Promoting trade relations between vietnam and south of korea in the framework of the Vietnam - Korea free trade agreement (vkfta)

so foreign policy will often is parallel with economic policies. * Advantage of each country It can be seen that most of the countries participating in the international market are based on their advantages. As explained in international trade theories, most countries will increase their exports of goods that they have an advantage, and import goods that are not produced domestically or cannot yet be produced effectively. * Principles of international trade implementation On the basis of the principles of fairness, non-discrimination and mutual benefit, international trade relationships develop on many different levels. Bilateral and multilateral trade agreements are often based on the main principles such as: Most Favored Nation (MFN) principle, Nation Treatment Principle (NT). 2.2.2. Factors affecting trade relations between the two countries These factors both come from both sides, creating thrust and attraction, and forming factors, but also factors affecting the commercial relationship between the two countries. These factors include factors affecting trade in goods and trade in services between the two countries, in which the main factors include: (i) Economic development; (ii) Trade policy; (iii) International investment activities; (iv) Infrastructure; (v) Structure of products, goods and services; (vi) Exchange rate. 2.3. Overview of the Vietnam - Korea Free Trade Agreement (VKFTA) 2.3.1. Background Since establishing diplomatic relations in 1992, South Korea and Vietnam have developed outstanding cooperation in all fields such as politics, economy, culture - society. 2.3.2. VKFTA negotiation process of Vietnam and South Korea 9 In October 2009, Vietnam and South Korea agreed to set up a Joint Working Group to study the promotion possibilities and feasibility of the Vietnam-Korea Free Trade Agreement (VKFTA). In August 2012, the Minister of Industry and Trade of Vietnam and the Minister in charge of commerce of the Ministry of Foreign Affairs and Trade of Korea, jointly issued a statement to officially start the negotiation of the Vietnam-Korea Free Trade Agreement (VKFTA). In the session on November 30 meeting, the Korean National Assembly approved the Free Trade Agreement (FTA) with Vietnam. On December 20, 2015, the VKFTA officially came into effect, providing opportunities for new association for both Korean and Vietnam. 2.3.3. The main content in VKFTA 2.3.3.1. A summary of the content of the Vietnam - Korea Free Trade Agreement (VKFTA) The agreement consists of 17 Chapters (208 Articles), 15 Appendices and 01 Regulation Implementation Agreement. The main chapters are: - Trade in goods + General provisions (called a written commitments) and + Schedule of specific tariff commitments (called open market commitments) - Rules of origin – Facilitation of Customs benefits - Trade defense - Sanitary and Phytosanitary Measures (SPS) - Technical barriers to trade (TBT) - Trade in Services + General regulations ( called a written commitment) with the Appendices on Telecommunications Services, Financial Services, Movement of Natural Persons + Specific Service Opening Commitments (called market access commitments) - Investment - Intellectual Property - E-Commerce - Competition - Transparency - Economic Cooperation - Institution and legal issues. 2.3.3.2. Main contents related to Vietnam - Korea trade a) Trade in goods Trade in goods includes commitments on tariff and origin of goods. * Commitment on Tariff: Basically, commitment on tariff in VKFTA are based on tariff commitments in ASEAN- Korea FTA (AKFTA), but with a higher degree of liberalization. In other words, VKFTA will further cut some tariff lines that in AKFTA have not been cut or the extent of reduction is still limited. * Commitment on the rules of origin: In order to enjoy preferential tariff treatment in VKFTA, goods must meet the Agreement's rules of origin. In general, the Rules of Origin in VKFTA are tighter than AKFTA but still relatively simple. In general, in order to be eligible for preferential tariff treatment if it conforms to the origin requirements under any one of the following: (i) the prescribed Regional Value Content Ratio (RVC) (usually over 40%); (ii) Converting an HS code (2 digits, 4 digits or 6 digits); or (iii) Going through a single stage of production or processing (for textile products). b) Trade in services The Chapter on Services in VKFTA is divided into two parts: - Commitment in principle: including definitions, general provisions on obligations: National Treatment, Nation Treatment ..., and 03 Appendixes on Finance Service, Telecommunications and Movement of Natural persons. - Commitment to open the market: is 01 separate appendix including 02 schedule of specific commitments of Vietnam and Korea on each service sector. 2.4. Theoretical basis of the impact of VKFTA on Vietnam's trade in goods and services 2.4.1. Theoretical framework To analyze the impact of VKFTA on two-way trade between Vietnam and South Korea, the author bases on gravity theory in trade. To facilitate the analysis of the gravity model, the author uses the natural logarithmic method for both sides of the equation. The above model will be rewritten to: ln (Xij ) = ln GSi + ln Mj + ln φij The above formula measures the impact (in proportions) of factors on two-way trade between countries i and j. Therefore, taking the logarithm will allow a better assessment of the impact of factors on imports and exports between countries. The above formula is detailed into the model of factors affecting exports or imports of goods / services as follows: + Model of factors affecting export of goods: 10 ln Ex = a0 + a1* lnEXR + a2* lnFDI + a3*Infr + a4*CPI + a5*FTA + a7*HS + a8* GDPt + ui In which: Ex: exports goods from country i to country j (represents factor Xij) Factors representing the demand factor of the importing country (GSi) market to attract goods from abroad into the country, include: GDPt (average GDP of the importing country in year t), the difference between the exchange rates of the two EXR countries, the FDI (foreign direct investment), the difference in infrastructure between the two Infr, the difference in price indexes, represents comparative advantage on the production costs of products CPI, FTA (free trade agreements), HS (measures of commodity classification), ui: other variables. + Model of factors affecting import of goods: Similar to the export determinants model, the pattern of factors affecting imports can be shown as follows: ln Im = a0 + a1* lnEXR + a2* lnFDI + a3*Infr + a4*CPI + a5*FTA + a7*HS + a8* GDPt + ui + Model of factors affecting service import and export: Trade in services is often influenced by government commitments to open the services market. In addition, the enhancement of goods trade activities will also contribute to boosting the value of exports and imports of services. Factors in infrastructure and foreign direct investment will also create attraction to the service demand of countries. LnEXSt = a0 + a1* LnGIM + a2*LnEx + a3* FTA + a4* Lninfr + a5* Lnfdi + ui LniIMSt = a0 + a1* lnGIM + a2*LnEx + a3* FTA + a4* Lninfr + a5* Lnfdi + ui The above theoretical models will be applied to analyze the factors affecting the two-way trade in goods and services between Vietnam and South Korea in the context of the signing of the VKFTA and other multilateral agreements. 2.4.2. VKFTA's impact analysis model on Vietnam's trade in goods and services compared with South Korea 2.4.2.1. Impact assessment model In addition to the factors analyzed above, according to the NCS, the development of infrastructure, especially information technology infrastructure, will be a factor to promote production activities, helping Vietnamese products and services provide are more suitable to the needs of the Korean market. Therefore, the analysis model of the impact of VKFTA on the trade of Vietnam and South Korea is shown as follows: * The model affects Vietnam's merchandise exports to South Korea: lnEXVt = a0 + a1* lnEXRVKt + a2* lnFKt + a3*InfrVKt + a4*CPIVKt + a5*AKFTA + a6*VKFTA + a7*HS + a8*GDPKt + ui * The model affects Vietnam's imports of goods from South Korea: lnImVt = a0 + a1* lnEXRVKt + a2* lnFKt + a3*InfrVKt + a4*CPIVKt + a5*AKFTA + a6*VKFTA + a7*HS + a8*GDPVt + ui * The model affects the import and export of services from Vietnam to South Korea LnEXSVt = a0 + a1* LnGIMV + a2*LnExV + a3* AKFTA + a4* VKFTA + a5* Lninfrv + a6* Lnfk + ui LniIMSVt = a0 + a1* LnGIMV + a2*LnExV + a3* VKFTA + a4* AKFTA + a5* Lninfrv + a6* lnfk + ui 2.4.2.2. Data sources used in calculation: Due to the lack of data calculated by the same source, the author uses many different sources between 1991 and 2019 (for trade in goods), and in the period from year 2005 to 2018 for trade in services, in which: Import-export turnover is taken from KITA Korea data, other data is from World Bank (WB), FDI is from Foreign Investment Department, Ministry of Planning and Investment of Vietnam. The dummy variables AKFTA and VKFTA will receive the value 0 when the Agreement has not been signed, and 1 when the Agreement is signed and put into operation. In addition to the collected primary data, due to the relatively complicated issue of trade in services, to supplement the research results, the postgraduate used more information and data collected from experts in-depth interviews who are leaders of a number of businesses and experts from Kotra Hanoi and Universities. CHAPTER 3: ACTUAL SITUATION OF TRADE BETWEEN 11 VIETNAM AND SOUTH KOREA 3.1. Actual situation of trade in goods between Vietnam and South of Korea 3.1.1. General situation * Import and export of Vietnam Regarding Vietnam's trade in goods, after many years of import surplus, in the period from 2012 to 2019, Vietnam had a export surplus of between 7 billion and 16 billion USD. The value of export and import turnover of Vietnam tends to increase gradually, but from 2012, the export and import turnover was over 100 billion USD per year, in 3 years from 2017 to 2019, the export and import turnover reached over 200 billion USD. This shows that Vietnam has increasingly integrated into the world and regional economy. * Import and export of goods from Vietnam – South Korea Particularly for Korean partners, Vietnam often has an import surplus with an increasingly serious level. In the period before 2015, Vietnam's trade in goods to South Korea only had the import surplus of less than 20 billion USD, then after 2015 until now, the import surplus is getting bigger and bigger, at about 30 billion USD. This is also a challenging issue for Vietnam, because it is clear that after the VKFTA comes into effect, the value of goods imported from South Korea to Vietnam is always higher and higher than exports, causing pressure to Vietnam's trade balance and payment balance. However, in the situation of import and export of Vietnam and South Korea, we can still see bright spots. It was after 2015 when the VKFTA took effect, the rate of increase in export value showed signs of increasing faster than the growth rate of imports in recent years. Vietnam's export value to South Korea in 2019 increased by 2.1 times compared to 2015, while the value of imports from South Korea only increased by 1.7 times in 2019 compared to 2015. The balance of trade also had positive signs when reducing import surplus, although the import surplus in the balance of trade was still high. 3.1.2. Regarding structure of goods import and export between Vietnam and South Korea Regarding the structure of import and export goods, according to the updated KITA data, most of the goods in Chapter 85 have the largest import-export turnover in the trade relationship between Vietnam and South Korea. * Regarding the import structure: Most of the imported goods are in the group of electrical products, electronics, serving the processing and manufacturing of electronics of Korean FDI enterprises in Vietnam. These 10 commodity groups account for about 50% of Vietnam's import turnover from the Korean market. Import structure remained almost unchanged before and after 2015, mainly heavy industrial products and chemicals, raw materials for the garment industry. Thus, it can be seen that for many years, Vietnam is still largely dependent on imports from outside in industries requiring complex processing, high technology or raw materials for processing industries such as garment. * Regarding the export structure: According to KITA's statistics, the top 10 export items with the largest turnover from Vietnam to South Korea are still finished products of Korean FDI enterprises in Vietnam, and footwear and clothes. The structure of Vietnam's exports to South Korea in 1992 and 2015 saw a change from raw materials to items with higher processing content. By 2015, the proportion of raw and preliminary processed goods in the export structure of Vietnam to South Korea has decreased significantly, items with higher processing content such as electrical machines, optical instruments, and footwear. has become the main items in the export structure of Vietnam to South Korea. Vietnam's comparative advantage is not only natural resources, but largely relies on an abundant, low-cost workforce. 12 By 2019, after the impact of the VKFTA, Vietnam's export value has also increased. Looking at the data, it can be seen that products with high levels of technology and processing are dominating the share of Vietnam's exports to South Korea. But in deeper analysis, in fact, most of Vietnam's key export products are based on electronic processing products, footwear, originating from FDI enterprises, the value of Vietnam's domestic content is low. Therefore, the enhancement of production capacity and competitiveness of Vietnamese enterprises is always a top concern for the State. 3.2. Actual situation of trade in services between Vietnam and South Korea 3.2.1. General situation of trade in services of Vietnam and trade in services of Vietnam – South Korea 3.2.1.1. Trade in services of Vietnam According to World Bank (WB) statistics, the situation in the service market tends to be in the opposite direction of the commodity market. In the whole period 1996 - 2019, Vietnam continuously had import surplus, only in 2005, the balance of difference in trade in services with other countries in the world was only in balance. For all the remaining years, most of them have import surplus of services with more and more differences. The data analyzed by each form of service are as follows: Transport and tourism service structure is the two forms accounting for the largest proportion in the service import-export structure of Vietnam. While the form of service shifts in the direction of increasing export value compared to import value, transport service moves in the opposite direction. 3.2.1.2. Trade in services of Vietnam – South Korea Due to the limitation of data source, NCS can only collect data on trade in services between Vietnam and South Korea by year, not collect detailed data by type. Accordingly, service exports and imports between the two countries are at relatively equal levels. There are years that service exports even outperform imports. But in recent years, from 2016 to 2019, service exports fell sharply compared to imports. Regarding the form of service provision, although detailed data cannot be collected from 2013 to 2019, from the OECD (2012) data source, the two main import sectors are the construction and transportation (accounting for 45% and 38% respectively). In terms of export structure: The two areas that Vietnam has export surplus to the South Korean market are business services and tourism (49.6% and 30.68%). * Proportion of trade in services between Vietnam and South Korea in GDP Vietnam - South Korea trade in services only accounts for about 1% of Vietnam's GDP. This index is quite low and not commensurate with the real development potential in the cooperation between the two countries. The proportion growth has fluctuated in an increasing trend year by year, but the increase is very slow and usually fluctuates only 1% during the period from 1995 to 2019. The contributions of exports and imports to the value of GDP are relatively balanced, although over a few years the share of exports in GDP has been slightly higher than imports. However, this also reflects the Korean market which is more meaningful to Vietnam's exports than to imports. 3.2.2. Structure of Vietnam – South Korea trade in services follows the import-export mode In fact, the classification of the Vietnam – South Korea trade situation according to the import-export mode is also facing many difficulties, because the import-export values are often intertwined according to quite complicated import-export modes. In the framework of this thesis, the author also tried very hard to analyze the Vietnam – South Korea bilateral service trade in detail according to the import and export modes, but the error is inevitable due to the complexity of real business operations, as well as the lack of statistical data. * Mode 1 – Method of cross-border trade Insurance services and financial services are usually provided by mode 1 and mode 3. Money transfer services through banks of the two countries will be recognized in the import and export value of each country. These forms are mainly carried out under the method 1. 13 Computer services and information provided by mode 1 are mainly, especially for Vietnam's service export to South Korea, because Vietnam's overseas investment in this sector is almost insignificant. * Method 2 - Method of consumption outside the territory Travel and government services are relevant to this mode of delivery. Other services such as transport, construction, business, cultural and entertainment services are also provided mainly by mode 2 in the export structure of Vietnam. * Method 3 - Method of commercial presence Frequently applied to transportation services - warehouse, Korean businesses do not pay attention to invest in Vietnam, only about 2% of the total Korean direct investment in Vietnam. * Method 4: Method of presence of natural persons Since Vietnam and South Korea have not yet committed to this approach in most Vietnamese services, the value of Vietnam's service exports and imports is calculated only in terms of other personal, cultural and recreational services (usually calculated according to the value of labor export from Vietnam to South Korea). The results show that the value of Vietnam's services exports is mainly based on mode 2 local exports. Mode 1 also contributes about 16% to the overall value of Vietnam's services exports thanks to the increase in strengthening telecommunications, financial, insurance, and information services. Mode 3 also contributes a small part to the increase of export value through a small number of investment projects of Vietnamese enterprises to the South Korean market. For import activities, mode 3 takes the leading position because most services are imported into Vietnam through Korean direct investment projects in Vietnam with more than 62 billion USD, in more than 7,000 investment projects in Vietnam. The number of Vietnamese tourists as well as the number of Vietnamese workers working in Korea under labor export contracts are increasing over the years has resulted in an increase in the rate of service imports in Korea of Vietnamese citizens. This is the reason that method 2 also accounts for a large proportion in the structure of Vietnam's service imports from the Korean market. 3.2.3. Structure of import and export of Vietnam – South Korea services by type of service 3.2.3.1. Import structure: Before the signing of VKFTA, Vietnam mainly imported construction services and transportation (accounting for 45% and 38% respectively). The two forms of construction and transport services make up the majority of Vietnam's service import structure from South Korea. The data is from then to 2019, due to the change in data calculation by the OECD and the author himself has not been able to access the original OECD data set due to data on trade in services between Vietnam and Korea is currently “missing”. However, in the opinion of experts, the import of construction services and logistics still dominates. 3.2.3.2. Export structure: The two areas that Vietnam exports surplus to the Korean market are business services and tourism. 3.3. Assessment of Vietnam – South Korea trade relations: 3.3.1. Achieved result * Regarding trade in goods: The implementation of commitments in VKFTA has had a positive impact, making the value of Vietnam's exports to the Korean market significantly prospered. If in 1991, the value of Vietnam's merchandise exports to South Korea was only $ 41 million, then by 2018, the export value would reach $ 19.6 billion, up 477 times. The structure of import and export goods between Vietnam and South Korea is complementary, not directly competitive, so there are opportunities for two-way trade development cooperation. 14 Korea is Vietnam's third largest trading partner (after China and the European Union), is the fourth largest export market and the second largest import market of Vietnam, exchanging trade between the two countries increased rapidly after the Vietnam-Korea Free Trade Agreement took effect from the end of 2015. Vietnam is a very important partner of Korea in the ASEAN region, especially the scale of trade exchanges between Vietnam and South Korea accounts for more than 40% of the total trade exchange between Korea and ASEAN countries. Regarding commodity export structure, there is a shift from commodity groups with low processing content and added value such as agriculture, forestry, fisheries and light industry to goods with higher processing content such as mechanical products, electronics, telecommunications and heavy industries, high-end processed foods, fashion products, processed agricultural and aquatic products. At the same time, Vietnam's exported products have been gradually building their brands in the Korean market; including textiles and garments. Under the impact of the AKFTA and VKFTA, many items that were difficult to penetrate in the Korean market before, such as Vietnam's agricultural products (coconut, pineapple, dragon fruit, mango, banana ...) had the opportunity to access this demanding market. Export value of vegetables and fruits of Vietnam in the South Korean market reached 2.145 billion USD. * Regarding trade in services: Although detailed data on trade in services between the two countries is only available until 2012, but based on overall data, the trend of service import and export between the two countries tends to increase rapidly. In 1995, the total trade in services between the two countries reached 366 million USD, by 2018, the total value of two-way trade between Vietnam and South Korea reached 4109 million USD, 10 times compared with in 1995. This indicates an increase in trade in services between the two countries. Although the agreements and commitments on trade in services in the AKFTA and VKFTA have not had a clear impact on the value of service import and export between the two countries, they have also had a positive initial impact. According to the analysis above, the AKFTA has the effect of increasing the value of two-way exports and imports of services. This clearly shows that the opening up from state policies has also had a positive impact on the trade in services between the two countries. Firstly, Vietnam's service trade value has grown dramatically, enhancing the country's competitiveness. In 1995, the total value of trade in services of Vietnam and South Korea reached 366 million USD (in which, exports reached 198 million USD and imports reached 168 million USD). By 2018, the total value of trade in services of Vietnam reached $ 4 billion (in which exports reached $ 1.8 billion, imports reached $ 2.2 billion), more than 10 times the value of 1995. Secondly, it can promote the competitiveness of Vietnamese enterprises. The trend of increasing the value of Vietnam's service exports to South Korea in the fields of tourism services, telecommunications, finance, production and business also shows that Vietnam has gradually improved production and service delivery to m