On September 7th, Ahn Duk-geun, Minister for Trade of the Republic of korea and Alfredo Espinosa Pascual, Secretary of Department Trade and Industry of the Philippines signed the Korea-Philippines FTA (“FTA”) in Jakarta, Indonesia where the ASEAN Summit is taking place in with the leaders of both countries in attendance.
An official signing on the FTA came about one year and ten months later after the conclusion in last October 2021 through domestic procedures in each country, including legal scrubbing.
With this signing, Korea reached 22 FTAs with 59 countries. For Philippines, having multilateral FTAs such as RCEP and AFTA (ASEAN Free Trade Area), it is the second time to have a bilateral free trade agreement after the EPA with Japan in 2008.
Korea has expanded its scope of network for multilateral FTAs involving all ASEAN countries like the Korea-ASEAN FTA and RCEP as well as bilateral agreements with key trading partners in ASEAN. In addition to Singapore, Vietnam, Cambodia and Indonesia, the FTA allowed South Korea to see the 5th Free Trade Agreement with ASEAN countries. As of 2022, the trade volume between Korea and the five countries accounted for 91 percent of the total trade volume with ASEAN.
*Korea-Singapore FTA (Entered into force in, 2006), Korea-Vietnam (2015), Korea-Cambodia (2022), Korea-Indonesia (2023), Korea-Philippines (Signed in 2023)
The Philippines has 110 m people (the 12th in the world and 2nd in ASEAN) and its consumption accounts for about 70% of the GDP, which means there is a potential for consumption. As of 2022, it is the 5th trading partner of South Korea, reaching $17.5 billion in trade volume. The volume amounted to $12.3 billion in export, recording the 3rd in ASEAN countries, and to $5.2 billion in import. Moreover, the Philippines is a resource-rich country with large reserves of critical minerals designated by South Korea including nickel and cobalt. As such, Korea can see a high value and potential to expand cooperation between the two countries.
*For production, the world’s 2nd in nickel and the 4th in cobalt
After all, Korea and the Philippines opened their markets of 94.8% and 96.5%, respectively, for each other, thereby achieving the high level of liberalization.
* The level of liberalization: (Number of Tariff lines) Korea- 94.8%, Philippines- 96.5%/ (Import Value) Korea- 97.0%, Philippines- 97.6%
In the Korea-Philippines FTA, cars and auto-parts are expected to mainly enjoy benefits from the agreement. The Philippines is the 1st car importer among ASEAN countries. As of 2022, for the market share by car brand, 82.5% was occupied by Japan; and 7.0% by the U.S; and 6.4% by China; and 2.5% by Korea. This shows Japanese brand has been dominant in the market. The Philippines-Japan EPA lowered the tariff on car and car parts including truck to 0%, except for a passenger car (20%).
* Car sales in the Philippine market (2022): 36.6 m (28% increase year-over-year)
– Ranking by brand: ①Toyota, ②MITSUBISHI, ③Ford, ④RENAULT-NISSAN, ⑤SUZUKI… ⑨Hyundai and KIA
The Korea-Philippines FTA will immediately eliminate the tariff on cars from Korea (the existing tariffs-5%) upon entry into force of the agreement. Also, the tariff on car parts (3~30%) will be removed within five years. In this context, South Korea’s competitiveness against major economies in the Philippine automotive market will be significantly improved. Plus, the tariff on eco-friendly vehicles that have great future potential, including electric and hybrid cars, will be eliminated within five years in line with the economic growth in the Philippines (the growth rate of 6.5% in 2022)
* Import tariff rate to PH
– Passenger car: (Basic rate) 30%, (Japan) 20%, (China) 5%, (Korea) 5% →0%
– Truck: (Basic rate) 30%, (Japan) 0%, (China) 5%, (Korea) 5% →0%
– Car parts: (Basic rate) 3~30%, (Japan) 0%, (China) 3~5%, (Korea) 3~30% →0%
– Green car: (Basic rate) 30%, (Japan) 20%, (China) 5%, (Korea) 5% →0%
In addition, the FTA will give more access to the Philippine market to agricultural and fishery products from Korea gaining popularity with the Korean wave as the tariff on processed food (5~10%), ginseng (5%), pepper(5%), pear(7%), mackerel(5%) will be subject to a removal within 15 years.
Meanwhile, the existing level will be maintained for agro-fishery and forest products sensitive on Korea’s side by setting the concession table within the scope of FTAs already in place such as the Korea-ASEAN FTA and RCEP. In terms of bananas the Philippines has an interest in, the tariff will be removed within five years, however, the safeguard measure will be implemented to avoid a surge in imports, if required.
* Based on recent import volumes, measures can be taken to re-impose the tariff of up to 30% if imports exceed the annual threshold, beginning in the first year of the FTA (for 10 years)
Furthermore, the two countries created a foundation to solidify the future-oriented economic cooperation on key areas like vaccine, climate change and culture by adopting the agreement of economic and technical cooperation in the FTA and setting aside the implementing agreement that sets out details. Based on this groundwork, the mutually-beneficial bilateral discussions will be pursued through a variety type of cooperation in promising areas, including healthcare, rare metal processing, innovation Ecosystem, culture industry, film, e-commerce and intellectual property rights.
* Information exchange, sharing best practices, expert connections, business forum, joint research and development
With a view to taking effect in the first half of next year, the Korean government is planning to move forward in efforts to make the process run more smoothly including ratification in the National Assembly to ensure that the people and businesses of both countries can enjoy benefits soon.