colombia. looking for alternative partners in the east 3

8/2/2019 Colombia. Looking for Alternative Partners in the East 3

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“Colombia: Looking for Alternative Partners in the East”

By: Hernán Darío Barrero

Introduction

In the current international context, Latin American countries –LAC- are being affected by different

factors, among which are the volatility of commodity prices, the constant appreciation of local

currencies -loss of competitiveness- and the growing threat of protectionist policies among developed

countries. This situation calls for an active role of LAC governments in order to prevent the possible

impacts of the recent financial crises, not only in the short term but in the medium and long run.

In some LAC countries, trade dependency of certain foreign markets has been a constant during the

last years; however, and regarding the threats and hazards mentioned before, this marked

dependency can contribute to increase the negative effects of the crisis in the region. In that sense,

exploring and reaching alternative new markets, with high economic growth and high demand, can be

a good way to avoid these negative effects.

In the specific case of Colombia, the major trade partner has been historically USA, who in 2010

received 42,1% of total exports, followed by Ecuador (4,58%), Venezuela (3,57%) and Peru (2,84%).

At the same time, Colombian imports in 2010 came mainly from USA, representing 26,8% of the total

imports, followed by China (13,46%), Mexico (9,48%) and Brazil (5,82%)1.

It is remarkable that trade relations with Asian countries have been relatively weak, except with China

on the imports side and Japan on the exports side, however, when compared with other LAC

countries, Colombian relations with the Asian continent seem to be very weak. At this respect,

Colombia must look for alternative trade partners in order to prevent, on one hand the negative

impacts of the international financial crisis and its threats, and on the other the adverse costs of being

trade-dependent of one country.

1Source: Departamento Nacional de Estadística-DANE



This paper presents a review of the trade relations of Colombia during the last years in comparison

with other Latin American countries, reflecting the relatively poor performance of Colombian-Asian

trade relations, and looks forward to identify if there are opportunities to foster links between South

Korea and Colombia taking into account their economies’ characteristics.

The first part presents a general description of the new scenario of international trade, where Asia is

playing an active and outstanding role; the second part presents an overview of the macroeconomic

situation of South Korea and Colombia, the third part deals with the economic relations of both

countries, taking into account the trade of goods and services and bilateral investments; and the

fourth part presents the conclusion and the opportunities and challenges for the future.

I. A new scenario of international trade

During the last decade, trade relations of LAC (Latin America and the Caribbean) countries with it

major partners have changed dramatically. The share of trade with Asia has been increasing notably,

while trade with EU (Europe Union) and especially with the United States has decreased

outstandingly. Even though United States continue to be the major trading partner for the region, its

share on the exports of the LAC region fell from 58% in 2000 to 40% in 2010, while LAC imports from

US fell from 49% to 32% in the same period. On the other side, trade with the EU remained almost

unchanged during the last decade, accounting in 2010 around 14% of the total exports of LAC

countries and 14% of it imports.2

In contrast, trade with Asian countries, has been gaining ground during the last years. In 2009 the

share of the total exports of the region stood at 22% of, with an increase of almost 16% since 2000.

This trend clearly shows the importance of the Asian region as a partner for LAC countries, and

indeed, the urgent need of strengthen political and economic relations.

Nevertheless, trade relations with Asia vary from country to country. Figure 1 (see annex), shows

total exports and imports of the biggest economies of the region (measured by 2010 GDP: Brazil,

Mexico, Venezuela, Argentina, Colombia, Chile and Peru). We can see that Colombia and Mexico

(with a share of 9% and 3% respectively of the total exports directed to East Asia and South East

2 La República Popular de China y América Latina y el Caribe: hacia una relación estratégica. CEPAL, 2010.



Asia) in 2010 were the countries with the lowest share of exports directed to that Asian region.

Curiously, these two countries are the most dependent on the United States market, with a share of

42% and 80% of the total exports.

We cannot deny the political and economic importance of Asia for LAC. The trend shows that thebiggest economies in the region have realized that the Asian market has important strengths. A big

market, with an increasing demand is being exploited by countries like Brazil, Chile, Argentina and

Peru, while countries like Colombia and Mexico keep on depending on a weakened economy.

In a context of international crises, with high volatility of commodity prices, the constant appreciation

of the Colombian peso and the growing threat of protectionist policies among developed countries,

the main objective of the Colombian trade policy should be to explore and reach alternative new

markets, with high economic growth and high demand.

II. Colombia and South Korea in the World

As we have seen, one priority for Latin American countries and especially for Colombia, must be the

strengthening of economic and political relations with unexplored economies. In that sense, and

taking into account the current negotiation of a Free Trade Agreement between Colombia and South

Korea, I would like to point out the opportunities and challenges involved in this relation. Let us start

with a general overview of the two economies and a brief summary of it relationship during the last

decades.

a. Overview of South Korea

Almost six decades ago, Korea was one of the poorest countries in the world, with a GNI per cápita

of around USD 50. However, after an efficient and effective use of foreign aid and a successful export

oriented policy, the country has become the 13th economic power, reaching an estimated GNI per

capita in 2010 of USD 18.890 (current USD)3.

During the last two decades Korea has been consolidating its role as a donor and now is actively

contributing to the international development goals, through both bilateral aid (grants and loans) and

3data.worldbank.org



multilateral aid (Contributions to UN system and other Multilateral Institutions and Subscriptions to

International Financial Institutions). In that sense, Official Development Assistance - ODA coming

from Korea shows an increasing trend since the nineties, reaching in 2010 a disbursements estimate

of USD 1.17 billion and representing a 0.12% of the country’s GNI.

Korean economy has demonstrated to be strong during the last years. After the Asian Financial crisis

in 1997-1998, the economy showed a rapid recovery, in part because of a number of economic

reforms, including greater openness to foreign investment and imports.4 In that sense, South Korean

economy grew during 1999-2007 at an average rate of 6%, overpassing all the negative effects of the

previous crisis. However, in 2008 and due to the international financial crisis started in United States,

the economy slowed to 2% and in 2009 registered an almost null growth (0,2%). Nevertheless, in

late 2009 the economy began to recover, supported in the growth of exports, low interest rates, and

an expansionary fiscal policy. Thus, growth exceeded 6% in 2010 (Figure 2). Nowadays, “the South

Korean economy's long term challenges include a rapidly aging population, inflexible labor market,

and overdependence on manufacturing exports to drive economic growth.”5

Figure 2

Source: databank.worldbank.org

As it was mentioned before, the great success of the Korean economy is attributed in large part to its

export oriented policies for growth. In 2009, exports stood at 49,8% of the total GDP, while imports

accounted for 45,9% (Figure 3).

4https://www.cia.gov/library/publications/the-world-factbook/geos/ks.html

5 South Korea’s Report, World Fact Book, CIA.

-10%

-5%

0%

5%

10%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

South Korea's GDP Growth



Figure 3


As for Goods, Korea’s exports have experienced an important growth during the last years (from

current USD 289.891 million in 2005 to USD 464.300 million in 2010), which has contributed to

maintain a surplus in its current account and to accumulate an important amount of international

reserves. The main exporting products of Korea in 2010 were Machinery and Transport equipment

which accounted 57% of the total exports, followed by Manufactures with 23% and Chemical and

related products with 10%. On the other side, the main products imported were Machinery and

Transport equipment with a share of 29% of the total imports; Mineral Fuels, Lubricants and related

materials with a share of 28%; Manufactures with 21% and Chemical and related products with a 9%

of the total imports.6

As for Services, total exports stood at USD 81.570 million in 2010, while imports registered a total of

USD 92.978 million, creating a deficit of USD 11.408 million. The main exporting sectors were

Transportation which accounted 46,6%, followed by Other commercial services with a share of 41,4%

and Travel services with 12%. On the other hand, imports of services behaved similar, with shares of

31%, 50% and 19% on Transportation, Other Commercial Services and Travel.7

6Data from the Korea International Trade Agency.

72010 Trade Profile of Korea. www.stat.wto.org

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

2005 2006 2007 2008 2009

Korea Exports and Imports Share in GDP (% of GDP)

Exports of Goods and Services Imports of Goods and Services



b. Overview of Colombia

As most of the Latin American countries, Colombia’s economy has shown a moderate growth during

the last decades. During the 1960’s and until beginning of the 80’s, the Import Substitution Model

implemented by the government allowed an average growth rate of 5%. During the 80’s, the so called“lost decade” of the Latin American countries and the debt crisis, slightly affected the economy and

the average growth stood at 4%. Nonetheless, the effects of the different international financial crises

during the 90’s and the outbreak of the local real estate bubble in 1998 had severely effects on the

Colombian economy leading to a negative growth of -4,2% in 1999.

During the last decade, several reforms regarding pro-market policies, trade openness, fiscal

performance, foreign investment and security, among others, allowed the economy to recover and to

have a sustained rate of growth during 2001-2007, reaching in that year a growth of almost 8%.

However, due to the global financial crisis and the weakening demand for Colombian products, the

economy grew 2,7% and 0,8% in 2008 and 2009 respectively (Figure 4). Fortunately, the prudent

fiscal policies and local stable financial system permitted a moderate recovery and in 2010 the GDP

grew 4,4%. Nowadays, the current administration of President Juan Manuel Santos has based the

strategy to stimulate economic growth in five pillars: extractive industries, agriculture, infrastructure,

housing, and innovation. Several reforms, among which are the new legislation to better distribute

extractive industry royalties, pro-business and market policies, and improvements of domestic

security, as a continue of former President Uribe’s policies, are intended to keep on stimulating

growth and Foreign Direct Investment. Nevertheless; inequality, underemployment, and the lack of

an adequate infrastructure remain substantial challenges to achieve economic growth and poverty

reduction.

Figure 4


-5%

0%

5%

10%

1 9 6 1

1 9 6 3

1 9 6 5

1 9 6 7

1 9 6 9

1 9 7 1

1 9 7 3

1 9 7 5

1 9 7 7

1 9 7 9

1 9 8 1

1 9 8 3

1 9 8 5

1 9 8 7

1 9 8 9

1 9 9 1

1 9 9 3

1 9 9 5

1 9 9 7

1 9 9 9

2 0 0 1

2 0 0 3

2 0 0 5

2 0 0 7

2 0 0 9

Colombia GDP growth



In terms of external commerce, during the last years Colombia has experienced surpluses in its trade

balance reaching in 2010 a total of USD 1.468 million and up to September 2011 a total of USD

3.236 million. However, as a share of the total GDP total exports accounted only 13,9% and imports

only 13,4% in 2010 (Figure 5).

Figure 5

Source: Departamento Nacional de Estadística de Colombia. DANE

Colombian exports have experienced an important growth during the last years, from USD 12.330

million in 2001 to USD 39.820 million in 2010, with an average growth rate of 14,77%. This has

contributed to accumulate an important amount of international reserves. Thus, the main exporting

products of Colombia in 2010 were Oil and its Derivatives, Coal, Coffee and Ferroniquel, and they

accounted 63,3% of the total exports.

On the other side, the main products imported were Machinery and Transport equipment with a share

of 12,1% of the total imports, followed by diverse capital goods and raw materials for the industrial

sector. As for Services, total exports stood at USD 4.373 million in 2010, while imports registered a

total of USD 7.841 million, creating a deficit of USD 3.470 million. The main service exporting sectors

were Travel, which accounted 47,6%, followed by Transportation with a share of 27,6% and Other

commercial services with 24,8%. On the other hand, the main services imported were Transportation

with a share of 35,9% and Travel with 23,3%.

-10,000.0

0.0

10,000.0

20,000.0

30,000.0

40,000.0

50,000.0

Colombia Trade Balance (USD millions)

Trade Balance Exports Imports



c. Trade and Investment Relations between Korea and Colombia

The Republic of Korea established diplomatic relations with the Republic of Colombia in 1962, after

being the only Latin American country supporting South Korea in the Korean War (1953) and

participating in it. Since that time, both countries have experienced an amicable relationship, basedon different agreements related with cultural, science and technology cooperation and trade issues.

During the last years, Colombia and Korea have been devoted to promote their relations, with

economic and technical cooperation. There has been an increasing trend on bilateral trade flows,

which stood in 2010 at approximately USD 1,8 billions, as well as an important increase of

investment. Due to this trend of strengthening ties between both countries, Colombian and Korean

governments have had different meetings, both political and economic, looking forward to consolidate

the current relationship. In this regard, the most important issue nowadays is the Free Trade

Agreement (FTA), which is currently being negotiated. It is expected that with the sign and

implementation of the Agreement great benefits for both countries will be achieved.

As it was mentioned before, exports and imports of Korea and Colombia has increased during the

last years. However, trade balance between both countries shows a deficit for Colombia over recent

years. In 2009, total exports of Colombia to Korea reached only USD 107 million, while imports stood

at USD 620,8 million, creating an imbalance in trade of USD 514 million (Figure 6).8

Figure 6

8Informe de Exportaciones, Inversión Extranjera y Turismo República de Corea. Proexport Colombia,

Febrero de 2010.



Out of the total exports from Colombia to Korea, 63% were traditional goods, mainly ore materials

and concentrates, like nickel, copper and aluminum. As for non-traditional goods, the main products

exported were those related with the metallurgic sector, chemical sector and derivatives of coffee. On

the other hand, the most imported products from Korea were those related with machinery and

transport equipment and high technology intensive products, such as motor vehicles and telephone

sets. As for non-traditional imports, the main imported products were vehicles, plastics and industrial

machinery.

When compared trade relations of other Latin American countries with Korea, we can see that

Colombia is far behind from the others. For instance, in 2007, Chile imported around USD 4.184

million and Brazil imported USD 2.794 million. Colombia imported only USD 834 million. If we look at

the exports side, the scenario is worse. Colombia is one of the countries of Latin America with less

trade relation with Korea.9

Let’s take a look at the investment side. Korea’s FDI has shown an upward trend over the last years,

with two high peaks in 2007 and 2008. In that sense, Korea’s FDI passed from USD 4.999 million in

2000 to USD 15.620 million in 2007 and is estimated to reach USD 7.949 million in 2011.10

Regarding Greenland projects (totally new projects in an area where little or no physical infrastructure

or facilities exists), Korean FDI is concentrated in the metals sector, semiconductors and vehicle

assembling. In terms of recipients countries, China is the major beneficiary, with a participation of

27,7% during 2003 and 2009, followed by the United States with a 10%, India with an another 10%

and Vietnam with an 8%.11

“Along with the general rise of FDI outflow from Kor ea to the world as a whole, Korea’s investment in

the Latin American region has maintained a continuous increase as well. Korea’s FDI in Latin

America increased from US$ 121.6 million in 2001 to US$ 1616.9 million in 2008. The absolute

amount has increased, but, due to the worldwide financial crisis, the growth rate for investment in 2

008 slowed from that of the previous year.” 12 (Figure 2)

9Ibid.

10Ibid.

11Ibid.

12Graduate School of International Studies, Seoul National University, Colombia-Korea FTA Feasibility Study,

Pg 50, 2009.



Figure 2

The main sectors where Korean FDI is directed are Metals with a share of 41,9%, Electronics with a

share of 22,6% and Vehicle Assembling with 12,9% (Open, ongoing and announced projects).

However, Colombia is lagging again. The main recipient country in Latin America is Brazil, with a

share of 55% of the total FDI to the region. After that, Mexico participates with a share of 30%,

followed by Dominican Republic with 5%, Venezuela with 3% and Colombia with 3%. In the specific

case of Colombia, Korea’s FDI is mainly directed to commerce (Automobiles and Electronic

Components) with a share of 97,4%.

As we have seen, trade and investment relations between Colombia and Korea are weak, when

compared to the world, and especially with Latin American region. Countries like Brazil, Mexico, Chile

and Peru are taking advantage of new markets and partners all around the world, and conversely,

Colombia continues being highly dependent in terms of trade and investment of the United States

Market.

III. Conclusion

Latin American countries has suffered the effects of the recent crises and the risk of further

implications to it economies are still present. The slow growth in the United States and in the EU,

along with the decreasing of the demand for commodities produced in the region presents a critical



outlook for LAC stability. In that sense, alternative partners around the world must be sought in order

to diversify the risk inherent to international dynamics and avoid future impacts for the region.

On the other hand, we can see how some countries like China, India Korea and South East Asia’s

countries have shown interesting rates of growth and signs of an increasing demand of Latin American products. In that sense, countries like Brazil, Argentina, Chile, Peru and Venezuela have

been working over the last years on the strengthening of trade, investment and political relations with

Asian countries. However, Colombia is lagging behind. When we compare trade and investment

flows of Colombia and other Latin American countries with Asia, it is not difficult to see that we are far

behind from the main economies of the region.

Colombia’s economy is high dependent on the United States, and perhaps this is the main reason

why relations between Colombia and Asia have been so weak. The close political relationship of

these countries and the convergence of ideologies have merged into the economic sector, and that

explains why USA is the major partner of Colombia in terms of trade and investment. On the other

hand, we cannot deny that cultural barriers have contributed to the fragile relations with Asia and

issues like the language, manners and the time make it very difficult to build a solid relationship.

However, the task is not impossible, and this has been proven for other Latin American economies.

Asian countries have several strengths, and have shown to be a strategic partner for some Latin

American economies. One of the countries with a stable economy, increasing demand and constant

flows of FDI in that region is South Korea. In that way, and taking advantage of its historic relations

with Colombia, the construction of a strong partnership between both countries can be the beginning

to diversify commercial and political relations in the east. Korean economy has demonstrated to be

strong during the last years. After the Asian Financial crisis in 1997-1998, the economy showed a

rapid recovery, and grew during 1999-2007 at an average rate of 6%, overpassing all the negative

effects of the previous crisis, and in 2010, after the slowdown of the world economy in the last three

years, the economy grew at more than 6%.

On the other hand, Colombia’s economy has also shown to be in the right way. From 2001 to 2007,

the GDP grew at an average rate of 5%, and after the financial crisis (2008-2009) the growth rate

stood at 4,4% in 2010. During the last decade, several reforms regarding pro-market policies, trade



openness, fiscal performance, foreign investment, pro-business and market policies and

improvements of domestic security, make it possible to forecast a stable economy in the next years.

Finally, and regarding economic, trade and investment situation of both countries we can point out

certain aspects. First, Colombian economy is at risk because of it high dependency on United Statesmarket. Second, relations between both countries has increased over the last years, however, they

might be far behind it real potential. Third, Colombian main imported goods are Machinery and

Transport equipment, and Korean main exported goods are the same, Machinery and Transport

equipment.13 On the other hand, Colombian main exporting products are Korea’s main imported

products: Natural Resources as oil, coal and nickel, and fourth, Colombia is becoming as an

attractive destination for FDI. At the same time, Korea is intended to increase FDI all around the

world and the characteristics of Colombian Natural Resources are very convenient for Korean

investors.

There might be several advantages for both economies if the strengthening of the relations is

successful. However, both Colombia and South Korea need to realize the advantages of finding

alternative partners in other regions than the traditional ones. The FTA currently under negotiations is

the perfect scenario to enhance and consolidate economic and political affairs, and its outcome will

determine the future partnership of both nations.

13Ibid.



References

Statistical Yearbook for Latin America and the Caribbean, ECLAC, 2010.

CEPALSTAT, Bases de Datos y Publicaciones Estadisticas, CEPAL.,

http://websie.eclac.cl/infest/ajax/cepalstat.asp?carpeta=publicaciones

World Bank Database, www.data.worldbank.org

BADECEL, Base de Datos de Comercio Exterior, CEPAL.

La República Popular de China y América Latina y el Caribe: hacia una relación estratégica.

CEPAL, 2010.

Korea International Trade Association, Statistics, global.kita.net

World Trade Organization, stat.wto.org

Departamento Administrativo Nacional de Estadística de Colombia, www.dane.gov.co

Proexport

Banco de la Republica

Informe de Exportaciones, Inversión Extranjera y Turismo República de Corea. Proexport

Colombia, Febrero de 2010.

Graduate School of International Studies, Seoul National University, Colombia-Korea FTA

Feasibility Study, 2009.



http://www.data.worldbank.org/



http://www.dane.gov.co/








Annex

Figure 1 (Source: BADECEL, ECLAC)

-

5,000,000.00

10,000,000.00

15,000,000.00

20,000,000.00

25,000,000.00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Argentina Imports by Origin

East and South East Asia ALADI Europe Union United States Rest of the World

-5,000,000.00

10,000,000.00

15,000,000.00

20,000,000.00

25,000,000.00

30,000,000.00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Argentina Exports by Destination


-

10,000,000.00

20,000,000.00

30,000,000.00

40,000,000.00

50,000,000.00

60,000,000.00

2,000 2,001 2,002 2,003 2,004 2,005 2,006 2,007 2,008 2,009 2,010

Brasil Imports by Origin




-

10,000,000.00

20,000,000.00

30,000,000.00

40,000,000.00

50,000,000.00

60,000,000.00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Brazil Exports by Destination


-

5,000,000.00

10,000,000.00

15,000,000.00

20,000,000.00

2,000 2,001 2,002 2,003 2,004 2,005 2,006 2,007 2,008 2,009 2,010

Chile Imports by Origin


-

5,000,000.00

10,000,000.00

15,000,000.00

20,000,000.00

25,000,000.00

30,000,000.00

35,000,000.00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Chile Exports by Destination




-

2,000,000.00

4,000,000.006,000,000.00

8,000,000.00

10,000,000.00

12,000,000.00

14,000,000.00

Colombia Imports by Origin


-

2,000,000.00

4,000,000.00

6,000,000.00

8,000,000.00

10,000,000.00

12,000,000.00

14,000,000.00

16,000,000.00

18,000,000.00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Colombia Exports by Destination


-20,000,000.0040,000,000.0060,000,000.00

80,000,000.00

100,000,000.00120,000,000.00

140,000,000.00160,000,000.00

Mexico Imports by Origin




-

50,000,000.00

100,000,000.00

150,000,000.00

200,000,000.00

250,000,000.00

300,000,000.00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Mexico Exports by Destination


-

2,000,000.00

4,000,000.00

6,000,000.00

8,000,000.00

10,000,000.00

12,000,000.00

Peru Imports by Origin


-

2,000,000.00

4,000,000.00

6,000,000.00

8,000,000.00

10,000,000.00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Peru Exports by Destination


colombia. looking for alternative partners in the east 3

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