No.
2018-28 (May 24, 2018)
Dr.
Park Jee-Kwang
Research
Fellow, Department of Diplomatic Strategy Studies
The
Sejong Institute
jkpark@sejong.org
Many
Koreans are unaware of the fact that the trade volume between South Korea and
ASEAN member states reached US$149 billion and accounts for 15 percent of South
Korea’s exports and 10 percent of South Korea’s imports. This places ASEAN as South
Korea’s second largest trade partner after China. In addition, since the THAAD
crisis exposed political risks of the Chinese market and South Korea’s exports
to China have reached the level of saturation, South Korea has laid eyes on the
ASEAN as an alternative partner. The current South Korean administration
endeavors to uplift the diplomacy with ASEAN states on par with the diplomatic
engagement with the four neighboring powers—namely,
the U.S., China, Japan, and Russia.
Regarding
the deepened economic relations with ASEAN, several concerns exist. First and
foremost, it is unclear whether the growth of ROK-ASEAN trade will continue or be
a transient phenomenon elevated by the exponential export of semiconductors to
Vietnam.
Another
concern is that South Korea’s trade surplus against ASEAN quadrupled rapidly from
US$ 9.1 billion in 2010 to US$ 41.4 billion in 2017. In turn, this begs the
question on whether the ROK-ASEAN trade has expanded unilaterally in South
Korea’s favor.
However, despite this rapid
increase in South Korea’s trade surplus, the South Korea-ASEAN economic
relations have shaped to be mutually beneficial. Viewing the case of Vietnam,
the country that accounts for 50 percent of South Korea’s exports to ASEAN member
states, it is easily perceivable that the South Korea-ASEAN economic relations
have advanced to benefit both sides.
According
to the 2016 statistics, Vietnam imported US$ 32.4 billion and exported US$ 11.4
billion in relations with South Korea. Therefore, Vietnam recorded a huge trade
deficit of US$ 21.3 billion vis-à-vis South Korea. This deficit is mostly
attributable to Vietnam’s trade pattern—importing
intermediate electronic parts such as semiconductors and re-exporting assembled
products to Europe and the U.S.
While
most South Koreans still perceive Vietnam as an exporter of labor-intensive
goods such as apparel and footwear, in fact, Vietnam’s largest export item is
electronic goods. In 2016, 36.1 percent of Vietnam’s exports were electronic
products and components. Another noteworthy fact is that Vietnam’s chief import
item also is electronic goods—22.8
percent of total import. Electronic goods are both top export and import item
for Vietnam since it imports electronic components and parts and assembles them
to export to the West. And South Korean corporations are leading this original
equipment manufacturer (OEM) model of export. For example, Samsung Electronics has
large industrial complexes in Vietnam, employing forty-thousand workers in Bắc
Ninh plant and sixty-five thousand workers in Thái Nguyên plant. And the South
Korean firm’s manufacturing facilities in Vietnam exported US$ 42.9 billion,
accounting for 20 percent of total Vietnam’s exports. Vietnam’s export volume
skyrocketed for the last decade, thanks to this surge of exports of electronic
goods. As a matter of fact, Vietnam recorded US$ 38.3 billion trade surplus with
the U.S. in 2017, putting them in 5th position in terms of trade surplus with
the U.S., even US$ 15.4 billion more than that of South Korea which recorded US$
22.9 billion surplus. And the electronic goods leads Vietnam’s exports to the
U.S.—and
South Korean multinationals such as Samsung largely contribute to this. Thus,
South Korea-Vietnam trade relations could be characterized as mutually
beneficial to both countries and particularly helpful to Vietnam.
Furthermore,
considering the total balance sheet, South Korea runs a huge deficit in
relation with Vietnam, adding the tourism balance and foreign direct
investment. South Korea’s direct investment in Vietnam amounted to US$ 7.6
billion in 2016 and 1.11 million Koreans visited Vietnam in the same year. In
contrast, Vietnam’s direct investment in South Korea is trivial and only 0.25
million Vietnamese visited South Korea in that same year. Hence, the
international balance of payment between the two countries is more sound and
balanced than the bilateral trade balance.
Still,
it remains uncertain whether the bilateral economic ties could sustain as such
in the future. The discourse on ROK-Vietnam relations is concentrated on
invigorating the current ROK-ASEAN cooperation and lacks discussions on the shape
of future cooperation between the two countries. This is the time to
fundamentally ponder on future bilateral relations.
First,
Vietnam will not continue to be in the position of an assembly base for
electronic goods. The OEM export model is familiar to South Korea. Indeed, this
was South Korea’s development strategy in the 1960s and 1970s and that of China
since the 1990s. As South Korea did, Vietnam will strive to manufacture
finished products and export them through their own technology. In preparation,
South Korea should seek other production bases in the future as a long-term plan.
A
more urgent issue is that China could emerge as a supply route for electronic
parts to Vietnam, replacing South Korea. With the torrent of its low-cost
goods, China could penetrate the intermediate electronic goods market in ASEAN
countries. It is doubtful whether South Korea has any alternate strategies in
response. When Chinese goods flow in, South Korea’s trade surplus vis-à-vis
ASEAN member states will plummet and direct investment in Vietnam will also
diminish by a large margin. This will speedily undermine South Korea’s hardly-developed
relations with Vietnam, as well as ASEAN as a whole.
File