During the night between Monday 21 and Tuesday 22 September, the European Commission and the Philippine government announced that they had reached a substantial agreement on a future free trade agreement. Ursula von der Leyen announced this on X with considerable enthusiasm.

The announcement, and von der Leyen’s satisfaction

The agreement was announced in a joint statement by the European Commissioner for Trade and Economic Security, Maroš Šefčovič, and his Philippine counterpart, the Secretary of Trade , Ma. Cristina Aldeguer-Roque: the two countries have “reached a substantial agreement on a free trade agreement (FTA), marking a significant milestone for both parties”. Following a video call with Roque, Šefčovič described it on X as “progress and a victory for both sides”, emphasising that the agreement strengthens ties with “one of the most dynamic economies in South-East Asia”.

But it is the reaction of the President of the European Commission that highlights the political – as well as economic – significance of the agreement. Ursula von der Leyen announced on X that she had spoken on the phone with the Philippine President, Ferdinand Marcos Jr., writing: “We have just reached an agreement on the free trade pact! This comes exactly three years after my visit to Manila to relaunch the negotiations” – a reference to her trip in July 2023, when von der Leyen herself flew to the Philippines to revive talks that had stalled over time.

She also announced her intention to return to the archipelago next year for the formal signing of the treaty.

The details of the agreement

The two sides have completed six rounds of negotiations, the last of which took place in May, with access to Philippine public procurement remaining the most intractable issue right up to the end. This is by no means a minor issue: Manila had hitherto kept public procurement contracts closed to foreign suppliers, and opening up this sector would represent a significant structural change for the Philippine economy. To finalise the agreement, Šefčovič travelled to Manila in person in recent days.

From a commercial perspective, therefore, the volumes involved are by no means negligible – quite the contrary. Trade between the European Union and the Philippines, which in 2023 was worth €16.1 billion in goods according to official Commission figures, is now estimated to be close to €18 billion, with a further €10 billion in trade in services.

Philippine sources estimate exports to the European bloc at around 8.1 billion dollars in 2024, compared with imports from the EU of around 7.5 billion. The European Union is already one of Manila’s largest trading partners and one of the main sources of foreign investment in the archipelago.

The most significant change, from a legal point of view, however, concerns the very nature of the trade relationship. Until now, Philippine exporters to Europe have operated under the GSP+ (Generalised Scheme of Preferences Plus) regime, a system of unilateral tariff preferences that Brussels can amend or revoke at any time, according to its own criteria and timetable.

With the FTA, Manila moves from a granted privilege to a negotiated agreement: a difference which, in terms of stability and predictability for investors, is a game-changer.

What will actually change for businesses and workers?

It is worth understanding, beyond the press releases, what this agreement actually brings to both parties in financial terms, because it is precisely in the tangible benefits that the true significance of the move can be gauged.

The first benefit is stability.
Until now, Philippine exports to the EU have been covered by the GSP+ scheme, which provides duty-free access for 6,274 products and which Manila has utilised at a record rate of 80 per cent – but it is a scheme that Brussels can suspend unilaterally, as it specifically threatened to do in 2020, when the European Parliament called for the revocation of trade preferences due to human rights violations linked to Duterte’s war on drugs.

By its very nature, an FTA cannot be withdrawn by a vote in Strasbourg: it is a negotiated bilateral treaty, offering investors – both European and Filipino – the predictability that a unilateral preferential scheme cannot guarantee.

Moreover, the GSP+ scheme is due to expire in 2027: the agreement comes just in time to avoid a regulatory vacuum that could have abruptly halted a flow of trade which, since 2014, has seen Philippine exports to the EU grow by 27 per cent, generating widespread employment in agriculture and manufacturing.

The second benefit concerns specific sectors. Those set to benefit most are the sectors already most exposed to the European market: textiles and clothing, electronics, agricultural products (tropical fruit, coconut products, fish and seafood), processed foods, and machinery.

The European Chamber of Commerce in the Philippines (ECCP) estimates that the agreement could boost trade by up to an additional 6 billion euros, with benefits also extending to areas hitherto little explored in bilateral relations: critical raw materials, digital trade, energy and intellectual property. Furthermore, in terms of investment, the agreement introduces protection and promotion clauses designed to encourage European capital.

The third benefit, which is less immediate but more structural, is the opening up – finally agreed upon on a phased basis – of Philippine public procurement to European suppliers: an area that Manila had always kept closed to foreign bidders, and which, with this agreement, is included for the first time in a Philippine trade treaty, marking a significant step forward in economic integration between the two parties.

The real meaning: a not-all-that-veiled response to Beijing

This brings us to the point that makes this trade agreement more than just a chapter in the annals of economic diplomacy.
Of all the possible partners in South-East Asia, the Philippines is the country that feels the most intense direct pressure from China in the South China Sea – from the daily incursions by the Chinese coastguard to the disputes over the Scarborough Shoal and Second Thomas Shoal, right up to the 2016 arbitral award recognising the Philippines’ sovereign rights over the area’s resources – an award that von der Leyen herself had, as early as 2023, described as ‘legally binding’.

On 24 July, on the sidelines of the 59th ASEAN Foreign Ministers’ Meeting in Pasay City, EU High Representative Kaja Kallas and her Philippine counterpart Maria Theresa Lazaro signed the Joint Statement on the Enhanced Partnership between the European Union and the Philippines – on the same occasion, Brussels announced a €15 million support package through the European Peace Facility – the first ever to be activated in the Indo-Pacific – aimed at strengthening surveillance and awareness of the Philippines’ maritime domain – read more here: the ability to monitor and document Chinese incursions into its waters.

In this sense, the trade agreement should be seen as the economic culmination of a plan that already has an explicit security component. And this is why the agreement is also of interest to Beijing.

The first reason is economic: every contract, every supply chain, every investment that the Philippines shifts towards the European Union is, by mathematical definition, a contract or investment that no longer – or to a lesser extent – passes through China, even though China remains Manila’s main trading partner in terms of imports. Reducing the economic dependence of a country exposed to Chinese territorial pressure also means reducing the leverage that Beijing can exert over it: less economic dependence almost always equates to less scope for political blackmail.

The second reason is symbolic, and perhaps even more significant: it is the decision to reward, with an economic treaty of this magnitude, the very government which, of all those in South-East Asia, has adopted the most assertive stance against China’s territorial claims.

Brussels is not signing a free trade agreement with just any partner: it is signing it with Manila, at a time when Manila is in the midst of a public and ongoing confrontation with Beijing – ships ramming each other, soldiers injured, and strong responses such as the one led by Defence Minister Gilberto Teodoro in Seoul just two weeks ago. It is a not-too-subtle way of signalling which side the European Union is on when respect for international law in the South China Sea is at stake.