The European Union is to investigate alleged unfair trade practices by South Korean shipbuilders, a move that could lead to a World Trade Organization
(WTO) case, Reuters reported. The move follows a complaint in October by the European shipbuilding industry that accused South Korea of subsidizing its shipyards to unfairly undercut the market. "We have looked carefully at the complaint of our industry and believe there are clear grounds for us to launch this investigation," European Union Trade
Commissioner Pascal Lamy said. "We are treating the concerns of EU shipbuilders with the utmost seriousness. If necessary we will take this all the way to the WTO," he said. The Commission -- the EU's executive branch -- will launch a five-month investigation under its Trade Barriers Regulation. If it concludes South Korea has engaged in questionable trade practices, it could then launch a WTO case. European shipyards say the Koreans are producing ships at prices that do not cover the cost of making them, resulting in a sharp increase in South Korea's share of the world market. They say South Korea's share of the container ship market increased to 64.8 percent in 1999 from just 23.9 percent in 1997. The South Korean government has flatly rejected the allegation it has unfairly funded its shipyards. "The recent increase in South Korea's order receipts was attributed to our competitive advantage from improved production and the weakening won," the country's Ministry of Commerce Industry and Energy said. The Korean Shipbuilders' Association (KSA) said it regretted the Commission's decision to launch a probe, and denied the existence of illegal subsidies. "South Korea is being blamed for the lack of performance and inefficiencies of some European yards by special interests pursuing the continuation of subsidies for EU shipbuilders," the KSA said. In the past Korean shipbuilders have said Korea could launch counter-actions at the WTO against European subsidies if the EU goes ahead with such action against South Korea. Last week the Commission announced EU governments would have to stop paying operating aid to their shipyards from the start of next year, but said that such payments might be allowed to resume if it finds South Korea is unfairly propping up its industry. EU shipbuilders want to be allowed to continue receiving state aid while the South Korean probe
is under way. The Commission said it would inform EU governments of the findings of its inquiry by next April.