The progress of the Mercosur-Korea TA has been glacial; it took 14 years for full-fledged negotiations to commence. The slow pace of progress is largely due to a handful of factors, principally because economic linkages between the two countries through GVCs are weak. The spatial and temporal distances separating the two economies do not engender intense policy interest. Furthermore, clear conflicts of interest emerged during formal negotiations, particularly industrial and agricultural products. Thus protracted negotiations are likely, much as they were with the Mercosur-EU TA. In addition, as seen in the previous TA between Israel and Egypt, even if government negotiators can reach an agreement on terms of a TA, it may take a considerable amount of time for the agreement to be approved by the individual Mercosur member states’ lawmaking bodies.
The Mercosur-Korea TA is a starting point for expanded economic cooperation
Weak GVC linkages between the two countries have precluded widespread public interest in negotiations, but this has the advantage of minimizing complexity in the negotiation process. Due to the low degree of economic integration between the two economies, the expected impact of the FTA is not large, and the scope of any potential damage is relatively small. Focusing on a small set of specific areas of concern prospectively may expedite the settlement and allow it to serve as a platform for deepened economic cooperation.
In particular, agreeing to lower tariffs on automobiles and other products may be the key to the negotiations’ progress. Moreover, considering the US-China trade dispute and high levels of uncertainty in GVCs, firms should aim to secure resilience through redundancy, combining local and domestic production, rather than enter the Mercosur market through FDI. Against this backdrop, tariff reductions and measures to promote the facilitation of mutual trade should be weighed simultaneously. Alternatively, the exchange of SPS issues on the Mercosur side and related product negotiations and certification fields required by Korean companies can also be considered prospectively, as issues surrounding the importation of agricultural products have emerged as a sticking point between the two economies.
2.
Simplifying trade and e-commerce regulations
The TA should focus on digital transformation to maximize the potential of digital GVCs. E-commerce knows no distance and could help ameliorate the geographical constraints at work, and facilitating digital trade may help jumpstart the formation of a proper trade network. To bolster e-commerce, each government ought to relax its regulatory regime, particularly those regulations concerning digital products and services, which may enable increased consumption of Hallyu (Korean Wave) content.
Both sides should facilitate relaxed export regulations of services, such as automation in the financial sector, among others.
Beyond trade in services, logistics infrastructure is another essential factor of e-commerce. Building a cooperative joint logistics operation could benefit both parties by reducing the significant capital burden associated with building new infrastructure. Governments should also work to improve the existing national logistics infrastructure.
Furthermore, establishing a consortium of digital firms (start-ups, for example) focusing on intellectual property matters is another path by which trade and cooperation networks might be built connecting Korea and Mercosur.
Pursuing high-level GVCs through an FTA
Society has increasingly valued the environment, public health, and safety, and this trend is expected to continue post-COVID-19. The Mercosur-Korea TA should work to achieve economic cooperation between the two countries in a way that reflects this new reality. Any resulting TA should produce economic benefits and efficiencies and new value regarding environmental and health issues to elevate GVCs through an FTA. Conflict over environmental issues severely retarded negotiations’ progress during the EU-Mercosur TA talks; negotiators for the Mercosur-Korea TA should work to avoid being similarly hamstrung. In addition, considering the booming popularity of ESG management in the global business environment (such as RE100), cooperation and transformation through GVCs must be sustainable, and the TA should reflect this.
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