Do not panic about trade deficit from South Korea

It was stated by Mr. Le An Hai, Deputy Director of Asia-Pacific Market Department, Ministry of Industry and Trade in an interview with Customs Newspaper on Vietnam-South Korea bilateral trade.

Trade relations between Vietnam and South Korea in the past years have faced an increasing trade deficit. Is this the concern, Sir?

In 2016, the total bilateral trade turnover of Vietnam - South Korea was US$ 43.4 billion, of which export turnover reached US$ 11.4 billion, import turnover reached US$ 32 billion. Thus, Vietnam’s trade deficit with South Korea was US$ 20.6 billion in 2016. If this figure was consumer goods imports, it would be very dangerous. But in fact, the consumer goods imports from South Korea only accounted for 4% of total import turnover. The trade deficit was mainly in FDI enterprises such as: Samsung, LG and etc. Samsung expanded product line in Bac Ninh and opened more factories in Thai Nguyen province. All of the import growth from South Korea was component imports for Samsung’s factories to manufacture mobiles phones. All these products were then exported. Especially, in 2016, Samsung globally exported over US$ 40 billion, accounting for 30% of the total export turnover of Vietnam.

Besides imports of components for FDI enterprises, imports from Korea also accounted for a large proportion due to imports of machinery and technology for small and medium-sized enterprises to innovate technology and improve the competitiveness of Vietnam’s goods. Along with Japan, the United States, the EU, South Korea is one of the countries which have high technology level. Therefore, Korea's investment in Vietnam will help Vietnam to change its economic structure. With such a high technology level, Vietnam will improve its competitiveness in other markets. Thus, it can be seen that imports from Korea are helpful.

With the VKFTA which took effect from the end of 2015, whether the trade deficit from South Korea continues to increase in the coming time or not?

We should admit the fact that if South Korea does not suddenly invest in Vietnam, the trade deficit will immediately reduce. The Korea’s investment trend will continue increase in the coming time. Especially, when negotiating VKFTA, Vietnam set 2 goals: Firstly, strengthening export markets, especially agricultural, forestry and fishery products; Secondly, attracting investment and importing technology and machinery from South Korea.

On that basis, in the long term, trade deficit from South Korea will help trade balance. In particular, large South Korean corporations seek for Vietnamese suppliers. Currently, the Ministry of Industry and Trade and the Ministry of Planning and Investment have collaborated with Samsung to establish a network of satellite companies that supply components and products supporting Samsung's manufacture. This requires strong investment from Vietnamese enterprises and the imports of machinery and technology from South Korea will well support this.

In addition, the value of Vietnam’s agricultural product exports to South Korea is still low. This is due to exports of Vietnam’s agricultural products which are only preliminary processed and are not processed into high-value foods. The import of technology and production process will help enterprises to produce products that meet quality and standards of South Korea. Therefore, export turnover to South Korea will increase.

Could you give advice for manufacturing enterprises of agricultural, forestry and fishery products and foods in accessing to the South Korean market?

South Korea sets strict standards to control imported consumer goods. Therefore, in order to export goods into Korea, Vietnamese enterprises must meet its standards. To do this, Vietnamese enterprises need to collaborate in planning a long-term strategy for agricultural exports. Accordingly, it is necessary to develop a standard set and determine the brand value for Vietnam's agricultural products. Besides, Vietnamese enterprises need to determine their capacity and potential and study demands and tastes of South Korean consumers and market capacity to have appropriate investment and production plans.

Thank you, Sir!

By Khai Ky/Ngoc Loan- Customs News