KDB's bond purchase could become diplomatic issue

Korea and the United States have been drawn into a tense standoff over Korea Development Bank (KDB)'s acquisition of Hyundai Electronics Industries (HEI)' corporate bonds after Micron Technology of the U.S. strongly protested the deal. Micron claimed that it violated the anti-subsidy rules of the World Trade Organization (WTO).

Officials at the U.S. Embassy in Korea visited the Ministry of Finance and Economy (MOFE) Tuesday and discussed measures to settle the dispute. The U.S. Trade Representative (USTR) also questioned ministry officials on whether KDB took over HEI's corporate bonds at an interest rate lower than the market rate.

Micron Technology claims that the KDB's bond acquisition is an illegal attempt to keep HEI afloat, but the Korean government argues that it is not.

Choi Chung-Kyung, a MOFE official, said the acquisition is not meant to assist certain companies but to help companies that are having difficulty with financing due to low credit ratings.

The USTR said that if the bonds were traded at an interest rate lower than the market rate, the acquisition would amount to government subsidization.

The Korean government has not yet offered an official reaction to the claims. It does not rule out the possibility that the issue could develop into trade friction if the U.S. Congress and the trade representative continue to make an issue of it.