The decision last week by the U.S. Commerce Department to levy a 44.71% countervailing duty against DRAM imported into the United States by Hynix Semiconductor Inc. is expected to have minimal impact on the DRAM market at large, according to analysts.
The ruling, which makes final a preliminary duty meted out by the Commerce Department in April, prompted an immediate outcry from the Korean chip manufacturer, but is expected to have little effect given that the company has already adjusted its shipment patterns to avoid paying the tariff in most instances.
The complaint was filed in November by Micron Technology Inc., Boise, Idaho, and charged that the Korean government directed an $11.7 billion bailout of Hynix using government-controlled banks during an 18-month period from Jan. 1, 2001, through June 30, 2002.
Hynix chief executive E.J. Woo last week called the decision an "outrageous act aimed at a hidden agenda. The Department of Commerce has blindly concluded that the Korean government must have been secretly involved in the financial restructuring of Hynix simply because the Korean government still owns shares in some commercial banks. DOC wrongly ignored testimony from numerous experts that the Korean government cannot control private banks' decision-making.
"The DOC seems to believe that the Korean government wants to maintain its bank shareholdings, and that punishing Hynix will change the situation. That is also wrong. The government is trying hard to find buyers for its bank shareholdings," Woo said.
The Commerce Department's April findings sparked concerns that, barred from the U.S. market, Hynix might begin flooding other regions with DRAM and potentially upset the industry's already precarious pricing structure.
However, Hynix apparently has been able to persuade many U.S. customers to accept DRAM shipments at
offshore plants, according to Sherry Garber, an analyst at Semico Research Corp., Phoenix. Hynix also has continued to supply U.S. customers with DRAM from its fab in Eugene, Ore., which, as a domestic manufacturing site, is not subject to import duties.
"Hynix is meeting its U.S. customers offshore," said Lane Mason, an analyst with Denali Software Inc., Palo Alto, Calif. "The company has a lot of global business, so they can move DRAM shipments to any destination."
Speaking with financial analysts last week, however, Steve Appleton, chairman and chief executive of Micron, said Hynix might still encounter trouble getting U.S. accounts to shift DRAM deliveries to operations outside the United States. "Our customers aren't doing anything to accommodate one producer who has a challenge," Appleton said.
Before it is officially put into effect, the tariff must be approved by the U.S. International Trade Commission. A meeting, tentatively set for July 23, will determine whether the U.S. DRAM industry has been injured. If the ITC, which shares jurisdiction with the Commerce Department in the case, finds there was injury, the 44.71% duty will be imposed on all Hynix DRAM imports, effectively blocking shipments to the United States. If the ITC finds there was no injury, the case will be dropped.
"We are very disappointed in the decision. Hynix is confident that the International Trade Commission will find the U.S. DRAM industry was not injured and this penalty will be removed," said Farhad Tabrizi, vice president of worldwide marketing for Hynix.
"The extra tariff will only hurt U.S. manufacturers and encourage them to move more manufacturing outside the U.S.," Tabrizi said.
Faced with the prospect of making large escrow or bond payments, Hynix has elicited the support of the Korean government, which earlier this year failed to sway the Commerce Department to suspend the duty in exchange for limiting the number of Hynix DRAMs exported to the United States.
Now, the Korean government has decided to file a formal complaint with the World Trade Organization, although analysts noted that such proceedings often last a year or more and would do little to help Hynix in the short term.
The U.S. action parallels a similar case against Hynix in Europe, where the European Commission has levied a preliminary 33% countervailing duty against the company, also for accepting allegedly illegal government subsidies. The EC is expected to make a final ruling in late August.
Samsung Electronics Co. Ltd., also named in Micron's original complaint, was effectively cleared in the United States when the Commerce Department's 0.04% duty assessment was deemed too small to enforce.