Trade dispute may erupt over state rescue of shippers, …

By Lee Hyo-sik

The government-initiated rescue of struggling shippers and shipbuilders could spark an all-out trade dispute with Europe, China, Japan and other countries that fiercely compete with Korea in the global market, trade analysts said Friday.

They say the government and state-run banks should take a more cautious approach to supporting debt-ridden shipping and shipbuilding firms, and not prompt competing nations to file complaints with the World Trade Organization (WTO) against the moves.

Countries could argue that the Korean government’s extension of financial support to its shipping and shipbuilding industries through state-run banks violates WTO rules, according to the analysts.

The Geneva-based intergovernmental organization, which regulates international trade, forbids member states from providing subsidies to enable specific industries to increase exports at the expense of their rivals.

“I think policymakers should be more careful when introducing support measures for struggling shipbuilders and shipping firms, because the government’s corporate restructuring drive can be seen as a move to extend subsidies in the eyes of other countries,” said Je Hyun-jung, a researcher at the Institute for International Trade.

“The nation’s shipping and shipbuilding industries compete with those of Europe, China and Japan in the global market. So, these countries will likely take issue with Korea’s planned support of Hyundai Merchant Marine and Hanjin Shipping through the state-run Korea Development Bank (KDB) and the Export-Import Bank of Korea (EximBank). Foreign countries may file the petition with the WTO, insisting that their shipping firms will suffer losses as a result.”

“The situation is pretty much the same for the shipbuilding industries, if the government continues to inject capital into Daewoo Shipbuilding & Marine Engineering (DSME),” she said, calling on the government to mobilize all diplomatic resources to prevent the state-initiated restructuring from causing disputes with trading partners.

“It is very important for Korea not to get dragged into a trade dispute, because it is very costly financially and adversely affects the nation’s reputation,” Je said. “While helping shippers and shipbuilders get back on their feet, the government should contact its trading partners and persuade them that the ongoing restructuring is not aimed at boosting the firms’ export competitiveness.”

But the researcher said Korea needs to prepare itself to defend its position if its trading partners lodge complaints with the WTO.

“I think policymakers should stress that the restructuring of shippers and shipbuilders is led by their creditor banks, not the government,” she said. “They should be thoroughly prepared to effectively counter any arguments.”

KDB and EximBank have extended a total of 12 trillion won to DSME since 1999, when it broke off from the now-defunct Daewoo Group. In 2000, the European Union filed a complaint with the WTO over the state-run banks’ financial assistance to the shipbuilder. But the trade body ruled in favor of Korea at the time.

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