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[A NEW NATIONAL STRATEGY FOR KOREA ( 13 )] Evolution of Korean-Latin American relations The contemporary setting for Korea`s diplomatic relations with Latin America is quite different from that of five years ago, not to mention that of the 1990s and the late 1950s, when their mutual diplomatic relations began to be established. This article will explore briefly the half-century development of those relations, identify the current challenges and agendas, and suggest future directions. By the second half of the 1980s, Korea-Latin America relations were dominated by the "three traditional pillars": anticommunist ideology, international emigration, and limited commerce. All these pillars were dramatically transformed as early as in the late 1980s. Sharing the value of anticommunism was the traditional base of cooperation during the Cold War era, but the end of it and Korea`s so-called "Northern diplomacy" made the first pillar obsolete. Korea`s economic success reversed the immigration trend, repatriating Koreans in Latin America and even attracting Latin American labor. While Korea and Latin American economies were in the past protective of their own industries and competed with each other, contributing less to mutual commercial relations, today their liberalized economic regimes create wider commercial opportunities. Thus the political concerns gave way to economic and commercial ones in mutual relations except with Cuba, with whom any activities but diplomatic are possible. In the mid-1980s, Korea began to become substantially involved in Latin America and the Caribbean for both international and domestic reasons: the U.S. preferential trade policy for Central and Caribbean countries in 1984, and the Korean current-account surplus in 1986 and the subsequent liberalization of overseas direct investments. Taking advantage of the Bush administration`s Caribbean Basin Initiative, Korean exporters invested in the Central American and Caribbean countries to secure a springboard into the U.S. market. Even investments made in "maquiladora" (in-bond) industries in Mexico were designed to facilitate entry into the U.S. market; they were not targeted at the local markets. It was in the 1990s that Korea began to seek real markets in Latin America, and changed its strategy from "detour" to "localization." Korean firms had to look for new frontiers beyond the increasingly competitive industrial markets such as the United States and Europe, and needed to move abroad to escape from the high-wage domestic environment which undermined their international competitiveness. In parallel, Korea`s trade liberalization in the wake of the debt crisis and the subsequent economic recovery, together with regional integration in Latin America, prompted Korean companies to look into these emerging markets. Korea`s exports to Latin America increased more quickly than to any other markets while Korean conglomerates with high credit ratings could afford to make direct investments in the region by freely borrowing from the international capital markets. Among other developments in Latin America`s economy, the creation of the Southern Common Market (MERCOSUR) stood out in its appeal to Korean entrepreneurs. Its member countries` political economic stability and market potential induced Korean businesses to enter with a more localized mindset. As of December 1993, there had been almost no direct Korean investment in Brazil; since 1995, however, Korean investors rushed into it. Furthermore, Brazil`s import tariff hikes, adopted in early 1995 to correct its trade imbalances, favored local investors and prompted Korean firms to produce locally. On the other hand, the North American Free Trade Agreement, entered into effect in 1994, and its contribution to Mexico`s increased purchasing power, ultimately prompted Korean businesses to further localize its business operations there. During Korean President Kim Young-sam`s first-ever state visits to Guatemala, Chile, Argentina, Brazil and Peru in September 1996, and to Mexico in June 1997, more than 100 business leaders accompanied him, and announced more than $2 billion worth of investment projects. Korea`s investments in Latin America in 1997 recorded the highest amount by then, $627 million, accounting for a record-high 11 percent of Korea`s total overseas investments. Investment was also encouraged by the elimination of Korea`s remaining regulations on overseas investments in June 1996 and August 1997. This presidential trip entailed the foundation of the Korean Council on Latin America and the Caribbean, and of the Foreign Ministry`s new Bureau for Latin America and the Caribbean. Such dynamically increased Korean presence in the region, however, was interrupted by Korea`s financial crisis of 1997-98. Korean entrepreneurs` aggressive investments in the region were suddenly halted. While the Kim Dae- jung government forced them to reduce their debt-to-equity ratio to 200 percent or lower, the formerly powerful business groups no longer enjoyed political support for their expansionary projects. Many promises to invest in Latin America were cancelled, reduced in size or indefinitely postponed. Korea`s total investments in Latin America in 1998 decreased by almost half, compared to the previous year. As many factories stopped or operated far under capacity, the demand for raw materials and intermediate goods experienced a drastic contraction. In 1998, imports from the region decreased 46.1 percent. Years during and after the financial crisis were the darkest times for Korea-Latin America economic relations. The Asian financial crisis was contagious to other emerging markets including Latin America, and this further delayed recuperation of the earlier momentum. What was worse, China`s surge as a major trade partner and investment destination for Korea detracted Korean entrepreneurs` attention from Latin America. However, Latin America emerged as a new region in the wake of the international financial crisis and the 9/11 al Qaeda attack on the United States. By 2003 dynamism came back in the region. Since then, most of Latin American economies have performed with remarkably stable and constant growth thanks to the consolidation of market- oriented reforms, prudent fiscal management, and the hike in international commodity prices. All this stimulated new Korean initiatives toward the region under the global challenges of regionalism and energy crisis, which ultimately should result in building the "new three pillars" of Korea-Latin America relations: trade, development cooperation, and resources security. On the trade front, the Korea-Chile free trade agreement went into effect as of April 1, 2004. This agreement, the first of its kind Korea concluded, carries several important implications not only for Korea`s trade policy and its relations with Latin America, but also for trans-Pacific trade relations and the politics of trade in Korea. For four years it has guaranteed a dynamically extended presence of Korea in Chile, and vice versa. At the same time, it brought about Korea`s renewed focus on Latin American markets in general. As the first FTA between an East Asian country and a Western Hemisphere country, it has contributed to intensifying interregional cooperation and interdependency between East Asia and Latin America, causing others in the two regions to follow suit. The Korean government has promoted further initiatives for a regionalist scheme. This includes Mexico as the second FTA partner from the region. The two countries held the first round of FTA negotiations in December 2007 after a stalemate following three rounds of negotiations for a Special Economic Complementation Agreement. Korea and MERCOSUR completed a joint study on an FTA without reaching an agreement on follow-up negotiations. Peru and several others have shown interest in FTA with Korea. As for development cooperation, noteworthy events include Korea`s joining the Inter-American Development Bank in 2005 and the U.N. Economic Commission on Latin American and the Caribbean in 2007. Korea`s membership in the IDB and ECLAC is expected to add the assitance programs operated by the Korean International Cooperation Agency and the Korea Ex-Im Bank to the list of government-funded overseas development programs. Regarding resources security, the Korean government has initiated the establishment of bilateral resources cooperation commissions with Peru, Chile, Argentina, Brazil and Mexico, and the South America Resources Center in Buenos Aires. Former President Rho Moo-hyun`s state visits to Argentina, Brazil, and Chile in November 2004, and Mexico in September 2005 focused on bilateral cooperation on resources, particularly energy. Korean National Oil Corp., SK, Daewoo, Dongwon, Golden Oil and Petroterra are participating in more than a dozen petroleum projects in South America. In short, Korea-Latin America relations experienced ups and downs throughout the second half of the 20th century caused by the major international and local political and economic factors. One lesson from the past experience is that the failure to develop multi-dimensional relations between Latin America and Korea led to the fragile relationship. Particularly, the immature institutionalization of Korean-Latin American relations was responsible for the vulnerability of the boom-bust economic relations. Thus, the two sides should create and expand the opportunities and space for better mutual understanding, institutionalization and strategic cooperation. Korea`s past three administrations have sought to institutionalize cooperation with Latin America, holding several bilateral commissions and policy consultative meetings and launching multilateral dialogue channels including the Rio Group Troika, Central American Integration System, MERCOSUR, and Caribbean Community. It also joined international organizations including the IDB and ECLAC. It is high time to refine these initiatives, put them into action, and reap benefits from them. Most of the challenges and agendas are related to economic issues. One notable political agenda for the Lee Myung-bak administration concerns Cuba. A paradigm shift is expected in relations between the United States and Cuba when either a U.S. Democratic or Republican administration reconciles with Cuba and Raul Castro takes a less dogmatic stance than Fidel. The new policy agenda for Korea will be when to establish diplomatic relations with the Caribbean island. Although nothing much will change, that decision will broaden the horizon for Korea`s future Latin America policy. As for other nonpolitical interests, it is noteworthy above all that Korea`s exports to Latin America have accounted for 4.5 percent to 6.5 percent of Korea`s total exports for the past 10 years, the highest ratio among Asian countries. Interestingly those figures are exactly the same as Spain`s, the highest ratio in Europe. This means that the Latin American market is more significant to the Korean economy than to any other Asian economy. In this globalized world of the 21st century, these crucial strategic relations should be further institutionalized to maximize the benefits of globalization and broaden cooperation opportunities. Policy initiatives should focus on strengthening the new three pillars. First, policy efforts are needed to expand FTA to the rest of Latin America. Korea needs to take into account not only like-mindedness but also strategic importance in deciding on whether, when and with whom to negotiate. Regional-multilateral interplay is always present as some sectors including agriculture involve key interests to each partner. For instance, there should be some inescapable trade-off in Korea-MERCOSUR FTA, but it should be reminded that MERCOSUR would not give priority to Korea in their FTA policy agenda if the multilateral Doha Development Agenda negotiations are completed. Secondly, creative thinking is needed for Korea to participate in socioeconomic development in the region and implement the right development assistance programs for the right Latin American societies. Most of Latin American countries have suffered in recent years from the vicious cycle of boom and bust. The nations doubted the benefits of market-friendly reforms, and underwent social and political instability. Some countries even attempted a U-turn in their policy orientations. Some are not as enthusiastic recently with the intra-regional integration as before. Korea should be able to play the role of a serious development cooperation partner as one of the few nations in the world which grew from poverty to advanced-economy status. Its experiences, value, education, research, culture, social systems, high technology and export strategy should be shared with those Latin American nations aspiring to develop. For this, a new model is necessary to effectively implement relevant programs. Government should not be the sole actor, but universities, business associations, and many other nongovernmental organizations should be invited in the process. Last but not least, strategic consideration should be taken for participation in natural resources development projects and security of energy, mineral, food and other resources on a stable, regular basis. Many South American countries are inclined toward resource nationalism and tend to limit foreign participation. Keys at this point should be business stability and mutual confidence. Confidence can only be constructed when the partners share goals for mutual prosperity. They should explore linkages between cooperative development projects and discuss measures for effective participation and business stability. Such partnership can also be enhanced by more people-to-people contact. Widening specific program-based intellectual dialogues could help. By Kim Won-ho 2008.03.06 * Dr. Kim Won-ho The Author is associate professor at the Graduate School of International Area Studies at Hankuk University of Foreign Studies, Managing Director of the Korean Council on Latin America and the Caribbean, President of the Council of Latin American Studies in Asia and Oceania. He can be reached at whkim@hufs.ac.kr. ⓒ Copyright 2002~2004 Digital Korea Herald. All rights reserved

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