THE Philippine Economic Zone Authority (PEZA) said it expects South Korea to become a top-four source of foreign direct investment (FDI) after the recently signed free trade agreement (FTA).
“If they are currently number five right now, they might be number four,” PEZA Director General Tereso O. Panga said on the sidelines of a Philippine Information Agency briefing on Friday.
“If you look at the numbers, from January to September we saw a strong increase in Korean investment,” he said.
PEZA estimates that South Korean FDI in the January-Sept. 7 period was P1.41 billion.
Japan topped the list with P22.61 billion approved investments, followed by Singapore (P15.4 billion), the Cayman Islands (P11.63 billion) and the UK (P2.75 billion).
Mr. Panga said the FTA with South Korea is expected to drive increased FDI in electronics, agro-processing, renewable energy, automotive, and frontier technology.
Trade Undersecretary and Board of Investments managing head Ceferino S. Rodolfo said that the FTA, signed on Thursday, will correct tariff disadvantages hindering major Philippine exports to South Korea.
The Philippines was able to secure tariff elimination on 1,531 lines of agricultural goods, of which 1,417 lines will be removed upon entry into force (EIF) of the bilateral FTA.
Bananas, which are currently charged a 30% tariff, are set to go to zero tariffs over five years, while tariffs on processed pineapples, which are currently charged 36%, will obtain tariff elimination in seven years.
For industrial goods, the FTA led to tariff elimination for 9,909 lines, of which 9,747 lines are set for tariff elimination upon EIF.
Ateneo de Manila economics professor Leonardo A. Lanzona said in an e-mail that the FTA will likely lead to large domestic companies forging tie-ups with their Korean counterparts.
“It is crucial then also that the micro, small, and medium enterprises (MSMEs) are made to link with the domestic companies that are going to be tied to the multinational Korean companies,” Mr. Lanzona said.
“(The Korea FTA) is a welcome development. The more free trade agreements there are, the better,” he said.
“To maximize the benefits from these FTAs, we need to support more MSMEs and upgrade the skills of the workers to give them opportunities to participate in these activities,” he added.
Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the FTA will boost trade and FDI in the Philippines.
The Philippines can be positioned as “an alternative manufacturing hub as well as hedge (against disruptions of) the global supply chain for the international operations of South Korean global companies,” he said.
In turn, the FTA could also encourage the hiring of Filipino workers in South Korea, in view of improved economic ties, Mr. Ricafort said.
“Thus, the FTA will boost gross domestic product growth in view of the increase in external trade and investment,” he said.
He added that the agreement may also boost tourism from South Korea, already a leading source of visitors for the Philippines.
However, Ateneo’s Mr. Lanzona cited the need to amend the Constitution with the expansion of FDI to more industries.
“The Constitutional provision that limits foreign ownership of firms to 40% needs to be revised. Greater flexibility in our trade agreements is needed as long as greater production with more and better jobs are achieved,” he said. — Justine Irish D. Tabile
