Succeeding with Seoul

The Philippines and South Korea (Phl-SK) Free Trade Agreement (FTA) was ratified by the Senate of the Philippines last Monday (Sept. 23, 2024), leaving only the Korean Nation Assembly’s ratification thereof as the final major hurdle to its entry into force. It is a culmination of 75 years of amity between our two nations, and of the increasing interconnectedness of our pursuit of mutual prosperity through crucial areas of cooperation including trade, technology, defense and agriculture.

As a member of the Philippines Korean Economic Council, I consider it a welcome development and an exciting challenge for our public and private sector stakeholders to maximize the incredible potential of this strengthened powerhouse partnership.

South Korea, the fourth largest economy in Asia recognized as a technological innovation leader and 14th in the world, was the Philippines’ fifth largest trading partner in 2023 with total trade value estimated at $12 billion or P671.58 billion. Exports to South Korea were around $3.53 billion or P197.58 billion, and imports at $8.49 billion or P475.21 billion. As of June 2023, 246 Korean firms registered with the Philippine Economic Zone Authority with combined investments valued at P92.19 and showcasing top companies like Samsung.

The Phl-SK FTA is built on previous gains; it is our third FTA involving South Korea, with the first being the Association of Southeast Asian Nations (ASEAN)-SK FTA and the other as the Regional Comprehensive Economic Partnership (RCEP).

On the Philippine side of the free trade equation, the 2024 Phl-SK FTA has South Korea abolishing tariffs on approximately 94.8 percent of Philippine products and grants up to 98 percent preferential access to the South Korean market, according to figures of the Department of Trade and Industry (DTI). It is a noticeable increase from the RCEP’s 96.4 percent and the ASEAN-SK FTA’s 88 percent, which had left out the banana market. Bananas find relevance in this discussion since it is our second highest traded agricultural product from 2013 to 2022 comprising a significant 19 percent of agricultural trade revenues and estimated $11.8 billion or P660.43 billion. South Korea was the Philippines’ third largest market of origin for fresh bananas, with exports in 2023 approximated at $164.54 million or P9.2 billion.

A July 2024 report published by the United Nations’ Food and Agriculture Organization identifies the Philippines as the main exporter of bananas in Asia. The Phl-SK FTA creates a better environment for the Philippine banana industry to regain our previous status as the undisputed banana supplier in South Korea. Ten years ago, in 2014, the Philippines supplied a whopping 95.6 percent of the value of bananas in the South Korean market. It is currently down to 65 percent to 70 percent, as we steadily lose market share to other countries at much lower tariff rates guaranteed by FTAs. Countries eating up South Korean banana market share include Vietnam whose six percent tariff is set to decrease to zero by 2025, and the nations of Peru, Ecuador and Columbia, all already at zero tariffs. The Phl-SK FTA will reduce the existing tariff on bananas from 30 percent to zero in five years. It bears emphasis that the Phl-SK FTA arrived at the Senate for its ratification with endorsement of 13 government agencies, including the Department of Foreign Affairs, the Department of Finance, the DTI, National Economic and Development Authority and the Department of Agriculture, and many private sector and public interest groups. It nevertheless has its share of critics claiming that saving the sagging banana industry’s share of the Philippines in South Korea is not enough motive to rush the treaty and to give up too much in favor of South Korea, particularly the impressive and immediate benefits accorded to the Korean automotive industry. Senate deliberations indicate that while Phl-SK FTA generates leeway on the demand side of the banana market, the Philippine government must decisively address supply side restrictions such as the notorious Panama disease severely afflicting acres of Philippine banana plantations.

With discussions of the Philippine government’s plans for our next FTA, such as one with the US, it is earnestly urged that future FTAs strengthen its provisions on institutional, economic and technical knowledge exchange. The Philippines must use such opportunities to build the technical capacities of our people, bolster industrialization and innovation and enhance manufacturing here at home in the Philippines. Done right, we learn from our first world partners, level up our country so we could design, manufacture, market, trade and invent higher value goods and services, and trade it alongside our agricultural trade products like our world-class bananas.

The Phl-SK FTA comes at a critical time for the global economy and our own. Neighboring China just passed a slew of stimulus interventions in an aggressive attempt to repair its once untiring economic machine. Allanz’s 2024 Global Wealth Report, released only a few days ago and places the Philippines as the 46th out of 60 national economies studied, suggests that our country is a “growth champion,” for a respectable rise in wealth in 2023, but remains one of the poorer countries in our region. We need to take every opportunity we can to come together with our allies abroad.

The Phl-SK FTA sets an extra warm welcome for the anticipated visit of South Korean President Yoon Suk Yeol to the Philippines in October 2024. We hope our diplomatic and trade gains and demonstrations of goodwill will lead to more avenues for the Philippines to grow with South Korea. However, it is still up to public and private sector partnerships and projects to turn these new favorable conditions into tangible outcomes that benefit all Filipinos.