Korean Textile and Fashion Firms in Vietnam Stand to Benefit
The exports of Korean companies based in Vietnam to the European Union are expected to benefit from EVFTA, the free trade agreement (FTA) between the European Union and Vietnam, which went into effect on Aug. 1.
In a recent report on the EU-Vietnam FTA, the Institute for International Trade, which is affiliated with the Korea International Trade Association (KITA), anticipated that Vietnam would take on a greater role and status in the global value chain with the effectuation of EVFTA, following the entry into force of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in January 2019.
The report stated, “A high level of market opening is expected as the EU and Vietnam agreed to eliminate around 99 percent to 100 percent of tariffs based on import bill within seven years and 10 years, respectively,” and added, “As Vietnam's institutional reform, mitigation of non-tariff barriers, protection of intellectual property rights, and strengthening of labor rights and environmental protection obligations are included in the agreement, it will play a major role in advancing Vietnam's economy as well as expanding overseas investment.”
In particular, Korean textile and fashion firms based in Vietnam are expected to benefit from this free trade agreement. Under the agreement, Korean clothes manufactures based in Vietnam exporting to the EU can enjoy a preferential duty for goods made with Korean materials that satisfy the Korea-EU FTA pact as they are considered as Vietnamese products. In contrast, clothes produced with Chinese materials cannot enjoy the benefits of the Vietnam-EU trade deal, as China does not have an agreement with the EU.
Currently, the EU depends on China for 30 percent of its clothes imports, but it imposes tariffs of up to 12 percent. Therefore, it is likely to be replaced with Vietnamese clothes when the EU-Vietnam tariffs are removed. In addition, the EU-Vietnam agreement is expected to increase demand for high quality Korean materials. Since the tariffs for consumer goods such as Vietnamese shoes and bags are significantly lowered, Korean producers based in Vietnam are expected to expand exports to the EU.
Kim Jung-kyun, a senior KITA researcher, said, “Vietnam has been making aggressive moves to open up its markets. It currently holds free trade agreements with 52 countries and has emerged as the trade hub of ASEAN region,” and added, “Korean companies based in Vietnam need to actively utilize the FTA networks that are built by Vietnam and set up the mid-to long-term strategies for expanding trade and investment in Vietnam and restructuring the supply chain in the mid-to long-term.”