CELEX: 51988PC0414
Language: en
Date: 1988-10-21
Title: Proposal for a COUNCIL REGULATION (EEC) introducing a redressive duty on containerized cargo to be transported in liner service between the Community and Australia by Hyundai Merchant Marine Company Ltd of the Republic of Korea (presented by the Commission)

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COM (88) 414
Vol. 1988/0152
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 ---pagebreak---   COMMISSION OF THE EUROPEAN COMMUNITIES
                                               COM(88 ) 414 final
                                           "r Brussels , 21 October 1988
I
                               Proposal for a
                          COUNCIL REGULATION ( EEC )
          introducing a redressive duty on containerized cargo
             to be transported in liner service between the
     Community and Australia by Hyundai Merchant Marine Company Ltd
                          of the Republic of Korea
                      ( presented by the Commission )
                                 m V*,.                 n
                                 te! w*
 ---pagebreak---                                 MOTIVATION                     C'O'y v-"v
1.     On 18 November 1987 the Commission initiated a proceeding
       against Hyundai Merchant Marine Company of Korea
        concerning unfaire pricing practices in maritime
        transport allegedly carried out in the liner shipping
        trade between the Community and Australia ( 1 ). The basic
        Regulation for such proceedings is Regulation ( EEC )
       No 4057 /86 (2 ) .
2.      The Commission has now terminated its investigation and
        discussed the results with the members of the Advisory
        Committee provided for under Regulation ( EEC )
       No 4057 /86 . The conclusions are the following :
             Hyundai MM has enjoyed non-commercial advantages
             granted by the Korean Government ;
             Hyundai MM has operated lower than normal freight
             rates , which are made possible by the non- commercial
             advantages ;
       -     Hyundai MM has inflicted major injury on the
             Community shipowners ;
             The Community interest ( e.g. the viability of a
             shipping industry , seafarers' employment , etc .) calls
             for action .
3.     Under these circumstances the Commission proposes the
        introduction of a redressive duty on containerized
        transport carried out by Hyundai MM in liner shipping
       between the Community and Australia ; this duty will lead
        to an increase of Hyundai 's freight rates to a level
        where fair competition with Community and other
        shipowners is re-established .
        No objection to this course of action has so far been
       voiced by members of the Advisory Committee .
( 1 ) O . J. C 308 of 18.11 . 1987
( 2 ) O.J.   L 378 of 31.12 . 1986
                                                                      Z
 ---pagebreak---                                       Proposal for a
                                 COUNCIL REGULATION ( EEC )
introducing a redressive duty on containerized cargo to be
transported in liner service between the Community and Australia
by Hyundai Merchant Marine Company Ltd of the Republic of Korea
THE   COUNCIL   OF   THE   EUROPEAN      COMMUNITIES
Having regard to the Treaty establishing the European Economic
Communi ty ,
Having regard to Council Regulation ( EEC ) No4057 / 86 of
22 December 1986 on unfair pricing practices in maritime
transport ( 1 ), and in particular Articles 2 and 11 thereof ,
Having regard to the proposal submitted by the Commission after
consultations within the Advisory Committee as provided for
under the above Regulation ,
Whereas s
A.    PROCEDURE
1     In August 1987 the Commission received a complaint lodged by
      the  " Comité des Associations           d' Armateurs    des  Communautés
      Européennes " ( CAACE ) on behalf of Community liner shipping
      companies from Denmark ,              Germany ,     France ,   Italy ,
      the     Netherlands ,       Spain    and    the    United -  Kingdom
      operating in the liner shipping trade between the Community
      and Australia and organised in the Europe / UK to Australia
      Conferences .      A shipping company from Belgium , not a member
      of the Conferences , later joined the complaint .                  The
      complainants represent the totality of the Community
      shipowners operating in this trade .                The complaint contained
      evidence that Hyundai Merchant Marine Company Ltd of the
      Republic of Korea was engaged in unfair pricing practices in
      the liner shipping trade between the Community and Australia
      and was causing major injury to the Community shipowners .
      The  evidence was        after    consultation    considered     sufficient to
      justify the initiation of a proceeding .                 The Commission
      accordingly announced , by a notice published in the Official
      Journal of the European Communities ( 2 ) the initiation of a
      proceeding concerning unfair pricing practices in maritime
      transport allegedly carried out by Hyundai Merchant Marine
      Company Ltd of the Republic of Korea in the liner shipping
      trade betweenthe Community and Australia and commenced an
      i nvesti gati on .
2     The Commission officially so advised Hyundai Merchant Marine
      Company Ltd , the representatives of the Republic of Korea ,
      the shippers known to be concerned and the complainants and
      gave the interested parties the opportunity to make known
      their views in writing and to request a hearing .
( 1 ) OJ No L378 , 31.12.1986 , p.14
( 2 ) OJ No C 3 0 8 , 18 . 1 1 . 1987 , p.3
 ---pagebreak---                                        2
  Hyundai Merchant Marine Company Ltd ( Hyundai ), the
  complainant shipowners , shippers and the Community seafarers
  made their views known in writing . With the exception of
  the seafarers, the parties         also     requested and have been
  granted hearings .
  At a late stage of the proceeding Hyundai requested the
  opportunity to meet the complainants for the purpose of
  presenting their opposing views .           The Commission was
  P re P are <^     9 rar*t this request but the complainants refused
  to attend the meeting and it was not , therefore , possible to
  arrange a confrontation .
3 The Commission sought and verified all information it deemed
  to be necessary and carried out investigations at the
  premises of the following shipping companies :
  - ABC Container li ne N.V. , Antwerp , Belg.ium
  - Associated Container Transportation ( Australia ) Ltd ,
     London ,    UK
  - Compagnie Générale Maritime , Paris , France
  - Eagle Container Line Ltd ., Ipswich , UK
  - Hapag Lloyd AG , Hamburg , Germany
  - Hyundai Merchant Marine Company Ltd , Seoul , Republic of
     Korea
  - Lloyd Triestino di Navigazione S.P.A. , Trieste , Italy
  - Nedlloyd Lijnen B.V. , Rotterdam , the Netherlands
  - P & 0 Containers Ltd ,        London , UK
  and   at   the  secretariat    of
  - the Australian Conference , Crawley , UK
4 The investigation of unfair pricing practices covered the
  period from 1 January to 31 October 1987 .
5 The investigation concerns the international cargo liner
  service between the Community ports and Australia .            Although
  there are variations in the European ports of call between
  the different shipping companies concerned in this
  investigation and their sailing itineraries between Europe
  and Australia differ , they are normally in direct
  competition to pick up cargo from those Community regions
  which provide most exports to Australia .           All companies
  service Sydney and Melbourne and provide for onward
  transport facilities to other Australian destinations or
  ports where they may not call .
6 All companies concerned operate fixed and published sailing
  schedules to which they generally adhere .           The frequency of
  sailings varies .
7 The proceeding concerns goods loaded in the Community with
  destination Australia .         The service Community to Australia
  is either eastbound or westbound or round South Africa ;           it
  is non-stop with the exception , however , of Hyundai which
  calls at the South Pacific islands on the way resulting in
  longer transit times than its competitors .
                                                                        V
 ---pagebreak---                                                  3
8    All companies concerned operate either full container
     vessels or combined contai ner / bu lk vessels .                      In general ,
     however , containerized cargo represents the overwhelming
     majority of all cargoes on this liner service on which the
     investigation is concentrated.' Other major aspects of the
     service offered by the companies like inland haulage , port
     service and documentation are comparable .
9    In view of the characteristics of the cargo liner service
     between the Community and Australia in general and the
     services offered by the individual shipping companies
     concerned in this investigation it is concluded that these
     services are offered on the same route ( shipping market ) and
     are generally comparable .
B.   UNFAIR COMMERCIAL PRACTICES
  FREIGHT   RATES      CHARGED     BY   HYUNDAI
10   The normal freight rate was determined on the basis of
     figures provided by Eagle Container Line ( Eagle ), a Swiss
     company operating from Ipswich / Uni ted Kingdom which offers a
     service between the Community and Australia comparable to
     Hyundai 's , and which was a preferred choice as compared to
     members of the Conferences or the other complainant .
11   Eagle has been continuously operating since 1982 on this
     route , where          it is thus an established company .                   With a
     market share of about 10% of this trade and without any
     specific characteristics it is considered representative .
     Eagle does not enjoy non - commercial advantages .                          Both Eagle
     and Hyundai were found to transport a comparable cargo mix, in generally comparable vessels .
12   Hyundai claimed that the normal freight rate should be based
     on Jebsens' ,        a Norwegian shipping company operating in the
     Europe to Australia trade without , however , justifying this
     request in detail .
     It was found inter alia that Jebsen only entered the trade
     in 1985 / 86 and does not operate a fixed fleet and                           often
     only calls at one major Australian port .                         It is thus
     concluded that Jebsen does not represent a more appropriate
     choice for the determination of the normal freight rate .
13   It was     found that        the   net   freight     rate    charged by      Eagle
     during the period of the investigation did not cover all costs
     incurred and was thus not a rate actually charged in the
     ordinary course of shipping .                  Therefore the normal freight
     rate was constructed by aggregating all costs incurred by
     Eagle , a comparable company for the reasons mentioned abov^. in the ordinary course of
     shipping business , both fixed and variable, plus a reasonable amount of overhead expenses .
     The relevant , cost elements were not substantially different from those of another comparable
     company, namely ABC . A profit margin of 3% on costs was included; this margin is considered
     appropriate in view of the characteristics of Eagle 's business .
     Adjustments were made to take account of differences                              in
     transit times between Community and Australian ports of
     between 9 and 19 days , depending on port, and the difference
     in sailing frequency of three days .
 ---pagebreak---                                   - 4 -
14 When finally comparing Hyundai 's freight rates with Eagle 's ,
     it was established that Hyundai undercut the normal freight
    rate at all times during the period under investigation ; the
    average rate of undercutting was 26% or 450 ECU per
    twenty-foot container .
 MON-COMMERCIAL ADVANTAGES GRANTED TO HYUNDAI
15  The investigation centered on a number of non-commercial
    advantages granted to Hyundai by the Korean government .
    a ) Cargo reservation scheme
16 Article 16 of the Korean Maritime Transportation Fostering Act
    together with a number of decrees and ordinances imposes a
    cargo reservation scheme on trade to and from Korea ;
    - Korean shipping companies have sole rights to carry the
       principal bulk cargoes ( e.g. crude oil , raw materials for
       the iron , steel and petro - chemical industries ,
       fertilizers , grain , coal , liquified gas ) on all routes to
       Korea ;
    – Korean shipping companies have sole rights to carry
       cement , iron and steel from Korea ;
    - Korean lines have preferential rights to carry all liner
       cargo to and from Korea on routes where Korean lines
       operate .
    Cargoes for state industries are allocated by the Korean
    government to the various Korean shipping companies .
    Exceptions (" waivers ") to the rules above can be , and
    indeed are , granted by the Korean authorities where certain
    conditions laid down in the decrees and ordinances are
    fulfilled .
    Waivers for bulk cargoes may be granted when Korean vessels
    do not have sufficient capacity ; when unique circumstances
    at the port of origin of the cargo prevents the use of the
    Korean flag ;    when Korean vessels charge more than 10%
    higher freight rates than non-Korean vessels ; when Korean
    flag carriage is considered unsuitable or inappropriate in
    view of the terms of the contract , accepted trade practices
    or the law of the country of origin of the cargo ; when
    disasters    or acts of God make the use of Korean vessels
    impossible or difficult ; or when the Minister of Transport
    considers other reasons to justify granting a waiver .
    Waivers for liner cargoes may be granted when international
    treaties , conventions or agreements to which Korea is party
    stipulate otherwise ; when Korean vessels form part of a
    Conference fleet and the Korean government has approved the
    Conference 's cargo sharing arrangement ; when the cargo
    cannot be shipped on a Korean vessel because of the cargo 's
    nature  or   because no Korean vessel  is available   for at least
    5 days after the cargo is ready for shipment ;      when
    disasters or acts of God make the use of Korean vessels
    impossible or difficult ; when the authorities consider that
    in particular trades the allocation of cargo to a foreign
    flag line will contribute to the long-term and stable supply
 ---pagebreak---                                             5
   As to the role individual Korean shipping companies play in
   the framework of the cargo reservation scheme it is noted
   that a shipping company can only operate on a certain
   shipping route with a licence .              This licence is granted by
   the Korean authorities where ,             inter alia , the start of the
   business is suited to supply and demand and where the
   applicant is a so-called " designated maritime transportation
   businessman",           i.e. a shipping company considered
   appropriate in view of its size whose role is to fulfil
   certain tasks imposed on it by the government in exchange
   for which it " may be given preference in ( its )
   development ".          A " designated maritime transportation
   businessman " may be given preferential assistance over other
   maritime businessmen with regard to , inter alia , the
   licencing of international liner routes and the
   transportation of designated cargoes under the cargo
   reservation scheme .             Hyundai is a " designated maritime
   transportation businessman ".
   The Community , in line with the view expressed on numerous
   occasions by the OECD , considers a cargo reservation scheme
   in international shipping a unilateral impediment to
   the principle of free access to cargoes in ocean trades and
   thus a non-commercial advantage for the shipping companies
   benefitting from it .
17 Hyundai maintained that the cargo reservation scheme was de
   facto without any effect and referred to carriage statistics
   for   container       trade    to and from Korea which    showed a  Korean
   share in the four routes where Korean shipping companies
   were best represented of 12,5% , 33% , 54,3% and 81,1%
   respectively .          The complainants , in their assessment on both
   bulk and container trade to and from Korea , estimate 89% of
   the trade , in weight terms , to be in bulk and , as such , more
   or less covered by the cargo reservation law .               None of these
   sets of figures are conclusive : one only refers to
   containerized traffic which constitutes the substantially
   smaller volume , the other does not refer to the volume of
   bulk cargo actually carried by Korean vessels and neither
   indicates the relevance of the scheme to Hyundai .
18 The Commission finds that Hyundai 's activities were and
   still are largely hometrading activites .               It is a
   crosstrader substantially only on the Australi a-Papua New
   Guinea-South As ia - Europe - South Pacific islands - Australia
   service , of which the trade under investigation is one leg ,
   and on the Canada / US West Coast - Australia service .
   The   numbers      of   vessels     used in these services  are 5  and   1
   respectively of a total of 56 vessels . Apart' from the service using car carriers
   (18 vessels), transporting inter alia Hyundai cars , the services other
   than the one referred to above by and large fall under the
   scope of application of the Korean cargo reservation law .
   Hyundai , as the biggest Korean shipping company , is well
   placed to benefit from the advantages offered by the cargo
   reservation        scheme .
   Whenever Hyundai has capacity available it can rely on the application, by
   the Korean authorities , of the cargo reservation scheme to fill this capacity .
                                                                              H
 ---pagebreak---                                          6
   The guarantee of access to a substantial volume of business
   with , due to the licencing system , virtually no Korean and ,
   due to the cargo reservation scheme , only limited non-Korean
   competition secures Hyundai a base load and gives it
   valuable support in a world market still facing recession .
   As a consequence a substantial part of Hyundai 's revenue is
   generated from trade covered by the Korean cargo reservation
   law . The guaranteed home business provided by the cargo reservation
   scheme allowed Hyundai -to enjoy commercial f lexibi lity.. which competitors
   do not have .-
19 Discrimination against non-Korean shipping lines by means
   of the     cargo    reservation     scheme   is   exacerbated    by
   Articles 34 and35°f the Korean Maritime Transportation
   Business Act . they stipulate that non-Korean individuals or
   companies are not allowed to own or have a share .in Korean
   enterprises engaged in maritime freight forwarding , maritime
   transportation , brokering , shipping agency , vessel
   chartering and vessel management business .              In addition ,
   non-Korean individuals or companies must not own assets like
   offices and equipment in Korea , nor are they free to own
   inland-haulage      companies .
   As a result non-Korean shipping companies cannot expect to
   be able to compete on equal terms in that part of the market
   open to them ; they are not in a position to offer efficient
   intermodal transport and thus assure' additional cargo they would
   otherwise get . Irv fact , the' Korean government is on record as saying
   that " the weak and depressed state of Korea 's domestic trucking business
   makes it inadvisable to allow foreign competition ".
    This different treatment oy Korean legislation ana authorities in favour
   of Korean shipowners gives them substantial operating advantages as
   compared with non-Korean shipowners operating in Korea”.”
20 It is thus considered that by virtue of the cii scriminatidn of non-Korean
   shipowners in Korea against shipping lines as manifested in the cargo
   reservation scheme and the additional measures concerning on-shore
   activities , Hyundai is enjoying non-commercial advantages granted by •
   the Korean government .
                                                                          1?
 ---pagebreak---                                    7
     b) Shipping Industry Rationalization Plan ( SIRP )
21  Prior to 1984 the Korean Government 's shipping policy
    encouraged shipowners to expand their fleets substantially .
    According to an assessment by the Korean authorities , this
    resulted in substantial purchases of ships at a moment when
    ship prices peaked ,       in large-scale debts , structural
    difficulties of the companies and excessive competition    among
    as many as 70 ocean-going shipping companies " with a result
    that " the Korean merchant fleet was less competitive in
    international markets compared to foreign fleets ".
    The SIRP provided a radical change in     this policy .  Its
    purpose was to rationalize Korean shipping , which was in a
    serious condition , on a volontary basis and to make it a
    national strategic industry by providing concentrated
    assistance through reducing the number of shipping firms ,
    encouraging mergers and takeovers and increasing the tonnage
    of a unit firm , allocation of trades , replacing older ships
    with newer ships and getting rid of over-competition among
    domestic shipping firms .
22  The first part of SIRP in 1984 , as far as it is relevant for
    this investigation , contained the following support
    measures :
    - tax benefits : exemption from registration and acquisition
       taxes in connection with the acquisition of vessels and
       companies ;
    - debt moratorium for Won loans    :  a maximum five-year
       moratorium for the payment of principal and interest of
       funds for purchases of Korean-made vessels ;
    - debt moratorium for foreign currency loans : extension from
       2 1 / 2 to 5 years of grace period for loans in foreign
       currency incurred for purchases of Korean-made vessels ;
    - refinancing of interest accrued during the moratoria .
    The refinancing element did not include direct      cash
    payments or debt write-offs .
    The same rules apply for mergers carried out at a later
    stage than those in the course of 1984 .
23 The effective advantages of the SIRP scheme to Hyundai were
   investigated as far as possible .     The complainants claimed
   that Hyundai could not be commercially viable without the
   advantages derived from the SIRP scheme .
 ---pagebreak---                                               δ
   Hyundai admitted receiving the                       benefits referred to
   above but denied that the aspects 'other than the tax benefits
    constituted an advantage .
   As to the financial implications of these aspects on Hyundai
   the following conclusions are drawn . The refinancing of the
   principal of loans is an unusual commercial practice , even
   in Korea . The refinancing of interest is normally not
   allowed and was not undertaken by Korean banks .                     The Korean
   authorities encouraged such refinancing for financially
   ailing industries such as shipping to be carried out by
   state-owned and other banks , thus granting advantages which
   under normal commercial conditions were not available .
   In the relevant years ( except 1987 , not yet audited ) Hyundai
   was making losses . Had the interest been repaid , these
   losses would have been increased thus reducing Hyundai 's
   creditworthiness ( details confidential ). As a result , the
   refinancing , both of interest and principal brought
   immediate cash flow advantages ; these were linked with the
   advantage of an interest rate , applied for the refinancing
   of interest , which was at times up to three percent below
   the    interest     rates    for   normal     loans .
   It is therefore concluded that these financial implications
   constitute an advantage .
   Alternatively , Hyundai claimed that these advantages only
   compensated for the damage inflicted on it by taking over
   financially and structurally weak shipping companies with
   partly outdated vessels .
   It was found that participation in the SIRP was volontary .
   Hyundai, submitted detailed information supporting its claim
   that it had taken over considerable debts from the merged
   companies and incurred losses when selling off unwanted
   ships at less than book value .                  It did , however , not show
   that these       disadvantages        outweighed the advantages               obtained
   through the mergers , such as the acquisition of movable and
   immovable assets , licences and goodwill and the continued and ,
   through the mergers , extended right to benefit from the
    cargo reservation scheme .
   It was furthermore established that participation in the SIRP scheme which led to mergers and
   a general growth of its business has allowed Hyundai to more than double its revenue in only
   three years at a time of general depression of the shipping market .
   Hyundai has derived substantial cash flow advantages from this doubled revenue which will
   allow it to finance its debts more easily when they eventually fall due . In addition, given
   this increase in revenue, the relative burden of Hyundai 's debts is decreasing more and more .
24 In view of the above it is concluded that the SIRP scheme constituted for Hyundai a -further
   non-commercial advantage granted by the Korean government .
   d) Conclusion
25 with regard to the findings detailed in points 15 to 24 above, the Ccramnity considers
   that each of the two points constitutes a non-commercial advantage .
 ---pagebreak---                                                9
     It was established that when Hyundai started the service
     under investigation , it was a company with substantial debts
     making losses on its overall operations .                      In addition it
     expected to incur losses on this service and all the
     indications are         that     it did .    It expanded at a time when the
     world shipping market was in recession by starting a service
     in an area hitherto unknown to Hyundai which was just
     experiencing a substantial and visible reduction of trade .
     As a result of the non- commerc i al advantages referred to above
     Hyundai was supplied with a commercial safety net for its
     business activities by the cargo reservation scheme ;                           the
     preferential treatment of Korean shipowners on-shore in Korean ports
     gives ,     Hyundai        operating advantages; byrelying on the
     advantages of the SIRP scheme Hyundai could rely , when
     expanding , on its long-term projections not being hampered
     by otherwise necessary and inevitable short-term commercial
     and financial considerations but could expect that in future
     years , with increased revenues , it could meet its
     obligations without facing serious financial problems .
     These advantages were substantial enough to make it possible for Hyundai to proceed in the
     way found in the investigation .
     In view of the aoove it is concluded tnat without the non-commercial advantages Hyundai could
     not have reasonably attempted to break into the trade between the Community and Australia with
     freight rates as low as those found in the investigation .
C .  IN JURY
26 . With regard to the injury caused by Hyundai 's low freight
     rates    the   evidence      available      to the    Commission shows          that
     Hyundai 's market share on the route between the Community
     and Australia increased from 0,3% in 1986 , when its service
     began , to 4,0% during the period under investigation . At
     the same time the Community shipowners' share fell from
     54,0% to 53,6% .          This decrease in itself cannot be
     considered as major injury .
27 . However , closer scrutiny of the data reveals that
     maintaining roughly the same level of market share coincided
     with a decrease in revenue and was only achieved by making
     very substantial concessions as regards freight rates ; the
     same pattern has appeared for cargo bookings .                        Whereas the
     number of containers transported during the period of the
     investigation was substantially equal to that for                              1986 the
     revenue generated by the Community shipowners decreased by
     7,5% • as        the       result of a largely equivalent reduction
     in the average freight rate .
     It was further found that the average freight rates generated
     by the Community          company most comparable to Hyundai , namely
     ABC , was reduced by about 2,5% in the course of the year
     1986 , during the last 3 months of which Hyundai entered the
     market , and by about 14,5% during 1987, leading to depressed
     freight rates which could only be increased by the company
     if it was prepared to suffer a very substantial loss of
     cargo bookings ( see point 34 below ). This finding is
     supported by Eagle 's records .
 ---pagebreak---                                           10
   When actually comparing Hyundai 's freight rates with those
   of the Community shipowners account was taken              of the
   d'l f f e r fine e s in service .    Adjustments were made for
   differences in transit times and sailing frequency , which
   were both considered material , and for the fact that the
   Community shipowners' rates were depressed ( for details
   relevant to the latter see below point 29 ).
   With regard to the latter break-even rates for the Community
   shipowners were established , with which , for simplicity , the
   comparisons were made .            These were based on the net rates
   after deduction , where appropriate , of in particular
   end- of - year, loyalty and quantity rebates or repayments as
   well as of forwarding agents' commissions .
   The comparison with ABC , the Community shipowner most comparable to
    Hyundai ,         revealed that Hyundai undercut its freight rate by
   35,9% on a global average basis since both companies
   transported a comparable cargo mix .
   As to a comparison with the other complainants and in order
   to avoid the risk of comparing different cargo mixes ,
   comparisons were made , after adjustments , between the
   freight rates for a number of the most important basic
   commodity groups , namely fabrics , plastics , chemicals , paper
   and foodstuffs ( except refrigerated ) and textiles .           The
   comparisons showed that Hyundai 's rates would have to be
   increased by between 17% and 43% to reach a freight level
    correspond ! ng ; to    a   .comparable   service .
   Since it is considered that a reasonable profit should be
   included in the freight rates charged by Community
   shipowners an inclusion of such profit margin , at whatever
    level is considered appropriate , woutd have further increased these
   percentage margins .
28  It was established that despite Hyundai 's appearance in the
    trade the scheduled liner service operated by the
    complainants either within the conferences or separately has
    been maintained and the number of sailings has not been
    reduced permanently . However , in view of the already
    existing overcapacity exacerbated by the addition of
    Hyundai 's capacity the Conference complainants temporarily
   withdrew one vessel from the service during the latter six
   months of 1987 . As a result of this temporary withdrawal
    the complainants' capacity utilization could actually be
    increased between 1986 and 1987 from 70% to 73% whereas
    otherwise it would have been reduced from 70% to 68% .
    In general; the complainants claimed that they could only
    maintain this level of capacity utilization by accepting
    substantially reduced freight rates . This assessment has
    been endorsed by the findings , especially those under point
    27    above .
 ---pagebreak--- 29  It was considered whether Hyundai 's low freight rates led to
    a reduction in profit of the Community shipowners .                   Two
    years have to be looked at, namely 1986 and 1987 .                 It was
    found that all companies suffered a very substantial
    deterioration since Hyundai 's entry into the market .                  Their
    profitability decreased between 1985 and 1986 ; the decrease
    is largely attributable to the cargo volume decrease between
     1985 and 1986 in the Europe to Australia trade and much less
    to    the    reduction       in    freight rates experienced by the
    time Hyundai entered the market in autumn 1986 .                  The
    complainants remained , on average ,            profitable -   in   the
    trade under investigation although the level of
    profitability was largely insufficient to guarantee the
    long-term continuation of the service , future investment and
    employment .
    However , during the          investigation   period       in 1987 during
    which entire period Hyundai was present in the market all
    companies with       one      exception     were -    making losses in
    the trade under investigation .           It was found that , on the
    basis of management accounts and expressed in indices
    ( details confidential ), the complainants' overall
    profitability was + 100 , + 15 , - 248 in 1985 , 1986 and during
    the    investigation     period      respectively .
    If 1986 were to be used as basis , a profit of + 100 in 1986
    turned into a     loss   of' - 1653  in  1987 .
30  Equally , the return on capital generated deteriorated in
    line with the developments described above .
31  With regard to investments it would appear that no major invest ¬
    ment decisions , such     as ' the    replacement' of
    some vessels, will have to be taken in 1988 .                Such
    investments are unlikely to be made if the Europe to
    Australia trade were to continue losing revenue and making
    substantial     losses .
 32 With regard to employment , consideration has to be given to
    the fact that all complainants' ships fly Member States'
    flags and are manned          by   Community crews .       Continuing
    losses Increase the risk of flagging out and subsequent loss
    of employment .     The recent event when one vessel was
    temporarily withdrawn from the service highlights this risk .
 33  It was considered whether injury has been caused by other
    factors such as decreased cargo volume and low freight rates
    operated by other shipowners , which must not be attributed
    to Hyundai .
    It was established that the total containerized cargo
    transported between the Community and Australia was 167.000
    TEU 's in 1985 and fell to 1 37.000 TEU ' s in 1986 ; it remained
    at that level during the period under investigation .
 ---pagebreak---                                       12
   Hyundai thus entered a shrinking market and thereby added to
   a developing disequilibrium between tonnage and transport
   capacity . Whereas the decreased cargo volume during 1986
   already had a negative effect on the Community shipowners
   with regard to , inter alia, revenue, capacity utilization and
   profitability , this development was exacerbated by Hyundai 's
   low freight rates during the last months of 1986 and during
   all   of 1987 .
34 Hyundai claimed that , when entering the market , it merely
   aligned itself on the rates already operated by other
   non-compla.inant companies , in particular Gearbulk and
   Jebsen , two Norwegian companies .           Hyundai did not supply any
   conclusive evidence for this claim .             It was found , when
   examining one representative company 's monthly liftings and
   rates records , and the interrelation between the two , that
   - when , at the moment of Hyundai 's entry into the market
      with lower rates , the company was not prepared to reduce
      the rate level , it immediately lost considerable cargo to
      Hyundai ;
   - when some time later this company changed policy and
      aligned its rate level more towards Hyundai 's , it
      immediately regained cargo , albeit at substantially
      reduced   rates .
   In view of the relative       size of Gearbulk and Jebsen which
   are both much smaller than Hyundai in the trade under
   investigation , and the fact that Hyundai within a very short
   time span increased its market share from nil to 4% , it is
   concluded that the decline in freight rates has to be
   attributed to Hyundai .
35 The above results lead to the determination that the effects
   of the unfair pricing practices by Hyundai in the trade
   between the Community and Australia , taken in isolation ,
   have to be considered as causing serious disruption of the
   freight pattern on this route and major injury to the
   Community shipowners concerned .
D. COMMUNITY INTEREST
36 Hyundai and some shippers claimed that it was not in the
   Community interest to take measures against Hyundai which
   constitutes an additional competitive element in the trade
   under investigation . Although it is Community policy to
   encourage competition wherever possible , it is not its
   policy to encourage unfair competition based on non-commercial
   advantages .
   Moreover , the trade under investigation is characterized by
   a number of independent competitors ; indeed one new
   c om petitor       started its service in spring 1988 .
   Community shippers have thus a wide choice between , inter
   alia , several independent operators .
                                                                        -14
 ---pagebreak---                                          -   13-
   It was furthermore claimed that Hyundai 's low rates have
   allowed certain exports to Australia to be made for the
   first time in substantial quantitites .                      As far as the most
    important product in terns of votune was concerned this proved factually incorrect . As
    to the other products , which are substantially less important , it is
    considered that there are enough companies on the market to guarantee
    continuing exports at competitive freight rates by outsiders .
   Finally ,     as far as certain break-bulk products             are concerned ,       it
   was found that the quantities Involved were very limited and
   irregular and it was not considered in the Community
   interest to include bulk cargoes in Community measures .
   The seafarers claimed , and the Community supports this
   claim , that it is in the Community interest to defend their
   employment which is put at risk by unfair competition since
   in the past they have suffered a great deal'from unfair competition .
   External trade policy considerations , whi ch are in favour of
   free trade , the port interests with , inter alia , ancillary
   industries , and the shipping policy considerations of the
   Member      States    concerned      are    not   in  conflict      with    the
   imposition of         a  redressive       duty .
   Developments of the kind investigated , involving rate
   erosions , decreasing revenue and financial losses , seriously
   endanger the commercial viability of those                      Community shipping
   companies whose revenues depend to a substantial extent on the service concerned;
   in addition these developments endanger the viability of the services offered by the other
   community companies and are therefore injurious to Community interests ; in view of the par­
   ticularly serious difficulties facing the Community shipping industry in general , and the
   trade under investigation in particular, the economic and social importance of the industry,
   and the normally relatively low incidence of a rate increase on the value of the exported
   goods, the conclusion has been reached that 'it is in the Community 's interest that action
   be taken in the form of a redressive duty .
E’ THE RATE OF DUTY AND COLLECTION
37 Having regard to the extent of the injury caused and in particular the undercutting in freight
   rates with its consequential effects it is concluded that the rate of such redressive duty cannot
   be less than    the difference between Hyundai 's freight rate and
   the normal        freight rate       determined as         described above under
   point 14 .
38 The rate of duty should therefore be 450 ECU per twenty-fcot
   container or 900 ECU per forty-foot container .                           In order to
   allow an efficient collection of the redressive duty , the
   duty should be a fixed amount irrespective of the contents
   of   the   container .
39 The collection of duties shall be made by the customs authorities since they are best piaced a;d
    most competent to carry out this duty . It is considered appropriate to fellow as much a ; pcss 'ole
    the rules of customs procedure applicable to the exportation of goods . In        - saf^uard
    collection of the duty the permission to load cargo in a Community port snail L    ^ conditional
    upon the provisions of security for the amount of the duties .
                                                                                         4S
 ---pagebreak---                                                14   -
 HAS ADOPTED THIS         REGULATION       :
                                          Article      1
  1.  A redressive duty is hereby imposed on all containerized cargo
      Loaded in a Community port on vessels operated by Hyundai Merchant Marine
      Company Limited of Seoul , Republic of Korea with destination
      Australia . The duty is to be paid by Hyundai Merchant
      Marine Company Limited .
 2.   The amount of duty shall be 450 ECU per twenty-foot
      container and 900 ECU per forty-foot container , irrespective
      of   the   contents thereof .
 3.   The redressive duty shall be collected by the customs
      authorities . The customs provisions in force shall apply by
     analogy .
 4.  Permission to load cargo in a Community port shall be granted by
      the competent authorities upon presentation by Hyundai of
     proof that security for the amount of the duty has been
     provided .
5.   The arrival of a vessel operated by Hyundai in a Community port and the lumber of containers
     to be loaded on that vessel shall be notified by Hyundai Merchant Marine or its agents to the
     competent authorities 3 days beforethe vessel 's expected arrival .
                                          Article 2
1.   Prior to the loading of the containers a loading declaration shall be lodged
     with the competent customs office .
2.   The loading declaration shall be separate from the export declaration con ¬
     cerning the goods and shall be made out on form EX as introduced by Article
     2(1 ) of Council Regulation ( EEC ) No 1900/ 8^^>f 8 July 1985 introducing Com¬
     munity export and import declaration forms               . Only copies Nos 1 and 3 of
     form EX shall be used .
3.   The loading declaration shall be made by Hyundai Merchant Marine Company
     Limited of Seoul or its agents . It shall refer to this Regulation and shall ,
     as a minimum , contain information about the country of destination of the
     containers referred to in Article 1(1 ) and their number , broken down by type
     according to Article 1(2 ).
4.   The provisions in force with regard to export duties shall apply to the
     redressive duty imposed by this Regulation .
( 11 0J No L 179, 11.7.85 , p.4 .
                                                                                      46
 ---pagebreak---                              15
                         Artide 3
This Regulation shall enter into force on the day following its
publication in the Official Journal of the European Communities .
The Regulation shall be binding in its entirety and directly
applicable in all Member States .
Done at Brussels ,                1988
                                              For the Council
 ---pagebreak---          Incidence financière sur le budget communautaire
Il est à prévoir que l' instauration du droit compensateur aura
comme conséquence des revenus supplémentaires pour la
Communauté .  Le montant exact est difficile à estimer ,  la base
de calcul étant d' ECU 450 ,- par conteneur . En 1987 l' armateur
concerné avait transporté + 5.000 conteneurs , mais il n' est pas
à prévoir que le même nombre sera transporté après
l' instauration du droit .