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Philippine trade minister hopes for EU free trade agreement before 2028

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Euractiv | 29 June 2023

Philippine trade minister hopes for EU free trade agreement before 2028

By János Allenbach-Ammann

As the Philippines is nearing the status of an upper-middle income country, which would see it lose preferential treatment in EU trade policy, it is trying to seal trade relations with the EU by means of a free trade agreement with the bloc, its secretary of trade and industry said in an interview with EURACTIV and Borderlex.

“We’re optimistic that within the year, there will be a resumption,” Alfredo Pascual said of the FTA negotiations between the EU and the Philippines, which were stopped in 2017.

Pascual was on a roadshow through Europe this week to advocate for his country as a trade partner, including a stopover in Brussels to meet the Commission’s Executive Vice-President and Trade Commissioner Valdis Dombrovskis for talks.

On top of his mind: The generalised scheme of preference plus (GSP+), by which the EU grants preferential market access to some developing countries and from which the Philippines currently benefits.

However, this preferential access is under threat from two sides.

Preferential trade at risk due to internal EU haggling…

On the one side, the EU’s GSP regulation is running out at the end of 2023 and the Commission’s legislative proposal to prolong it for 2024-2033 has not been approved yet, as the European Parliament and the member states fight over whether to link access to GSP to migration.

While member states represented in the EU Council would like to make access to GSP conditional on countries readmitting their own nationals if they migrated to the EU illegally, Parliament negotiators want to keep the issue separate.

As discussions between the Council and Parliament are stalling, it is unclear whether a cliff-edge scenario can be avoided in 2024.

According to a Commission spokesperson, the Commission has – in parallel with the stalled negotiations – started work to prolong the current GSP rules and avoid the cliff-edge scenario, but this prolongation would also have to be approved by the Council and the Parliament.

Pascual is hoping for clarity soon. “We’re here to get the European Union to give us a good indication of how they are formulating the new rules for the GSP+,” he said.

“We want to know whether they’ll consider us to be eligible for coverage. And if yes, then we will reapply.”

…and due to Philippine growth

However, even if the EU manages to prolong GSP into the coming years, the Philippines is unlikely to be able to benefit from it for much longer. The EU only provides GSP access to countries that are considered below the threshold of upper-middle-income countries.

With the strong economic growth that the Philippines has experienced in recent years, the country is on the cusp of stepping over the GDP threshold that would make it an upper-middle-income country, according to the World Bank’s definition.

According to Pascual, the threshold is likely to be reached in 2025. To finally be considered an upper-middle-income country, the Philippines would have to stay above the threshold for three years, meaning that the GSP+ access could be lost by 2028.

To avoid tariffs snapping back into place, the Philippine trade minister wants to secure a free trade agreement with the EU by that time at the latest.

Reviving FTA negotiations after Duterte

“In order not to disrupt domestic industries in the Philippines, we’d like to be able to transition without a gap to an FTA between the Philippines and the EU,” Pascual told EURACTIV, hoping for negotiations to start before the end of 2023.

An EU Commission spokesperson confirmed to EURACTIV that Dombrovskis and Pascual “discussed how to reactivate the EU-Philippines trade agenda, both bilaterally and multilaterally”.

“At this point, it is still premature to comment if and when we would restart the FTA negotiations,” the spokesperson said.

The Philippines and the EU were already negotiating a trade deal during the past decade, but talks were halted in 2017 when the EU was concerned over human rights issues in the country under the administration of Rodrigo Duterte, who was president until the summer of 2022.

Pascual’s trip to Europe is in part also a roadshow to convince Europeans that things have changed, although the message is tainted by the fact that the Philippines’ new president, Bongbong Marcos, is the son of the country’s former dictator Ferdinand Marcos.

“We are more open to international engagements with the current administration,” Pascual said, arguing that there was a need to collaborate on issues of human rights, labour rights, and the environment.

A partner in de-risking from China

Pascual wants to position his country as a partner in both the green transition and in the push by the US, the EU, and other like-minded countries to diversify their trade relations away from China.

“For observers, [sustainability] might appear to be an issue because they may think that developing countries are less concerned about the environment, but that is not the case in the Philippines,” Pascual said, brandishing the country’s 35% renewable energy target for 2030.

“We are among the top five countries most vulnerable to the negative impact of climate change” and that is why, he said, the “consciousness of people is there”.

More specifically, the trade minister argued that the country’s nickel deposits could be used to set up a battery supply chain in the Philippines.

“We export 90% of our nickel ores to China,” he said, arguing that an essential part of the surplus value would thus go lost for the Philippines.

However, he argued, with the help of European or American companies, this could change, offering his country a way to reduce its dependency on China while providing better access to essential raw materials.

“We can process our ores using clean energy,” said Pascual, who sees the entire de-risking discourse as an opportunity for the Philippines.

“De-risking from China means shifting to alternative sources of supply and that’s where we will capture the shift.”

 source: Euractiv