EU sets tariff on Hynix chip imports.

Byline: Register-Guard and news service reports

The European Union on Tuesday imposed a five-year tariff of 34.8 percent on imports of computer memory chips made by South Korea's Hynix Semiconductor Inc., the world's No. 3 supplier, to counter alleged subsidies to Hynix by the Korean government.

The decision by the governments of the 15-member EU bloc affects Hynix's dynamic random access memory chips, or DRAMS, used to store data in a PC. Samsung Electronics Co., the world's largest DRAM maker, was exempted from the so-called countervailing duty.

The EU move comes on the heels of the United States saying it will impose heavy tariffs on chips that Hynix sends into the United States from its factories in Korea.

The U.S. tariffs of up to 45 percent don't apply to chips that Hynix makes at its sole non-Korean plant, in Eugene, and the firm has said it plans to increase production at the 850-employee Eugene factory to serve the U.S. market. It was unclear whether any of the chips made in Eugene are exported to Europe.

However, both the U.S. and European tariffs make it much more costly for the firm to sell chips it makes at its Korean factories to U.S. and European markets. That could weaken Hynix's long-term financial viability, and its ability to carry out costly factory upgrades, observers have said.

The EU tariff follows a 33 percent four-month duty on Hynix imposed in April by the European Commission, the EU's executive branch. The provisional duty resulted from a complaint by Germany's Infineon Technologies AG, the world's fourth-biggest DRAM maker, that Hynix benefited from South Korean government subsidies in 2001.

``The aim of the measures is not to eliminate Hynix from the EU market, but to countervail the subsidization to the extent it has benefited Hynix ... to the detriment of other suppliers on the market,'' the EU said in a statement issued in Brussels.

South Korea is challenging the tariffs at the World Trade Organization.

Hynix may file an appeal at the EU Court of First Instance in Luxembourg, said Jae Park, managing director of Hynix Semiconductor Europe.

``We are very disappointed at the EU's decision,'' Park said from his office near Frankfurt. ``We want to pursue every opportunity to contest the decision legally.''

Hynix's rivals in Europe, the United States and Taiwan have complained about South Korean assistance to the company.

The dispute centers on the roll of South Korean banks. Hynix owes those banks about $4 billion, and the banks have repeatedly agreed to roll over the loans or swap some of the debt for equity in Hynix.

The South Korean government owns shares in some of the banks, and Hynix's competitors have argued that the rollovers and other aid thus amount to illegal government subsidies of Hynix. The banks have argued that they aren't acting on behalf of the government, and that the rollovers are just prudent business practice.