WRITTEN QUESTION E-0240/02

by Charles Tannock (PPE-DE) to the Commission

(6 February 2002)

Subject: Korean shipbuilding subsidies and the W.T.O.

When it became apparent to the Commission that the Korean government was maintaining its sizeable share of the world shipbuilding market through subsidies that contravened World Trade Organisation (W.T.O.) rules why did the Commission not lodge a complaint as soon as possible with the W.T.O. rather than waiting months before suggesting that the response should be to permit shipbuilders in certain Member States to engage in similar behaviour? Does the Commission not believe that the appropriate response to a violation of W.T.O. rules should be to proceed according to the accepted procedures, and does the Commission not accept that its current proposals in this area would violate both our W.T.O. obligations and the European Union's own internal competition requirements?

Answer given by Mr Lamy on behalf of the Commission

(13 March 2002)

In its report under the Trade Barriers Regulation (Council Regulation (EC) No 3286/94 of 22 December 1994 laying down Community procedures in the field of the common commercial policy in order to ensure the exercise of the Community's rights under international trade rules, in particular those established under the auspices of the World Trade Organisation(1)), on Korean shipbuilding practice the Commission found that Korean shipyards increased their market share in most segments of the world shipbuilding market from 1997 to November 2000, causing considerable injury to Community shipyards in certain segments. The Commission also found that

certain Korean yards had received subsidies that contravened World Trade organisation (WTO) rules. Therefore the Commission considered a double response to be necessary. Accordingly, in 2001, it prepared to start a WTO Complaint and proposed a Temporary Defensive Mechanism for shipbuilding. These two elements cannot be disassociated, as the Temporary Defensive Mechanism cannot become effective until the Commission starts the WTO action against Korea.

The Commission believes that the proposal for a Temporary Defensive Mechanism is fully compatible with WTO law and the WTO Agreement on Subsidies and Countervailing Measures (ASCM) and the WTO Anti-dumping Agreement (ADA). Subsidies, provided that they are not prohibited (i.e. export-contingent or local content-contingent) within the meaning of Article 3 of the ASCM and are not demonstrated to cause adverse effects within the meaning of Article 5 of the ASCM, are legitimate national policy instruments so far as the WTO is concerned. Thus, under the WTO rules, the Community has the right to authorise aid to its shipbuilding industry and did so for many years until 31 December 2000. The proposed Temporary Defensive Mechanism neither imposes conditions so as to render it prohibited, nor can it be deemed to cause adverse effects to third countries. Any claims of WTO incompatibility of the aid as such are therefore groundless.

Furthermore, the proposed measures are not sanctions in the sense of the Dispute settlement procedure, but permitted policy measures and therefore the recourse to Dispute Settlement can in no way be seen as limiting the normal rights and obligations of Members under the WTO agreement, including the right to provide WTO compatible aid.

Of course the Commission accepts that the appropriate response to a violation of WTO rules should be to follow the appropriate WTO procedures. That is, indeed, what the Commission intends to do. However, the WTO dispute settlement procedures are lengthy. In addition, the Union must show that it has the capacity of dissuasion if it wishes to arrive at an agreement with Korea. In this respect, the proposed Temporary Defensive Mechanism could keep the pressure on Korean shipyards.

At this stage, the Commission can only confirm, in accordance with its twin-track strategy, that the complaint to the WTO will be introduced immediately, if the Council adopts the Temporary Defensive Mechanism.

(1) OJ L 349, 31.12.1994.