The probe was sparked by a complaint last month from German chip maker Infineon Technologies, which voiced concern about the effect of subsidies on the DRAM (dynamic RAM) chip market.
The alleged subsidies take the form of tax benefits, export credits, subsidised loans, debt rollovers and debt-to-equity swap programmes, the commission said. It is expected to conclude its investigation in the first half of next year.
The probes come at a time when chip prices are tumbling. Hynix alone has benefited from subsidies worth $7bn (£4.4bn), said Michael Schuette, a lawyer in the Brussels office of law firm Freshfields Bruckhaus Deringer, which is acting on behalf of Infineon.
"These subsidies enabled Hynix to stay in business even though it has been unable to pay its debts," Schuette said. "They have been granted at a time when closure would have been the right thing for Hynix."
Infineon claims that the South Korean government granted loans to Hynix at rates of between 6% and 10%, at a time when credit agencies had downgraded the company to junk bond status. Junk bond financing typically costs about 20% in interest.
Infineon claimed that the Korean government granted Samsung tax benefits for losses it made on its exports. These amounted to 2% to 3.5% of its export revenue to Europe, worth 764 billion South Korean won (£410m), Schuette said.
Samsung is the biggest DRAM producer in the EU and worldwide, with a 25% market share in Europe. Hynix holds between 15% and 18% of the market. Third is US company Micron Technology, with about 13%, followed by Infineon with 8%.
Both Hynix and Samsung denied violating trade rules, and said they would co-operate with the investigation.
Infineon and Micron are considering lodging a similar complaint with US trade officials. "We have been waiting until an investigation gets going in Europe first, though," Schuette said.
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South Korean company Hynix Semiconductor has reported a £657m net loss for the fourth quarter of 2008 as a result of declining demand in the economic downturn...