Agriculture, the big trade off for the Korea-Mexico FTA

Mexico, like Korea, is a country heavily dependent on exports to sustain its economic growth, but the two countries are currently not seeing eye-to-eye over a possible trade deal.

For both countries, it is not as simple as previous free trade agreements signed with other economies.

Only recently has Korea entered the free trade agreement game while Mexico has signed FTAs with more than 50 countries, including Japan, putting more than 90 percent of its trade under free trade agreements.

“There are some treaties like the one with Japan that we have not been able to profit from. However, we are aware that the real economic potential is in Asia,” said First Vice President of the Mexican Senate Francisco Arroyo.

There are several reasons why the Korea-Mexico FTA has not moved ahead: one is that Korean companies point the finger at Mexico’s manufacturing sector while agriculture remains a hot issue in Korea.

Talks began in 2007 but little progress has been made since then.

“We would like to be able to export everything that has to do with our agroindustry where we have many very good products and of course we can offer very favorable conditions for Korean enterprises to invest in Mexico,” he told The Korea Herald.

Setting aside the drug wars, foreign direct investments into Mexico hit almost $4.8 billion in the first quarter of this year, up almost 11 percent from the same period last year.

The principle source of investments came from North America, Switzerland and Spain.

“One way to compensate for our trade deficit is to convince (Mexican people and companies) that we are also generating investments from Korea” in the manufacturing sector, said Arroyo.

Two-way trade grew to surpass the 2008-2009 economic crises by reaching $10.3 billion last year. What Mexico is concerned about is the trade deficit that rests heavily on the Korean side. Last year, Korea exported $8.8 billion worth of goods to Mexico.

The advantage for Korean companies to open in Mexico would be access to the U.S. economy while keeping the cost of labor at competitive rates.

“This could be a very good business plan even without a free trade agreement,” noted Arroyo.

The top headlines coming out of Mexico is not its economy or the booming investment environment; the top stories have to do with drug-related violence that has claimed 40,000 lives over the last four years.

“That’s why we are proposing to foreign investors to open their enterprises in the center part of the country,” he said. “We know the border with the U.S. will always be the same.”

The Mexican drug war has pitted rival drug cartels fighting for regional control of the highly lucrative U.S. market.

“It is an issue that the United States has to do something about because arms are smuggled from the United States,” he said. “If this was a one-way issue then it would easier for us to solve so the U.S. has to understand that it is a national security problem for them.”

Arroyo represents the state of Guanajuato located in the center of the country.

Even though his state is landlocked, Arroyo explained that his region is well linked by airports allowing them to “trade without the complexities of borders.”

By Yoav Cerralbo (yoav@heraldcorp.com)