In the first month of the year, our country is already facing two trade issues that will greatly impact our economy.
The first trade issue is the effectivity of the Philippines-Korea Free Trade Agreement (FTA) last Dec. 31, 2024, which is supposed to enhance market access for Philippine products, such as bananas and pineapples, to the Korean market.
The second is the tariff threat made by US president-elect Donald Trump on some of its trade partners, particularly China, Canada and Mexico. Although the Philippines is not a target of the US tariff threat, there are fears that it could have some negative ripple effect on Asia because of China.
On a more positive note, our long friendly relation with the US could once again improve our preferential tariff arrangements.
On the other hand, the Phl-Korea FTA is supposed to unlock significant opportunities for both countries and foster deeper trade and investment ties across key sectors such as industry, agriculture, infrastructure and energy, according to the Korean embassy.
The Phl-Korea FTA encompasses a comprehensive array of provisions, covering areas such as the trade in goods, trade remedies, rules of origin, customs procedures, trade facilitation, economic and technical cooperation, competition and legal and institutional matters.
In terms of the Philippines’ priorities within the FTA, the country focused on enhancing market access for key products such as bananas, processed pineapples, various fruits, industrial goods and a diverse range of services.
For Philippine bananas, tariffs shall decrease by six percent by the end of the year and an
additional six percent at the start of this year, giving the commodity greater market access in South Korea, according to the Department of Trade and Industry (DTI).
The FTA will grant preferential duty-free entry on a total of 11,440 tariff lines. However, with its effectivity starting on Dec. 31, 2024, only an initial 11,164 tariff lines from the Philippines–accounting for $3.18 billion or 87.4 percent of South Korea’s imports from the Philippines–will take effect.
Under the FTA, the Philippines secured the removal of 1,531 tariff lines on agricultural goods, of which 1,417 were removed upon effectivity of the deal. Additionally, the agreement also calls for the elimination of 9,909 tariff lines on industrial goods, 9,747 of which were similarly removed last Dec. 31, 2024 when the FTA came into force.
On the part of South Korea, it will remove tariffs on approximately 94.8 percent of Philippine products, while the Philippines will reciprocate by abolishing tariffs on about 96.5 percent of South Korean products.
According to DTI Undersecretary Allan Gepty, one of the major beneficiaries of the FTA is the banana industry as the tariff rate for bananas will be reduced to zero in five years. At present, bananas from the Philippines that enter South Korea are subject to a 30 percent tariff.
According to a statement from the Korean Embassy, the Phl-Korea FTA “marks a major leap forward in bilateral relations, signaling a fresh chapter of cooperation between the two nations. With a detailed framework that covers 97 percent of imports, this agreement is anticipated to open doors to significant trade and investment opportunities in diverse sectors like agriculture, industry, infrastructure and energy,” the embassy said.
The FTA is also supposed to serve as a “catalyst for shaping the future of both countries,” fostering collaboration in areas such as health care, carbon reduction, innovative technologies and electric vehicles.
Korean Ambassador Lee Sang-hwa was quoted as saying that with the Korea-Philippines FTA comes “the dawn of a new era in our strategic partnership.”
The Phl-Korea FTA was signed on Sept. 7, 2024 on the sidelines of the 43rd ASEAN Summit in Jakarta, Indonesia, with both President Marcos and former South Korean President Yoon Suk Yeol in attendance.
South Korea is among the Philippines’ top trading partners and is also a source of foreign direct investment.
However, a more significant victory in the FTA for South Korea is the elimination of tariffs on many automotive units and components. This development opens opportunities for South Korea’s auto industry to expand its presence in the Philippines, which had a limited footprint in this sector.
South Korean automakers, such as Kia and Hyundai, are expected to benefit from the FTA which will remove the five percent duty on Korea-made automobiles. Tariffs on Korean electric and hybrid vehicles would also be removed within five years.
Apart from tariff reductions, the FTA includes provisions for capacity-building and technical cooperation between the Philippines and South Korea.
My own fear, however, is that Korean agricultural and food products, together with manufactured goods will swamp the Philippine market, even as they already have, even before the FTA took effect.
In my own experience, I have been patronizing Korean-owned groceries, buying their much larger vegetables like Chinese cabbage and radish which I also regularly see in local wet markets such Farmers’ Market in Cubao. I also now use more Korean vinegar and fish sauce since they have better quality and flavor than Philippine made counterparts.
My household essentials like kitchen scissors and knives are mostly Korean or Chinese made, as well as my frying pans and some pots. Thankfully, since I don’t use a lot of make-up or beauty products, I have not fallen for the variety of Korean beauty products already available locally.
I also lament the fact that even though Hyundai has been in the country for several years, it has chosen not to engage in local assembly of its vehicles in the country and continues to import its vehicles. Hopefully with the FTA now in force, it will finally pour in actual investments to do some local assembly of its vehicles and contribute to job creation in the country.
But good luck to our balance of trade figures.