Japan and China are taking action to keep the Korean shipbuilding industry in check.
The Japanese government, condemning Korea Development Bank’s injection of public funds into Daewoo Shipbuilding and Marine Engineering (DSME) as an unfair trade practice (an illegal subsidy), has decided to take the case to the tribunal of the World Trade Organization (WTO).
The Ministry of Economy, Trade and Industry (METI) of Japan published the “2019 Report on Compliance by Major Trading Partners with Trade Agreements” last month. The report lists the Korean government’s support for the shipbuilding industry as an unfair trade practice.
The report says: “Large-scale public financial support to the domestic shipbuilding industry by governmental financial institutions may be regarded as prohibited subsidies etc. under the Agreement on Subsidies and Countervailing Measures. It may distort the market and consequently prevent early resolution of the excess capacity problem in shipbuilding industry.”
This is not the first time that Japan sued the Korean shipbuilding industry for violating the WTO’s ban on subsidies. In November last year, the Japanese government initiated a WTO dispute settlement process, calling the Korean government's efforts to inject public funds into struggling shipbuilders “foul.”
Korea and Japan had discussions about the matter but failed to hammer out an agreement. The recently published report on unfair trade shows that the Japanese government is determined to pursue the WTO dispute settlement process.
The Japanese shipbuilding industry is also negative about the Korean government’s push to restructure the shipbuilding industy. "Hyundai Heavy Industries Group’s acquisition of DSME will undermine the shipbuilding market order," said Yasuhiko Kato, chairman of the Shipbuilders' Association of Japan. “It will kindle a serious glut.”
China is also moving to respond to the big deal in the Korean shipbuilding industry. China is drawing up a plan to marry CSIC and CSSC, the No. 1 and No. 2 dockyards in China. A merger between two Chinese shipbuilders has been in the works since a long time ago. Shipbuilding industry watchers say that China is expediting the merger between the two following the union of the Hyundai Heavy Industries Group and DSME.
Despite such headwinds, Hyundai Heavy Industries Group plans to submit a merger application to Japanese and Chinese authorities this month.