Japan has brought the case of merger between Hyundai Heavy Industries and Daewoo Shipbuilding & Marine Engineering to the World Trade Organization (WTO) in an attempt to delay the launching of a mega shipyard to overhaul the shipbuilding industry of South Korea.
The petition filed by Japan is likely to be turned down by the WTO although a subsidy that has been normally granted in accordance with the WTO Agreement and yet adversely affected another country’s industry can be regarded as a violation of the agreement.
The key is how to prove the damage. At present, the business combination is under review and the output of the merger is yet to be launched. In order to clarify damage to the Japanese shipbuilding industry, Japan must come up with concrete evidence such as the new company’s business records and the resultant decline in Japanese shipbuilders’ market share. Japan cannot present such data as of now.
The merger cannot be blocked even if Japan manages to win the first trial at the Dispute Settlement Body (DSB). The Appellate Body of the WTO in charge of the last instance is currently paralyzed due to a delay of committee member appointment. This means that South Korea can neutralize Japan’s suit by filing an appeal if necessary.
This is why Japan is trying to delay the merger by filing a WTO suit and putting forward its predicted damage. For the merger to be completed, combination reviews must be completed not only in South Korea but also in foreign competition authorities. The sale of Daewoo Shipbuilding & Marine Engineering cannot be done if any one of Japan, the European Union, China and Singapore objects to the acquisition.
Those in the South Korean shipbuilding industry are saying that Japan has an undisclosed intention in hindering the restructuring of the industry. Leading Japanese shipbuilders such as Imabari Shipbuilding have concentrated on merchant vessels such as container ships and bulk carriers. Meanwhile, Hyundai Heavy Industries and Daewoo Shipbuilding & Marine Engineering have focused on high value-added LNG carriers.
In this regard, they are saying that Japan is trying to get the upper hand in the entangled South Korea-Japan relations by hindering the merger. Their claim is evidenced by the past move of Japan. For example, Japan filed a WTO suit in 2018, claiming that South Korea’s shipbuilding industry restructuring plan violated the WTO Subsidies Agreement. At that time, the Japanese government filed the lawsuit determined in June 2018 immediately after the South Korean Supreme Court’s October 2018 ruling on forced wartime labor, arousing suspicions that the lawsuit was based on a political motivation.