Publish in Perspectives - Wednesday, July 24, 2013
Korea's Samsung is a household name throughout Latin America. Here a marketing campaign in Brazil for LED TV products. (Photo: Samsung)
South Korea can provide Latin America with expertise in infrastructure, experts say. Here Seoul's impressive Seogang bridge. (Photo: Jpbarrass)
Latin America needs South Korea infrastructure expertise and South Korea is hungry for Latin American goods.
BY LATIN AMERICA ADVISOR
South Korean and Colombian officials vowed July 8 in Seoul to quickly implement the free-trade agreement that the countries signed in February. Under the agreement, which is pending ratification by lawmakers in both countries, South Korea and Colombia will eliminate in excess of 96 percent of the tariffs on each other's goods within a decade. Meantime, neighboring Peru's investment promotion agency met in April with dozens of Korean executives to discuss investments in areas such as infrastructure. How important is South Korea's trade with the region? Which Latin American industries would benefit most from cooperation with the Asian country? What stumbling blocks are on the horizon?
Troy Stangarone, senior director for congressional affairs and trade and editor of The Peninsula at the Korea Economic Institute: South Korea's economic relationship with Latin America is one that often goes unnoticed in the shadow of trade with China, Europe and the United States. While still relatively small, the last decade has seen trade between South Korea and Latin America increase more than 300 percent, growing from $13.4 billion in 2003 to $54.4 billion last year. For South Korea, this makes Latin America the fastest growing region for total trade after only the Middle East. Expanding trade between Latin America and South Korea can benefit both parties. South Korea is a resource-poor nation and a major agricultural importer. Latin America stands to benefit from increasing exports of raw materials such as cooper and zinc, as well as oil and gas as South Korea looks to diversify its sources of energy beyond the Middle East. South Korea is also an attractive market for exports of agricultural products such as beef, coffee, wine and grapes. At the same time, South Korea is increasingly taking an interest in the success of small- and medium-sized enterprises (SMEs) in trade, potentially making it an attractive partner for SMEs in Latin America, whether they are in agriculture or light manufacturing. Despite the success of the last decade, significant work remains for both sides in continuing to bolster economic ties. In 2003, South Korea concluded its first FTA with Chile, but in the intervening years only Peru and Colombia have concluded FTAs with South Korea. Continuing to expand that network would is an important next step.
Barbara Stallings, William R. Rhodes Research Professor at the Watson Institute for International Studies at Brown University: Korea currently has a minimal presence in Latin America. Its trade with the region represented only 2.5 percent of Latin America's total trade in 2011, while its FDI in the region was only 1 percent of the total. Moreover, Korea has a large trade surplus, and its imports are mainly primary products while its exports are industrial goods. On the positive side, this means there is a lot of scope for improvement, and Korea seems eager to catch up with Japan and China in the region. Korea is seen as an attractive model by many developing countries. It was poorer than Latin America 50 years ago, but has grown into an export powerhouse. Korea itself is pushing the idea of providing lessons through its 'Knowledge Sharing Program,' which brings people from developing countries to Korea and sets up training courses abroad. The area in which Korea could be most useful to Latin America is in the high-tech industries, which are its main strength. Its best-known firms--Samsung (electronics), Posco (steel), and Hyundai (automobiles)--already have a presence in Latin America. Among the challenges are the usual Asian problems: lack of knowledge of the local language and culture, lack of experience in the area and lack of intermediaries (unlike the large Japanese population). In addition, Korea has a poor reputation in some parts of Latin America for its treatment of workers. None of these factors prevent further development of joint ventures between Korea and Latin America, but such activities will require a good deal of effort on both sides.
James R. Jones, member of the Advisor board and co-chair of Manatt Jones Global Strategies: South Korea was relatively late in coming to the realization of economic opportunity with Latin America. Twenty years ago around the time of NAFTA approval and implementation, I met with several Korean business executives who were exploring the Latin American market. They had very old and stereotypical views of Mexico and Latin America as a region of lazy workers and inefficient governments. Now the Korean business community has awakened. It recognizes that the two fastest-growing economic regions in the near term are Asia and Latin America. Latin America needs infrastructure development and Korean companies have a very competitive capability. Latin America needs to know how education policies transformed workers in Korea and the rest of Asia into global powerhouses. Korea has a fast and steadily growing economy whose market is prime for Latin products, both manufactured and agricultural, previously little known there. Korea also needs to invest in plants to make products to serve the markets of North and South America. Latin countries need more foreign direct investment which Korea can supply. Both Latin Americans and Koreans need to recognize the many cultural differences between them which can cause conflicts in business arrangements. But when profits are at stake, I have no doubt that the cultural gap will soon be bridged.
Barbara Kotschwar, research fellow at the Peterson Institute for International Economics: Latin America's trade with South Korea is growing. Chile and Peru have trade agreements in place with Korea, Colombia signed a similar free-trade agreement in February, and Mexico and Mercosur are in trade negotiations with the Asian country. This growing trade with Korea is an example of the basis for and objective of the new Pacific Alliance agreement--Chile, Colombia, Costa Rica, Mexico and Peru--whose objective is to bolster regional value chains and spur trade with the Asia-Pacific region. Korea is currently the ninth most important export destination for the Pacific Alliance, and exports from Pacific Alliance countries grew by an average annual rate of nearly 22 percent over the past decade, twice the growth of their exports to the world. Korea is also the 13th-largest export destination for Mercosur goods. Also, it represents an important source of investment. Hyundai, Samsung, LG and other Korean logos are a common sight in Latin American airports, roadways and homes. Korea, along with other Asian countries, is seeking investment opportunities in Latin American markets, particularly as their traditional markets--the United States and European Union--are growing slowly. Korea has strong investments in natural resources--oil and gas and iron ore, as well as engineering and construction. Given Latin America's growing economies and need for infrastructure improvement, Korea, with its strong businesses, robust technology and know-how, is a good fit, particularly as shifts in the positive external economic environment can be seen looming on the horizon.