Chip firm's 'illegal' $7bn subsidy under scrutiny

Hynix Semiconductor is being investigated by the European Union for allegedly receiving government subsidies to reduce the price of chips sent to Europe.

In June, Infineon Technologies complained to the EU that South Korean chip makers including Hynix and its larger rival Samsung had received government subsidies.

A spokesman for Infineon confirmed the accusation. "Hynix has received financial injections from the Korean government of at least $7bn. The direct and indirect financial support received by the chip makers means the market chip prices in Europe are not run by real competition.

"We want to have fair and competent competitive actions in the market," he said.

Seoul's Commerce Ministry admitted it had been contacted by the EU and said it expects a delegation to further the probe within the next few months.

Andre Bywater, EU lawyer at law firm Eversheds, said: "This is serious stuff. The worst case scenario here is that the EU will stick duties on the products being imported, which can effectively kill the product and potentially the company behind it.

"When a government subsidises the manufacture of a particular product it's usually done subtly through social security or tax rebates, as opposed to a big bag of cash."

So far the EU has kept quiet on the investigation due to its political sensitivity. Bywater said: "All trade investigations are sensitive as in a sense they are directed at particular countries. You are saying that you, the government of South Korea, are guilty of providing subsidies."

A spokeswoman from the European Commission said: "The Commission must inform the country after having received the complaint and before initiating any investigation, which they seem to have done, given what Seoul has said."

This investigation will be highly sensitive as the EU has already launched another major investigation on the South Korean government involving ship building subsidies that contravene World Trade Organisation legislation.

Samsung and Hynix were unavailable to comment.