South Korea Faces WTO Action For Shipbuilding Practices

Friday, November 12, 1999
The European Union is considering taking action against South Korea under the World Trade Organization, accusing the country of using western subsidies to sell ships at below construction cost and putting European rivals out of business. "The sector is facing a critical situation worldwide with very low prices and a serious overcapacity caused by the Republic of Korea," EU industry ministers said after a regular meeting where they discussed a European Commission report on the world shipbuilding situation. The ministers asked industry, national governments and the Commission to seek "as much detailed evidence as possible...in order to take appropriate action under the WTO". EU Enterprise Policy Commissioner Erkki Liikanen specifically charged South Korea with a deliberate policy of building up a very strong shipbuilding industry through increased capacity and below-cost prices. South Korea, he said, increased its share of the world market to 35 percent, well ahead of Japan and the 15-nation EU. The three make up for about 80 percent of the world shipbuilding market. The most dramatic change was in container vessels, with Korean yards now grabbing 70 percent of contracts worldwide from a previous 15 percent market share, he said. The Commission has been complaining for over a year that South Korea may have been channeling part of a $58 billion bailout from the International Monetary Fund in 1997 into its shipyards. The Korean government has rejected the allegations. "The IMF and the World Bank ought to carry out an analysis of whether the credits are being used to subsidize Korean shipyards," Siegmar Mosdorf, German state secretary in charge of industry, said. Germany and Spain have been the most vocal critics of the Korean increased competitiveness after the industry underwent a severe restructuring which translated into heavy job losses. The sector still employs over 100,000 people in Germany, including related industries. Despite the harm to European industry, Finnish Industry Minister Erkki Tuomioja was against opening a subsidy war by allowing national EU governments to support their own business. The EU agreed earlier this decade to end subsidies to the industry. "The most important message of this meeting is to the Koreans. We would not be helping this if we said we're reconsidering subsidies," said Tuomioja, whose country holds the EU rotating presidency.
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