Euro yards talk tough on Korea

Representatives of Europe`s shipyards are demanding urgent action by the EU to protect them from what they claim are unfair practices in Korea, and claim that protective measures – such as a European Jone`s Act, Gibbons Bill, or a Title XI loan guarantee scheme – will have to be enforced if an international agreement cannot be reached.

They also insist that unlike the OECD agreement, any international agreement negotiated by the EU and Korea must include restrictions on capacity in Korean yards. European yards claim the low prices offered by Korean shipyards are possible only because massive debts incurred by yards are assumed by the Korean economy which, in turn, is being propped up by the IMF, using funds provided by European taxpayers.

Even when Korean companies run into trouble, facilities in debt-ridden yards such as Halla`s Mokpo yard are acquired without the new owners having to assume responsibility for their debts. A notable example is Hyundai`s proposed take over of the management of Halla, a deal which excludes Halla`s accumulated losses.

To counter what it claims are unfair trade practices by Korean yards, the Committee of EU Shipbuilder`s Associations (CESA) has developed a three-pronged strategy. CESA`s Secretary General Jose Esteban Perez, the managing director of Spain`s Uninave shipyard, says CESA would rather not resort to measures such as a European Jone`s Act, but cannot rule out proposing them if the EU cannot reach an agreement with Korea.

According to CESA`s secretary general, continued subsidies for European yards are not the answer either, but may be necessary in the short term until a `level playing field` can be achieved.

Firstly, says CESA, the International Monetary Fund (IMF) must take a close look at those sectors of industry in which Korea has a significant market share, and ensure that IMF requirements – such as the reform of financial markets, the implementation of international standards of accounting – are rigorously enforced.

Secondly, says CESA, Korea must be made to follow a `code of conduct` that would include restricting capacity in line with demand, and thus help to restore balance in the market worldwide. The Commission of the EU and national governments must take responsibility for negotiating and enforcing such measures, says CESA.

“In Europe, subsidies and other forms of assistance to the shipbuilding industry have been linked to reductions in capacity,” says CESA`s secretary general, “and we ask that the same principle be applied in Korea.”

Thirdly, says Esteban Perez, the European Commission and national governments must implement an appropriate instrument to ensure fair competition in world shipbuilding.

CESA says it does not believe that the OECD Agreement is any longer an appropriate instrument, given the changed circumstances in the world shipbuilding industry, and advocates a new, binding international agreement for all of the main players, which must be capable of being closely monitored and enforced.

In the meantime, CESA says it also wants the European Commission and national governments to investigate the extent to which new EU regulations could help European yards withstand Korean practices. `During negotiations with Korea, it must be made clear that if a satisfactory agreement cannot be reached, Europe will be forced to implement protective measures such as a European Jone`s Act, a Gibbons Bill, or Title XI type loan guarantee scheme,` says CESA`s secretary general Jose Esteban Perez.

Speaking in Amsterdam in mid-September, Sjef Van Dooremalen, chief executive officer of IHC Holland NV and newly appointed chairman of the Association of European Shipbuilders & Shiprepairers (AWES), highlighted the fact that European yards operate in a totally open, global market without tariffs, quotas, anti-dumping rules or similar measures.

“Ultimately, we would like to see all subsidies done away with,” says Mr Van Dooremalen, “but while competing nations practice a different policy, and European yards operate in a distorted economic environment, subsidies have to continue.”

Dr Werner Schottelndreyer, speaker of the Board at the Verband fur Schiffbau und Meerestechnik (VSM) in German agrees, but is not in favour of measures such as a European Jone`s Act if bilateral negotiations between the EU and Korea should fail to reach a satisfactory agreement.

At the beginning of 1999, the VSM was predicting a dire year for German yards, which experienced a poor first quarter. However, the order intake in German yards in July and August surpassed expectations, although recent changes in German taxation will make investors more hesitant in future, says Dr Schottelndreyer.

“Ultimately, the problem cannot be solved with money or subsidies,” says Dr Schottelndreyer. “In the long term, the only way to address the issue successfully is a political agreement. If bilateral negotiations between the EU and Korea look as if they will succeed I have no doubt that Japan can also be persuaded to join up to an agreement.” For its part, CESA says it would like Japan and all other major shipbuilding nations to participate in such an agreement.

In spite of recent inroads into traditional European markets by both Korean and Japanese yards, yards in Europe continue to specialise in specialised sectors of the market, such as cruise ships, sophisticated passenger vessels, ferries and chemical and products carriers.

Between 1975 and 1997, the number of workers directly employed in European yards has fallen from 433,000 to around 90,000, that is, around one fifth of its former level. According to the EU, around 300,000 people are directly or indirectly employed by the shipbuilding industry.

The value of the products produced by European shipbuilders cannot be under-estimated, says Van Dooremalen – to put it in perspective, in 1997 European yards produced merchant ships worth more than 17 billion ECU, the equivalent of 100 four-engined A-340 Airbus passenger aircraft.

Successive EU Shipbuilding Directives have been vitally important in maintaining the competitiveness of European yards, says Van Dooremalen, but it is the efficiency and competitiveness of European yards that has enabled them to maintain market share in spite of a drastic reduction in aid, from 28 per cent in 1988, to 9 per cent from 1992 onwards.

But while EU aid has remained unchanged in the last few years, shipbuilding capacity in Korea has increased by more than 100 per cent (to almost 5 million cgt), producing a dramatic imbalance between supply and demand.

During 1998, new order intake in Europe decreased by 18 per cent compared to the previous year; in the first quarter of 1999, the reduction in orders was a massive 55 per cent compared with the same period in 1998. “In a market where fair competition no longer applies, the competitive position of European yards has deteriorated rapidly,” says Van Dooremalen. “In Korea, the devaluation of the Won, specialised accounting rules and international financial support on a massive scale have been accompanied by strong export drive, and an aggressive campaign to win orders for high-tech ships of the type typically built in Europe.”.

European yards are facing their worst crisis since the 1980s, says AWES new president. The yards are re-doubling their efforts to improve productivity and efficiency, but in the present circumstances, this will not be enough. “If shipbuilding in Europe is to be protected, the EU and national governments must take the measures we believe are required, and do so as soon as possible,” says Mr Van Dooremalen. “Although the OECD agreement did not address the issue of capacity, the new measures must and, in the meantime, the EU support package should be extended until such time as a normal competitive situation has been restored,” he concludes.

At a meeting in April, the EU Council of Ministers expressed its concern about the state of the international shipbuilding market, and highlighted the need for fair and transparent competitive conditions in the world market.

In June, during a visit to Seoul, European Commissioner Martin Bangemann told the Korean government that the Commission would not allow EU yards “to be killed by unfair competition,” warning that the fate of bankrupt shipyards in Korea such as Halla and Daedong would be closely scrutinised to ensure that Korea lived up to international obligations.

More recently, seeming support for hard-pressed European yards has come in the form of remarks made by EU Commissioner Erkki Liikanen, who went on record as saying that the EC “should not rule out any line of action, including unilateral measures.”

EU industry ministers are due to meet this month to discuss the future EU policy for shipbuilding, and shipyards will be expecting firm action. “At the end of the day you have to ask does the EU need Korea, or does Korea need the EU?” says Dr Schottelndreyer. “The level of indebtedness at Korean yards is growing all the time. We anticipate fresh problems in Korean yards by the end of the year, and any additional aid must be accompanied by reductions in capacity.”