Union faces dilemma over subsidy deal for shipyards

Date: 10/10/1996

THE EU will play a decisive role next week at an emergency meeting aimed at salvaging a global accord to outlaw shipbuilding subsidies.

The Organisation for Economic Cooperation and Development, which brokered the deal in 1994 after five years of talks, has summoned the Union, Japan, South Korea and Norway to Paris on 17-18 October to gauge their response to Washington's failure to ratify the accord.

The EU's position is pivotal because Tokyo and Seoul are thought likely to use Washington's tardiness to try to walk away from the deal, which can only come into effect after ratification by all signatories.

Prospects for the agreement, which was due to take effect last January, suffered a serious setback when the US House of Representatives passed it only after making substantial amendments to its terms. The modified version was not put to the Senate because it was regarded as too controversial and time-consuming to be considered before Congress went into recess.

The EU responded by prolonging its shipyard subsidy regime until the end of 1997 pending US ratification of the OECD accord.

But now its negotiators must decide whether to recommend to their political masters that the agreement is worth saving.

OECD sources say the other signatories to the accord can hold out for another seven or eight months if there is a chance that the next Congress will ratify the agreement.

But the EU's patience is being sorely tested, not least because the US is backsliding on an accord which it cajoled its trade partners to negotiate back in 1989 with the aim of enabling US yards to enter an international shipbuilding market, then largely out of bounds because of government handouts in other countries.

The US position has hardened in the closing weeks of the presidential campaign. President Bill Clinton, who backed the accord until a few weeks ago, promised aid to revive the Quincy shipyard in Massachusetts during a campaign speech in Boston, a pledge which would be illegal under the OECD agreement.

The EU, which has progressively pared its subsidies - along with its shipbuilding capacity - from a top rate of 28&percent; of contract value to 9&percent; at present, faces a difficult dilemma in Paris because the deal the US is prepared to ratify is not the one it signed in 1994.

The EU will have to ask itself next week whether it can live with a watered-down version to placate Washington.