The Sept. 22 Philippines-European Union (EU) joint announcement of their “substantial agreement on a free trade agreement (FTA)… setting the deal on a clear path towards its formal conclusion in the coming months”1 immediately evoked in my mind an image of a glass half full/half empty.
For while this news lent some unexpected cheer to front pages and top stories long dominated by political squabbles and details of our socioeconomic vulnerabilities, it did little to mask our long-standing inability to maximize trade and foreign direct investment (FDI) potentials in and from that important bloc.
If and when finalized, we could be the fourth of 11 members of the Association of Southeast Asian Nations (ASEAN) to forge such a landmark deal, after Singapore (entered into force in November 2019), Vietnam (August 2020), and Indonesia (concluded in July 2025 and expected to be signed formally towards end this year)2.
BILATERAL NOW, REGIONAL LATER
The EU and the ASEAN began formal region-to-region trade-and-investment talks in 2007, but the former decided to pursue bilateral deals with individual ASEAN members after talks bogged down in 2009 on key political, human rights (particularly in Myanmar), and structural hurdles, including the fact that Southeast Asia is just too diverse economically to deal with using a one-size-fits-all approach3. Thus, Singapore and Malaysia began talks in 2010, Vietnam in 2012, Thailand in 2013, the Philippines in December 2015, and Indonesia in 2016. The deals with Malaysia and Thailand are targeted to be finalized by end-20274.
The EU suspended talks with the Philippines early in 2017 due to the Duterte government’s anti-drug war. The European Parliament had then raised “serious concerns about the human rights situation in the Philippines” and, in a Sept. 11, 2020 resolution called on the executive European Commission (EC) “to immediately initiate the procedural steps which could result in the temporary withdrawal of GSP+ preferences” (granted in December 2014 and extended through 2027). The bloc’s Generalized Scheme of Preferences Plus (GSP+) benefited over 6,000 Philippine product lines (particularly in agriculture, manufacturing and electronics, as well as textiles and garments5) — or about 73% of Philippine merchandise exports to the EU in 2023 — with either zero duty or reduced tariffs. EU critics among us then scoffed that there were just eight countries anyway that benefited from the GSP+ — the others being Bolivia, Cape Verde, Kyrgyzstan, Mongolia, Pakistan, Sri Lanka, and Uzbekistan. But tell that to the affected businesses, their employees, and their markets, as well as an economy that has long been looking for drivers to sustain much-faster expansion that will ultimately lift many more Pinoys out of poverty.
The EU resumed talks on a comprehensive trade-and-investment pact with the Philippines only in March 20246.
Not that the EU has abandoned plans for a region-to-region deal. “In the longer term, these bilateral FTAs would allow the establishment of a region-to-region FTA, which remains the EU’s ultimate ambition,” the European bloc said in late-2020. “By bringing together two of the world’s largest economic areas, the agreement would establish a free trade area with a combined market of more than 1 billion people. It is in the EU’s interest to strengthen its economic cooperation with ASEAN, in order to maintain its competitive position in this dynamically developing region.” In a parallel push at the sidelines of the 58th ASEAN Economic Ministers’ Meeting in Pasay City, Metro Manila on Sept. 20, the private-sector EU-ASEAN Business Council (EU-ABC) pushed for a region-to-region framework to mark the 50th anniversary of their partnership next year.
POTENTIALS
The prospects offered by an FTA for Philippine exporters cannot be ignored.
EC data showed that the bloc was the Philippines’ fourth-largest merchandise trading partner last year, accounting for 8.3% of the country’s total trade in goods7. On the other hand, the Philippines was the EU’s 38th largest trading partner, accounting for just 0.3% of the EU’s total trade in goods. Philippine-EU trade in goods totaled €17.6 billion in 2025, with the bloc sustaining a €1.4-billion deficit.
Bilateral trade in services totaled some €10.3 billion in 2024, with the EU enjoying a €700-million surplus.
In 2024, the stock of EU FDI in the Philippines totaled €15.4 billion, while Philippine FDI stock in the EU stood at €2.4 billion.
In their Sept. 22 joint statement, both parties said they expected the prospective FTA to result in:
• new opportunities for businesses, including MSMEs, as well as for farmers, manufacturers, and consumers on both sides;
• stronger, more diversified supply chains at a time when resilience has become a strategic imperative;
• as well as fair rules that, in turn, improve predictability in doing business.
The Trade department expects the prospective FTA to unlock about $12 billion worth of export potential, as the EC said that both parties expect to liberalize more than 94% of tariff lines covering over 97% of bilateral trade8.
EU-ABC Executive Director Chris Humphrey said in a statement that the looming FTA would “strengthen” the Philippines’ competitiveness “both as a destination for European investment and as a more important part of regional value chains.” He explained: “The challenge now, is to translate the country’s strong fundamentals into a competitive operating environment, making it easier for companies to invest, produce, and integrate the Philippines into regional supply chains.”
AND SO…
Now that the Philippines and the EU are ironing out the finer details of a more permanent (i.e., more difficult to unwind unilaterally than the GSP+ — which imposed human and labor rights, good governance, and environmental standards on the Philippines — since there will be binding legal commitments for both parties) pact that is the prospective FTA, how prepared are we to maximize its projected benefits?
Let’s recognize this milestone for what it is: a timely opportunity for much-needed impetus to fix what needs to be fixed (of which there are many) in our trade and investment domains.
First is the need to burnish the Philippines’ image to prospective investors.
Results of the 12th EU-ASEAN Business Sentiment Survey, which the EU-ABC conducted on April 16-July 3 among 357 European businesses and published on Sept. 8, showed that while Southeast Asia remains a premier growth market for EU-based firms — with nearly four in five (78% from 71% in 2025) of such businesses expecting trade with and investment in the region to rise — the Philippines trailed the five other more developed ASEAN markets (Singapore, Malaysia, Indonesia, Thailand, and Vietnam) in being the most common business location, as well as expansion site in the next five years, among respondents9.
Then — based on challenges which Philippine businesses faced in accessing GSP+ privileges — there is a need to help enable Philippine exporters — especially the smaller ones — to meet stringent EU sanitary, phytosanitary, technical, and environmental standards (starting with informing them on how to do so); as well as address production bottlenecks and high production costs, etc.
For University of Asia and the Pacific economist George N. Manzano, a former Tariff commissioner, the Philippines also needs to develop more products that it can sell competitively and in sufficient volumes while meeting exacting EU sanitary and technical criteria, if it is to maximize the prospective deal’s promise in attracting FDI and diversifying exports10.
“One important benefit… would be to put the preferences we enjoy under GSP+ on a more stable footing, since that scheme is granted unilaterally by the EU,” Mr. Manzano told me in a Viber message late yesterday afternoon.
At the same time, he said that “the larger constraints to expanding our exports lie on the supply side, and in our ability to compete,” noting that China, for example, rides on a broad industrial base, extensive supplier networks, and cost advantages from producing at scale.
“Better market access alone will not close those gaps.”
Philippine electronics exporters, for instance, who already have presence in the EU market, now need to develop other competitive products and services that, in turn, will require more investment in production capacity and local supplier networks.
“This is where our record in attracting FDIs needs to improve, particularly compared to Malaysia and Thailand,” he explained. “The FTA could help attract European investment, but the extent of the gains will also depend on how attractive and reliable we make the Philippines as a production base.”
QUALITY, QUALITY, QUALITY
And that, in turn, points to structures needed to support the enhancement of Philippine export competitiveness.
Among various reforms prescribed to boost such competitiveness, external trade sector veteran Senen M. Perlada zeroed in on the need for a national quality infrastructure (NQI), as contained in “a long-pending bill in Congress” (the first NQI bill was filed in the Senate more than a decade ago in July 2016). Such a law would set clear, uniform product technical standards aligned with international practice; accurate measurement and calibration criteria; as well as streamline testing, inspection, and certification processes, including reliable checks on the technical competence of labs and other entities to be entrusted with these functions/mandates; etc.
And in a bid to address interagency turf wars that often hound government decisions and actions, these bills also seek to form a Philippine National Quality Infrastructure Coordinating Council with comprehensive government and private sector representation.
Because, as is true in any issue, quality here is everything… or almost everything.
The National Academy of Science and Technology Philippines (NAST PHL) said in August last year that economies with quality infrastructure systems boost trade performance. “Without a robust quality infrastructure, Philippine exporters cannot prove their products meet international standards, limiting access to premium markets and fair prices,” NAST PHL had said in a statement then, noting that this measure has been recommended in the 2023-2028 Philippine Development Plan11.
Mr. Perlada said that, in targeting “fortress Europe,” “the Philippines urgently needs to have a national quality infrastructure firmly in place.”
“In the long term, without an NQI in place, the Philippines will lose competitiveness in industries and products where we have a natural or traditional competitive advantage,” he said, adding that “[w]ith FTAs being signed right and left, we may even lose competitiveness with FTA partner economies.”
“Since there are two or more sides to an FTA, we may end up with a growing trade deficit if FTA partner economies aggressively utilize the FTA, while Philippine exporters do not know of or utilize the same… exporters may not be able to utilize the FTA because they can’t meet compliance requirements.”
Since late last year, eight NQI bills have been awaiting approval at the committee level in the House of Representatives and just one in the same stage in the Senate. For some reason, however (especially since I have not read anything controversial about this proposal), this measure has not been listed among the joint legislative priorities of Malacañang and Congress.
With World Bank and other data showing the export of goods and services driving more than a fourth of the Philippine economy each year — and with overall macroeconomic growth slowing precariously of late and needing all the help it can get to pick up — one would have thought that it would be a no brainer for the Palace and lawmakers to rush the enactment of a measure that has long been advocated by both business chambers and state and private research institutions. Gubyerno na lang ang kulang sa equation na ’yan (The government is all that’s missing to complete that equation).
In this politically charged environment that we find ourselves in nowadays, and especially as preparations for the May 2028 national elections heat up in the remaining 20-or-so months of the 20th Congress (a period punctuated by long breaks), I’m not holding my breath (well, so prove me wrong).
Notes:
1 https://tinyurl.com/2cz9lxlq
2 https://tinyurl.com/22jcqgt3
3 https://tinyurl.com/2dy5h7vy
4 https://tinyurl.com/2awc2srs
5 https://tinyurl.com/2ynx9l9c
6 https://tinyurl.com/2ycbkxt2
7 https://tinyurl.com/2yczhory
8 https://tinyurl.com/22qm2mej
9 https://tinyurl.com/2atolnbl
10 https://tinyurl.com/22qm2mej
11 https://tinyurl.com/2azqxrz8
Wilfredo G. Reyes was editor-in-chief of BusinessWorld from 2020 through 2023.