According to the IMF, COVID-19 is causing the worst economic downturn since the Great Depression.[1] In April, the IMF predicted that the global economy is projected to contract sharply by 3% in 2020, which is much worse than the 2008-09 global financial crisis. With respect to Latin America, the forecast is worse, where gross domestic product is expected to shrink by 5.2%. Latin America represents 8% of the global GDP, in which Brazil is the biggest economy (33%), followed by Mexico (27%). The IMF predicts that in 2020, Brazil’s economy may shrink by 5.3% and Mexico’s by 6.6%. However, and fortunately, recovery is expected in 2021, both globally and regionally.[2]
The COVID-19 pandemic has also impacted deal-making in Latin America, where it has been reported that the total value of deals closed or announced last month decreased to about one-fifth when compared to the same month last year. It is considered that buyers and sellers alike are taking a conservative wait-and-see approach.[3]
The first COVID-19 case confirmed in Latin America was in São Paulo, where a man who had traveled to Italy tested positive on February 26, 2020. To date, Brazil ranks second in the world (after the United States) with more than one million confirmed cases in addition to nearly 50,000 deaths. The second case was confirmed in Mexico just two days later, on February 28, 2020, of another man who had also traveled to Italy. Mexico is currently one of the countries where COVID-19 is still spreading at a fast pace with confirmed daily cases of more than 5,000 per day as of the date of this update. Countries such as Argentina, Chile and Peru abruptly shut their borders and halted most domestic economic activity in March. Neighboring countries followed but it has not stopped or even slowed the spreading particularly in hard-hit countries such as Ecuador and Colombia. [4]
As the rest of the world, countries in Latin America have declared national health emergencies and implemented strict measures across diverse sectors, including mandatory lockdowns and quarantine, suspension of non-essential businesses, suspension-of-limitation periods, extensions of deadlines for tax filings or payments as well as for other regulatory obligations, moratoria on loan repayments, tax relief measures, emergency loan programs, and prohibition of unjustified firings, among many other such measures.
Korea’s investment in Latin America as well as trade volumes have been in constant rise in recent years. Korea's investment in the region jumped from $615 million in 2003 to $10.26 billion in 2019, with over 80% in manufacturing sectors. Trade volume quadrupled in the last two decades reaching over $45 billion in 2019, up from $11 billion in 2000, registering a sustained fast growth of about 14% a year on average since 1990.[5]
More specifically, in 2019, when Korea and Brazil celebrated the 60th anniversary of the establishment of diplomatic relations, bilateral trade volume totaled $8.1 billion (representing almost one-fifth of the total trade with Latin America), with Korea as Brazil’s 5th import source ($4.7 billion, 2.65%, with over 3,000 import items) and 10th export destination ($3.4 billion, 1.53%).[6]
Similarly, 2019 was the 57thanniversary of the establishment of diplomatic relations between Korea and Mexico. Mexico is Korea’s #1 trading partner in the region, while Korea is Mexico’s #5 globally (only after the US, China, Germany, and Canada). Bilateral trade volume between Korea and Mexico has doubled in the past 10 years, totaling approximately $22.6 billion in 2019 (representing half of the total, and together with Brazil representing almost 70% of all trade with Latin America), up from around $11.5 billion in 2009.[7]
All major Korean companies as well as SMEs are currently doing business all throughout Latin America. According to local reports, in Mexico alone, there are more than 2,000 companies with Korean investment.[8] Top recipient countries of Korean foreign-direct investment in the region are Mexico, Brazil, Panama, Chile, Colombia, and Peru. In fact, Korea is Mexico’s top 9thinvestor with investments amounting to $6.5 billion in 2019.[9]
Moreover, Korea already has had FTAs in place with Chile (2004), Peru (2011), Colombia (2016), and, more recently in 2019, with the Republics of Central America (Costa Rica, El Salvador, Honduras, Nicaragua and Panama), which have substantially increased trade and business activities with such countries over the years. In addition, Korea has long been in talks with Mexico over an FTA, and more recently in 2019, negotiations took place on Korea’s associate membership in the Pacific Alliance (a regional trade bloc composed by Mexico, Peru, Colombia, and Chile), which vis-à-vis Mexico would de facto have the same effect as a bilateral FTA.[10] There was speculation that negotiations may be concluded within this year; however, with the outbreak of the COVID-19 pandemic, it is unlikely that such an undertaking would be completed in 2020. Nevertheless, it is expected that such negotiations would resume when the crisis is over.
In addition, Korea and MERCOSUR (the major free trade bloc in South America consisting of Brazil, Argentina, Uruguay, Paraguay, and Venezuela;[11] and representing 70% of the region’s population and 72% of its GDP, as well as the 8thglobal economy) have been in long-standing negotiations to enter into an FTA since 2018, and discussions dating as far back as 2004.[12] After a successful fifth-round of negotiations in early 2020 and expected signing within this year, progress on the FTA has been negatively affected by the COVID-19 pandemic. An FTA with MERCOSUR is expected to greatly facilitate and substantially increase further trade and investments with its member countries.[13]
In fact, if the Korea-Chile FTA which was put into effect in 2004 is any indication, trade and investments between Korea and MERCOSUR will greatly benefit from a major increase. For instance, Korea-Chile bilateral trade quadrupled since 2004 under the FTA. To illustrate, Korea’s export items to Chile increased by 66.5% from 938 items in 2003 to 1,562 items in 2013. During the same period, imported items from Chile also expanded from 168 items to 386 items. The Korea-Chile FTA also played an important role in expanding the number of exporting firms for Korea. Its number multiplied around threefold from 733 firms in 2003 to 2,096 firms in 2013 and more than 200 new firms have been entering the Chilean market every year. Currently, Korea is Chile’s 4thexport trading partner with bilateral trade volumes of over $6 billion.[14]
Areas identified with the biggest potential for Korean business expansion in the region are natural resources and renewable energy (in particular, solar and bioenergy), export and manufacturing of cars and auto parts, electronics and ICT, pharmaceutical and beauty/skincare products. In addition, firms on both sides are exploring opportunities for trade and investment in sectors such as software, entertainment services (including “hallyu”), and smart infrastructure, that go beyond the scope of the “typical” Asia-Latin America relationship. More recently, Korea has been exporting COVID-19 testing kits, and home shopping items have shown increased sales.
Foreign-direct investment from Latin America to Korea has also grown, totaling $151.9 million between 2000 and 2015, the top three sources being Mexico ($96.1 million), Uruguay ($25.4 million), and Brazil ($7.7 million). A growing number of Latin American companies have established important operations in Korea, such as Colombia’s Juan Valdez Café, which opened its first Asian store in Seoul in 2014; Mexico’s Grupo Promax opening a steel dust recycling plant in Suncheon in June 2017; and Mexican operator of entertainment centers opening Kidzania in Seoul in 2010 and another one thereafter in Busan.[15]
BKL IN LATIN AMERICA
Bae, Kim & Lee, LLC (“BKL”) is the only top major Korean law firm with an established Latin America Task Force Team (LATFT) which consists of attorneys with vast experience, cultural and legal knowledge, key local contacts, and native fluency in Spanish and Portuguese that no other law firm in Korea can offer. Our key LATFT attorneys have vast experience in the region after having undertaken on important projects relating to construction, joint-ventures, project finance, mergers and acquisitions, dispute resolution (arbitration/litigation), and tax and other regulatory matters. In addition, our key attorneys have actually lived in Latin America and worked at top law firms in Brazil and Mexico, thus also being able to provide valuable and difference-making advice on important cultural insights and differences that no other law firm in Korea can offer.
Moreover, BKL has a long track record of having represented major Korean companies throughout the entire region with approximately 50 transactions just in the past eight (8) years. Major clients represented by our attorneys in Latin America include Hyundai Motors, Samsung Electronics, Samsung Engineering, Samsung C&T, POSCO, Doosan Infracore, Dongkuk Steel, Mobis, Dymos, LG Electronics, KEPCO, KT&G, Hyundai Rotem, Hyundai Elevator, KDB, Hankook Tire, Mirae Asset, HMM, KORAIL, and CJ, among many others.
Some of the notable projects undertaken by our attorneys include the establishment of Hyundai Motors’ first major car factory in Brazil as well as a major “suppliers park” consisting of Mobis, Dymos, Hysco, and Hwashin, among many others; and the acquisition of Ingresoll Rand’s Bobcat construction equipment division in Brazil by Doosan Infracore, just to mention a few.
BKL is a member of World Law Group – WLG (an invitation-only global network of top independent full-service law firms established in 1988), to which renowned firms around the world belong, including leading firms in Latin America, with whom BKL has collaborated in the past on several landmark projects.[16]
KEY BKL ATTORNEYS LEADING OUR LATIN AMERICA TASK FORCE TEAM
Mr. Cho has vast experience in the region, having undertaken major landmark projects in Latin America during his 23-year career as a lawyer. Most notably, he has led Hyundai Motors and its many Korean suppliers in the establishment of a world-class automobile factory in Brazil. He has also led many other projects and acquisitions in the region including Argentina, Mexico, Colombia, Chile, Peru, Venezuela, and Panama, among others. He is the only attorney in Korea who was a partner at top “magic circle” Brazilian law firm, having represented major Korean, US and European multinational companies in the region with foreign-direct investments, joint ventures, mergers and acquisitions, dispute resolution, and compliance/crisis management. While Mr. Cho is a US New York-qualified attorney, he has lived a number of years in South America and is fluent in Spanish and Portuguese.
Having been raised in Mexico, Ms. Lee is a native Spanish speaker. She obtained her law degree from the National Autonomous University of Mexico (UNAM), and is licensed to practice law in Mexico, in addition to the State of New York. She participated in diverse types of transactions in the region during her time at top-tier law firms in Mexico City, and New York (where she focused on transactions in Latin America, including in Argentina, Chile, Colombia, Uruguay, and Mexico). Ms. Lee’s exposure to the region expanded working as a legal specialist at the Inter-American Development Bank in Washington, DC. She currently concentrates her practice on international arbitration, and has experience with disputes involving projects and investment in Latin America, having acted as Tribunal Secretary to various Arbitral Tribunals in both commercial disputes and Investor-State Arbitrations while at the Permanent Court of Arbitration.