WRITTEN QUESTION E-0453/99

by Honório Novo (GUE/NGL) to the Commission

(5 March 1999)

Subject: Korean financial crisis and knock-on effects on Community shipbuilding

In its answer of 23 February 1998(1) to Written Question P-0134/98, the Commission expressed disquiet regarding the possible knock-on effects of the financial crisis in Asia on the shipbuilding industry. The Commission added that "the International Monetary Fund (IMF) plan which Korea has accepted, provides only for financial aid to stave off collapse of the financial and banking system and in no way provides for any allocation of funds to sectors of industry (...). The structural reforms demanded by the IMF, and the drastic conditions imposed (...) will undoubtedly preclude any repetition of the mistakes which encouraged Korean shipyards into ill-considered investments in capacity (...)".

Nevertheless, in the course of 1998 it became clear that, in contrast to the Commission's assertions in the answer quoted above, Korean financial and banking institutions have cancelled the enormous debts facing shipyards in that country and/or have provided guarantees in order to aid the renewed utilisation of over-capacity in the Korean shipbuilding industry.

This enabled Korea to attract a 30 % slice of new orders, chiefly owing to the marked distortion of global price levels in the sector. Korea's increase in shipbuilding capacity may have irreparable consequences for the Community shipbuilding industry.

Can the Commission provide the following information:

1. What action is it taking or will it take to assess the impact of Korea's industrial and trade policy on the Community shipbuilding industry?

2. Does the Commission consider that the current rules governing the Community shipbuilding industry will enable European shipyards to face up to this new Korean offensive? If not, what changes to these rules will the Commission propose?

3. What other comprehensive measures will the Commission propose to protect the European shipbuilding industry and guarantee fair competition at world level?

Answer given by Sir Leon Brittan on behalf of the Commission

(27 April 1999)

As it pointed out in its answers to written questions E-134/98 (Mr Jarzembowski)(2) and E-265/99 (Mr Cabezon Alonso)(3), the Commission's view is that the IMF aid is not directed towards any particular sector of industry, including shipbuilding.

The export guarantee systems to which the Honourable Member refers are normal practice and exist in the Community as well They do not, as such, constitute illegal aid. According to information supplied by the Korean authorities the guarantees were provided on a commercial basis and in accordance with market rules, while the cancellation of debt followed on from court rulings under domestic bankruptcy law, with the agreement of creditors, again on the basis of purely commercial considerations.

The Commission closely monitors the exact terms and conditions of these arrangements to ensure that they are compatible with international rules, and together with the Member States is also keeping a close watch on the implementation of the reforms called for by the IMF. However, we would point out that the supervisory responsibility lies with the IMF, not the Commission.

The impact of the devaluation of the won on world ship prices is likely to fade as the currency regains strength, leading to a recovery.

Failing agreement by the OECD the current regulation on aid to shipbuilding is designed to enhance the competitiveness of the Community industry and enable it to cope with international competition. Production aid is to continue until end 2000 at the 9 % ceiling; this should also help the industry gear up to a more competitive environment. At the end of 1999 the Commission will be reporting to the Council on the situation of the world shipbuilding industry, however, and if European shipyards are found to be affected by unfair practices it will propose any necessary measures.

The restoration of fair competition at world level is hampered by the fact that the OECD agreement has not been put into effect and has not been ratified by the United States. The United States is not a major player in this sector and one possibility would have been to apply the agreement on a four-party basis, without US participation. At the moment, however, neither the European industry nor certain Member States are willing to provide the necessary backing for this approach.

Despite this the Commission is still working to secure international disciplines in this sector. In the meantime it is ready to consider anti-subsidy complaints from the European industry or to deploy commercial policy instruments to counter unfair trade practices if sufficient evidence is provided.

(1) OJ C 304, 2.10.1998, p. 36.

(2) OJ C 304, 2.10.1998.

(3) OJ C 341, 29.11.1999, p. 77.