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FTA with Europe seen as hedge against deteriorating China ties

ACCELERATING free trade talks with the European Union (EU) will help the Philippines diversify its trade options away from China as tensions escalate in the South China Sea, economists said.

“Access to the EU market will result in increased trade diversification away from China,” Calixto V. Chikiamco, Foundation for Economic Freedom president, said in a Viber message.

“This (free trade agreement) is very crucial especially if we reach middle-income status and lose our GSP+ privileges to the EU,” he added, referring to the preferential trade scheme the EU makes available only to developing countries.

Hungary, which will assume the EU presidency next month, plans to hold multiple rounds of free trade negotiations that do not consider political issues, Hungary’s Minister of Foreign Affairs Péter Szijjártó told a news briefing last week in Makati.

During his visit, Mr. Szijjártó said Hungary is aware that the Philippines is working under time pressure before its Generalized Scheme of Preferences (GSP+) privileges expire in 2027.

The GSP+ scheme, which requires the Philippines to uphold commitments to 27 international conventions on human rights, labor rights, good governance, and climate action, was extended until 2027. 

Last month, Trade Secretary Alfredo E. Pascual said he expects free trade talks with the EU to finish before 2027.

“Diversification towards other economies will be a continuing challenge, as China remains the country’s top trading partner, and for Europe to fill a possible future gap in trade with China, our trade with the EU should double,” Terry L. Ridon, a public investment analyst and convenor of InfraWatch PH, said via Messenger chat.

Tradeline Philippines estimates total trade between the Philippines and China at $40.3 billion last year, up 2.9%.

Leonardo A. Lanzona, who teaches economics at the Ateneo de Manila, said the Philippines must ensure labor standards are upheld in finalizing the EU trade deal, citing the regional bloc’s strict adherence to global labor market standards.

“The EU would not wish to trade with partners at the expense of worker welfare,” he said via chat.

Jose Enrique A. Africa, executive director of the IBON Foundation think tank, said the Philippines should develop domestic industries before pursuing trade agreements.

“Lack of active government support for Filipino farmers and industry and opening up with FTAs has driven manufacturing to its smallest share of gross domestic product in 75 years and agriculture to its smallest share in history,” he said via Viber.

“An EU-Philippines FTA will most of all benefit the global supply chains of industrial powers — as it is, most Philippine exports to the EU aren’t even Filipino-made and are made by foreign firms in domestic export enclaves — preventing us further from developing Filipino industry.”

China was the Philippines’ largest source of imported goods, valued at $2.27 billion in March, or 24% of the total, according to the Philippine Statistics Authority. Exports to China amounted to $837.51 million, or 13.7% of the total.

Tensions between the Philippines and China have worsened in the past year as Beijing continues to block resupply missions to Second Thomas Shoal, where Manila grounded a World War II-era ship in 1999 to serve as an outpost and assert its sovereignty.

China claims almost all of the vital waterway, including parts claimed by the Philippines, Brunei, Malaysia, Taiwan and Vietnam. A United Nations-backed tribunal based in the Hague in 2016 rejected China’s claims.

“Mechanically pursuing free trade was counterproductive before but especially in today’s conditions of rapidly eroding multilateralism and a slowing global economy. It’s dogmatic and reckless to deny changed global conditions,” Mr. Africa said. — John Victor D. Ordoñez