Minister of Industry and Trade Vu Huy Hoang spoke to the Vietnam Government Portal on how Vietnam can make use of the free trade agreement signed with the Republic of Korea in Hanoi on May 5.

Q: Vietnam is the first FTA partner to gain market access in the RoK for agricultural products such as garlic, ginger, honey, and sweet potatoes ─ products Vietnam has a comparative advantage in producing. In your opinion, what criteria must domestic enterprises meet to export these items to the RoK?

A: Exports from Vietnam will enjoy many new market opportunities because of the strong market access commitments from the RoK. The RoK liberalised 97.2 percent of import values (calculated according to 2012 figures), accounting for 95.4 percent of all tariff lines, including many of Vietnam's key agricultural commodities and seafood products such as shrimp, crab, fish, tropical fruits and industrial goods like textiles, furniture, and engineering products.

Vietnam is the first FTA partner with which the RoK opened its market to very sensitive products such as garlic, ginger, honey, and sweet potatoes. The tax rate for these products is normally very high, from 241 to 420 percent.

The demand of the Korean people for such sensitive items is considered to be quite high. This also means that they have very high requirements for quality. For many years, the RoK has maintained very high import tariffs on this group. Many countries produce these goods but cannot export them to the RoK market.
This is the first time the RoK agreed to open the market for these goods from Vietnam by offering preferential tariffs at very low levels, demonstrating the goodwill from the RoK towards Vietnam.

For Vietnam, in response, exporters must pay attention to maintaining their pricing, quality and, most importantly, food safety. To do this, Vietnamese businesses and farmers must respect production procedures and issues related to substances used for plant protection and pesticide use.

Q: One of the highlights of the trade relations between Vietnam and the RoK is the complementary export-import commodity structure and no direct competition. Will this be an advantage or challenge for domestic enterprises as Vietnam also opens its market to textile products, garments, raw plastic materials, electronic components, trucks and cars with capacity of 3,000 cubic centimetres or more, auto parts, and electric appliances?

A: We have to look at both sides of the issue when importing industrial parts from the RoK, especially in manufacturing and electronics.

The positive side is that it will help increase the production of completed products in Vietnam as currently we are not able to produce several types of components. However, these products will lower the competitiveness of similar products produced by Vietnam, not to mention the development of these products for export.

Vietnamese enterprises must find solutions to improve quality and reduce production costs, while also improving labour productivity and gradually participating in global value chains.

I think that we have learned many lessons about integration from joining the World Trade Organisation, signing FTAs with ASEAN countries, and FTAs between ASEAN with China, the RoK, India, Japan, and New Zealand.

So, if we take advantage of this opportunity to turn challenges into opportunities by initially accepting import parts, in the long run we will ensure the supply of goods for domestic use and export.

Q: As a State management agency, what support mechanisms does the Ministry of Industry and Trade offer businesses to take advantage of the agreement?

A: The ministry has determined that the first step is to have appropriate policies in place to support the development of auxiliary industry and stronger mechanisms to encourage enterprises’ development.

A favourable legal framework for the development of the industry sector is needed in the shortest time possible.

Q: Although two-way trade turnover between Vietnam and the RoK reached 30 billion USD at the end of 2014, is it feasible to achieve the goal of bringing the total two-way trade turnover to 70 billion USD by 2020 with Vietnam’s current trade deficit? Could the agreement help balance bilateral trade?

A: Currently, in trade relations with the RoK, Vietnam has a trade deficit and this could continue for the next few years. However, under the newly-signed agreement, many of the Vietnamese products currently exported to the RoK in very low volumes will see a spike in the coming period such as agricultural products, textiles and footwear.

In the next few years, as domestic production capacity increases and reaches a higher quality, I believe that the growth of exports from Vietnam to the RoK will increase.

Vietnam will still import machinery, equipment, components and accessories from the RoK even after the agreement takes effect. Imports could rise but will not increase at the same level of exports.

This means that the gap between imports and exports between Vietnam and the RoK will shrink. I believe that the goal of 70 billion USD in two-way trade turnover by 2020 will be fulfilled. The difference in the trade balance will remain, but certainly not as big as today.-VNA