The European Union has accused South Korean shipyards of threatening the future of Europe's shipbuilding industry through unfair subsidies. The report comes a week before the European Commission is expected to decide whether to take South Korea to the World Trade Organisation (WTO) over the alleged "unfair trading practices". The EU has also considered reintroducing subsidies for European shipyards, which were abolished in December.

South Korea is the world's largest shipbuilder, taking about 38% of global orders last year. A visit by EU inspectors to South Korean shipyards in March to investigate allegations of unfair subsidies found "serious difficulties continue to affect the EU shipbuilding sector as a result of unfair trading practices by South Korean competitors". "There is mounting evidence that state-owned and state-controlled banks in South Korea have been instrumental in financing unviable shipyard operations," the Commission said. South Korean yards incurred losses averaging 14% on orders, it said.

South Korean trade officials have rejected the EU allegations and their government threatened to file a counterclaim against the EU with the WTO. The South Korean shipbuilders say their success is due to exchange rate factors, increased productivity, quality and on-time delivery.

The Commission's report found that there had been an increase of 56% in global orders for new ships in 2000 compared to a year earlier. Last year Korea received about 38% of global orders, compared to 25% for Japan and 16% for Europe. South Korea dominates the industry in the construction of cargo and bulk carriers while Europe's industry is focused on the construction of cruise ships.