Vietnam-South Korea relations expand to offer further business opportunities

At the beginning of July 2024, Vietnam made its first high-level visit to S Korea since the relationship was elevated. During the visit, Prime Minister Han Duck-Soo stated that Vietnam is a key partner in implementing foreign policies in the region, including the Indo-Pacific Strategy and the Korea-ASEAN Solidarity Initiative.

The future also looks bright, with commitments and foundations laid for strategic economic collaboration between Vietnam and South Korea.

The Vietnamese government has encouraged South Korean companies to invest further, particularly in advanced technology, electronics, semiconductors, AI, renewable energy, and human resource development. Notable South Korean investments include those from Samsung, Hyundai Motor, Lotte Group, and Hyosung Corporation. These investments reflect the growing economic integration and collaborative opportunities between Vietnam and South Korea.

Samsung: An investment of $22.4 billion and employing around 90,000 people in Vietnam. Additionally, 310 Vietnamese firms are part of Samsung’s supply chain, and its R&D centre in Hanoi employs about 2,500 staff.

Hyundai Motor: An investment of over $410 million in green transportation and local supplier integration, aiming to support Vietnam’s domestic industries and technological progress.

Lotte Group participate in Vietnam’s smart city and sustainable tourism initiatives, emphasising opportunities in urban sustainability and tourism sector growth.

Hyosung Corporation plans to expand its presence with a new data centre in Ho Chi Minh City.

Looking back, on December 22, 1992, South Korea and Vietnam established diplomatic relations with a joint statement. For Hanoi, its economic interests and foreign policy of “diversification and multilateralisation” were pivotal in fostering closer ties with Seoul.

In 2002, the two countries upgraded their relationship to a comprehensive partnership for the 21st century, which was further elevated to a “strategic cooperative partnership” in 2009. Most recently, in December 2022, they announced the formation of a comprehensive strategic partnership.

The current bond between Vietnam and S Korea is built on a foundation of mutual trust, growing people-to-people connections, and strong economic collaboration. Major Korean conglomerates such as Samsung, SK, LG, Lotte, and Hyundai have significantly expanded their operations in Vietnam, deepening economic ties.

As of March 2024, Samsung's investment in Vietnam totalled $22.4 billion. The trend of South Korean companies moving their manufacturing to Vietnam has accelerated recently, driven by the need to diversify supply chains amid global disruptions. Vietnam’s stable economic environment and favourable foreign direct investment policies make it an attractive destination for S Korean investors, while supporting Industrial Revolution 4.0.

This growing economic relationship is also supported by South Korea’s New Southern Policy (NSP), which aims to enhance ties with ASEAN member states and India to match the level of relationships South Korea maintains with the United States, China, Japan, and Russia. In ASEAN, Vietnam is considered a central focus of the NSP.

South Korea is Vietnam’s third-largest trade partner and second-largest import market, underscoring the importance of their economic ties. One prime example of this is the Vietnam-Korea Free Trade Agreement (VKFTA), that took effect on December 20, 2015, with the aim to promote trade, services, and investment without replacing the ASEAN-Korea FTA (AKFTA).

The VKFTA establishes precise rules for origin of goods, including regulations for special goods and certificate of origin exemptions for lower-value imports. Additionally, the VKFTA commitments include National Treatment (NT) and Most Favored Nation (MFN) treatment in trade services, with additional sector openings compared to WTO and AKFTA commitments. Investment protections under the VKFTA also include NT and MFN treatments, along with mechanisms for dispute resolution through administrative courts and arbitration.

Besides that, the Double Taxation Avoidance Agreement (DTA) between the nations, which came into force on September 11, 1994, has also contributed to facilitating economic cooperation with the primary objective of providing clear guidance on tax and preventing double taxation. The DTA helps shape a safer and better tax environment between the countries, promoting cross-border trade and investment, and enhancing economic ties.

In recent decades, the bilateral relationship between Vietnam and South Korea has made remarkable progress, with total trade between the two countries growing from $2 billion in 2010 to an impressive $86.5 billion in 2022. Both nations are also committed to further enhancing bilateral trade, aiming for a target of $150 billion by 2030.

Comparatively, in May 2024, South Korea’s exports to Vietnam surged significantly in contrast to May 2023. According to data from The Observatory of Economic Complexity, exports increased by $846 million (19.8 per cent), rising from $4.28 billion to $5.12 billion, while imports from Vietnam also grew by an additional $118 million (6.13 per cent), reaching $2.04 billion.

This upward trend reflects the forward-looking ties between the two nations. Furthermore, in the fifth month of this year, South Korea’s exports to Vietnam saw a significant boost, driven by increased shipments of mineral fuels, mineral oils, and related products, as well as perfumery, cosmetics, and fertilisers.

Meanwhile, South Korea’s imports from Vietnam grew due to higher imports of non-knitted clothing accessories, machinery, mechanical appliances, and footwear.

In the first half of 2024, trade turnover between Vietnam and South Korea reached $38.4 billion, marking a substantial increase from the previous year.

Over the past decade, South Korean investments in Vietnam have played a crucial role in the development of the country’s economy, ranking among Vietnam’s top foreign investors. In 2023, there were approximately 500 projects from South Korean investors with a total value of over $5 billion.

In addition, over the last six months of 2024, Vietnam received $1.4 billion from South Korean investors. This marks an increase of 16 per cent compared to 2023, making South Korea the fourth largest foreign investor in Vietnam.

Processing and the manufacturing industry account for more than 70 per cent of South Korea's total investments in Vietnam. Besides that, the real estate sector is also receiving attention from South Korea, with investment accounting for over 12 per cent. The remaining sectors of interest for South Korea are construction, energy, accommodation, and food services, accounting for about 3 per cent.

Based on the 30-year journey of companionship between the two countries since the establishment of diplomatic relations, the Vietnam-South Korea Economic Cooperation Forum opened up opportunities for leaders and businesses of the two sides to discuss cooperation in the coming years.

ODA cooperation and investing in energy and infrastructure in Vietnam are set to be boosted, based on the second deputy prime minister's dialogue on economic cooperation between Vietnam and South Korea.

More than 100 MoUs were signed by South Korean and Vietnamese businesses at the Vietnam-South Korea Business Forum on June 23.

Policymakers, organisations, and businesses from Vietnam and South Korea gathered at the third Vietnam-South Korea Digital Forum in Hanoi on November 6-7 to discuss cooperation opportunities regarding the digital transformation, digital technology, and human resource training.

The third Vietnam-South Korea Digital Forum – DX Forum 2023 – was organised by South Korea's National IT Industry Promotion Agency and the Vietnam Software and IT Services Association in Hanoi on November 6-7.