South Korean president visits Vietnam as bilateral trade slumps

VISITING South Korea President Yoon Suk-yeol is set to hold talks with Vietnam’s leaders on Friday (Jun 23), meeting at a pivotal time in their relations as bilateral trade falls and Hanoi plans tax hikes for top Korean manufacturers.

The two countries over the last few decades have developed almost symbiotic industrial ties, with South Korea the largest foreign investor in Vietnam, where multiple Korean companies have manufacturing hubs, including LG Electronics and conglomerate SK Group.

Samsung Electronics has poured around US$20 billion into its manufacturing facilities in Vietnam, where it makes half of its smartphone output, and it alone accounts for nearly a fifth of Vietnam’s overall exports.

Many of the components used in assembly by those manufacturers in Vietnam come from South Korea itself, demonstrated by the consistently big trade surplus that Seoul has with Hanoi.

Last year, that exceeded US$34 billion, the largest for South Korea among its trading partners, according to its customs data.

But the slowing global economy is putting this close relationship to the test, as falling orders for electronic goods force South Korean firms to reduce their Vietnam workforce, multiple industry and business sources say.

Bilateral trade has fallen by a quarter so far this year compared to the first five months of 2022, driven down largely by a nearly 30 per cent drop in Vietnamese imports of South Korean products – notably intermediate electronic goods assembled in Vietnam before being re-exported as smartphones or televisions.

To further complicate matters, Hanoi is set to introduce from next year a new levy on large corporations, including big Korean multinationals, as part of a global reform of tax rules that could reduce Vietnam’s appeal as a manufacturing hub.

Talks about possible compensation are underway.

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To try to address those issues, Yoon, on his first visit to Vietnam as president, is accompanied by a 205-strong business delegation, his office said.

In an interview with the Vietnam News Agency before his three-day visit, which started on Thursday, Yoon said he hoped to strengthen security cooperation. South Korea is one of many countries discussing possible arms sales to Vietnam as it seeks to modernise its arsenal.

The two countries are also expected to agree on new investments in research.

Yoon also singled out energy as a key sector. South Korean firms are among the main investors in Vietnam’s nascent Liquefied Natural Gas (LNG) industry, which is expected to boost the country’s electricity output and battle shortages that saw power cuts in northern provinces where South Korean manufacturers operate. REUTERS