MexECON Blog

Government Affirms Goal of Korean Trade Deal

According to press reports, Mexican President Filipe Calderón and South Korean President Lee Myung-Bak said after a meeting this week that they both still intend to complete a free-trade deal between their respective countries.  No timeline was given, but President Lee said his government is interested in resuming negotiations "shortly."

Comment:  Mexico has many free-trade agreements, including deals with the United States, the European Union, and Japan.  Nevertheless, the government has frozen negotiations with South Korea since 2008, reportedly because of opposition from Mexican manufacturers, especially auto firms.  It would be no surprise if Mexico's recession in 2008 and 2009 also played a part in stalling the talks.  The Mexican economy appears to be on the rebound now, but Mexican firms and workers with fresh wounds from the downturn would be expected to resist new trade openings.  It is unclear whether concrete talks with Korea will indeed resume, or how rapidly they would proceed.  That is unfortunate, given that the last few years have shown that Mexico probably should try to diversify its export markets away from the United States.  Exports to the United States typically account for 80% or more of Mexico's total foreign sales, and when U.S. economic activity slows, Mexico suffers greatly.  Diversifying its exports to the fast-growing Asian region could help smooth the volatility in the Mexican economy.

Patrick Fearon, CFA
Vice President, Fund Management

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