Trade pact with EU is vital for PH growth

PRESIDENT Ferdinand Marcos Jr. recently called for a resumption of negotiations on a free trade agreement (FTA) with the European Union, and it is encouraging that support for the idea has been virtually unanimous. The Philippines already enjoys substantial trade privileges with the 27-member EU, but with the expiration of those quickly approaching, an FTA is vital for expanding Philippine exports and maintaining our economic growth momentum.

Preliminary scoping discussions on an EU-Philippines FTA began in 2013, with formal negotiations initiated in 2016. However, after a second round of talks in Cebu in 2017, further negotiations were suspended.

The Philippines currently has two significant trade arrangements with European countries. The largest of these, and the one that is currently causing the most concern here, is the Philippines’ eligibility under the EU’s Generalized System of Preferences Plus (GSP+), which offers zero tariffs on 6,274 import products. The program, which is offered to developing countries, was first implemented for the Philippines in 2014 and has been a boon for export growth; in 2021, for example, total exports to the EU reached 7.7 billion euros, of which about 2.7 billion euros was covered by the GSP+.

In addition, since 2018 the Philippines has had an FTA with the European Free Trade Association (EFTA), a group that comprises the nations of Norway, Switzerland, Iceland and Liechtenstein. The Philippines will also soon be able to access the UK’s new Developing Countries Trading Scheme (DCTS), which targets to lower or remove tariffs on an additional 156 products for developing countries in addition to those covered under GSP+ for trade with the EU.

Both of the latter two agreements, however, while still very much welcome, are modest in scale compared with the GSP+. While the Philippines is lobbying for renewal of its GSP+ eligibility when it expires at the end of this year, there is real concern that it will not be renewed, simply because the Philippines is perceived as quickly moving away from “developing country” status. That is a nice problem to have, but without GSP+ eligibility, more than a third of the current exports to the EU may be at risk, and result in a significant shock to the economy.

Fortunately, support for an EU-Philippines FTA has also been expressed by business groups in a position to help the cause, such as the European Chamber of Commerce of the Philippines (ECCP) and the European Union-Asean Business Council (EU-ABC). As these groups are in the best position to understand the EU market and EU trade priorities, our government should seek and listen carefully to their advice on how to proceed with restarting the FTA negotiations.

Beyond that, we might suggest several other areas in which the Philippines can improve its chances of securing an FTA with the EU. The government should conduct a review of current Customs and port regulations to identify unnecessary obstacles to trade and bring those into line with the Ease of Doing Business Act. Digitalization and enhancements of Customs processes meant to make the flow of goods faster and more secure should be prioritized. Being able to demonstrate that trading with the Philippines is efficient, transparent, and overseen by clear and consistently enforced regulations is a non-negotiable requirement for any trade agreement; and of course, the Philippine side should expect the same from their EU counterparts.

The flow of goods is important, but the kinds of goods the Philippines can offer potential EU trading partners is perhaps more so because an FTA does not necessarily create a market or demand. Again, the EU experts present in the Philippines can provide valuable guidance. As just one example, EU-ABC Executive Director Chris Humphrey in a recent media interview suggested that the Philippines might take advantage of EU demand for manufactured and agricultural products, while EU industries that might find a productive market here include those in renewable energy and electric vehicles.

In the meantime, work to renew the country’s GSP+ status should continue. Even under the best of circumstances, an EU-Philippines FTA might take three years or more to finalize and implement; thus, the GSP+ status will be an important bridge for the transition from a “developing country” to a full trade partner.

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