US FTA to Hit Service Industry Hard
By Yoon Ja-young
Staff Reporter
With low productivity and lack of competitiveness, Korea’s service industry is expected to face a critical test as the result of a free trade agreement (FTA) with the United States.
According to the LG Economic Research Institute, the FTA will force the service industry to fight U.S. corporations that boast the world’s best services.
“As Korea’s growth strategy has been focusing on the manufacturing sector since the 1960s, the service industry has been paid little attention and remained immature considering size of Korea’s economy,” LG researcher Cho Yong-su said.
The service industry accounts for 52.7 percent of total additional value created in the entire Korean economy. This is well below the 67.6 percent average in 2003 of 30 OECD member countries. The service industry represents 76.5 percent of total value added materials in the U.S.
According to the LG report, Korea’s service industry is not only small but lacks productivity.
Value added per service worker was estimated at $26,000, which is less than half the OECD average of $57,000. The figure was $77,000 for the U.S., $73,000 for Japan and $105,000 for Luxemburg. The Korea Institute of International Economic Policy said in a report Sunday, U.S. labor productivity in the service sector was about double that of Korea.
Korea’s competitiveness was especially low in the high value added service sector such as legal and accounting services, with sales per employee only 36 percent of that of American employees. Professional design and the movie industry were also among the least competitive.
Cho said Korea’s service industry lacks competitiveness as it has been protected for a long time, unlike the manufacturing sector that had to survive under fierce global competition.
“As the service market opens up with the signing of an FTA, not a few service firms will be ousted from the market, and workers will be deprived of job security,” Cho warned. He also said education and healthcare might lose their public character.
There is no escape, according to Cho. “Restructuring of the overall service industry through an opening of markets and competition has been Korea’s longtime wish.” Vice Finance-Economy Minister Bahk Byng-won also said Thursday that restructuring of the service sector is one of the major objectives of the FTA.
Cho advised that service corporations should actively engage in M&A and seek cooperation with foreign companies to develop high value added products.
He said the government should lower market barriers and minimize regulations, on top of boosting the capital market to finance service business.
chizpizza@koreatimes.co.kr
04-21-2006 17:36