Proposal for a Council Regulation amending Regulation (EC) No 1177/2002 concerning a temporary defensive mechanism to shipbuilding
Date: 2004-01-21
Institutions: European Commission
Subjects: EU aid, South Korea, market protection, restriction on competition, shipbuilding, single market

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 21.1.2004
COM(2004) 26 final

2004/0008 (CNS)

Proposal for a

COUNCIL REGULATION

amending Regulation (EC) No 1177/2002 concerning a temporary  defensive mechanism
to shipbuilding

(presented by the Commission)

EN

  EN

EXPLANATORY MEMORANDUM

BACKGROUND

1.

2.

3.

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Further to the Republic of Korea’s failure to implement the provisions of the Agreed
Minutes relating to world shipbuilding (hereinafter “the Agreed Minutes”) signed on
22  June  2000,  the  Council  approved  on  27  June  2002  the  so-called  “twin-track
strategy”  proposed  by  the  Commission.  This  strategy  involves  two  instruments:  (i)
the  initiation  of  an  action  against  the  Republic  of  Korea  at  the  World  Trade
Organisation  (WTO)  and  (ii)  the  authorisation  of  temporary  and  limited  contract-
related  operating  aid  under  the  Temporary  Defensive  Mechanism  (TDM)  to  assist
Community  shipyards  in  those  segments  where  they  have  suffered  adverse  effects
caused by unfair Korean competition..

The  TDM  was  established  by  Council  Regulation  (EC)  No.  1177/2002  of  27  June
20021 (the “TDM Regulation”). From the outset, it was conceived as an exceptional,
limited  and  temporary  measure.  Hence,  the  mechanism  was  strictly  limited  in  both
scope and time.

First,  only  those  market  segments  where  it  has  been  demonstrated  that  the  EU
shipbuilding  industry  has  suffered  adverse  effects  caused  by  unfair  Korean  trade
practices are eligible for aid: container ships; chemical and product tankers; as well
as Liquefied Natural Gas (LNG) carriers. Second, the defensive mechanism expires
on  31  March  2004,  which  was  consistent  with  the  anticipatition,  at  the  time  of
adoption  of  Regulation  (EC)  No.  1177/2002,  that  the  relevant  WTO  proceedings
would have been concluded at that date.

However, these proceedings are taking more time than what was originally foreseen
and the Agreed Minutes have not yet been effectively implemented. The panel report
is only expected in August 2004 and a final decision from the Appellate Body is not
expected before early 2005.

It  should  also  be  stressed  that,  from  the  outset,  the  two  instruments  making  up  the
twin-track strategy were closely interrelated, in particular as regards timing. Pursuant
to  the  TDM  Regulation,  the  support  mechanism  could  only  be  activated  after  the
Commission  had  initiated  WTO  dispute  settlement  proceedings  against  Korea  -
which was done on 8 October 20022. By the same token, it was expressly provided
that the mechanism was to be applied only until the conclusion of these proceedings
or the suspension of such proceedings on the grounds that the Community considered
that  the  Agreed  Minutes  had  been  effectively  implemented  (and,  in  any  case,  not
after 31/03/04). In other words, the twin-track strategy is built on a simultaneous use
of its two instruments.

OJ L 172, 2.7.2002, p. 1.
Commission Decision of 8 October 2002 under  the  provisions  of  Council  Regulation  (EC)  No286/94
concerning  trade  practices  maintained  by  Korea  affecting  trade  in  commercial  vessels  (OJ  L  281,
19.10.2002, p. 15

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THE PROPOSAL

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The Commission considers that the “twin-track strategy” should be continued. Given
the  delays  in  the  WTO  proceedings  and  the  continued  failure  by  the  Republic  of
Korea to implement the Agreed Minutes, it is proposed to prolong the application of
the TDM Regulation until 31 March 2005 at the latest.

The  TDM  remains  an  exceptional  and  temporary  instrument  focusing  on  very
specific  trade  allegations.  It  should  be  noted  that,  as  it  is  already  provided  in  the
TDM  Regulation,  the  support  mechanism  will  be  disactivated  at  any  earlier  date  if
the dispute settlement proceedings are concluded or if the Community considers that
the Agreed Minutes have been effectively implemented by the Korean side.

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2004/0008 (CNS)

Proposal for a

COUNCIL REGULATION

amending Regulation (EC) No 1177/2002 concerning a temporary  defensive mechanism
to shipbuilding

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Articles
87(3)(e), 89 and 133 thereof,

Having regard to the proposal from the Commission3,

Having regard to the opinion of the European Parliament4,

Whereas:

(1)

(2)

(3)

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The European Commission and the Government of the Republic of Korea signed the
Agreed  Minutes  relating  to  world  shipbuilding  on  22  June  2000  with  the  aim  of
restoring  fair  and  transparent  competitive  conditions.  However,  the  commitments
under  the  Agreed  Minutes,  notably  the  commitment  of  ensuring  an  effective  price
surveillance  mechanism,  have  not  been  effectively  implemented  by  the  Korean  side
and therefore a satisfactory result has still not been obtained.

As an exceptional and temporary measure, and in order to assist Community shipyards
in those segments that have suffered adverse effects in the form of material injury and
serious  prejudice  caused  by  unfair  Korean  competition,  a  temporary  defensive
mechanism  was  established  by  Council  Regulation  (EC)  No  1177/2002  for  limited
market segments and for a short and limited period only5. In particular, the temporary
mechanism  was  only  authorised  after  the  Community  initiated  dispute  settlement
proceedings against the Republic of Korea and could no longer be authorised if these
dispute settlement proceedings were resolved or suspended.

On  8  October  2002,  the  Community  initiated  dispute  settlement  proceedings  against
the  Republic  of  Korea,  by  requesting  consultations,  in  accordance  with  the  World
Trade Organisation’s Understanding on the Rules and Procedures for the Settlement of
Disputes6.

OJ C , , p. .
OJ C , , p. .
Council Regulation (EC) No 1177/2002 of 27 June 2002 concerning a temporary defensive mechanism
(OJ L 172, 2.7.2002, p. 1.)
Commission Decision of 8 October 2002 under  the  provisions  of  Council  Regulation  (EC)  No286/94
concerning  trade  practices  maintained  by  Korea  affecting  trade  in  commercial  vessels  (OJ  L  281,
19.10.2002, p. 15).

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(4)

(5)

The  consultations  which  were  held  between  the  Republic  of  Korea  and  the
Community,  as  envisaged  in  the  WTO  Agreement,  did  not  reach  any  satisfactory
solution.  On  11  June  2003,  the  Community  requested  the  WTO  Dispute  Settlement
Body to set up a Panel over the unfair Korean shipbuilding practices.

Regulation (EC) No 1177/2002 expires on 31 March 2004. The Republic of Korea has
still not effectively implemented its commitments  under  the  Agreed  Minutes  and  the
WTO disputes settlement proceedings are not expected to have been resolved by that
date. It is therefore needed to prolong the temporary defensive mechanism.

HAS ADOPTED THIS REGULATION:

Article 1

Regulation (EC) No 1177/2002 is amended as follows:

Article 5 shall be replaced by the following:

“This  Regulation  shall  enter  into  force  on  the  day  following  that  of  its  publication  in  the
Official Journal of the European Communities and shall expire on 31 March 2005.”

This  Regulation  shall  enter  into  force  on  the  day  following  that  of  its  publication  in  the
Official Journal of the European Union.

Article 2

This Regulation shall be binding in its entirety and directly applicable in all Member States.

Done at Brussels,

For the Council
The President

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