One of the biggest challenges of internationalization that small and medium-sized enterprises (SMEs) have to face is choosing an export market. To make this decision, business owners must consider several elements, including the characteristics of the market and the comparative advantages to those of the competition.

Precisely taking these two elements into account, business owners from Chile, Peru and Colombia should consider South Korea as a prospective export market.

In the first place, the Korean market is one of the most important markets in the world, due to its 50 million inhabitants, its high standard of living, and its GDP of almost 1 billion US dollars per year. Korea also has a strong currency, legal certainty and stable macroeconomic conditions, which enable long-term business planning.

Case by case

The first Latin American country to sign an FTA with Korea was Chile, which executed the final text in February 2003. The treaty came into effect in 2004 and bilateral trade between these two countries grew significantly in subsequent years.

According to a joint report from the Korean government and the Inter-American Development Bank (IDB), bilateral trade between Korea and Chile went from 1.57 billion dollars a year in 2003 to 7.11 billion dollars in 2013, multiplying 4.4 times. Additionally, Chilean exports to Korea went from 1.1 billion dollars to 4.7 billion dollars in the same period, increasing more than 400%.

After the Chilean success, Korea executed an FTA with Peru in 2010. Again the experience was successful. Peruvian exports to Korea, which in 2009 came close to 900 million dollars, in just 4 years jumped to 1.98 billion dollars, increasing by more than 100%.

Finally, in February 2013, after five years of negotiations, Korea signed an FTA with Colombia. The Korean government is currently undergoing negotiations with Mexico, MERCOSUR and several other Central American governments to expand its spectrum of trade agreements.

What benefits do FTAs bring to Latin America?

Although FTAs include many clauses that benefit business owners of the countries that are part of the treaty, the following are the most important:

1. Elimination of tariffs: the main idea of a Free Trade Agreement is to eliminate import tariffs that countries typically apply to foreign products. Elimination of these tariffs is usually progressive, but even so it is still the biggest comparative advantage that products from FTA member countries have: this is because since taxes are not applied upon entering the country they can be sold at a much lower price and thereby stand out with respect to products from countries that have to pay tariffs.
2. National treatment: Korean FTAs with Chile, Peru and Colombia stipulate that countries must commit to equal treatment of goods produced in the territory of a member country as if produced locally. The idea of this standard is that countries cannot treat foreign business owners differently from one’s own nationals. In this case, for instance, Korea cannot promote the purchase of Korean goods that compete with Chilean products.
3. Harmonization of non-tariff standards: the three FTAs in question include clauses that compel governments to harmonize the so-called “para-tariff” standards so that they cannot be used as trade barriers. For instance, article 8.5 of the Korea – Chile FTA refers to certain sanitary and phytosanitary standards, preventing the countries from modifying them unilaterally in order to hinder the entry of certain products.
4. Intellectual property: FTAs include clauses that guarantee intellectual property rights from a business in one country are respected in another.
5. Visas for business owners: FTAs guarantee entry to businessmen traveling on business to the other member country without any disadvantages.