreement and an anti-dumping duty under the GATT 1994 be imposed with respect to a particular transaction.

B. SUPPLEMENTARY PROVISIONS REGARDING THE BASIC PRINCIPLES

Regarding paragraph 1

1. Hidden injurious pricing by associated houses (that is, the sale by a buyer at a price below that corresponding to the price invoiced by a shipbuilder with whom the buyer is associated, and also below the price in the country of sale) constitutes a form of injurious pricing with respect to which the margin of injurious pricing may be calculated on the basis of the price at which the vessels are resold by the buyer.

2. It is recognized that, in the case of sales from a country which has a complete or substantially complete monopoly of its trade and where all domestic prices are fixed by the State, special difficulties may exist in determining price comparability for the purposes of paragraph 1, and in such cases Parties may find it necessary to take into account the possibility that a strict comparison with domestic prices in such a country may not always be appropriate.

Regarding paragraph 2

Multiple currency practices can in certain circumstances constitute a form of injurious pricing by means of a partial depreciation of a country's currency which may be met by action pursuant to paragraph 2. By 'multiple currency practices' is meant practices by governments or sanctioned by governments.

Regarding paragraph 4 (b)

Waivers under the provisions pursuant to paragraph 4 (b) shall be granted only on application by the Party proposing to impose an injurious pricing charge.

SHIPBUILDING INJURIOUS PRICING CODE

THE PARTIES,

RECOGNIZING that anti-injurious pricing practices should not constitute an unjustifiable impedient to international trade and that injurious pricing charges may be applied against injurious pricing only if such injurious pricing causes or threatens material injury to an established industry or materially retards the establishment of an industry,

CONSIDERING that it is desirable to provide for equitable and open procedures as the basis for a full examination of injurious pricing cases,

DESIRING to interpret the Basic Principles and to elaborate rules for their application in order to provide uniformity and certainty in their implementation, and

RECOGNIZING the need to take account of the complexity of ship purchase transactions and the manner in which the ownership of a vessel may be obscured,

RECOGNIZING the nature of commercial shipbuilding and repair, which often involves a single transaction covering one vessel and the adaptation of shipyard operations to render them capable to produce a particular ship, and thus, understanding that the investigating authorities shall consider the context of these and other characteristics of commercial shipbuilding and repair in assessing the impact of sales on a domestic industry,

HEREBY AGREE AS FOLLOWS:

Article 1

Principles

1.1 An injurious pricing charge on a vessel covered by Article 2 of the Agreement respecting normal competitive conditions in the commercial shipbuilding and repair industry ('vessel') shall be applied only under the circumstances provided for in this Annex and pursuant to investigations initiated (6) and conducted in accordance with its provisions. The following provisions govern the application of the Basic Principles in so far as action is taken under implementing legislation or regulations.

1.2 The Parties agree to incorporate into this Code any amendments made in the future to the Agreement on the implementation of Article VI of the GATT 1994. Changes to such amendments shall be limited to those necessitated by the special characteristics of commercial shipbuilding.

Article 2

Determination of injurious pricing

2.1 For the purpose of this Agreement, a vessel is to be considered as being injuriously priced, i.e., sold (7) directly or indirectly to one or more nationals or companies of another Party, or to one or more companies owned or controlled by such nationals or companies, at less than its normal value, if the export (8) price of the vessel sold is less than the comparable price, in the ordinary course of trade, for the like vessel when sold to a buyer of the exporting country.

2.2 When there are no sales of the like vessel in the ordinary course of trade in the domestic market of the exporting country or when, because of the particular market situation, such sales do not permit a proper comparison, the margin of injurious pricing shall be determined by comparison with a comparable price of the like vessel when exported to an appropriate third country provided that this price is representative. If such sales to any appropriate third country do not exist or do not permit a proper comparison, the margin of injurious pricing shall be determined by comparison with the cost of production in the country of origin plus a reasonable amount for administrative, selling, and general costs and for profits.

2.2.1 Sales of the like vessel in the domestic market of the exporting country or sales to a third country at prices below per unit (fixed and variable) costs of production plus administrative, selling and general costs may be treated as not being in the ordinary course of trade (9) by reason of price and may be disregarded in determining normal value only if the authorities (10) determine that such sales are at prices which do not provide for the recovery of all costs within a reasonable period of time (11). If prices which are below costs at the time of sale are above weighted average costs for the period of investigation, such prices shall be considered to provide for recovery of costs within a reasonable period of time.

2.2.1.1 For the purpose of paragraph 2 of this Article, costs shall normally be calculated on the basis of records kept by the shipbuilder under investigation, provided that such records are in accordance with the generally accepted accounting principles of the exporting country and reasonably reflect the costs associated with the production and sale of the vessel under consideration. Authorities shall consider all available evidence on the proper allocation of costs, including that which is made available by the shipbuilder in the course of the investigation provided that such allocations have been historically utilized by the shipbuilder, in particular in relation to establishing appropriate amortization and depreciation periods and allowances for capital expenditures and other development costs. Unless already reflected in the cost allocations under this subparagraph, costs shall be adjusted appropriately for those non-recurring items of cost which benefit future and/or current production, or for circumstances in which costs during the period of investigation are affected by start-up operations (12).

2.2.2 For the purpose of paragraph 2 of this Article, the amounts for administrative, selling and general costs and for profits shall be based on actual data pertaining to production and sales in the ordinary course of trade of the like vessel by the shipbuilder under investigation. When such amounts cannot be determined on this basis, the amounts may be determined on the basis of:

(i) the actual amounts incurred and realized by the shipbuilder in question in respect of production and sales in the domestic market of the country of origin of the same general category of vessel;

(ii) the weighted average of the actual amounts incurred and realized by other shipbuilders of the country of origin in respect of production and sales of the like vessel in that country's domestic market;

(iii) any other reasonable method (13), provided that the amount for profit so established shall not exceed the profit normally realized by other shipbuilders on sales of vessels of the same general category in the domestic market of the country of origin; and

(iv) the profit added in constructing value shall, in all instances, be based upon the average profit realized over a reasonable period of time (14) prior to and after the sale under investigation and shall reflect a reasonable profit at the time of such sale. In making such calculation, any distortion which would result in other than a profit which is reasonable at the time of the sale shall be eliminated.

2.2.3 In light of the long lead time between contract and delivery of vessels, a normal value shall not include actual costs which are due to extraordinary circumstances (e.g., labour disputes, fire, natural disaster), and which are significantly over the cost increase which the shipbuilder could have reasonably anticipated and taken into account at the time the material terms of sale were fixed (15).

2.3 In cases where there is no export price or where it appears to the authorities concerned that the export price is unreliable because of association or a compensatory arrangement between the shipbuilder and the buyer or a third party, the export price may be constructed on the basis of the price at which the vessels are first resold to an independent buyer, or if the vessels are not resold to an independent buyer, or not resold in the condition as originally sold, on such reasonable basis as the authorities may determine.

2.4 A fair comparison shall be made between the export price and the normal value. This comparison shall be made at the same level of trade, normally at the ex-factory level, and in respect of sales made at as nearly as possible the same time (16). Due allowance shall be made in each case, on its merits, for differences which affect price comparability, including differences in conditions and terms of sale, taxation, levels of trade, quantities, physical characteristics, and any other differences which are also demonstrated to affect price comparability (17). In the cases referred to in paragraph 3 of Article 2, allowances for costs, including duties and taxes, incurred between original sale and resale, and for profits accruing, should also be made. If in these cases, price comparability has been affected, the authorities shall establish the normal value at a level of trade equivalent to the level of trade of the constructed export price, or make due allowance as warranted under this paragraph. The authorities shall indicate to the Parties in question what information is necessary to ensure a fair comparison and shall not impose an unreasonable burden of proof on those Parties.

2.4.1 When the price comparison under this paragraph requires a conversion of currencies, such conversion should be made using the rate of exchange on the date of sale (18), provided that when a sale of foreign currency on forward markets is directly linked to the export sale involved, the rate of exchange in the forward sale shall be used.

2.4.2 Subject to the provisions governing fair comparison in paragraph 4 of this Article, the existence of margins of injurious pricing during the investigation phase shall normally be established on the basis of a comparison of a weighted average normal value with a weighted average of prices of all comparable export transactions or by a comparison of normal value and export prices on a transaction-to-transaction basis. A normal value established on a weighted average basis may be compared to prices of individual export transactions if the authorities find a pattern of export prices which differ significantly among different purchasers, regions or time periods and if an explanation is provided why such differences cannot be taken into account appropriately by the use of a 'weighted average to weighted average' or 'transaction-to-transaction' comparison.

2.5 In the case where vessels are not sold to a buyer of another Party directly from the country of origin but are exported to that other Party from an intermediate country, the price at which the vessels are sold from the country of export to the buyer of that other Party shall normally be compared with the comparable price in the country of export. However, comparison may be made with the price in the country of origin, if, for example, the vessels are merely trans-shipped through the country of export, or such vessels are not produced in the country of export, or there is no comparable price for them in the country of export.

2.6 Throughout this Agreement the term 'like vessel' shall be interpreted to mean a vessel of the same type, purpose and approximate size as the vessel under consideration and posessing characteristics closely resembling those of the vessel under consideration. The term 'same general category of vessel' shall be interpreted to mean a vessel of the same type and purpose, but of a significantly different size. Small differences in size and equipment will not affect the category of the vessel, but may be reflected in appropriate adjustments in calculations and comparisons made under this Code.

2.7 This Article is without prejudice to the second Supplementary Provision to paragraph 1 of the Basic Principles.

Article 3

Determination of injury (19)

3.1 A determination of injury for purposes of this Annex shall be based on positive evidence and involve an objective examination of both (a) the effect of the sale at less than normal value on prices in the domestic market for like vessels, and (b) the consequent impact of that sale on domestic producers of like vessels (20).

3.2 With regard to the effect of the sale at less than normal value on prices, the investigating authorities shall consider whether there has been a significant price undercutting by the sale at less than normal value as compared with the price of like vessels of the buyer's country, or whether the effect of such sale is otherwise to depress prices to a significant degree or prevent price increases, which otherwise would have occurred, to a significant degree. No one or several of these factors can necessarily give decisive guidance.

3.3 Where sales of vessels from more than one country are simultaneously subject to injurious pricing investigations, the investigating authorities may cumulatively assess effects of such sales only if they determine that (a) the margin of injurious pricing etablished in relation to the purchases from each country is more than de minimis as defined in paragraph 8 of Article 5 and that (b) a cumulative assessment of the effects of the sales is appropriate in light of the conditions of competition between vessels sold by shipbuilders of other Parties to its buyers and the conditions of competition between such vessels and the like domestic vessels.

3.4 The examination of the impact of the sale at less than normal value on the domestic industry concerned shall include an evaluation of all relevant economic factors and indices having a bearing on the state of the industry, including actual and potential decline in sales, profits, output, market share, productivity, return on investments, or utilization of capacity; factors affecting domestic prices; the magnitude of the margin of injurious pricing; actual and potential negative effects on cash flow, inventories, employment, wages, growth, ability to raise capital or investments. This list is not exhaustive, nor can one or several of these factors necessarily give decisive guidance.

3.5 It must be demonstrated that the sale at less than normal value is, through the effects of the sale at less than normal value, as set forth in paragraphs 2 and 4 of this Article, causing or has caused injury within the meaning of this Agreement. The demonstration of a causal relationship between the sale at less than normal value and the injury to the domestic industry shall be based on an examinaton of all relevant evidence before the authorities. The authorities shall also examine any known factors other than the sale at less than normal value which at the same time are injuring the domestic industry, and the injuries caused by these other factors must not be attributed to the sale at less than normal value. Factors which may be relevant in this respect include, inter alia, the volume and prices of sales by shipbuilders of other Parties to buyers of the investigating Party not sold at less than normal value, contraction in demand or changes in the patterns of consumption, trade restrictive practices of and competition between the foreign and domestic producers, developments in technology and the export performance and productivity of the domestic industry.

3.6 The effect of the sale at less than normal value shall be assessed in relation to the domestic production of the like product when available data permit the separate identification of that production on the basis of such criteria as the production process, producers' sales and profits. If such separate identification of that production is not possible, the effects of the sale at less than normal value shall be assessed by the examination of the production of the narrowest group or range of products, which includes the like product, for which the necessary information can be provided.

3.7 A determination of a threat of material injury shall be based on facts and not merely on allegation, conjecture or remote possibility. The change in circumstances which would create a situation in which the sale at less than normal value would cause injury must be clearly foreseen and imminent (21). In making a determination regarding the existence of a threat of material injury, the authorities should consider, inter alia, such factors as:

(i) sufficient freely disposable or an imminent, substantial increase in capacity of the exporter indicating the likelihood of substantially increased sale at less than normal value to the market of the buyer's country, taking into account the availability of other export markets to absorb any additional exports; and

(ii) whether vessels are being exported to the domestic market at prices that will have a significant depressing or suppressing effect on domestic prices, and would likely increase demand for further purchases from other countries.

No one of these factors by itself can necessarily give decisive guidance but the totality of the factors considered must lead to the conclusion that further sale at less than normal value are imminent and that, unless protective action is taken, material injury would occur.

3.8 With respect to cases where injury is threatened by sale at less than normal value, the application of injurious pricing measures shall be considered and decided with special care.

Article 4

Definition of domestic industry

4.1 For the purposes of this Agreement, the term 'domestic industry' shall be interpreted as referring to the domestic producers (22) as a whole of the like vessels or to those of them whose collective capability to produce a like vessel constitutes a major proportion of the total domestic capability to produce a like vessel, except that when producers are related (23) to the exporters or domestic buyers or are themselves domestic buyers of the allegedly injuriously priced vessel, the term 'domestic industry' may be interpreted as referring to the rest of the producers.

4.2 Where two or more countries have reached under the provisions of paragraph 8 (a) of Article XXIV of the GATT 1994 such a level of integration that they have the characteristics of a single, unified market, the industry in the entire area of integration shall be taken to be the domestic industry referred to in paragraph 1 of this Article.

Article 5

Initiation and subsequent investigation

5.1 Except as provided for in paragraph 6 of this Article, an investigation to determine the existence, degree and effect of any alleged injurious pricing shall be initiated upon a written application by or on behalf of the domestic industry.

5.2 An application pursuant to paragraph 1 of this Article shall be filed not later than six months from the time that the applicant knew or should have known of the sale of the vessel (24) in a case falling under subparagraph d (i) or d (ii); nine months from that time in a case falling under subparagraph d (iii), provided that a notice of intent to apply (25) had been filed no later than six months from that time; but in any event no later than six months from its delivery. The application shall include evidence:

(a) of injurious pricing (26);

(b) of injury within the meaning of this annex;

(c) of a causal link between the injuriously priced sale and the alleged injury; and

(d) (i) that, if the vessel was sold through a broad multiple bid (27), the applicant was invited to tender a bid on the contract at issue, it actually did so, and the bid of the applicant substantially met bid specifications (i.e., delivery date and technical requirements); or

(ii) that, if the vessel was sold through any other bidding process and the applicant was invited to tender a bid on the contract at issue, it actually did so, and the bid of the applicant substantially met bid specifications; or

(iii) that, in the absence of an invitation to tender a bid other than under a broad multiple bid, the applicant was capable of building the vessel concerned and, if the applicant knew or should have known of the proposed purchase (28), it made demonstrable efforts to conclude a sale with the buyer consistent with the bid specifications in question.

Simple assertion, unsubstantiated by relevant evidence, cannot be considered sufficient to met the requirements of this paragraph. The application shall contain such information as is reasonably available to the applicant on the following:

(i) the identity of the applicant and a description of the volume and value of the domestic production of the like vessel by the applicant. Where a written application is made on behalf of the domestic industry, the application shall identify the industry on behalf of which the application is made by a list of all known domestic producers of the like vessel and, to the extent possible, a description of the volume and value of domestic production of the like vessel accounted for by such producers;

(ii) a complete description of the allegedly injuriously priced vessel, the name of the country or countries of origin or export in question, the identity of each known exporter or foreign producer and the identity of the buyer of the vessel in question who is a company or national of the investigating Party;

(iii) prices at which such vessels are sold in the domestic market of the country of origin or export (or, where appropriate, information on the prices at which such vessels are sold from the country of origin or export to a third country or countries or on the constructed value of the vessel) and information on export prices or, where appropriate, on the prices at which such vessels are first resold to an independent buyer of the other country;

(iv) the effect of the allegedly injuriously priced sale on prices of the like vessel in the domestic market and the consequent impact of the sale on the domestic industry, as demonstrated by relevant factors and indices having a bearing on the state of the domestic industry, such as those listed in paragraphs 2 and 4 of Article 3.

5.3 The authorities shall examine the accuracy and adequacy of the evidence provided in the application to determine whether there is sufficient evidence to justify the initiation of an investigation.

5.4 An investigation shall not be initiated pursuant to paragraph 1 of this Article unless the authorities have determined, on the basis of an examination of the degree of support for, or opposition to, the application expressed by domestic producers of the like vessel, that the application has been made by or on behalf of the domestic industry (29). The application shall be considered to have been made 'by or on behalf of the domestic industry' if it is supported by those domestic producers whose collective capacity to produce the like vessel constitutes more than 50 % of the total capacity to produce the like vessel of that portion of the domestic industry expressing either support for or opposition to the application. However, no investigation shall be initiated when domestic producers expressly supporting the application account for less than 25 % of total capacity of the domestic producers capable of producing the like vessel.

5.5 The authorities shall avoid, unless a decision has been made to initiate an investigation, any publicising of the application for the initiation of an investigation. However, before proceeding to initiate an investigation, whether upon application or upon decision of the authority to initiate an investigation under paragraph 6, the authorities shall notify the government of the exporting country concerned.

5.6 If in special circumstances, the authorities concerned decide to initiate an investigation without having received a written application by or on behalf of a domestic industry for the initiation of such investigation, they shall proceed only if they have sufficient evidence of injurious pricing, injury, a causal link, and that a member of the allegedly injured domestic industry met the criteria of paragraph 2 (d) of this Article, to justify the initiation of an investigation.

5.7 The evidence of both injurious pricing and injury shall be considered simultaneously (a) in the decision whether or not to initiate an investigation, and (b) thereafter, during the course of the investigation.

5.8 An application pursuant to paragraph 1 of this Article shall be rejected and an investigation shall be terminated promptly as soon as the authorities concerned are satisfied that there is not sufficient evidence of either injurious pricing or of injury to justify proceeding with the case. There shall be immediate termination in cases where the authorities determine that the margin of injurious pricing is de minimis or the injury is negligible. The margin of injurious pricing shall be considered to be de minimis if this margin is less than 2 %, expressed as a percentage of the export price.

5.9 A final decision on initiation will be taken no later than 45 days following an application and, in case of initiation without application, no later than six months from the time the investigating authority knew or should have known of the sale of the vessel. For cases involving price to price comparison, where a like vessel has been delivered, investigations must be completed no later than one year from the date of initiation. For cases in which the like vessel is under construction, investigation will end no later than one year from delivery of that like vessel. Investigations involving constructed value shall be concluded within one year after their initiation or within one year of delivery of the vessel, whichever is later.

Article 6

Evidence

6.1 All interested Parties in an injurious pricing investigation shall be given notice of the information which the authorities require and ample opportunity to present in writing all evidence which they consider relevant (30) in respect of the investigation in question.

6.1.1 Exporters or foreign producers receiving questionnaires used in an injurious pricing investigation shall be given at least 30 days for reply (31). Due consideration should be given to any request for an extension of the 30 day period and, upon cause shown, such an extension should be granted whenever practicable.

6.1.2 Subject to the requirement to protect confidential information, evidence presented in writing by one interested Party shall be made available promptly to other interested Parties participating in the investigation.

6.1.3 As soon as an investigation has been initiated, the authorities shall provide the full text of the written application received under paragraph 1 of Article 5 to the exporter and to the authorities of the exporting country and make it available, upon request, to other interested Parties involved. Due regard shall be paid to the requirement for the protection of confidential information as provided for in paragraph 5 of this Article.

6.2 Throughout the injurious pricing investigation all interested Parties shall have a full opportunity for the defence of their interests. To this end, the authorities shall, on request, provide opportunities for all interested Parties to meet those Parties with adverse interests, so that opposing views may be presented and rebuttal arguments offered. Provision of such opportunities must take account of the need to preserve confidentiality and of the convenience to the Parties. There shall be no obligation on any Party to attend a meeting, and failure to do so shall not be prejudicial to that Party's case. Interested Parties shall also have the right, on justification, to present other information orally.

6.3 Oral information provided under paragraph 2 of this Article shall be taken into account by the authorities only in so far as it is subsequently reproduced in writing and made available to other interested Parties, as provided for in subparagraph 6.1.2 of this Article.

6.4 The authorities shall whenever practicable provide timely opportunities for all interested Parties to see all information that is relevant to the presentation of their cases, that is not confidential as defined in paragraph 6.5 and that is used by the authorities in an injurious pricing investigation, and to prepare presentations on the basis of this information.

6.5 Any information which is by nature confidential (for example, because its disclosure would be of significant competitive advantage to a competitor or because its disclosure would have a significantly adverse effect upon a person supplying the information or upon a person from whom he acquired the information) or which is provided on a confidential basis by Parties to an investigation shall, upon good cause shown, be treated as such by the authorities. Such information shall not be disclosed without specific permission of the Party submitting it (32).

6.5.1 The authorities shall require interested Parties providing confidential information to furnish non-confidential summaries thereof. These summaries shall be in sufficient detail to permit a reasonable understanding of the substance of the information submitted in confidence. In exceptional circumstances, such Parties may indicate that such information is not susceptible of summary. In such exceptional circumstances, a statement of the reasons why summarization is not possible must be provided.

6.5.2 If the authorities find that a request for confidentiality is not warranted and if the supplier of the information is either unwilling to make the information public or to authorize its disclosure in generalized or summary form, the authorities may disregard such information unless it can be demonstrated to their satisfaction from appropriate sources that the information is correct (33).

6.6 Except in circumstances provided for in paragraph 8 of this Article, the authorities shall during the course of an investigation satisfy themselves as to the accuracy of the information supplied by interested Parties upon which their findings are based.

6.7 In order to verify information provided or to obtain further details, the authorities may carry out investigations in other countries as required, provided they obtain the agreement of the firms concerned and provided they notify the representatives of the government of the country in question and unless the latter object to the investigation. The procedures described in Addendum I shall apply to verifications carried out in exporting countries. The authorities shall, subject to the requirement to protect confidential information, make the results of any verifications available or provide disclosure thereof pursuant to paragraph 9 of this Article, to the firms to which they pertain and may make such results available to the applicants.

6.8 In cases in which any interested Party refuses access to, or otherwise does not provide, necessary information within a reasonable period or significantly impedes the investigation, determinations, affirmative or negative, may be made on the basis of the facts available. The provisions of Addendum II shall be observed in the application of this paragraph.

6.9 The authorities shall, before a final determination is made, inform all interested Parties of the essential facts under consideration which form the basis for the decision whether to apply the definitive measures. Such disclosure should take place in sufficient time for the Parties to defend their interests.

6.10 For the purposes of this Agreement, 'interested Parties' shall include:

(i) an exporter or foreign producer or the buyer of a vessel subject to investigation, or a trade or business association a majority of the members of which are producers, exporters or domestic buyers of such vessels;

(ii) the government of the exporting country; and

(iii) a producer of the like vessel in the investigating country or a trade or business association a majority of the members of which produce the like vessel in the investigating country.

This list shall not preclude the investigating Party from allowing domestic or foreign parties other than those mentioned above to be included as interested Parties.

6.11 The authorities shall provide opportunities for buyers (34) of the vessel unde