-This year, Korea’s exports to Vietnam increased 18.3% (January ~ March, 2015). It displays the growing importance of Vietnam as the country has jumped to Korea’s third largest export destination-
The Korea-Vietnam FTA, which was settled in December, last year, was officially signed on May 5 (Tuesday). On the Korea-Vietnam FTA, it is expected that Korea’s exports to Vietnam will greatly increase as the pact will entail more significant market opening than the existing Korea-ASEAN FTA and better the Rules of Origin.
The Institute for International Trade (President, Kim Geuk-soo, http://iit.kita.net) of Korea International Trade Association has released a report titled “The Expectations for the Korea-Vietnam FTA.” The IIT states in the report that Korean exporters’ price competitiveness will improve as the tariffs on auto parts (10~15%) such as body parts and tires for buses and freight cars, for which the production cost is important, and felt and synthetic staple textile fabrics (12%) will phase out. In addition, it is expected that there will be more opportunities for Korean small and medium sized companies to make inroads into Vietnam’s consumables market as the markets of home appliances, including electric rice cookers (20%), blender and juicer, and parts are opening.
The Korea-Vietnam FTA has improved the Product Specific Rule of origin (PSR) which is the key element for concession along with the elimination of tariffs. It will be easier for food, agriculture, forestry and fisheries and machinery to meet the rules of origin as the rule has been relaxed for the promising export items. Also, for textile, the certification process has been simplified as operation criterion has been removed. Besides, it will be easier for small exporters to take advantage of the FTA as the accord has eased the condition to exempt the submission of certificate of origin from the current 200 dollars to 600 dollars.
On the other hand, Vietnam is Korea’s 4th largest investment destination (2014) and Korea’s entry into Vietnam is accelerating with large-scale investment. It seems that Korea’s exports of intermediary goods to Vietnam will continue to increase as Vietnam’s parts and materials sector is still weak and is not easy to be supported by itself. It is necessary to actively respond to the foreign companies’ overseas sourcing in Japan, the U.S. and Vietnam by taking advantage of the FTA as it is anticipated that the foreign investment in Vietnam as the production hub will expand upon the settlement of the TPP and the FTA with EU and the establishment of ASEAN Economic Cooperation (AEC).
* ASEAN is expecting the establishment of the ASEAN Economic Cooperation (AEC) aiming to build a single market as well as production base. Vietnam has applied zero tax rates to 80 percent of items and has reduced tariffs on 13~15 percent of products. The tariffs on the rest of the products will phase out until 2018.
Park Ji-eun, a senior researcher at IIT said “This year, Korea’s exports to Vietnam increased by 18.3 percent (January ~ March, 2015) and Vietnam has taken off as Korea’s third largest export destination.” She added “If the Korea-Vietnam FTA come into effect with the higher level of market openness, Korea’s exports to Vietnam will remarkably expand and the country will be able to establish itself as Korea’s major export destination.”
* Korea’s trade to Vietnam ranking (accumulated in 2014 -> January ~March, 2015): (Exports) 6th → 3rd, (Imports) 15th (remained), (Trade) 8th → 4th