KVFTA has Korean firms targeting fresh sectors

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Hong Sun, vice chairman of the Korea Chamber of Business in Vietnam, said that since taking effect in late 2015, the reduced tariffs of the KVFTA have been among major propellants in the skyrocketing rise of Korean investment and exports into Vietnam.

The Korea-Vietnam Free Trade Agreement has given a big boost to Korean exports and investment into Vietnam. (Photo: VIR)

The General Statistics Office last week reported that in this year’s first six months, Korea was Vietnam’s second-largest import market (after China), with turnover of $22.5 billion, up 51.2 per cent year-on-year. Vietnam suffered from a trade deficit of $15.9 billion from Korea.

Meanwhile, in last year’s corresponding period, Korea was also Vietnam’s second-largest import market (after China), with turnover of $14.9 billion, up 8 per cent year-on-year. Vietnam suffered from a trade deficit of $9.8 billion from Korea.

According to statistics from the Ministry of Planning and Investment, Korea is Vietnam’s largest foreign investor. As of June 2016, the number of Korean investment projects in Vietnam was 5,364, registered at $48.5 billion. By May 20, 2017, the number had increased to nearly 6,100 projects, clocking in at $54.54 billion.

Over the 15-year period following the implementation of KVFTA, Vietnam will completely remove import duties on 89.9 per cent of all products from Korea.

For example, Vietnam will remove its 30 and 20 per cent tariffs imposed on Korean air conditioners and rice cookers, respectively, over the next 10 years. The average tariffs for foodstuffs and consumer goods will gradually be reduced from the existing 16-17 per cent to 0 per cent over the next five years.

In this year’s first six months, Vietnam has removed tariffs on 16 lines of products shipped from Korea. Items subject to the next round of tariff cuts include two-liter and larger engines for vehicles, auto parts, steel, and petrochemical products.

Over the past few years, Korean investments in Vietnam have been largely focused on the property, industrial, and textile and garment sectors. But Mr. Sun also stressed an increase in Korean investment in Vietnam’s foodstuff and consumer goods sector, thanks to KVFTA.

In a specific case, Chang Bok Sang, president and CEO of CJ Group Vietnam under the listed Korean conglomerate CJ Group, told VIR that CJ will continue expanding its operations in Vietnam, a country which is “very important” to the group.

Having been in Vietnam for over 20 years, CJ is acquiring a 65 per cent stake in Vietnam-based Minh Dat Food for VND294.8 billion ($13.4 million). Prior to Minh Dat, CJ acquired a 47.3 per cent stake in Cau Tre, another Ho Chi Minh City-based food producer.

Last month, Lotte Duty Free established a joint venture in Vietnam with a local partner. The first duty-free store has been opened on a pilot basis – a 1,000 square meters at Da Nang International Airport. The official opening is expected for August.

It is expected that Lotte Duty Free will continue opening more stores in major cities throughout Vietnam.             

Lee Hyuk, Korean Ambassador to Vietnam, told VIR that there are already many companies in Korea well-equipped with capital, state-of-the art technology, and strong management abilities that are paying special attention to Vietnam in their search for new markets.

According to him, KVFTA is also having a positive effect on investment. Compared to the Korea-ASEAN FTA or the Korea-Vietnam Bilateral Investment Treaty, KVFTA provides a higher level of investment liberalization and investor protection.

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