A long-simmering trade dispute boiled over yesterday as Japan said it will slap import duties of 27.2 percent on computer memory chips made by South Korea's Hynix Semiconductor Inc in retaliation for alleged government subsidies.
Hiroyuki Matsuoka, a spokesman at the Finance Ministry in Tokyo, said that a government board recommended the tariff, pending formal approval by the Cabinet. The government would ensure the necessary procedures were carried out swiftly, he said.
South Korea and Hynix blasted the move, threatening an appeal to the World Trade Organization. Experts said the dispute was unlikely to have a lasting impact, despite the threatening rhetoric.
Hynix shares yesterday plunged 6.1 percent, closing at 32,300 won (US$33).
South Korean companies including Hynix and Samsung Electronics Inc have emerged as key high-tech rivals to once dominant Japanese companies like Toshiba Corp in computer chips and Sony Corp in consumer electronics.
The decision also comes during an overall deterioration in relations between Japan and South Korea, at odds over repeated visits by Japanese Prime Minister Junichiro Koizumi to a Tokyo war shrine that Seoul says glorifies Japan's colonial and militarist past. Japan ruled the Korean Peninsula as a colony from 1910-1945.
The tariff would be the first Japan imposes to counter alleged subsidies by a foreign government. It will also the first time for Tokyo to levy such duties on high-technology products.
South Korea's Commerce Ministry said Japan decided to levy the tariffs on Jan. 27 for the next five years and that they will apply to DRAM chips manufactured in South Korea.
DRAM, or dynamic random access memory, chips are widely used in personal computers and are Hynix's mainstay products.
The Commerce Ministry said it will seek legal action through consultations with Hynix, the world's second-largest memory chip maker, and South Korea's Foreign Ministry. Hynix said it might file a complaint to the WTO "in cooperation with the government."
Jung Sung-chun, an economist at the government-backed Korea Institute for International Economic Policy, said the fallout would be limited.
"The economic relationship between Korea and Japan is very good," Jung said, emphasizing that examples of cooperation between companies, such as Samsung and Sony, outnumber disputes.
Samsung and Sony, though rivals on one level, also work together, such as at a state-of-the art plant in South Korea that makes liquid crystal displays used in hot-selling flat-screen televisions.
Hynix said it expects "little substantial damage" to its business, adding it will increase exports of chips not covered by the tariff such as NAND flash memory used in digital music players. It also plans to utilize overseas manufacturing bases.
Hynix makes DRAM chips in the US, has a manufacturing relationship with a company in Taiwan and also plans production at a new factory in China this year.
The dispute began when Japan's Elpida Memory Inc and Micron Japan Ltd, a unit of US chipmaker Micron Technology Inc, filed complaints to the Japanese government in 2004 that their businesses were hurt by alleged South Korean subsidies to Hynix in the form of bailout loans.
Hynix, which nearly collapsed under mountains of debt several years ago, was twice saved -- in October 2001 and December 2002 -- by its creditor banks, which were majority-owned by the government.
In 2003, the US levied a duty of 44.29 percent and the EU slapped a 34.8 percent tariff on Hynix's DRAM chips, alleging that government-affiliated banks had subsidized Hynix's production via low-interest loans.
The WTO in June ruled that some of Seoul's financial support for Hynix was illegal, citing restructuring loans and debt-for-equity swaps made by state-controlled banks.
The global trade body upheld the duties imposed by the US, but ruled that the EU should reconsider its tariffs as it had incorrectly calculated the material injury caused to its own producers by the subsidies.
Hynix's DRAM market share in Japan was 15.9 percent in 2004, trailing Samsung's 38.3 percent, and Elpida's 18.6 percent, according to data provided by South Korea's foreign ministry.
South Korean companies exported US$780 million worth of DRAM chips to Japan in the first nine months of last year, the equivalent of about 12.1 percent of the country's total DRAM exports.
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