Efforts urged to reduce trade deficit and boost exports to ROK

Although the Republic of Korea (ROK) is currently Vietnam’s second largest import market, the growth rate of imports from the country has been very high, leading Vietnam’s trade deficit with the ROK to surpass that with China for the first time. 
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In that context, numerous efforts are required to slow down the trade deficit momentum from the land of Kimchi.

Imports from ROK surge 51.2% in six months

According to the General Statistics Office, Vietnam imported US$22.5 billion worth of commodities from the ROK in the first six months of 2017, representing a 51.2% increase in comparison to the same period last year. Despite being Vietnam’s second largest import market, after China, the growth rate of Vietnam’s import revenue with the ROK was the highest.

efforts urged to reduce trade deficit and boost exports to rok
Seafood is among Vietnam's key exports to the ROK.. (Photo: 24h.com.vn)

Vietnam’s key imports from the ROK included machinery, equipment and tools (up 123.5% annually); electronics, computers and accessories (up 46.1%), and phones and phones components (up 37.7%). With an export revenue of US$6.6 billion, Vietnam posted a trade deficit of US$15.9 billion with the ROK during the period.

Analysing the reasons for Vietnam’s high trade deficit with the ROK, Le Quoc Phuong, Deputy Director of the Vietnam Industry and Trade Information Centre (under the Ministry of Industry and Trade), said that Vietnam’s increasing imports from the ROK were initiated years ago as the Samsung Group began investing in Vietnam and imported a considerable volume of raw materials and goods from the ROK.

Since the Vietnam-Korea Free Trade Agreement (VKFTA) took effect in late 2015, the business climate in Vietnam has become more open to ROK companies, and there have been an increasing number of ROK groups, such as Samsung, LG and Hyundai, pouring investment capital into the country, resulting in a surge in demand for machinery, equipment and raw materials for production. As of June 2017, the ROK was the trade partner with the second largest foreign direction investment (FDI) pledge in Vietnam.

For example, in the opening months of the year, Samsung Group increased its investment capital, to expand the Samsung Display project in Vietnam, by an additional US$2.5 billion, triggering a demand for the importation of machinery and raw materials.

Furthermore, in order to contribute to over 20% of Vietnam’s total export revenues, Samsung needed to import a large volume of materials and accessories from other countries, including the ROK. The abovementioned reasons explain the sharp increase in Vietnam’s import turnover from the ROK.

In addition, the VKFTA is facilitating the penetration of ROK products into the Vietnamese market, including petroleum, farm produce, consumer goods, fruits and vegetables, with competitive prices due to a significant decrease in import tax rates.

The quality of ROK goods is relatively good, therefore, while domestic consumers and businesses are tending to be indifferent to goods and materials originating from China, it is easy for commodities originating from ROK to be chosen as substitutes.

Notably, Vietnam’s imports from the ROK are mainly input materials for domestic production, such as computers and electronic products, machinery and equipment, tools, phones and components, and fabrics of different types, which have huge market value. Meanwhile, the country’s exports to the ROK are items with lower values, including farm produce and seafood, thus leading to the trade deficit.

“Importing items from the ROK for reproduction for exports is normal as Vietnam is in the momentum of vigorous development. While the domestic supporting industries are yet to develop and businesses’ demand for seeking quality sources of goods with reasonable prices is increasing, as such the ROK remains a potential market for Vietnamese companies,” Mr. Phuong said.

Efforts needed to reduce trade deficit with ROK

At present, a trade deficit from the ROK is inevitable; however, in the long run, it is necessary to gradually reduce the trade deficit in order to maintain the trade balance.

According to Mr. Phuong, in order to reduce trade deficit from the ROK, it is necessary to strengthen the competitiveness of Vietnamese products via investing more in supporting industries to alleviate the trade deficit for the machinery and equipment sector.

In addition, measures should be taken to accelerate the campaign “Vietnamese people prioritise the use of Vietnamese goods”, aiming to encourage domestic businesses to manufacture products of high competitiveness and enable domestic consumers to prioritise the use of Vietnamese commodities instead of those imported from overseas.

Efforts also need to be made to facilitate the exports to the ROK. As assessed by experts, Vietnam’s export goods face difficulties in accessing the ROK market because of failing to overcome non-commercial technical barriers from the import side, as well as a failure to meet safety and pattern requirements.

Therefore, in order to boost exports, domestic enterprises have no other choice than to strive to improve the quality of their products, diversify product patterns and ensure food safety and hygiene, particularly with Vietnam’s advantageous products, such as farm produce, seafood, fruits and vegetables. It is important that the State issues support policies to help businesses to remove any difficulties, and to provide timely dissemination of information on the ROK market to enterprises so that they can proactively adjust their production activities correspondingly.

As for the Ministry of Industry and Trade, in order to make use of the opportunities brought about by the VKFTA, the ministry will continue to inform businesses about the preferential policies from the FTA, as well as the directions needed to take full advantage of those incentives, particularly on the rule of origin and how to satisfy the rule of origin. Besides, the ministry will also strengthen reviews and simplify procedures for granting the certificate of origin (C/O); apply online C/O declaration and extend the issuance of C/O via the Internet, aiming to create optimal conditions for export businesses.

During his talks with ROK Foreign Minister Yun Byung-se last March, Vietnamese Deputy PM and FM Pham Binh Minh asked the ROK side to apply measures to remove any difficulties concerning non-commercial barriers, to step by step balance the trade balance and to create more favourable conditions for Vietnamese export goods to penetrate into the ROK market.

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