Used properly, free trade is a strong catalyst for economic growth and better lives for people.
In particular, a free trade deal between two nations is an effective tool for lowering the cost of goods and services for their citizens while simultaneously helping growth by spurring demand for the best products that both economies produce.
At the same time, the competition that unfettered trade brings is an effective impetus for all stakeholders to improve their competitiveness in terms of price and quality of whatever they are offering. Without tariff protections that shield small entrepreneurs or big businessmen from competition, everyone is forced to stay on their toes to deliver the best products to the market. That is a good thing.
But used improperly—or more accurately, if one side fails to maximize the benefits that these bilateral or multilateral ties offer—trade deals have the potential to exacerbate economic imbalances, resulting in one party running away with the bulk of the gains and leaving but scraps for the other side.
These are both sides of the argument that the Philippine government, in general, and the Marcos administration, in particular, must keep in mind after it was announced last week that our country and the European Union (EU) have agreed to restart negotiations toward the possible creation of a landmark free trade agreement.
The numbers involved in such a deal are compelling. The EU is the Philippines’ fourth largest trading partner as of 2022, with bilateral trade in goods worth P1.1 trillion and services worth P286 billion during that period.
The Philippines is the EU’s seventh most important trading partner in the region, and EU firms are some of the largest investors in the country with direct investments totaling P835 billion as of 2021.
These numbers are nothing to sneeze at. And the potential for mutually beneficial growth is clear, especially with exports of local firms, large and small, already enjoying preferential treatment under Europe’s Generalized Scheme of Preferences Plus scheme.
The trade department says that, at present, the top exports of the Philippines to Europe are crude, coconut oil, vacuum cleaners, prepared or preserved tuna, hair dryers, spectacle lenses, rubber tires, preserved pineapples, fatty alcohols, automobile transmission systems, radio parts, and purifying chemicals.
These are principally exported to the Netherlands, Germany, Italy, France, and Spain. More importantly, these exports have benefited communities in General Santos City, Davao City, Cebu, and economic zones in Laguna, Cavite, and Batangas, among others.
For local policymakers who will engage with European counterparts in negotiations over the next few months, it will be important to remember that they should not be satisfied with these gains and should work toward a structure that will further benefit Filipinos living close to the bottom of the socioeconomic pyramid.
For one, our government should work toward improving access for our agricultural industry in EU markets, which Europeans are known to be fiercely protective of. And for Filipino farmers to benefit from any free trade deal, the government must give them the tools to make their products more competitive in terms of quality and price.Other Filipino entrepreneurs should also be given the training and support for them to be able to break into the European marketplace to balance the equation with Europeans who have a long history and experience of selling their wares overseas.
With Europe being a notoriously difficult market to crack—and with discussions for a Philippine-EU trade deal being on the drawing board for a decade now—our policymakers should not succumb to the temptation to grab the first deal that is offered to us.
Instead, they should pore over every detail and, using the wisdom gained from previous trade agreements with other nations or groups, work toward a deal that will be beneficial and equitable for all Filipinos, whether it be wealthy businessmen buying luxury German cars at reduced tariffs, middle-class consumers enjoying now more affordable European wine, Filipino workers finding more employment opportunities in factories making goods for export, or our farmers being able to sell their produce in European supermarkets.
The upcoming negotiations with Europe should also serve as a model for future trade deals that the country is eyeing, especially the highly coveted one with the United States. Used properly, free trade is a strong catalyst for improving lives. Used improperly, it can result in greater imbalances where rich Filipinos become richer and poorer Filipinos become even poorer. Our government should remember this in the upcoming trade negotiations.