EU Points Finger At South Korea

The European Union has accused South Korean shipyards of distorting the international market by pricing ships below cost, but put off a decision on whether to launch a trade complaint against Seoul. In its latest report on world shipbuilding, the EU's executive Commission said significant over-capacities in South Korean shipyards, combined with a need to generate new orders to assure sufficient cash flow, prevented a recovery of shipbuilding prices.

None of the South Korean shipbuilding contracts it had examined had been priced at a level that covered operating costs, profits and debt repayments, the Commission said. South Korean yards incurred losses averaging 14 percent on these orders, it said. "Korean shipyards are still distorting the international market," the European Commission said in a statement accompanying the report. It accused South Korean yards of "unfair trading practices." The EU has repeatedly accused Seoul of paying its shipbuilders illegal subsidies that it says threaten the existence of European competitors. The Commission had been expected at its meeting this week to propose starting a World Trade Organization (WTO) case against South Korea over its shipbuilding practices. It had been thought likely to combine this move with a recommendation to allow temporary government aid for European shipyards facing South Korean competition, EU sources said.

However, decisions on these two aspects have been postponed until the Commission meets again next week to allow time for Commission officials to complete their work, EU sources said. EU Trade Commissioner Pascal Lamy will report to his fellow commissioners next week on the outcome of the Commission's own investigation of South Korean shipbuilding practices and whether he believes there are grounds for a WTO case. EU officials said the probe under the EU trade barriers regulation, which could form the basis of a complaint to the Geneva-based WTO, was now complete. But they refused to divulge its conclusions or to prejudge what decisions the Commission would take next week.

"I can certainly say that there is cause for concern," Lamy's spokesman Anthony Gooch said. South Korean shipbuilders have rejected the European charges, saying their success is due to exchange rate factors, increased productivity, quality and on-time delivery. The Commission's report said there had been a significant expansion in global orders for new ships in 2000. Nearly 56 percent more orders were placed than in 1999. "The larger part of this increase in ordering has been to the benefit of South Korean shipyards which have seen market share increase again," it said. "EU shipyards also benefitted considerably from the higher demand for ships, although orders for cruise ships may have played a dominant role here," it added.

In 2000, it said, South Korea had consolidated its position as the largest shipbuilding country in the world, accounting for more than 35 percent of all tonnage ordered worldwide. "There are no indications that Korean shipbuilders managed to raise price levels across the board as repeatedly announced by Korean sources," it added. Commenting on the report, the Committee of EU Shipbuilders' Associations, representing European yards, said in a statement it expected the EU to come forward with proposals for effective measures to counter existing market distortions. - (Reuters)