II. Review of Related Literature
Free Trade Agreements (FTAs) have been progressively pervasive ever since the middle of the 1990s as a successful instrument to develop exchange. In 2016 studies show that the total number of physical Free trade agreements in constrain was more than a hundred and fifty. International trade plays a very vital role in the state basically because not any other state has everything that its people need and want. There would be a lesser need for trade if every country in the whole world had enough or more than enough resources to meets its people’s need and wants. Trade affects the world economy. It allows the countries to get some things that we can’t produce. In addition, international trade can also affect the life of the individual because it has an important aspect in living up to one’s standards and providing employment. The agreement covers trade in service like finance and telecommunication, exchange in goods like removal of tax and tax reduction, investment and many more.
Trade impacts of a FTA have widely been known and accepted amongst students to include static and dynamic results. Analysis of static impacts is frequently based totally in the concept of customs union and is influenced by way of Viner (1950), who furnished a conceptual framework for reading the change results of a FTA. Besides the static outcomes according to Viner, FTAs also result to dynamic effects that take a lot longer time to be apparent to the economy but has a tendency to continue on providing benefits even after the withdraw of a country from a Free Trade Agreement. It promotes cooperation within the country and within the areas of creating jobs and sustainable development. Helping in a way of creating opportunities for nations especially for developing countries, in harmonizing trade policies and reforming them. But in the other side of the book, joining the Free Trade Agreement there must some challenges that you should take into consideration. First, from a social welfare perspective a Free Trade Agreement is not considered as the first best choice due to its nature of discrimination and other countries that are not involved or included in the Free Trade Agreement. Second, it causes a diversion of trade thus it can reduce welfare which is absolutely not good for the country’s economic stability. Lastly, since participation is now more visible in the country then this can lead to a Spaghetti Bowl Effect, where the increasing number of Free Trade Agreements between countries slows down trade relations between them. It is therefore important that in order to have a more effective FTA to involve all parties that will be impacted by the said agreement before it comes into action.
A little background on Vietnam before we look on it’s present day status. According to the International Monetary Fund, Vietnam’s gross domestic product increased by more than 6 percent in the year 2013 and that the country was being supported by both the increase of foreign investorments and exports in the country. The Free trade agreement between Vietnam and Korea covers a huge variety of components which include goods and service Liberalization, measures on food hygiene and protection, investment, change protection, economic cooperation and legal matters. In the occurrence on the Vietnam-Korea Free trade agreement, both Korea and Vietnam, according to Nehru, 2015) is expected to have positive social effects by giving more opportunities for Vietnamese workers and help with Vietnam’s problem in poverty in rural areas. The VKFTA agreed to help Vietnam improve on their implementation capacity, formulating a policy and also help the country improve their competitiveness. This VKFTA promotes opportunities on investment and trade ; economic growth for both countries. Companies such as the Korea Trade investment Promotion agency, Korea Chamber of Commerce are expected to have a more vital and active role in Vietnam’s economic development in the future that will somehow act as an agitator for an increase in Korean investment.
Seafood is one of the major products that Vietnam ships to Korea, specifically shrimp. And according to the said agreement this import can have a zero tax rate when it is shipped to the North Asian Market. According to Petri and Plummer on their in 2014 about Vietnam and Korea’s free trade agreement, Vietnam is the first partner of Korea under the free trade agreement with which its important export categories like fish, pivotal aqua-products of shrimp, industrial products of garment etc are offered new opportunity by the Korean government if they will reduce and eliminate tax. Korea adds that they commit to grant market place access in service and investment and agreed to foster economic cooperation and technical support on some diversified sectors. They also open their market place for products such as honey, garlic, ginger, giving vast opportunities for Vietnam in competition with different exporters from the region.
Many countries have agreed to include themselves in to Free Trade Agreements with its continuous expansion in both Asia and some parts of the Pacific Region. South Korea companies like Samsung and, gave a big amount of investment intro Vietnam and currently Samsung is now Vietnam’s largest exporter and has really helped the country attain a trade plethora for the very first time in many years. The VKFTA is expected to bring about many positive benefits to Vietnam. Korea has always been one of Vietnam’s best trading partners based on 1992 while Vietnam was considered to be Korea’s fourth-largest export in 2015. Korea was able to maintain its position as one of Vietnam’s best 5 trading partners for the past 15 years. Vietnam as considered to be Korea’s largest exports market for the goods of the industry. As an effort to develop this strategic partnership that was established between Korea and Vietnam, the trade ministers of Korea and Vietnam involved themselves and their countries to a free trade agreement. This Vietnam-Korea free trade agreement (VKFTA) was signed on the 20th of December 2015 and they aim to increase their bilateral trade between both the countries to US$70 billion by the year 2020 and also to attract Korean investors on their management expertise and technology. Joining this Free Trade Agreement has helped Vietnam improve the country’s trade efficiency since according to the Foreign Investment Agency under the Ministry of Planning and Investment, South Korea is Vietnam’s largest investor with over $35 billion in more than 4,200 projects and also one of Vietnam’s main export partners with 5.3% of $6.4 million of exports in the first few months of 2015. Under the VKFTA, both of the country’s companies will benefit from reduced taxes which means that it will improve their economy by increasing sales (more buyers will be enticed to spend their money). However, since imported goods are now more saleable people would be more willing to buy imported goods than local goods which will also affect the local manufacturers. Some Vietnamese Companies view the Republic of Korea as an established marketplace. Then comes th Vietnam-Korea Free trade agreement that will likely assist the company increase its exports by using lower tax rates and also by securing more partners.
Prime Minister Dung and President Park said that the Vietnam-Korea Free trade agreement does not only focus on improving the economy but also to deepen the relationship of the two countries’ participation on security and defense problems.
Other than all the positive effects of the Vietnam-Korea Free trade agreement to the country of Vietnam, it also present numerous challenges. Companies may need to reform in order for them to enhance their strategy skills and also to involve themselves in both regional and international production networks. Also, one of the many challenges that may be encountered is because of having lower tax rates this will put more competitive pressure on Vietnamese enterprises or manufacturers in their economy. Local authorities, as said earlier, must be aware of the country’s consolidation process and the implication of the Vietnam Korea free trade agreement to be able to utilize the advantages and avoid or somehow minimize the negative effects of the said trade agreement.