Japan Claims Hyundai Heavy-Daewoo Shipbuilding Merger Violates WTO Rules

[Image source=Yonhap News]

[Asia Economy Reporter Moon Chaeseok] Japan has claimed that the South Korean government violated World Trade Organization (WTO) rules during the merger process of Hyundai Heavy Industries and Daewoo Shipbuilding & Marine Engineering.

According to the bilateral consultation document on the Korea-Japan shipbuilding dispute published on the WTO website on the 12th, Japan filed a complaint with the WTO regarding South Korea's shipbuilding industry restructuring measures, raising issues about the merger process of Hyundai Heavy Industries and Daewoo Shipbuilding & Marine Engineering.

Earlier, on the 31st of last month, Japan requested bilateral consultations under the WTO dispute settlement procedure concerning South Korea's shipbuilding industry restructuring measures. Bilateral consultations are the first stage of the WTO dispute settlement process and are considered the official start of a complaint.

This is the second time Japan has requested WTO dispute resolution related to South Korea's shipbuilding industry restructuring.

The first complaint led to bilateral consultations in December 2018, but Japan did not request the establishment of a panel, which is the official adjudication process. This time, Japan has refiled the complaint, including measures taken after the first complaint.

Newly included in this complaint is the early last year agreement where the Korea Development Bank contributed approximately 59.7 million shares of Daewoo Shipbuilding & Marine Engineering in kind to Hyundai Heavy Industries, in exchange for 9.12 million convertible shares and 6.1 million common shares from Korea Shipbuilding & Offshore Engineering, the holding company of Hyundai Heavy Industries Group's shipbuilding division.

The complaint also includes the provision that the Korea Development Bank guarantees an additional 1 trillion KRW in financial support if funds are insufficient.

Furthermore, the request for bilateral consultations cites the South Korean government's issuance of Refund Guarantee (RG) and new shipbuilding support measures as reasons.

The Japanese government argued, "The South Korean government has taken a series of measures to financially support its domestic shipbuilders, including direct financial assistance, which violates the WTO Subsidies and Countervailing Measures Agreement."

Japan also pointed out that loans, guarantees, and insurance provided by the Korea Development Bank, the Export-Import Bank of Korea, and the Korea Trade Insurance Corporation to Daewoo Shipbuilding & Marine Engineering as part of the shipbuilding industry restructuring also violate the WTO Subsidies Agreement.

It is rare to refile a complaint by adding new issues to an existing one.

Concerns have been raised that this complaint might affect the corporate merger review between Hyundai Heavy Industries and Daewoo Shipbuilding & Marine Engineering.

Hyundai Heavy Industries Group is undergoing corporate merger reviews in six countries, starting with the Korea Fair Trade Commission in July, and received its first approval in Kazakhstan in October.

Immediately after the news of Japan's complaint became known, Hyundai Heavy Industries clarified through a statement that it is "unrelated to the corporate merger review between Hyundai Heavy Industries and Daewoo Shipbuilding & Marine Engineering."

This content was produced with the assistance of AI translation services.