CURRENT TRADE CONCERNS
Elpidio V. Peria
26 October 2013
Philippine Department Trade and Industry Undersecretary Adrian Cristobal, Jr. announced recently that the Philippines is studying the possible impacts, perhaps good or bad, of a possible free trade agreement with the European Free Trade Agreement or EFTA. EFTA is composed of Iceland, Liechtenstein, Norway and Switzerland. It is the world’s oldest free trade area, having been established in 1960, starting out with ten (10) members. Six of those members left to become members of the EU (United Kingdom and Denmark-1973, Portugal-1986, Austria, Finland and Sweden-1995). It remains, however, a dynamic regional economic group, that has insulated itself pretty well with the economic malaise that is besetting the bigger 27-country European Union.
1. EFTA is a rich-country club
Based on recent 2011 statistical data (from http://www.efta.int/statistics/statistical-data), the GDP per capita of Iceland is €EURO 28,100; Lichstenstein € 41, 700; Norway €46, 900; Switzerland € 36, 100. The poorest of them, Iceland, is richer in degree compared to Japan which has a GDP per capita of € 27,000 or the entire EU combined, which has an average of € 25, 100. The Philippines has a 2012 GDP per capita of US$ 1501 or converting it to yesterday’s exchange rate, the euro equivalent of Philippine GDP is € 1088, though if one checks EU’s data itself on the Philippines, Philippine GDP per capita is at € 2614.
2. EFTA is currently exporting more goods to the Philippines more than it buys Philippine goods
Based on 2011 EU statistical data (http://trade.ec.europa.eu/doclib/docs/2006/september/tradoc_113481.pdf) EFTA’s exports to the Philippines is € 311m, while its imports € 131 m worth of Philippine goods. The Filipinos’ penchant for luxury goods (take Swiss watches, Swiss chocolates and Norwegian salmon), which can be provided duty-free or at reduced tariff rates under this free trade agreement, may have the potential to offset whatever export gains the Philippines may have under this arrangement.
3. EFTA has more free trade concerns it wants to take care of compared to the Philippines
Having been engaged in free trade negotiations for over fifty (50) years now, EFTA has a more or less pre-determined set of components that it establishes with its trading partners and these are mainly on services and investment, intellectual property rights, fisheries, agriculture, trade and development and cumulation. The Philippines, given its key export products, would most likely want to secure market access for its electronics components, fisheries and agricultural products. There is one other item that Philippines may be interested in exporting to these EFTA countries, its people, though hopefully that will not lead to an exodus again of domestic helpers, caregivers, cooks, dancers, etc., but given tight rules on immigration in these countries, getting concessions here might be equivalent to the concessions that we got in our free trade agreement with Japan on our nurses.
4. EFTA has a policy of excluding social clauses in its free trade agreements.
According to Ingunn Yssen, International Secretary in the Norwegian Confederation of Trade Unions and this was circa 2006 in the publication EFTA Bulletin EFTA Free Trade Relations (http://www.efta.int/sites/default/files/publications/bulletins/EFTA_Free_Trade_Relations_July-August_2006.pdf), EFTA policy on social clauses in its free trade agreements is this: “All EFTA countries are members of the International Labor Organization (ILO). Nevertheless, EFTA does not discuss the development of social clauses in its free trade agreements.” This would mean that the rights of workers cannot be demanded as a part of the discussions in the up-coming Philippines-EFTA free trade discussions. She however mentioned that perhaps this issue can be taken up, if the country concerned has already negotiated the same set of clauses, with the EU. The case of the Philippines is that it is still in the scoping stage for its preparations for a possible EU-Philippines free trade agreement. This may be a long shot in the negotiations considering that all these agreements, both the EFTA and the EU, are still in the preliminary stages. Can we argue to the EFTA that these social clauses have to be included in our free trade discussions with them since we are also including it in our free trade discussions with the EU? This kind of stance will test this EFTA policy to the hilt.
5. Cumulation can serve as an entry point to the bigger EU market
Cumulation is a deviation from the usual rules of origin of a traded product such that even if such product is composed of various imported components, provided it is manufactured in the free trade area, it can secure benefits of free trade (reduced tariffs or even duty-free status) applicable to the free trade area. A concrete example cited by Karin Jung of the Swiss Textile Federation in the same newsletter cited earlier is the manufacture of lingerie in Morocco or Tunisia which has a free trade agreement with EFTA under the Euro-Med Agreement. The manufacture of this lingerie can be supplied with Swiss embroidery of preferential origin and this is sent to Morocco or Tunisia duty-free. The finished product is then sent to the EU duty—free. This arrangement can also apply to semi-finished products from the Philippines and sent to EFTA countries for further manufacture. This unique feature, a standard component of EFTA agreements, should be analyzed rigorously by the trade analysts of DTI to determine which components may advance Philippine trade interests, if at all.