In the mere 20 years or so since the re-establishment of diplomatic relations in 1992, economic cooperation between South Korea and Vietnam has deepened significantly. Both countries have pledged to conclude a bilateral FTA by 2014.

Vietnamese participation in the East Asian production network has increased rapidly in the last decade. From 2001 to 2011, the percentage of intermediate goods that Vietnam exported to East Asia increased from 20.4 to 34.4 per cent, while the percentage of capital goods increased from 2.3 to 8.6 per cent. This is partly because of Vietnam’s success in attracting FDI from its East Asian neighbours, which in 2013 accounted for over 70 per cent of Vietnam’s FDI inflows.

Most of this investment has gone into Vietnam’s basic materials and electronics industries, which have grown rapidly against the backdrop of the changing structure of East Asian production networks. Previously, East Asian countries like Japan used China and ASEAN as their production base for exports to the United States and Europe. Now they use China as both a production base and a market.

ASEAN countries have consequently become a production base for goods exported to China as well as the West. One indication of this is that exports from South Korea, Japan and Taiwan to ASEAN states have mostly been made up of intermediate goods. For example, since the mid-2000s, intermediate goods have made up approximately 80 per cent of South Korean exports to seven major ASEAN countries. Investment from South Korean electronics giants Samsung and LG is accelerating Vietnam’s participation in the global production network.

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South Korea–Vietnam FTA will open up East Asian opportunities

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