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The price of everyday commodities in Seoul has risen to the highest level in the world. While Korea¡¯s per-capita GNP barely exceeds US$20,000, consumption in Seoul was similar to big cities in countries with per-capita income of some $30,000-40,000. Foreigners from New York, Tokyo and other cities with notoriously high prices are aghast at Seoul prices, which are due to a combination of the strong won and high consumption. High tariffs and tax barriers raise the prices of agricultural products, cars and fuel to among the highest in the world.
Reason 1: The strong won
According to data from the Organization for Economic Cooperation and Development (OECD), prices in Korea were the lowest among member countries in 2001. Putting Korea at 100, prices in Mexico then were at 122, in the U.S. at 160, in Switzerland at 186, and in Japan at 217. But by 2006, Mexico was at 78, the U.S. at 107, Japan at 136, and Switzerland at 152. The price gap between Korea and Japan dwindled, while prices here rose to a similar level as the U.S. and the ratio against Mexico was reversed.
The first reason is the exchange rate. The U.S. dollar fell 23.6 percent from W1,291 in 2001 to around W955 in 2006. That of course makes Korean goods more expensive in dollar terms. A more fundamental reason is the improvement in living standard. The aggregate price level showed an average 3 percent rise since 2000, but higher consumption boosted the prices people actually feel. The OECD evaluates the living standard of Korea as similar to Paris, London, Brussels and other major cities in Europe.
Reason 2: Consumption exceeds income
The average price in 2002 of 750-900 g of powdered milk for infants in Korea was around W12,000, but that rose to 20,000 in 2006 due to a trend toward better quality goods. A staffer with a powdered milk company said, ¡°High-quality powdered milk with several benefits started to dominate the market, and cheap powdered milk was driven out.¡± That in effect means that consumption patterns raised the price. In other words, the standard of living and everyday consumer prices are headed in same directions. Consumption in Seoul is high even in the eyes of the Japanese. The Mainichi Shimbun¡¯s Seoul correspondent Tetsuo Nakajima said, ¡°Though ordinary people¡¯s living expenses are still lower in Korea, it seems to be more expensive than in Tokyo to consume as much as others.¡±
Reason 3: High tariffs and tax
Among the things foreigners consider especially expensive is farm produce. According to a study by the Korea International Trade Association (KITA), potatoes, apples, carrots and beef were the most expensive in the world. One kg of beef in Seoul costs $48.10, 10 times the price in China ($4.70) and more expensive even than Japan, which is famous for expensive beef and where 1 kg is sold at $46.50. According to market theory, cheap farm products should be imported in order to lower prices, but Korea blocks imports with high tariffs. Tariff rates on imported potatoes, apples and carrots stand at 30-45 percent -- three times the tariff imposed by European countries.
Much the same is true for industrial products. The tariff on imported cars in Korea is 8 percent, much higher than that of the U.S. or Japan, where it is 2.5 percent and 0 percent, respectively. The average price of 2,000§¦ automobiles is in the order of $22,241 in China, $18,000 in Korea, $14,500 in the U.S. and $12,310 in Japan.
An importer says a BMW sedan sold for W80 million in Korea costs W50 million in Japan. Seven types of levy including tariff make the price difference, he added. According to a study by Energy Detente of the U.S., gasoline in Korea, which costs around W1,500 per liter, is 36 percent more expensive than in Japan, where it costs W1,100. This is not unconnected to the fact that 60 percent of the price of gasoline is tax in Korea. In Japan only 46 percent of the total price is tax. Jeong Jae-hwa of the Korea International Trade Association said, ¡°High tariffs on imported goods and tax eventually influence domestic price,¡± he added.
(englishnews@chosun.com )
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