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Korea-LAC-trade-economy

Navigating an Evolving Global Economy: The Future of Korea-LAC Relations

September 24, 2024 by Fabrizio Opertti - Marcelo Dolabella Leave a Comment


In recent decades, the relationship between Korea and Latin America and the Caribbean (LAC) has flourished amidst a period of unprecedented international economic cooperation. However, the recent proliferation of trade barriers and subsidies poses new challenges.

What does this mean for Korea-LAC relations? A recent report by the IDB argues that despite these challenges, there is no reason to abandon the goal of a close partnership. By integrating their economies, Korea and LAC are better positioned to address geopolitical, environmental, and social issues while maintaining trade and foreign investment as growth drivers.

Trade and Investment Dynamics

The post-pandemic years have brought new impetus to the Korea-LAC relationship. Trade has surged to an all-time high in 2022 – US$64.9 billion – mainly driven by increased demand for LAC exports (See Figure 1). The relationship is known to be concentrated in a few countries, with Mexico, Chile, Brazil, Peru and Argentina accounting for approximately 90% of total bilateral trade in 2023.

Figure 1. Trade Relationship between LAC and Korea

Source: IDB Integration and Trade Sector with data from IMF Direction of Trade Statistics (DOTS).
Note: Based on imports and exports reported by 26 LAC countries.

The product composition of bilateral trade reflects the well-known complementarities between the two economies. Korea sends mainly manufactured and processed goods, while LAC, rich in natural resources, has historically supplied agricultural and energy commodities. However, recent developments are poised to shape the future of this relationship:

  • Climate Change and Energy Transition: LAC’s clean energy matrix and substantial reserves of critical minerals can help Korea reduce the carbon embodied in its production and consumption. The same is true for LAC by importing cheaper environmental goods from the Asian partner. Beyond goods, there is potential for trading environmental services, especially carbon credits.
  • Food Security: LAC agri-food exports to Korea have grown at an annual rate of 20% over the past four years, now accounting for 16% of all Korea’s imports of these goods. Eliminating high tariffs and harmonizing sanitary measures should be top priorities for the partnership.
  • Embracing Digital Transformation: To capitalize on the productivity gains from digitalization, LAC needs to enhance its information and communications technologies (ICT) infrastructure. Korea, a major provider of ICT goods and services, can assist in this area. Exports of ICT services have grown at a 13% annual rate since 2007, although goods exports have yet to take off. Lowering tariffs on LAC’s side (averaging 6.1%) and reducing barriers to digitally traded services on both sides are essential steps forward.
  • Resilience: The LAC-Korea partnership is particularly well-suited to enhancing the resilience of value chains. Both regions largely share democratic values and market-oriented economies.

Korea’s investment in LAC has experienced a similar recovery trajectory, reaching a record US$3 billion in 2023. This increase coincides with a significant drop in Korean investment in China, suggesting that LAC might benefit from Korea’s reallocation of value chains. Over the past years, Korean investments in LAC have been mainly directed to manufacturing in Mexico and Brazil, and mining in Argentina and Peru (Figure 2).

Figure 2 – Korea Outward FDI to LAC, by Country and Sector, 2018-2023

Source: IDB Integration and Trade Sector with data from Export-Import Bank of Korea (KEXIM).
Note: Values in parenthesis in US$ millions.

Brazil in Focus

Brazil, LAC’s largest economy and home to 50,000 Koreans, offers significant potential. Despite a slowdown in trade and investment, recent signs of recovery are promising. Goods trade reached US$10 billion in 2023, with a more balanced trade since 2021. Services trade has been more resilient, averaging US$1.12 billion annually between 2010 and 2021.

Brazil exemplifies the potential for addressing the abovementioned challenges: a large democratic market economy with abundant natural resources critical for food security and clean energy transition. However, high bilateral trade costs are still an obstacle. Moving forward with the MERCOSUR-Korea free trade agreement would be the most effective way ahead.

The Power of Cooperation

The success of the Korea-LAC relationship has always relied on more than just market forces. Korea and LAC have a long history of successful intergovernmental relations. This has translated into a steady stream of Korean development assistance for LAC.

Through the IDB, Korea has substantially funded essential development initiatives in LAC via knowledge sharing programs, technical cooperation, and project co-financing. The amount channeled through these initiatives reached $1.06 billion by the end of 2023.

Korea-LAC Trade and Innovation Forum

One of the key technical cooperation initiatives is the series of Korea-LAC events, such as the Korea-LAC Trade and Innovation Forum. This year, the Forum was held in Rio de Janeiro on July 25-26, bringing together high-level public and private sector speakers from both regions, as well as a significant group of Korean and LAC companies.

Forum Highlights:

  • Key Topics: Sustainable agriculture, infrastructure investment through public-private partnerships, supply chain optimization, and the role of blockchain in the digital economy.
  • Activities: Knowledge sessions, startup pitches, and business matchmaking, emphasizing opportunities for economic cooperation, technological innovation, and sustainable development.

Conclusion

In summary, the Korea-LAC partnership holds immense potential to navigate the complexities of the new world economy. By focusing on collaboration in areas like food security, clean energy, and digital transformation, Korea-LAC can build more resilient and sustainable economies. Renewed intergovernmental cooperation and a focus on policy convergence are essential to unlocking these opportunities. A stronger Korea-LAC partnership can be a powerful force for growth and prosperity in both regions.


Filed Under: Regional Integration, Trade Promotion

Fabrizio Opertti

Fabrizio Opertti is Manager a.i. of the Productivity, Trade, and Innovation Sector (PTI) at the Inter-American Development Bank (IDB), where he supervises an operational team in charge of a large portfolio of international trade and foreign direct investment promotion loan and technical cooperation projects in Latin America and the Caribbean (LAC). Fabrizio is currently leading an IDB Group-wide team in the design and implementation of the ConnectAmericas business platform. He also directs the IDB’s initiatives in the services globalization sector, having led the preparation of services’ export promotion strategies in Argentina, Brazil, Colombia, Chile, Jamaica, Paraguay, Peru, Trinidad and Tobago, and Uruguay. Fabrizio also leads the organization of the IDB’s pan-regional trade events, including I and II CEO Summit of the Americas (Colombia 2012, Panama 2015) Outsource2LAC (Uruguay 2011, Colombia 2012, Argentina 2013, Guatemala 2014 and Mexico 2015), the Asia LAC Fora (Korea 2007, 2011 and 2015; China 2010, 2012 and 2014; Japan 2013), among others. Fabrizio holds an MBA from Johns Hopkins’ School of Business, a Master in Science in Foreign Service from Georgetown University’s School of Foreign Service and Bachelor of Arts in International Political Economy from American University.

Marcelo Dolabella

Marcelo Dolabella is an Economics Research Consultant in the Integration and Trade Sector at the Inter-American Development Bank (IDB). He specializes in applied international trade research using econometric models. He has experience in issues related to the climate-trade nexus, non-tariff measures (NTMs), global value chains, foreign direct investment, and impact assessments of trade agreements. Prior to joining the IDB, he worked for the United Nations Economic Commission for Latin America and the Caribbean (UN-ECLAC) and the Latin American Integration Association (LAIA). He holds a M.Sc. degree in Economics with distinction honors from Tilburg University (The Netherlands) and B.Sc. degrees in Economics from IBMEC University (Brazil) and in European Management from EM Strasbourg (France).

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Productivity and Trade

This space explores how trade, investment and sustainable development in strategic sectors can boost productivity and strengthen more dynamic, inclusive and resilient economies in Latin America and the Caribbean. From trade facilitation and export and investment promotion to entrepreneurship, the development of public-private synergies, agri-food systems and tourism, we address challenges and opportunities for growth in the region.

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