Trade deficit not a cause for concern

Korean enterprises export a large volume of products created from imported materials, Photo: Le Toan

Over the past few months, the Republic of Korea (RoK)’s LG Display Vietnam has been boosting recruitment for its US$1.5 billion plant in the northern port city of Haiphong, producing OLED products for mobile phones, smart watches, televisions, and tablets. The company is in need more employees.

Elsewhere, South Korean giant Samsung is also doing the same with its production focused on mobile phones and home electronics appliances, both locally-consumed and exported.

Both companies are taking the lead in Vietnam’s export of electronics items, including mobile phones, laptops, and others. In the first 10 months of 2018, the country earned US$40.7 billion, up 10.6% on-year, from exporting mobiles and spare parts, and fetched US$24.3 billion, up 15.2% on-year, from exporting laptops, parts, and other electronics items to foreign markets.

The General Statistics Office (GSO) reported that in the first 10 months of 2018, Vietnam spent US$39.2 billion on imports from the RoK, up 2.1% on-year, with import of electronics products climbing 14.1% on-year.

Vietnam also earned US$15 billion from exporting to the RoK, up 23.5% on-year, with export of electronics products augmenting 50.4% on-year, and mobile phones and parts up 14.9% on-year.

Thus, Vietnam suffered from a US$24.2 billion trade deficit from South Korea, down from the US$26.6 billion recorded in the same period last year.

Over the past few years, the RoK has always been Vietnam’s second-largest supplier, and sixth-largest buyer.

Last year, Vietnam witnessed a trade deficit of about US$31.8 billion with the RoK, up from US$20.8 billion in 2016, and US$18.7 billion in 2015.

Samsung’s export turnover sat at about US$51 billion last year, holding over 25% of Vietnam’s total export turnover of US$214 billion. The company also occupied 95% of the total export turnover of South Korean companies operating in Vietnam.

The RoK’s Thelec newswire last week said that leaders of Samsung plan to visit Samsung Electronics in Yen Binh district of the northern province of Thai Nguyen later this week to approve construction for a new mobile phone plant. When the plant is completed after approval, Samsung will have three phone production plants in Vietnam: two in Yen Binh and one in Yen Phong district of the nearby Bac Ninh province.

However, according to the Korean Chamber of Business in Vietnam (KorCham), the trade deficit is not a negative for Vietnam because many businesses have been boosting investment and exports of machinery, equipment, and materials to the country to serve production here. A large part of made-in-Vietnam products are also exported to foreign markets, including the RoK.

“Many are showing concern about a big trade deficit for Vietnam from the RoK. However, they should not be concerned because Vietnam’s imports from the RoK are largely conducted by South Korean companies in Vietnam, especially big ones like Samsung and LG. The imported products are mostly machinery, equipment and materials for production. They are used for making products in Vietnam and then exported,” a KorCham representative told VIR.

“Meanwhile, Vietnamese exports to the RoK, mostly end-products and consumer goods, have risen quickly by more than 31% in 2017, against the previous year’s 28% ascension,” he added.

Under the ASEAN-Korea Free Trade Agreement, this year 86% of import tariff lines will be reduced to 0%, from an average 50% early this year. Additionally, Vietnam will completely remove import duties on 89.9% of products from the RoK over 15 years.

For example, Vietnam will remove its 30 and 20% tariffs imposed on South Korean air conditioners and rice cookers over the next 10 years. The average tariffs for foodstuffs and consumer goods will gradually decrease from the current 16-17 to 0% in the next five years.

The Korea International Trade Association recently issued a survey on 1,015 South Korean small- and mid-sized export businesses. Results demonstrated that more than 33% of respondents plan to expand their facilities in and to Vietnam, followed by China (19%), ASEAN members (10.7%), and India (8.3%).