South Korea-Mexico relationship, More Openness, More BusinessBy Alejandro Enríquez | Thu, 08/06/2020 - 16:19
Q: What role does the automotive industry play in the bilateral trade relationship between South Korea and Mexico?
A: South Korea is Mexico’s sixth-largest trade partner in terms of exports and imports. Mexico is very important for South Korea, as trade volumes between both countries are similar to the total trade volume between South Korea and Brazil, Chile and Colombia combined. According to our statistics, South Korea’s 2018 trade volume with Mexico was about US$16.5 billion; according to INEGI, it was approximately US$20 billion. The difference is because INEGI takes into account the made-in-Korea label even when the product comes from the US or Canada. South Korea’s total investment in Mexico is US$6.5 billion, which puts South Korea in second position among Asian investors in Mexico, following Japan. Meanwhile, Mexico is South Korea’s 15th main trade partner, being ninth in terms of exports and 24th in imports.
Q: What programs are the Mexican and South Korean governments implementing to promote trade between both countries?
A: To improve business conditions in Mexico for South Korean companies, the Korean government is advocating for the establishment of an FTA with Mexico through the Pacific Alliance. We expect an FTA with Mexico will increase trade and investment in the automotive sector. This is the most important pending issue for our embassy. Members of the Pacific Alliance and the Korean government have agreed to initiate negotiations. By September 2019, they had already held a meeting on terms of reference, the schedule of the negotiation, the structure of the working group and the structure of the text.
At the same time, South Korea and Mexico are revising their Bilateral Investment Treaty, which is outdated since it was established more than 10 years ago. The Ministries of Finance of both countries hold a joint economic cooperation committee every one or two years to discuss pending issues to facilitate trade, investment and economic cooperation.
Q: What obstacles have prevented Mexico and South Korea from reaching an FTA?
A: Since 2002, the South Korean government has established many FTAs with our trade partners. Chile was the first in Latin America and we also reached a deal with India, the US, the EU, China and eventually with Canada. Our FTA with Mexico was an exceptional case. In 2006, negotiations were not fast enough, and in 2008, both countries reinitiated negotiations, again in vain. In 2016, after the South Korean president visited Mexico, there was a compromise to reinstall negotiations in 2017. However, that was the year Trump decided to review NAFTA, thus most Mexican negotiators focused on it. Not surprisingly, possible changes in NAFTA created reservations in the steel and automotive industries. Today, after continuous investments from South Korean companies in Mexico in the automotive and household appliances sectors, there is less reluctance to do a deal with South Korea.
Q: What role do you think South Korea will play in the development of the Mexican automotive industry?
A: Many Mexican companies have established partnerships with Korean companies, not only in the automotive sector but also in electronics, steel and chemicals. Several state governments, such as Yucatan, State of Mexico and Queretaro, want to attract South Korean investment in the automotive sector to grow their economy and to create jobs. At the embassy, we support Mexican companies in exploring or finding business opportunities with South Korean players. Particularly for the automotive sector, these efforts are made through the Korea Trade-Investment Promotion Agency (KOTRA), whose function is to promote South Korean exports and investment attraction. Every year, KOTRA’s office in Mexico City organizes the Korea Autoparts Plaza Mexico to promote partnerships between South Korean and Mexican auto parts manufacturers or Mexican automakers. In April 2019, 40 companies, including Korean and Mexican auto parts manufacturers, participated in this event in Celaya.
Q: What is the feedback you get from companies like Kia or Hyundai regarding their projections for the automotive industry and their business in Mexico?
A: I am optimistic about Kia’s and Hyundai’s future in Mexico, but the effect of USMCA must be considered. The Mexican and US governments agreed on an export quota that will make any extra exports vulnerable to arbitrary US tariffs. For this reason, it is critical to get a preferential export quota for Kia. This has not yet been decided by the Mexican government but Kia wants a guaranteed minimum of 200,000 units for future exports to the US.
Wonil Noh is a South Korean diplomat and Minister Counselor for Economic Affairs at the Embassy of the Republic of Korea in Mexico. He is responsible for overseeing diplomatic and economic relations between both countries