Here’s Why Manila's Keen on Trade Pacts To Build More Cars

The Philippine government is keen on doubling its efforts to craft more free trade agreements with other countries and to seek lower trade duties, which it sees as crucial to developing the country’s own automotive industry.

Philippine Economic Zone Authority (PEZA) Director General Tereso Panga said on Wednesday, June 26, that it is also key for the Philippines to attract manufacturers from countries looking to diversify its trade and export prospects from China. Panga added that Manila is looking to expand its free trade agreement portfolio with economies such as the European Union, India and Canada. PEZA is also engaged in discussions with car companies from India, Taiwan and China to set up shop and to partner with their Philippine counterparts.

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Based on PEZA data, there were 68 car companies operating in the country’s economic zones as of the end of last year, with investments reaching P100 billion and more than 50,000 jobs provided for from these zones.

“This performance reinforces the automotive sector’s enduring contribution to national industrial growth and the strength of PEZA’s facilitative ecosystem,” according to the agency.

According to estimates from the Department of Trade and Industry, the Philippines is set to generate as much as P200 billion in foreign direct investments from the electric vehicle industry and agricultural processing sector in about three years.

“Strengthening the auto industry particularly through more FTAs and lower tariffs can significantly boost industrial development, job creation, and export diversification,” John Paolo Rivera, a senior research fellow at the Philippine Institute for Development Studies, told Esquire Philippines in an interview. “A more robust auto supply base attracts foreign direct investments, deepens local manufacturing, and helps integrate PH into regional and global value chains."

The Bangko Sentral ng Pilipinas reported earlier this month that net inflows from FDIs dropped to a three-month low in March at 27.8 percent to $498 million from $698 million the same month a year earlier. Most equity placements that month came form Singapore, Japan, the United States, South Korea, and Malaysia.

The Philippine government pushing for lower duties comes at the heels of US President Donald Trump imposing a reciprocal tariff scheme on its trading partners. He decided to pause these higher duties after Wall Street and investors started to sell off shares tanking their stock market.

Manila was set to comply with only the second lowest tariff rate in Southeast Asia under the scheme at 17 percent, which was next to Singapore’s baseline 10 percent rate.

The Presidential Palace had urged Philippine industries to work double time on boosting the competitiveness of local products with their global counterparts and services to raise the country’s exports.

"The American Chamber of Commerce of the Philippines has long supported a mutually beneficial free trade agreement between the US and the Philippines to expand trade, investment, and job creation," Amercian Chamber of Commerce of the Philippines Executive Director Ebb Hinchliffe said told Esquire Philippines.

He added that bolstering automotive production would contribute to a broader manufacturing and infrastructure ecosystem conducive to comptetitiveness and greater job generation.

How The Philippine Trade Pacts with Allies Foster Jobs, Exports

For recently secured FTAs with expectations to boost the country’s automotive and trade channels, the Philippines and South Korea last year ratified a free trade pact that aims to increase exports of Philippine bananas and processed pineapples and Korean-made cars.

Under the deal that took effect late last year, Manila secured the striking out of 1,531 tariff lines on agricultural goods, with 1,417 removed after the FTA took effect. It also removed 9,747 tariff lines of industrial goods.

South Korean car makers are set to strike gold in the deal as five percent import duties on their cars will be removed under the deal. Tariffs on Korean greener electric, hybrid vehicles will also be removed within five years of the deal entering into force.

Rivera noted that the government should push for pacts that would enhance industries linked to the automotive sector such as electronics, metals, and logistics.

“In parallel, support for renewable energy, agribusiness, and digital services will help future-proof the economy and broaden the country’s industrial base,” he added.

Toyota Motor Philippines Corp. has a special economic zone in Laguna that has yielded investments worth more than P18 billion, in cooperation with other locations and export suppliers from the auto group.

“The structure should be different from the semiconductor industries which hire a significant amount but worker value-added measured in terms of their wages is lower compared to other countries,” Leonardo Lanzona, an economics professor at the Ateneo de Manila University, told Esquire Philippines in an online exchange. “This suggests that only managers and owners are gaining from their exports.”

The World Bank has said the Philippines is likely to achieve its goal of achieving upper middle-income status by 2027. The Southeast Asian nation is currently classified as a lower middle-income country if we look at its gross national income per capita of $4,230 in 2023, within the World Bank’s range of $1,146 and $4,515 GNI.

An economy is considered upper-middle income if its GNI per capita falls under the range of $4,516 to $14,005.

Last week the Philippines and the EU conducted the third round of negotiations for a free trade agreement, which the DTI said was marked by “good progress.”

The fourth round of negotiations will be held in October in Manila as both parties seek to include a digital trade chapter in the proposed pact to boost the delivery of basic services and access in the archipelago.

The EU is a big and crucial market for Manila’s products such as tuna, coconut, cacao, pineapple, semiconductors, and electronics. Last year, the Philippine exports to the EU reached $8.073 billion, while imports were at $7.463 billion.

The regional bloc’s Ambassador the Philippines Massimo Santoro has said there was a need to speed up negotiations for the FTA without diminishing the quality of the deal amid external factors such as the aforementioned US reciprocal tariff scheme.

"The idea is to identify other sectors where worker value added is high, emphasizing the need to upskill and to produce more highly processed products," Lanzona said.

"Boosting the automotive industry will support other industries if the value added of this industry especially from labor is improved."