VASEP continues to propose abolishing quotas on Vietnamese shrimp imported into Korea

Recently, the Vietnam Association of Seafood Exporters and Producers (VASEP) sent Official Dispatch No. 47/CV-VASEP to Prime Minister Pham Minh Chinh; and also to Minister of Industry and Trade Nguyen Hong Dien, Minister of Agriculture and Rural Development Le Minh Hoan and Minister of Foreign Affairs Bui Thanh Son regarding the proposal to abolish the quota on Vietnamese shrimp imported into Korea.

Accordingly, VASEP proposed that Korea remove the tariff quota mechanism for Vietnamese frozen shrimp under the Vietnam - Korea Free Trade Agreement (VKFTA) to protect the market share and long-term interests of Vietnamese shrimp in this market.

From a legal perspective, this is a mechanism that has been envisaged in the VKFTA with the commitment in Clause 2, Article 2.3, Chapter 2 of the VKFTA Document (on the consultation process to eliminate tariffs earlier than the current commitment). From a practical perspective, the possibility of this proposal being supported by your side is very high in the context that Korea is facing the challenge of high inflation, skyrocketing food prices, your Government has had to proactively reduce import tariffs on a number of items and seems to be ready to consider other solutions to help reduce imported food prices such as consulting on VKFTA tariff adjustments.

According to VASEP, the VKFTA Agreement, which took effect at the end of 2015, is one of the important tools to help the two countries realize the goal of enhancing bilateral trade cooperation.

Over the past time, the Agreement has had a positive impact on Vietnam's main export products to Korea, including seafood. Vietnam's seafood exports to Korea have increased by 62% from 585 million USD in 2015 to 950 million USD in 2022 and 786 million USD in 2023.

2024 is the 10th year of VKFTA implementation. According to the roadmap, most seafood products will have a 0% tax rate. However, according to the quota commitment in Appendix 2A-1 on Korea's tariff quota management in the VKFTA Document, there are still 7 groups of seafood products (corresponding to 7 HSK codes: 0306161090, 0306169090, 0306171090, 0306179090, 0306261000, 0306271000 and 1605219000) imported from Vietnam to Korea that only enjoy preferential tariffs according to quotas (currently 15,000 tons/year).

Specifically, for this group, Korea only exempts Vietnam from import tax under VKFTA for 15,000 tons/year (quota applied from 2020 onwards). Imported product volume exceeding the quota will not enjoy tariff incentives under VKFTA but will be subject to a base tax rate of 20%.

According to Korea's import statistics (kita.org), the total import volume of the above 7 product lines from Vietnam to Korea in the period of 2016 - 2023 ranges from 22.5 - 36.3 thousand tons, corresponding to the tax-free quota exceeding 12.5 - 21.3 thousand tons/year.

Specifically, in 2022, the import volume of Vietnamese shrimp of 7 HSK codes into Korea was 36,265 tons, exceeding the tax-free quota by 21,265 tons; in 2023, the import volume was 29,944 tons, exceeding 14,944 tons.

Thus, for this key shrimp product alone, in the period 2016 - 2023, 34 - 48% of Vietnamese shrimp imported into Korea will be subject to an out-of-quota tax rate of 20%.

This has caused importers to lose the motivation to increase their purchases of Vietnamese shrimp to meet the growing demand in Korea. Instead, they are considering buying more shrimp from other countries (such as Peru) that have a Free Trade Agreement with Korea, where the import tax has been reduced to 0% with a 5-7 year roadmap according to the FTA with Korea. This has eliminated all tariff advantages from VKFTA for these frozen shrimp products of Vietnam in the Korean market.

In the past 3 years, counting HSK code 0306171090 alone, the import volume of Peruvian shrimp into Korea has increased significantly, while in 2023, the import volume of shrimp from Vietnam decreased by nearly 6,000 tons. This difference is mainly due to the fact that the Peru - Korea FTA does not stipulate tariff quotas as in the VKFTA.

Under the impact of the Peru - Korea FTA, which has now completed the tax elimination roadmap, the risk of Vietnamese shrimp losing market share in Korea is predictable if Vietnamese shrimp continues to have to import under the quota mechanism, with a "tax/actual cost" rate of about 20% compared to the current 0% non-quota preferential tax rate of Peruvian shrimp.

Globally, Vietnamese shrimp is finding it difficult to compete in terms of output and price with Indian, Ecuadorian and Indonesian shrimp in the US, China and EU markets. In the Korean market, if the quota mechanism in the VKFTA is not removed, Vietnamese shrimp will also be at risk of not having any advantage over Peruvian shrimp.

Meanwhile, compared to the latest import tax schedule of Vietnam (2024), all seafood products imported from Korea to Vietnam are at 0%. Thus, Vietnam is completely open to Korean seafood but in return, it is still subject to shrimp export quotas to Korea.

VASEP recommends that the Government, the Ministry of Industry and Trade, the Ministry of Agriculture and Rural Development, and the Ministry of Foreign Affairs consider and initiate a consultation proposal with Korea to remove the current quota on shrimp from Vietnam to Korea, so that Korean consumers can have more access to Vietnamese shrimp at better prices and ensure fairness for Vietnamese shrimp in competition with other countries.

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