WRITTEN QUESTION P-0134/98 by Georg Jarzembowski (PPE) to the Commission (23 January 1998)

Subject: Shipbuilding industry

The European shipbuilding industry faces fierce competition. Widespread subsidy schemes have distorted the international market and resulted in over-capacity throughout the world. The 1994 OECD agreement seeking to produce uniform conditions for competition has yet to be ratified by the USA. While support measures for the shipbuilding industry in the EU have nevertheless rightly been restructured, with order-related subsidies in particular to be completely abolished, Far East yards are still receiving massive subsidies which are distorting competition. After the collapse of the financial markets in East Asia the provision of billions in IMF aid seems likely to preserve this overcapacity and hence the distortions of competition.

1. Has the Commission therefore investigated the extent to which funds put up by the IMF are being passed on even to the State-aided shipbuilding industry in South Korea, the world market leader? If it has, what has it discovered? If it has not, why not, and will it now do so?

2. Has the Commission held talks with the Member States to ensure that they are not, by their indirect aid via IMF payments and the support the latter are giving to South Korean yards, undermining the European shipbuilding policy, which seeks to create a competitive European shipbuilding industry?

Answer given by Sir Leon Brittan on behalf of the Commission (23 February 1998)

At the request of the Council, and having regard to the possibility of a delay in or failure of the entry into force of the Organisation for Economic Cooperation and Development (OECD) agreement because the United States' fails to ratify it, the Commission put up a proposal for a new aid scheme for the industry in order to make European shipbuilding competitive in the future and prepare it for the challenges of the new millennium.

The Commission is concurrently carrying on with its attempts to persuade the United States to ratify the OECD agreement, with the application of which is the main objective of the Community.

Regarding the financial crisis in Asia, and its possible knock-on effects on the Korean shipbuilding industry, the Commission shares the Honourable Member's disquiet and in collaboration with Member States is watching for any impact on the Community industry.

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. Quite the reverse: the IMF authorities have pointed out that in no case should aid be used to save businesses in trouble. The structural reforms demanded by the IMF, and the drastic conditions imposed in terms of the prudential rules for lending by Korean banks, will undoubtedly preclude any repetition of the mistakes which encouraged Korean shipyards into ill-considered investments in capacity and caused some of them to become insolvent.

In the course of the debate in the Council about future aid arrangements the Korean question was discussed at length, as were the risks to the Community industry resulting from devaluation of the won. Member States which are members of the IMF, and as such can affect its decisions, are fully aware of their duty to be vigilant in this field.

For its part the Commission, which is not a member of the IMF, nevertheless keeps a careful eye on how the situation is developing. It will undoubtedly bring to the attention of the Council the risks of any use of aid which would be against the interests of the Community, particularly in shipbuilding. If necessary it could propose that Member States adopt a common position on this matter which would be forwarded to the IMF leadership with a view to forestalling this danger.