EU To Ban Subsidies, Monitor S. Korea

The European Commission plans to bar state aid to European shipyards from the year-end, but could reinstate it within months if South Korea fails to halt alleged unfair help to its shipbuilders, an EU source said. The Commission is also threatening to launch a WTO complaint against South Korea if it does not reform its shipbuilding practices by next May. The European Union executive decided at its weekly meeting to press ahead with its previous intention to halt government operating aid to European shipyards from the end of this year. But in an olive branch to European shipbuilders, which say the aid should be extended to help them face alleged unfair competition from South Korea, the Commission threatened to reinstate EU operating aid from next May if South Korea fails to stop bailing out its own shipbuilders, the EU source said. The Commission proposal has to be endorsed by EU industry ministers next Tuesday. The source said the EU will pursue bilateral discussions with South Korea to get it to lift what it believes are unfair state subsidies which have driven down the world price of new ships, threatening European shipbuilders. If it gets no satisfaction by May 1, the EU will launch a WTO case against South Korea and reinstate European aid to allow its own firms to compete, the source said. "We think we have a strong WTO case but the time to May 1 should be for serious discussions with the Koreans," the EU source told Reuters. "If no satisfactory solution is found we reserve the right to apply operating aid matching South Korea's illicit practices up to a ceiling of nine percent," he said. The EU would authorize selective state aid to companies that could prove they have been directly hit by unfairly cheap prices from South Korea, he said. The Commission alleges South Korean government aid means its shipyards can sell vessels at less than the cost of production -- dumping cheap products on the market and squeezing European firms out of business. The EU executive, which polices European state aid to ensure a level playing field between the 15 EU countries, is keen to do away with subsidies to shipbuilders but is wary of leaving its own industry vulnerable to cheap Asian competition. South Korean shipbuilders, who dominate the world shipbuilding market, have said they could counter a WTO case by taking similar action against countries like Germany, Spain and Italy which have subsidized their own shipyards.