Taiwan's machine tool industry said Sunday it is worried about its competitiveness in the face of a recently signed free trade agreement between China and South Korea, unprecedented low interest rates in South Korea, and depreciation of that country's currency .

The industry noted that the South Korean won had dropped 2.65 percent against the U.S. over the past week, while the country's central bank last Thursday slashed the seven-day repurchase rate to 1.75 percent, cutting it below 2 percent for the first time.

These factors, coupled with the concessions South Korea will gain under its FTA with China, will squeeze the competitiveness of Taiwan's industrial sector, including machine tool manufacturers, said Goodway Machine Corp. Chairman Edward Yang at a forum.

Other businesses that will be severely affected include producers of petrochemicals, display panels, and semiconductors, said Yang, noting that there is considerable overlap between Taiwanese and South Korean exports.

He said Taiwan's government should avoid overregulation and instead promote policies that would foster growth and development, while the country's central bank needs to pay greater attention to the plight of the private sector.

Like South Korea, Taiwan must lower its interest rates in response to a falling Japanese yen, Yang said.

His views were supported by Hsu Hsiu-tsang , chairman of the Taiwan Association of Machinery Industry, who said Taiwanese companies will begin to feel the effects of the weaker South Korean currency in the second half of this year. Taiwan's central bank has been conservative in its decisions compared with the central banks of China and South Korea, Hsu said.

The machine tool sector in Taiwan thinks that the New Taiwan Dollar ideally should be kept at a rate of between NT$32.5 and NT$33 against the U.S. dollar, he said.