JAPAN and South Korea’s dispute over the latter’s shipbuilding subsidies continues as the two countries failed to reach an agreement during negotiations last week.

Representatives from the two nations held a meeting last week based on dispute settlement procedures of the World Trade Organisation but their public remarks indicate a persistent divergence of views.

Japan, which had requested the consultation earlier this year based on an extensive list of concerns over the South Korean government’s intervention in its nation’s shipbuilding industry, said it explained the reasons why it considers Korea’s measures supporting its domestic shipbuilding industry to be market-distorting and inconsistent with the WTO subsidies and countervailing agreement.

“In order to solve this problem, Japan also requested Korea for clarification of the facts regarding the measures at issue and prompt correction of the measures. Japan will continue its attempt to achieve a prompt resolution of the matter pursuant to the WTO dispute settlement procedures,” Japan said.

Meanwhile, South Korea said in its own press release that during the latest meeting it declared that Japan's points were “groundless” and that the financial transactions it had issues with were in line with WTO rules and did not lead to market distortion.

It added that it would deal with the relevant WTO dispute settlement procedures accordingly.

Representatives from the European Union, which had supported Japan’s push in the WTO, also joined last week’s meeting as a third party.

WTO consultation procedures suggest that if two arguing sides are unable to resolve their differences after two months, the case may be handled by a WTO panel.

“Only after such mandatory consultations have failed to produce a satisfactory solution within 60 days may the complainant request adjudication by a panel,” the rules stipulate.

South Korea and Japan, the second- and third-largest shipbuilding nations respectively, have been at loggerheads over shipbuilding subsidies for several years.

In a culmination of this tension, Japan submitted a first formal complaint against South Korea to the WTO in late 2018, alleging that South Korea’s subsidies to shipbuilding are in breach of international agreements.

At the time, Japan had reported South Korea had paid about $10.5bn in support to its shipbuilding industry since 2015. Among the policies it took particular issue with the large scale bailout of South Korea’s Daewoo Shipbuilding & Marine Engineering.

Frustrations have also flared up outside the WTO. In December 2019, shipbuilding nations meeting under the Organisation for Economic Co-operation and Development failed to agree to a new competition regime, as South Korea opposed it.

Since Japan first took its grievances to the WTO in late 2018, South-Korea’s biggest shipbuilder, DSME, and Hyundai Heavy Industries have agreed to merge, in yet another move that has raised suspicion in Japan, according to its second WTO consultation request.

The European Commission, which was investigating the merger on competition grounds, has suspended the investigation.

South Korea also rolled out a Won820bn ($669m) financial package for its shipbuilders earlier this year.

On the other side of the aisle, in Japan, Imabari Shipbuilding and Japan Marine United have agreed to a close partnership that will see Imabari buy a stake in JMU and the establishment of a joint venture to develop and sell vessels. Reports out of Japan suggest the government is targeting greater consolidation of the country's shipbuilding industry amid intense competition from China and South Korea.