The Japanese government is considering filing a complaint with the World Trade Organization against South Korea, alleging it unfairly subsidized shipbuilders and caused excessive price competition in the global market, sources with knowledge of the plan said Monday.
The sources said South Korean government-affiliated financial institutions have provided financial assistance totaling $11 billion to Daewoo Shipbuilding & Marine Engineering Co. since 2015.
With the assistance improving its financial standing, Daewoo Shipbuilding began sharply cutting prices on its products, causing pressure on its Japanese and other rivals amid a supply glut in the global shipbuilding industry, they added.
In January, Japan sent a document to South Korea saying Tokyo believed the financial support given to Daewoo Shipbuilding violated WTO rules.
South Korea replied that the financial institutions provided the assistance at their own discretion, according to the sources.
In response, Japan is considering filing a request with the international trade body to begin bilateral consultations with South Korea over the issue. If the talks break down, the case would be brought to the WTO’s dispute settlement panel.
It generally takes nearly two years for such a dispute to be settled under the WTO framework.
The European Union took South Korea to the WTO over subsidies to South Korean shipyards, saying that such a practice threatened the global shipbuilding industry.
In 2004, however, the WTO ruled effectively in favor of the South Korean side, rejecting the bloc’s argument that the subsidy scheme itself violated WTO rules. Years later, Daewoo, one of the biggest shipbuilders in South Korea, received financial assistance.
Japan’s shipbuilding industry, the world’s largest for decades after the war, has been reeling in recent years amid intense competition from Chinese and South Korean rivals.
The slump has triggered the realignment of the domestic industry for survival.
Among symbolic moves, Mitsubishi Heavy Industries Ltd. has withdrawn from building large passenger ships and spun off its commercial ship business into a separate company. Mitsubishi Heavy has now shifted its focus to other segments, such as building oil storage depots.
Japan and South Korea are also embroiled in disputes over other issues at the WTO.
Japan has requested bilateral consultations with South Korea over Seoul’s antidumping duties on stainless steel bars from Japan.
South Korea currently imposes a 15.39 percent tariff on Japanese stainless steel bars. Japan argues that maintaining such antidumping duties for roughly 14 years is against international trade rules.
The two countries are also in dispute over South Korea’s ban on imports of Japanese fishery products following the 2011 Fukushima nuclear disaster.