By Yoon Ja-young
Staff Reporter
Hong Kong and China are Korea's best free trade agreement (FTA) partners, an economist said.
Kim Do-hoon, a senior research fellow at Korea Institute for Industrial Economics & Trade, said Hong Kong should be Korea's top FTA partner when considering its effect on the local industry, at a seminar held by the Korea Economic Association in downtown Seoul, Tuesday.
China and Mexico were also on the top of the list, while the United States was ranked in the middle, and Japan at the bottom.
``The government seems to be considering developing the economy and securing overseas markets in selecting partners for FTAs, but it doesn't seem to be taking into account the effect of such agreements on local industries,'' Kim said. He said the government should consider the industry structure of both parties, the level of technology, and the partner's competitiveness in Korea's future growth industries. The level of tariffs, trade balance, and competitiveness in agriculture are also some of the criteria related with the industrial development, according to Kim.
When taking these into accounts, Hong Kong is the best FTA partner for Korea, followed by China and Mexico.
He pointed out that Korea suspended FTA talks with Japan, which were started well ahead of other countries, due to the burden the agreement would have on local industries
Kim Jin-il, a Kookmin University professor, said income polarization is marring economic growth. He said inflexibility in the labor market, increasing dominance of the economy by chaebol, and the fierce competition following globalization led to worsening income distribution.
Salaried workers, who have higher propensity to spend, cut spending as they were relatively marginalized from capital gains. The cut in spending, however, didn't result in savings increase, either. Savings rates dropped in all income groups since the Asian financial crisis, except for the richest top 20 percent. The cut in both spending and savings resulted in a slowdown of the economy, according to Kim.
Lim Byung-in, a professor at Chungbuk National University, pointed out that household debt grew by 4.5 times since 2000, most of which were spent in real estate investment. According to the professor, household assets totaled 281.1 million won in 2006, up 149.9 percent from 112.5 million won in 2000. Household debt, however, grew at an even faster pace, totaling 39.48 million won in 2006, up 350.2 percent from six years ago.
Lim showed concern for the liquidity problems in households due to the interest burden on housing loans.