As Latin American governments deepen ties with China and Japan, both the Inter-American Development Bank and the UN Economic Commission on Latin America have called for a stronger cooperation between South Korea and the region. South Korea is East Asia’s third largest economy, boasts the seventh largest share of global trade and is a growing source in investment for developing countries. Yet despite significant increases in economic ties over the past decade, Korea’s trade with Latin America remains a small fraction of both parties’ total commerce. The region also accounted for just 7 percent of Korean foreign direct investment between 1995 and 2006.
The Korean government’s recent announcement that it would begin talks for entry into the Trans-Pacific Partnership (TPP) has possible implications for Korea’s economic engagement in the region. Korean participation in the trade bloc would affect Mexico, Chile and Peru, in particular. All are currently participating in TPP negotiations. Colombia, Costa Rica and Panama have also expressed interest in joining.
Korea’s membership in the TPP would especially boost trade and investment in Mexico. Mexican industrial zones are ideal platforms for Korean firms looking to expand their presence in Mexico’s domestic market or to export with greater facility to the United States and Canada. Energy and agriculture are also likely to attract capital from Korea, especially if the Peña Nieto administration succeeds in liberalizing Mexico’s energy sector. Increasing Korea’s economic presence in these areas could attract parallel investments in productivity and human capital, as well – like the 20 billion dollars in credit for the improvement of Mexican infrastructure approved by Korea’s Export-Import Bank earlier this year.
At present, though, Mexico’s economic ties with South Korea remains modest in comparison to some of its neighbors. In 2011, Mexican exports to Korea were less than half those of Brazil or Chile, according to statistics from the Korean Foreign Ministry. And talks between the two countries have dragged on for nearly a decade after plans were first announced for a Mexico-Korea free trade agreement – principally due to resistance from Korean farmers and Mexico’s auto and textile industries.
Prospects for TPP negotiation are more positive at the moment than for a Korea-Mexico FTA, if only because other, larger economies at the TPP negotiating table can encourage both countries to open up nationally sensitive sectors.
Korea’s accession to the TPP will be less significant for Chile or Peru, the other two Latin American countries currently negotiating entry to the partnership. Bilateral trade agreements inked with Seoul have already reduced or eliminated trade and investment barriers in all but a small percentage of goods for both countries. As a result, Chile’s trade with Korea has quadrupled since the two countries signed an FTA in 2003, and Korea’s exports to Peru increased 11 percent in the past year alone.
Korea’s engagement with non-TPP countries would most likely remain unchanged. South Korea will continue to invest most heavily in natural resources, particularly in the energy sector. The completion of a bilateral FTA with Colombia in February of this year (which will reduce or eliminate trade barriers on 96% of traded goods) was considered a major success in terms of strengthening bilateral ties. Macroeconomic risks and barriers to entry in several countries, however, continue to limit the opportunities for Korea’s conglomerates.
by Paul Shortell
Program Assistant, China and Latin America