In the course of the merger between Hyundai Heavy Industries (HHI) and Daewoo Shipbuilding & Marine Engineering (DSME), Japan has claimed that the Korean government violated World Trade Organization (WTO) rules.
A bilateral consultation paper on the dispute in shipbuilding industry between Korea and Japan, which was released on the WTO's website on Feb. 12, showed that Japan raised questions about the merger process between HHI and DSME when it filed a complaint with the WTO against the Korean government's restructuring measures in the shipbuilding industry.
Earlier on Jan. 31, Japan asked for bilateral talks on the WTO dispute settlement process over the Korean government's measures to restructure the shipbuilding industry. The bilateral talks are considered to be the first step in the WTO dispute settlement process and official complaints have begun.
It is the second time that Japan has requested a resolution of the WTO dispute regarding the restructuring of South Korea's shipbuilding industry. The first complaint was made in December 2018, but Japan has since not demanded the establishment of the panel, an official trial procedure. However, the lawsuit was filed again, including the measure taken after the first lawsuit.
"The Korean government has taken a series of measures to financially support its shipbuilders, including direct financial provision," the Japanese government said. "This is in violation of the WTO's subsidy agreement."
Japan pointed out that loans, guarantees and insurance provided by the KDB Bank, the Export-Import Bank of Korea and the Korea Trade Insurance Corp. to DSME as part of restructuring the shipbuilding industry are also in violation of the WTO subsidy agreement.
There are concerns that the Japanese complaint may also affect the review of corporate combinations between HHI and DSME.
An official at HHI explained, "The logic that Japan appealed to the WTO is that the Korean government unfairly supported the shipbuilding industry. In a corporate combination, however, the two logics run counter each other as the focus is placed on the part that the price rises when a shipbuilder is eliminated."
The official also added, "There are various cases of business combinations so far, so the new standards should not be applicable only to certain companies in certain countries."