Vietnam - Korea FTA Expected to Give Strong Boost to Bilateral Trade

After more than two years of negotiation, both parties agreed that the entire contents of the VKFTA are comprehensive with high level of commitment, and ensure balance of interests. The Agreement consists of 17 chapters, 208 Articles, 15 Appendixes and 01 Enforcement Agreement. The main content of the Agreement includes trade in goods, trade in services (including the appendixes on Telecommunications Services, Financial Services, Movement of Natural Persons), investments, intellectual property, the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS), Rules of Origin, Customs Facilitation, Trade Remedies, Technical Barriers to Trade (TBT), eCommerce, Competition, economic cooperation, Institution and Law.

 

The VKFT Agreement is the first free trade agreement among the bilateral FTAs between Vietnam and other economic partners whose negotiation was basically completed in 2014 and formally signed in 2015. With agreed contents, it is expected that the Agreement will make positive impact on Vietnam's economy.

 

 

Regarding economics, trade, investment, similar to the content of WTO commitments or other FTAs that Vietnam has participated in or is negotiating, the signing of the VKFT Agreement will help further improve the business environment and efficiently allocate and use social resources, thereby accelerating the process of restructuring the economy towards enhancing added value and serving sustainable development objectives.

 

Vietnam's exports will enjoy many opportunities for new markets thanks to the strong commitments to open its market of Korea. Specifically, Korea liberalised 97.2 percent of imports value (according to figures in 2012), accounting for 95.4 percent of all tariff lines, which especially includes many key agricultural and marine goods such as shrimp, crab, fish, tropical fruits, industrial goods such as textiles, furniture and engineering products. Vietnam is the first FTA partner to which South Korea opens its market for sensitive domestic products such as garlic, ginger, honey, yam, etc. (whose tax rate is very high, from 241-420 percent). This has created significant competitive opportunity for Vietnam's exports compared with other competitors in the region such as China, Indonesia, Malaysia and Thailand (For example: Korea exempts tax for Vietnam's shrimp with the quota of 10,000 tonnes a year which will gradually increase in 5 years to the point of 15,000 tonnes a year, while currently Vietnam only takes advantage of 2,500 tonnes tax-exempted shrimp a year in the total of 5,000 tonnes a year for the 10 ASEAN countries).

 

In contrast, Vietnam cut tariffs for 92.7 percent of imports (according to figures in 2012), accounting for 89.2 percent of tariff lines, mainly for industrial commodities such as textile raw materials, sewing, plastic materials, electronic components, trucks and passenger cars with capacity 3000 cc and above, automobile spare parts, electrical appliances, some iron and steel products, and power cables. The majority of these is the raw and auxiliary materials to be imported for production in the country, helping reduce dependence on imports from a few other countries.

 

Transparent, open legal environment will help encourage investment from Korea to Vietnam, together with high technology, advanced management skills and access to third markets.

 

During the VKFT Agreement negotiations, the two sides also agreed on the content of the enforcement agreement on economic cooperation. Accordingly, Korea will support Vietnam in enhancing construction capacity, policy implementation and improving the competitiveness of the areas where Korea has strengths and Vietnam has cooperation demand to compete in sustainable export such as Agriculture, Fisheries and Forestry; Electronic industry, petrochemical industry, supporting industries.

 

Also, according to the joint study conducted by the two parties, with comprehensive content, the VKFT Agreement is also expected to bring positive social benefits by creating more employment opportunities for Vietnamese labourers, raise incomes, especially of unskilled labourers, and contribute to poverty alleviation in rural areas.

 

The signing of the agreement is a significant step performing the active integration strategy, with international economic integration being the focus. It also supports the restructuring and implementation of industrialization and modernization of the country. At the same time, it contributes actively to developing the strategic partnerships between Vietnam and Korea towards stability and long-term commitment, which helps maintain and promote a stable and peaceful environment in the region.

 

Besides the positive effects mentioned above, the Agreement also poses challenges for Vietnam. The tariff reductions will create more competition for domestic firms. However, the benefits from efficient import and export and the motivation for Vietnamese enterprises to rise to respond to challenges will be an important factor for the development of domestic production. In addition, the State management agencies must constantly strengthen the organisation, improve staff capacity so that it meets the requirements of state management in the economic environment operating under international regulations. Local authorities, business community and the people need to be fully aware of the integration process in general and the implementation of the VKFT Agreement in particular, so that they can effectively exploit the benefits and limit the adverse impacts of the Agreement.

 

After the signing, the two countries will carry out the approval procedures under legal regulations of each country. According to the commitment, the agreement will take effect from the first day of the second month after delivering the notice in writing through diplomatic channels on the completion of the internal procedures, or from any other day that the two parties agree on.