WORLD SHIPBUILDING INDUSTRY
(21821)
OTNYR
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Third Commission Report to the Council on the Situation in the World Shipbuilding Market, as required under Article 12 of the Shipbuilding Regulation (1540/98).
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| Legal base:
| — |
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| Department: |
Trade and Industry |
| Basis of consideration:
| EM of 27 November 2000
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| Previous Committee Report:
| None |
| To be discussed in Council:
| 5 December 2000 |
| Committee's assessment:
| Politically important |
| Committee's decision:
| Not cleared; awaiting further information
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Introduction
12.1 The Commission is required under Article
12 of the EU Shipbuilding Regulation to present to the Council
a regular report on the market situation and appraise whether
European yards are affected by anti-competitive practices of any
kind. If it is established that injury is being caused to the
industry by such practices the Commission is required, where appropriate,
to propose to the Council measures to address the problem. A first
report was submitted to the Council in November 1999[33]
and a second in May 2000[34].
The Third Commission Report
— Market analysis
12.2 The report confirms the findings of the
earlier reports, that the world market for merchant shipbuilding
continues to face serious difficulties. Supply still outstrips
demand and, despite increased ordering activity in the first eight
months of this year, ship prices have still not recovered from
the drop in prices in 1997. The Commission's investigations indicate
that Korean yards are still offering ships at below-cost price,
which is the cause of continuing depressed prices. To date, 25
Korean orders have been investigated and below-cost pricing has
been found in all of these, ranging from 4% to 39%. The average
loss over all investigated orders is 20%. Of the seven newly-investigated
orders covered in this third report, four have had an impact on
EU yards.
12.3 Korea is now the biggest shipbuilder in
the world. Korean yards took more than 40% of all new orders during
the first eight months of the year, up from 33% in 1999. This
expansion in market share has been mostly at the expense of Japan,
whose market share has fallen from 38% in 1997 to 25% this year,
and, to a lesser extent, the EU, whose market share fell from
18% to 16% in the same period. EU yards have almost completely
abandoned the construction of low-value standard tankers and bulk
carriers and they have lost a large amount of their share of the
container-ship sector. They have become increasingly reliant on
specialised tonnage and sophisticated ships such as cruise vessels.
— Action to tackle Korean low pricing
12.4 The EU is pursuing several trade policy
actions, laid down in the conclusions of the November and May
Industry Councils, to address the problem of Korean low pricing.
— EU/Korea agreement on shipbuilding ("Agreed
Minutes")
12.5 The Commission has continued to engage Korea
in negotiations under the "Agreed Minutes", signed in
June with a view to finding a remedy for Korean unfair competition.[35]
These set out commitments, which the Koreans signed up to, on
fair competition and provided for consultations. These have not,
so far, resulted in any effective implementing measures. The sticking
point is Korea's unwillingness to accept the EU demand for the
establishment of an effective price-monitoring mechanism based
on WTO cost criteria.
— Industry Trade Barriers Regulation (TBR)
case
12.6 In view of the lack of progress so far in
the bilateral negotiations, the EU shipbuilding industry recently
submitted a TBR case against Korea. The Commission is examining
the merits of the complaint. This will take about five months.
If sufficient evidence is found that Korea had breached its WTO
commitments, the Commission will make proposals to remedy this
including, if necessary, one to initiate a complaint under the
WTO dispute settlement procedure.
— IMF
12.7 The Commission has been pressing the IMF
to investigate whether the conditions and assumptions under which
the 1997 IMF-led rescue package was given were being fully respected.
— OECD Shipbuilding Agreement
12.8 Attempts to secure effective international
trade disciplines, which are the only viable solution in the longer
term to dealing with anti-competitive practices, have foundered
as the US has continually refused to ratify the 1994 OECD Shipbuilding
Agreement.
Commission Conclusions/Recommended Action
12.9 Given Korea's continued low-cost pricing
and failure to fulfil its commitments under the 'Agreed Minutes',
the Commission has recommended that it should:
— continue to monitor
the market situation;
— examine the industry's complaint under
the TBR as rapidly as possible and, if accepted, pursue this rigorously
with a view to a possible WTO action;
— in parallel, remain open to proposals
from Korea that would meet the EU's concerns;
— together with the Member States, pursue
efforts to establish a level playing field for the shipbuilding
industry in the OECD;
— together with the Member States, continue
to encourage the IMF to ensure that the restructuring of Korean
shipyards is closely monitored and assessed;
— continue to work closely with the industry;
and
— consider, as soon as possible, measures
to address the problem.
The Government's
view
12.10 In an Explanatory Memorandum of 27 November,
the Parliamentary Under-Secretary of State for Competitiveness
(Mr Alan Johnson) says that the majority of Member States support
the Commission's recommendations on continuing the bilateral/trade
approach. However the industry, both EU and UK, and some Member
States, notably Germany, Italy and Spain, are pressing for operating
aid to be extended beyond 31 December 2000 until, in their view,
the EU has resolved the problem of Korean low-cost pricing. On
the other hand, the Minister says that the Commission, the Presidency
and a majority of Member States, including the UK, remain firmly
opposed to any extension of operating aid. He says:
"We have reviewed the
arguments over operating aid in depth and discussed them at length
with the industry and unions. However, we still believe that operating
aid has not provided an effective remedy to Korean unfair pricing
and is not therefore the solution. The link being made by some
Member States and the industry between operating aid and Korean
practices is spurious. Korean unfair trading practices can only
be effectively tackled by a bilateral/trade remedy. Government
support is better focussed on investing in improvements in the
industry's competitiveness, through the measures we have developed
with them such as the LINK Shipbuilding Research Project and an
improved marketing project. DTI is contributing some £3 million
in total to these two projects.
"We believe that a bilateral/trade remedy offers
the best and quickest hope of a solution to Korean unfair competition.
It is essential that the Commission should keep open the bilateral
negotiations with Korea under the 'Agreed Minutes' with the aim
of securing, inter alia, an effective price monitoring
mechanism. At the same time, the Commission should complete its
investigation of the industry's TBR case against Korea as a matter
of urgency. If the investigation finds sufficient evidence that
Korea has breached its WTO commitments, the Commission should
bring forward urgent proposals to remedy this including, if necessary,
initiating a complaint under the WTO dispute settlement procedure".
12.11 The report has been discussed in the Industry
Council Working Group. The Minister expects it to be discussed
further in COREPER and then at the 5 December Industry Council.
Conclusion
12.12 The Government took the view earlier
in the year that Korea should be given time to demonstrate commitment
to the EU/Korea agreement, which included a commitment to ensure
that its yards were financed on a commercial basis only. Since
the Commission has been unable to detect any sign of Korea respecting
that commitment, we continue to support urgent action being taken
to resolve this problem, with tougher measures being considered
without undue delay.
12.13 We do not clear the document, but ask
the Minister to report the outcome of discussions at the Industry
Council.
33 (20564) 11919/99; see HC 34-xxx (1998-1999), paragraph
10 (3 November 1999). Back
34 (21200)
8304/00 ; see HC 23-xxi (1999-2000), paragraph 8 (14 June 2000). Back
35 (21344)
8930/00; see HC 23-xxv (1999-2000), paragraph 14 (19 July 2000). Back
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