Korea and EU claim victory

According to a European diplomat just hours after Seoul had claimed victory in the case, the WTO has ruled against South Korea on the core issue of a dispute over South Korea?s shipbuilding subsidies.

“The interim report confirmed some of the arguments submitted by South Korea but the EU prevailed on the very important issue of export subsidies,” a diplomat from a EU said. “These subsidies have been declared illegal and must therefore be withdrawn,” he added.

Earlier on Thursday, the South Korean foreign ministry said that the WTO had cleared its shipbuilders of charges that they had received illegal subsidies. The ruling by the WTO’s disputes settlement panel was released confidentially to the parties involved on Wednesday, in keeping with the trade body’s rules.

The EU filed the complaint at the WTO in 2002, after European shipbuilders accused South Korea of heavily subsidising its shipbuilding industry thereby helping South Korean companies to sell their ships on world markets at cut prices. Korea argued that its industry was simply more competitive.

A spokesman for the European Commission’s delegation in Geneva, Fabian Delcros, said he was “very surprised” that Seoul had broken the confidentiality rule on interim reports.

The confidentiality clause is only lifted when the final ruling by the panel of experts examining the case is released to all 148 WTO member states in a few weeks’ time.

Trade rules allow both sides to submit comments for inclusion in the panel?s report during the confidentiality period but leave no provision for changes to the interim ruling.

South Korean shipbuilders accounted for 43.5% of the global shipbuilding market in 2003, followed by Japan with 28.6%, China 12.6% and Europe 8.7%.

On 24 November, informed trade sources in Geneva announced that Korea has received a favourable judgment in the shipbuilding lawsuit filed at the WTO by the EU against Korea. It communicated that the WTO dispute settlement panel decided that the restructuring method such as the write-off of debts of Daewoo, Samho and Daedong are not subsidies under the WTO agreement as the EU maintains.

The panel also concluded that the ship finance and subsidy system for advance returns operated by the Export-Import Bank of Korea has no problems in itself. However, it decided that for individual companies, in some cases, it is considered a subsidy.

The provisional report has taken a year and four months to be released since WTO accepted the EU?s request and set up the panel last July. The final report will be released within a month, and it is anticipated that the contents will not be notably different from the provisional report. However if the EU does not accept the final report, it will take some time to draw the final conclusion, which will be after the appeal and after two to three months of adjustment.