WORLD SHIPBUILDING INDUSTRY
(21200)
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Second Commission Report to the Council on the Situation in the
World Shipbuilding Market, as required under Article 12 of the
Shipbuilding Regulation.
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| Legal base:
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| Department: |
Trade and Industry
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| Basis of consideration:
| Explanatory Memorandum of 12 May 2000
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| Previous Committee Report:
| None |
| To be discussed in Council:
| 18 May Council
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| Committee's assessment:
| Politically important
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| Committee's decision:
| Not cleared; further information requested
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Background
7.1 Council Regulation 1540/98 establishing
new rules on aid to shipbuilding, requires the Commission to report
regularly on the world shipbuilding market.
7.2 The first report[11]
provided a general market analysis and a detailed analysis of
nine shipbuilding contracts in South Korean yards. It found that
the world market was facing a critical situation with a serious
imbalance between supply and demand and South Korea, in particular,
engaging in anti-competitive practices by selling at very low
prices. World prices had plummeted by 15% to 30% in a year, in
particular for ship types for which Korea competes. There was
evidence that Korean losses on below-cost pricing ranged from
13% to 40%. There was also substantial scope for Government intervention
since large parts of the banking sector were state-owned.
7.3 We cleared the report but asked the
Minister, the Parliamentary Under-Secretary of State for Competitiveness
(Mr Johnson) to report back after the 9 November Industry Council
if there were any change in the approach outlined by the Minister,
which he said that the majority of Member States supported.
The Second Report
7.4 This was adopted on 3 May but it has
not yet been deposited. However, it is due to be discussed in
the Industry Council on 18 May so the Minister has submitted an
EM and a copy of the text, for scrutiny on 17 May.
7.5 The Commission reports that the world
market for merchant ships continues to be in crisis with supply
clearly outstripping demand and no sign of the situation improving.
Prices continue to be depressed, exacerbated by extremely low
offer prices from Korean yards. The extent of the losses which
they are ready to take, in order to assure market share and cash
flow, are revealed again this year and, on the basis of detailed
investigations, are calculated at between 11% and 32% of building
costs. In many cases their prices do not even cover operational
costs, let alone the servicing of debts. The Korean financing
system remains opaque and credits and guarantees to shipyards
do not follow global business practices.
7.6 With the exception of cruise vessels,
virtually all market segments are targeted by Korean yards and
they continue to increase their share of newbuilding orders, to
the detriment of Japan and the EU, particularly for containerships.
Action agreed at November 1999 Industry Council
7.7 The Industry Council of November 1999
asked the Commission, Member States and industry to pursue four
lines of action:
- to engage Korea in bilateral talks with a view
to halting the unfair competition;
- to collect as much detailed evidence as possible
of the alleged anti-competitive behaviour, in order to take appropriate
action under the WTO;
- to urge the IMF to continue to investigate whether
the conditions and assumptions under which the IMF-led rescue
packages were given are being fully respected; and
- to pursue their efforts to establish international
trade disciplines so as to establish a level playing field for
the sector.
7.8 The Commission says that all these actions
are being taken and that it has made strenuous efforts to secure
binding commitments from the Korean Government. These have resulted
in an EU/Korea agreement on 10 April 2000 when "Agreed Minutes
relating to the World Shipbuilding Market" were initialled.
This agreement commits Korea to finance yards on a commercial
basis only, to transparency in accounting rules for shipyards,
to commercially viable ship prices and to a consultation mechanism
to take up specific cases of unfair competition.
7.9 Evidence gathered by the Commission
has enabled the EU shipbuilding industry to prepare the basis
for a complaint under the World Trade Organisation Trade Barriers
Regulation and it recently announced that it was prepared to file
one. It noted that contacts with the IMF had not brought results.
Korea is repaying its IMF loans ahead of schedule, limiting the
IMF's ability to influence Korea's policy.
7.10 The Commission concludes its report
by recommending that it should continue to:
- press Korea to fully implement the "Agreed
Minutes" and assume responsibility for working towards an
improvement in the market situation, particularly concerning price
levels and newbuilding capacities;
- fully apply the provisions of the "Agreed
Minutes" once they have entered into force, invoking the
consultation mechanism whenever necessary;
- collect evidence to support a complaint to the
WTO;
- keep the IMF informed about the findings and
ask for the restructuring which Korea has promised to be closely
monitored and assessed; and to
- encourage the EU shipbuilding industry to further
improve its competitiveness.
The Government's view
7.11 The Minister says that all the Member
States, including the UK, support the Commission's analysis but
do not agree over its recommendations. He says:
"We, together with Finland,
Denmark and Sweden support their recommendations. We believe that
the EU/Korea agreement represents a real step forward in our efforts
to tackle Korean unfair trade practices, which engages Korea in
a framework where they are obliged to respond to our concerns.
We take the view that the 'Agreed Minutes' should be given time
to properly test Korea's commitment to it. Italy and Spain, while
seeing merit in the EU/Korea agreement, see the recommendations
as too weak and will call for 'other defensive measures' to be
brought forward as well, ie the extension of operating aid."
7.12 The Minister recalls that the Industry
Council decided in 1998 to end operating aid for shipbuilding
on 31 December 2000. He goes on to say:
"Our policy remains
to support the EU Council decision and this remains the policy
of our allies. The Commission too is still firmly opposed to any
change in the policy on operating aid. Despite the swing of Italy
and Spain towards an extension of operating aid, there remains
a majority in favour of maintaining the decision to end operating
aid. The Commission is not making any proposal to extend operating
aid beyond end 2000. They, like us, believe that the only substantive
way to tackle external unfair pricing practices is through the
bilateral/trade measures agreed at the November Industry Council
and, in the longer term, through effective international trade
mechanisms."
Conclusion
7.13 We thank the Minister for giving
us an opportunity to consider this report before it is discussed
in the Industry Council and for setting out clearly the difference
of views between the Member States on operating aid and the Government's
policy on the issue. We ask him to report to us the outcome of
the discussion in the Council, by, at latest, 7 June. Meanwhile,
we shall not clear the document.
11 (20564) 11919/99; see HC 34-xxx (1998-99), paragraph
10 (3 November 1999). Back
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