Taiwanese machine tool makers on Sunday expressed concern about the local industry’s competitiveness following South Korea’s signing of a free-trade agreement with China, unprecedented low interest rates in South Korea and the depreciation of the won.

The won fell 2.65 percent against the US dollar over the past week, while the Bank of Korea on 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 Seoul will gain under its agreement with China, could squeeze the competitiveness of Taiwanese industries, including machine tool manufacturers, Goodway Machine Corp chairman Edward Yang said at a forum.

Other industries that could be severely affected include petrochemicals, display panels and semiconductors, Yang said, adding that there is considerable overlap between Taiwanese and South Korean exports.

He said the government should avoid overregulation and instead promote policies that would foster growth and development, while the 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 yen, Yang said.

Taiwan Association of Machinery Industry chairman Hsu Hsiu-tsang agreed, saying that Taiwanese companies would begin to feel the effects of a weaker won in the second half of this year.

The central bank has been conservative in its decisions compared with its counterparts in China and South Korea, Hsu said.

Local machine tool makers think that the NT dollar should ideally be kept at a rate of between NT$32.5 and NT$33 against the US dollar, he said.

However, Taiwan Machine Tool and Accessory Builders’ Association secretary-general Carl Huang said that the effects of a weaker won on Taiwan’s industrial sector would be negligible — no more than a “paper cut.”

The real threat is the continued decline of the yen, he said, adding that the effects on the nation’s industries would be more like a “gunshot wound.”

Huang said companies like Goodway could retain a competitive edge over their South Korean rivals, because Taiwanese brands are highly regarded in the international market for lathes.

Other representatives of Taiwanese machine tool companies said that South Korea’s market for lathes is supported by strong domestic demand, with about 30 percent their output purchased by the country’s automobile industry.

Meanwhile, Japan’s lathe exports to Southeast Asian markets are still more expensive than Taiwan’s, but the price difference has now shrunk to less than US$1,000 per unit and domestic prices in both nations are similar, representatives of Taiwan’s machine tool industry said.