News & Notice

News & Notice
Subject Warm Breeze from Vietnam to Revitalize Export Slump Date 2017-01-18 16:55:08

Warm Breeze from Vietnam to Revitalize Export Slump

Exports to Vietnam increased by 13.0% since the effectuation of Korea-Vietnam FTA

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While South Korea's trade has been sluggish throughout this year, Korea's exports to Vietnam increased by 13.0 percent and its imports grew by 27.7 percent between January and October after the Korea-Vietnam free trade agreement took into effect. This is due to the fact that more Korean companies in automobile parts, textile apparel and electronic devices sectors have entered into Vietnam and it raised the exports of raw materials to Vietnam as well as the imports of locally processed and manufactured products. In addition, it is also analyzed that the tariff elimination through the Korea-Vietnam FTA, which entered into effect last year, has contributed to the phenomenon.


The Institute for International Trade (President, Kim Geuk-soo, of the Korea International Trade Association analyzed that the Korea-Vietnam FTA ▲ increased the level of market opening, which had been insufficient in the existing Korea-ASEAN FTA, ▲ facilitated the use of FTA in the industries by relaxing the rules of origin, and ▲ provided convenience for the companies to use the FTA through the stipulation the post-application of FTA and the elimination of reciprocal tariff rate in the report titled “Assessment of the First Year of Korea- Vietnam FTA and Its Implication.” Since the Korea-Vietnam free trade agreement took into effect, Korea's import market share of Vietnam increased by whopping 1.8 percent (16.7% → 18.5%) compared to the other rival countries. 


In particular, the report noted that the food industry, which had not been previously recognized as the FTA beneficiary, is experiencing great impact of the Korea-Vietnam FTA. For instance, Don Chicken Co., which exports chicken sauce to Vietnam, used to pay high tariff of 20-33 percent as the company failed to meet the existing Korea-ASEAN free trade agreement’s stringent rules of origin for food products. However, as the Korea-Vietnam FTA has introduced rather relaxed rules of origin, only 0-10 percent of the FTA tariff will be imposed on the company’s products. As a result, the cumulative tariff savings from the use of the Korea-Vietnam FTA is expected to reach 1.82 million dollars (about 2.1 billion won) for the next five years.


In addition, the application of the Korea-Vietnam FTA is a competitive advantage to differentiate a company from other exporters. Particularly, in the cases of department stores or large-scale buyers dealing with high-priced goods, the exporting company's document supports for FTA utilization are considered as important conditions for the success of exports. CEO Jang Jung-Mi of Dream Corp. said“Korean cosmetics, the products for children such as snack nuts and healthy drinks like adlay tea soybean milk are very popular among the Vietnamese women in their thirties despite of the high price.”The CEO added “At the moment, we are a small-sized company with eight employees. However, since we have supported documents for the Vietnamese buyer to help them take advantage of the FTA tariff benefits, the volume of orders for the products has significantly increased and we are currently hiring at least ten more new employees.” 


* The FTA preferential tariff treatment means that the importers can enjoy the FTA tariff benefits during the customs clearance process only when the exporters issued the certificate of origin to confirm that the rules of origin that the agreement requires are met.


A researcher Lee Geun-hwa at the Institute for International Trade stated “Not only the exports of raw materials such as automobile parts, textile and electronic devices but also consumer gods, including cosmetics and medical supplies have significantly increased, driven by the Korea-Vietnam tariff benefits.” The researcher stressed “With the further reduction of tariffs, it is expected that the expansion of exports to Vietnam will be a new catalyst to boost Korean economy.”


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