LexisNexis(TM) Academic - Document

LexisNexis(TM) Academic - DocumentCopyright 2005 The Financial Times Limited
Financial Times (London, England)

March 9, 2005 Wednesday
London Edition 1

SECTION: ASIA-PACIFIC & INTERNATIONAL ECONOMY; Pg. 12

LENGTH: 526 words

HEADLINE: South Korea claims victory over EU in shipping row

BYLINE: By ANNA FIFIELD and RAPHAEL MINDER

DATELINE: SEOUL and SRASBOURG

BODY:


South Korea yesterday claimed victory in a shipbuilding dispute with the European Union, after the World Trade Organisation largely rejected Brussels' complaint that Seoul was illegally subsidising the industry.

In the latest twist in a long-running spat between the EU and the world's largest shipbuilding nation, the WTO ruled that the corporate restructuring that took place in South Korea after the 1997 Asian financial crisis, which included debt forgiveness and debt-for-equity swaps, did not amount to illegal state aid.

It also dismissed the EU's contention that the subsidies provided to shipyards through the Korean Export-Import Bank (Kexim), in the form of construction loans and advance payment refund guarantees, constituted illegal export support. But there had been some specific cases where funding was at below market rates.

"We uphold the (EU's) claim that Korea has provided prohibited export subsidies in the form of the individual Kexim transactions," the WTO said. The WTO gave Seoul three months to withdraw these subsidies.

South Korea yesterday portrayed the ruling as a victory, but Brussels said it should be considered as a half-way outcome.

While regretting the WTO's decision not to consider loans and refund guarantees granted by state-owned banks as subsidies, the European Commission welcomed news that the Geneva body had called for Seoul to scrap its system of export subsidies within 90 days.

The European Commission also said it would review the ruling before deciding whether to appeal.

"This was a very difficult and complex case and we will take our time before deciding how to proceed," said a spokeswoman for Peter Mandelson, the EU's trade commissioner.

However, the complaint that was upheld - that South Korea must halt some financial support for the country's shipbuilders - was now irrelevant, said Ahn Myung-soo, head of the WTO dispute team at the ministry of foreign affairs and trade. "These specific examples all expired at the end of last year so the impact will be minimal," he said. "This ruling is not significant - it does not give anything to the EU side."

Analysts in Seoul said European shipyards were frustrated by South Korea's predominance in the global shipbuilding market. In 2003, South Korea had 43.5 per cent of the market while the European Union had only 8.7 per cent.

"The EU has been driving this case not because of its economic justification but because of political reasons," said Choi Byung-il, international trade professor at Ehwa Women's University in Seoul. "The WTO indicated that the EU was pursuing the complaint on non-economic grounds so basically the report is a victory for Korea."

The EU took South Korea to the WTO in 2002, claiming that South Korean shipbuilders received soft loans and debt write-offs from government-backed banks that helped save them from bankruptcy in the wake of the 1997 financial crisis.

Seoul denied the charges and responded with a counter-complaint to the WTO last year, claiming the EU was providing struggling European shipbuilders with subsidies of up to 6 per cent of a ship's price in cases where they faced competition from South Korean rivals.

LOAD-DATE: March 8, 2005