EU to Investigate Korean Chip Allegations

Following a complaint by German-based Infineon Technologies AG, the EU plans to investigate charges that the South Korean government gave aid to Hynix Semiconductors that resulted in unfair competitive advantages on the international market.

Fellow manufacturer Samsung Electronics is accused of taking advantage of the alleged subsidies by manipulating product prices in line with the fluctuating state of Hynix.

Infineon, Europe's biggest player in the sector, alleges that the South Korean government has granted subsidies totaling more than 7 billion euros ($7 billion) to Hynix. Similar but less serious allegations have also been levelled at Samsung, according to sources close to the German company.

Infineon accuses Samsung of driving prices for the DRAM chip, the most commonly made form of memory chip, way below normal levels when it looked as if Hynix would go bankrupt.

The allegations then suggest that these prices were returned to their original level once Hynix had been bailed out.

The claim and counter claim surrounding Samsung's alleged price rigging continues unabated and with no resolution in sight.

Hynix denies receiving any help from the South Korean government.

If the allegations aimed at Hynix are proved to be true by the EU’s investigators, an additional import duty of just under 40 percent could be imposed on DRAM chips.

Possible import duty could keep rivals from Euro market

Industry experts have said that this move would effectively "keep (Hynix) out of the European market".

Europe is the third biggest foreign market for South Korea's chipmakers, receiving about two billion euros or 14 percent of the country's total semiconductor exports.

An EU delegation is to travel to South Korea within the next three months to begin its on-site investigations once manufacturers have answered a questionnaire on their behaviour.

The EU authories have been looking into Infineon’s claims since June 10.

Part of the problem, according to Infineon's complaint, is the ongoing bailout of Hynix, which has been trying to recover from bankruptcy.

Bank support could be seen as state aid

The financial aid - including debt write-offs, rollovers and a 2.5 billion euro (3 trillion Korean won) debt-for-equity swap - involved state-run banks. The EU investigators believe this could potentially be classified as state aid.

The announcement of the EU's intent came from the Commerce Ministry in South Korea on July 24 and comes barely a month after the U.S. Department of Commerce said it was beginning its own probe into alleged price-fixing in the market for DRAM.

DRAM memory chips are necessary for the production of computers and mobile phones and demand for these chips can be volatile.

DRAM prices dropped to below cost amid rampant oversupply in 2001, before picking up again sharply earlier this year.