Agreed Minutes between the European Community and the Government of the Republic of Korea relating to the world shipbuilding market
Date: 2000-06-22
Institutions: European Community, South Korea
Subjects: South Korea, agreement (EU), free competition, international market, shipbuilding

28.6.2000

EN

Official Journal of the European Communities

L 155/49

AGREED MINUTES

between the European Community and the Government of the Republic of Korea relating to the
world shipbuilding market

1. The Commission of the European Communities and the Government of the Republic of Korea held
talks on 15 March 2000 to address current problems relating to the world shipbuilding market and
with a view to promoting stability and fair competition. Both sides recognised that
the world
shipbuilding market is characterised by significant overcapacity and steadily decreasing prices, not
allowing a sustainable development of the industry.

2. The European Community and Korea being the main players in the shipbuilding market,

their
respective authorities have a special obligation to work together and with other shipbuilding nations to
ensure that fair competition prevails on all markets.

3. Both sides expect that the achievement of the following objectives will contribute in a major way to
restoring normal competitive conditions on the market, and to providing for an effective means of
protection against sales of ships at price below cost.

4. Both sides will work together with a view to reducing the unsustainable prevailing imbalance between
supply and demand. They will invite the other shipbuilding countries to support these efforts. By firmly
committing themselves to fair competition, both parties will avoid financially non-viable over-invest-
ments and ruinous price undercutting. Both sides should make all efforts, either on an individual basis
or jointly, to help improve and stabilise the market situation.

5. The aim of both sides is to promote fair and competitive market conditions in the world market and to
work together to stabilise the market and thereby help raise the level of ship prices to ones that are
commercially sustainable.

(1) Action by public authorities in respect of shipyards in

The Korean Government confirms that:

financial difficulties

Both sides agree that all financial institutions shall conduct
their business with shipbuilders in a commercially sound
manner.

In that respect, the Korean Government will continue to
supervise strictly the asset soundness of the financial insti-
tutions.

In line with the Korean Government's policy of non-inter-
vention, and conscious of the imbalance in world ship-
building markets, the Korean authorities will ensure, in the
context of bank supervision,
that banks in which the
Korean Government has a shareholding or private banks
acting on its behalf will only extend new loans, write off or
roll over existing loans or provide any type of support on a
commercial basis. The Korean Government confirms that it
will not provide these financial
institutions with public
support for the purpose of covering losses resulting from
their business relations with any specific enterprise or
industry.

— It will not extend support to its shipbuilders which is
inconsistent with Korea's international obligations,

— The management takeover of Samho by Hyundai will
not be accompanied by publicly supported debt restruc-
turing and/or moratoria operations.

While under government ownership Korean banks will,
when dealing with shipbuilding companies, be operated on
a fully commercial basis. The Korean Government will not
be involved in the day-to-day management. Public banks
will grant no favourable repayment guarantees for ship-
building contracts entered into by shipyards in financial
difficulties or under court receivership. Further to that, the
conditions
the
repayment guarantees
substantial commercial risk stemming from the shipyards'
precarious situation.

reflect

shall

for

(2) Transparency

Both sides consider that the application of internationally
accepted accounting principles will ensure that sound
financial management governs shipbuilding companies and
their creditors.

The Korean Government agrees
that KAMCO should
purchase bad loans related to shipyards at prices that reflect
actual and expected recovery rates as well as funding costs,
and at minimal prices for unsecured loans.

Strict risk assessment and provisioning rules are to be
enforced even if these transparency rules unveil further
burdens to the corporate and the banking sectors.

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EN

Official Journal of the European Communities

28.6.2000

In accordance with its transparency commitments to the
IMF and the World Bank, the Korean Government revised
its accounting standards in December 1998, which took
effect beginning 1 January 1999. The Korean Government
will make sure that internationally accepted accounting
principles are and will continue to be fully applied to the
shipbuilding companies.

(3) The pursuit of commercially viable pricing practices

Both sides recognise that injurious pricing of ships should
be remedied or prevented to ensure normal competitive
conditions in the world shipbuilding market.

In this regard, the Korean Government agrees that the level
of ship prices shall reflect all the factors of costs according
to the definition of a normal value under the WTO anti-
dumping Agreement.

(4) Cooperation between the two shipbuilding industries

Both sides encourage their shipbuilding industries to coop-
erate closely with each other to ensure normal competitive
conditions in the world shipbuilding market. Both sides
will support their shipbuilders to strengthen their ties with
each other in the field of technology, procurement and
business activity as well as multilateral activities on ship-
building.

(5) Consultations

Both sides agree to meet every six months at least to review
the operation of these Agreed Minutes to discuss policies
and measures relating to shipbuilding during this period.
Such matters may include, but are not limited to supply

and demand, capacity, price levels, government support
and ways and means to improve the current situation in
the shipbuilding market. Both sides agree that, in order to
review the operation of these Agreed Minutes, the first
meeting shall be held no later than September 2000.

Both sides agree to have ad hoc consultations at the request
of any party to discuss general and specific questions
relating to the matters covered by the present Agreed
Minutes, with a view to reaching a mutually acceptable
solution to any issue. These ad hoc consultations will take
place within four weeks of request of either party. The
parties will,
in general, aim to conclude these ad hoc
consultations within 60 days.

resolving problems through consultations.

Both sides agree on the necessity to have as complete as
possible a view of the facts, both to reduce the risk of
problems arising in the future and to increase the poss-
ibility of
If
proposed by either side, technical experts will be invited to
seek all relevant
information and provide an objective
analysis thereof. The parties will appoint their respective
experts within two weeks of a request to hold ad hoc
consultations. The parties will, from the outset of such
inform their respective industries and all
consultations,
interested parties of both sides, including, if relevant, finan-
cial institutions, of the problems identified by either party.

(6) These Agreed Minutes are without prejudice to existing
rights and obligations under the WTO Agreement.

These Agreed Minutes will enter into force on the date of
signature.

On behalf of the Council of the European Union

For the Government of the Republic of Korea