Sino-NK

Though not obvious at first glance, Panama and South Korea share a common feature as being crucial geopolitical nexuses – Panama of course connecting two great oceans, while the ROK serving as a budding link between the maritime and continental aspects of Asia-Pacific (or Indo-Pacific) geopolitical and geo-economic affairs. It is in this shared experience that the two countries, which inked a free trade agreement less than two years ago (as part of a broader Central America-South Korea FTA), can punch above their weight at geopolitical players.

Focusing on the value added at Panama City and Seoul can bring to their bilateral relationship, the ROK’s ambassador to Panama, Jeong Jinkyu highlights several features of the growing Panama-South Korea trade relationship and their implications for a broader, post-Covid future still beset by issues in the global supply chain in an interview with Katiuska Hernández for Panamanian business magazine Martes Financiero.

South Korean investment in Panama is increasing, and bilateral relations are growing stronger. Martes Financiero. June 21, 2022. ^[1]

The Republic of Korea is the fourth-largest user of the Panama canal. South Korea has had diplomatic relations with the isthmus nation for 60 years, and the two sides seek to further incentivize commercial exchanges and take advantage of the Free-Trade Agreement (FTA) that came into effect on March 1, 2021, states Korean ambassador Jeong Jinkyu. 

“In 2021, bilateral trade between South Korea and Panama reached $2.03 billion. In particular, exports from Panama to Korea have reached up to $450 million, putting Korea in the rank of the third-largest export market for Panama.”

Panama and Korea have had diplomatic relations for 60 years. From an economic point of view, what it the scope of this bilateral relationship?

Since the establishment of diplomatic relations in 1962, Korea and Panama have developed friendly and cooperative relations in various areas such as politics, economics, business, education, popular culture and infrastructure over the course of 60 years. South Korea was the poorest developing country in the world when diplomatic relations were established in 1962, but in 2022 it became the ninth-largest economy in the world. In addition, it is the eighth-largest economy in the world with a trade volume of $1.2 trillion, and is the fourth-largest user of the Panama Canal. 

The growth of the Korean economy has resulted in the expansion and deepening of bilateral cooperation between Korea and Panama, especially in the fields of business, investment and infrastructure. The new Korean government, which came to power this past May 10th, asserted that it would establish a regional cooperation network for the sake of mutual prosperity with Latin American countries, including Panama, and this is driving an improvement in cooperative relations with Panama. 

The Free Trade Agreement (FTA) between Korea and Central America that came into effect on March 1, 2021 also plays an important role in the development of bilateral economic cooperation. Through the FTA between Korea and Central America, approximately 95% of tariffs on items traded between Korea and Panama were eliminated, and trade in Korean automobiles, mobile phones and electronics is growing, along with copper, coffee and maritime products produced in Panama. The FTA between Korea and Panama is an agreement on trade liberalization that guarantees a quickly-implemented, high level of tariff elimination, providing better access to the market and opportunities to promote investment in companies in both countries. 

It is worth noting that economic and industrial relations between Panama and Korea are highly complementary. Korea is the fifth most industrialized country in the world, and Panama is the only maritime country in the world that has a canal that connects two large oceans. It is also a  air traffic nexus that connects all of the Americas by air routes. In this context, through the Our Ocean Conference that will take place in Panama and World EXPO 2030 that we are expecting to host in Busan, Korea, we will expand the scope of cooperation through “Ocean”^[2], which is our resource for both countries. Additionally, we hope for a model for effective bilateral cooperation in which Panama manages to be a center for global transportation through the construction of more advanced infrastructure, and that Korean companies with advanced technology will participate in infrastructure construction projects. Metro Line 3, the biggest infrastructure construction project in Panama, is being built by the consortium Hyundai E&C-Posco E&C-Hyundai Engineering (HPH) in cooperation with Metro Corporation, and shows the potential of this cooperative model. 

What is the balance of trade between the two countries?

In 2021, bilateral trade between South Korea and Panama reached $2.03 billion. In particular, exports from Panama to Korea have reached up to $450 million, putting Korea in the rank of the third-largest export market for Panama. On the other hand, in relation to the balance of trade between the two countries excluding the value of good on ships with a flag of convenience, Panama logged a trade surplus of 47 million dollars with Korea in the first third of 2021. 

From Korea’s end, exports to Panama amount to $1.56 billion (including the value of vessels with flags of convenience) and imports amount to $450 million. This total represents 50.2% of the total trade between Korea and the SICA (Central American Integration System)^[3] member states. Concurrently, exports from Panama to Korea from last year to the first third of this year have grown markedly.

According to this year’s commercial statistics, the trade balance between the two countries is rapidly improving, so much so that the rate of growth in the export of goods from Panama to Korea in the first third registered an increase in 58% in copper, 239.1% in ingots and scrap copper, 835% in aluminum and 879% in coffee. In particular, copper exports are being carried out on a large scale. Last year, copper exports to Korea totaled $370 million, representing 71% of Panama’s total exports to Korea. Korea is an important investor with a 10% stake in the Cobre Panamá mine, and is one of the main importers of Panamanian copper, importing around $400 million worth per year. Korea is the second-largest producer of batteries for electric vehicles, and copper is an essential resource for its production of electric vehicle batteries; demands copper continue to rise. In this global state of the electrical vehicle industry, Korea and Panama are creating a mutually beneficial cooperative relationship based on natural resources through Cobre Panamá.

What opportunities are there to expand trade even more with the Free Trade Agreement?

The FTA between Korea and Panama went into effect on March 1, 2021. The implementation of the FTA will serve as an opportunity for rapid economic expansion for both countries. Specifically, Korea and Panama have differing business and industrial structures, and for this reason they are highly complimentary. The FTA’s visible effects are reflected in the expansion of trade in goods, the growth of Korean businesses’ investment in Panama and the expansion of end user benefits due to large scale tariff reductions. According to statistics, the value of bilateral trade reached $1.9 billion in the first year since the FTA came into effect (March 2021-February 2022), a 65% increase from the previous year. Keeping in mind the fact that this was during a time when the Covid-19 pandemic had a serious impact worldwide, one can imagine how large an effect the FTA had.

Korea and Panama could not escape the effects of instability in the global supply chain, which was heavily affected by the pandemic. Both Korea and Panama depend in large part on the supply of products from abroad, and have experienced great difficulties due to stagnation of transportation networks and distribution logistics. To offset this instability in the supply chain, Korea and Panama should use the FTA to maximize economic complementarity and increase the volume of trade. 

In the second half of this year, when everyday life starts to return to full-fledged normalcy, the effects of the FTA will magnify even more, and we hope that companies from both countries will use the Korea-Panama FTA in the process of post-pandemic recovery. The embassy will work with relevant agencies such as the Korea Trade Promotion Corporation (KOTRA) Panama’s Ministry of Commerce and Industries and the Export and Investment Promotion Authority of Panama (Propanama) to continue to seek promising commercial sectors and competent businesses to make every effort toward increasing trade between the two countries.  

In the case of Panamanian products such as geisha coffee, fruits and others, what is the potential for their export to Korea and what facilities are there for producers to promote this trade? 

In 2021 Korea’s population was an estimated 52 million inhabitants and a market with a GDP of $1.7 trillion. Amid this, the scale of imports of agricultural and fishing products is approximately 50 billion dollars. Considering the size of the Korean market, Panama’s entry into Korea’s agricultural and marine products through the FTA has the potential to foster greater benefits for Panama. 

According to statistics from the first third of this year, exports of Panamanian coffee to Korea increased 880%. This is a phenomenon that occurred on a scale that increased Korean consumers’ interest in premium coffee from Panama such as geisha coffee. Taking into account the global repute of Panamanian coffee, hopefully this growing trend will continue in the future. 

Korea is one of the countries that exports a large amount of technology and innovation to the world, and in Panama there are major companies like Samsung, LG and automotive companies among other machinery companies as well as construction companies that can bring about major pieces of infrastructure. What is Panama’s significance for Korean investors? 

In 2021, Korean investment in Panama amounted to $308 million, and the aggregate figure amounts to $3.6 billion. The figure cited represents around 84% of the total investment from Korea in Central American countries, which means that Panama occupies first place among the destination countries for Korean investment in Central America. Keeping in mind Panama’s unique advantages, such as its role as a transport hub, its financial stability as well as security and cultural diversity, Korean companies with technology and outstanding production capabilities may consider Panama to be a target region for nearshoring. Especially considering the post-pandemic situation in which the global supply chain becomes increasingly vulnerable, Korea and Panama have the great potential to become important strategic partners for the creation of an associative value chain. 

Some 30 major Korean companies such as Samsung Electronics, LG Electronics, Hyundai E&C, Hyundai Heavy Industries and POSCO E&C entered Panama and enjoy the geographic and institutional advantages of Panama as the hub of Central America. Furthermore, bilateral trade in connection with Hyundai Motors, Kia Motors and the automotive parts industry is actively being conducted.

Korean firms are particularly enjoying the benefits of the SEM^[4] regime, a system to support the establishments of regional headquarters for multinational corporations promoted by the government of Panama, and EMMA, a special system for the establishment of operations of multinational firms to provide industrial manufacturing services.  

Aside from the aforementioned sectors, there is ample room for cooperation between the two countries in the pharmaceutical sector. Given that Panama is also developing a governmental policy to turn itself into a pharmaceutical hub in Central America, the possibility of cooperation between the two countries is growing. Korea recently invited Panamanian pharmaceutical experts to Korea and is expanding the basis from which to promote bilateral cooperation in the field of producing pharmaceutical goods while seeking ways to strengthen cooperation in fields such as vaccines, the establishment of medicine distribution networks and cooperation in clinical trials.  

As for the field of public infrastructure, the Korean firm POSCO E&C completed the Colón Natural Gas Power Plant in August 2018, followed by an LNG terminal in October 2019. Additionally, the design for the construction of an underwater tunnel for the tram that passes through the Panama Canal Zone and Metro Line 3 was recently approved, and the HPH Consortium was charged with the construction of the underground tunnel. This large-scale bilateral cooperation in public infrastructure leads to cooperation in all industrial sectors between Korea and Panama, strengthening trust between the two countries and boosting technological exchanges.

Original article by Katiuska Hernández, journalist at Martes Financiero. Translated by Anthony V. Rinna.

[1] Source: “South Korean investment in Panama is increasing, and bilateral relations are growing stronger (Aumentan las inversiones de Corea del Sur en Panamá y se fortalece el comercio bilateral)”. https://www.martesfinanciero.com/relieve/aumentan-las-inversiones-de-corea-del-sur-en-panama-y-se-fortalece-el-comercio-bilateral/

[2] Translator’s note 1: The word “Ocean” appears in the original text with a capital “O”. It appears that this is in reference to the entirety of the earth’s oceans together, described in Spanish as the “world ocean” or “global ocean”. It is this translator’s understanding, based on a reading of section 4.7 of the Royal Spanish Academy’s “Diccionario panhispánico de dudas – Mayúsculas” that the capitalization of the “O” in “Ocean” in this case refers to the entirety of the oceanic bodies on earth, rather than a specific ocean division. Further reading: https://www.rae.es/dpd/mayúsculas#47

[3] Translator’s note 2: The English-language website uses the Spanish abbreviation “SICA” followed by an official English translation of the full name.

[4] Sede de Empresa Multinacional in Spanish, officially rendered as “International Company Headquarters” in English.