Opportunities of SECA for South Korean Exporters

Globalization in the form of Free Trade Agreements (FTAs), alliances, and multilateral cooperation has integrated into deeper levels between countries. Recently, the most relevant incorporation of this globalization in Latin America and Asia is the establishment of a Strategic Economic Complementation Agreement (SECA) between Ecuador and South Korea. Delayed for years by the COVID-19 pandemic, negotiations finally reached an end on April 7, 2023. Aside from economic and diplomatic benefits, the agreement also documents a historic moment in their bilateral relations as Korea becomes the first Asian country to have a trade agreement with Ecuador. On paper, this deal appears to be an incentive for exporters to expand their businesses to Ecuador, but the instability of the current Ecuadorian government places doubts in the minds of private Korean organizations. Taking a closer look at previous trade interactions between the two countries and conducting an interview with private organizations with ambitions towards exporting to Ecuador highlight both sides of the coin regarding the context of SECA for South Korean exporters.

Ecuador and South Korea have progressed in their trade relationship in an increasing linear trajectory, which eventually led to the establishment of SECA. Previously, Andean countries, such as Ecuador, restricted major trade relations to only other South American countries with only minor trade agreements with other continents. It is only recently that Andean countries have attempted to start major trade relations with foreign continents [1]. The establishment of SECA increases future export values for both countries with $367 million USD for Ecuador; it also diversifies the exports through the interconnection between the Asian and Latin American markets. Additionally, the agreement satisfies both market needs by a complimentary form of trade, where Ecuador specializes in the exportation of primary goods, such as crustaceans, crude petroleum, and scrap copper, and South Korea specializes in manufactured goods, such as refined petroleum, coal tar oil, and automobiles. Nevertheless, an interview with private Korean entrepreneurs who have business interests in Ecuador have expressed their concerns towards the deal.

The CEO of Tucan (투칸), a Korean toy company, developed an interest in Latin America to expand his business as Ecuadorian gifting culture aligned with his business ideals. Therefore, he viewed SECA as a great opportunity to introduce his products in the Ecuadorian market because of the large demand for goods, like toys. Aside from this benefit, he voiced concerns about proceeding with exportation because of the unstable Ecuadorian political situation. His concern is valid as a secure government ensures trust in exports follow through while an unstable one allows for corruption, resulting in less transparency for entrepreneurs [2]. Therefore, the Tucan CEO understands the benefits of the bilateral agreement but is hesitant to carry it out as he sees the situation as “uncertain.”

Private exporter, Seungik Shin, shared a similar perspective towards the agreement. Shin is a Korean businessman currently living in Ecuador, who has imported diverse Ecuadorian products, such as coffee, quinoa, and beetroot, to the Korean market. Due to SECA, Shin believes in importing Korean products to the Ecuadorian market because the agreement lowers taxes on his imports, expands the market for both countries, and draws in cultural interest from both sides. As his imports include food products, all the factors that SECA influences are beneficial for small business transactions like his, but he shares similar major doubts towards larger transactions and business deals, like the Tucan CEO.

There are two major reasons behind this shared uncertainty with large business trades: the state of Ecuador’s government and private consumerism. Currently, the political instability has reached its highest point with the upcoming impeachment of the Ecuadorian president, countless gang violence incidents in the coastal regions, and prison overpopulation in certain areas of the country. The possible impeachment of the Ecuadorian president causes uncertainty for Korean exporters in proceeding with large investments as a switch in the presidency results in frequent legal requirement shifts and policy changes. There is no guarantee for exporters that the taxes and regulations will remain constant, which might potentially endanger their businesses. Aside from their GDPs, both countries differ drastically in their demographic percentages about poverty. According to World Bank data, the population that lived with less than $2.15 per day in Ecuador and South Korea were 3.6 and 0.2 in 2017, respectively [3]. Given this significant gap, it is obvious that the consumerism culture greatly differs between them. Although frequent spending is common in Korea, Ecuadorians have a more sustainable spending lifestyle. This raises concerns for Korean exporters as their products would be overlooked for cheaper alternatives, such as the prominent Chinese products in the national market. Taking electronics as an example, an Ecuadorian customer would choose a $200 Huawei phone over a $350 Samsung phone as they offer similar functionalities [3].

The bilateral agreement of SECA places major importance on Ecuador and Korea in augmenting trade and expanding regional markets. After balancing the benefits and costs in implementing the agreement by considering previous trade interactions and taking the feedback of Korean entrepreneurs into account, this agreement facilitates exports, but doubts are persistent among private exporters. These concerns arise mainly because of the political instability in Ecuador and the consumer culture there. In essence, observations conclude that by implementing SECA, common good for both countries is possible, but expensive and large investments pose risks.

[1] The World Bank

[2] El Comercio

[3] The World Bank