South Korea agrees to meet for bilateral negotiations as Japan threatens complaint with World Trade Organization.
South Korea’s Ministry of Trade, Industry and Energy said Wednesday that Japan has requested bilateral consultations Korea over support for the shipbuilding industry.
In a press release, the ministry says Japan is asserting that the Korean government is supporting the shipbuilding industry in a way that violates the World Trade Organization rules, encouraging low-cost shipbuilding companies that are not able to survive on their own, resulting in damage to the Japanese shipbuilding industry.
South Korea has agreed to participate in bilateral talks with Japan over shipbuilding subsidies, reports Japanese broadcaster NHK.
Korea said that it has examined the legality of the issues raised by the Japanese and contends it is not in violation of norms.
According to a statement on the Korean ministry’s website, Japan claims that the Korea Development Bank, the Export-Import Bank of Korea and the Korea Trade Insurance Corporation ( KOTRA) are violating the WTO agreement by supporting a “normalization plan” for Daewoo Shipbuilding and Marine Engineering (DMSE) and restructuring of the Sungdong Shipbuilding and STX.
On Sept. 28, Hyundai Merchant Marine signed a contract for construction of 20 eco-friendly mega containerships with three shipyards. DMSE and Samsung Heavy Industry will build seven and five 23,000-TEU containerships, respectively, which are expected for delivery in the second quarter of 2020. Hyundai Heavy Industry will construct eight 15,000-TEU containerships to be delivered in the second quarter of 2021.
Citing statistics from Clarskon Research Institute, Korea’s Yonhap News Agency reported this week that Korea shipyards garnered orders for 10.26 compensated gross tons (compensated gross tons or CGTs are a measure that weight more complicated ships more heavily than less complicated vessels) or 45 percent of the 2305 CGTs of ships ordered globally in the first 10 months of 2018, ahead of China’s 7.1 million CGTs or 31 percent. Yonhap said it was the first time in three years that orders have exceeded 10 million CGTs in a year.
Korea said that under the dispute settlement procedures of the WTO, the two nations should have consultations within 30 days. If they do not reach an agreement in 60 days, a dispute settlement body will be established within the WTO.
Japan Times noted in an article published Tuesday that “the Japanese shipbuilding industry was the world’s largest for decades after World War II but gave up the top spot in the 2000s amid intense competition from Chinese and South Korean rivals. The slump triggered realignment of the domestic industry.”
Reinhard Luken, general manager of the German shipbuilding association VSM told the maritime journal Hansa Wednesday that that his organization supports the decision of the Japanese government, saying it has contributed to market distortions and overcapacity with state aid.
Reports that the Korean government is supporting Hyundai Merchant Marine with $5 billion in state funding for new ships has sparked criticism from Europe’s shipping industry, including a joint press release from the .European Community Shipowner’s Assocation (ECSA) and European Shipyards and Maritime Equipment Assocation (SEA Europe) in October.
Martin Dorsman, secretary general of the ECSA, said, “The South Korean reform plan is greatly concerning for the European shipowners and shipbuilding industry. These measures create an uneven playing field, hamper the free and equal access to international maritime transport and contribute to the global overcapacity. Part of this plan is also the support to secure stable cargoes for Korean flagged vessels, which is a flag reservation measure of a particularly protectionist character. At a time that protectionist trends are rising, we ask Europe to send a strong message in support of free, fair and rules-based trade.”
Christophe Tytgat, the secretary general of SEA Europe, said, “The latest support measures from South Korea are clearly an example of unfair competitive distortions. By creating artificial demands through state aid, South Korea has regrettably contributed to today’s severe overcapacity in merchant shipbuilding and merchant shipping, with dramatic, far-reaching consequences for all market players.”
In July, Danish members of the European Parliament Christel Schaldemose and Bendt Bendtsen said that “European shipowners are attempting to adapt to mounting global pressure caused by low freight rates, among other things, but are facing stiff competition from shipping lines in China and other Asian countries because of various unfair practices such as, for instance, government subsidies for shipbuilding.”
They asked the European Commission to comment on “how big a problem is unfair competition involving government subsidies” and what action it was taking.
In a response in September, Cecilia Malmstrom, the EC trade commissioner, said the EC “is engaging with Chinese counterparts bilaterally as well as with other key shipbuilding nations in plurilateral fora to address the important issue of government subsidies, which can generate significant distortions to the detriment of EU stakeholders. In addition, the commission is paying close attention to recent Korean support measures, whose impact could also be significant. The commission is committed to avoid that overcapacity in the sector undermines the interests of EU shipbuilding and shipping companies.”
Japan: South Korean shipbuilding violates rules
