WRITTEN QUESTION P-1181/02

by Karin Riis-Jørgensen (ELDR) to the Commission

(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 Commission abandon its inaction and ensure that the matter can at last be dealt with by the WTO?

Answer given by Mr Lamy on behalf of the Commission

(5 June 2002)

Following a complaint lodged on 24 October 2000 by the Committee of the Union Shipbuilders' Associations (CESA) against subsidies granted to Korean shipbuilding companies in alleged violation of Articles 3 and 5 of the World Trade Organisation (WTO) Agreement on Subsidies and Countervailing Measures, the Commission initiated an investigation under the Trade Barriers Regulation (TBR), 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). This investigation showed that Korea has granted substantial amounts of subsidies and that there was evidence that the subsidies in question were causing adverse effects to Community industry. On the basis of the conclusions of this first TBR Report, the Commission proposed to Member States to assist Community shipyards in those segments that have been considerably injured by unfair Korean competition via a temporary defense mechanism (TDM). The Commission's proposal was limited to those sectors of vessels for which material injury and serious prejudice had been found. Moreover, the Commission announced to Member States that it would not initiate a WTO action against Korean subsidies in the WTO unless Member States approved the TDM. Early December 2001, the Council did not take a decision on the proposal tabled by the Commission.

In November 2001, CESA requested the Commission to update the first TBR Report, so as to examine whether adverse effects had been suffered by the Community industry during the period covering the 13 months (i.e. 1 December 2000 to 31 December 2001) following the end of the original period considered. Accordingly, the Commission carried out a supplementary investigation, the findings of which will be discussed by the Member States at the TBR Committee of 29 May 2002.

At this stage, the Commission can only confirm that, following consultation of the TBR Committee, it will be in a position to take a decision under the Trade Barriers Regulation on whether to proceed with a complaint to the WTO as soon as the Council adopts the Temporary Defensive Mechanism, in accordance with its twin-track strategy.

(1) OJ L 349, 31.12.1994.