South Korea formally signed a free trade agreement with Peru on Monday which would broaden its access to the Latin American country’s vast natural resources and fast-growing consumer market.

The pact was inked by the two countries’ trade ministers, Kim Jong-hoon and Eduardo Ferreyros, in Seoul two years after they launched negotiations in March 2009. A preliminary deal was made last November.

It is the latest in a series of FTAs which Asia’s fourth-largest economy has sealed since 2003. Peru would become Korea’s second South American free trade partner after Chile.

For the pact to take effect, it must be ratified by the Korean parliament while Peru does not need legislative approval.

“The FTA is expected to reinforce not only economic and trade cooperation between Korea and Peru, but also overall relations,” the Korean ministry said in a statement.

“It will provide a firm institutional framework for Korean companies to invest in Peruvian energy and resources.”

Bilateral trade totaled $1.98 billion last year ― up from $528 million in 2004 ― with Korea exporting 940 million worth of goods such as automobiles, electronics and petrochemicals and machinery, according to the Korea International Trade Association.

Korea mainly brings in agricultural goods and minerals such as zinc and iron from Peru.

Experts and industry groups said the FTA would facilitate Korea’s efforts to secure stable supply of natural resources.

Peru owns the world’s third largest mineral reserves ― No. 1 in silver, No. 3 in gold, zinc, tin and bismuth, No. 4 in molybdenum, No. 5 in lead and No. 7 in selenium.

It also has oil and gas assets. Five Korean firms ― the Korea National Oil Corporation, SK Energy, Daewoo International, Kedcom and Golden Oil ― are currently participating in nine oil-drilling projects there. 

Under the deal, both countries plan to eliminate all tariffs over a period of 10 years once implemented.

Tariffs on Korean cars with engine displacements of 3,000 cubic centimeters or more will be abolished immediately after the pact goes into effect, while vehicles with smaller than 3-liter engines will be scrapped within five years, the ministry said.

Import duties on household appliances such as televisions, washers and refrigerators currently range from 9 percent to 17 percent. All of them will be removed within 10 years, it added, with the 9-percent tariff on TV to be gone right away.

The tariff on imported machinery parts and steel plates is 9 percent.

In a survey conducted on 70 local buyers by the Korea Business Center in Lima, the Peruvian capital, 70 percent of the respondents said they are willing to do business with Korean firms, while 67 percent said they would scale up their imports of Korean products by more than 5 percent.

Korean carmakers in particular would benefit from the FTA, KOTRA said, given their growing presence in the Latin American country, tapering the gap with Japanese manufacturers that have dominated the market for a while.

“In addition to the elimination of tariffs, the FTA will also help boost the already growing demand in Peru to learn more about Korea,” said Yoon Jae-cheon, KOTRA’s South American business chief. “The signing of the agreement will be a great turning point to beef up exports of our products.”

The resource-rich Peruvian economy has expanded at an annual rate of more than 6 percent over the last five years.

By Shin Hyon-hee (heeshin@heraldcorp.com)