Vietnam, RoK push for stronger economic cooperation

The Korea Institute for International Economic Policy (KIEP) is poised to organise an international seminar on RoK-Vietnam economic co-operation to mark the occasion of the 30th anniversary of bilateral relations between both sides.

According to economist Kawk Sung-il, director of the Center Security Strategy at the Korea Institute for International Economic Policy, the primary goal of the seminar is to hold in-depth discussions on issues related to bilateral co-operation. He added that relations between the two nations have developed strongly over the past three decades and have recorded a number of great achievements, especially in the field of economics.

However, in order for this relationship to continue to develop in a sustainable manner moving forward, more exchanges and discussions on co-operation methods are needed.

For this reason, scholars from the two nations’ have co-ordinated efforts to conduct perse in-depth studies across multiple fields as a means of creating a foundation for them to be published at the upcoming seminar.

Economic co-operation is therefore an important achievement and a bright spot in bilateral ties. In line with this, bilateral trade turnover stood at only US$490 million, equivalent to 0.3% of the RoK's total trade turnover since the establishment of diplomatic ties back in 1992. However, after 28 years this figure so far accounts for 7% of the total trade turnover of the East Asian nation.

The Korean community residing in Vietnam run a perse range of economic activities. Although investment in the Vietnamese market has decreased due to the impact of the COVID-19 pandemic in 2021, many Korean companies continue to view the nation as the most promising country among the 10 ASEAN member states.

This unevenness in terms of the trade balance is one of the main limitations in bilateral economic co-operation, particularly as the trade turnover between the two countries is increasing and the general scale of the trade imbalance is also in the process of gradually expanding.

The main reason behind this is that most Korean exports to the Vietnamese market are intermediate goods, semi-finished products, which can be understood as a result of the Korean direct investment in the country.

There are an array of opinions that could contribute to increasing Vietnamese agricultural exports to the RoK, thereby helping to solve the trade imbalance, although this would only be a short-term remedy. Agricultural and aquatic exports would only be able to make Vietnam a low value-added exporter. Instead, it is more important to attract greater investment from the RoK in order to create an environment where Vietnamese companies can become more deeply involved in the Korean production network.

Through this process, in the event that a strong supply chain between the two countries can be formed, the bilateral mutual relationship can be promoted more sustainably, Sung-il went on to say.

The Korean expert said assessed that the Vietnamese side needs to promote its production capacity and technology to participate more deeply in the supply chain. In fact, when a Korean corporation or company invests in the Vietnamese market, then they become a legal entity of the country.

However, due to Korean companies often investing in the nation in the form of 100% FDI, technology transfer also faces plenty of difficulties.

Sung-il stated that when analysing Vietnamese export value, it can be seen that the proportion of domestic value added remains low.

This means that the majority of the production of components and spare parts are located abroad, with the product localisation rate remaining low. By the end of 2017, only 600 out of a total of 26,700 FDI projects in the country had technology transfer contracts.

In comparison to neighbouring ASEAN member states such as Indonesia, Malaysia, the Philippines, and Thailand, the proportion of added value in Vietnamese products can be considered low.

As a result of this, Vietnamese companies must pay close attention to developing their own technology in parallel with international co-operation. Therefore, efforts to boost transfer technology through co-operation with foreign companies that have already penetrated the domestic market will prove to be effective.

In addition, it can be considered necessary to devise policies which encourage and protect Korean companies, thereby ensuring that they are able to see the parallel benefits in technology transfer, he added.