The European Union (EU) yesterday lifted countervailing duties on imports of dynamic RAM (DRAM) chips made by South Korean chip maker Hynix Semiconductor.
The EU's 33 percent tariff on all Hynix DRAM made in South Korea had been in place since April of 2003, a response to low-cost loans from state-controlled banks that kept Hynix afloat during a severe DRAM industry downturn at the start of the decade. At the time the tariff was imposed, the EU ruled that the loans amounted to illegal aid from the state.
But in 2005, the World Trade Organisation ruled against the EU over the issue, asking the EU to consider lowering the tariff. But it wasn't until Monday that the European body finally relented.
During the 2003 to 2007 timeframe of the EU tariff, Hynix thrived. The company is now the world's second-largest DRAM maker, up from fourth in 2003, and its stock soared nearly 514 percent.
The EU tariff, as well as similar countervailing duties against Hynix chips by the US and Japan, may end up as an example of the need to change the way global tariffs are imposed because they had almost no impact on the company.
The lifting of the EU duties is retroactive to December 31, 2007, Hynix said in a statement. The original countervailing duty had been set for a five-year term anyway, meaning the EU for the most part stuck to its original timeframe.
"Hynix’s strong performance and return on investment over the 2003-2007 period demonstrates the sound commercial judgment of Hynix creditors back in 2001 and 2002 when they agreed to restructure Hynix debt. There was no government interference, just a wise business decision," the company said.
The company was able to beat one loophole in the duties: that they were all to be placed only on Hynix DRAM made in South Korea.
Hynix quickly upgraded a factory in Oregon to supply the US market and inked an agreement with ProMOS Technologies of Taiwan to make Hynix DRAM on a contract basis for other markets. In both cases, since output was not from South Korea, the chips were not affected by the tariffs.
Hynix also increased direct sales to PC assemblers in Eastern Europe where the tariffs were not in place, as well as China. PCs remain the biggest end-market for DRAM, so Hynix chips could first be placed inside PCs and them imported into the EU without fear of the countervailing duties.
These quick moves revived Hynix, and it's now one of the most profitable DRAM makers in the world.
The US and Japanese countervailing duties remain in place.