TABLE OF CONTENTS INTRODUCTION………………………………………………………………………………………………. 3 CHAPTER 1: THEORETICAL FOUNDATION 4 Trade definition and the role, purpose of trade 4 Trade definition 4 1. Role and purpose of trade 5 I. Free trade agreement and analysis on aspects of free trade agreement 6 Free trade agreement 7 1. Legal aspect of Free Trade Agreement 7 2. Economic aspects of Free Trade Agreement 8 CHAPTER 2: VIETNAM – KOREA FREE TRADE AGREEMENT (VKFTA): OPPORTUNITIES AND CHALLENGES 9 I. Local and global trend of FTA 9 1. Formation and development 9 2. The current global trend of FTA 10 3. Participation of Vietnam in FTAs 11 II, Vietnam Korea Free Trade Agreement 11 1. . Overview of the Vietnam Korea Free Trade Agreement (VKFTA) 11 2. Vietnams opportunity when signing the Vietnam Korea Free Trade Agreement (VKFTA) 13 3, The challenges for Vietnam when signing the VietnamKorea Free Trade Agreement (VKFTA) 19 a, The increases of trade deficit 19 b, The institutions and legal system 20 c, Technology and quality of human resources 21 4, The solutions for Vietnam when implementing the VietnamKorea Free Trade Agreement (VKFTA) 21 CONCLUSION 23 REFERENCES 24 2 INTRODUCTION The Korea Vietnam relation is established as the official diplomatic relation between the Socialist Republic of Vietnam and the Republic of Korea. The two countries are different in terms of geography, political institutions and ideology but there are many similarities in humanity, history and culture. The relationship between Vietnam and South Korea is a new type called old enemies and new friends and close the past. The date of establishing Vietnams diplomatic relation with South Korea is December 22, 1992 it has also started to a strategic partnership since 2009. Trade between the two nations is expanding rapidly, affecting both sides economic and social growth in a variety of ways. The two countries are on a path of stable and sustainable development, with numerous good signs over the years. The potentials and strengths of the two countries have been promoted wisely and efficiently in the past, resulting in several favorable outcomes.However, in addition to the positive aspects listed above, there are several problems and significant roadblocks in the way of the growth of commercial relations between the two countries. As a result, the group decided to go more into the subject, highlighting the issues that Vietnam has faced in recent years in terms of political economy. Then, in todays challenging economic and political situation, draw lessons from experience and development potential for Vietnam. The essay is divided into two sections: Theoretical foundation Free Trade Agreement between Vietnam and Korea (VKFTA) In this report, we want to send our deep thank to Mrs Nguyen Binh Duong for her considerate instruction in the course. Due to the nature of the work and the time constraints, the report cannot avoid many shortcomings. We look forward to receiving your comments and feedback to draw more experiences and lessons for research projects in the future. 3 CHAPTER 1: THEORETICAL FOUNDATION I.Trade definition and the role, purpose of trade 1.Trade definition Trade or exchange are terms that refers to the direct or indirect exchange of goods between individuals or groups of people through items like money. Trade benefits include increased consumption capacity and increased labor productivity through specialization. People are obliged to use their own resources to meet all needs if trading does not exist. Everyone can engage in the mutually advantageous division of labor under the voluntary trading system. A market is a method for commerce to function, a location where ownership of a product, service, or money is exchanged in order to meet the demands of both supply and demand for a certain type of product using best practices. Market allows a precise determination of the required quantity as well as the cost of the product or service. Trade exists for many reasons. Its underlying cause is specialization and division of labor, in which certain groups of people focus solely on production to provide goods or services of a particular sector for production purposes. in exchange for goods or services of other groups of people. Trade also exists between regions because regional differences confer an absolute or comparative advantage in the production of commercially available goods or services, or because differences in size area (e.g. population) allows for an advantage in mass production. Thus, trading at market prices benefits both regions. 4 Export turnover is the total export value (the amount received) of all the exports of a country (or a business) during a given period (usually a quarter or a year), then synchronously converted to a certain type of monetary organization. . The higher the export turnover, the better the financial economy of the enterprise or the country is developing. In contrast, with low export turnover and high import turnover, the countrys financial economy is old, slow to innovate and develop. Import turnover, similar to exports, are the total value of goods or services imported into a business or country over a fixed period of time and denominated in a common currency. 2. Role and purpose of trade Trade helps to regulate production because in a commodity production, all products are exchanged on the market: Trade encourages production and development by bringing together disparate economic sectors and businesses. Consumer requirements are met. Trade ensures that businesses production and business processes run smoothly and continually. The development of trade helps to expand or promote the development of production of goods: Trade has a direct impact on the market position of businesses.. As trade develops, the role of commercial enterprises in regulating and guiding production is increasingly enhanced, and the relationships of commercial enterprises are increasingly expanded. Trading is a professional sector of activity in the circulation of goods that serves as a link between production and consumption. Trading is an important part of a companys business activities. Commercial business encourages the 5 application of scientific and technological discoveries and new technologies to production, increases demand, and assures that both producers and customers receive good, civilized, and modern goods. As a result, encouraging commercial activity is a critical issue for each company. Commerce promotion is one of the actions that contributes to the growth of trade. Trade promotes the process of industrialization modernization. Trade supplies the required means of manufacturing, allowing for a steady flow of production. To consume products on the market and operate as intermediaries to manage supply and demand, goods produced by industries and fields require a trading network. When goods are consumed quickly, the reproduction cycle is shortened and the reproduction rate is shortened. Therefore, trade opens the way to consume products for the manufacturing industry, promotes industrial development, and trade activities contribute to boosting production and accumulating capital for the cause of industrialization and modernization of our country in this period. Trade promotes the distribution of resources. Labor resources are generally plentiful and diversified in large cities, and labor demand is similarly quite high and diverse. These individuals have aided in the selection of vocations and the promotion of commodities circulation in the area. Trade is not only a link between production and consumption, but also an intermediary for distributing financial resources, circulating items on the market, and assisting in the creation and consumption of goods. 1. Free trade agreement and analysis on aspects of free trade agreement 6 1. Free trade agreement A trade agreement (trade pact) is an extensive tax, tariff and trade agreement or arrangement that usually includes an investment guarantee. It exists when two or more countries agree on terms that help them transact to each other. The most common trade agreements are the types of free and preferential trade that are concluded to reduce or eliminate tariffs, quotas, and other trade restrictions on goods traded between the parties. A free trade agreement (FTA) is a trade agreement between two or more countries. Accordingly, countries will follow the roadmap of reducing and eliminating tariff and nontariff barriers to move towards the establishment of a free trade area. According to statistics of the World Trade Organization (WTO), there are more than 200 free trade agreements in force. Free trade agreements can be made between two individual countries or can be reached between a trading bloc and a country such as the EUChile Free Trade Agreement, or the EUChilean Free Trade Agreement, ASEAN China free trade. What important is the distinction between customs unions and free trade areas. Both types of trade blocs involve internal agreements that parties sign to liberalize and facilitate trade between them. The fundamental difference between customs unions and free trade areas is their approach to third parties. While a customs union requires all parties to establish and maintain the same external tariffs in relation to trade with nonparties, free trade area participants are not comply with that request. Instead, they may establish and maintain any tariff regime applicable to imports from nonParties as deemed necessary 2. Legal aspect of Free Trade Agreement 7 The World Trade Organization (WTO) considers the construction of a free trade area to be a mostfavourednation (MFN) exception because of the benefits that the parties to the free trade area receive from each others exclusivity beyond their commitment to join. Although Article XXIV of the GATT authorizes WTO members to establish free trade zones or to adopt interim agreements that are necessary for such zones to be established, such zones must meet specific criteria. Temporary agreements that lead to the development of free trade zones are known as free trade zones. Free trade agreements that form free trade areas are generally outside the scope of the multilateral trading system. However, WTO members must notify the Secretariat when they conclude new free trade agreements and, in principle, the text of free trade agreements must be approved and reviewed by the Committee on Trade Agreements. 3. Economic aspects of Free Trade Agreement A free trade area will shift commerce from more efficient suppliers outside the territory to less efficient suppliers within the zone, which is known as trade diversion. In this event, the countrys net interests will be jeopardized. Meanwhile, trade creation suggests that there may never have been a free trade area that creates commerce. The development of commerce will benefit a countrys national welfare. Both trade creation and trade diversion are important effects found in the establishment of a free trade area. The creation of trade will cause consumption to shift from highcost producers to lowcost producers, and trade will therefore expand. Conversely, trade diversion will lead to a shift of trade from a lowercost producer outside the region to a highercost producer within the region. Such a 8 change would not benefit consumers in the free trade area as they would be deprived of the opportunity to buy cheaper imported goods. However, economists find that trade diversion does not always harm gross national welfare, it can even improve gross national welfare if the volume of trade diverted is small. CHAPTER 2: VIETNAM – KOREA FREE TRADE AGREEMENT (VKFTA): OPPORTUNITIES AND CHALLENGES I. Local and global trend of FTA 1.Formation and development Formation The signing of the first Regional Trade Agreements (RTAs) took place in the early 1990s. The trend developed rapidly during the following decade, reaching a peak of about 430 in 2006. In 1st January 1995, 123 member countries of GATT singed the Marrakesh Agreement in Morocco marking the founding of WTO – the former of which was GATT founded in 1947. However, the continually increasing number of FTAs violated the MFN rules by WTO, which seems ironic as WTO is itself already a global organization including more than half the world’s countries that acts to stimulate free multinational trade and solve disputes in international trade. FTAs have the same function, but have a much smaller number of members than WTO does. FTAs exist as a regional, bilateral or multilateral free trade areas inside a larger global free trade area which is WTO. Development The number of Free Trade Agreements has risen significantly for the last decade. From 1984 to 1994, the General Agreement on Tariffs and Trade (GATT), the former organization of WTO, received 124 inform letters. Since 1995 over 300 FTAs have come to action. According to Asian Development Bank (ADB), the number of Free Trade Agreements signed among Asian countries had increased from 3 in 2000 to 56 at 9 the end of August 2009, 19 of which were singed among 16 Asian economies. This trend may help the region become a giant trade area. 2. The current global trend of FTA Nowadays, the growth of bilateral regional Free Trade Agreements, especially “new generation” FTAs becomes an essential trend in international economic relationship in the beginning of 21st century. These “newgen” bring enormous chances and opportunities but considerable challenges as well. How are these FTAs different from traditional FTAs? Traditional FTAs Traditional Free Trade Agreements usually consist of market liberalizing commits in the field of goods trading with the most important one is the removal of up to 80% of tariffs. A few include the field of services and mutual rules in investment, intellectual property, competition, etc. However, these commits are often general and lacks particular points. All the FTAs Vietnam singed before 2014, including 6 ASEANwide, 2 bilateral with Japan (VJEPA) and Chile (VCFTA) are traditional ones, with the main contents of eliminating tariffs among the members. New FTAs Newgen Free Trade Agreements consist of commits in a wide variety of fields: goods, services, investment, intellectual property, labor, etc. at a higher rate (up to 90% decrease or even free of tariffs) and with high standard of rules. With the slogan “highquality FTA”, it is certain that the openness of Vietnam and its partners is enormous even when the FTA is still under negotiation, and it is surely higher than WTO and other previous FTAs (except ATIGA). From the above, we can see the differences and enhancements of newgen FTAs when compared with traditional FTAs:
Trang 1FOREIN TRADE UNIVERSITY SCHOOL OF ECONOMICS AND INTERNATIONAL BUSINESS
────────────────
INTERNATIONAL ECONOMICS
MIDTERM REPORT TOPIC: VIETNAM – KOREA FREE TRADE AGREEMENT (VKFTA):
OPPORTUNITIES AND CHALLENGES
Trang 2TABLE OF CONTENTS
INTRODUCTION ………
……… 3
CHAPTER 1: THEORETICAL FOUNDATION 4
Trade definition and the role, purpose of trade 4
Trade definition
4 1 Role and purpose of trade 5 I Free trade agreement and analysis on aspects of free trade agreement 6
Free trade agreement
7 1 Legal aspect of Free Trade Agreement 7 2 Economic aspects of Free Trade Agreement 8 CHAPTER 2: VIETNAM – KOREA FREE TRADE AGREEMENT (VKFTA): OPPORTUNITIES AND CHALLENGES 9
I Local and global trend of FTA 9
1 Formation and development 9 2 The current global trend of FTA 10 3 Participation of Vietnam in FTAs 11 II, Vietnam - Korea Free Trade Agreement 11
1 Overview of the Vietnam - Korea Free Trade Agreement (VKFTA)
11 2 Vietnam's opportunity when signing the Vietnam - Korea Free Trade Agreement (VKFTA)
13 3, The challenges for Vietnam when signing the Vietnam-Korea Free Trade Agreement (VKFTA) 19
Trang 319
b, The institutions and legal system
20
c, Technology and quality of human resources
21
4, The solutions for Vietnam when implementing the Vietnam-Korea Free Trade Agreement (VKFTA)
21
CONCLUSION 23 REFERENCES 24
2
Trang 4The Korea - Vietnam relation is established as the official diplomatic relationbetween the Socialist Republic of Vietnam and the Republic of Korea The twocountries are different in terms of geography, political institutions and ideologybut there are many similarities in humanity, history and culture The relationshipbetween Vietnam and South Korea is a new type called "old enemies and newfriends" and "close the past" The date of establishing Vietnam's diplomaticrelation with South Korea is December 22, 1992 it has also started to a
"strategic partnership" since 2009 Trade between the two nations is expandingrapidly, affecting both sides' economic and social growth in a variety of ways.The two countries are on a path of stable and sustainable development, withnumerous good signs over the years The potentials and strengths of the twocountries have been promoted wisely and efficiently in the past, resulting inseveral favorable outcomes.However, in addition to the positive aspects listedabove, there are several problems and significant roadblocks in the way of thegrowth of commercial relations between the two countries As a result, thegroup decided to go more into the subject, highlighting the issues that Vietnamhas faced in recent years in terms of political economy Then, in today'schallenging economic and political situation, draw lessons from experience anddevelopment potential for Vietnam The essay is divided into two sections:
- Theoretical foundation
- Free Trade Agreement between Vietnam and Korea (VKFTA)
In this report, we want to send our deep thank to Mrs Nguyen Binh Duong forher considerate instruction in the course Due to the nature of the work and thetime constraints, the report cannot avoid many shortcomings We look forward
to receiving your comments and feedback to draw more experiences and lessonsfor research projects in the future
Trang 5CHAPTER 1: THEORETICAL FOUNDATION
I Trade definition and the role, purpose of trade
1 Trade definition
Trade or exchange are terms that refers to the direct or indirect exchange of
goods between individuals or groups of people through items like money Tradebenefits include increased consumption capacity and increased laborproductivity through specialization People are obliged to use their ownresources to meet all needs if trading does not exist Everyone can engage in themutually advantageous division of labor under the voluntary trading system
A market is a method for commerce to function, a location where ownership of
a product, service, or money is exchanged in order to meet the demands of bothsupply and demand for a certain type of product using best practices Marketallows a precise determination of the required quantity as well as the cost of theproduct or service
Trade exists for many reasons Its underlying cause is specialization and
division of labor, in which certain groups of people focus solely on production
to provide goods or services of a particular sector for production purposes inexchange for goods or services of other groups of people Trade also existsbetween regions because regional differences confer an absolute or comparativeadvantage in the production of commercially available goods or services, orbecause differences in size area (e.g population) allows for an advantage inmass production Thus, trading at market prices benefits both regions
Trang 6Export turnover is the total export value (the amount received) of all the exports
of a country (or a business) during a given period (usually a quarter or a year), thensynchronously converted to a certain type of monetary organization The higherthe export turnover, the better the financial economy of the enterprise or thecountry is developing In contrast, with low export turnover and high importturnover, the country's financial economy is old, slow to innovate and develop
Import turnover, similar to exports, are the total value of goods or services
imported into a business or country over a fixed period of time and
denominated in a common currency
2 Role and purpose of trade
Trade helps to regulate production because in a commodity production, all
products are exchanged on the market: Trade encourages production anddevelopment by bringing together disparate economic sectors and businesses.Consumer requirements are met Trade ensures that businesses' production andbusiness processes run smoothly and continually
The development of trade helps to expand or promote the development of production of goods: Trade has a direct impact on the market position of
businesses As trade develops, the role of commercial enterprises in regulatingand guiding production is increasingly enhanced, and the relationships ofcommercial enterprises are increasingly expanded
Trading is a professional sector of activity in the circulation of goods that serves
as a link between production and consumption Trading is an important part
of a company's business activities Commercial business encourages the
Trang 7application of scientific and technological discoveries and new technologies toproduction, increases demand, and assures that both producers and customersreceive good, civilized, and modern goods As a result, encouraging commercialactivity is a critical issue for each company Commerce promotion is one of theactions that contributes to the growth of trade.
Trade promotes the process of industrialization - modernization Trade
supplies the required means of manufacturing, allowing for a steady flow of production To consume products on the market and operate as intermediaries
to manage supply and demand, goods produced by industries and fields require
a trading network When goods are consumed quickly, the reproduction cycle isshortened and the reproduction rate is shortened Therefore, trade opens the way
to consume products for the manufacturing industry, promotes industrial
development, and trade activities contribute to boosting production and
accumulating capital for the cause of industrialization and modernization of our country in this period
Trade promotes the distribution of resources Labor resources are generally
plentiful and diversified in large cities, and labor demand is similarly quite highand diverse These individuals have aided in the selection of vocations and thepromotion of commodities circulation in the area Trade is not only a linkbetween production and consumption, but also an intermediary for distributingfinancial resources, circulating items on the market, and assisting in the creationand consumption of goods
1 Free trade agreement and analysis on aspects of free trade agreement
Trang 81 Free trade agreement
A trade agreement (trade pact) is an extensive tax, tariff and trade agreement or
arrangement that usually includes an investment guarantee It exists when two
or more countries agree on terms that help them transact to each other The mostcommon trade agreements are the types of free and preferential trade that areconcluded to reduce or eliminate tariffs, quotas, and other trade restrictions ongoods traded between the parties
A free trade agreement (FTA) is a trade agreement between two or more
countries Accordingly, countries will follow the roadmap of reducing andeliminating tariff and non-tariff barriers to move towards the establishment of afree trade area According to statistics of the World Trade Organization (WTO),there are more than 200 free trade agreements in force Free trade agreementscan be made between two individual countries or can be reached between atrading bloc and a country such as the EU-Chile Free Trade Agreement, or theEU-Chilean Free Trade Agreement, ASEAN - China free trade
What important is the distinction between customs unions and free trade areas.Both types of trade blocs involve internal agreements that parties sign toliberalize and facilitate trade between them The fundamental differencebetween customs unions and free trade areas is their approach to third parties.While a customs union requires all parties to establish and maintain the sameexternal tariffs in relation to trade with nonparties, free trade area participantsare not comply with that request Instead, they may establish and maintain anytariff regime applicable to imports from non-Parties as deemed necessary
2 Legal aspect of Free Trade Agreement
Trang 9The World Trade Organization (WTO) considers the construction of a free tradearea to be a most-favoured-nation (MFN) exception because of the benefits thatthe parties to the free trade area receive from each other's exclusivity beyondtheir commitment to join Although Article XXIV of the GATT authorizesWTO members to establish free trade zones or to adopt interim agreements thatare necessary for such zones to be established, such zones must meet specificcriteria Temporary agreements that lead to the development of free trade zonesare known as free trade zones.
Free trade agreements that form free trade areas are generally outside the scope
of the multilateral trading system However, WTO members must notify theSecretariat when they conclude new free trade agreements and, in principle, thetext of free trade agreements must be approved and reviewed by the Committee
on Trade Agreements
3 Economic aspects of Free Trade Agreement
A free trade area will shift commerce from more efficient suppliers outside the territory to less efficient suppliers within the zone, which is known as trade
diversion In this event, the country's net interests will be jeopardized.Meanwhile, trade creation suggests that there may never have been a free tradearea that creates commerce The development of commerce will benefit acountry's national welfare
Both trade creation and trade diversion are important effects found in theestablishment of a free trade area The creation of trade will cause consumption toshift from high-cost producers to low-cost producers, and trade will thereforeexpand Conversely, trade diversion will lead to a shift of trade from a lower-costproducer outside the region to a higher-cost producer within the region Such a
Trang 10change would not benefit consumers in the free trade area as they would bedeprived of the opportunity to buy cheaper imported goods However, economistsfind that trade diversion does not always harm gross national welfare, it can evenimprove gross national welfare if the volume of trade diverted is small.
CHAPTER 2: VIETNAM – KOREA FREE TRADE AGREEMENT
(VKFTA): OPPORTUNITIES AND CHALLENGES
I Local and global trend of FTA
1 Formation and development
of which was GATT founded in 1947 However, the continually increasing number
of FTAs violated the MFN rules by WTO, which seems ironic as WTO is itselfalready a global organization including more than half the world’s countries thatacts to stimulate free multinational trade and solve disputes in international trade.FTAs have the same function, but have a much smaller number of members thanWTO does FTAs exist as a regional, bilateral or multilateral free trade areas inside
a larger global free trade area which is WTO
* Development
The number of Free Trade Agreements has risen significantly for the lastdecade From 1984 to 1994, the General Agreement on Tariffs and Trade(GATT), the former organization of WTO, received 124 inform letters Since
1995 over 300 FTAs have come to action
According to Asian Development Bank (ADB), the number of Free TradeAgreements signed among Asian countries had increased from 3 in 2000 to 56 at
Trang 11the end of August 2009, 19 of which were singed among 16 Asian economies.This trend may help the region become a giant trade area.
2 The current global trend of FTA
Nowadays, the growth of bilateral regional Free Trade Agreements, especially
“new generation” FTAs becomes an essential trend in international economicrelationship in the beginning of 21st century These “new-gen” bring enormouschances and opportunities but considerable challenges as well How are theseFTAs different from traditional FTAs?
All the FTAs Vietnam singed before 2014, including 6 ASEAN-wide, 2bilateral with Japan (VJEPA) and Chile (VCFTA) are traditional ones, with themain contents of eliminating tariffs among the members
From the above, we can see the differences and enhancements of new-gen FTAswhen compared with traditional FTAs:
Trang 12+ Wide range of commitment: While previous Free Trade Agreements mainly
focus on goods, exchange, new FTAs include a lot of new fields: governmentalpurchase, labor, environment, etc
+ More commits on institutions: Unlike traditional ones that often affect tariff
policies in region close to the border, new-gen FTAs have a direct effect ondomestic policies
+ Extremely large partners: Among the FTAs Vietnam is currently negotiate,
there are trade partners such as the USA, EU, Japan
Vietnam is operating 2 new-gen FTAs, including bilateral FTA with Korea(VKFTA) and the Eurasian Economic Union (EAEU) However, the “newgeneration” aspect of these FTAs is mentioned limitedly only, mostlydirectional but not detailed contents
Vietnam is currently negotiating 2 new FTAS that are CPTPP and EVFTA
3 Participation of Vietnam in FTAs
In time of economic globalization and increasing trade liberalization, thenumber of new-generation Free Trade Agreements is rapidly rising all over theworld, becoming a new trend in international economic relations that no countrycan ignore Clearly realizing this, Vietnam has been actively negotiating andsigning bilateral and multilateral FTAs Until now, Vietnam is officially joining
14 operating FTAs, 1 FTA waiting to come to action and 2 are undernegotiation In the 14 operating Free Trade Agreements include the first new-gen FTA Vietnam takes part in, and EVFTA
II, Vietnam - Korea Free Trade Agreement
1 Overview of the Vietnam - Korea Free Trade Agreement (VKFTA)
The Vietnam - Korea Free Trade Agreement (VKFTA) was signed on May 5,
2015 in Vietnam The Government of the Socialist Republic of Vietnam hasapproved the implementation of the VKFTA Agreement in Resolution No.60/NQ-CP dated August 20, 2015 and took effect from December 20, 2015 In