Vietnam - South Korea FTA: Opportunities for Boosting Exports

Mr Dao Quang Loi, Deputy Director of PROMOCEN, said Vietnam and Korea have developed constructive and forward-looking relations on the basis of mutual trust since they established diplomatic ties in 1992. Trade and investment cooperation relations between Vietnam and Korea have significantly expanded in the past two decades. The two-way trade revenue increased more than 57 folds from US$500 million in 1992 to US$28.8 billion in 2014. In 2014, South Korea was the third largest trade partner of Vietnam and Vietnam was the sixth largest export market of South Korea.

 

Remarkably, import and export structures of Vietnam and South Korea are clearly complementary and non-competitive. Vietnam’s major imports from South Korea in recent years are computers, electronic products, machine parts, fabrics, telephone, petroleum and materials for garment - textile and leather - footwear industries, while its main exports to the East Asian nation are garments and textiles, crude oil, vehicles and parts, seafood and woodworks.

 

He added that Vietnam - South Korea Free Trade Agreement (VKFTA) is a new-generation free trade agreement with its broader scope, higher degree of freedom commitments and balanced interests for both parties. The agreement will play an important role in promoting bilateral trade cooperation and create favourable conditions for Vietnam's products to compete better in the South Korean market. With its commitments, VKFTA is seen to have positive impacts on business development, especially Vietnamese seafood exporters.

 

Sharing Loi’s point of view, Mr Pham Khac Tuyen, Head of Northeast Asia Committee, Asia Markets Department under the Ministry of Industry and Trade, said VKFTA, which was officially signed on May 5, 2015, is a good opportunity for Vietnamese businesses to boost cooperation and export to the South Korea market. South Korea will widen its market door for Vietnam exports in comparison with ASEAN-South Korea FTA (AKFTA). Accordingly, many exports from Vietnam will be tariff-free when they enter this market. On import, Vietnam will have more favourable conditions to access to cheaper commodities, especially inputs for export-driven production sectors like garment - textile, leather - footwear and electronics to reduce import dependence from other foreign sources.

 

Specifically, South Korea pledged to liberalise 97.2 percent of import value of commodities from Vietnam. The South Korean side will lower import duties on 502 categories of Vietnam’s commodities with a total value of US$324 million, focusing on key exports like shrimp, crab , fish, tropical fruits, vegetables, ginger, garlic, honey, garment - textile and furniture and engineered products. Vietnam is the first FTA partner that South Korea opens its market for very sensitive products like garlic, ginger, honey and yam (import duties on these items are very high, ranging from 241 percent to 420 percent). For example, South Korea will exempt tariffs on 10,000 tonnes a year and on 15,000 tonnes a year in the next five years, compared with current 2,500 tonnes out of 5,000 tonnes granted for all 10 ASEAN countries, he noted.

 

For its part, Vietnam will reduce tariffs for 92.7 percent of imports accounting for 89 percent of tariff lines. The committed value for 200 commodities imported from South Korea is US$737 million. Applied goods include garment - textile and leather - footwear materials, plastic materials, electronic components, machines and equipment, electric wires and cables, sedans and trucks, automobile parts, pharmaceuticals and cosmetics. Most are used as inputs for domestic production, thus helping reduce input costs in comparison with imports from other countries. This is one of the targets that Vietnam aims at when it signs this FTA.

 

Remarking on general FTA impacts, Mr Tuyen said that AKFTA and VKFTA are the most comprehensive legal documents for economic cooperation between Vietnam and South Korea. AKFTA and VKFTA have positive impacts on both countries on different scales, depending on development levels, structure and absorptive capacity of the economy. However, AKFTA and VKFTA also have certain restrictions in balancing bilateral trade because of different economic structures and South Korea’s increased investment into Vietnam.

 

Ms Bui Kim Thuy, an official from the Import and Export Department and a member of VKFTA Negotiating Committee, said opportunities and tariff incentives are huge but exporters and importers need to follow the rules of origin as committed to fully tap the potential. Preferential rules of origin will help businesses to determine the eligibility of goods for the imposition of preferential tariff treatment or not, ensure the appropriate balance between "trade facilitation" and "trade fraud prevention." When they meet preferential rules of origin, they will be granted preferential C/O and enjoy preferential tariffs. These will help stimulate their production and exportation.

 

Mr Tuyen noted that Vietnamese exporters should access support channels in Vietnam and South Korea like Vietnam Trade Office in South Korea and industry associations. They also need to seek to fully utilise advantages accorded by bilateral and multilateral agreements. Notably, they need to understand food safety and quarantine standards in South Korea to provide products of stable quality to minimise back orders and shorten quarantine examination time.