Toward an EU-Philippines Free Trade Agreement

by Sebastien GOULARD

For over 20 years, the European Union has sought to establish a free trade agreement with the Association of Southeast Asian Nations (ASEAN). However, political disagreements (primarily concerning the situation in Myanmar) and the vast economic diversity among ASEAN members have prevented an agreement between the two regional organizations. Nonetheless, several bilateral agreements between the EU and Southeast Asian nations have been negotiated. The EU signed a free trade agreement with Singapore in 2018, and a similar settlement was reached with Vietnam a year later. Negotiations are ongoing with Indonesia, despite the contentious issue of palm oil production.

We are currently witnessing a growing acceleration of partnerships between the two regions. In 2021, the EU launched its Indo-Pacific strategy, in which Southeast Asia plays a particularly important role. Although the EU has refocused on its immediate environment due to the war in Ukraine, it still aims to foster new cooperations with ASEAN, particularly to develop new supply chains and achieve a decoupling from China. Similarly, a number of Southeast Asian countries are seeking to reduce their dependency on China and rebalance their relations with other powers, including the European Union. It is the tightening relations between Manila and Beijing that partially explain the Philippines’ desire to launch new negotiations with the European Union.

Despite the entry into force of the EU-Philippines Partnership and Cooperation Agreement in 2018, relations between the two actors were relatively strained under former President Rodrigo Duterte (2016-2022), as Brussels expressed concerns over possible human rights deterioration in the Philippines due to Duterte’s war on drugs. Since the 2022 election of President Ferdinand Marcos Jr., these relations have improved.

A Free Trade Agreement by 2027

Both parties aim to move swiftly so that negotiations can be concluded by 2027. Initial negotiations began in 2015, and a second round of talks took place in 2017 but were not renewed.

For the Philippines, achieving this goal is critical so that its exports are not subject to EU tariffs. Currently, the Philippines benefits from the Generalised Scheme of Preferences Plus (GSP+) as a developing economy, meaning that some of its products are exempt from EU import tariffs. However, if the Philippines attains upper-middle-income status for more than three years (a very real possibility given the country’s economic development), it will lose access to the GSP+ status, and its exports to the EU will face higher tariffs.

Unlike Indonesia, the Philippines exports relatively few agricultural products to the EU, so sustainability and deforestation issues are expected to be less prominent. Additionally, the Philippines has a democratic regime, meaning that societal concerns are less likely to complicate these trade negotiations. On the European side, free trade agreements are increasingly difficult to negotiate, and reaching a consensus among the 27 member states takes time, as illustrated by the EU-Mercosur free trade agreement, which remains pending in 2024 despite an agreement in principle in 2019.

Strengthening Trade Relations

This new agreement could boost trade between Europe and the Philippines, which is currently relatively limited, with the trade in goods reaching €16 billion in 2023. The EU is the Philippines’ fourth-largest trade partner, following China, the United States, and Japan. Within the EU, Germany remains the most important partner. Exports to the EU largely consist of integrated circuits and electronic equipment, indicating that the Philippines is becoming increasingly assimilated into global supply chains. In the agricultural sector, the Philippines could also become a more important source for more sustainable palm oil.

According to the Philippine Department of Trade and Industry, this free trade agreement could increase the country’s exports by $8.3 billion. However, while necessary, the agreement alone may not sustainably boost trade between the EU and the Philippines. Both parties will need to pursue further initiatives and partnerships to help companies in each region become familiar with each other and learn about the specifics of each market.

To facilitate rapid negotiation of this free trade agreement, it will also be essential to organize more high-level governmental visits and establish new non-commercial agreements, such as cultural or scientific partnerships, between the Philippines and European countries.