Vietnam FTA brings mostly yawns

Korean companies that assemble products in Vietnam expect to see only limited benefits from the Korea-Vietnam free trade agreement (FTA).

The Ministry of Trade, Industry and Energy last week said the FTA will help Korean manufacturers in Vietnam by removing tariffs on automobile parts, tires, textiles and train parts over the next 15 years. Tariffs on those items are as high as 20 percent. The government said the pact will make prices more competitive with European and Japanese products.

However, Hong Suk-kyoon, deputy director at the Korea Trade-Investment Promotion Agency (Kotra) branch in Ho Chi Minh City, says the FTA won’t be much help.

“Korean businesses like textiles and sewing that produce foreign-brand clothes and shoes already have stable and active business activities in Vietnam with low or zero tariffs,” Hong said.

“Korean companies here are far more interested in an EU-Vietnam free trade agreement and the Trans-Pacific Partnership,” he added. “For Korean companies, Vietnam is a location where simple assembly takes place and finished goods eventually are exported. What Korean companies need is a wider market for products assembled in Vietnam.”

In the short term, Hong said the FTA provides some benefits by easing and standardizing regulations dealing with determining a product’s place of origin and streamlining customs procedures. He said that will most mostly affect small and midsize food companies.

So far, Lotte Group has taken the lead in Vietnam by opening Lotte Marts and Lotterias at more than a hundred locations. Shinsegae’s E-Mart is scheduled to open its first store in Vietnam at the end of next year.

In the long term, Hong said Vietnam holds huge potential, as the nation has seen gross domestic product growth in the 7 percent range annually.

So far, only small numbers of well-off Vietnamese purchase Korean products. However, as the FTA reduces tariffs on consumer products like cosmetics, home appliances and electronics, the Kotra Vietnam branch says Korean companies should market their products more aggressively.

BY KIM JI-YOON [jiyoon.kim@joongang.co.kr]