Service Market Opening in Latin America and Its Effect on the Region's Manufacturing GVCs

Due to the accelerating digital transformation in the post-COVID-19 world, the share of service trade in the economies of major countries worldwide is expected to increase further. Services and participation in the global value chain (GVC) are closely related because services serve as a significant input factor in the manufacturing sector. The recent movement to open the service market in Latin American countries has an inherent policy goal of enhancing participation in the GVC centered on the manufacturing industry by facilitating the introduction of services within and outside the region in product trade. Korea’s exports are still concentrated on the trade of manufacturing-centered products, and improving competitiveness in the service sector is a challenge. In a situation where Korea's exports to the world are sluggish due to the spread of protectionism and delayed global economic recovery, the Korean government and companies need to move away from the traditional Korea-Latin America cooperation model that was focused on manufacturing-oriented product trade. In addition, they need to expand service trade and create new solutions in the service sector. Therefore, against this background, it is essential to understand the level of service market openness in major Latin American countries, provide information to governments and companies, and provide the logic for economic cooperation between Korea and Latin America in the service sector. This report briefly shows the status of service market opening in major countries in Lain America and empirical findings of relationships between service market opening and manufacturing GVCs of Latin America. As a result of reviewing the domestic laws of MERCOSUR and the Pacific Alliance in Latin America, the level of regulation on investment in the service sector has been lowered due to the past active policy of attracting foreign direct investment except for some cases. However, the level of service concessions in these countries was significantly lower than the level of investment liberalization based on domestic law. As a result of the empirical analysis, I found that when Latin American countries signed a bilateral service trade agreement with a Global North country, the agreement significantly strengthened the backward linkages of Latin American exporting countries. Among Latin American countries, when a country in the Global North concluded a service trade agreement with a Global North country, forward linkages of Latin American exporting countries also increased.