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Mercosur Market Worth $2.7 Trillion Waiting for FTA with S. Korea
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Mercosur Market Worth $2.7 Trillion Waiting for FTA with S. Korea
  • By Jung Suk-yee
  • March 6, 2017, 05:30
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S. Korea’s trade and industry minister Joo Hyung-hwan shake hands with Argentina’s Production Minister Francisco Cabrera on March 3 after signing an MOU for a trade and investment dialogue channel between S. Korea and Argentina.
S. Korea’s trade and industry minister Joo Hyung-hwan shake hands with Argentina’s Production Minister Francisco Cabrera on March 3 after signing an MOU for a trade and investment dialogue channel between S. Korea and Argentina.

 

The South Korean government will start negotiating a trade agreement (TA) with Mercado Common Sour (Mercosur). Mercosur is the South American trade block consisting of four member countries – Argentina, Brazil, Uruguay and Paraguay, which was established in 1995 after the founding members eliminated their trade barriers.

The population of Mercosur member states account for 70 percent of the total population of South America, and their combined gross domestic product (GDP) takes up 75 percent of the total GDP of the continent. However, the European Union is the only other institution that is in negotiation a TA with Mercosur member states. Accordingly, the huge South American market will be opened if the negotiation goes well. A TA is a similar with a free trade agreement (FTA) but the term has been introduced because Mercosur is reluctant to use the word of FTA.

The Ministry of Trade, Industry and Energy (MOTIE) announced on March 3 that Trade Minister Joo Hyung-hwan visited Argentina for two days from the 2nd to 3rd, and signed a joint statement to initiate negotiations for the TA between South Korea and Mercosur. The first negotiation will be held in June.

The joint statement signed between Minister Joo and Susana Malcorra, foreign minister of Argentina, the current chair of the Mercosur sub-regional bloc, said that a preliminary negotiation for the TA has been successfully completed and the two sides will begin official negotiations through domestic procedures within the first half of this year.

The preliminary negotiation is the stage where they discuss compositions and basic directions of the TA agreement. After the preliminary negotiation is finished, a man of the ministerial level in the four South American countries will gather and decide on whether to start negotiations. The latest joint statement means that South Korean has passed all these processes needed.  

An official from the MOTIE said, “We tried to create a momentum to begin FTA negotiations with Mercosur since 2004, the economic community has been reluctant to sign a FTA with other countries outside of Latin America in order to protect its industry. We took advantage of opportunities as the new government, which was launched in 2015, has been more open to the idea of free trade with other countries.”

According to the MOTIE, Mercosur has a total population of 290 million people, and its economic size is estimated at US$2.7 trillion (3123.9 trillion won), accounting for 70 percent and 76 percent of South American continent's population and gross domestic product, respectively. 

The trade between South Korea and Mercosur member states peaked in 2011 at US$20.8 billion (24.66 trillion won), but dropped to US$10.3 billion (11.92 trillion won), which is less than half, last year due to the global economic depression and its protectionist trade policies.

However, the South Korean government said the trade volume will grow when the economy of Mercosur countries picks up and investment and trade become activated with the TA between the two.

Another official from the MOTIE said, “When South Korea signs a FTA with Mercosur, South Korean companies are expected to dominate the South African market in advance and increase exports compared to other competing countries. When we successfully expand FTAs from Chile, the U.S., Canada and Colombia to six Central American countries, Mexico and Mercosur, we will be able to establish the FTA network that passes through all over the Americas.”

Joo held the first bilateral meeting of the industrial cooperation committee with Argentina’s Production Minister Francisco Cabrera on the same day and signed a memorandum of understanding (MOU) for a trade and investment dialogue channel between South Korea and Argentina. Under the MOU, the two countries will promote the cooperation in the defense sector, such as fighter jets and combat support ships, and help South Korean firms expand cooperation to develop 10 underdeveloped northern states in Argentina.