March 21, 2003 – Brussels – The European Union Commission (EU) is considering adding up to 35% tax duties on memory chips imported to Europe by South Korea’s Hynix Semiconductor Inc., an EU Commission source said.

A final decision, which could affect millions of dollars in chip exports, is due next month, reported Dow Jones. The EU official said the latest proposal was a “working document.”

“This is a provisional paper, and there could be quite a few changes until a final decision on April 25,” the EU Commission source said.

The tax duties would be retaliation to restructuring loans and debt-for-equity swaps made by South Korea’s state-controlled banks to Hynix, Dow Jones reported. European chipmakers charge such financial support amounted to illegal state aid and allowed Hynix to offer chips at prices below the cost of production.

The Commission source said the regulator agrees with European chipmakers. “We’re saying these banks behaved in a non-commercial manner. Normal commercial banks would never have given these loans to a company near bankruptcy,” the EU official said.

The case could have major implications, legal experts said. If Europe finds unfair subsidies for chipmakers, it will bolster a similar complaint at the World Trade Organization that South Korea has unfairly bailed out chipmakers. Scrutiny could be extended to carmakers and steel mills.

The case’s sensitivity means EU member-states will review the Commission’s proposal in the next few weeks. The Brussels body has sole authority to impose provisional, four-month duties, but government representatives can propose modifications.

“This isn’t an easy case,” the EU official said. “There are private banks involved with European capital. This needs some reflection on whether they’re giving state subsidies,” the EU official said.

After four months of raised tariffs, EU governments would meet again and decide whether to continue duties for up to five years.