Completion of PH-Korea FTA a well-timed economic boost

A SWEEPING free trade agreement (FTA) formally signed between South Korea and the Philippines is a piece of most welcome news that deserves greater attention than it has been given thus far, coming as it does at a time when there are growing uncertainties about the economic outlook for the Philippines, particularly with respect to foreign trade.

The FTA, which has been under negotiation since 2021, was signed by Trade Secretary Alfredo Pascual and his South Korean counterpart Ahn Duk-geun during the 43rd Association of Southeast Asian Nations (Asean) Summit in Indonesia on September 7. President Ferdinand Marcos Jr. and South Korean President Yoon Suk Yeol also attended the signing ceremony.

According to a report from the Korea Times, the FTA was largely completed as early as July 2022, but some follow-up discussions on fine-tuning datelines for removing tariffs, rules on agricultural safeguards and other details" were needed. The pact will now go to the Korean National Assembly for ratification on the Korean side, while our government waits for a ruling from the Department of Foreign Affairs as to whether it will require Senate ratification as a treaty or can be implemented with the President's signature as an executive agreement. Assuming the respective ratification processes are completed smoothly, the FTA is expected to come into full force in the first half of next year.

Under the agreement, the Philippines will progressively lift tariffs on approximately 96.5 percent of imports from South Korea, while the latter will remove tariffs on approximately 94.8 percent of Philippine goods. The biggest beneficiaries of the FTA will be the South Korean automotive sector and Philippine banana producers. A current 5-percent tariff on imported Korean automobiles will be lifted immediately when the FTA takes effect, with the up to 30-percent tariff on auto parts reduced to zero over five years. Likewise, the 30-percent tariff on banana exports to South Korea will be completely removed within five years.

The signing of the FTA comes at an opportune time for the Philippines, as trade has increasingly become an area of concern due to the economic slowdown in China. The Philippine Statistics Authority reported last week that both exports and imports continued their decline in July, dropping by 1.2 percent and 15.3 percent, respectively, and widening the year-to-date trade deficit to $33.18 billion.

China (including Hong Kong) is the Philippines' biggest trade partner, accounting for slightly more than 25 percent of both inbound and outbound trade. Thus, any slowdown in China has a significant impact. China is currently experiencing both declining demand and output, which does not bode well for the Philippines. However, the new FTA with South Korea offers the Philippines the opportunity to diversify its trade and ameliorate some of the impact of China's downturn.

Gain in experience

Another good effect of the FTA with Korea, or with any additional bilateral partner, is that the more trade can be expanded in terms of the number of potential markets, the more experience will be gained by Philippine businesses. Every trade partner has slight differences in terms of product standards and trade business procedures, and so gaining additional knowledge in those areas helps to make our businesses more globally competitive. Trade partners likewise have significant differences in the tastes and demands of their consumer markets, and so gaining additional knowledge in this area will help to make Philippine products and services more globally competitive.

In addition, South Korea in particular is highly experienced and competitive in several industries that are of particular interest to the Philippines, including shipbuilding, automotive, electronics and vehicles. A closer trade relationship should help to increase opportunities for other investment and knowledge transfer in those areas as well.

At this point, the only real concern is what mode of ratification is needed and how quickly that can be accomplished. That is a legal question for the experts at the DFA to determine. If it is their judgment that the FTA needs to be reviewed and ratified as a treaty by the Senate, we hope that body will act more quickly than it has with other key agreements in the past, such as the Regional Comprehensive Economic Partnership, or RCEP, which was unnecessarily delayed for more than a year.

Source: The Manila Times