EC hits Hynix with 33 per cent punitive duty

The European Commission Thursday slapped 33 per cent duties on imports of dynamic RAM (DRAM) made by the South Korean firm Hynix Semiconductor Inc.

This is the largest such punishment the Commission has ever meted out to one company, and has sparked opposition from Hynix’s customers in Europe and some European member states, according to sources close to the Commission.

The move follows a lengthy investigation into South Korean government support for Hynix. Hynix has been found to benefit from subsidies in the form of financing, provided by government-owned or controlled Korean banks, to the detriment of the European chip industry, the Commission said in a statement

The European regulator said subsidies to rival South Korean chip-maker Samsung Electronics Co. Ltd. were found to be within the limits allowed by law, and Samsung will therefore not be affected by any punitive duties.

European chip-makers, including Germany’s Infineon Technologies AG, have complained about restructuring loans and debt-for-equity swaps made by South Korea’s state-controlled banks to Hynix, arguing that this sort of financial support amounts to illegal state aid and allows Hynix to offer chips at prices below the cost of production.

Infineon claims that Hynix has been able to sell DRAM chips at below the production price of around US$4 per chip.

The Commission agreed. “The sales prices of DRAMS fell dramatically in the period investigated,” it said.

It argues that Hynix had distorted competition in the European market, which was worth around two billion euros in 2001, the year the firm was under investigation.

The Commission identified two types of financial assistance: the refinancing of corporate bonds provided through a program set up by the South Korean government together with the Korean Development Bank; and financing from a handful of banks, including Korea Exchange Bank, Korea Development Bank, Hanvit Bank and Chohung Bank, which together account for about 60 per cent of Hynix’s debt.

The 33 per cent duty on Hynix’s DRAMS will apply for four months, the Commission said. “During this period the Commission will have to take a definitive decision,” it said.

The U.S. has also punished Hynix for having received state help with a provisional import duty of 57.37 per cent on the firm’s DRAMS. Taiwan is also understood to be concerned about the support Hynix receives and is considering opening its own investigation.

A lawyer close to Hynix who requested anonymity said the company opposed the EU action and would try to persuade the 15 member state governments to scrap the import charge.