II. Review of Related Literature
Facilitated commerce Agreements (FTAs) have turned out to be more and more prevalent since the middle 1990s as a strong instrument to encourage exchange. In the year of 2016 the combined variety of physical FTAs in compel was more than 200. In order to promote global exchange, some of the Vietnamese authorities have progressively developed the quantity of FTAs with its other trading partners. As of the start of year 2017, Vietnam has been marked eleven FTAs. Six out of eleven FTAs were countersigned as an individual from ASEAN Free Trade Area (AFTA). International trade plays a very crucial 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 each country in the entire world had enough or had more than enough resources to meets its people’s need and wants. Buying and selling of goods, products and services affects the world economy. It enables the countries to get some things that we can’t produce. In addition, international trade can even have an effect in the life of the individual because it has an important aspect in living up to one’s standards and providing employment. The agreement covers change in service like finance and telecommunication, exchange in goods like removal of tax and tax reduction, investment and many more. The reduction of trade barriers and also the creation of a more stable, straightforward and transparent trading and investment environment make it easier and less expensive for companies to send out their products and services to trading partner markets.
Some examples of Free trade agreements are ASEAN Free trade area, Pacific Alliance, Gulf Cooperation Council and many more. ASEAN was first formed in 1967. The ASEAN Free trade agreement came into force on January 1 1993, and in the year 2010 Malaysia with five other ASEAN member states is considered to ba complete free trade area which have eliminated their import duties.
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 its 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 investors and exports in the country. And according to an interview by the Vietnam News Agency, Vietnam will have a pioneering chance to promote and sell products such as garments, footwear, wooden furniture etc. to the Republic of Korea. The reason behind why both Korea and Vietnam agreed to sign into this agreement as to what the Deputy director of the Vietnamese Ministry of Industry and Trade said that it would be possible if both of the countries, Vietnam and Korea, had linkage to increase bilateral trade volume to $100 billion by 2020. He then suggested that governments should ought to support organizations and business in taking advantage of preferential commitments to attract investment. Probably the foremost immense result of Korea’s association in Vietnam is to be found within the economic area, and other totally different changes within the domestic and universal stance of present government. Vietnam and Korea plans to establish a clerical stage committee and under it are the sub-committees for food safety, trade defense and customs. When Vietnam-Korea free trade agreement began, it was first proclaimed on the August of 2012. Their first deliberation round took place on the October of 2012 and there were many deliberations that were passed before the actual Vietnam-Korea free trade agreement was declared on December 2014. In the past four years, in 2014, Korea is considered as the third trading partner of Vietnam after China and US. 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 the 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 presents 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 in other words, some 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. State agencies should make small adjustments on legal regulations that are in line with the global standards while enhancing the employees work capacity. Some related studies claims that the greatest challenge in the business sector is rising competition when Vietnam and Korea companies offer the consumers countless choices of products at extremely lower costs.