On December 22, 1992, South Korea and Vietnam established diplomatic relations with a joint statement. For Hanoi, its economic interests and foreign policy of “diversification and multilateralization” were pivotal in fostering closer ties with Seoul.

In 2002, the two countries upgraded their relationship to a “comprehensive partnership in the 21st century,” which was further elevated to a “strategic cooperative partnership” in 2009. Most recently, in December 2022, they announced the formation of a comprehensive strategic partnership.

The current bond between Vietnam and Korea is built on a foundation of mutual trust, growing people-to-people connections, and strong economic collaboration. Major Korean conglomerates such as Samsung, SK, LG, Lotte, and Hyundai have significantly expanded their operations in Vietnam, deepening economic ties. As of March 2024, Samsung's investment in Vietnam totals $22.4 billion. The trend of Korean companies moving their manufacturing to Vietnam has accelerated recently, driven by the need to diversify supply chains amid global disruptions. Vietnam’s stable economic environment and favorable foreign direct investment policies make it an attractive destination for Korean investors while supporting its Industrial Revolution 4.0.

This growing economic relationship is also supported by Korea’s New Southern Policy (NSP), which aims to enhance ties with ASEAN member states and India to match the level of relationships Korea maintains with the USA, China, Japan, and Russia. From ASEAN, Vietnam is considered a central focus of the NSP.

Bilateral Trade

Korea is Vietnam’s third-largest trade partner and second-largest import market, underscoring the importance of their economic ties the partners established a strong trade relationship. One prime example of this is the Vietnam-Korea Free Trade Agreement (VKFTA), having its effectiveness from December 20, 2015, with the aim to promote trade, services, and investment without replacing the ASEAN-Korea FTA (AKFTA). VKFTA establishes precise rules for origin of goods, including the regulations for special goods and Certificate of Origin exemptions for lower-value imports. Additionally, VKFTA commitments include National Treatment (NT) and Most Favored Nation (MFN) treatment in trade services, with additional sector openings compared to WTO and AKFTA commitments. Investment protections under VKFTA also include NT and MFN treatments, along with mechanisms for dispute resolution through administrative courts and arbitration.

Besides that, the Double Taxation Avoidance Agreement (DTA) between the nations, which came into force on September 11, 1994 also contributed in facilitating economic cooperation with the primary objective of providing clear guidance on tax and preventing double taxation, the DTA helps shape a safer and better tax environment between the countries, promoting cross-border trade and investment, enhancing economic ties between Vietnam and Korea.

In recent decades, the bilateral relationship between Vietnam and Korea has made remarkable strides with total trade between the two countries growing from $2 billion in 2010 to an impressive $86.5 billion in 2022. Further, both nations stay committed to further enhancing bilateral trade, aiming for a target of $150 billion by 2030.

Comparatively, in May 2024, Korea’s exports to Vietnam surged significantly in contrast to May 2023. According to OEC data, exports increased by $846 million (19.8%), rising from $4.28 billion to $5.12 billion while imports from Vietnam also grew during this period with an additional $118 million (6.13 percent), reaching $2.04 billion from the previous figure at $1.92 billion. This upward trend reflects the futuristic ties between the two nations. Furthermore, in the fifth month of this year, Korea’s exports to Vietnam saw a significant boost, driven by increased shipments of mineral fuels, mineral oils, and related products, as well as perfumery, cosmetics, and fertilizers. Meanwhile, Korea’s imports from Vietnam grew due to higher imports of non-knitted clothing accessories, machinery, mechanical appliances, and footwear.

In the first half of 2024, trade turnover between Vietnam and Korea reached $38.4 billion, marking a substantial increase from the previous year.

Burgeoning Investment prospects

Within the past decade, Korea’s investment into Vietnam played a crucial role in the development of the country’s economy, ranking in a high place of Vietnam’s foreign investors. In 2023, there were approximately 500 investment projects from Korean investors with the total value of over $5 billion. In addition, over the last six months of 2024, Vietnam received $1.4 billion investment from Korean investors. This marks an increase of 16% as compared to 2023, making Korea the 4th largest foreign investor in Vietnam.

The investment of Korea places its focus on processing, manufacturing industry that accounts for more than 70% of Korea's total investment capital in Vietnam. Besides that, real estate sector also receives attention from Korea, with the investment capital accounting for over 12%. The remaining sectors of interest for Korea are construction, energy, accommodation and food services, accounting for about 3%.

The Vietnamese government has encouraged Korean companies to invest further, particularly in advanced technology, electronics, semiconductors, AI, renewable energy, and human resource development. Notable Korean investments include:

These investments reflect the growing economic integration and collaborative opportunities between Vietnam and Korea.

Envisioning

Ever since the elevation to Comprehensive Strategic Partnership, Vietnam and Korea have developed their relationship in many ways. Notably, in the beginning of July 2024, Vietnam made its first high level visit to Korea since the said elevation. During the visit, Prime Minister Han Duck-Soo stated that Vietnam is a key partner in implementing foreign policies in the region, including the Indo-Pacific Strategy and the Korea-ASEAN Solidarity Initiative (KASI).

It is pertinent that the future remains bright with commitments and foundations laid for strategic-economic collaboration between Vietnam and Korea.

Authors: Vaibhav Saxena and Quang Anh Nguyen, Lawyers