Pact causes jitters in service sectors
Although concerns persist about the advanced U.S. service industry overwhelming domestic service sectors, market experts said that the effect of the free trade pact on several sectors will be slim to none - but the legal services sector is bracing for a second wave of world-class competitors since the market was first opened earlier this year.
Spanning areas such as legal, medical, financial and consumer service sectors, Korea’s service industry composed 58.2 percent of the nation’s GDP as of 2010, according to the Ministry of Strategy and Finance.
However, chronic low productivity that only reached 44 percent of its American counterpart as of 2008 has prompted local economists to call the local service industry a weak link that needs to be strengthened in order to stimulate domestic consumption.
Citizens’ concerns were on the rise yesterday as the anemic industry will soon go head-to-head with the one of the most developed service industries in the world, prompting some talking heads to include it in a list of businesses slated to take a hit from the trade agreement.
But upon a closer look, the FTA will have a different impact on the sector - depending on the strengths or weaknesses of the provisions covering each business. Experts said several key sectors saw little or no change, as relevant provisions preserved the status quo or made minute concessions at best.
Among service industries, the hot topic was the fate of the medical service sector after the FTA’s ratification.
Some civic groups publicly feared that the local market will be run over by commercial hospitals funded by U.S. coffers. During the run-up to the passage of the free trade agreement, a rumor claiming “appendectomy costs will skyrocket” due to the adoption of commercial hospitals had even spread online.
However, the government denied such claims. “There will be no change to our medical system from the Korea-U.S. FTA,” said the Ministry of Foreign Affairs and Trade in a statement. “National Health Insurance has been categorically excluded from the application of the agreement and any decision about medical services has been comprehensively postponed in the agreement.”
Industry insiders also said local medical services will be mostly unaffected by the pact. “There are no benefits for the sector, nor are there any disadvantages,” said Kim Wan-bae, spokesperson for the Korean Hospital Association.
“Korea is a long way from adopting commercial hospitals. In order for hospitals to become commercial there has to be investors - but none but the large nonprofit hospitals that are legally barred for becoming commercial have a credit rating over BBB.”
As for financial services, the Korea-U.S. pact’s provisions mostly honor Korean regulations as Korea’s financial market is already one of the most open financial markets in the world due to changes adopted in the wake of the 1997 Asian financial crisis and for admittance to the OECD.
“There won’t be notable changes in the domestic financial infrastructure due to [provisions such as] short-term safeguards [for blocking foreign currency transactions] and recognized distinctiveness of state-run financial institutions,” said the Financial Services Commission in a statement yesterday.
“All new financial services are subject to strict criteria under Korean law and local regulators’ approval,” said the heads of seven trade groups representing banks, investment companies, insurers and second-tier lenders in a joint statement welcoming the trade pact earlier this month.
“[On the other hand] our financial companies’ competitiveness will be greatly bolstered by [the FTA] through smoothly adopting cutting-edge financial techniques, improving financial law and increasing transparency of financial supervision.”
But things are not so bright for the legal services sector. Since the Korea-EU free trade agreement opened up the door for massive British law firms to make inroads in the local legal services market in July, now the trade pact with the U.S. has set the stage for giant American competitors as well.
With the world’s biggest ten law firms all either based in the U.S. or the U.K, the global legal market is dominated by British and American law firms that dwarf their counterparts in Korea.
“Both Germany and Japan had opened up its legal market in the past, and I understand domestic German law firms are all but gone while Japanese law firms’ letterheads have been switched to those of American law firms,” said Jang Jin-young, spokesperson for the Korean Bar Association.
By Lee Jung-yoon [email@example.com]
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