At the summit meeting with Mexican President Enrique Pena Nieto on April 4 (local time), President Park Geun-hye jumpstarted the resumption of the free trade agreement (FTA) between Korea and Mexico, which holds the key to Korean companies’ advancement into the fast-growing Mexican market expansion and the large-scale North American and Latin American markets.
The Mexican market is expected to emerge as a new frontier to Corporate Korea since the Mexico is called the "Aztec Tiger" nicknamed after Asian Tigers that realized a miracle in East Asia and has been praised for its labor cheaper than that of China as a manufacturing hub for the North and South American markets.
According to the Ministry of Industry, Trade and Resources, Mexico’s GDP stood at US$1,168.7 billion while its per-capita GDP reached US$973.9 in 2015. Mexico placed 13th in terms of GDPs in the world. South Korea came in 11th with US$1,435.1 billion. Mexico posted US$403.3 billion in exports, US$416.6 billion in imports and an economic growth rate of 2.5%. 81% of Mexico’s exports went to the United States.
The manufacturing industry accounted for 89% of Mexico’s total production. Of the 89%, 30% was inked by the automobile manufacturing industry taking the lead in the growth of the Mexican economy. These facts suggest that a creation of synergies between the Korean and Mexican manufacturing industries would be possible in Mexico that has competitiveness in the manufacturing industry.
Electronic products took up 20% of the nation’s total production. Most of them are the bonded electric appliances such as TVs, refrigerators, washing machines and more, which are produced in areas contiguous with the United States. As electronic products are one of Korea’s competitive industrial products, it is said that Mexico is an excellent strategic base for exporting Korean electronic products.
“Mexico has concluded 15 FTAs with 45 countries and established itself as an FTA hub nation,” said an official at the Ministry of Industry, Trade and Resources. “Mexico’s strategic importance is re-emerging as a manufacturing production base with a geographical advantage that connects North and South Americas and makes the most of the recovery of US economy.”
Two Countries Expected to Maximize Synergies
Korea-Mexico FTA negotiations date back to May 2000. At the time the two countries held the Korea-Mexico Joint Economic Committee and discussed a three-step implementation measure such as strengthening public-private cooperation, the conclusion of an investment guarantee agreement and FTA research.
After six years’ stalled negotiations, both countries decided to go ahead a strategic economic complementary agreement (SECA) which has a narrower scope and a lower liberalization level rather than an FTA in February 2006.
Korea wanted to sign an FTA with Mexico. But that was a desperate countermeasure by the Mexican government which faced oppositions from its industrial sectors. An SECA is a step right before an FTA. The SECA came from complementary economic agreements of Latin American countries which selectively develop specific parts with economic relationships. Both countries pivoted to a comprehensive and higher-level FTA as they declared the resumption of the negotiation in August 2007. The negotiation was suspended again in June 2008.
The Korean government was interested in receiving permit for major industrial products and opening government procurement market in Mexico, but the Mexican government was very passive. But Mexico ceaselessly asked Korea to abolish tariffs on agricultural products, making the negotiation itself impossible.
However, both countries are expected to find a way to mutual prosperity in this FTA negotiation with past failures as experiences. In fact, an FTA is expected to abolish high tariffs against Korea’s major export items such as car, steel and electronics, strengthen Korean investors who made a foray in the Mexican market and enable Korean companies to tap into the Mexican procurement market which gives priority to companies of FTA signatory countries (US$83.2 billion).
On the other hand, it is expected that an FTA will allow Mexico to catch an opportunity to lower its trade dependence with the US by expanding their exports of its products less attractive than those of the US and EU such as automobiles and farming products to Korea and further by diversifying their export markets into Northeast Asia.
34 MOUs from Transportation and Infrastructure to Remote Medical Service
In particular, one key point of the summit between Korean President Park Geun-hye and Mexican President Enrique Pena Nieto is the fact that the meeting accomplished the formation of the biggest-ever economic relationship in the history of the two countries. The two governments signed a total of 34 MOUs including 29 economic MOUs.
First of all, the Korean Ministry of Industry, Trade and Resources and the Mexican Economic and Energy Ministries decided to expand and reorganize the Mineral and Resources Committee, which was held only twice in 2006 and 2011 since its establishment in 2005, by signing a MOU to establish a committee for promotion of trade and investment and cooperation in industry and resources.
The two countries think that they will lay the foundation for cooperation in industry, energy, information and communication technology (ICT) via the new committee that deals with high added value such as trade, investment, industry, energy and etc.
KOTRA signed an MOU for cooperation targeting the local online market with Linio Mexico. The Mexican company is regarded as one of the most recognizable online stores along with Amazon in Mexico. KOTRA aims to dial up e-commerce transactions to US$300 million in 2018 from about US$140 million these days by way of such cooperation.
Korea Trade Insurance Corporation (K-sure) and the Export-Import Bank of Mexico signed an overseas financial cooperation agreement. Its gist is that both countries will cooperate for providing export credit to the projects in third countries, where Korean and Mexican companies participate jointly, and share information when trade insurances are given to Korean companies’ export products to Mexico or investment projects in Mexico. In a nutshell, it means that K-sure shall expand financial supports for Korean companies’ projects in Latin America.
K-sure signed a document that supports preferential loans after Mexico’s Santander Bank sets a prior credit limit of US$500 million on a Mexican project in which Korean companies participate and K-sure guarantees with the Mexican Bank.
The Korean Export-Import Bank sealed a deal for a US$200 million credit limit with the Export-Import Bank of Mexico. The deal will financially help Korean companies in Mexico and Mexican firms which import Korean products.
Korea and Mexico decided to join forces for transportation and infrastructure as well. The two countries exchange technological support for roads, railways, airports, public transport among others and experts and share research projects. Considering the fact that Mexico is promoting the US$ 600 billion dollar national infrastructure plan during the 2014-2018 period, Korean companies and excellent man-powers are expected to take an opportunity to realize their dreams in Mexico.
With regard to water resources, Korean set a foothold to a smart water resource management project in Mexico seriously suffering from a water scarcity due to abnormal droughts and an increase in its population. Mexico’s waterworks are so antiquated that they leak 40 % up to 50% of water. Korea has a 10.7% water leakage rate.
Korea Electric Power Corporation (KEPCO) and Samsung C&T and Samsung Engineering agreed to band together for a new gas-powered combined power generation project in Monterrey, Mexico. KEPCO will generally manage both project development and financing while Samsung C&T supports just financing. Samsung Engineering will take part in the engineering procurement construction (EPC). The construction of a 600MW gas-powered combined power plant will give the Korean companies values of US$400 million in the future.
Besides, the two countries signed MOUs in the telemedicine, pharmaceutical manufacturing quality control, health insurance, pharmaceutical, medical device certification, electric power, new renewable energy, cultural creation and patent sectors.