2002/818/EC: Commission Decision of 8 October 2002 under the provisions of Council Regulation (EC) No 3286/94 concerning trade practices maintained by Korea affecting trade in commercial vessels (notified under document number C(2002) 3652)
Date: 2002-10-08
Institutions: European Commission
Subjects: South Korea, World Trade Organisation, import, merchant fleet, shipbuilding, support policy, trade regulations

19.10.2002

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Official Journal of the European Communities

L 281/15

COMMISSION

COMMISSION DECISION

of 8 October 2002

under the provisions of Council Regulation (EC) No 3286/94 concerning trade practices maintained
by Korea affecting trade in commercial vessels

(notified under document number C(2002) 3652)

(2002/818/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

ment). On that basis,
Commission to take the necessary action.

the complainant asked the

Having regard to the Treaty establishing the European
Community,

Having regard to 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), as amended by Regulation (EC)
No 356/95 (2), and in particular Articles 13 and 14 thereof,

After consulting the Advisory Committee,

Whereas:

(3)

The complaint contained sufficient evidence to justify
the initiation of a Community examination procedure
pursuant to Article 8 of the Regulation. Consequently,
the Commission initiated the procedure after consulting
with the Member States in the framework of the Advi-
sory Committee, on 2 December 2000 (4).

(4)

Following the initiation of the examination procedure
the Commission carried out an investigation, which has
led to the conclusions indicated below.

(1)

(2)

A. PROCEDURE

On 24 October 2000 the Commission received a
complaint pursuant to Article 3 and Article 4 of Council
Regulation (EC) No 3286/94 (hereafter the ‘Regulation’).
lodged by the Committee of
The
European Union Shipbuilders Associations (CESA).

complaint was

In particular,

The complaint concerned certain alleged Korean trade
practices which adversely affect Community sales of
commercial vessels (3).
complaint
contained information on adverse trade effects and injury
suffered by Community shipbuilders
resulting from
subsidies granted to, or otherwise benefiting, Korean
shipbuilding companies by the Republic of Korea in
violation of Articles 3 and 5 of the WTO Agreement on
(SCM Agree-
Subsidies and Countervailing Measures

the

(1) OJ L 349, 31.12.1994, p. 71.
(2) OJ L 41, 23.2.1995, p. 3.
(3) The affected products are commercial vessels for international
commerce,
including, more specifically: bulk carriers, container
ships, oil tankers, product and chemical tankers, liquified natural gas
carriers, passenger and ro/ro ferries, other non-cargo vessels
(including offshore units) and cruise ships.

(4) OJ C, 345 of 2.12.2000.

(5)

(6)

B. FINDINGS REGARDING THE EXISTENCE OF AN

OBSTACLE TO TRADE

The investigation was directed against subsidies allegedly
granted by the Government of the Republic of Korea to
its
shipbuilding industry that benefited production
between 1997 and 2000 and will benefit future produc-
tion. Alleged Korean subsidies have included, export
contingent financing, debt forgiveness, debt-for-equity-
swaps, interest relief and special tax concessions in the
context of preferential restructuring packages provided
in order to save various shipbuilding enterprises from
imminent financial collapse.

The Korean shipbuilding enterprises claimed to have
benefited from Korean Government subsidies included
Samho Heavy Industries, Daedong Shipbuilding Co.,
Daewoo Shipbuilding and Marine Engineering, Hyundai
Heavy Industries, Hyundai Mipo, Samsung Heavy Indus-
tries and Hanjin Heavy Industries & Construction Co.

L 281/16

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Official Journal of the European Communities

19.10.2002

(7) With regard to the alleged Korean subsidies that were
expressly the subject of the complaint the Commission
established the following:

Advance payment (refund) guarantees and pre-shipment
loans provided by the State-owned Export-Import Bank of
Korea (KEXIM)

(8)

to perform its obligations under

It was established that KEXIM provides a guarantee that
a foreign buyer will be refunded any advance payments
given to a Korean shipyard in case the Korean shipyard
fails
the relevant
contract. It was also established that KEXIM provides
pre-delivery loans to shipyards to finance shipbuilding
production costs, such as raw material cost, labour and
overheads until delivery of
ships. The APRG
programme and the pre-shipment loans were found to
constitute prohibited subsidies under Article 3(1)(a) of
the SCM Agreement.

the

Debt forgiveness, debt-for-equity-swaps and interest relief
by government-owned and government-controlled banks

(9)

It was established that Korea has granted through debt
forgiveness, debt-for-equity-swaps and interest relief by
government-owned and government-controlled banks,
subsidies within the meaning of Article 1 of the SCM
Agreement to the following shipyards:

— Samho Heavy Industries,

— Daedong Shipbuilding Co. (1) and

— Daewoo Shipbuilding and Marine Engineering.

(10)

There is prima facie evidence that
these corporate
restructuring subsidies are specific within the meaning of
Article 2(1) of the SCM Agreement.

(11)

(12)

Special tax concessions

It was established that Daewoo Shipbuilding and Marine
Engineering has benefited from two tax programmes
under the Special Tax Treatment Control Law (special
taxation on in-kind contribution and special taxation on
spin-off) limited to companies under corporate restruc-
turing which are therefore specific.

Conclusion

The Commission considers that the complainant's allega-
tion on the granting of subsidies is well-founded and that
the Korean practices constitute an obstacle to trade
within the meaning of Article 2(1) of the Regulation, as
they are contrary to Articles 3 and 5 of the SCM Agree-
ment.

the meaning of Article 5 of the SCM Agreement and
Article 2(3) and Article 2(4) of the Regulation,
in the
form of injury within the meaning of Article 5(a) of the
SCM Agreement, namely, negative effects on market
share, capacity utilisation, profit, sales prices, employ-
ment, investments, and of serious prejudice within the
meaning of Article 5(c) of the SCM Agreement, namely,
significant price undercutting, price depression and lost
sales. By sector, adverse effects were suffered in container
ships and product and chemical tankers.

In November 2001, CESA requested the Commission to
examine whether adverse effects had been suffered by
the Community industry during the period covering the
13 months following the end of the original investiga-
tion period (i.e. 1 December 2000 to 31 December
2001). The updating investigation confirmed the findings
of the first investigation. As regards the liquified natural
further
gas carriers (LNG) sector,
examination is necessary to determine whether the devel-
opments observed in 2000 and 2001 would result in a
consistent trend over a longer term. The Commission
will continue to monitor the market, particularly as
regards the sectors of container ships, product and
chemical tankers and LNG carriers.

it established that

D. CAUSAL LINK

It was established that
the above subsidies, which
rendered possible the increase in sales volume and
market share of the Korean shipyards as well as the
considerable decrease in their sales prices and the price
undercutting found during the investigation period,
caused adverse effects to the Community industry. These
conclusions were confirmed by the updating investiga-
tion.

E. COMMUNITY INTEREST

The shipbuilding industry in the Community represents
a very important sector of economic activity in terms of
employment, either direct, in the shipyards or indirect,
in subcontracting or supplying companies. On the basis
of the information available it seems reasonable to fore-
cast that, should the Korean subsidy practices be halted,
the Community industry may be able to regain at least
part of its lost market shares and improve its profit-
ability.

(14)

(15)

(16)

C. FINDINGS REGARDING ADVERSE TRADE EFFECTS

F. CONCLUSIONS

(13)

It was established that, during the investigation period,
the Community industry suffered adverse effects within

(17)

(1) Daedong did not cooperate in the procedure; evidence, however,
it has also benefited from the restructuring

was obtained that
process.

Further to the above analysis, the Commission concludes
that Korea has granted export and actionable subsidies
within the meaning of the SCM Agreement to its ship-
building industry and has caused adverse effects to the
Community industry.

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Official Journal of the European Communities

L 281/17

(18)

(19)

Ensuring that WTO partners fully comply with their
obligations is of the utmost importance for the Commu-
nity, which has committed itself to the same obligations.
It is fundamental for the good functioning of a multilat-
eral trade system to consistently tackle allegedly WTO
incompatible practices.

The Commission discussed the matter with the Korean
authorities with a view to finding a mutually agreed solu-
tion. However, as no mutually agreed solution could be
found, the initiation of a procedure within the frame-
work of the WTO Dispute Settlement Understanding,
and more particularly pursuant to the relevant provisions
of the SCM Agreement, is required,

tions of that country under the World Trade Organisation
Agreement and, in particular under the SCM Agreement, and
constitutes an ‘obstacle to trade’ within the meaning of Article
2(1) of Regulation (EC) No 3286/94.

The Community will initiate dispute settlement proceed-
2.
ings against Korea under the Understanding on the Rules and
Procedures for the Settlement of Disputes and other relevant
WTO provisions with a view to securing removal of
the
obstacle to trade.

HAS DECIDED AS FOLLOWS:

Done at Brussels, 8 October 2002.

Sole Article

The granting of subsidies to certain Korean producers of
1.
commercial vessels appears to be inconsistent with the obliga-

For the Commission

Pascal LAMY

Member of the Commission