Japan to Sue South Korea in Subsidy Row

 07 Nov 2018 11.12am

Japan is preparing to take South Korea to the World Trade Organisation (WTO) over allegations it is subsidizing its shipbuilding industry.

According to the Financial Times (FT), the case will focus particularly on Hyundai Merchant Marine’s (HMM) purchase of 20 new LNG-powered megaships, which it made on September 28.

The funding for the deal was partly arranged by the Korea Ocean Business Corporation, a government-owned business established in July 2018 to support the country’s shipping sector.

The megaship order was made to struggling South Korean shipbuilding companies Daewoo Shipbuilding and Marine Engineering Co., Samsung Heavy Industries Co. and Hyundai Heavy Industries.

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The subsidy was heavily criticized by the European Community Shipowners’ Associations (ESCA) and Sea Europe, who described South Korea’s actions as “unfair competitive distortions.”

According to the FT, the case will also examine bailouts of Daewoo – the company received USD $3.5 billion from creditors in 2015 to build ships that had already been ordered. Two years later it received a further $2.6 billion.

Japan argues that these bailouts are akin to state-funding, which is prohibited under WTO rules, as the capital came from state-run banks. Tokyo also claims it has helped Daewoo undercut Japanese shipbuilders.

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