Japan and the European Union have filed a complaint with the OECD, maintaining that the Korean state-run banks’ bailout of Daewoo Shipbuilding and Marine Engineering (DSME) violates World Trade Organization regulations.
The Korea Development Bank and the Export-Import Bank of Korea have recently vowed to pump another KRW2.9trn ($254m) into the struggling shipbuilding giant, which has been hit by a drop in new orders as well as a multi-billion dollar accounting fraud.
International shipbuilding spats aimed at South Korea are nothing new. Japan and the EU have repeatedly urged the OECD to investigate DSME’s bailout in the past two years. Back in 2002, the OECD was also pressed to look into Seoul’s propping up of its yards sector.
The OECD has said it is following DSME’s restructuring closely.
Yim Jong-yong, chairman of South Korea’s Financial Services Commission, said this week it had been a difficult decision to do a U-turn and pump more money into DSME.
“Concerns loom large still, and we regret deciding on an additional KRW2.9trn in support under such conditions,” Yim said.
“Once DSME becomes small in size after 2018, we believe industry-wide restructuring including overhauling the ‘big three’ system [referring to the country’s three largest shipbuilders, Hyundai Heavy Industries, Samsung Heavy Industries and DSME] into a ‘big two’ system will be possible,” Yim said. “We will find DSME an owner through an M&A.”