KOREAN SEMICONDUCTORS

1. KOREAN SEMICONDUCTORS Presenters: Will Prible David Razmgar Alicia Skiba Timothy Skrynnikov

2. TIMELINE BACKGROUND • Companies Involved • The Product • The Problem • Critical Issues (both U.S. and South Korea) • WTO Ruling • Current Situation

3. Companies Involved • U.S. - Micron Technology Inc. • South Korea - Hynix Semiconductor Inc. and Samsung Electronics Co. Ltd. • Europe - Infineon Technologies AG

4. MARKET SHARE IN 2001

5. The Product • What is DRAM? Dynamic random access memory • All four companies (on previous slide) make DRAM chips, which are used as the main memory in most of the world's PCs.

6. The Problem • Micron Technology Inc. filed a complaint with the Commerce Department on Nov. 1, 2002 claiming that the South Korean government paid subsidies to of its largest semiconductor companies. • In other words, the U.S. charged that South Korea was product dumping • The European Union also investigated charges levied against the two companies by German chip maker Infineon Technologies AG of unfair subsidies from the South Korean government.

7. TheProblem (continued) • In response to South Korea, the U.S. International Trade Commission (ITC) slapped 45 percent duties on Hynix's memory chips and EU regulators imposed a 35 percent tax. • The U.S. imposed its tariffs after it presented evidence to the WTO it said showed debt forgiveness was part of a Korean government effort to bail out Hynix amid a slump in chip prices.

8. A Chance for Repair • Korea first sought consultations with the U.S. under WTO backing but the two countries failed to reach an agreement • In November 2003, after unsuccessful discussions, Korea asked the WTO to convene a dispute settlement panel

9. Main Question of the Case • Was the U.S. countervailing measures against Korea’s product dumping fair and just?

10. US Perspective • On the U.S. side, the case involved the International Trade Commission (ITC), Department of Commerce (DOC), and Micron Technology, Inc.

11. Critical Issues (U.S.) • Issues: • Product Dumping • Government Bailout to Hynix • A volatile market • Pricing Pressure on Chips

12. Critical Issues (U.S.) • Dumping Evidenced by: • Long-term debt, volatile DRAM pricing and spotty demand for PCs with their memory chips • Loans and other subsidies total $7 billion for Hynix alone • Korea Development Bank and other creditors agreed in 2002 to convert 1.9 trillion won ($1.8 billion) of Hynix's debt into equity and to extend payment on 3 trillion won of loans. Banks also issued new bonds to refinance old debts.

13. ITC’s Stance • The ITC found that "A comparison of U.S. market prices to Korean costs and projections of Korean costs indicates that Korean pricing would be likely to be at or below normal value in the absence of the order," the decision stated. "The history of the DRAM industry is one of dumping in periods of significant downturn."

14. DOC’s Stance • Called the tariffs “antidumping measures” • Felt that these measures would equalizes prices rather than penalize Korea

15. South Korean Perspective • On the South Korean side, the case involved Hynix Semiconductor, Inc., Samsung Electronics Co., Ltd., and South Korea’s Commerce, Industry and Energy Ministry

16. Critical Issues (Korea) • Issues: • Alleged “Anti-dumping” violation by Korea. • Product “dumping” occurs when companies export goods either below cost of production or below their cost in their home market

17. Critical Issues (Korea) • Alleged “Subsidization” on the part of Korea. • Subsidization: “Occurs when a government provides its producers with financial contributions that give the producers an advantage in the market place.” • WTO Subsidies and Countervailing Measures (SCM) Agreement: -Defines types of subsidies that distort trade -Sets out rules for trade actions that countries may take to counter subsidies.

18. Korea’s trade recourse • Accept unreasonable duties or file complaint with WTO? • Importing country (in this case U.S.) must investigate Korea’s trade violation: -If alleged improper subsidy practice: Involves the investigation of the subsidy practices of governments. -If alleged product dumping: Involves the investigation of the pricing practices private companies. • Korea chose to file complaint with WTO.

19. WTO Ruling • WTO dispute panel said that the U.S. had not presented a convincing evidence to back up its claim that the South Korean government had subsidized the struggling company by ordering South Korean banks to provide loans. • The panel did find that imports of lower-priced DRAM chips from South Korea had injured the U.S. producers.

20. WTO Ruling Cont. • In June 2004, the U.S. Department of Commerce imposed a 44.71 % tariff on chips made by Hynix. • South Korea appealed to the WTO. • On January 21, 2005, a Dispute Settlement Panel of the WTO ruled in favor of South Korea over U.S. restrictions on imports of DRAMS.

21. WTO Ruling Cont. • Similarly, the E.U. accused that Korea bailed out Hynix through government-backed financial restructuring packages. • E.U. regulators imposed a 35% percent levy on Hynix memory chips. • On March 17, 2005, the WTO ruled that Korean company was unfairly penalized with tariffs by the E.U.

22. Current Status • The E.U. has 30 days to respond to the ruling. • Either side can appeal once the WTO issues a final report. • The U.S. is appealing its ruling. • These rulings will enable South Korea to run its domestic plants at capacity and sell directly to Europe. • “This helps the company focus on strategy and find more freedom in its planning”.

23. References • Financial Times Information, March 17, 2005 • Transnational Law Associates, LLC February 2005 • AFX News Limited, February 21, 2005 • www.arirangtv.com