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South Korea-Mercosur trade deal, stalled by Covid-19

. Aug 22, 2020
south korea brazil trade pandemic Photo: Aritra Deb/Shutterstock

Brazil and South Korea have maintained diplomatic relations for 60 years. In 2019, trade between the two countries reached BRL 9.1 billion and South Korean direct investments in Brazil totaled BRL 19.7 billion. Since then, there has been some expectation around a commercial agreement between Seoul and Mercosur, as well as bilateral exchanges in the areas of politics and economics, besides other sectors.

South Korean companies also have their eyes on the Brazilian government’s Investment Partnerships Program (PPI), hoping to take part in major infrastructure works.

However, the Brazilian government has faced pressure against inking deals with South Korea, predominantly coming from the National Industry Confederation (CNI). The organization claims that a Mercosur-South Korea deal would reduce the GDP of the majority of sectors of agriculture, the extractive industry, the transformation industry, and services. Projections made by CNI specialists show that, with the elimination of import tariffs, 51 Brazilian economic sectors would be harmed.

Brazilian industry representatives fear that South Korea is the world’s second-largest target of antidumping cases. Data from the World Trade Organization (WTO) show that, in 2008 and 2019, there were 148 measures directed toward Seoul for practices deemed as being dishonest. Only China received more complaints.

On the other hand, in an interview to The Brazilian Report, the South Korean Ambassador in Brazil, Kim Chan-Woo, affirmed that the agreements are highly beneficial to all parties, and would already have been finalized were it not for the Covid-19 pandemic. He also spoke about the interest of South Korean companies in investing in Brazil, saying that this would increase if administrative and tax reforms are approved.

Read the full interview below:

</p> <p><strong>What progress has been made in negotiations toward the agreement between South Korea and Mercosur?</strong></p> <blockquote class="wp-block-quote"><p>The negotiations for the South Korea-Mercosur trade agreement had a fifth meeting in February this year, in Uruguay. But with this unexpected pandemic caused by Covid-19, it has been impossible to hold further meetings for discussions. The governments of South Korea and Brazil believe that establishing the agreement will positively affect the economies of both countries. </p><p>Therefore, both countries share the desire to continue efforts so that negotiations may be concluded soon. The expectation is that the conclusion of these negotiations will bring several benefits. Furthermore, the agreement will not only benefit bilateral trade, it will also reach both countries&#8217; economies in a broader manner, expanding bilateral cooperation, which will contribute — in the medium- and long-term — to a structural renewal and improvement in the level of Brazilian technology.</p></blockquote> <p><strong>Which are the main South Korean investments in Brazil, and how can these be expanded?</strong></p> <blockquote class="wp-block-quote"><p>According to data from Brazil&#8217;s Economy Ministry, South Korean investments in the country reached USD 19.7 billion since 2004, which demonstrates the dynamism of investments of South Korean companies in Brazil. According to a 2019 report of the United Nations&#8217; Economic Committee for Latin America and the Caribbean, investments of South Korean companies in Latin America are largely greenfield investments, a model of investment that implies in the construction of industrial plants, with the use of local manual labor, significantly contributing to the development of the regional economy. </p><p>With the conclusion of the trade deal between South Korea and Mercosur, this type of investment by South Korean companies will certainly increase. On the other hand, following the pension reform [approved last year by Brazil&#8217;s Congress], the administrative and tax reforms currently underway will contribute even further to the attraction of foreign investments in Brazil. Furthermore, South Korea will actively support the progress of Brazil&#8217;s accession to the Organization for Economic Co‑operation and Development (<a href="https://brazilian.report/business/2018/03/01/joining-oecd-mean-brazil/">OECD</a>).</p></blockquote> <p><strong>The Brazilian government has announced infrastructure restructuring projects, such as on highways and railways. Are South Korean companies planning to take part in these endeavors?</strong></p> <blockquote class="wp-block-quote"><p>The <a href="https://brazilian.report/podcast/2019/01/16/brazil-infrastructure-woes/">infrastructure market</a> in Brazil is vast and attractive. If it were possible, South Korean companies would have an interest in actively participating in projects such as a high-velocity railway between Rio de Janeiro and São Paulo, among various other <a href="https://brazilian.report/power/2020/02/04/jair-bolsonaro-privatization-plan/">projects</a>. The South Korean embassy is actively divulging the Brazilian government&#8217;s Investment Partnerships Programs (PPIs). In October, the South Korea-Brazil Business Forum is set to take place, and Brazilian infrastructure specialists will be invited. Furthermore, there are plans to put together a working group between the two governments to deal with this issue.</p></blockquote> <p><strong>South Korea transformed national companies such as LG and Samsung into huge international corporations. Brazil has yet to manage this, what&#8217;s the formula for South Korea&#8217;s success?&nbsp;</strong></p> <blockquote class="wp-block-quote"><p>In territorial terms, South Korea is a small country with limited natural resources, so these companies had a huge need to be present in foreign markets. To fulfil this need, it was necessary to create human resources, create a support network with global companies, which is what [the Korea Trade-Investment Promotion Agency] Kotra did, and develop industrial technology by way of agencies such as [the Korea Institute of S&amp;t Evaluation and Planning] Kistep. I believe these three types of policies will contribute to these global companies growing successfully.</p></blockquote> <p><strong>South Korea&#8217;s strategy in fighting Covid-19 has been seen as an example to be followed in the international community. What can Brazil learn from the country?&nbsp;</strong></p> <blockquote class="wp-block-quote"><p>In truth, the strategy of fighting Covid-19 can differ from country to country, depending on the level of the health service, the geographical conditions, among other factors. I don&#8217;t think there is a one-size-fits-all solution for all problems. With regards to South Korea&#8217;s strategy, since the beginning of the <a href="https://brazilian.report/coronavirus-brazil-live-blog/">Covid-19 pandemic</a>, measures such as remote working and online classes were taken to establish a strong system of social distancing. Furthermore, with the use of IT, one of the country&#8217;s strong points, we had a very effective result in the testing, identification, and treatment of patients, which we call the 3T Strategy.</p></blockquote> <p><strong>And what have been South Korea&#8217;s strategies to minimize the economic impacts caused by Covid-19?</strong></p> <blockquote class="wp-block-quote"><p>With the prolonged Covid-19 pandemic, we have a worldwide trend of high demand for non-presential solutions and the search for a sustainable low-carbon economy. In response to this, the South Korean government is putting together a Digital New Deal, to speed up the conversion of the current economy into a digital economy, and establishing the Green New Deal to convert to a sustainable low-carbon economy. </p><p>These are the two major pillars of the <a href="https://thediplomat.com/2020/07/south-koreas-new-deal/">South Korean New Deal policy</a> currently in progress. The idea is to recover economic losses caused by Covid-19 and create jobs. The development of solar energy and energy stockpiling systems, among others, which are covered by the Green New Deal policy, could be a point of cooperation between the two countries, with Brazil&#8217;s renewable energy policies.</p></blockquote> <p><strong>What are the plans to strengthen cooperation between South Korea and Brazil in the post-Covid-19 era?</strong></p> <blockquote class="wp-block-quote"><p>The world is living through a never-before-seen reality of the &#8216;new normal&#8217; due to Covid-19. A vision of the economy and industry needs to seek out strategies that are aligned with this new reality. Due to Covid-19, borders have closed, affecting the global economy. Upon trying this new reality, we have needed a more open foreign commerce system. I have especially noticed the importance of trading medical and hospital equipment and materials, among other important inputs to continuing economic activities, as well as the need to allow the free movement of executives. </p><p>Therefore, so that international cooperation may allow for the global value chain to function normally, I hope for more strengthening of bilateral and multilateral cooperation. Additionally, the South Korean embassy, in partnership with think tank Fundação Getúlio Vargas, is carrying out research to verify the best ways to improve bilateral cooperation in various sectors, such as politics and the economy.</p></blockquote> <p><strong>What strategies has South Korea adopted to avoid losing battles in the trade war between the U.S. and China? Where does South Korea stand? What does it offer and what will it not give up on?</strong></p> <blockquote class="wp-block-quote"><p>The U.S. and China are the two largest countries in terms of trading volume in the world. Of course, South Korean trade is affected by the consequences of the trade war between the two countries. South Korea has trade deals with both the U.S. and China. Potential effects caused by the trade war are being discussed bilaterally with each country. If there is a need to do so, there is the possibility of a solution by multilateral means. South Korea was the first country in the world to implement 5G technology, and using our strengths in IT I am sure we can overcome the challenges posed by the disagreements between the two countries.

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Renato Alves

Renato Alves is a Brazilian journalist who has worked for Correio Braziliense and Crusoé.

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