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HANOI: South Korea and Vietnam signed multiple cooperation deals on Friday during a state visit by President Yoon Suk Yeol and at a pivotal time in their relations as bilateral trade falls and Hanoi plans tax hikes for top Korean manufacturers.

Yoon said Seoul would step up cooperation with Vietnam against North Korea’s nuclear threat. The two nations also agreed to boost defence industry relations.

South Korea is one of many countries discussing possible arms sales to Vietnam as it seeks to modernise its arsenal.

The two countries over the last few decades have developed almost symbiotic industrial ties, with South Korea being the largest foreign investor in Vietnam. Seoul also enjoys the highest level of diplomatic ties with Hanoi, together with Russia, China and India.

At a meeting with Vietnam’s President Vo Van Thuong, Yoon also signed joint deals on coastguard security cooperation, on the recognition of Vietnamese workers in Korea and on supporting the supply chain of critical minerals.

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 centre of global supply chain reorganisation and an emerging consumer market,” Yoon said in a statement on Friday.

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% 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 further complicate matters, 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.

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, on his first visit to Vietnam as president, is accompanied by a 205-strong business delegation, his office said.

In a joint press conference, Vietnam’s president 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.

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