A. OVERVIEW OF FTAs IN PLACE BETWEEN KOREA AND LATIN AMERICAN COUNTRIES
To date, Korea has entered into FTAs with the following Latin American countries:
As a result of these FTAs, Korea’s trade and business activities with these countries increased significantly over the past years.
Chile
In 2019, Korea was Chile’s 12th import and 4th export trading partner with trading volumes of approximately USD 1.3 billion and USD 4.6 billion, respectively. Chile mainly imported cars, automotive parts, machinery, electronics, steel, aluminum and plastic, while exporting copper, mineral ores, pulp, meat, wine, agricultural products and fish. Currently, 7,838 items benefit from import-export tariff exemption pursuant to the Korea-Chile FTA. Bilateral investment is also on the rise with the Korean investment in Chile focusing on mining (69.1%), retail (15.3%), manufacturing (7.4%) and construction (5.5%).
Since 2018, Korea and Chile have engaged in a series of negotiation rounds to amend and update the existing Korea-Chile FTA. During the most recent round held in June 2021, Korea and Chile discussed upgrading the existing agreement with respect to trade facilitation and intellectual property rights. The two countries also exchanged their positions on introducing new trade rules concerning gender equality, environment and anti-corruption. Korea and Chile have further agreed to create a subgroup focusing on digital economy to initiate their negotiation on digital trade rules.
Peru
Korea has also developed a strong trade relationship with Peru since the Korea-Peru FTA became effective in 2011. As of 2019, Korea became Peru’s 11th largest exporter and 5th largest importer with trade volumes reaching approximately USD 744 million and USD 2.3 billion, respectively. Korea’s direct investment in Peru reached USD 211 million as of 2019, although such investment is almost entirely concentrated in the mineral mining sector.
Korea mostly exports cars and automotive parts to Peru, but export of quarantine supplies and vaccines increased sharply in 2020. Recently, in 2021, the Korea Trade-Investment Promotion Agency (KOTRA) identified automotive parts, construction equipment, pharmaceutical and cosmetic products, and synthetic resin as Korea’s export products with high growth potential in the Peruvian market. Major items imported from Peru to Korea include minerals, gas, seafood and agriproducts such as mango, avocado and grapes.
Colombia
Korea serves as Colombia’s 16th largest exporting and 13th largest importing destination as of the first half of 2020. After the Korea-Colombia FTA took effect in the summer of 2016, the bilateral trade volume increased from USD 1.29 billion in 2016 to USD 1.86 billion in 2019. Marking its 5th year of implementation, the Korea-Colombia FTA further eliminated tariffs for 670 Colombian items and 1,547 Korean items in 2020, thus removing tariffs for 10,725 Colombian items and 5,970 Korean
items in total as of 2020. According to KOTRA, tariff removal for competitive Korean items such as automotive parts and fabric material is expected to strengthen Korea’s foothold in the Colombian market. The FTA program is expected to further remove tariffs by 2022 for another batch of 455 items including cosmetic products and polyester fabric. In 2021, KOTRA identified pharmaceutical products and medical devices, smart phones, hybrid cars, development of new/renewable energy infrastructure, and online learning system as Korea’s export items with high potential in the Colombian market. Korea’s direct investment in Colombia amounted to nearly USD 1 million as of the
first half of 2020.
According to the Colombian Minister of Agriculture and Rural Development, Rodolfo Enrique Zea, Korea is now the second-largest destination for Colombia’s agricultural exports to Asia, with Japan and China ranking as the first and the third, respectively. Coffee and its byproducts still account for the largest share of Korea’s agricultural imports from Colombia, but the volume of other agricultural imports benefiting from tariff removal such as bananas and fresh flowers is also on the rise. During a recent visit by a Korean delegation to Colombia in early July 2021, Minister Zea stated Colombia’s satisfaction with the developments in the two countries’ cooperation in the agricultural sector including the initiation of export of Colombian avocados to Korea and the bilateral cooperation in agricultural digital transformation.
Additionally, Korea and Colombia are strengthening their cultural and other exchanges. Colombia is now becoming a major filming location for the Korean movie industry thanks in part to the various incentives provided by the Colombian government. Also, Colombia is planning to participate in the annual Seoul International Book Fair and has invited Korea to the Bogota International Book Fair. In the same vein, the Colombian government is working to attract more Korean students to study in Colombia.
B. RECENT IMPLEMENTATION OF THE KOREA-CENTRAL AMERICA FTA16
On March 1, 2021, following Panama’s ratification, Korea’s FTA with five Central American countries (El Salvador, Nicaragua, Costa Rica, Honduras and Panama) went into full effect. Having been signed on February 21, 2018, the FTA had already gone into partial effect in 2019 and 2020 with respect to the other four countries.
The Korea-Central America FTA program will eliminate tariffs on 95% of goods from each side within the next decade. The FTA also provides Korean companies such as POSCO with business opportunities to cooperate with the said Central American governments on major energy and infrastructural projects. As such, the fully implemented FTA is expected to ease the pandemic-induced protectionism in the Central American countries, thus contributing to the region’s commercial recovery and accelerating the participating countries’ economic growth.
Trade volume between Panama and Korea has ranged between USD 280 million and USD 485 million during the recent years. By agreeing to remove tariffs for 11,707 items in Korea and 8,416 in Panama within the next 19 years, Korea and Panama have initiated a strong trade market liberalization process reaching above 95%.
Korea and Panama enjoy a complementary trade relationship as Panama mainly exports sugar, coffee, tropical fruits and steel scrap while Korea exports cars, tires and construction equipment. In 2021, KOTRA identified medical devices, automotive parts, cosmetics, steel products and construction equipment as Korea’s export items with high growth potential in Panama.
Separately, it is notable that Costa Rica and Korea are looking to cooperate closely in the digital technology field. Costa Rican President, Carlos Alvarado, even stated that Costa Rica must aspire to be the “Korea of South America.” Costa Rica’s highly-educated bilingual workforce has previously attracted companies such as Intel to Costa Rica. In a recent visit by a Korean delegation to Costa Rica in early July 2021, Costa Rica’s Minister of Agriculture and Livestock, Renato Alvarado, expressed Costa Rica’s desire to further expand the bilateral trade in the agricultural sector through the Korea-Central America FTA.
During a recent visit by a Korean delegation to Guatemala in early July 2021, Korea’s Deputy Minister for Economic Affairs and the Foreign Minister of Guatemala exchanged views on expanding bilateral trade and investment. During this visit, the Guatemalan Foreign Minister requested Korea’s support in Guatemala’s bid to join the Korea-Central America FTA, which would further expand Korea’s trading partners in the region.
C. OUTLOOK ON FUTURE FTAs WITH LATIN AMERICA
Korea’s Ministry of Trade, Industry, and Energy (MOTIE) is actively pursuing to expand Korea’s trade volume in the region through more free trade agreements. In January 2021, the Minister vowed to make more progress in expanding Korea’s trade agreements with Latin America. To this end, MOTIE held a conference in January 2021 with other Korean ministries to evaluate the current Korea-Latin America trade environment.
Below is a chart of the FTAs or other cooperation agreements that Korea is looking to enter with the following Latin American countries:
MERCOSUR
Korea continues to pursue a deal with MERCOSUR, a major South American free trade bloc established in 1991 that consists of Brazil, Argentina, Uruguay, Paraguay and Venezuela. Korea and MERCOSUR began their general discussion on forging a trade deal as early as in November 2004. The parties initiated their official trade negotiations in May 2018.
In early June 2021, Korea and MERCOSUR held their 6th round of talks to resume the trade negotiation process after a 15-month break due to the COVID-19 pandemic. The four-day virtual conference focused on a wide range of issues including trade facilitation, market access for goods, services and investments, rules of origin, intellectual property rights, trade defense, sanitary and phytosanitary measures (SPS) and technical barriers to trade (TBT).
An agreement with MERCOSUR would expand Korea’s trade partnership in Latin America to a regional bloc that represents 70% of the region’s population (approx. 260 million) and 69% of the regional GDP (approx. USD 2.4 trillion) as of 2016. It represents the largest trade block in Latin America. In particular, Brazil and Argentina rank as the world’s 5th and 8th largest countries by land size, respectively, with their combined land mass surpassing even Canada, the world’s 2nd largest country by such measure.
The Korea-MERCOSUR trade agreement, if signed, is expected to benefit Korea’s Brazil-bound export of pharmaceutical products, telephone parts, condensers and transformers for steam motors. In addition, Korea’s export of cargo trucks, wireless phones and components to Argentina is also expected to be positively impacted. Increase in Korean export of small cars, wireless phones, TV reception devices and motorcycles to Uruguay and Paraguay is also expected.
Pacific Alliance
In late 2020, Korea’s Vice Foreign Minister, Kim Gunn, requested to join the Pacific Alliance trade bloc (established in 2011 by Chile, Colombia, Mexico and Peru), which recorded trade volumes of over USD 27 billion in 2019. Talks over Korea’s associate membership in the Pacific Alliance started in March 2017, and substantive negotiations commenced in September 2019.
While Korea has separate FTAs in place with three of the four countries forming the Pacific Alliance (Chile, Colombia and Peru), Korea is yet to conclude an FTA with Mexico. A trade deal with the Pacific Alliance would thus give Korea access to the Mexican market as if through an FTA.
However, Korea continues to pursue a separate FTA with Mexico in parallel. Although such an FTA with Mexico is yet to be signed, a bilateral investment treaty has been in place since 2002, double taxation treaty since 1995, and customs cooperation and assistance agreement since 2006. Moreover, Korea and Mexico continue to be big trade partners: Korea moved up from being Mexico’s 5th to 4th global trading partner in 2020. Korea also became Mexico’s 5th export destination and its 3rd largest source of imports in 2020. Korea’s investment in Mexico, amounting up to USD 583 million, also increased by 8.6% in 2020. Mexico, on the other hand, is the largest Latin American investor in Korea.
A token factor that has influenced the increase of Korean investment in Mexico is the IMMEX (“maquiladora”) Program, which offers benefits such as temporary duty free import of materials and parts and VAT-exemption to temporary import of machinery and equipment for cost-efficient manufacturing of goods in Mexico for export, and which may gain access to the US and Canadian market under the USMCA (US-Canada-Mexico FTA, which replaced NAFTA).
Ecuador
Korea is also pursuing a Strategic Economic Cooperation Agreement (SECA) with Ecuador. Ecuador represents the 7th largest economy in Latin America, and is the only country in the region to recognize the US Dollar as its dual currency.
Although previous negotiations have halted in response to changes of governments in both countries, the two countries have reaffirmed their intent to continue the SECA process upon the Korean Prime Minister’s visit to Ecuador in 2019. The negotiation process will likely resume in 2021 subject to political developments in Ecuador.
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 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.
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.