The relaunching of negotiations for a Free Trade Agreement (FTA) between the European Union (EU) and the Republic of the Philippines (PH) marks a pivotal development in EU-Southeast Asian relations. After years of stalled negotiations and inconclusive efforts, the reopening of the dialogue in March 2024 represents a strategic effort to enhance and step up bilateral ties to promote growth and commit to a cooperative future, in line with the EU’s Indo-Pacific strategy established in 2021.
By committing to an FTA, which Filipino President Ferdinand R. Marcos Jr. has expressed hope to finalise by 2027, the two parties commit not only to the enhancement of trade partnerships but also demonstrate a commitment to a cooperative future based on mutual goals and gains.
The EU is one of the core pillars of Manila’s economic status, positioning itself as the Philippines’ fourth-largest trading partner and accounts for 7.9% of Manila’s total trade in 2021, trailing only China, Japan and the United States. The Philippines, a lower-middle-income country according to the World Bank’s World Development Indicator, is the EU’s 39th largest trading partner. In 2021, bilateral trade in services amounted to 4.7 billion EUR, while in 2022 trade in goods between the two reached 18.4 billion EUR. The signing of a trade agreement would hence significantly boost further economic relations, and is expected to increase bilateral trade by approximately six billion euros.
Historical efforts
Since 2014, the Philippines holds a favourable position of trade incentivisation under the EU’s Generalised Scheme of Preferences Plus (GSP+). This preferential agreement allows Manila to export duty-free entry to the EU, covering two-third of all EU tariff lines. Thanks to the GSP+, exports from Manila to Brussels increased by 27% and generated local socio-economic benefits, noting an increase in agricultural and manufacturing jobs for Filipinos. The scheme was initially set to expire in 2023. However, since the two parties failed to finalise an FTA by the GSP+ expiration date, the scheme was then renewed until 2027 to avoid possible economic challenges.
Much of the negotiations for the FTA have been building on the gains of the GSP+. This preferential trade scheme gives partner developing countries the special incentive to pursue sustainable and good governance, with the benefit in return of cutting more than two-thirds of their export tariff lines to zero. Even if the GSP+ scheme is already beneficial for Manila, an FTA would hold more assets, will be part of a mutual negotiation process and would represent a maximisation of benefits by opening opportunities in more sectors. Moreover, its mutual negotiation process would make it much more desirable. In 2007, the EU launched initial negotiations with ASEAN for a region-to-region Free Trade Agreement, aiming for an FTA to be reached with ASEAN as a bloc. In 2009, when these negotiations ended, Brussels began approaching FTAs at a bilateral level with individual ASEAN member states. Talks for the bilateral FTA between EU and PH were first launched in December 2015. At the time, the two parties met twice to move their discussions ahead. However, negotiations stalled for three years under Filipino President Duterte’s leadership. The negotiations stalled for a range of different reasons, but primarily due to Duterte’s shifting foreign and domestic policy strategies, his hostility towards the West, as well as EU concerns over human rights issues in the Philippines, its commitments towards GSP+ and issues related to intellectual property rights in the FTA negotiations.
After this pause in 2015, a second round of negotiations took place in February 2017, but were put back on hold until 2023, when the conditions were identified as favourable to relaunch the talks under Marcos Jr.’s new government. Nevertheless, the official reopening of negotiations was only announced in March 2024 during European Commission (EC) President Ursula von der Leyen’s visit to Manila. The announcement was made by the Philippine Department of Trade and Industry (DTI) Secretary Alfredo Pascual and EC Executive Vice President and Commissioner for Trade Valdis Dombrovskis in a joint press briefing in Brussels. According to Dombrovskis, the FTA will allow bilateral trade between the two to reach up to six billion EUR. Moreover, a PH-EU FTA would symbolise a shared vision for future prosperity and collaboration, as stated by President Marcos Jr. on 6 May 2024: “We see the FTA as a crucial step in enhancing the trade partnership between the Philippines and the EU.” Finally, the anticipated signature of the FTA by 2027 would ensure bilateral trade stability and avoid disruptions that could come from the expiration of the GSP+, which would put an end to the preferential treatment the Philippines is currently receiving.
Challenges ahead
The resumption of FTA talks also comes with a mixture of challenges and opportunities. The Philippines, currently under the leadership of President Ferdinand Marcos Jr., faces ongoing issues related to human rights and environmental sustainability. Changes in presidential leadership in the Philippines have dictated crucial shifts in foreign policy strategies. President Rodrigo Duterte, elected from 2016 until 2022, had a more cooperative approach with China, fostering an increase in bilateral economic and diplomatic relations.. Duterte’s administration adjusted various strategies, ranging from the security environment in the South China Sea (SCS), to distancing itself from the US, along with the establishment of new strategies such as the Anti-drug campaign, from which it received support from Beijing. The lack of urgency in formalising trade relations with Brussels, combined with human rights violations that did not meet European criteria, led to the stalling of FTA negotiations. The “war on drugs” had recorded the death of over twelve thousands Filipinos, most of them poor urban residents. Under the new presidency of Ferdinand Marcos Jr. since 2022, the human rights violations have significantly decreased, but not yet ended given the continuation of the anti-drug campaign under the current administration. Yet, with the foreign policy shift that now distances Manila from Beijing, noticeable through its stronger stance in the SCS, a rapprochement towards Brussels is seen as a beneficial strategy for the Philippines, as well as for the EU.
New opportunities
Considering the challenging road of the agreement so far and the many ups and downs it has faced, the completion of the agreement would not only allow the Philippines to reach upper middle income status, and thus no longer need to be a beneficiary of the GSP+, but would represent “a symbol of shared prosperity” as described by Marcos.
For Brussels, finalising an FTA with Manila can bring a plethora of benefits, such as increasing opportunities for EU companies to expand in the Philippines, among other advantages. Investors would particularly benefit from the agreement through increased market access, the removal of obstacles for digital trade and green transitions, swift and effective sanitary procedures, sustainable food systems, the protection of intellectual property rights (including Geographical Indications and trade and sustainable development). These achievements would align with the 2022 EU Commission’s Trade and Sustainable Development (TSD) review of Communication— which focuses significantly on the protection of workers’ rights, the environment and achieving climate goals.
Beyond trade benefits, the finalisation of the negotiations would also represent high resilience, overcoming previous obstacles and marking the end of Philippines “pivot to China” under the Duterte administration. Moreover, by agreeing to a trade deal, the two parties would make not only a bilateral commitment but also make a wider statement to the whole international arena, showing their commitment to cooperation and a prosperous future based on the rules-based order.
Agenda priorities
The agreement does have significant positive potential for both partners. However, EU policymakers should not indulge in approaching the negotiations too softly simply to conclude the agreement. The EU has been criticised in the past few years for not taking a significantly strong stance on its democratic values when handling FTA negotiations with partner countries. This could be perceived as an inconsistent behaviour, where the EU does not commit to its own core principles but rather seems to prioritise its strategic interests in specific regions. Some experts have assessed this as something that jeopardises the EU’s credibility. The prioritisation of human rights issues would be in line with the commitment to its Lisbon Treaty obligations, which states in Article 2 that “The Union is founded on the values of respect for human dignity, freedom, democracy, equality, the rule of law and respect for human rights, including the rights of persons belonging to minorities. These values are common to the Member States in a society in which pluralism, non-discrimination, tolerance, justice, solidarity and equality between women and men prevail.” To pursue this, the European Union Delegation to the Philippines would therefore have a crucial role to play in carefully monitoring developments in the area.
While binding, the Lisbon Treaty was signed in 2007 and may not necessarily be up to date with current needs. Overall, while the EU should continue to uphold its commitment to democratic values and human rights during FTA negotiations, the failure of reaching a bilateral trade agreement would have much worse implications for the EU, both strategically and in its international perception. Despite criticisms, voices are being raised to prioritise finalising a trade deal. As European Parliament President Roberta Metsola said to the EU Council, “European competitiveness is critical from an economic and a political perspective — we need to reinforce Europe’s place on the global stage. (…) We need to redouble our efforts for open, balanced, fair trade that is based on international rules, and broaden our network of trade agreements with partners by concluding and ratifying the ones we have in the pipeline.”
Once the trade agreement is signed, Brussels may need to overcome other aforementioned challenges through sectoral agreements to address specific issues. By finalising the FTA, both parties would be enabled to fully exploit the favourable momentum, ensuring adherence to the international framework, fostering and enhancing bilateral ties and sending a positive message to the international arena.
Considering the recent EU Parliamentary elections in June 2024, with the rise of far-right parties, analysts have raised concerns over the potential return of European protectionism. With centrist and liberals losing influence in the EU institutions, it may become more challenging to focus on a constructive position for international trade. As they foster future international cooperation, current EU member states will also need to take into account the EU’s Carbon Border Adjustment Mechanism (CBAM) and the Corporate Sustainability Due Diligence Directive act (CSDDD). The former, which introduces a carbon price on certain imports to strengthen global climate change actions, has not been positively received among developing countries because of its trade limitations. With a growing perception of the EU as being unilateralist in its interests, European policymakers will need to adopt a comprehensive stance regarding the implementation of CBAM in its relations with ASEAN countries. To overcome this potential challenge, the EU will need to approach the issue in a more calibrated way, while being aware of the political risks, bearing in mind the economic development level of its trade partners to avoid putting their economies at risk.
The CSDDD introduces requirements for companies to mitigate unregulated activities and prevent environmental degradation and human rights abuses. While through this act the EU commits to higher standards in terms of climate change and democratic values, it relies on the assumption that the EU has sufficient market power. If this is not the case, it would have the effect of increasing the risk of ASEAN countries strengthening ties with partners that uphold less strict standards.
Regardless of legislative challenges, the EU and its new leadership must focus on diversifying its partners and promoting strategic trade. Currently, the EU is negotiating FTAs with other ASEAN member states, notably Thailand and Indonesia. Ultimately, finalising bilateral trade agreements with all individual ASEAN member states would represent a crucial opportunity for Brussels, opening the door for a potential reopening of EU-ASEAN region-to-region FTA talks in the upcoming years.To conclude, the EU-PH FTA comes with challenges, but also many relevant advantages. The two parties will have to resolve contentious areas of previous (failed) negotiations. Yet, ensuring a more permanent and comprehensive trade agreement than the GSP+ will allow Manila to achieve its development goals and improve its sustainability efforts through implementation of infrastructure, increasing manufacturing and access to European technology. Formal discussions are scheduled to resume by the third quarter of 2024. The trajectory towards achieving the trade agreement appears promising. However, both parties will need to proceed cautiously, bearing in mind the serious implications of a potentially failed FTA on a global scale.
Author: Valeria Tabelli, EIAS Junior Researcher
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