Global trade uncertainty is exposing vulnerabilities in the supply chain and presenting challenges to international economic cooperation. The U.S.-China competition for economic and technological dominance is reshaping global trade dynamics and influencing foreign economic policies worldwide.

In this context, South Korea is enhancing economic cooperation with Latin America through agreements like the Korea-Central America Free Trade Agreement (FTA), the Korea-Brazil Trade and Investment Promotion Framework (TIPF), and the Korea-Ecuador Strategic Economic Cooperation Agreement (SECA).

Korea faces new challenges in its trade with Latin America due to the reorganization of global supply chains, the formation of economic blocs, increasing protectionism within countries, and upcoming elections in major nations. To address these issues, there is a growing need for Korea to diversify its export markets and establish stable supply chains through collaboration with Latin America. This region is rich in resources, including minerals and energy, making it a vital partner for Korea’s energy and resource security.

Korea’s exports to Latin America have been decreasing for the past decade, while imports from the region have risen. This trend persists despite FTAs with Chile, Peru, and Colombia, highlighting the need to identify the causes behind the decline and explore new export opportunities.

This report analyzes the trade dynamics between Korea and Latin America to pinpoint challenges and opportunities. It provides targeted policy recommendations and long-term trade objectives for the region that have not been previously considered, setting this study apart from existing research.

In Chapter 2, we analyze the trade and investment trends between Korea and Latin America to understand the characteristics of Korea’s exports to and imports from this region. Since 2013, Korea’s exports to Latin America have been on a downward trend, differing from its global export patterns, although its import patterns remain similar. Notably, exports to Mexico and the Dominican Republic did not decline during this period, unlike exports to other Latin American countries. Additionally, even with the implementation of the Korea-Peru FTA and the Korea- Chile FTA, Korea’s exports to Peru and Chile have decreased after some time.

When analyzing Korea’s exports to Latin America by item, it becomes clear that exports to Brazil, Mexico, and El Salvador consist largely of intermediate goods, with these exports exceeding Korea’s overall global proportion of intermediate goods. Conversely, the share of intermediate goods exported to Chile, Peru, Costa Rica, and the Dominican Republic is lower than Korea’s global average. Notably, the intermediate goods in these exports are primarily composed of automobile parts and flat panel displays.

Korean investment in Latin America varies by period and country, influenced by Korea’s investment system, Latin American economic fluctuations, protectionism, and export conditions to the U.S. Investments in Mexico focus on exporting to the U.S. and are less affected by regional economic changes. In contrast, MERCOSUR investments aim to enhance price competitiveness in local markets due to high tariffs and non-tariff barriers. Investment in the Central American Integration System (SICA) is smaller, mainly concentrated in transportation, warehousing, and business services, compared to the Pacific Alliance and MERCOSUR.

Chapter 3 examines the trade, investment, and major issues between China and Japan, which are viewed as competitors of Korea in the global market. It also discusses the United States, which has historically had a significant influence on Latin American economies. China has been enhancing its economic cooperation with Latin America by focusing on expanding trade in high-value-added products, facilitating trade through free trade agreements (FTAs), increasing investment in the manufacturing sector, and developing resources, energy, and infrastructure in the region. This trend of cooperation is believed to continue to the present day.

Japan’s export patterns to Latin America since the 2010s have mirrored those of Korea, making it important to examine Japan’s situation more closely. There is a need for in-depth research on Japan’s cooperation with Latin America moving forward. Since the 2010s, the Japanese government has been actively working to finalize FTAs with Latin American countries and enhance the utilization of existing FTAs. Beginning in 2020, the focus has shifted to eliminating trade barriers and identifying new export opportunities through intergovernmental dialogue.

For example, Japan has been using this dialogue to ease investment barriers, support the growth of new startups, and establish tax and investment agreements. Additionally, in response to rapidly changing global trade conditions, the Japanese government is promoting the establishment of supply chains for crucial minerals. In February 2024, the Japanese Ministry of Foreign Affairs announced the “Latin America Diplomacy Initiative,” aimed at strengthening the supply chain by positioning Latin America as a strategic economic security hub and supporting the expansion of Japanese companies in the region.

While the United States has significantly influenced the economies of Latin America, it is challenging to assert that it has recently adopted a specific trade policy directed at Central America. The U.S. initiated the Americas Partnership for Economic Prosperity (APEP), which emphasizes cooperation and support but lacks normative elements that directly impact trade and investment. However, as China’s presence and cooperation in Central America grow stronger, the United States is likely to seek changes in its trade policy towards the region in the future. This potential shift in policy is particularly relevant in light of the increasing Chinese investment in Mexico, indicating that a comprehensive trade policy for the Central American region could be a plausible scenario.

Chapter 4 presents the results of an analysis examining the reasons behind the sluggish growth of Korean exports to Latin America, along with policy recommendations from previous studies. As the global supply chain has evolved due to de-Sinicization and the rise of ASEAN in the manufacturing sector, Korea’s direct exports to Latin America may have been shifted to exports routed through ASEAN to Latin America. However, empirical analysis of the data indicates that, while the increase in Korean exports to ASEAN has contributed to a rise in ASEAN exports to Latin America, it cannot be concluded that Korean exports to ASEAN have significantly reduced Korean exports to Latin America—at least not until recently.

Another reason for the decline in Korea’s exports to Latin America is the reduction in Korean companies’ investments in the region. The correlation coefficient between Korea’s investment in Latin America and its exports is quite high, indicating that the ongoing decrease in investment since the mid-2010s has directly impacted the decline in exports. Interestingly, the correlation coefficient for Korea is significantly higher than that of Japan. This suggests that Japan’s decline in investment in Latin America has a lesser effect on its exports. Future research on Japan’s investment trends and export patterns in Latin America could yield valuable insights.

Korea’s limited entry into the Latin American market contributes to the sluggishness of its exports to the region. Most of Korea’s outbound foreign direct investment in Latin America is concentrated in the manufacturing and financial sectors. Additionally, investments in the service industry mainly focus on the financial, insurance, and real estate sectors, where purchases from Korea are minimal. As a result, the potential for export expansion through overseas direct investment remains relatively low.

Chronic political and social instability in Latin America, along with issues such as public safety, corruption, and inconsistent policy changes, poses significant challenges for advancing into Latin America. In Chapter 4, public safety concerns were highlighted as a particular issue for Korean companies investing in the region.

A survey conducted on Korean companies highlights several challenges they face when investing in Latin America. These challenges include difficulties in local production and parts procurement due to protectionist policies, price competition with Chinese products, challenges in gathering relevant information, excessive administrative burdens, competition with local construction firms, stringent environmental standards, and fluctuations in exchange rates.

These issues may cause companies to hesitate in making new or expanding existing investments in Latin America. However, it is important to note that it may be difficult for the government to address these challenges directly. Competition with Chinese products is a common hurdle for all global companies, not just those operating in Latin America. Similarly, the strict environmental regulations, competition with local businesses, excessive administrative work, and currency fluctuations are inherent costs associated with doing business in the region, which leaves little room for direct government intervention.

Moreover, the rise of protectionism seen today is part of a broader trend in global trade. As such, the Korean government should develop a trade strategy that takes these factors into account. However, this area is also one where direct government involvement may be limited.

Therefore, most of the difficulties presented by our companies are in areas that are difficult for the government to resolve, and rather than expecting the government to resolve them, companies should accept them and devise strategies utilizing Latin America. The beginning of devising strategies is to analyze why many multinational companies have invested in Latin America and what their strategic goals are, based on this, it is necessary to consider how advancing into Latin America can increase corporate profits.

In Section 2 of Chapter 4, we assess whether the policy recommendations from previous studies—diversifying export items, expanding exports to new markets, and increasing FTAs with Latin American countries—have been achieved at the current level. Over the past 10 years, Korea’s exports to Latin America have made some progress in diversifying export items. This improvement appears to stem from a higher proportion of intermediate goods being exported, particularly various manufacturing-related products, to many Latin American countries. However, it is challenging to provide a positive evaluation regarding the development of new markets and the expansion of exports, as Korea’s exports to this region still lag significantly behind the import scales and potential of each Latin American country.

The expansion of FTAs with Latin American countries is generally viewed positively, particularly regarding external growth. This is evident in the conclusion and implementation of the Korea-Central America FTA, following the enforcement of the Korea-Colombia FTA, as well as the completion of negotiations for the SECA agreement with Ecuador. Additionally, Korea has experienced significant short-term trade benefits from FTAs with Chile, Peru, and Colombia. However, the increase in exports that these agreements promote does not persist in the long term; instead, it gradually declines after the agreements are put into effect. Therefore, future responses and adjustments are necessary.

Based on the content of Chapters 2 to 4, policy goals and tasks have been proposed as recommendations for Korea’s trade policies toward Latin America, organized by period and target country, and detailed in a table in Section 2 of Chapter 6. In the short term, a key trade policy goal is to establish and activate a cooperation channel between Latin America. This can be achieved by focusing on countries where consultative bodies, such as the Resource Cooperation Committee, Senior Policy Council, and Joint Economic Committee, are already in place. This approach is expected to be more cost-effective compared to pursuing other goals.

The proposal for the trade policy toward Latin America includes the ‘Expansion of exports to Latin America’ as a mid-term goal. This goal requires more time to achieve than the previously mentioned goal of ‘Establishment and Activation of Collaboration Channels for Latin America,’ as it involves the collective efforts of both the government and companies. To achieve the ‘Expansion of exports to Latin America,’ several tasks have been identified, including the ‘Expansion of investment in Latin America’ and the ‘Increase in the proportion of intermediate goods exports.’ Additional mid-term tasks for the trade policy include the ‘Diversification of export items’ and the ‘Exploration of exports aimed at the domestic market’ to help alleviate uncertainty in the trade environment in Latin America. As a long-term task, the proposal to “prepare for the possibility of economic integration between the United States and Latin America” aims to “ease uncertainty in the trade environment” within the region. Given the likelihood that tensions between the US and China will persist, enhancing economic integration between Latin America and the US could benefit Korea by mitigating some of the trade uncertainties faced by Mexico.

However, the policy experiments detailed in Section 2 of Chapter 5 indicate that in certain industries where Korea is competitive, deteriorating trade conditions—specifically a worsening trade balance—could adversely affect Korea’s welfare. Therefore, it has been suggested that a localization strategy should be developed for these specific industries.

Additionally, while expanding economic integration between the US and Latin America presents challenges for Korea to directly influence, it necessitates both economic and diplomatic efforts. As such, achieving this goal is likely to be difficult in the short or medium term, which is why it has been framed as a long-term objective.

국문요약

제1장 서론

제2장 한국과 중남미 간 무역 및 투자 동향
1. 무역
2. 투자
3. 한국의 대중남미 교역 및 투자 특징

제3장 중국, 일본, 미국의 대중남미 무역 및 투자 동향
1. 중국
2. 일본
3. 미국

제4장 한국의 대중남미 수출 부진 원인과 기존 정책 제언에 대한 분석
1. 대중남미 수출 부진 원인 분석
2. 기 제안된 정책 제언에 대한 검토 및 평가

제5장 향후 대중남미 통상정책 목표와 정책 과제
1. 정책 목표 및 정책 과제에 대한 제언
2. 모형 기반 정책 실험

제6장 결론 및 대중남미 통상정책 방향에 대한 제언
1. 연구 결과 요약
2. 정책 제언

참고문헌

부록
부록 1. HS 코드(4단위) 목록
부록 2. 한국의 대중남미 수출 상위 품목 변화
부록 3. 한국의 대중남미 수출 감소 원인 분석을 위한 중력모형
부록 4. 정책 실험을 위한 경제 모형

Executive Summary