WRITTEN QUESTION E-2358/02 by Charles Tannock (PPE-DE) to the Commission. Korean shipbuilding subsidies and the Commission's failure to refer the matter to the WTO.
Date: 2002-08-02
Institutions: European Parliament, Provisional data
Subjects: South Korea, State aid, common commercial policy, dumping, international commercial arbitration, restriction on competition, shipbuilding, single market, trade dispute

8.5.2003

EN

Official Journal of the European Union

C 110 E/47

3.

Point 3 of Written Question E-2354/02

The abovementioned Regulations, under which Community aid could be granted to any person meeting
the terms of eligibility, are based on the following Articles of the EC Treaty: 33(ex-39), 36 (ex-42),
37 (ex-43) and 158 (ex-130a).

4.

Point 4 of Written Question E-2354/02

In its communication to the Council and Parliament Mid-Term Review of the Common Agricultural
Policy (10) the Commission proposes progressive reduction, in 3 % slices up to a maximum of up to 20 %,
of direct grants to farms beyond EUR 5 000. The maximum payment would be EUR 300 000. It must be
understood that at the moment this is a proposal that has not yet been approved, and also that the ceiling
is proposed for certain direct payments under the common market provisions and not for all aid granted
to the agriculture sector from the EAGGF.

5.

Point 5 of Written Question E-2354/02

In the case of support for rural development from the EAGGF, Council Regulation (EC) No 1257/1999 of
17 May 1999 (11), which establishes the framework for Community support
for sustainable rural
development from 1 January 2000, makes investment aid to agricultural holdings conditional inter alia
on economic viability.

In the case of aid granted under the market provisions the criteria mentioned by the Honourable Member
are not at present applicable.

(1) OJ L 145, 30.5.1986.
(2) OJ L 51, 20.2.1987.
(3) OJ L 197, 20.7.1985.
(4) OJ L 188, 19.7.1988.
(5) OJ L 185, 15.7.1988.
(6) OJ L 193, 31.7.1993.
(7) OJ L 142, 2.6.1997.
(8) OJ P 172, 30.9.1966.
(9) OJ L 293, 31.10.1998.
(10) COM(2002) 394 final.
(11) OJ L 160, 26.6.1999.

(2003/C 110 E/047)

WRITTEN QUESTION E-2358/02

by Charles Tannock (PPE-DE) to the Commission

(2 August 2002)

Subject: Korean shipbuilding subsidies and the Commission’s failure to refer the matter to the WTO

In answer to Written Question E-0240/02 (1), Commissioner Lamy addresses the issue of whether
permitting shipbuilding subsidies within the EU as a response to similar practices in Korea would violate
WTO rules. He does not, however, address the issue of whether such subsidies would violate the European
Union’s own internal competition requirements. Could the Commission indicate whether or not it believes
that its proposals in this area in any way violate those requirements, whether they permit similar levels of
subsidy in all Member States and what discretion it has in this regard consistent with the European
Treaties? If the levels of proposed subsidy vary between Member States then which Member States would
benefit the most?

The Commissioner argues for a European subsidy regime in the form of the proposed Temporary
Defensive Mechanism on the grounds that WTO disputes procedures are lengthy and that ‘the Union must
show that it has the capacity of dissuasion if it wishes to arrive at an agreement with Korea’, adding that
the Temporary Defensive Mechanism ‘could keep the pressure on Korean shipyards.’ The Commissioner
also states that preparedness to start a WTO complaint and the Temporary Defensive Mechanism cannot

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be disassociated as the latter ‘cannot become effective until the Commission starts the WTO action against
Korea.’ Is the Commission suggesting that a WTO dispute procedure cannot be initiated without an
accompanying subsidy regime or that it would be inconsistent with WTO rules to introduce such a regime
once a dispute procedure had been initiated? If not, then what is the justification for the Commission’s
refusal to initiate a WTO dispute procedure unless the Council first agrees to the Commission’s Temporary
Defensive Mechanism unless it is to ensure that only the Commission’s current proposals for subsidy are
accepted by the Council, and, if that is the case, how does the Commission defend itself from the charge
that it is more interested in advantaging some Member States’ shipbuilding industries against those of other
Member States than in actually solving the dispute through the WTO?

(1) OJ C 229 E, 26.9.2002, p. 65.

Answer given by Mr. Lamy on behalf of the Commission

(8 October 2002)

The temporary defensive mechanism (1) (TDM) complies fully with the Community’s internal competition
the Council, on a proposal by the
requirements. Articles 87(3)(e) and 89 of the EC Treaty permit
Commission, acting by qualified majority and after consulting the Parliament, to specify certain categories
of aid that may be considered as compatible with the common market. In the case of the TDM, these
requirements have been met. Accordingly, there is no doubt that the TDM is compatible with the
appropriate legal requirements.

If the Community starts World Trade Organisation (WTO) action against Korea, the Commission may
authorise State aid up to a maximum of 6 % of contract value, subject to the conditions set out in
Regulation (EC) No 1177/02. Member States wishing to grant aid under the TDM would be able to do so
only in accordance with the notification and authorisation requirements, as laid down in the State Aid
Procedural Regulation (2). The TDM is a clearly focused measure, that is limited in time (it will expire on
31 March 2004) and scope (it will authorise aid only in those sectors identified as suffering, material injury
and serious prejudice caused by unfair Korean practices). Although the Commission cannot anticipate the
levels of subsidies to be granted by individual Member States, it is clear that, if the TDM becomes effective,
it would apply in a consistent way throughout the Community.

The linkage of the threat of WTO proceedings against Korea and the introduction of the TDM reflects
political and strategic considerations rather than legal requirements. This so-called ‘twin-track’ strategy does
not mean that the Community lacks the right to initiate a WTO procedure against Korea without an
accompanying subsidy regime nor that the TDM measures would be inconsistent with WTO rules once a
dispute has been initiated. Indeed, the recourse by the Community to Dispute Settlement can in no way be
seen as limiting the Community’s normal rights and obligations under the WTO Agreements, including the
right to adopt permitted policy measures such as the granting of aid. In the Commission’s view, the TDM
is fully compatible with WTO rules. Subsidies, provided that
they are not prohibited and are not
demonstrated to cause ‘adverse effects’, are legitimate national policy instruments, so far as the WTO is
concerned.

The TDM should encourage the conclusion of a mutual satisfactory solution, which would avoid the
reintroduction of state aids in the Community shipbuilding industry. However, were the forthcoming
negotiations to fail to produce a successful outcome by 30 September 2002, the Community will initiate
dispute settlement proceedings against Korea under the Understanding on the Rules and Procedures for the
Settlement of Disputes and other relevant WTO provisions and, at the same time, the TDM will enable the
Community industry to receive temporary support while the case is heard.

(1) Council Regulation (EC) No 1177/2002 of 27 June 2002 concerning a temporary defensive mechanism to

shipbuilding, OJ L 172, 2.7.2002.

(2) Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of

Article 88 (ex Article 93) of the EC Treaty, OJ L 83, 27.3.1999.