On 24 October 2000, the Committee of European Union Shipbuilders Associations ("CESA") lodged a complaint pursuant to Articles 3 and 4 of Council Regulation 3286/941 (the Trade Barriers "TBR" Regulation) in order to eliminate certain alleged Korean trade practices which adversely affect Community sales of commercial vessels. The complaint concerned adverse trade effects and injury suffered by Community shipbuilders resulting from subsidies granted to, or otherwise benefiting, Korean shipbuilding companies by the Republic of Korea in violation of Articles 3and 5 of the WTO Agreement on Subsidies and Countervailing Measures ("ASCM"). The Commission after consulting with the Member States in the framework of the TBR Committee initiated the investigation on 2 December 20002.
The Korean shipbuilding enterprises claimed to have benefited from subsidies included:
||Samho Heavy Industries (previously called Halla Engineering and Heavy Industries)
Daewoo Shipbuilding & Marine Engineering (previously
called Daewoo Heavy
||Hyundai Heavy Industries
||Samsung Heavy Industries
||Hanjin Heavy Industries & Constuction Co
||Daedong Shipbuilding Co.
The original TBR report
The Commission's TBR investigation report was presented to the Member States Advisory Committee on 8 May 2001. The investigation showed that Korea has granted substantial amounts of subsidies, mainly through export schemes by the state owned Korean Export-Import Bank (KEXIM) and debt forgiveness and debt-to-equity swaps by government owned or government controlled financial institutions. The following shipyards were found to be the main beneficiaries: Halla Engineering and Heavy Industries (now called Samho Heavy Industries), Daedong Shipbuilding Co., and Daewoo Heavy Industries (now called Daewoo Shipbuilding Marine Engineering).
Furthermore there was evidence that the subsidies in question were causing adverse effects to EU industry within the meaning of the WTO Subsidies Agreement and were, therefore, actionable.
With regard to the KEXIM programmes, KEXIM and the shipyards have not provided information on the terms of the loans or the rate of the premia. In these circumstances Article 8.7 of the Regulation provides for findings to be made on the basis of facts available which may include information contained in the complaint.
In particular, the complaint alleged that the Kexim financing and guarantee schemes confer a "benefit" on Korean shipbuilders because they provide financial support (interest on loans and premium rates) on more advantageous terms than they would otherwise be able to obtain in the Korean financial market. Furthermore, although the GOK has admitted that the above schemes provide support contingent upon exportation of goods, it has failed to produce evidence to demonstrate that the schemes are not prohibited under footnote 5 of Article 3.1(a) of the ASCM. In addition, the European Commission has already found certain Kexim export programmes to constitute countervailable export subsidies in two countervailing investigations into steel wire.3
On the basis of facts available, the original report had considered that the GOK has granted export subsidies under certain KEXIM schemes to all Korean shipyards which are prohibited under Article 3 of the ASCM.
The Commission stated that it would immediately pursue the matter with the Korean authorities in order to obtain the immediate withdrawal of the subsidies or the removal of the adverse effects and that unless such a solution was achieved amicably within the next few weeks, the Commission would proceed with the initiation of a procedure within the framework of the WTO.
The current report
In parallel, however, the Commission stated that it would continue its investigation into the export subsidy schemes on which the Korean authorities and shipyards did not supply crucial information and that a further report on these schemes as well as on their impact would be released in due course.
During the first stage of the examination, the Commission services gathered information on the Korean legislation and contested practices, on the product subject to investigation, on the Korean and Community industries and on injury and the adverse trade effects claimed by the complainant. This information has been collected from:
- Commmity producers and their association (CESA);
- Korean authorities;
- Korean producers;
- Korean financial institutions;
- Other third parties (shipbrokers).
Moreover, verification visits took place in the European Community (February 2001) and Korea (March 2001). During the visit to Korea the Commission had the opportunity to meet the relevant Korean authorities, financial institutions and Korean producers of the product subject to the investigation.
The affected products are commercial vessels for international commerce, including,
- bulk carriers
- container ships
- oil tankers
- product and chemical tankers
- passenger and RO/RO feffies
- liquefied gas carriers
- other cargo vessels
- other non-cargo vessels(including offshore units)
- cruise ships
1 OJL 349 of 31.12.94
2 OJC 345 of 2 December 2000.
3 Commission Regutations 618/1999 and 619/1999 of 23 March 1999 (OJL79).