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EU, Philippines Open FTA Negotiations

Issued: March 08 2016

The Philippines has agreed to start negotiations for an EU-Philippines free trade agreement.

EU Trade Commissioner Cecilia Malmström and Philippine Secretary of Trade and Industry Gregory Domingo have agreed to start negotiations for an EU-Philippines free trade agreement (FTA). The first round of negotiations is expected to take place in the first half of 2016 in the Philippines.


The Philippines is a party to seven effective FTAs which establish a relationship with 15 countries, namely the member states of ASEAN (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Singapore, Thailand and Vietnam) and other countries in the Asia-Pacific region such as Australia, India, Japan, China, South Korea and New Zealand. If the FTAs under negotiation succeed, the 28 countries from the European Union will be added.


“Launching negotiations with the Philippines will represent an important milestone in the EU-Philippine relations and a further evidence of the EU’s commitment to Southeast Asia,” Malmström said via a statement.


Joseph Waldstein, press officer for trade at the European Commission in Brussels, says the EU remains committed to resuming negotiations with Malaysia and with Thailand when the conditions are right to do so; to conclude investment negotiations with Myanmar; and to open FTA negotiations with the Philippines and with Indonesia.


“At the regional level, the Commission and ASEAN countries will soon have a stocktaking meeting to review progress in ASEAN integration, the status of bilateral FTAs between the EU and ASEAN members, and how these initiatives can serve as building blocks for a region-to-region trade and investment agreement,” he says.


Waldstein says that when it comes to free trade agreements, each country has its specificities and particular interests, and each agreement is the result of a negotiation where respective interests have to be balanced.


He adds that the Philippines’ economy and society are very different from those of other countries of the region with whom that EU has also negotiated, like Vietnam or Singapore.


“The EU started initially in 2007 to negotiate an FTA with the whole of the ASEAN region. Quite early, it became clear that differences between the countries of the region were too important to succeed in negotiating an agreement in such a setting,” he says.


“In this sense, bilateral FTA negotiations with ASEAN countries have proven to be better means to move ahead. However, the ultimate aim remains nonetheless to negotiate agreements that can be integrated one day into a region-to-region agreement, so they need to be built in a coherent manner, addressing in an ambitious way a comprehensive set of issues,” Waldstein says.


The EU is aiming for a similar level of ambition to what it has achieved in agreements with Vietnam (2015) and Singapore (2014).


An ambitious agreement between the EU and the Philippines will constitute an additional building block towards a region-to-region EU-ASEAN agreement that remains the EU’s ultimate goal, he adds.


“At present, EU goods exports to the Philippines are dominated by transport equipment (30.9%), machinery (14.9%), food products (13.2), chemicals (11.5%), and electronic components (11.3%). In some of these sectors, tariffs are still high and an FTA would lower or eliminate them. Considerable potential exists in sectors like agricultural products (meat), beverages, cars and pharma.


“The Philippines’ economy is a very services-oriented economy [which has an English proficient, highly-qualified workforce], which could lead to considerable opportunities for the EU in so-called business process outsourcing in the sectors of telecom, transport, energy and tourism.” There are also opportunities in opening the public procurement market.


According to Alex Ferdinand S. Fider, senior partner at Angara Abello Concepcion Regala & Cruz in Manila, FTAs are governed by the stipulations that are embodied in the agreement. FTAs usually have a provision on the free trade of goods which lower, if not eliminate, tariff rates for certain products.


“For example, the ASEAN Trade in Goods Agreement (ATIGA) has given the Philippines the reduced tariff rate of 5% for certain agricultural products. In 2015, the rice tariff was reduced from 40% to 35% and the sugar tariff was reduced from 38% to 5%. This reduction can, hopefully, benefit the exporters of rice and sugar, even if there is only a small percentage of rice export as compared to a high import of rice. The ASEAN, Australia and New Zealand FTA (AANZFTA) has also given benefits to certain industries. The Philippines is provided the same tariff preference given to Thailand, giving products originating from the Philippines, such as wiring harnesses, motor parts, food products, garments, fashion jewelry and furniture, a chance to compete with products being exported by Thailand.”


Fider says it must be emphasized that integrated circuits are the primary exports of the Philippines. Integrated circuits have various classes, but the FTAs generally provide zero tariff rate to majority of products under this class. Thus, a growth in this industry is expected.


It is expected that the agreement will also cover the three essential aspects that the other FTAs cover: a trade in goods agreement, a trade in services agreement and investment agreements.


Trade in goods agreements usually cover the reduction, if not elimination, of tariffs and others barriers to entry of certain products. Similarly, it also provides certain protection schemes to countries to ensure fair and equitable market treatment with each country’s export commodities.


“Trade in services agreements usually have four modes, which are cross-border, consumption abroad, commercial presence and movement of natural persons. This involves giving national treatment to foreign service providers and the movement of human resources through the employment of both professional and skilled workers within member states,” he says.


Fider says that investment agreements aim to enhance the promotion, facilitation, liberalization, and protection of covered investments.


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