Measures Affecting Trade in Commercial Vessels

Status: Concluded

Subject: Ships,

Respondent: European Communities

Complainant(s): Korea,

Third Parties: United States, China, Japan,

Dispute Number: DS301

Link to Dispute Site:

Complaint by Korea.

On 3 September 2003, Korea requested consultations with the European Communities concerning certain measures by the EC and its member States in favour of their shipbuilding industry which, according to Korea, are inconsistent with their WTO obligations. These measures are as follows:

* EC Regulation 1177/2002 ("TDM Regulation") and EC Regulation 1540/98, as well as the EC member States' implementing provisions. These measures provide for subsidies in favour of commercial vessels in various forms;

* The provision by the EC and the member States of subsidies in support of commercial vessels built in the EC, in form of (a) operational aid granted on a contractual basis in forms such as grants, export credits, guarantees or tax breaks, (b) restructuring aid, (c) regional or other investment aid, (d) research and development aid, (e) environmental protection aid and (f) insolvency and closure aid.

Korea considered that these measures are in breach of their obligations under the provisions of the WTO Agreements, inter alia:

* Articles 1, 2, 3.1, 5(a) and (c), 6.3(a), (b) or (c), 6.4 and 6.5 of the Agreement on Subsidies and Countervailing Measures ("SCM Agreement");

* Articles I:1 and III:4 of GATT 1994; and

* Article 23(1) and (2) of the DSU and Articles 4, 7 and 32(1) of the SCM Agreement.

Concerning the last point, the request states that the TDM Regulation and the member States' implementing measures "have been designed and implemented as unilateral measures seeking redress of a perceived violation of Korea's obligations under the SCM Agreement" and "constitute specific actions against perceived subsidies of another Member". This may refer to the ongoing dispute concerning Korea's own subsidies, on which a panel was established in July 2003 (WT/DS273).

Korea also considered that the above-described measures nullify or impair benefits accruing to Korea under the WTO Agreements, within the meaning of Articles XXIII:1(a) and (b) of GATT 1994 and Article 5(b) of the SCM Agreement.

On 12 September 2003, China requested to join the consultations.

On 5 February 2004, Korea requested the establishment of a panel. At its meeting on 17 February 2004, the DSB deferred the establishment of a panel. Further to a second request to establish a panel by Korea, the DSB established a panel at its meeting on 19 March 2004. China, Japan and the United States reserved their third-party rights.

On 13 May 2004, the Panel was composed.

On 5 November 2004, the Chairman of the Panel informed the DSB that it would not be able to complete its work in six months inter alia due to certain postponements in the Panel's timetable and other scheduling difficulties, and that the Panel hoped to complete its work by the end of February 2005.

On 22 April 2005, the Panel report was circulated to Members.

* Regarding the claim of Korea under Article III:4 of the GATT 1994, the Panel found that the subsidies authorized under the TDM Regulation were covered by the notion of "the payment of subsidies exclusively to domestic producers" in Article III:8(b) of the GATT 1994, and thus were not "prevented" by Article III.

* Regarding the claim of Korea under Article I:1 of the GATT 1994, the Panel found that since the subsidies authorized under the TDM Regulation were not covered by Article III:4 of the GATT 1994 by virtue of Article III:8(b), they were also not covered by the phrase "all matters referred to in paragraphs 2 and 4 of Article III" in Article I:1.

* Regarding Korea's claim under Article 32.1 of the SCM Agreement, the Panel found that although the measures at issue were "specific" within the meaning of that provision as interpreted by the Appellate Body, the measures at issue did not constitute action "against" a subsidy of another member as that term has been interpreted by the Appellate Body.

* Regarding Korea's claim under Article 23.1 of the DSU, the Panel interpreted this provision as imposing a general obligation on WTO Members not to act unilaterally when seeking the redress of a violation of an obligation under the WTO Agreement. The Panel found that the European Communities had adopted the TDM mechanism in response to what it considered to be a violation by Korea of its obligations under the SCM Agreement and that the Communities was seeking to induce Korea to remove its allegedly WTO-inconsistent subsidies. Accordingly, the Panel concluded that the European Communities had acted inconsistently with Article 23.1 of the DSU.

As above, the Panel found that the measures at issue constitute a violation of Article 23.1 of the DSU, while the Panel rejects the claims of Korea that the measures at issue are in breach of Articles I and III of the GATT 1994 and Article 32.1 of the SCM Agreement.

On 20 June 2005, the Panel Report was adopted by the DSB.

Implementation Status of Adopted Reports

At the DSB meeting of 20 July 2005, the European Communities informed the DSB that it had implemented the DSB's recommendations and rulings in this case, as the Temporary Defense Mechanism (TDM) was not renewed when it expired on 31 March 2005. With respect to national schemes, the European Communities stated that since the TDM was no longer in force, members states could no longer grant operating aid.

Panel Proceedings
Brief Date Brief Description
08/23/2004 Replies of the United States to the Questions from the European Communities and Korea (pdf)
08/03/2004 Third Party Oral Statement of the United States of America (pdf)
07/08/2004 Third Party Submission of the United States (pdf)