Daewoo Shipbuilding aid package opposed by Japan and the European Union

2017-04-20 09:00

Japan and the European Union have again raised questions about the South Korean government's plan to aid Daewoo Shipbuilding & Marine Engineering.

At the shipbuilding sector meeting of the Organisation for Economic Co-operation and Development (OECD) held on April 18 and 19, Japan and the EU opposed the South Korean government's aid to Daewoo Shipbuilding & Marine Engineering.

Japan and the EU believe that the South Korean government's aid plan for Daewoo Shipbuilding & Marine Engineering is unfair and violates WTO rules. They pointed out that the Korea Development Bank and the Export-Import Bank of Korea, as South Korean policy banks, provided 4.2 trillion won in funding in 2015 and further additional financial support this year conditional on debt restructuring. This, they argue, violates WTO regulations on government subsidies.

At the OECD Shipbuilding Working Party No. 6 (WP6) meeting held in Paris at the end of November last year, Japan and the EU questioned whether the financial support received by Daewoo Shipbuilding & Marine Engineering constituted government subsidies. The Japanese government stated that the South Korean government played a key role in Daewoo Shipbuilding & Marine Engineering's financial restructuring, with the Korea Development Bank and the Export-Import Bank of Korea, as state-owned banks, acting as creditors and shareholders. The Japanese government believes that this aid has exacerbated overcapacity and supply-demand imbalances in the shipbuilding market.

Reinhard Luken, Secretary General of the German Shipbuilding and Marine Technology Association (VSM), stated that it was inappropriate for the South Korean government to use government financial subsidies to help Daewoo Shipbuilding & Marine Engineering. Douwe Cunningham, Secretary General of the Community of European Shipbuilders' Associations (CESA), pointed out that although there is no direct competition between European shipbuilders and Daewoo Shipbuilding & Marine Engineering, in the context of current global overcapacity in shipbuilding, CESA opposes the South Korean government's aid to Daewoo Shipbuilding & Marine Engineering in order to promote fair competition among shipbuilders.

In response to the questions, the South Korean government stated that the decision to provide support to Daewoo Shipbuilding & Marine Engineering was a commercial judgment of the creditors. As major creditors of Daewoo Shipbuilding & Marine Engineering, the Korea Development Bank and the Export-Import Bank of Korea would suffer huge losses if Daewoo Shipbuilding & Marine Engineering encountered problems; therefore, the two banks decided to provide support to Daewoo Shipbuilding & Marine Engineering.

Last month, the Korea Development Bank (KDB) and the Export-Import Bank of Korea, state-owned banks in South Korea, announced a new aid plan totaling 6.7 trillion won (approximately US$5.98 billion) for the struggling Daewoo Shipbuilding & Marine Engineering; this is the second round of aid provided by the Korea Development Bank and the Export-Import Bank of Korea to Daewoo Shipbuilding & Marine Engineering. Under this plan, Daewoo Shipbuilding & Marine Engineering will be able to obtain a new loan of 2.9 trillion won if lenders and bondholders agree to exchange 2.9 trillion won in debt for new shares. The aid plan also includes a debt grace period of 3 to 5 years for an unsecured loan of 900 billion won.

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