CAGAYAN DE ORO CITY- The European Chamber of Commerce in the Philippines is looking forward to the country’s smooth transition from the current GSP+ to a more comprehensive Free Trade Agreement once the country attains Upper Middle Income Status this year or the next.
In an exclusive interview on the sidelines of the ECCP Mixer held in this city on March 17, ECCP Executive Director Florian Gottein said that since December 2014, the Philippines has enjoyed enhanced trade preferences with the EU under the EU’s Generalized Scheme of Preferences Plus (GSP+) since December 2014. The special incentive arrangement for Sustainable Development and Good Governance GSP+ grants full removal of tariffs on two thirds of all product categories, aiming to support sustainable development and good governance.
“This scheme allows the Philippines to export over 6,274 eligible products duty-free to the EU, which has significantly boosted trade. Some companies in Mindanao have been availing of this privilege to export their products to Europe,” Gottein said.
In 2024, the EU was the Philippines’ fourth-largest trading partner, accounting for 7% of the country’s total trade in goods. The Philippines was the EU’s 40th largest trading partner, accounting for 0.3% of the EU’s total trade in goods. Bilateral trade in goods between the EU and the Philippines amounted to €16.8 billion in 2024 (with a deficit for the EU of €1.3 bn). The EU’s imports are mainly machinery and appliances, while the EU’s main exports to the Philippines are machinery and appliances, live animals and animal products, chemicals, transport equipment, and foodstuffs, beverages and tobacco.
Total trade in services amounted to €8.5 billion in 2023 (with a deficit for the EU of €0.4 billion).
In 2023, the stock of EU foreign direct investment (FDI) in the Philippines amounted to €14.2 billion and the stock of Philippine FDI in the EU was €2.1 billion.
The Philippines is currently the only ASEAN nation enjoying GSP+ and the only one with Sri Lanka and Pakistan in Asia.
FTA Implications
Last February, Trade Undersecretary Allan Gepty told the Philippine Daily Inquirer: “We see this FTA as a stable platform to strengthen the economic relations of the Philippines with the EU. Thus, we are working hard to fast-track the negotiations and hopefully conclude the same before 2027.”
A free trade deal with the EU will give the Philippines permanent duty-free access to a huge market. “So in that context, there’s a pressure for us to conclude the negotiations as soon as possible because we don’t want to have a gap in our trade with the EU as far as enjoying preferential arrangement is concerned,” Gepty pointed out. The European bloc is an important market for Philippine products such as tuna, coconut, cacao, pineapples, semiconductors, and electronics.
An FTA with the EU will also level the playing field for the Philippines versus other economies in the Association of Southeast Asian Nations that are also trying to close similar deals.
The Philippines already has an FTA with the European Free Trade Association (EFTA – Iceland, Liechtenstein, Norway, Switzerland), which was ratified by the Senate in 2018.
Why a FTA with EU is important
The primary reason why the government wants to have a more binding agreement with the EU is for Philippine products to continue entering that huge market without paying duties. However, the country loses this preferential status once it reaches upper middle-income country (MIC) status.
Under the World Bank’s classification of countries, a country becomes an upper MIC if it reaches a per capita gross national income (GNI) — or the total amount of money earned by a country’s people and businesses at home and abroad — of between $4,516 and $14,005. The Philippines, which has been classified as a lower MIC since 1987, is near the next income threshold after posting a record-high GNI per capita of $4,230 in 2023.
ECCP is pushing hard to have the FTA in place by 2028 latest to ensure a smooth transition to the more comprehensive and permanent FTA which is not bound by a certain economic level of the availing country.
“Both sides are committed to concluding negotiations within 2026. The ECCP believes these talks will create more opportunities,” said ECCP President Paulo Duarte earlier this year to ABS-CBN.
Seventy three percent of the Philippines’ exports to the EU which were eligible for tariff reductions under GSP+ entered the EU at preferential rates in 2023. To maintain GSP+, the Philippines is subject to regular monitoring of its obligation to the effective implementation of 27 core international conventions on human and labor rights, environmental protection and good governance.
A Sustainability Impact Assessment (SIA) has been carried out in support of the ongoing FTA negotiations between the two parties. The SIA seeks to assess how trade and trade-related provisions in a future FTA could potentially impact economic, social, human rights and environmental elements in each trading partner and in other relevant countries.
DTI is working closely with the EU Commission to negotiate terms of the FTA , with the 5th round concluded recently in Brussels, and next scheduled in May in the Philippines. Both parties are confident this can be concluded within 2026, after which it has to be ratified by the EU Council then by the EU Parliament. In the Philippines, the Executive branch (negotiated by DTI) signs the treaty, after which the Senate must vote to concur with its ratification.
The EU and the Philippines
European Union (EU) Ambassador to the Philippines Massimo Santoro confirmed in a recent interview with ABS-CBN that negotiations held in Brussels two weeks ago were “very fruitful,” and that another round is scheduled in Manila in May. Without naming a deadline, he nonetheless allowed himself a clear expression of intent.
“I really wish to hope that this is the right year, the good year, to complete negotiations,” he said. “It’s really in the interest of both sides, in particular in the current geopolitical and geoeconomic context.”
Santoro framed the agreement as a natural fit precisely because the two economies are complementary rather than competitive.
“There are goods and services that the European Union can offer to the Philippines which the Philippines has not. And there are goods and services that the Philippines can offer to the European Union that Europe has not,” he said. “This generates an amazing, of course, attraction for this agreement.”
He singled out Filipino talent and English proficiency as particular assets for European firms.
“This agreement will be an amazing enabler for job creation. This is an aspect that I wish to underline because it’s an aspect that goes in both directions. Most importantly, the EU will benefit from the amazing expertise and skills of Filipinos who are particularly proficient also with the English language, which is an advantage that not every country has,” he noted.
Santoro further explained that the EU needs to expand into markets like the Philippines for diversification.
“Because of the need to diversify, because we believe in a world where trade is free,” he said, adding that a finalized FTA would not only benefit bilateral trade, but make Philippine enterprises more competitive globally.
“This will, for the Philippine enterprise, generate an enormous potential, not only towards the European Union, but more in general, to export anywhere else.”
Santoro, however, couldn’t say if the EU-PH FTA talks will be completed this year after many parties, including the Philippine government, seeing 2026 as the year the talks will end positively. This is also because the trade perks the Philippines is enjoying under the EU Generalized Scheme of Preference + will end in 2027 and the government hopes a new FTA will come right after the GSP+.
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