Vietnam, RoK look to capitalise on FTA networks to boost trade ties

At a recent seminar held to discuss ways to boost economic co-operation through the Vietnam-Korea Free Trade Agreement (VKFTA), Vu Ba Phu, director of the Trade Promotion Department under the Ministry of Industry and Trade, noted the surges in trade in recent years.

The director said after seeing one-digit economic growth rate for a long period, the country recorded import-export turnover of more than US$65 billion last year, an increase of 22.9 per cent.

Impetus from the VKFTA

The Republic of Korea (RoK) has been the nation’s second largest trading partner since three years ago when the VKFTA was first implemented. Vietnam’s key export staples to the RoK such as wood products, footwear, and garments and textiles, have witnessed significant growth since the two countries signed the VKFTA.

Specifically, taxes levied on garments and textiles have been substantially slashed with domestic firms who sell garments and textiles benefiting from a wealth of opportunities in the Korean market.

Fashion is a flourishing sector within the RoK with many Korean firms injecting capital into the fashion market and importing products to take full advantage of the preferential tariffs on offer.

Many Korean investors have rented land in Vietnam in order to build farms and co-operate with local businesses to export products such as fruit and vegetables.

Last year, Vietnam’s import surplus with the RoK increased remarkably whilst the trade deficit reached over US$30 billion. These figures show that the RoK is making full use of the advantages of the VKFTA.

Kee Hoo Kim, Advisory Specialist of the Vietnam Investment Promotion Center, said last year, Vietnam has surpassed Hong Kong (China) to become the RoK’s third largest export market after China and the US.

Vietnam has therefore risen three places since 2014, to become the RoK’s fourth largest export market.

The VKFTA has made a significant impact on the exchange of goods between the two countries, contributing to increasing the total import-export turnover and the changing bilateral trade structure.

In addition, under the tariff reduction roadmap set out by the commitments of the VKFTA, capital and investment attraction from the RoK could see a remarkable upturn as Vietnam begins to apply preferential policies.

Mr Phu noted that apart from the fresh impetus created from the VKFTA, the RoK’s New Southern Policy has targeted South and Southeast Asian nations. including Vietnam, which have played a key role in the region.

In recent times, almost all the RoK’s representative offices in Southeast Asia such as in Singapore, Malaysia, and the Philippines have relocated to Vietnam. Along with more pro-activity businesses, both nations have seen impressive growth in economic ties.

Future solutions

To fulfill a two-way turnover of US$100 billion worth of trade by 2020, experts believe the governments of both nations need to focus on reforming administrative procedures, attaining transparency in customs activities, and providing optimal conditions for businesses to seek investment opportunities.

Regarding trade and investment ties between the two countries, Choi Seok Yung, former RoK ambassador to the United Nations, said although the RoK is Vietnam’s second largest trade partner, the Southeast Asian nation’s exports are based around raw products to the RoK whilst lacking processed products.

Mr Choi Seok Yung called on the Vietnamese government to devise policies in a consistent and transparent manner which underscore the importance of implementing the VKFTA.

Mr Choi also underlined the need to overcome the trade deficit between the two nations and businesses with the RoK currently exporting significantly more to Vietnam.

Regarding the two nation’s future trade ties, Mr Choi emphasized the necessity of creating equality in terms of economic relations.

He advised both sides to invest in research and development activities that could potentially launch hi-tech products, establish strategic co-operation relations, and pay attention to each nation’s advantages to fully tap into the international market.

These factors could help expand market shares as well as capitalizing on FTA networks of both countries.

The RoK has so far conducted 15 FTAs while partners within the RoK's FTA network has contributed up to 73.2 per cent to the world’s GDP.

Both countries need to formulate joint projects that develop in the fields of future technologies and ho-tech, said Mr Choi, noting that the ROK has not yet joined the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), although it has made thorough preparations for negotiations along with other nations such as Mexico and Japan.

Therefore, the possibility of using the FTA networks of both nations is expected to open up investment and trade opportunities in the future.