The European Commission has adopted the second in a series of reports to the Council of Ministers on the state of the world shipbuilding market. The report reveals a continuing decline in the market share of the EU shipbuilding industry. It expresses particular concern about commercially unsustainable prices being offered by South Korean yards. The report also outlines the strenuous efforts made by the Commission to convince the South Korean Government to play its part in creating fair and competitive world market conditions.
In particular, after several rounds of consultations, the European Commission and the Korean Government finalised talks on 10 April 2000 and initialed "Agreed Minutes relating to the World Shipbuilding Market". These Agreed Minutes are focusing on non-subsidisation, banking, financial transparency (with regard to international accounting standards), commercial pricing practices and an effective consultative mechanism. The report is due to be considered by the Council of Industry Ministers at its meeting on 18 May 2000.
According to the report, the world market for merchant ships continues to be in crisis. Supply clearly outstrips demand and there are only a few indications that this situation may improve. Consequently the comparatively stronger demand for ships in the period 1998 to 1999 has had no positive impact on prices. On the contrary, prices for nearly all ship types have continued to decline.
The on-going depression in prices is caused by extremely low offer prices from Korean yards. The cost investigations for shipbuilding orders have once more revealed the extent of the losses (11%-32% of the building costs) which Korean yards are willing to take in order to assure market share and cash flow. These losses have slightly decreased since the Commission's first report, but this reduction is likely to be a result of a different selection of investigated orders.
At current price levels EU and Japanese market shares continue to shrink, although this effect is less pronounced for the EU. With the exception of cruise vessels, all market segments are targeted by Korean yards, leaving only small domestic orders and highly specialised tonnage to EU yards.
The Commission continues with its market monitoring exercise and continues to pursue all lines of action to address the problem, as requested by the European Council of Ministers in its meeting of 9 November 1999. In particular, strenuous efforts have been made by the Commission to secure binding commitments from the Korean Government regarding non-intervention in the financing of shipbuilding activities.
After several rounds of consultations, the European Commission and the Korean Government finalised talks on 10 April 2000 and initialed "Agreed Minutes relating to the World Shipbuilding Market". The overall aim is to promote fair and competitive market conditions in the world market and to work together to stabilise the market and thereby help raise the level of ship prices to ones that are commercially sustainable. In its report the Commission states its intention to ensure a close follow-up of the consultation process foreseen in the "Agreed Minutes".
In parallel, the EU industry has compiled evidence which could lead to a complaint under the EU Trade Barriers Regulation and industry has recently announced its readiness to file such a complaint should the Korean Government fail to implement the above Agreed Minutes satisfactorily. The European Commission report to the Council of Ministers on the situation in world shipbuilding recommends:
- Continued pressure on Korea fully to implement the "Agreed Minutes" and to assume responsibility to work towards an improvement of the market situation, in particular concerning price levels and new building capacities;
- Full application of the provisions of the "Agreed Minutes" once they have entered into force, invoking the consultation mechanism whenever necessary;
- Collection of further and more detailed evidence on possible injurious pricing and other non market-oriented behaviour in order to launch and support a complaint under the Trade Barrier Regulation if required;
- Informing the IMF about the findings and requesting that the promised industrial restructuring in Korea is closely monitored and assessed;
- Encouragement of the EU shipbuilding industry further to improve its competitiveness.