Korea – Vietnam Free Trade Agreement in effect

The Korea – Vietnam Free Trade Agreement, effective as of December 20th is expected to boost trade between the countries to USD 70 billion by 2020, representing an increase of more than twice the trade volume as compared to 2014.

The agreement will eliminate the majority of tariffs applied by both countries. Vietnam has agreed to remove tariffs on 89.9% of imported goods including supply for apparel and plastic production as well as footwear, leather, and automobile parts and machinery over the next 15 years. South Korea will stop applying import tariffs on 95.4% of Vietnamese products in the agro-fishery, fruit, apparel and wood industry, and manufactured goods. As agriculture products including rice, red pepper and onions are sensitive for both countries, they are exempt.

The countries look back on two decades of significant growth in bilateral trade, which is expected to reach USD 36.8 billion in 2015 representing a 27.6% increase compared to 2014. Vietnam, as a result, is South Korea’s third largest export market after China and the U.S.

According to the Korean Ministry of Trade, Industry and Energy rural development projects in Vietnam represent lucrative business opportunities for Korean SMEs in machining and companies in construction. Further, the Vietnamese service sector will become more accessible. The varios factors combined lead to an expected additional increase of FDI from Korea to Vietnam with South Korea taking the position as Vietnam’s biggest investor since 2014.

Currently, South Korea holds 4,777 investment projects worth USD 43,6 billion in Vietnam. Around 4,000 Korean businesses are present in the market employing around 1 million people and accounting for 25% of Vietnam's total export value. In 2015, FDI in Vietnam experienced an increase of 16.7% year on year leading to a total amount of USD 20.22 billion including both, investments in new and existing projects. USD 2.5 billion represent inflows from South Korea accounting for 18.5% of total new FDI capital concentrated in manufacturing, processing, property development, construction and retail.


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