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South Korea will challenge the EU over chip imports

South Korea is set to challenge the EU over duties it has imposed on imports of computer memory chips, the WTO said.

WTO officials said Tuesday South Korea, which claims the duties breach global trade rules, made a formal request for consultations with the EU. Such a move is usually the first step to a full-blown legal dispute at the global trade body.

In April, the EU imposed a provisional 33 percent tax on imports of computer memory chips made by Hynix Semiconductor Inc, accusing the South Korean firm of receiving illegal government subsidies. Hynix is the world's third largest chip maker.

However, the EU cleared another South Korean chip maker, Samsung Electronics Co, No. 1 in the business worldwide, of any wrongdoing.

WTO members are allowed to take so-called "countervailing measures" if they believe other members are breaking the rules. But they run the risk of seeing their actions challenged before the WTO's dispute settlement tribunal.

The EU Commission initially said the provisional duty would be in force for four months. A formal decision on whether to extend the tax for five years is expected on Aug. 25, but 13 of the 15 EU governments are believed to back continuing the duties.

European governments are retaliating against a series of restructuring loans and debt-for-equity swaps made by South Korea's state-controlled banks to Hynix.

The tariffs affect millions of dollars in chip exports and deal another heavy blow to Hynix, already suffering from consecutive years of losses and heavy debt.

The EU action foreshadowed a similar move by the US, which in June slapped a 44.71 percent import tariffs on chips made by Hynix.

South Korean authorities said they planned to file a dispute with the World Trade organization over the US duty.

Last year, Infineon Technologies of Germany and Micron Technology of the US, the world's second largest chip maker, filed complaints to the EU and the US Department of Commerce, saying unfair subsidies to their South Korean competitors had allowed them to undercut global chip prices.

Dynamic random access memory, or DRAM, chips are South Korea's biggest export item.

Last year, South Korea exported US$5.97 billion worth of DRAM chips.

The chips cost about US$4 to produce, but overproduction has forced prices below that level.

The chip fight opens a second front in the strained trade relations between the EU and South Korea.

The two already are fighting over shipbuilding, with the European Union accusing Seoul of likewise providing its shipbuilding companies with unfair subsidies through loans and debt-for-equity swaps.

Last month, the EU asked the WTO to rule on the shipbuilding dispute.
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