South Korea's trade friction with the European Union over the shipbuilding industry shows all the signs of a head-on collision. The EU's executive commission announced the cessation of its talks with Korea and said it will refer the matter to international arbitration including the TBR and the World Trade Organization (WTO). The Korean government and the shipbuilding industry, too, have decided to take up EU subsidies to its shipbuilding industry at the WTO.
The EU has consistently maintained that Korean shipyards have been undercutting the market and securing ship orders around the world by taking advantage of subsidies from government-run banks such as the Korea Development Bank in violation of fair trade practices. The EU further charges that Korean shipyards have not released construction costs and keep accounting records secret to hide these unfair practices.
Korean shipyards counter that their competitive edge around the world is due to the appreciation of the Korean won and improved technology, which have contributed to cutting costs. The government feels it has done all that it can to address EU concerns about Korean shipyard management. With regard to Daewoo Heavy Industries, the government said creditors put the ailing company under workout purely based on commercial viability, not government interference.
The EU's demand that Korean yards unveil their costs is unacceptable under commercial practices. The Commerce, Industry and Energy Ministry said it would bring a counter suit against the EU eventually because it cannot accept the EU's request under any circumstances. The ministry, however, will try to reinstate talks with the EU before resorting to legal measures. The shipyards, too, are determined to fight EU moves head on, labeling EU demands as excessive and inflexible.
A top official at the Korea Shipbuilding Association, said Korean shipyards have nothing to lose because all foreign shipyards have been subsidized by their governments in one way or another. "We are ready to bring the matter to court as soon as they file a suit against us," he said. Korean shipyards have enough orders to keep them occupied for more than two years and thus can afford to take legal action.
Korea's shipbuilding market share came to 40.9 percent last year and orders for the first half this year already exceeded total for last year at around 12 million tons. The Japanese shipbuilders accounted for 30 percent of the world market, while the EU's came to 18.7 percent and China's was 10.4 percent.