Jan. 8 (Bloomberg) -- The European Union plans to scrap a tariff on memory chips made by Hynix Semiconductor Inc. Because South Korea ended subsidies to the company, two people familiar with the EU proposal said.

EU trade officials argue the 32.9 percent duty on dynamic random access memory chips, the main memory used in personal computers, is no longer justified to protect Germany's Infineon Technologies AG, according to the people, who spoke on the condition of anonymity because the plan is preliminary.

Ending the tariff would make it cheaper for Hynix, the world's No. 2 manufacturer of memory chips, to sell the product in Europe, reducing costs as the company seeks to cope with a slump in prices. Benchmark computer memory chip prices plunged 85 percent last year amid a glut, according to Dramexchange Technology Inc., Asia's biggest spot market for semiconductors.

``The removal of the tariff would improve the business environment as it would enable direct exports to the region,'' Kim Gee Soo, an analyst at Good Morning Shinhan Securities Co. in Seoul, said by telephone today. Kim has a hold rating on Hynix shares.

Trade officials at the European Commission, the 27-nation EU's regulatory branch in Brussels, will ask national governments to scrap the Hynix levy before it expires in August and make the removal retroactive to the start of 2008, the two people said.

The EU introduced an anti-subsidy levy on imports from South Korea of memory chips made by Hynix for five years in August 2003. The tariff forced the company to shift production to the U.S. and led the Korean government to complain to the World Trade Organization.

WTO Ruling

A 2005 WTO ruling caused the EU to lower the rate in April 2006 to the current 32.9 percent from 34.8 percent. South Korea's Samsung Electronics Co., the world's biggest memory-chip producer, is exempted from the measure.

The future of the trade protection has been in doubt since the EU began a separate review of the levy in March 2006 after receiving competing requests from Hynix and Infineon, Europe's second-largest semiconductor maker behind STMicroelectronics NV. Hynix said the protection was no longer justified and Infineon, backed by Micron Europe Ltd., sought a higher rate.

Infineon spokesman Reiner Schoenrock declined to comment on the case today. Commission spokesman Peter Power also refused to comment. Choonyub Choi, managing director of Hynix in Germany, wasn't available to comment.

Shares of Infineon fell 2 cents to 7.34 euros ($10.80) in Frankfurt today.

Infineon completed an initial public offering of its memory- chip unit, now called Qimonda AG, in August 2006 and decreased its holding to 77.5 percent from 86 percent last September to reduce dependence on markets with volatile demand and prices. Concentrating on chips for automotive, industrial and mobile- phone applications, Infineon plans to cut its stake in Qimonda to ``significantly'' less than 50 percent.

Hynix Profits

Hynix, which reported lower profit in two straight quarters, said last month it may post a loss in the three months ending in December because of lower prices. U.S. rival Micron Technology Inc. reported a $262 million quarterly loss Dec. 20, its fourth in a row.

The EU plan to scrap the levy on Hynix stems from the review conducted by trade officials in the commission. EU national governments may take a decision around February.