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Adam Smith's lessons for IT

Declan McCullagh CNET News

Published: 27 Nov 2003 12:25 GMT

But is South Korea actually subsidising Hynix? Let's not concede that crucial point too quickly. T.J. Rodgers, the libertarian CEO of Cypress Semiconductor, wrote in a policy paper a few years ago that he once believed that "Japan was dumping DRAM chips into the United States, selling them below manufacturing cost. In retrospect, I believe that Japan simply got better at manufacturing than we were for a while and was able to produce the chips at extremely competitive costs."

Substantial evidence suggests that that's the case here, too, with Micron racing to the federal government after having trouble competing against a more efficient rival (and, last year, losing a bid to buy Hynix's DRAM unit). Hynix's main lender, Korea Exchange Bank, and other creditors say the government played no role in the debt-restructuring package and point out that foreign banks including Citibank were involved. Moreover, Hynix argues, the financial reform package was endorsed by the International Monetary Fund.

For its part, Micron disputes those claims. Micron spokesman David Parker said Tuesday that "we documented, I believe, in the range of over $12bn to $13bn dollars in illegal subsidisation over the course of the period in which we filed the case. If you look at that, approximately 70 percent of that came from state-run banks. I'm not sure any of that was approved by the International Monetary Fund."

Other evidence shows the no-win situation Hynix found itself in when dealing with Washington, D.C. In an early ruling a year before the current spat, the US government objected to Hynix's "decision to amortise R&D costs" over time, its choice to "cross-fertilise" research between memory and nonmemory products, and its decision to depreciate machinery and equipment over seven years instead of three years. This deck was stacked from the beginning. Given that level of scrutiny, the Bush administration was sure to find something to tout as a purported trade violation.

As in other protectionist schemes, the Bush administration seems to be inventing excuses to help out a politically influential (Micron gave $78,000 to the Republican Party during the last few election cycles) but financially hurting company. Of the stock's five most recent upgrades and downgrades, according to Briefing.com, all were downgrades and all took place over the last two months, long after the tariffs were imposed on Hynix. Micron shares have been trading in the low teens recently, down from a high of about $90 in 2000.