South Korea's President Yoon Suk-yeol (left) and Vietnam's President Vo Van Thuong shake hands during a welcoming ceremony at the Presidential Palace in Hanoi on June 23, 2023. (PHOTO / AFP)

HANOI/SEOUL – South Korea and Vietnam agreed on Friday committed to increasing bilateral trade and investment despite a slump this year and Vietnam's planned tax hikes on large firms.

In his first visit to Vietnam as president, South Korean leader Yoon Suk-yeol acknowledged economic woes but reiterated Vietnam's key role for Seoul's growth strategy.

He signed 17 agreements with Vietnam's President Vo Van Thuong on a number of issues, from critical minerals to Vietnamese workers in Korea.

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Over the last few decades, Korea and Vietnam have developed almost symbiotic industrial ties, with South Korea being the largest foreign investor in Vietnam. Seoul also enjoys the highest level of diplomatic relations with Hanoi.

Although the business environment is difficult in recent years, we must find new opportunities in Vietnam, which is the center of global supply chain reorganization and an emerging consumer market.

Yoon Suk-yeol, President, South Korea

The leaders reiterated a goal of boosting bilateral trade, despite a slump so far this year driven by lower global demand for smartphones and other electronic goods that Korean firms assemble in Vietnam with many components shipped from Korea.

"Although the business environment is difficult in recent years, we must find new opportunities in Vietnam, which is the center of global supply chain reorganization and an emerging consumer market," Yoon said.

Bilateral trade has fallen by a quarter in the first five months of this year compared to the same period in 2022, with a nearly 30 percent drop in Vietnamese imports of South Korean products.

This year Korean firms have also invested in Vietnam much less than competitors, with China and Japan easily outstripping Seoul, Vietnam's government data show.

Falling orders for electronic goods have forced South Korean firms to reduce their Vietnam workforce, multiple industry and business sources say.

To tackle this negative trend, Seoul agreed to financial support worth over $4 billion by 2030, almost entirely in loans, to help Vietnam on climate change, education and health.

Tax hike

However, Hanoi is set to introduce from next year a new levy on large corporations, including big Korean multinationals, as part of a global reform of tax rules that could reduce Vietnam's appeal as a manufacturing hub.

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Samsung Electronics, the biggest investor in the country, and LG Electronics are among large firms negotiating possible compensations to offset higher taxes.

"Companies are seeking to reshore more and diversify rather than go all-in for Vietnam," said James Jung, Seoul-based analyst at Hyundai Motor Securities, noting Vietnam's appeal has fallen in recent months, also because of the new levy.

To try to address those issues, Yoon is accompanied in his state-visit by a 205-strong business delegation.

In the joint press conference, Thuong said he welcomed Korean firms to invest in gas-fired power plants and semiconductor projects in Vietnam.

South Korean companies are among the main investors in Vietnam's nascent Liquefied Natural Gas (LNG) industry, which is expected to boost the country's electricity output and battle shortages that saw power cuts in northern provinces where South Korean manufacturers operate.