MANILA – The Philippines and South Korea have signed a free trade agreement (FTA) on the sidelines of the 43rd Association of Southeast Asian Nations (ASEAN) Summit and Related Summits in Jakarta, Indonesia.
President Ferdinand R. Marcos Jr. and South Korean President Yoon Suk Yeol witnessed the signing of the FTA between Trade Secretary Alfredo Pascual and South Korean Trade Minister Ahn Duk Geun on the occasion of the 24th ASEAN-Korea Summit on Thursday.
Marcos said the trade agreement would further enhance the vibrant relationship and partnership between the Philippines and South Korea, expressing optimism that it would go beyond the government-to-government partnership to involve private firms and private sector partners.
“The signing of the FTA is certainly a very big step in that regard. It can only be a successful arrangement for both our countries. I look forward to the expansion of the trade agreement between your country and mine,” he told Yoon.
“When I look at the involvement of Korea and the Philippines, I can say that the relationship between our two countries remains vibrant. And I think it is accelerating … I would like to take this opportunity to deepen further that relationship.”
The Philippines and South Korea began their negotiations for the FTA in June 2019 and concluded them in October 2021. They were supposed to sign the agreement in June 2022.
However, they had to do some “legal scrubbing” on the concluded chapter texts of the FTA, including the Trade in Goods, Trade Remedies, Customs Procedures and Trade Facilitation, Rules of Origin, Competition, and Chapters under Legal and Institutional Issues.
The Economic and Technical Cooperation Chapter and Market Access for Goods were the remaining issues they had to resolve to end the FTA talks.
The newly signed FTA is expected to remove tariffs on most products from the two countries, opening the door to rapid growth in bilateral trade.
Yoon said he is eager to elevate the strategic partnership between the Philippines and South Korea.
“And in this regard, I believe that the Korea-Philippines Free Trade Agreement signed later today will set another important milestone in our bilateral relations,” he told Marcos.
Pascual, meanwhile, said the FTA serves as a “clear demonstration of the intent to elevate the current bilateral relations with South Korea to a stronger strategic partnership.”
“The Philippines’ engagement with South Korea is built on trade through market access, economic cooperation, and investments through collaboration in targeted sectors, such as critical minerals and supply chains,” he said.
The FTA is envisioned to help promote the Philippines as a strong market for smart and sustainable investments, ensure its major economic gains with enhanced market access to South Korea, and yield strategic investments in priority sectors and industries.
South Korea is a valued trade and investment partner of the Philippines.
In 2022, it ranked fourth in terms of total bilateral trade, valued at USD15.45 billion, and sixth in total approved investments, valued at USD90.62 million.
Yoon also expressed his interest in the supply chain of critical materials, allowing the Philippines to shift to a nuclear power plant.
Marcos thanked Yoon for South Korea’s financial support for development projects in the Philippines, saying he looks forward to learning about the South Korean experience in terms of energy source development.
He also extended his gratitude to the South Korean government for its continued support for the defense and security measures of the Philippines, especially on the South China Sea issues and the modernization of the Armed Forces of the Philippines.
In terms of tourism, Marcos acknowledged that South Koreans remain the top tourists in the Philippines.
Yoon said South Korea is keen on expanding opportunities for overseas Filipino workers through its “employment permit system.”
PH’s 3rd bilateral FTA
The newly-signed trade pact with South Korea is the country’s third bilateral FTA.
The country sealed its first trade deal with Japan under the Philippines-Japan Economic Partnership Agreement (PJEPA) in 2006 and with the European Free Trade Association (EFTA) in 2016.
More liberalized trade
In an online briefing with trade reporters Friday, DTI Undersecretary Ceferino Rodolfo said the FTA with South Korea mainly focused on trade-in goods, while enhancing investments would be under the economic and technical cooperation of the deal.
DTI Assistant Secretary Allan Gepty, during the same briefing, said the FTA provides nearly 98 percent preferential market access for Philippine goods entering the South Korean market. This means Philippine exporters pay lower or no tariffs on their products that are exported to South Korea.
Gepty said this is higher than the 88 percent preferential market access for the Philippines to South Korea under the ASEAN-Korea FTA and the 96.4 percent under the Regional Comprehensive Economic Partnership (RCEP).
Which sectors are the big winners?
Rodolfo said the DTI was able to negotiate some of the most important products of interest for the country —bananas and tropical fruits.
Under the FTA, South Korea agreed to gradually remove the tariff on Philippine bananas, the country’s dominant export to Korea, within five years once the trade deal comes into force.
“When it comes to market access, very clearly, our goal was to correct the tariff disadvantage of a major Philippine export to Korea,” the senior trade official said.
Without the FTA, Philippine banana exports enter the Korean market at a 30 percent tariff.
This is a disadvantage for the Philippines since Vietnam’s banana exports to South Korea enjoy a 6 percent tariff rate through a bilateral FTA that has been in place since 2015.
Banana exports from Vietnam to Korea will be at zero-tariff by 2024.
In 2018, former DTI Secretary Ramon Lopez said other countries were trying to increase their banana exports to South Korea, eating up the Philippines’ market share.
Philippine bananas’ share in the South Korean market was more than 85 percent.
Gepty said the Philippines remains the largest supplier of bananas to Korea, but market share already declined to between 70 to 80 percent.
He said Vietnam’s market share of bananas in South Korea remains small at around 2 to 3 percent but it is increasing.
“(So) before Vietnam’s market share increases, we need to maintain the comparative advantage here. This is why it’s (the latest FTA is) important for our banana producers,” he added.
Aside from Vietnam, Philippine bananas are also competing with those from Ecuador, Columbia, and Peru, which Korea has given free market access.
On the other hand, processed pineapples from the Philippines will enjoy zero tariff within seven years once the FTA with South enters into force. Tariff for processed pineapples is currently at 36 percent.
In return, the Philippines will lift the tariff for Korean vehicles, currently at 5 percent, as soon as the FTA takes effect. The country will also scrap the tariff for auto parts, with tariff currently up to 30 percent.
Rodolfo told reporters that the Department of Foreign Affairs (DFA) will determine if the FTA will be a treaty or an executive agreement.
“Whether treaty or executive agreement, we will transmit this to (the) Office of the President for ratification,” he said.
If the DFA will determine the trade pact as a treaty, the Philippines-ROK FTA will need to get the Senate’s concurrence.
“Assuming it’s an executive agreement, by January 2024, it will enter into force,” Rodolfo added. (With reports from Kris Crismundo/PNA)
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