Vietnam shrimp exports to Korea: Take advantages from VKFTA

VKFTA was signed on May 5, 2015 and officially took effect from December 20, 2015. Compared with the ASEAN-Korea FTA (AKFTA), in VKFTA, Vietnam and South Korea offer more incentives to each other in goods, services and investment sectors. However, VKFTA does not replace AKFTA. Currently, both FTAs are valid and businesses can choose the FTA which is more beneficial.

According to South Korea's commitment in VKFTA, shrimp products exports from Vietnam to Korea from 20% tax rate will be reduced to 0% immediately after the Agreement comes into effect, including shrimp products HS code 0306161090, 0306169090, 0306171090 , 0306179090, 0306261000, 0306271000, 1605219000 (frozen cold-water shrimp peeled, shell on cold-water shrimp, other shrimp and prawn shrimps that have been peeled, shrimp and other prawn shrimps not peeled, live/ fresh/chilled cold-water shrimp, live/ fresh/ chilled shrimp and other prawn shrimp, shrimp and shrimp prawn are not airtight canned). The quota of duty-free shrimp from Vietnam to the Korean market reached 10,000 tons in the first year VKFTA took effect. Meanwhile, Thailand, Indonesia and Malaysia were only granted 5,000 tons of quotas. This opportunity helps Vietnamese shrimp easily compete and dominate the Korean market.

According to the commitment in the next 5 years from the effective date of VKFTA, Korea will raise Vietnam's shrimp export quotas to this market to 15,000 tons (an increase of 10% each year) and maintain the level of 15,000 tons from the 7th year onwards.

The mechanism of tariff quotas under VKFTA is applied in parallel with Korea's conventional tariff rate quotas (Harmonized System of Korea - HSK). Therefore, products subject to tariff quotas under VKFTA can still use tariff quotas under HSK when it expired under VKFTA.

From 2008 to 2013, Vietnam shrimp exports to Korea ranged from US$85 million to US$225 million. After VKFTA came into effect, from 2016 to 2018, Vietnam shrimp exports to Korea climbed from US$285 million to US$386 million. Although the increase was not much, it is clear that Vietnamese shrimp has maintained a stable position in the Korean market.

Vietnam is the largest supplier of shrimp to South Korea accounting for an overwhelming 50.5% market share while other competitors such as Thailand accounting for 9.6%, Ecuador at 13.5% and China at 5.2%. In the Korean market, Vietnam must to compete on price with China, India and Ecuador.

In the first four months in 2019, Vietnam shrimp exports to Korea reached US$94.6 million, down 20.6% compared to the same period in 2018. Shrimp exports to South Korea fell in the early months of this year in the context of the general decline in shrimp exports to major markets and the impact of declining in world shrimp prices.

There are many incentives from VKFTA. However, taking advantage of incentives have not been highly effective. Specifically, Vietnam is exempted from shrimp imports into South Korea with a quota of 10,000 tons/year, it will raise to 15,000 tons/year by 2020. However, currently Vietnam only use of 2,500 tons/year.

In order to improve the preferential utilization rate that VKFTA brings, Vietnamese enterprises need to raise the awareness of taking initiative in accessing information on VKFTA to select incentives suitable to the conditions of the enterprises while changing technology, development orientation of product in line with the needs of importer.