Filipino exporters are being called to fully use tariff privileges under the European Union’s Generalized Scheme of Preferences Plus (EU GSP+) as utilization reaches a new high and the Philippines seeks the GSP+’s extension beyond 2023.
The current EU GSP+ scheme, which offers zero tariffs on over 6,000 products or two-thirds of the EU tariff lines, expires on December 31, 2023.
Angelo Salvador Benedictos, director of the Department of Trade and Industry-Bureau of International Trade Relations, said in a recent webinar that they want the GSP+ extended as “it benefits a lot of industries, a lot of areas in the Philippines, and of course the Philippines.”
At the same time, Benedictos is pushing for a free trade agreement (FTA) with the bloc to boost bilateral trade relations.
He said the EU GSP+ is good for both the Philippines and Europe, and should be renewed and extended in the short term. But for the long term, he believes trade between Europe and the Philippines will be enhanced by way of an FTA.
So far there have been two rounds of Philippines-EU FTA negotiations, Benedictos added.
In a separate interview, Sergio R. Ortiz-Luis Jr., president of the Philippine Exporters Confederation, Inc. (PHILEXPORT), also pushed for the GSP+’s continuation and the forging of an FTA. He said at least 500 PHILEXPORT members are actively exporting to the European Union.
“The extension of the EU GSP+ and an EU FTA will augur well in developing and growing this supply chain and actual export performance,” he said. “We just need to address issues such as high shipping cost and raw material availability for more finished products to qualify.”
Similarly, EU ambassador to the Philippines Luc Veron is urging the full utilization of the EU GSP+ preferences, noting the country’s utilization rate reached 75% in 2020, a new record.
“Over the last two years, while the economic system and international trade faced a lot of challenges due to the pandemic, we have seen the usefulness of GSP+ in sustaining the overall EU-Philippines trade in goods,” Veron said as quoted in a Philippine News Agency report.
“For sure, if we work together, we can increase the utilization rate even closer to 100 percent and increase the overall value of Philippine exports to the EU.”
Veron said agriculture goods, including processed foods and fishery products and manufactured goods, highly benefit from GSP+.
As this developed, the apparel exporting sector lamented once again how it has been left out of the EU GSP+ because of the double transformation rule of the EU’s Rules of Origin.
The double transformation rule requires yarn to be woven into fabric and then made into apparel in the same country (double transformation), effectively denying market access to Filipino apparel exporters since they rely heavily on imported fabrics for production.
The Foreign Buyers Association of the Philippines (FOBAP) and concerned trade groups have recently reactivated their call to the Philippine government to invoke derogation under Article 89 of the European Rules for the GSP program.
The groups said the easing of the rules will allow them to import competitive fabrics from other sources to revive the apparel manufacturing industry and generate additional jobs.
Additionally, they said they agree to limiting such importation to all woven fabrics as well as knit fabrics weighting more than 240 grams per square meter.
It is also understood that such derogation will be temporary and reviewable, as the groups proposed an annual review of what fabrics have become available from local sources and the removal of these from among the openly importable fabrics.
The organizations also expressed hope that the once-vibrant textile manufacturing industry can be resuscitated, which can only happen if high power costs are reduced or incentives are granted.
According to a 2018 article published by economic researcher and analyst Vox EU, the value of preferential access schemes by the EU and the US, the main purveyors of incentive programs to developing countries, has eroded over the years. Moreover, the unpredictability is often compounded by the complicated origin requirements to qualify for preferential access.
The EU GSP+ is a special incentive arrangement for sustainable development and good governance in the form of zero duties. It is a unilateral trade arrangement offering zero tariffs on 6,274 products or 66% of all EU tariff lines in order to encourage export diversification in developing countries.
Since the successful application of the Philippines to the GSP+ in 2014, the country has enjoyed greater market access to the EU that has led to a significant increase in exports, according to the Department of Trade and Industry (DTI).
For 2020, total Philippine exports to the EU amounted to EUR6.2 billion. In terms of eligible exports, EUR2.1 billion worth are covered by GSP+, of which EUR1.6 billion availed of GSP+ preferences (or 26% of the country’s total exports).
Likewise, GSP+ utilization grew by 3 percentage points from 72% in 2019 to an all-time high of 75% in 2020, DTI said.