4 Ways the Vietnam-Korea FTA is Changing the Vietnamese Economy - Vietnam Briefing

The Vietnam-Korea Free Trade Agreement (VKFTA) turned 7 successful May of this year. Since it came into unit successful 2015 it has changed the look of commercialized betwixt South Korea and Vietnam. Here are conscionable a fewer of the sectors benefiting from this statement and the businesses capitalising connected the opportunities it has presented.

In aboriginal October, LS Electric, a starring Korean electrical institution successful Vietnam, announced it would beryllium ramping up its accumulation capableness with a new mill successful Bac Ninh. It expects this caller concern to make up to US$45 cardinal a year.

Meanwhile, Samsung besides intends to put different US$3.3 cardinal successful Vietnam with plans to mass-produce semiconductor parts successful Thai Nguyen Province, successful bluish Vietnam.

These large investments person been, astatine slightest it part, fueled by the Vietnam-Korea Free Trade Agreement (VKFTA) that was signed successful 2015.

Now, successful its seventh year, the VKFTA has generated a slew of opportunities for Korean investors successful Vietnam done preferential tariffs and reduced redtape.

Consumer electronics manufacturing

Under the VKFTA, Vietnam removed 31 tariff lines imposed connected Korean physics products and components. When these tariffs were removed importing parts for physics devices, similar mobile phones, from Korea became cheaper.

As a result, Korean electronics firms were capable to diversify parts of their proviso chains into the Southeast Asian federation without having to interest astir accrued input costs.

Samsung, for example, has been dilatory expanding its footprint successful Vietnam for years with large success. In 2021, contempt the COVID-19 pandemic, Samsung Vietnam inactive managed to export US$65.5 cardinal worthy of electronics, up 15.8 percent compared to 2020.

Green energy

The VKFTA has besides eased Vietnam’s concern requirements from Korea opening up a fig of sectors to greater overseas nonstop investment. This includes Vietnam’s vigor assemblage wherever a fig of Korean firms person been moving to physique Vietnam’s greenish vigor infrastructure.

In January, SK Ecoplant, an affiliate of SK radical – the third-largest conglomerate successful South Korea, officially partnered with Vietnamese vigor firm, Nami Solar, successful a US$200 cardinal star vigor associated venture. The task is acceptable to make up to 250 MWp of rooftop star powerfulness to service the demands of home businesses.

In July of this year, SK Group besides announced their program to make a hydrogen powerfulness works and hydrogen powerfulness proviso concatenation successful Can Tho Province.

Food production

South Korea’s and Vietnam’s nutrient industries person some benefited greatly from the VKFTA. Under the agreement, some Vietnam and Korea eliminated tariffs connected a fig of nutrient products instantly aft the statement came into force. They agreed to destruct tariffs connected astir different nutrient products implicit the pursuing 10 to 15 years.

Vietnam’s shrimp and lobster, for illustration enjoys tariff-free introduction into South Korea, with a quota of 15,000 tonnes per year.

Currently, CJ Group, South Korea’s largest conglomerate successful nutrient and entertainment, is processing shrimp farms successful Vietnam to nutrient seafood to export to South Korea to instrumentality vantage of the accrued quota of tariff-free shrimp imports.

CJ Group has besides made respective cardinal investments successful the Vietnamese nutrient industry. It purchased 65 percent shares of Minh Dat Food Co., Ltd and a 47.33 percent stock of Cau Tre Export Goods Processing JSC – 2 cardinal Vietnamese nutrient producers.

Carmakers and automobiles

Vietnam chopped tariffs for automobile parts and trucks oregon cars of implicit 3000cc, from South Korea, nether the VKFTA.

This has enactment Korean automobile manufacturers successful Vietnam astatine an advantage: they tin import parts/components from their location state astatine a reduced cost, past assemble and administer the finished products successful Vietnam much competitively.

As the demand for automobiles escalates successful Vietnam owed to rising disposable incomes, investing successful the country’s car marketplace could beryllium precise lucrative.

Hyundai, a salient car shaper successful South Korea, was among the archetypal to put successful Vietnam’s automobile market.

In 2017, Hyundai joined a associated task with Vietnam’s Thanh Cong Group to assemble and administer Hyundai cars successful Vietnam, introducing their subsidiary Hyundai Thanh Cong JSC. By 2018, Hyundai Thanh Cong already had a large-scale assembly works successful Ninh Binh, with a capableness of 60,000 units annually. Construction of a 2nd works is owed for completion this November. The 2 plants are projected to person a full capableness of up to 170,000 units a year.

Vietnam – South Korea ongoing commercialized relations

This twelvemonth marks 30 years of diplomatic relations betwixt Vietnam and South Korea. The 2 countries person agelong been trusted partners successful galore aspects including commercialized and politics, aiming for a bilateral turnover of US$150 cardinal by 2030.

South Korea is presently 1 of the biggest contributors to Vietnam’s FDI inflows, having invested US$80.5 cardinal successful 9,400 projects to September 2022.