COLOMBIA, COREA DEL SUR - Feasibility Study of Free Trade Agreement Between Korean and Colombia

Korea – Colombia FTA Feasibility Study

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FINAL DRAFT

Graduate School of International Studies

SEOUL NATIONAL UNIVERSITY

KOREA – COLOMBIA

FREE TRADE AGREEMENT

FEASIBILITY STUDY

August 2009Korea – Colombia FTA Feasibility Study

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FEASIBILITY STUDY OF FREE TRADE AGREEMENT

BETWEEN KOREAN AND COLOMBIA

Index of Contents

1 INTRODUCTION

2 COLOMBIA’S POLITICAL AND SOCIAL ASPECT

3 MACROECONOMIC OVERVIEW OF KOREA AND COLOMBIA 3.1 Overview of Korea 3.1.1 Trade in Goods of Korea 3.1.2 Trade in Service of Korea 3.1.3 Foreign Direct Investment of Korea 3.2 Overview of Colombia 3.2.1 Trade in Goods of Colombia 3.2.2 Trade in Service of Colombia 3.2.3 Foreign Direct Investment of Colombia

4 ECONOMIC RELATIONS BETWEEN KOREA AND COLOMBIA 4.1 Trade in Goods 4.2 Trade in Services 4.3 Bilateral Investment 4.4 Korean Enterprises in Colombia

5 TRADE AND INVESTMENT POLICIES AND FTAs 5.1 Status of Korea’s FTAs with other countries 5.2 Status of Colombia’s FTAs with other countries 5.3 Tariff Level Comparison between Korea and Colombia 5.3.1 Tariff of Korea 5.3.2 Tariff of Colombia 5.4 Trade and Investment Policies of Korean and Colombia 5.4.1 Non Tariffs Barriers 5.4.2 OthersKorea – Colombia FTA Feasibility Study

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5.3.2 Tariff of Colombia 5.4 Trade and Investment Policies of Korean and Colombia 5.4.1 Non Tariffs Barriers 5.4.2 OthersKorea – Colombia FTA Feasibility Study

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6 ISSUES AND CHALLENGES REGARDING THE KOREA AND COLOMBIA FTA 6.1 Investment issues in Natural Resource Sector 6.2 Auto Market (Ethanol use)

7 IMPACTS OF TRADE AND INVESTMENT LIBERALIZATION 7.1 Analysis of Potential Products to be introduced in Korean - Colombian Market 7.1.1 Methodology 7.1.2 Results and Analysis 7.2 Analysis of Competitive Industries 7.2.1 Main Indices and classification of products 7.2.2 Results of RCA 7.2.3 Impact of FTA on Colombia’s Main Exported Products 7.2.4 Impact of FTA on Korea’s Main Exported Products 7.3 Computable General Equilibrium (CGE) Model 7.3.1 Methodology 7.3.2 Result

8 CONCLUSIONSKorea – Colombia FTA Feasibility Study

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Index of Tables

Chapter 2 Table 2.1 Index of Democracy, 2008

Chapter 3 Table 3.1 Macroeconomic Indicators of the Korean Economy Table 3.2 Gross Domestic Products by Sectors (as % of GDP) Table 3.3 Participation of the Sub-sectors within Service Sector: 2002-2008 (Unit: % of total service GDP) Table 3.4 Participation of the Sub-sectors within Manufacture Sector: 2002-2008 (Unit: % of total manufacture GDP) Table 3.5 Korea’s Outward FDI by Industry: 1980-2008 (millions of US$) Table 3.6 Macroeconomic Indicators of the Colombian Economy

(Unit: % of total manufacture GDP) Table 3.5 Korea’s Outward FDI by Industry: 1980-2008 (millions of US$) Table 3.6 Macroeconomic Indicators of the Colombian Economy Table 3.7 Gross Domestic Product by CIIU (ISIC) Sections: 2000-2007 (as % of GDP) Table 3.8 Colombia’s Trade Statistic (Profile) Table 3.9 Colombia’s Inward FDI by Industry (millions of US$) Table 3.10 Colombia’s Inward FDI by Country (millions of US$)

Chapter 4 Table 4.1 Korea’s Export to Colombia by Sectors (millions of US$) Table 4.2 Korea’s Import from Colombia by Sectors (millions of US$) Table 4.3 Korea’s Top 15 Exports to Colombia (SITC 5 digits, US$) Table 4.4 Korea’s Top 15 Imports from Colombia (SITC 5 digits, US$) Table 4.5 Korea’s Service Trade with Latin America (millions of US$) Table 4.6 Korea’s Service Exports to Latin America by Sectors (as % of total) Table 4.7 Korea’s Service Imports from Latin America by Sectors (as % of total) Table 4.8 Korea’s Outward FDI to Colombia by sector, ~March, 2009 (thousands of US$)

Chapter 5 Table 5.1 Current Situation of Korea’s FTAs Table 5.2 Current Situation of Colombia’s FTAs Table 5.3 Korea’s Tariff Profile, 2008 Table 5.4 Korea’s Tariff by industry, 2008Korea – Colombia FTA Feasibility Study

5 Table 5.5 Korea’s Tariff by HS Sections, 2008 Table 5.6 Colombia’s Tariff Profile, 2007 Table 5.7 Colombia’s Tariff by HS Sections, 2007

Chapter6

Feasibility Study

5 Table 5.5 Korea’s Tariff by HS Sections, 2008 Table 5.6 Colombia’s Tariff Profile, 2007 Table 5.7 Colombia’s Tariff by HS Sections, 2007

Chapter6 Table 6.1 Proved Oil Reserves in Latin America, 2008 Table 6.2 Proved Gas Reserves in Latin America, 2008 Table 6.3 Production of Copper in Latin America Table 6.4 Production of Iron Ore in Latin America Table 6.5 Production of Nickel in Latin America Table 6.6 Production of Raw Steel in Latin America Table 6.7 Foreign Direct Investment per million of GDP (%) Table 6.8 Investment Share by Sector in Colombia, 2008 Table 6.9 Annual Fuel Ethanol Productions by Country (2007-2008) (millions of U.S Liquid Gallons) Table 6.10 Colombia’s Fuel Ethanol Productions and Sales (2006-2009) (1,000 Liter) Table 6.11 Colombia’s Auto Market (2005) Table 6.12 Korea’s Export to Colombia (2008) (thousands of US$)

Chapter7 Table 7.1 Potentialities Matrix by Sector Table 7.2 RCA Indices of Korea’s Top 30 Exported Commodities Table 7.3 RCA of Colombia’s Top 30 Exported Commodities Table 7.4 The Impact of FTA on the Competitive Products of Colombia, TYPE 1 Table 7.5 The Impact of FTA on the Competitive Products of Colombia, TYPE 2 Table 7.6 The Impact of FTA on the Competitive Products of Colombia, TYPE 3 Table 7.7 The Impact of FTA on the Competitive Products of Korea, TYPE 1 Table 7.8 The Impact of FTA on the Competitive Products of Korea, TYPE 2 Table 7.9 The Impact of FTA on the Competitive Products of Korea, TYPE 3 Table 7.10 Regrouped Countries

Table 7.8 The Impact of FTA on the Competitive Products of Korea, TYPE 2 Table 7.9 The Impact of FTA on the Competitive Products of Korea, TYPE 3 Table 7.10 Regrouped Countries Table 7.11 Regrouped Sectors Table 7.12 Macroeconomic Effects of Colombia-Korea FTA on Korea Table 7.13 Macroeconomic Effects of Korea-Peru FTA on Korea Table 7.14 Sectoral Impact of FTA on Korea (%)Korea – Colombia FTA Feasibility Study

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Index of Charts

Chapter 3 Chart 3.1 Current account and real GDP growth rate Chart 3.2 Export and Import share in GDP (% of GDP) Chart 3.3 Trade Dependency of Korea (as % of total GDP) Chart 3.4 Korea’s Trade in Goods 2000-2008 (millions of US$) Chart 3.5 Korea’s Balance of Trade Chart 3.6 Korea’s Exports by Sector in SITC 1 digit, 2008 (as % of total) Chart 3.7 Korea’s Imports by Sector in SITC 1 digit, 2008 (as % of total) Chart 3.8 Korea’s Trade in Service (millions of US$) Chart 3.9 Korea’s Export in Service (% of total Export in Service) Chart 3.10 Korea’s Import in Service (% of total Import in Service) Chart 3.11 Korea’s Trade in Service in 2008 (millions of US$) Chart 3.12 Korea’s Inward and Outward FDI Flow (millions of US$) Chart 3.13 Korea’s Outward FDI by Region: 1980~2008 (billions of US$) Chart 3.14 Current account and real GDP growth rate Chart 3.15 Export and Import share in GDP (% of GDP) Chart 3.16 Trade Dependency of Colombia (as % of total GDP)

Chart 3.14 Current account and real GDP growth rate Chart 3.15 Export and Import share in GDP (% of GDP) Chart 3.16 Trade Dependency of Colombia (as % of total GDP) Chart 3.17 Colombia’s Trade in Goods 2000-2008 (millions of US$) Chart 3.18 Colombia’s Major Trade Partners by Destination, 2007 (as % of total) Chart 3.19 Colombia’s Major Trade Partners by Origin, 2007 (as % of total) Chart 3.20 Colombia’s Exports by Sector in SITC 1 digit, 2008 (as % of total) Chart 3.21 Colombia’s Imports by Sector in SITC 1 digit, 2008 (as % of total) Chart 3.22 Colombia’s Trade in Service (millions of US$) Chart 3.23 Colombia’s Export in Service (% of total Export in Service) Chart 3.24 Colombia’s Import in Service (% of total Import in Service) Chart 3.25 Colombia’s Inward and Outward FDI Flow (millions of US$)

Chapter 4 Chart 4.1 Korea’s Trade by Region, 2008 (billions of US$) Chart 4.2 Korea’s Trade with Latin America (billions of US$) Chart 4.3 Korea’s Export by Country (billions of US$) Chart 4.4 Korea’s Import by Country (billions of US$) Chart 4.5 Bilateral Trades between Korea and Colombia (millions of US$)Korea – Colombia FTA Feasibility Study

7 Chart 4.6 Korea’s Trade in Services (billions of US$) Chart 4.7 Korea’s Exports in Services (% of Total Export in Services) Chart 4.8 Korea’s Imports in Services (% of Total Import in Services) Chart 4.9 Korea’s Outward FDI to Latin America (millions of US$) Chart 4.10 Korea’s accumulated Outward FDI to Latin American Countries, ~March

Chart 4.8 Korea’s Imports in Services (% of Total Import in Services) Chart 4.9 Korea’s Outward FDI to Latin America (millions of US$) Chart 4.10 Korea’s accumulated Outward FDI to Latin American Countries, ~March 2009 (millions of US$) Chart 4.11 Korea’s Outward FDI Korea to Colombia (thousands of US$)

Chapter 6 Chart 6.1 Sucrose Productions per Unit Area by Country

Chapter 7 Chart 7.1 Potentiality Matrix Chart 7.2 Korea’s Potentialities Matrix for the Colombian market (Number of tariff lines/codes) Chart 7.3 Commodity Types Chart 7.4 Colombia’s RCA and Commodity Types Chart 7.5 Korea’s RCA and Commodity TypesKorea – Colombia FTA Feasibility Study

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1. INTRODUCTION

Colombia and Korea established diplomatic relations on March 10th, 1962 and permanent diplomatic representation at an ambassadorial level since 1973. Moreover, Colombia is known as the only country from the region that participated in the Korean War and has been supporting Korea’s position in the international stage. Under these circumstances, both countries have experienced an amicable relationship, even more deepened by the Cultural Agreement, Science and Technology Cooperation, and Trade Agreement which entered into force on December 10th, 1986.

As Colombia and Korea have been devoted to promote their relations, both countries also developed economic cooperation by inviting technical and economic planning trainees, and sending communication experts and mineral resource explorers. Furthermore, Korea assisted the Colombian Electronic Communication Institute from 1989 to 1993 and is supporting a national telecommunication project.

In this regard, trade flows between Colombia and Korea have increased substantially. When the two countries started diplomatic ties, trade levels were not significant. However, after Korea established a strong foundation in the Colombian telecommunication market, bilateral trade increased drastically by 50~60 percents

In this regard, trade flows between Colombia and Korea have increased substantially. When the two countries started diplomatic ties, trade levels were not significant. However, after Korea established a strong foundation in the Colombian telecommunication market, bilateral trade increased drastically by 50~60 percents every year since 2003. Thus in 2008, bilateral trade flow reached US$ 1,235 million which is the second largest from Asia followed by Japan. In addition, investment has been growing dramatically as well and has a positive outlook with the signing of a Bilateral Investment Treaty.

Due to the increasing importance of economic and political ties, Colombian and Korean authorities held meetings in recent years to find ways to build up our current relationships. At the summit talks in late November 2008, Colombia’s President Alvaro Uribe, and Korea’s President Lee Myung-Bak positively reviewed the Free Trade Agreement. Both leaders acknowledged that Colombia’s abundant resources and Korea’s technological prowess will be s upplementary, and consented to enlarge cooperation in the field of resources, energy, and construction. In this sense, Colombia and Korea agreed to start a Joint Feasibility Study on a Free Trade Agreement (FTA) between Colombia and Korea, to be prepared by representatives from the private sector.Korea – Colombia FTA Feasibility Study

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2. COLOMBIA’S POLITICAL AND SOCIAL ASPECT

The population of Colombia is estimated at 40 million which ranks as the 3rd biggest market following Brazil, Mexico among Latin America countries. Colombia also concluded Comunidad Andina with Venezuela, Ecuador, Bolivia and Peru, and a FTA through the G-3 Agreement with Mexico. If Colombia includes these countries, its market will become a giant able to hold 2 hundred million consumers.

Colombia also has a reliable economic structure compared to other Latin America countries. Due to its reliability, Colombia didn ’t suffer much from skyrocketing inflation and the moratorium effect while going through the Latin America debt crisis in the 1980s. Also, though this is a negative aspect, due to well-funded drug cartels, dollars

countries. Due to its reliability, Colombia didn ’t suffer much from skyrocketing inflation and the moratorium effect while going through the Latin America debt crisis in the 1980s. Also, though this is a negative aspect, due to well-funded drug cartels, dollars are abundant in Columbia. Hence, Colombia is evaluated as a country which can stay afloat and maintain a stable exchange rate.

However, the gap between the rich and poor is huge in Colombia. According to a CEPAL report data, 35% of the general population faces poverty and 17% are facing homelessness (estimated at 9,654,722) or extreme poverty. Poverty is widespread, albeit declining. The percentage of the population living below the poverty line is 49.5%, down from 57% in 2002. Income differenc es are worsening by region and social stratum, and markets are bisected into only high and low price markets. In the high price market, world renowned brands are dom inant while products from China and South East Asia countries take the largest share in the low price market. Economic policy coordination to promote middle price markets is needed.

Both the Colombian government and private organizations have been managing the poverty problem with a superficial approa ch, focused on charity-type programs due primarily to the effects that social, political and economic events throughout the country's history and the effect of the Colombian armed conflict have had on the economy.

The political and social stability of Colombia has been improving due to the efforts of the government. Drug cartels and guerrilla groups became a key determinant of the political environment in the 1980s and 1990s. Despite endemic violence stemming from left-wing guerrillas, right-wing paramilitaries and drug-traffickers, constitutional order and institutional stability have prevailed since 1991. A new constitution guaranteedKorea – Colombia FTA Feasibility Study

10 more civil liberties and rights, broadened polit ical participation, reduced the excessive powers of the president, created an independent central bank, and fostered fiscal and

and institutional stability have prevailed since 1991. A new constitution guaranteedKorea – Colombia FTA Feasibility Study

10 more civil liberties and rights, broadened polit ical participation, reduced the excessive powers of the president, created an independent central bank, and fostered fiscal and political decentralization. Following these efforts, Alvaro Uribe was re-elected as president in May 2006 (2002-present). Nowadays, government efforts to weaken the guerrillas militarily and financially and the demobilization of the paramilitaries have contributed to a reduction in levels of vi olence. Public security has improved significantly as well. Social and political stability combined with prudent economic management, boosted investor and consumer confidence and contributed to economic growth. The Economist Intelligence Unit’s 2008 democracy index ranks Colombia 60th out of 167 countries. It is the highest-ranked country in the Andean Community.

Table 2.1 Index of Democracy, 2008 Countries Rank Overall Score Uruguay 23 8.08 Costa Rica 27 8.04 South Korea 28 8.01 Brazil 41 7.38 Panama 43 7.35 Mexico 55 6.78 Argentina 56 6.63 Colombia 60 6.54 Paraguay 66 6.40 El Salvador 67 6.40 Peru 70 6.31 Bolivia 75 6.15 Ecuador 88 5.64

Source: Economic Intelligence UnitKorea – Colombia FTA

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3. MACROECONOMIC OVERVIEW OF KOREA AND COLOMBIA

3.1 MACROECONOMIC OVERVIEW OF KOREA

Korea was considered an underdeveloped agrarian country up until the 1960s. But after adopting an export-oriented industrialization policy, it achieved outstanding economic performance and transformed into an industrialized country within a short

3.1 MACROECONOMIC OVERVIEW OF KOREA

Korea was considered an underdeveloped agrarian country up until the 1960s. But after adopting an export-oriented industrialization policy, it achieved outstanding economic performance and transformed into an industrialized country within a short period of time. In 2007, Korea’s Gross Domestic Product at current prices was US$ 969.871 billion, which made it the 14th largest in the world that year.

However, the Korean economy experienced a currency crisis at the end of 1997, and its growth rate dropped to -6.9% in 1998. It showed the structural weaknesses of Korean economy. In order to overcome the crisis, Korea implemented structural reforms in the entire economy. After a rapid recovery in 1999, Korea’s economy has shown stable growth in recent years.

Table 3.1 Macroeconomic Indicators of the Korean Economy

Year Per Capita GNI Real GDP growth rate Inflation Current Account International Reserves Net Barter Terms of Trade Index US$ % % Mill.US$ Thou.US$ 2005=100 2000 10,841 8.5 1.9 12,251 96,198,117 126.5 2001 10,159 3.8 3.6 8,033 102,821,378 120.9 2002 11,497 7.0 3.0 5,394 121,412,508 120.2 2003 12,717 3.1 3.1 11,950 155,352,365 112.6 2004 14,206 4.7 2.9 28,174 199,066,133 108.0 2005 16,413 4.2 2.3 14,981 210,390,703 100.0

2004 14,206 4.7 2.9 28,174 199,066,133 108.0 2005 16,413 4.2 2.3 14,981 210,390,703 100.0 2006 18,401 5.1 1.8 5,385 238,956,116 93.4 2007 20,045 5.0 2.4 5,876 262,224,070 91.1

Source : Bank of Korea

Up until 2007, the Korean economy showed strong growth. Real GDP grew at 5.0% in 2007, inflation was 2.4% and international reserves increased steadily reaching US$ 262 billion in 2007. Although the current account surplus narrowed since 2004, it still maintained a surplus of US$ 5.8 billion in 2007. However, due to the global financial turmoil in 2008, private consumption and investment have declined. Also the current account shifted to a deficit of US$ 6.4 million owing to the decline of export in goods. Consequently, the real GDP growth rate was reduced by 2.5% in 2008.Korea – Colombia FTA Feasibility Study

12 Chart 3.1 Current account and real GDP growth rate ‐10,000 ‐5,000 0 5,000 10,000 15,000 20,000 25,000 30,000 ‐10.0 0.0 10.0 20.0 30.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 Current  Account Real GDP growth rate

Source : Bank of Korea

Chart 3.2 Export and Import share in GDP (% of GDP) 40.8 37.8 35.3 37.9 44 42.3 43 45.6

Current  Account Real GDP growth rate

Source : Bank of Korea

Chart 3.2 Export and Import share in GDP (% of GDP) 40.8 37.8 35.3 37.9 44 42.3 43 45.6 37.7 35.5 33.9 35.6 39.7 39.9 42.1 44.8 0 20 40 60 80 100 2000 2001 2002 2003 2004 2005 2006 2007 Exports of Goods and Services(%) Imports of Goods and Services(%)

Source : Bank of Korea

Korea could emerge as a modern industrialized economy in the world due to the export-oriented growth. Chart 3.2 describes the share of exports and imports in Gross Domestic Product. As of 2007, export and import of goods and services represent 45.6% and 44.8% of GDP respectively.Korea – Colombia FTA Feasibility Study

13 Table 3.2 shows the composition of Korea’s GDP by sector from 2000 to 2008. Service is the largest sector in GDP composition. Its share amounted to 57.3% in 2000 and increased up to 60.3% of the GDP in 2008. The second largest sector is manufacturing. The manufacturing sector represented 28.1 % of total GDP in 2008. Primary sectors such as agriculture and mining, occupied only a small fraction of Korea’s GDP and their ratio either decreased or remained at the same level as in the initial year of the given period.

Table 3.2 Gross Domestic Products by Sectors (as % of GDP)

Year Agriculture, Forestry & Fishing Mining, Quarrying Manufacturing Electricity, Gas & Water Construction Services % % % % % %

Table 3.2 Gross Domestic Products by Sectors (as % of GDP)

Year Agriculture, Forestry & Fishing Mining, Quarrying Manufacturing Electricity, Gas & Water Construction Services % % % % % % 2000 4.6 0.3 28.3 2.5 6.9 57.3 2001 4.4 0.3 26.6 2.6 7.1 59.0 2002 4.0 0.3 26.2 2.6 7.2 59.8 2003 3.7 0.2 25.8 2.6 8.0 59.6 2004 3.7 0.3 27.7 2.4 7.8 58.1 2005 3.3 0.3 27.5 2.3 7.6 59.0 2006 3.2 0.3 27.1 2.3 7.5 59.7 2007 2.9 0.2 27.3 2.2 7.4 60.0 2008 2.5 0.2 28.1 1.8 7.0 60.3

Source : Bank of Korea

Service and manufacture are the main sectors in the Korean economy and they constitute about 88.4% of Korea’s GDP in 2008. Table 3.3 and Table 3.4 show the share of sub-sectors within service and manufacture respectively.Korea – Colombia FTA Feasibility Study

14 Table 3.3 Participation of the Sub-sectors within Service Sector: 2002-2008 (Unit: % of total service GDP)

Source : Bank of Korea

In services, wholesale and retail trade, and restaurants and hotels have the highest share with 18.2% of total service GDP . The second largest sector is real estate, renting

(Unit: % of total service GDP)

Source : Bank of Korea

In services, wholesale and retail trade, and restaurants and hotels have the highest share with 18.2% of total service GDP . The second largest sector is real estate, renting and business activity which accounts for 13.2% of service GDP in 2008. The shares of business activity, education and health and social work have risen steadily since 2002.

Sector 2002 2003 2004 2005 2006 2007 2008 Wholesale and retail trade, restaurants and hotels 19.6 18.7 18.4 18.0 18.0 17.8 18.2 Transport, storage and communications 7.4 7.6 8.0 7.7 7.5 7.6 7.3 Financial intermediation 12.6 12.3 11.6 11.7 11.4 11.6 10.9 Real estate, renting and business activities 14.4 14.3 14.1 13.8 13.5 13.2 13.2 Information, communication 8.5 8.2 7.8 7.9 7.8 7.5 7.2 Business activities 7.5 7.9 8.2 8.3 8.5 8.6 9.0 Public administration & defense; Compulsory social security 9.7 10.0 10.3 10.5 10.8 10.6 10.7 Education 9.2 9.6 10.0 10.2 10.5 10.6 10.8

Education 9.2 9.6 10.0 10.2 10.5 10.6 10.8 Health and social work 5.5 5.7 5.9 6.2 6.5 6.8 7.0 Culture and entertainment services 2.2 2.2 2.2 2.2 2.2 2.3 2.3 Other service activities 3.4 3.4 3.4 3.4 3.4 3.4 3.4Korea – Colombia FTA Feasibility Study

15 Table 3.4 Participation of the Sub-sectors within Manufacture Sector: 2002-2008 (Unit: % of total manufacture GDP) Sector 2002 2003 2004 2005 2006 2007 2008 Food, beverages and tobacco 6.3 6.0 5.6 5.3 5.1 4.9 4.8 Textiles and leather 7.8 6.6 5.4 5.1 4.9 4.3 3.8 Wood, paper, publishing and printing 4.6 4.3 3.7 3.6 3.4 3.2 3.1 Petroleum, coal and chemicals 16.2 16.4 16.7 17.2 16.5 16.4 17.2 Non-metallic mineral products except petroleum and coal 4.4 4.5 4.0 3.6 3.4 3.2 3.1 Metal, Fabricated metal products 13.1 13.7 15.7 16.7 16.0 16.6 19.0

Metal, Fabricated metal products 13.1 13.7 15.7 16.7 16.0 16.6 19.0 Machinery equipment 7.8 8.3 7.9 8.3 8.6 9.0 8.7 Electrical and electronic equipment 22.8 23.4 24.7 23.6 23.9 22.9 20.7 Precision instruments 1.4 1.4 1.4 1.5 1.6 1.7 1.5 Transport equipment 13.6 13.6 13.3 13.6 14.8 16.2 16.7 Furniture and other manufacturing industries 2.0 1.9 1.6 1.6 1.7 1.7 1.3

Source : Bank of Korea

Table 3.4 indicates the shares of sub-sectors within manufacture between 2002 and

2008. Electrical and electronic equipment is the largest sector in manufacturing composing 20.7% of total manufacture GDP in 2008. The second largest sector is metal and fabricated metal products. It shows the highest growth of production and its share increased by about 6% points during the last 6 years. The transport equipment sector also expanded its share from 13.6% in 2002 to 16.7% in 2008.Korea – Colombia FTA

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3.1.1 TRADE IN GOODS OF KOREA

The Korean economy has been promoting trade liberalization and is highly dependent on trade activities, as international trade is the engine of growth for the economy. The trade to GDP ratio, that is, the trade dependency ratio of Korea was already high in 2000, but increased even more in 2008 when it reached 92%.1

on trade activities, as international trade is the engine of growth for the economy. The trade to GDP ratio, that is, the trade dependency ratio of Korea was already high in 2000, but increased even more in 2008 when it reached 92%.1

Chart 3.3 Trade Dependency of Korea (as % of total GDP) 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2000 2001 2002 2003 2004 2005 2006 2007 2008 as % of total GDP

Source: Bank of Korea

Moreover, from 2000 to 2008, Korea’s export in goods increased from US$ 172,268 million to US$ 422,007 million, contributing to the economy maintaining a current account surplus and accumulating sizable international reserves.

Chart 3.4 Korea’s Trade in Goods 2000-2008 (millions of US$) 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 500,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 Exports in goods Imports in goods

Source: KITA (Korean International Trade Association)

1 Trade dependency ratio is defined as (export+import)/GDP .Korea – Colombia FTA Feasibility Study

17 Chart 3.5 Korea’s Balance of Trade -20,000 -15,000 -10,000 -5,000 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 Trade Balance

Source: KITA (Korean International Trade Association)

However, Korea’s trade balance in 2008 was in deficit. This is due to the depressed

35,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 Trade Balance

Source: KITA (Korean International Trade Association)

However, Korea’s trade balance in 2008 was in deficit. This is due to the depressed world trade; the recent economic recession of the US and China’s reducing trade surplus resulted in the decrease in Korean trade surplus.

Chart 3.6 Korea’s Exports by Sector in SITC 1 digit, 2008 (as % of total) 9 0% 8 9% 7 56% 6 14% 5 10% 4 0% 3 9%2 1%1 0%0 1%

0 FOOD AND LIVE ANIMALS

1 BEVERAGES AND TOBACCO

2 CRUDE MATERIALS,INEDIBLE,EXCEPT

FUELS

3 MINERAL FUELS,LUBRICANTS AND

RELATED MATERIALS

4 ANIMAL AND VEGETABLE OILS,FATS AND

WAXES

5 CHEMICALS AND RELATED

PRODUCTS,N.E.S.

6 MANUFACTURED GOODS CLASSIFIED

CHIEFLY BY MATERIAL

7 MACHINERY AND TRANSPORT

EQUIPMENT

8 MISCELLANEOUS MANUFACTVRED

ARTICLES

9 COMMODITIES AND TRNASCATIONS

NOT CLASSIFIEED ELSEWHERE IN THE

SITC

Source: KITA (Korean International Trade Association)Korea – Colombia FTA

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18 In 2008, machinery and transport equipments constituted about 56% of Korea’s total exports in goods. Among other sectors, manufactured goods, chemical products, miscellaneous manufactured goods, and mineral fuels in that order added together represented 42% of the total export in goods. Primary commodities such as crude materials, inedible goods, and food and live animals occupied only a minimal portion of Korea’s exports in goods.

Chart 3.7 Korea’s Imports by Sector in SITC 1 digit, 2008 (as % of total) 0 4% 1

materials, inedible goods, and food and live animals occupied only a minimal portion of Korea’s exports in goods.

Chart 3.7 Korea’s Imports by Sector in SITC 1 digit, 2008 (as % of total) 0 4% 1 0%2 7% 3 33% 4 0% 5 8% 6 15% 7 26% 8 7% 9 0%

0 FOOD AND LIVE ANIMALS

1 BEVERAGES AND TOBACCO

2 CRUDE MATERIALS,INEDIBLE,EXCEPT

FUELS

3 MINERAL FUELS,LUBRICANTS AND

RELATED MATERIALS

4 ANIMAL AND VEGETABLE OILS,FATS AND

WAXES

5 CHEMICALS AND RELATED

PRODUCTS,N.E.S.

6 MANUFACTURED GOODS CLASSIFIED

CHIEFLY BY MATERIAL

7 MACHINERY AND TRANSPORT

EQUIPMENT

8 MISCELLANEOUS MANUFACTVRED

ARTICLES

9 COMMODITIES AND TRNASCATIONS NOT

CLASSIFIEED ELSEWHERE IN THE SITC

Source: KITA (Korean International Trade Association)

In the case of imports, mineral fuels, lubricants, and related materials had the largest share with 32% of Korea’s total impor ts in 2008, while machinery and transport equipment formed the second largest share amounting to 26%. In addition, food and live animals, and crude materials are the categories in which Korea imported (11%) more than it exported (2%).Korea – Colombia FTA Feasibility Study

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3.1.2 TRADE IN SERVICE OF KOREA

Korea has been accumulating a deficit in service trade. According to the Korean balance of payment data, service exports of Korea increased from US$ 30,533 million to US$ 75,989 million between 2000 and 2008, whereas service imports increased from US$ 33,381 million to US$ 92,723 millio n in the same period. The deficit of

balance of payment data, service exports of Korea increased from US$ 30,533 million to US$ 75,989 million between 2000 and 2008, whereas service imports increased from US$ 33,381 million to US$ 92,723 millio n in the same period. The deficit of service trade reached US$ 16,733 million in 2008.

Chart 3.8 Korea’s Trade in Service (millions of US$) 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 Services,  credit Services,  debit

Source : Ban of Korea

The main exporting sectors in service in Korea are transportation, business services and travel. Among them, transportation is th e largest exporting sector. It has been increasing since 2000 and constitutes about 57.3% of total service exports in 2008. Business service is the second largest sector. It recorded 23.6% of total service exports in 2000 and decreased to 17.3% in 2008. The third largest sector is travel. In 2000, its share in total service export was 22.4% but reduced gradually and reached 11.9% in

2008. In terms of absolute export value, exports have risen in all sectors but there was a change in the composition of export share.Korea – Colombia FTA

Feasibility Study

20 Chart 3.9 Korea’s Export in Service (% of total Export in Service) 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2000 2001 2002 2003 2004 2005 2006 2007 2008 ETC Government  services Ot her business  services Travel Transportation

Source: Bank of Korea

40% 50% 60% 70% 80% 90%