By Bernie Cahiles-Magkilat
Philippines and Korean governments have officially started negotiations for the proposed bilateral Free Trade Agreement (FTA) aiming to conclude a “future-oriented” and largely trade in goods and investment deal as early as November this year.
Department of Trade and Industry (DTI) Secretary Ramon Lopez and Minister for Trade, Industry, and Energy Yoo Myung-hee officially launched the negotiations of the PH-ROK Free Trade Agreement (FTA) in Seoul yesterday, June 3, 2019.
Though the two governments are working on a tight timeframe, both parties affirmed their common goal to achieve a comprehensive and future-oriented FTA as they also held the first meeting of the PH-ROK Joint Commission on Trade and Economic Cooperation (JCTEC) at the launch of the FTA negotiations. The Philippines was represented by DTI Undersecretary and Board of Investments Managing Head Ceferino Rodolfo.
During the launch, both countries recognized the potential to advance economic relations “by enhancing trade and investment flow between them through, removal of impediments to closer trade and creation of business and investment opportunities.”
“Today’s event was borne on the back of a number of meetings between our Leaders and officials that had served to convey our mutual interest for an FTA. For the Philippines, the FTA means we can achieve improved market access for our agriculture products such as banana, pineapple, and mangoes, as well as industrial products and other services. We are working on better reciprocity of tariff rates and market access of our agricultural and industrial products to improve the balance of trade with South Korea,” said Lopez.
“These include movement of natural persons and more investment opportunities that could lead to job generation. These also include greater collaboration in innovation, as well as R&D that will support the implementation of our inclusive innovation and industrial strategy,” the trade chief added.
Minister Yoo conveyed that the FTA is a significant step forward to a stronger economic partnership between the two countries. The Minister also noted the Philippines as a very important trade and investment partner for South Korea.
Both ministers committed to conclude the negotiation of a “comprehensive and future-oriented FTA” by November 2019. The FTA will create favorable conditions for exporters, investors, industries, work force, as well as the micro, small, and medium enterprises (MSME) of both countries.
Once concluded, the bilateral FTA will pave the way for an enhanced market access for products of interest of the two countries. It is also viewed that the agreement will provide a more stable and predictable economic environment necessary to generate more trade and investments.
Lopez said the Philippines aims to have greater market access for bananas and other agriculture exports.
He also noted of the need for more collaboration on trade and investments on technology and innovative products developing industries of the future, like on electric vehicles, electronics and IT.
Merchandise trade between the Philippines and South Korea reached $13.7 billion in 2018, making Seoul Manila’s 5th largest trading partner.
Top Philippine exports to South Korea include bananas, pineapples, copper. Philippine imports are mainly industrial products from South Korea. In 2018, South Korean investments in the Philippines totaled $35.79 million, primarily on real estate activities and manufacturing.
Already, the Philippines has agreed to look into South Korea’s position that it removes the import duty for the latter’s cars and parts in exchange for investments in the production of electric motors and batteries in the country for the assembly of e-vehicles as both countries enter into negotiations for a “forward-looking” FTA.
Rodolfo earlier said they are closely studying South Korea’s request for zero duty for its cars and auto parts to entice Korean car companies to choose the Philippines as location for their electric vehicle assembly, and production hub for motors and batteries.
At present, the Philippines slaps 5 percent duty on CBU car imports from South Korea, putting them at a disadvantage against Japanese cars, which produce in ASEAN and are entitled to zero duty courtesy of the ASEAN AFTA.
Under the TRAIN Law, e-vehicles are exempted from paying the excise tax but are still subject to import duty. Other incentives include income tax holiday and zero duty importation of capital equipment under the Investment Priorities Plan of the Board of Investments if they plan to enter into assembly and production.
Rodolfo said the zero tariff on CBU e-vehicles and its parts would be of great help at the initial stage as they have to build the market first and invest in charging stations.
“If they give us the e-vehicle assembly center but they will ask for zero tariffs on parts then we have to be practical and check the tariff rates line by line,” said Rodolfo.
Rodolfo explained that investing in electric motors assembly would be easier because there are only 200-300 parts unlike the typical car engine with thousands of parts. As to battery production, he said, the Philippines also produces copper wires needed for this product.
Korean vehicle firms have their own battery and motors production for their e-vehicles but not in ASEAN. Other Korean firms like Samsung have also battery production centers, but have difficulty deciding because there are different technologies competing in the market, Rodolfo explained.
Earlier, Hyundai’s local unit proposed to assemble five models in the country although these are not e-vehicles yet, but internal combustion engine (ICE) technology.
According to Rodolfo, the Philippines would be a good location for Korean car production in ASEAN because the Japanese car companies have already entrenched e-vehicle assembly investments in Thailand and Indonesia. Vietnam is also a candidate for South Korea’s e-vehicle investments, but Rodolfo said that it has now a partnership with a European firm for its e-vehicle model called VinFAST.
Aside from e-vehicles, Rodolfo said the DTI is pushing for additional market access for bananas by removing the 30 percent tariff on the country’s banana exports.
Other banana exporters such as Ecuador, Nicaragua, El Salvador, Honduras, Costa Rica, Panama and Guatemala are going to enjoy zero duty on their banana exports to Korea by 2021 under the regional FTA with Korea. Peru has been enjoying zero tariff since 2015. This zero-tariff privilege to these countries would make their banana exports more competitive and put the Philippine bananas at a disadvantage.
Since both countries have also agreed to be practical and forward looking in the planned FTA, they decided not to include challenging areas like government procurement, intellectual property, public utilities and services that normally take up longer negotiating time.
“This bilateral FTA is more of trade in goods,” Rodolfo said.
At the sidelines of the launch of the FTA negotiations, “The JCTEC is equally important as it will tackle a broader perspective of economic cooperation between the two countries,” Sec. Lopez.
Meanwhile, the DTI chief is set to conduct a roundtable meeting with high-level South Korean business executives from various industries such as construction and infrastructure, tool and die; as well as energy to discuss opportunities in locating and expanding their operations in the Philippines.