South Korean Companies in Vietnam Advised to Assess Risks

The Korea International Trade Association said in its report on May 14 that an increasing number of South Korean companies are relocating to Vietnam for the purpose of supply chain diversification amid the ongoing U.S.-China disputes and the COVID-19 pandemic and yet trade and market risks are increasing in the production base as an alternative to China.

South Korean companies’ exports to and investments in Vietnam are continuing to increase. The country has been their third-largest export destination behind China and the United States since 2017. Last year, 3,324 and 2,233 South Korean companies were doing business in Vietnam and China, respectively. South Korea’s direct investment in Vietnam was US$8.3 billion in 2019, 21.4 percent of the total foreign direct investment in the country.

However, the trade volume of Vietnam is increasing along with the number of import regulations targeting products made in Vietnam. In 2020 alone, 21 anti-dumping and six countervailing duty investigations were initiated against Vietnam. The sum is the highest number ever.

Another burden is that Vietnam as well as China is regarded as a non-market economy (NME), which means it is more vulnerable to dumping determinations and subject to higher dumping margins. The United States and the European Union have designated NMEs in accordance with their laws and applied Adverse Facts Available and NME rates to NME companies that have failed to prove their independence in relation to their governments.

The United States have conducted eight countervailing duty investigations against Vietnam to impose countervailing duties in six cases. In February last year, the U.S. Department of Commerce introduced new rules to impose a countervailing duty on a country with an undervalued exchange rate and applied the rules for the first time to tires produced in Vietnam. With more and more products made in China being exported via third countries in order to avoid trade restrictions, Vietnam had to face U.S. and EU investigations.

The increase in relocation is leading to more competition for infrastructure, too. For instance, the rents at industrial complexes located in southern Vietnam have jumped 50 percent for the past three years and those located in Hanoi are already full. The container traffic at local ports increased 150 percent for five years and reached 16.94 million TEU last year but the ports are failing to handle many of those containers as scheduled. Skilled workers are becoming increasingly hard to come by as well.

“South Korean companies in Vietnam need to work more closely together with local partner firms, formulate raw material and component procurement plans against anti-dumping investigations, and prepare to prove their independence in relation to the Vietnamese government with regard to the NME rates,” the association advised.

Source: Business Korea