Select Committee on European Scrutiny Fifth Report


18. SITUATION IN WORLD SHIPBUILDING


(23991)

14443/02

COM(02) 622


Sixth Commission Report on the situation in world shipbuilding.

Legal base:
Document originated:13 November 2002
Deposited in Parliament:20 November 2002
Department:Trade and Industry
Basis of consideration:EM of 4 December 2002
Previous Committee Report:None; but see (23421) 8689/02: HC 152-xxxvii (2001-02), paragraph 11 (17 July 2002)
To be discussed in Council:Not known
Committee's assessment:Politically important
Committee's decision:Cleared


Background

  18.1  The Commission is required to report regularly to the Council on the situation in world shipbuilding and the effects on the EU shipbuilding industry. We cleared the Commission's fifth report of May 2002 on 17 July 2002.[54]

The document

  18.2  This document is the Commission's sixth report, presented to the Council last month. In it the Commission analyses the global shipbuilding market. It notes:

  • orders for new ships worldwide in the first half of 2002 were down by almost two thirds on 2000;

  • in the EU orders were down by almost four fifths — many EU yards are running out of work;

  • a number of EU yards have recently gone out of business or have laid off workers;

  • some yards are at risk of closure (the Explanatory Memorandum says this includes UK yards, notably Appledore, Devon);

  • the market segments most affected are container ships and cruise ships;

  • only in the product tanker segment is demand comparatively stable, but not many EU yards (and none in the UK) build these types of vessel;

  • for cruise vessels (another vessel type not built in the UK) the market is still depressed following the significant drop in demand for cruises after 11 September;

  • in the LNG (Liquefied Natural Gas) carrier market orders are well below 2000/1 projections but still above the average of previous years;

  • new ship prices continue to decline, by about 15% since mid­2000, and are now at the lowest level for more than a decade;

  • the biggest reductions occurred in mid­size container ships, large bulk carriers and large oil carriers — the market segments on which Korean yards traditionally focus;

  • this has led to fierce competition amongst the major Korean yards for the few remaining orders, keeping prices at very low levels or falling further;

  • some Korean yards may find it difficult to meet their financial obligations if their order intake is not increased soon;

  • higher-value ships built in Europe also saw price falls;

  • Japanese shipbuilding is undergoing massive restructuring, helping Japanese yards to stay competitive, especially for series production of bulk carriers; about 50% of the Japanese order intake comes from domestic demand, currently mainly for bulk carriers;

  • these orders are almost inaccessible to other shipbuilding countries and therefore provide a captive market for Japanese yards;

  • China's market share has continuously increased in recent years and there are concerns that Chinese yards are expanding beyond both the requirements of the market and the need to upgrade existing facilities.

  18.3  The Commission reports on its on­going cost investigations in relation to Korean shipbuilders and on seven new investigations. The results continue to confirm that Korean yards sell ships at prices substantially below full costs. The Commission notes that, attempts in August and September 2002 to secure a negotiated settlement of this unfair competition having failed, WTO action against Korea was started in October 2002. This has been accompanied by the introduction of a temporary defensive mechanism (limited shipbuilding subsidies).

The Government's view

  18.4  The Minister of State for Employment Relations, Industry and the Regions, Department of Trade and Industry (Alan Johnson) reminds us that for some time WTO action was delayed by a blocking minority of Member States, including the UK, resisting the Commission's wish to accompany action with subsidies and that this block was broken when the Commission offered France the prospect of such subsidies being extended to the LNG carrier market segment.

  18.5  On the present report the Minister says:

"The report was presented at the 26 November meeting of the Competitiveness Council, primarily for information since with the launch of WTO action the main decisions on tackling Korea have now been taken.

"The Government welcomes the Commission's decision to finally launch WTO action against Korea and will give them our full support in their efforts to bring this matter to a satisfactory conclusion. We are however aware that the WTO procedure is likely to be a long process, perhaps up to 18 months. We are naturally disappointed that the EU has reintroduced limited subsidies, but the important point is that WTO action is at last fully underway.

"It should be noted that the UK industry shares the Government's view that WTO action is the best way to tackle Korean unfair competition and that the trade association, the Shipbuilders and Shiprepairers Association, is equally opposed to the subsidy proposal, not least because the ship­types covered in the new subsidy regime have not been built in the UK for many years."

Conclusion

  18.6  As we have said previously, ensuring a level playing field for European shipyards against competitors such as the Korean industry is important, and we are glad to see WTO action against Korea in the WTO finally started, albeit with unnecessary accompanying subsidies. We clear the document.


54   See headnote to this paragraph. Back


 
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