South Korea, Philippines look to FTA deal

South Korea and the Philippines are working toward a free trade agreement (FTA) that could lead to increased petrochemicals and oil products trade.

Trade officials agreed last week to pursue a bilateral FTA, which they aim to complete before a South Korean summit with the Association of Southeast Asian Nations is held in November. With South Korea's economy slumping, as GDP contracted by 0.3pc in this year's first quarter, President Moon Jae-in administration is promoting a policy that focuses on bolstering ties with southeast Asian nations.

The Philippines boasts annual GDP growth rates above 6pc, while Seoul has urged South Korean petrochemical producers, refiners and other industries to diversify their export outlets as trade protectionism and slowing economies cloud the outlooks for their biggest markets. South Korea's first-quarter refining exports by volume rose 4.7pc to 1.33mn b/d as the industry shipped products to customers in 59 countries, up from 44 nations a year earlier.

The Philippines is reliant on imports to meet more than half of the country's fast-growing demand for products. Consumption of such products is growing even faster than the nation's GDP as the country's economy develops.

Potential benefits of a deal could be similar to those achieved through an FTA with Vietnam that went into effect in December 2015. South Korea within two years overtook the US as Vietnam's second-largest trading partner, ranking behind only China. South Korea and Vietnam are well on the way toward reaching a goal of $100bn in bilateral trade by 2020, up from $68.2bn last year. Trading volumes between the countries is more than triple that with South Korea's second-biggest market in southeast Asia, Indonesia.

The South Korea-Vietnam FTA slashed or eliminated tariffs on almost all goods. Vietnam's tariff on South Korean gasoline was halved, which led to a surge in imports of the fuel. South Korean products exports to Vietnam more than quadrupled in 2016 to 50,000 b/d, then rose a further 56pc to more than 77,000 b/d, in 2017. These volumes slid by 18pc last year to 64,000 b/d as Vietnam's 200,000 b/d Nghi Son refinery opened, reducing the need for imported gasoline.

South Korea's products exports to the Philippines rose by 12pc last year to 66,000 b/d. South Korea already provides more than 20pc of the Philippines' products imports.

The Philippines' overall imports have been rising at an annual pace of around 7pc over the past five years. Trade with South Korea rose by 9.3pc last year to $15.6bn. The value of Philippine petrochemical imports totalled more than $7.3bn in 2017, South Korea ranked as only the seventh-largest supplier at $404.9mn, according to World Bank data. Refined fuel imports totalled $5.64bn in 2017.