Exports to RoK enjoy AKFTA preferences
October 04, 2011, 11:33
The Republic of Korea (RoK) is the second largest trade partner (behind China) with which ASEAN (Association of South East Asian Nations) has signed a free trade agreement (FTA). The negotiation process began in 2004 when the leaders of ASEAN and the RoK signed a joint statement on comprehensive economic cooperation between the two sides, affirming their wish to establish the ASEAN-Korea Free Trade Area (AKFTA) covering the fields of trade in goods, trade in services, and investment. In 2005, ASEAN and the RoK signed a framework agreement on comprehensive economic cooperation. After that the two sides signed agreements in specific fields to create the legal foundation for AKFTA to be formed. It can be said that AKFTA has benefited and is benefiting Vietnamese companies.Many agreements signed On August 24, 2006, ASEAN and the RoK signed the ASEAN-Korea Trade in Goods Agreement (AKTIG) specifying the preferences that apply to trade in goods between 10 ASEAN member countries and the RoK and the commitment to reduce/eliminate all tax lines within a specified period of time. Starting January 1, 2010, the RoK and ASEAN-5 (Brunei, Indonesia, Malaysia, the Philippines and Singapore) have eliminated the taxes applying to nearly 90 percent of products under the Normal Track. New ASEAN members, including Vietnam, Cambodia, Laos and Myanmar, will have more time to reduce and eliminate taxes. At least 50 percent of the tax lines applying to Vietnam's products under the Normal Track will be reduced to the rate of 0-5 percent before January 1, 2013. For Cambodia, Laos and Myanmar, the deadline is January 1, 2015. By 2016, Vietnam will have to reduce 90 percent of tax lines to the rate of 0-5 percent so that by 2017, all tax lines will be eliminated. For Cambodia, Laos and Myanmar, the respective deadlines are 2018 and 2020. Thailand joined the AKTIG later, in 2007. Therefore, the tax rates applying to Thai products under the Normal Track will be reduced on a periodical basis and eliminated fully in 2016 or 2017.
Since the AKTIG was signed and came into effect, the trade relations between ASEAN and the RoK have developed rapidly. In 2009, the RoK was the fifth largest trade partner of ASEAN with the total trade value amounting to US$74.7 billion. Foreign direct investment from the RoK into ASEAN was US$1.4 billion.
The ASEAN-Korea Trade in Services Agreement (AKTIS) was signed on November 21, 2007, paving the way for service providers of the RoK and ASEAN to enter each other's market. The AKTIS was made based on the commitments in the General Agreement on Trade in Services (GATS), covering new sectors/sub-sectors such as
business, construction, education, telecommunication services, environment, tourism services and transportation services.
The ASEAN-Korea Agreement on Investment (AK-AI) was signed on June 2, 2009 to create a more transparent, favorable and stable business environment for investors from ASEAN and the RoK. Major components of the AK-AI are the protection elements which include provisions on fair and equitable treatment and full protection and security of covered investments; transfers of funds relating to covered investments; and compensation in the event of nationalization or expropriation of covered investments. The AK-AI took effect on September 1, 2009. However, work on the AK-AI continues as ASEAN and the RoK pursue the completion of built-in- agenda items which include the development of market access commitments or schedules of reservations. ASEAN and the RoK will commence and conclude discussions on these agenda items within five years from entry into force of the agreement.
AKFTA's impacts on Vietnam-RoK trade
The RoK currently ranks fourth among the ten most important trade partners of Vietnam, after China, the US and Japan. It is the fifth largest export market of Vietnam and the second largest importer of Vietnamese products.
In the past 10 years (2001-2010), bilateral trade between Vietnam and the RoK grew more than 23 percent annually. In 2009, despite the adverse impacts of the global financial crisis, trade between the two countries increased 2.1 percent compared with 2008. Notably, in 2009, Vietnam's exports to the RoK exceeded US$2 billion, up 15.7 percent compared with 2008. In 2010, bilateral trade totaled more than US$12.85 billion, up 42.2 percent compared with 2009. That included US$3.1 billion worth of Vietnam's exports to the RoK, up 49.8 percent, and US$9.75 billion worth of RoK's exports to Vietnam, up nearly 40 percent compared with 2009. The main kinds of Vietnam's exports to the RoK include crude oil, textiles and garments, seafood, coal, wood and wood products. Though Vietnam imports more from the RoK than exporting to this country, Vietnam imports from the RoK mostly materials and fuels which are really necessary for domestic production, for example steel and iron which account for 12.3 percent of all imports from the RoK, fabric (11.7 percent), machinery and equipment (11.2 percent), computers and electronic products (8.6 percent).
Generally looking, the AKFTA has considerably benefited ASEAN economies, including Vietnam. Notably, Vietnamese companies can make use of the tariff quotas applying to seafood - the top export product of Vietnam to the RoK. The RoK has been committed to applying the following tariff quotas to imports from ASEAN: (i) Frozen shrimp 5,000 tonnes zero percent; (ii) fresh shrimp 300 tonnes zero percent; (iii) squid 2,000 tonnes zero percent; (iv) boiled shrimp 2,000 tonnes zero percent; (iiv) cassava 25,000 tonnes 20 percent; (iiiv) cassava starch 9,600 tonnes nine percent. The RoK also applies low tax rates to products which are Vietnam's advantages, for example textiles and garments, leather and footwear, and processed products.
The RoK has accepted to put the mutual recognition agreements on SPS (Sanitary and Phytosanitary) measures into an Appendix of the ASEAN-Korea Framework Agreement on Comprehensive Economic Cooperation, to put the articles on technical barriers on trade (TBT) and SPS into the AKTIG; and to establish a workgroup on TBT and SPS to deal with the problem that arise during the implementation process.
The AKFTA has had positive impacts on the trade relations between ASEAN and the RoK. It can be said that this FTA is most beneficial to Vietnamese companies. In 2007- the first year of AKTIG implementation, Vietnamese companies benefited from 58.6 percent of preferences offered by the AKFTA in terms of the origin of products (this percentage was 66.5 percent in 2008 and 64.6 percent in 2009). This means most kinds of Vietnam's exports to the RoK have benefited from AKFTA's preferences (production materials almost 100 percent; processed minerals more than 95 percent; leather products more than 70 percent; textiles and garments 88 percent). On the contrary, the RoK's exports to Vietnam have not benefited much from AKFTA's preferences (only three percent). So it can be concluded that the AKFTA does not increase the deficit in Vietnam's trade with the RoK.