Lamy to put Korean shipbuilders in the dock

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Series Details Vol 7, No.14, 5.4.01, p9
Publication Date 05/04/2001
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Date: 05/04/01

By Laurence Frost

TRADE chief Pascal Lamy is preparing to take on South Korea at the World Trade Organisation, after investigators returned from Seoul with evidence of alleged unfair subsidies to shipbuilders.

Two groups of fact-finders are being debriefed by Commission staff after the second team returned last weekend with material gathered from Korean banks and shipyards.

They will prepare a report by the end of the month that will form the basis for any WTO action by the European Union.

And officials say some crucial findings are already becoming clear. One said: "It seems there were considerable subsidies going into shipyards. We think we have a basis for action, based on the information we've received so far."

The investigation was launched after complaints by European industry that illegal subsidies from Korea's state-run banks helped shipbuilders dominate the market by offering cheaper vessels.

EU countries heavily subsidised their own shipyards until just three months ago, when payments to shipbuilders worth up to 9% of ship values were abolished.

The allegations are levelled at shipyards including Daewoo - which received state support when it came close to collapse two years ago - and Hyundai Heavy Industries, which absorbed the bankrupt Halla yards.

Both received debt-relief from state and partially state-owned banks including the Korean Export and Import Bank, the Korean Development Bank (KDB) and the Korean Exchange Bank (KEB).

A report by Korea's Financial Supervisory Service last month stated that KDB and KEB were among ten banks which chalked up a joint loss of 6.86 trillion won (€5.76 billion) last year, mostly attributable to bad debts.

Debt-for-equity swaps and loan re-issues were given to Korean shipbuilders to tackle the debts from years of rapid economic expansion.

The absence of international dumping rules for shipbuilding means that the EU will have to satisfy the higher burden of proof required by the Agreement on Subsidies and Counter-Measures.

At the WTO, it will have to show that subsidies were specific to the sector and caused European firms to suffer.

Seoul insists it is in the clear. "We're quite confident we have a strong case," said a diplomat. "The legislation on restructuring was applied to all industries across the board - it wasn't designed to salvage any particular industry."

He added: "Of course there were state-funded banks in the creditor groups, but that doesn't mean the loan decisions were taken by the government. These were commercial decisions that were also taken by private creditors."

If the Commission goes ahead with WTO action, it will table proposals for a temporary renewal of subsidies to European shipbuilders on 15 May when EU foreign and industry ministers meet.

Trade chief Pascal Lamy is preparing to take on South Korea at the World Trade Organisation, after investigators returned from Seoul with evidence of alleged unfair subsidies to shipbuilders.

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