EU wants to extend shipyard subsidies

EU wants to extend shipyard subsidies

The European Union wants to extend state aid to shipyards through March 2005 while it pursues a complaint against alleged unfair practices by South Korean shipbuilders at the World Trade Organization.

The European Commission, the EU's executive, on Wednesday said extending the temporary aid, which permits subsidies up to 6 percent of the contract value of containerships, products and chemical tankers and liquefied natural gas carriers, is justified because there has been no breakthrough at the WTO or in bilateral talks with Seoul to resolve the dispute. These vessels are deemed to be most affected by Korea's "unfair" trading practices.

"[This] decision is a clear signal that we are not ready to let European shipbuilders down while they suffer the consequences of unfair Korean practices," said EU Trade Commissioner Pascal Lamy.

The commission said extending the subsidies would protect EU builders until the WTO has ruled on its complaint. The extension must be approved by a majority of the EU's 15 member states.

The WTO panel investigating the EU's allegations only began work in December and its final report is not expected before August 2004. If Brussels or Seoul appeals, a final decision of the WTO's Appellate Body is not likely before 2005.

The EU claims Korean yards are selling ships at below production cost -- it cited a 5,100-TEU container ship booked by German carrier Hamburg Sud at Daewoo Shipbuilding for $38 million compared with a production cost of $64.5 million.

The EU share of the global shipbuilding market crashed from 19 percent in 2000 to 7 percent in 2002, which the commission blamed on Korean yards. But fears of mass bankruptcies in the European industry have eased following a boom in orders for containerships, some of which have been diverted to EU yards as Korean and Japanese builders are fully booked until 2007.