VINACHEM

(VEN) - TheRepublic of Korea (RoK) is the second largest trade partner (behind China) withwhich ASEAN (Association of South East Asian Nations) has signed a free trade agreement(FTA). The negotiation process began in 2004 when the leaders of ASEAN and theRoK signed a joint statement on comprehensive economic cooperation between thetwo sides, affirming their wish to establish the ASEAN-Korea Free Trade Area(AKFTA) covering the fields of trade in goods, trade in services, andinvestment. In 2005, ASEAN and the RoK signed a framework agreement oncomprehensive economic cooperation. After that the two sides signed agreementsin specific fields to create the legal foundation for AKFTA to be formed. Itcan be said that AKFTA has benefited and is benefiting Vietnamese companies.

Many agreements signed

On August 24,2006, ASEAN and the RoK signed the ASEAN-Korea Trade in Goods Agreement (AKTIG)specifying the preferences that apply to trade in goods between 10 ASEAN membercountries and the RoK and the commitment to reduce/eliminate all tax lineswithin a specified period of time. Starting January 1, 2010, the RoK and ASEAN-5(Brunei, Indonesia, Malaysia, the Philippines and Singapore) have eliminatedthe taxes applying to nearly 90 percent of products under the Normal Track. NewASEAN members, including Vietnam, Cambodia, Laos and Myanmar, will have moretime to reduce and eliminate taxes. At least 50 percent of the tax linesapplying to Vietnam's products under the Normal Track will be reduced to therate of 0-5 percent before January 1, 2013. For Cambodia, Laos and Myanmar, thedeadline is January 1, 2015. By 2016, Vietnam will have to reduce 90 percent oftax lines to the rate of 0-5 percent so that by 2017, all tax lines will beeliminated. For Cambodia, Laos and Myanmar, the respective deadlines are 2018and 2020. Thailand joined the AKTIG later, in 2007. Therefore, the tax ratesapplying to Thai products under the Normal Track will be reduced on aperiodical basis and eliminated fully in 2016 or 2017.

Since theAKTIG was signed and came into effect, the trade relations between ASEAN andthe RoK have developed rapidly. In 2009, the RoK was the fifth largesttrade partner of ASEAN with the total trade value amounting to US$74.7 billion.Foreign direct investment from the RoK into ASEAN was US$1.4 billion.

TheASEAN-Korea Trade in Services Agreement (AKTIS) was signed on November 21,2007, paving the way for service providers of the RoK and ASEAN to enter eachother's market. The AKTIS was made based on the commitments in the GeneralAgreement on Trade in Services (GATS), covering new sectors/sub-sectors such asbusiness, construction, education, telecommunication services, environment,tourism services and transportation services.

TheASEAN-Korea Agreement on Investment (AK-AI) was signed on June 2, 2009 tocreate a more transparent, favorable and stable business environment forinvestors from ASEAN and the RoK. Major components of the AK-AI are theprotection elements which include provisions on fair and equitable treatmentand full protection and security of covered investments; transfers of fundsrelating to covered investments; and compensation in the event ofnationalization or expropriation of covered investments. The AK-AI took effecton September 1, 2009. However, work on the AK-AI continues as ASEAN and the RoKpursue the completion of built-in-agenda items which include the development ofmarket access commitments or schedules of reservations. ASEAN and the RoK willcommence and conclude discussions on these agenda items within five years fromentry into force of the agreement.

AKFTA's impacts on Vietnam-RoK trade

The RoKcurrently ranks fourth among the ten most important trade partners of Vietnam,after China, the US and Japan. It is the fifth largest export market of Vietnamand the second largest importer of Vietnamese products.

In the past 10years (2001-2010), bilateral trade between Vietnam and the RoK grew more than23 percent annually. In 2009, despite the adverse impacts of the globalfinancial crisis, trade between the two countries increased 2.1 percentcompared with 2008. Notably, in 2009, Vietnam's exports to the RoK exceededUS$2 billion, up 15.7 percent compared with 2008. In 2010, bilateral tradetotaled more than US$12.85 billion, up 42.2 percent compared with 2009. Thatincluded US$3.1 billion worth of Vietnam's exports to the RoK, up 49.8 percent,and US$9.75 billion worth of RoK's exports to Vietnam, up nearly 40 percentcompared with 2009. The main kinds of Vietnam's exports to the RoK includecrude oil, textiles and garments, seafood, coal, wood and wood products. ThoughVietnam imports more from the RoK than exporting to this country, Vietnamimports from the RoK mostly materials and fuels which are really necessary fordomestic production, for example steel and iron which account for 12.3 percentof all imports from the RoK, fabric (11.7 percent), machinery and equipment(11.2 percent), computers and electronic products (8.6 percent).

Generallylooking, the AKFTA has considerably benefited ASEAN economies, includingVietnam. Notably, Vietnamese companies can make use of the tariff quotas applyingto seafood - the top export product of Vietnam to the RoK. The RoK has beencommitted to applying the following tariff quotas to imports from ASEAN: (i)Frozen shrimp 5,000 tonnes zero percent; (ii) fresh shrimp 300 tonnes zeropercent; (iii) squid 2,000 tonnes zero percent; (iv) boiled shrimp 2,000 tonneszero percent; (iiv) cassava 25,000 tonnes 20 percent; (iiiv) cassava starch9,600 tonnes nine percent. The RoK also applies low tax rates to products whichare Vietnam's advantages, for example textiles and garments, leather andfootwear, and processed products.

The RoK hasaccepted to put the mutual recognition agreements on SPS (Sanitary andPhytosanitary) measures into an Appendix of the ASEAN-Korea Framework Agreementon Comprehensive Economic Cooperation, to put the articles on technicalbarriers on trade (TBT) and SPS into the AKTIG; and to establish a workgroup onTBT and SPS to deal with the problem that arise during the implementationprocess.

The AKFTA hashad positive impacts on the trade relations between ASEAN and the RoK. It canbe said that this FTA is most beneficial to Vietnamese companies. In 2007 - thefirst year of AKTIG implementation, Vietnamese companies benefited from 58.6percent of preferences offered by the AKFTA in terms of the origin of products(this percentage was 66.5 percent in 2008 and 64.6 percent in 2009). This meansmost kinds of Vietnam's exports to the RoK have benefited from AKFTA'spreferences (production materials almost 100 percent; processed minerals morethan 95 percent; leather products more than 70 percent; textiles and garments88 percent). On the contrary, the RoK's exports to Vietnam have not benefitedmuch from AKFTA's preferences (only three percent). So it can be concluded thatthe AKFTA does not increase the deficit in Vietnam's trade with the RoK./.