Looking back at vietnam’s exports to korea after 5 years of implementation of vkfta

Nội dung text: Looking back at vietnam’s exports to korea after 5 years of implementation of vkfta

1. LOOKING BACK AT VIETNAM’S EXPORTS TO KOREA AFTER 5 YEARS OF IMPLEMENTATION OF VKFTA Assoc. Prof. Ngo Thi Tuyet Mai – Nguyen Ngoc Phuong Anh – Đinh Thao Van Đo Manh Hoang – Dao Thuy Linh – Dang Quang Binh1 Abstract: Until this day, Vietnam has signed and enforced 13 free trade agreements (FTA) with approximately 50 different countries and territories from over the world. The implementation of the FTAs – including the Vietnam – Korea Free Trade Agreement (VKFTA) – has been making potential impacts on Vietnam’s economic growth, presenting the nation’s businesses with both new opportunities and challenges. The objectives of this paper are to provide a comprehensive assessment of the impacts of VKFTA on Vietnam’s exports to the Republic of Korea (hereafter Korea) for the past 5 years (since the implementation of the Agreement), and suggest some recommendations for the Vietnamese government in the upcoming time. Key words: ASEAN – Korea Free Trade Agreement (AKFTA), Free Trade Agreement (FTA), Vietnam – Korea Free Trade Agreement (VKFTA). 1. INTRODUCTION In December 1992, Vietnam and Korea officially agreed to a diplomatic relation with one another. Since then, for over nearly 1/4 a century, the alliance between the two nations has seen monumental progress: It has evolved from “common trade partners” to “comprehensive partnership” in 2001 and “comprehensive strategic partnership” in 2009. Now, Korea remains one of Vietnam’s most crucial partners in various aspects such as commerce, investment, and the providing of official development finance. In further regards to the Vietnam – Korea relation, Korea is currently leading in foreign direct investment (FDI), ranking second in official development assistance (ODA) and third in trade relation between the nations. Prominently, in the year 2015, the two countries have agreed on the VKFTA. The commercial partnership has attained outstanding progress since. The VKFTA stands as a comprehensive agreement that emphasizes commitment and the balance of benefits between the two countries. The implementation of the VKFTA promotes the exportation of Vietnamese specialized goods such as agriculture products, fisheries, etc., to Korea. However, Vietnamese businesses are faced with constant challenges in approaching the Korean market due to not fully understanding how to utilize the opportunities offered by the VKFTA. This paper is organized as follows. Section 1 provides an overview of VKFTA including opportunities and challenges for Vietnamese exporters; Section 2 analyses current situation of Vietnam's exports to Korea and the problems posed by enterprises; Section 3 focuses on conclusions and recommendations on policy solutions. 2. OVERVIEW OF VKFTA – OPPORTUNITIES AND CHALLENGES FOR VIETNAMESE EXPORTERS VKFTA was signed on 5 May 2015 and officially entered into force on 20 December 2015. Compared to the ASEAN – Korea Free Trade Agreement (AKFTA) (signed in 2006 and entered into 1 National Economics University, Hanoi, Vietnam. 752
2. force in 2007). Under VKFTA, Vietnam and Korea have negotiated and given each other more incentives in the fields of goods, services, and investment. VKFTA is a comprehensive free trade agreement with a high level of commitment and balances the interests of both parties. The Agreement consists of 17 Chapters, 208 Articles, 15 Annexes, and 1 Implementation Agreement of the Regulation. The main contents of the Agreement include provisions on trade in goods, trade in services (including telecommunications services annexes, financial services, the movement of natural persons), investment, and intellectual property, food and plant health and safety measures (SPS), rules of origin, customs facilitation, trade remedies, technical barriers to trade (TBT), electronic commerce, competition, economic, institutional, and legal cooperation. Under VKFTA, Korea is more open to Vietnamese products than AKFTA, and as a result, Vietnamese businesses have more opportunities to access the Korean market. Combining both VKFTA and AKFTA obligations, Korea eliminated 11,679 tariff lines for Vietnam (accounting for 95.44% of the tariff, equivalent to 97.22% of the total import turnover from Vietnam to Korea in 2012). Vietnam abolished 8,521 tariff lines for Korea (accounting for 89.15% of the tariff, equivalent to 92.72% of the total import turnover from Korea to Vietnam in 2012). Under the Agreement, Korea is committed to abolishing import duties on most of Vietnam's strong export products, and at the same time, Korea is committed to lowering taxes on input materials, components, and accessories, replacement parts to facilitate the development of production in Vietnam. The implementation of the VKFTA provides opportunities for Vietnamese businesses to access the Korean market, thanks to strong market access commitments from Korea. Although Korea is a developed market with relatively high requirements and quality requirements for imported goods, the requirements for imported goods on that market are generally still lower than in other markets of Vietnam, such as the EU, the United States of America, and Japan. The implementation of the VKFTA together with other FTAs encourages Vietnam to reform institutions and policies aimed at creating a favorable business environment and making effective use of resources, thus improving the competitiveness of goods. In addition, Korea is particularly committed to helping Vietnam develop its supporting industry, along with regulations on many standards designed to strengthen and protect investor rights; and the establishment of a dispute settlement mechanism between the state and investors has created favorable conditions to attract more Korean investors to Vietnam, contributing to an increase in the value-added exports. In addition, the implementation of the VKFTA contributes to improving the import efficiency of the group of raw materials and auxiliary materials for the main manufacturing and export industries as a result of Vietnam's commitment to open markets; reducing dependence on imports of certain traditional markets, contributing to the diversification of the supply of raw materials, while at the same time complying with the rules of origin of goods in Vietnam. In addition to opportunities, the implementation of VKFTA also creates many challenges for Vietnamese businesses to access the Korean market. Compared to regional markets such as ASEAN countries (more than 671 million people in 2020) or China (about 1,400 million people), the Korean market is considered to be relatively small (only about 51 million people). Meanwhile, requirements for product quality, food hygiene, and safety standards or technical standards for imported goods are much higher than those of ASEAN or China. With a well-established domestic retail market system and a relatively stable network of supermarkets, it is not easy for Vietnamese enterprises to enter Korean sales-channels. If they do not have a strategy to know about VKFTA, Korean market characteristics, and improve product quality, sales services, it's difficult for businesses to penetrate deeper into this market. 753
3. Under AKFTA, Vietnamese enterprises face many difficulties when competing with goods imported from Korea at affordable prices and better quality/designs on the domestic market. The roadmap for the implementation of the VKFTA and other FTAs of Vietnam in the coming years, together with the continued opening of more domestic markets for imports from Korea, will create more competitive pressure for domestic firms, especially for Vietnamese enterprises that are slow to innovate in technology and have low management capacity (Table 1). Table 1: Average tax rates of tariff lines committed cut in FTAs FTA Average export tax Average export tax Average export tax Average export tax rate in 2019 rate in 2020 rate in 2021 rate in 2022 ASEAN 0.07% 0.06% 0.05% 0.04% ACFTA 3.6% 2.98% 2.98% 2.98% AKFTA 5.9% 5.9% 4.6% 4.6% AANZFTA 3.0% 3.0% 3.0% 2.0% AIFTA 3.2% 2.9% 2.8% 1.9% VCFTA 6.8% 6.1% 5.1% 4.4% VKFTA 4.39% 4.36% 3.78% 3.75% EVFTA 2.8% 1.8% 1.42% 1.1% CPTPP 9.1% 7.7% 6.3% 4.8% FTA 1/4/2018–31/3/2019 1/4/2019–31/3/2020 1/4/2020–31/3/2021 1/4/2021–31/3/2022 AJCEP 4.2% 3.7% 3.3% 2.7% VJEPA 3.69% 2.35% 2.16% 1.99% Source: The Ministry of Finance 3. CURRENT SITUATION OF VIETNAM'S EXPORTS TO KOREA AND THE PROBLEMS POSED BY ENTERPRISES After more than 5 years in effect, VKFTA has contributed to the promotion of two-way trade relations between Vietnam and Korea. Korea is currently Vietnam's third-largest trading partner (after China and the United States), expected to reach USD 65.1 billion by the end of 2020, accounting for 12.35% of total turnover import and export of the country. Vietnam's export turnover to Korea increased rapidly from USD 4.71 million in 2013 to USD 8.93 million in 2015 (before the implementation of the VKFTA) and continued to rise to USD 19.72 million in 2019. Due to the impact of the Covid–19 epidemic, Vietnam's export turnover in 2020 to Korea decreased slightly compared to 2019 but is still estimated to reach USD 19.70 million (more than 2 times compared to 2015). Vietnam's merchandise exports to Korea increased by an average of 17.13% per year over the 2016–2020 period, and imports are estimated to increase by 10.5% over the same period (Table 2). 754
4. The Figure 1 above shows that Vietnam's trade balance with Korea is always high–value and tends to increase along with the implementation of the VKFTA roadmap. One of the main reasons for this situation is that Vietnamese companies do not fully understand VKFTA, so they do not know how to take advantage of the opportunities offered by this Agreement, while Korean enterprises have prepared the conditions very well to take full advantage of preferential enforcement of the Agreement. Figure 1: Vietnam – Korea Export turnover period 2011–2020 Note (*): Estimation of the Ministry of Industry and Trade Source: Department of International Relations – VCCI (2020) Items that Vietnam and Korea have committed to lower taxes on VKFTA have high growth in export turnover. In Vietnam, there are seafood products, textiles, wood products, and wood products, shoes of all kinds, fibers, fibers of all kinds, vegetables? computers, electronic products and components for Korea; raw materials for textiles, leather, and shoes; electrical wires and cables (Ministry of Industry and Trade, 2020). However, Vietnamese goods exported to Korea are still mainly labor-intensive, subcontracted, and low-value goods. Meanwhile, Vietnam's main imports from Korea are mainly raw materials, machinery, and equipment for production It has great value (Figure 2 and Figure 3). Large import value from Korea is mainly machinery products, components, and equipment that serve investment projects of Korean companies in Vietnam such as L&G, Samsung, Posco, because Vietnam’s supporting industries provide not enough raw materials for production. Figure 2: Vietnam’s main exports Vietnam to Korea in 2015 and 2020 Year 2015 Year 2020 Source: Department of International Relations – VCCI (2016 & 2020) 755
5. Figure 3: Vietnam’s main imports Vietnam to Korea in 2015 and 2020 Year 2015 Year 2020 Source: Department of International Relations – VCCI (2016 & 2020) 3.3. Conclusions and recommendations on policy solutions Korea is a highly attractive export partner of Vietnam, thanks to its market size, bilateral trade, and as a result of VKFTA. In order to help enterprises know how to take advantage of opportunities, thus reducing obstacles when introducing FTAs in general and VKFTA in particular in the future, the following solutions need to be introduced synchronously by the state. Here are some suggestions: It is important to continue updating and refining the legal and policy framework in order to fully enforce the VKFTA commitments under the roadmap, in compliance with the requirements and competitiveness of Vietnamese enterprises. This adjustment process must ensure uniformity, transparency and equal treatment between the types of enterprises in order to establish increasingly favorable conditions for the export and commercial development of enterprises. Renovate and encourage correspondence in a variety of formats (newspapers, conferences, workshops, blogs, government departments, divisions, ect.) on commitments and the roadmap for the implementation of commitments of Vietnam in VKFTA for enterprises. In particular, the Ministry of Industry and Trade needs to introduce the VKFTA Handbook more broadly by organizing training courses directly to enterprises (classified by industries and business sectors). Specifically, they know how to take advantage of opportunities and mitigate negative impacts of VKFTA on exports. It is important to have specific incentives, and preferential policies and mechanisms, and to establish favorable conditions for Korean enterprises to invest in new technologies in key export advantage industries from Vietnam to Korea in the period 2021–2030. The successful implementation of this policy framework, together with the opening of Vietnam's VKFTA market, would contribute to exploiting the new wave of Korean investment in Vietnam, generating spillovers for Vietnamese businesses, participating in the global supply chain and increasing the value added exports. Establish mechanisms and policies to enable enterprises to invest in the renovation of machinery, facilities, technology and manufacturing processes to meet the quality and requirements of the Korean industries. At the same time encourage enterprises to promote research and development, the application of science and new technology, particularly high technology, advanced governance in the direction of the industrial revolution 4.0. Finally, support enterprises with knowledge and forecasting of the Korean market, as well as support for the export of products to that market; providing intelligence advice and legal assistance to enterprises in the analysis process and in the execution of export activities. In addition, foreign direct investment firms are encouraged to partner with domestic companies in the production and exports. 756
6. REFERENCES: 1. Department of International Relations – VCCI (2016), Korean Market Profile 2016, 2. Department of International Relations – VCCI (2020), Korean Market Profile 2020, 3. Ministry of Industry & Trade (2020), Discussion between the Minister of Industry and Trade, and Korean Enterprises, held in Hanoi on 26/11/2020. 4. VCCI (2019), ASEAN – South Korea (AKFTA), –cong/p52.htm. 5. VCCI (2019), Free Trade Agreement between the Government of the Socialist Republic of Vietnam and Government of the Republic of Korea, Accessed 11/1/2019, –ftas–concluded/189–vietnam–south–/237–full text/Loi%20van%20Hiep%20dinh%20tieng%20Anh.pdf. 757