17 Temporary state aid to EU shipbuilders
| (25286)
5730/04
COM(04) 26
| Draft Council Regulation amending Regulation (EC) No. 1177/2002 concerning a temporary defensive mechanism for shipbuilding
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| Legal base | Articles 87(3)(e), 89 and 133 EC; QMV
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| Document originated | 21 January 2004
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| Deposited in Parliament | 30 January 2004
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| Department | Trade and Industry
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| Basis of consideration | EM of 23 February 2004
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| Previous Committee Report | None
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| To be discussed in Council | 11 March 2004 Competitiveness Council
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
17.1 After two years of negotiations with the EU, the Republic
of Korea had failed to offer an effective remedy for longstanding
unfair trading practices by the Republic in commercial shipbuilding.
In June 2002, the Council therefore approved a twin-track strategy
proposed by the Commission. This involved the initiation of action
against the Republic of Korea in the World Trade Organisation
(WTO) and, simultaneously, the authorisation of temporary and
limited contract-related operating aid under the Temporary Defensive
Mechanism (TDM) to assist EU shipyards in those segments which
could demonstrate material injury and serious prejudice from unfair
Korean competition.
17.2 The TDM Regulation[35]
came into operation on 8 October 2002, when the Commission initiated
action at the WTO. The measure is limited to the following types
of vessel: container ships; chemical and product tankers; and
liquefied natural gas (LNG) carriers. The aid ceiling is restricted
to 6% of contract price.
The proposed Regulation
17.3 The TDM Regulation expires on 31 March 2004,
by which date it had been anticipated that the WTO action would
have been concluded. However, the proceedings are now not expected
to be completed before early 2005, so the Commission proposes
that the TDM should be extended to 31 March 2005 "at the
latest". If the WTO dispute settlement proceedings are completed
before that date, or if, in the meantime, the Community considers
that the Agreed Minutes have been effectively implemented by the
Korean side, the TDM will cease to operate. The Commission stresses
that it is an exceptional temporary instrument.
17.4 The Minister of State for Industry and the Regions,
and Deputy Minister for Women and Equality, at the Department
of Trade and Industry (Jacqui Smith) comments that UK shipyards
do not build the types of vessels covered by the TDM and therefore
do not receive the operating aid allowed under the Regulation,
so the Commission proposal is of limited interest to the UK.
The Government's view
17.5 The Minister says that the Government fully
supports the WTO action against Korea initiated by the Commission
in October 2002:
"All Member States are agreed that this is the
best way of tackling Korea unfair competition in commercial shipbuilding.
In the discussions leading up to the Commission Decision the Government
was in a minority of Member States which opposed linking the WTO
action to the Commission's proposed TDM. The Government did not
believe that a TDM would protect EU shipbuilders against Korean
unfair competition and judged that it could be counter-productive
(indeed, Korea has used it as a justification for launching a
counter-action in the WTO against what it alleges to be trade-distorting
state aid measures operated within the EU). Furthermore, the
Government felt that such a measure would be inconsistent with
the 1998 Council Decision to abolish operating aid (payable up
to a ceiling of 9%) across the sector.
"A number of Member States, including Italy,
Spain, Greece and France, have indicated their support for the
Commission proposal to prolong the application of the TDM Regulation.
The Nordics and the Netherlands have indicated their opposition.
While maintaining its reservations about the principle of a TDM,
the Government considers that there would be little practical
advantage in opposing its limited prolongation as proposed by
the Commission. There is no evidence that the TDM has had any
adverse effects on UK yards."
17.6 The Minister says that the Government has discussed
the TDM with the UK industry through the Shipbuilders and Shiprepairers
Association, which has indicated that it shares the Government's
assessment. She also informs us that the proposal commanded a
qualified majority when it was discussed at the 10 February 2004
meeting of the Competitiveness and Growth Working Group.
Conclusion
17.7 The Minister says that this proposal is
of limited interest to the UK as no British yards are eligible
for the state aid provided for in this Temporary Defensive Mechanism.
However, the approach adopted by the EU to the longstanding unfair
trading practices by Koreans in commercial shipbuilding and the
progress, or lack of it, in the negotiations has been of continuing
political interest, and we therefore report on this proposal to
the House.
17.8 We now clear the document.
35 Council Regulation (EC) No. 1177/2002 of 27 June
2002. Back
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