WRITTEN QUESTION P-1180/02

by Piia-Noora Kauppi (PPE-DE) to the Council

(17 April 2002)

Subject: South Korea's distortion of the shipbuilding market: referral to the WTO

South Korea has long been distorting competition on the shipbuilding market by pricing its vessels below their real cost. The European Union and South Korea have held talks with a view to bringing about healthy competition on the shipbuilding market, but to no avail.

Disagreements over international competition issues are dealt with in the appropriate dispute settlement bodies of the World Trade Organisation (WTO). Both the Union Member States and South Korea belong to the WTO.

Because the above negotiations ended in summer 2000 without levelling the playing field, the Member States meeting within the Council in December 2000 unanimously agreed that the EU should complain to the WTO because South Korea was breaching its obligations regarding support for ship exports.

Parliament also supported that view in its report on the second report from the Commission to the Council on the situation in world shipbuilding (A5-0371/2000), in which it [called] on the Commission to initiate a dispute settlement procedure with the Republic of Korea before the World Trade Organisation (WTO).

In spite of these facts, the Commission has still not referred the matter to the WTO dispute settlement body.

Instead it has, totally artificially and with no solid legal justification, linked the start of a proper WTO dispute settlement procedure to its proposal for a regulation which stipulates that limited production aid to individual European shipyards could be temporarily allowed, while the WTO procedure was taking place, so as to counterbalance South Korea's action. Differences of opinion among the Member States as to the legitimacy and rationality of production aid have made it impossible to bring the proposal for a regulation into force.

The South Korean Government has said that South Korea is aiming to build even bigger ships, especially cruise liners, and still does not consider its aid policy to have been in any way wrong or contrary to international agreements.

From the point of view of the European shipbuilding industry the situation is completely intolerable. When will the Council urge the Commission to abandon its inaction and ensure that the matter can at last be dealt with by the WTO?

Reply

(19 December 2002)

1. Since 1999 the Council has repeatedly voiced its serious concern at the critical situation facing the shipbuilding industry, attributable mainly to overcapacity in the sector and to the unfair practices of South Korean shipyards on the world market.

In May 2000 the Council called on the Commission to engage Korea in negotiations, which led to the conclusion, on 19 June 2000, of agreed minutes.

2. However, since its meeting on 4 and 5 December 2000, the Council, noting the failure of Korea to comply with the terms of the agreed minutes, has called on the Commission to envisage the implementation of all measures against Korea under procedures approved by international bodies, and to examine swiftly the complaint lodged with the WTO by European operators under the TBR procedure.

At that meeting the Council also welcomed the Commission's determination to support and adopt trade measures against unfair competition by Korea, and asked it to report back to the Council by 1 May 2001 at the latest and to fulfil its obligations under Article 12 of Council Regulation (EC) No 1540/98 of 29 June 1998. Finally, it took note of the Commission initiative, failing a satisfactory agreement, to put in place a temporary and appropriate mechanism intended to counter Korea's unfair practices, pending conclusion of the procedure under way before the WTO.

3. At its meeting on 14 and 15 May 2001, the Council reiterated its position by taking note of the Commission's intention as set out in its decision of 8 May 2001 to propose an appropriate temporary support mechanism, and by strongly supporting the Commission's intention as set out in the same decision to launch a WTO procedure if a solution is not achieved with Korea by 30 June 2001.

4. The Commission having forwarded a proposal for a Council Regulation to establish a temporary defensive mechanism to assist the Community shipbuilding industry to the Council on 30 July 2001, the Council established following its discussions on 5 December 2001 that it was not in a position at that point to obtain the necessary qualified majority on the proposal.

Moreover, the Commission was also asked to consider the elements of a strategy to remedy the specific problems encountered by the shipbuilding sector. The Council agreed to return to the dossier at a future meeting.

5. At its meeting on 6 and 7 June 2002, the Council instructed Coreper to finalise a solution on the basis of the Council's discussions. Following these proceedings, on 27 June 2002 the Council adopted, by a qualified majority, a Regulation setting up a temporary defensive mechanism for the Community shipbuilding industry in order to counter the Republic of Korea's unfair commercial practices on the world shipbuilding markets; the Danish, Netherlands, Finnish, Swedish and United Kingdom delegations voted against the Regulation. The Regulation will apply as long as necessary until the conclusion of dispute-settlement proceedings initiated against Korea at the World Trade Organisation and will expire on 31 March 2004. It is restricted to market segments where it has been shown that unfair commercial practices have caused direct damage to the Community shipbuilding industry. The conditions for the authorisation of the temporary defensive mechanism are stated in recital 7 of the Regulation(1).

6. In the context of the solution referred to in the previous paragraph, the Commission was given a mandate to find a solution with Korea by 30 September 2002. Meetings with Korea in August and September 2002 ended in failure, and so the Council, at its meeting on 30 September 2002, took note, on the basis of a statement by the Commission representative, of the negative outcome of the negotiations between the Commission and the Korean authorities and of the measures to be taken in this area.

(1) OJ L 172, 2.7.2002, p. 1 et seq.