The US should investigate South Korean subsidies of Hynix Semiconductor Inc and complain to the WTO about government support for the third-largest maker of computer memory chips, a US lawmaker said.
Hynix would be in bankruptcy without government guarantees for much of its debt, said Republican Senator Mike Crapo of Idaho, whose constituents include Boise-based Micron Technology Inc, the biggest US maker of computer memory chips.
Crapo is the latest US official to warn President Kim Dae-jung's government that support by state-run banks and insurance companies of private business violates WTO rules.
"There had to be government guarantees involved for it to be done," Crapo said in an interview. "Even if there were banks willing to cover these kinds of loans, they would have done so at penalty interest rates."
Hynix started marketing US$1.15 billion of new shares and bonds this week after its creditors agreed to a US$3.8 bailout that included payment guarantees from state-run Seoul Guarantee Insurance Co.
In addition, state-run Korea Development Bank agreed to buy 80 percent of its maturing bonds almost every month so far this year, an amount that will total 824 billion won (US$636 million) by the end of June.
US Trade Representative Robert Zoellick said he's weighing WTO action over subsidies for Hynix, formerly known as Hyundai Electronics Industries Co.
Hynix's US$3.8 billion bailout came through about two weeks ago when Seoul Guarantee offered payment guarantees for 600 billion won (US$461.2 million) of three-year bonds in the package.
The WTO, which sets the rules for world trade, prohibits governments from directly supporting private businesses.
Hynix is receiving government support because it needs to raise cash to repay US$4.4 billion of debt due to creditors this year.
Under Korea Development Bank's program to buy 80 percent of its maturing bonds, the bonds carry coupons of 260 basis points more than the three-year corporate bond yield. The yield differs depending on the company's local rating, so Hynix may be paying about 16 percent to refinance its debt.
Korean Finance Minister Jin Nyum met Crapo last month in Seoul and assured him the purchase in January of US$183.4 million of maturing bonds from the company by the Korea Development Bank would be the last public support, Crapo said.
Jin denied making such a statement, saying "I told him it was for one year.
"If Hynix leaves the market, there would be some price upsurge of chips," Jin said at a lunch with the foreign press last week. "For [computer makers] it's not good." Jin "made very strongly his case for why they felt they needed to do this," Crapo said. Jin stressed the potential job losses and the need to protect a major export company, Crapo said.
Hynix, which accounts for about 5 percent of Korean exports, has been struggling since it began separating in March from Hyundai Group, Korea's second-largest industrial concern.
The US and European Union voiced "concerns about the extent to which the financial support recently provided by (Korea Development Bank) to Hynix is consistent with the Korean government's overall market-reform efforts," Zoellick's spokesman Matthew Rees said.
"We're simply not getting answers," Crapo said. "I believe the answers to those questions will clearly show WTO violations. If that is the case, then the US should proceed with filing a complaint." Korea's illegal support for Hynix, which lost US$1.9 billion in 2000, is "reducing revenues, reducing profitability and in the end will cause loss of market share and loss of jobs by US companies," Crapo said.
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