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By Lisa Burroughes, 19 August 1998 17:46

COMMENT When the Asian economy spiralled out of control, analysts predicted it would have a major impact on the worldwide chip market. When the IMF stepped in to lend the Korean government a hand, nobody anticipated it would intensify the impact on the rest of the world. But there is a growing consensus that this is exactly what has happened. The fate of Siemens' semiconductor plant in Tyneside highlights the epidemic currently spreading through Europe, with the UK bearing the brunt of the blow. Plans for Hyundai's plant in Scotland ground to a halt and LG Group scaled down its operations in Wales. Siemens is still considering further closures in Europe. Dr Ulrich Schumacher, chief executive of Siemens semiconductor group, has implied that the IMF bail-out has given his company's competitors in Korea an unfair advantage in an already over-supplied market by enabling them to continue dumping cheap chips. This sentiment is echoed throughout the industry, with the US Semiconductor Industry Association and the outspoken Micron Technology boss, Steve Appleton, at the forefront. Siemens has urged the EU to lobby for anti-dumping laws to be brought into effect, but said: "The pleas have gone unheard." A spokeswoman added: "The country must be given support so the economy doesn't collapse, but it means we are effectively funding our competitors." The Korean government has received $15.8bn since December and is due to get another $4.4bn. The IMF stands firm in its conviction. A spokesman explained: "The funding has been given to the government and not to the private industry so there is no reason why there should be any direct impact on the semiconductor industry." Paul Rozier, director of Siemens semiconductor group, said: "The IMF money may not be going directly into the pockets of the memory chip manufacturers, but the Korean government cannot dictate to a conglomerate where to spend the money. And in most conglomerates it is the semiconductor division that is most in need." However, the Asian crisis and IMF funding are not the only factors at work. If they were, the effects throughout Europe would be uniform. But the UK has been hardest hit. The strong pound would be the most logical explanation for this. The fact that the UK is not joining the first wave of EMU may not be helping. But Joe D'Elia, associate director of the semiconductor group at market research house, Dataquest, believes there are other issues that count against the UK. "The pound has not really had much of an impact. It is the labour laws in the UK that make it easier to close plants. Because of strong unionisation in France or Germany, for example, it is much more costly and would take a lot longer to negotiate the redundancy of so many workers," he said. The only benefit to come out of the crisis has been a dramatic fall in memory chip prices - from $70 to $1.20 in three years. But the UK looks as though it may be paying a far higher price. Even if the 'unfair advantage' is balanced out, we are unlikely to see the semiconductor plants in Tyneside, Gwent and Dunfermline reopening straight away.