Zero duty for Korean cars likely under planned bilateral FTA

The Philippines has agreed to look into South Korea’s request that the government 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 “forwardlooking” bilateral free trade agreement (FTA).

Trade and Industry Undersecretary Ceferino S. Rodolfo told reporters they are closely studying South Korea’s request for zero duty for its cars and auto parts exported from Korea to entice Korean car companies to choose the Philippines as location for their electric vehicle assembly, and production hub for e-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 are produced in ASEAN and are entitled to zero duty courtesy of the ASEAN Free Trade Area (AFTA) agreement.

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 imported completely built-up e-vehicles and its parts would be of great help at the initial stage as investors have to build the market first and invest in charging stations.

“If they give us the e-vehicle assembly center but 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 has some of the needed inputs like copper wires.

Korean vehicle firms have their own battery and motors production for their evehicles 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 among ASEAN countries for Korean e-vehicle production because the Japanese car companies have already invested in e-vehicle assembly 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 under the bilateral FTA regime.

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 their regional FTA with Korea. Peru has been enjoying zero tariff on their banana exports since 2015.

This zero-tariff privilege to these countries would make their banana exports more competitive and put the Philippine bananas at a disadvantage, Rodolfo said.

But the Philippines hopes to maintain competitiveness once the FTA with Korea is completed. Both countries have agreed to conclude their FTA negotiations in November this year. Hopefully, Rodolfo said, the trade deal would take effect six months after.

Both countries have also agreed to be practical and forward looking in the planned FTA. This means they would not 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.