Philippines and South Korea to Sign Free Trade Agreement
The Philippines and South Korea are set to sign a free trade agreement (FTA) this year after concluding their negotiations in 2021. The FTA removes tariffs on most products from both countries and aims to boost bilateral trade. For the Philippines, the FTA can help improve market access for agricultural products to South Korea whereas South Korea is eager to expand its automotive exports to the Philippines market.
The Philippines and South Korea are set to sign a bilateral free trade agreement (FTA) after successfully concluding negotiations last year.
The two sides first started negotiating the FTA in June 2019 before concluding negotiations in October 2021. The Philippines and South Korea plan to sign the agreement on June 30.Once in effect, the FTA will remove tariffs on most products from the two countries, opening the door to rapid growth in bilateral trade. The deal is only the Philippines’ second bilateral FTA, following an FTA with Japan in 2008. Trade between the Philippines and South Korea has already benefitted from the ASEAN-Korea FTA, which came into effect in 2010. The new bilateral FTA will further augment trade and investment between the two countries and promote a deeper relationship between their complementary economies.
What are the key features of the agreement?
Under the Philippines-South Korea FTA, South Korea will lift tariffs on 94.8 percent of Philippine products, while the Philippines will drop tariffs on 96.5 percent of South Korean products.
Other areas covered by the FTA include trade in goods, trade remedies, rules of origin, customs procedures and trade facilitation, economic and technical cooperation, competition, and legal and institutional issues.
For the Philippines, priorities in the FTA are to improve market access for agricultural products, such as bananas, processed pineapples, and other fruits, as well as industrial products and a variety of services. Bananas were excluded from the ASEAN-Korea FTA, making the product a focal point for the Philippines in its FTA negotiations with Seoul.
For South Korea, a key win was the elimination of tariffs on many auto units and parts, opening the door for the country’s auto industry to expand its presence in the Philippines. The auto industry is a staple of South Korea’s economy but has a comparatively low foothold in the Philippines.
In addition to tariff cuts, the FTA includes capacity building and technical cooperation activities between South Korea and the Philippines. Industries marked for cooperation include smart farms, film production, and e-vehicles.
The Philippines also successfully proposed increased cooperation on public health emergencies in the final agreement. Under the FTA, the Philippines and South Korea are poised to increase their cooperation in vaccine production and defense industries.
A deepening economic relationship
For South Korea, the FTA with the Philippines represents progress with the country’s “New Southern Policy”. This policy is a legacy of South Korea’s previous president, Moon Jae-in, which sought to deepen South Korea’s economic and political relationships with South and Southeast Asia.
In 2020, the Philippines exported US$3.05 billion worth of goods to South Korea, making it the Philippines’ seventh-largest export market. South Korea more than doubled these exports the other way, sending US$7.31 billion worth of goods, representing South Korea’s 13th largest export market.Despite South Korea’s significant trade with the Philippines, only US$333 million of its exports comprised transportation products. This includes just US$24.5 million in vehicle parts and US$14.8 million in cars, suggesting there is considerable room for growth in these areas with the new FTA. Meanwhile, the Philippines exported US$262 million worth of agricultural products to South Korea in 2020, 78 percent of which comprised bananas. Agricultural exporters from the Philippines will see increased opportunities for exports to South Korea under the FTA’s tariff cuts.
Overall, however, integrated circuits are the largest product exported to each country. In 2020, 18.5 percent of the Philippines’ exports to South Korea, by value, were integrated circuits, while this figure was 38 percent for South Korea.
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