EU investigates South Korean chip makers

The probe was sparked by a complaint last month from German chip maker Infineon Technologies AG. Infineon is concerned about the effect of subsidies on the DRAM chip market. The alleged subsidies take the form of tax benefits, export credits, subsidized loans, debt rollovers and debt-to-equity swap programs, the Commission said. The Commission is expected to conclude its investigation in the first half of next year. The probes come as chip prices are tumbling. Hynix alone has benefitted from subsidies worth US$7 billion, said Michael Schuette, a lawyer in the Brussels office of law firm Freshfields Bruckhaus Deringer, which is acting on behalf of Infineon. "These subsidies enabled Hynix to stay in business even though it has been unable to pay its debts," Schuette said. "They have been granted at a time when closure would have been the right thing for Hynix." Infineon claims that the South Korean government granted loans to Hynix at rates of between 6 percent and 10 percent, at a time when credit agencies had downgraded the company to junk bond status. Junk bond financing typically costs about 20 percent in interest. Subsidies to Samsung have been smaller. Infineon claims that the Korean government granted Samsung tax benefits for losses it made on its exports. These amounted to 2 percent to 3.5 percent of its export revenue to Europe, worth 764 billion South Korean won (US$658 million), Schuette said.