Vietnam - Vietnam’s trade deficit with RoK widens

Vietnam’s trade deficit with the Republic of Korea (RoK) is rising sharply.

In October 2009, Vietnam and RoK inked a strategic partnership treaty which targets that by 2015, bilateral trade will be raised to US$20 billion a year.

The deal also states that the two sides will step by step achieve a trade balance.

Since then, Vietnamese-Korean trade has accelerated, reaching $17.7 billion last year.

This development indicates that the two sides will reach the set target soon. However, a closer look at Vietnam’s imports and exports with RoK shows that Vietnam will have to work hard to solve enormous problems in order to strike a trade balance.

In 2011, Vietnam’s total trade deficit was $10.16 billion. The trade gap with RoK amounted to $8.46 billion, or 83.2 percent of this amount.

RoK has become Vietnam’s 2nd largest trading partner in terms of trade deficit after only China. Vietnam’s trade deficit with China and RoK reached US$21.9 billion last year, and this was partly offset by trade surplus Vietnam enjoyed with other markets.

With RoK, Vietnam exports mainly crude oil, coal, coffee, seafood and rubber, all of which are raw materials. Other so-called “manufactured goods,” namely wood products, garments and footwear, are in fact subcontracted merchandise with little added value.

RoK exports to Vietnam genuine “manufactured” goods such as computers, electronics, components, automobiles, equipment, steel, plastic materials, fabrics, and footwear accessories.

In Vietnam, RoK’s products have gained the same footing as Chinese products. Though they are still being outnumbered by Chinese products, Korean goods are considered to have better design and quality.

Vietnamese consumers are familiar with Korean goods which range from Korean ginseng to multifunctional household appliances and easy-to-handle equipment.

To date, Korean bed ware, including pillows, blankets, bed cloth and bed foams, has penetrated even Vietnam’s rural areas. Korean fashion and cosmetics are ubiquitous in Vietnam’s cities and urban centers.

Korean entrepreneurs have also arrived in Vietnam to trade in consumer goods. The Korea International Trade Association has opened an office in HCMC.

Vietnam’s soaring trade gap with RoK in the past 2 years has also stemmed from the “double-edged sword” of the ASEAN-Korea Free Trade Agreement (AKFTA) which took effect on September 1, 2009.

Taking advantage of this treaty, Korea importers have come to Vietnam-based manufacturers to select local goods to ship them to their global supply chains.

However, as Vietnam offers only raw materials, Vietnamese export revenue of this sector to ROK was less than US$100 million despite incentives applicable for one year following the AKFTA.

Some biggest Korean players have been present in Vietnam and have built luxury hotels and set up agent networks, even in the most remote districts. Certain Korean exports to Vietnam have surpassed the US$1-billion mark.

Meanwhile, Vietnam’s trade deficit with RoK has been increasing, accounting for 34 percent of its total trade gap in 2008, 37 percent in 2009, 50 percent in 2010, and 83 percent, as mentioned earlier in this article, in 2011.

TUOITRENEWS

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