WRITTEN QUESTION P-3573/98

by Georg Jarzembowski (PPE) to the Commission

(18 November 1998)

Subject: Distortions in competition caused by South Korean shipyards

European shipyards are suffering from aggressive canvassing by the South Korean shipyards for orders for new ships. Some of the orders for new ships being taken by South Korea are at prices which do not even cover the cost of materials. They are able to do this only because the South Korean Government is using the loans granted by the International Monetary Fund to subsidize, directly or indirectly, the South Korean shipyards.

This conduct on the part of the South Korean Government and South Korean shipyards is causing intolerable distortions of the world-wide competition for shipbuilding orders at the expense of European shipyards and making a mockery of the aid provided by the Member States of the European Union through the International Monetary Fund.

1. What specific knowledge does the Commission have of this conduct on the part of the South Korean Government and the South Korean shipyards?

2. What is the Commission's attitude to this situation and its effects on the European shipbuilding industry?

3. What action has the Commission already taken to put an end to these distortions of competition so as to protect the European shipbuilding industry, and what action does it intend to take in the future?

4. How and with what aim does the Commission intend to persuade the EU Member States to exert their influence through the International Monetary Fund to make the South Korean Government cease this practice and dissuade the South Korean shipyards from pursuing their current sales promotion policy?

Answer given by Sir Leon Brittan on behalf of the Commission

(14 December 1998)

The Commission is closely following developments in the financial crisis in Korea and its impact on the European shipbuilding sector. On a recent trip to Korea the competent member of the Commission reiterated that the conglomerates to which Korean shipyards are linked should under no circumstances receive priority treatment by the public authorities.

Although the Commission has no conclusive information to the effect that Korea has not fulfilled its obligations under international rules, it remains vigilant as to the use of financial aid granted by international institutions.

The Commission has initiated a number of bilateral measures with Korea. At the ministerial meeting with Korea in October the Commission raised a number of questions concerning restructuring of the sector, the aid granted by Korea Eximbank for ship exports and allegations of local grants to shipyard sub-contractors. Korea gave details and promised to provide further information.

As to the situation on the world market, the European shipbuilding industry temporarily improved its position in relation to its main competitors, recording 60 % more orders for the first 9 months of 1998 than for the same period in 1997. At the same time Korean shipyards, despite the devaluation of the Won, received 28 % less orders than in the previous year. However, these figures should be interpreted with the utmost caution because they represent only part of the year. Also a substantial proportion of European orders for this period (40 % in compensated gross tonnes (cgt)) concerned liners, for which only 4 shipyards are contractors. Since summer 1998 the Koreans, with a very low price policy, are regaining the exceptional level of orders achieved in 1997 and this is having a negative impact on other shipyards and other types of ships (containers).

At the Industry Council on 16 November 1998, the Commission member responsible for industrial affairs presented a report on the matter and on the action taken by the Commission. He gave a critical analysis of Korean practices and their impact on the global market. Supported by the Council on the need to take action to halt unfair competition, he proposed that the Member States use their influence in the International Monetary Fund (IMF) to ensure that Korea complies with the conditions imposed in return for international aid.