The Philippines was a Spanish colony for roughly three hundred years, leaving an indelible mark in the country’s cultural heritage. In 1521, the archipelago was named in honor of then Spanish crown prince Philip, who would later assume the throne as Philip II. By 1579, Sir Francis Drake of England would reach the southern island of Mindanao while circumnavigating the globe. Drake was followed by British adventurers with trade opportunities in mind. The East India Company sent Alexander Dalrymple in 1760 to open trade relations with the Sultan of Sulu. In 1762, Rear Admiral Cornish and his fleet attempted to wrest control of Manila from the Spaniards.

Meanwhile, early relations between the Netherlands and the Philippines in the 1600s involved Dutch warships raiding Spanish outposts in the Philippines, until Spain acknowledged the independence of the Netherlands in the mid-17th century. “Undercover” trade between the Dutch East Indies and the Philippines was largely tolerated, up to the formalization of economic relations in 1866, with the appointment of the first honorary consul of the Netherlands in Manila, G. van Polanen Petel. By the 20th century, relations between the Philippines and individual European Member States gradually went through a process of evolution. As Europe began to integrate, first, through the establishment of the European Economic Community and, later, the European Union, the Philippines have also began to work closely with its regional neighbors, and eventually formed part of the Association of Southeast Asian Nations (“ASEAN”). These developments transformed the level of interaction from state-to-state relations to regional engagement between the two regional groupings.

Thus, in addition to bilateral dialogues between Philippine and European Commission senior officials, regional relations between ASEAN and the then European Community have also been deepening. Dialogue relations between these two regional groupings were institutionalized upon the signing of the ASEAN-EEC Cooperation Agreement in 07 March 1980. The ASEAN was then composed of Indonesia, Malaysia, the Philippines, Singapore and Thailand.

The 1990s saw an intensified political dialogue between Europe and Asia, with the establishment of forums such as the Asia-Europe Meeting (ASEM), and the ASEAN Ministerial gatherings. Since 1997, the European Commission and Philippine senior officials have actively engaged in periodic reviews of political, economic and cooperation issues.
A significant milestone in ASEAN-EU dialogue relations is the adoption of the Nuremberg Declaration on an EU-ASEAN Enhanced Partnership, which sets out the long-term vision and commitment of both sides to work together on common goals and objectives, during the 2007 ASEAN-EU Commemorative Summit hosted by Singapore.

The ASEAN-EU Plan of Action to Implement the Nuremberg Declaration, the action programme to deepen and intensify cooperation between the ASEAN and the EU for 2009-2010, was also adopted. The ASEAN and EU also have a policy dialogue mechanism to promote trade and investment flows, dubbed the Trans-Regional ASEAN-EU Trade Initiatives (TREATI).

Despite these institutionalized regional dialogues, EU President Jose Manuel Barroso and Philippine President Gloria Macapagal-Arroyo recognized the need to update the existing framework governing EU-Philippine relations when they met on the margins of the AEM Summit in Helsinki, Finland in September 2006. Further discussions along these lines occurred during the ASEM Summit in Beijing in October 2008, finally leading to the formal negotiations for a Partnership and Cooperation Agreement (“PCA”) in Manila by February 2009. Three rounds of negotiations were held in 2009, four rounds in 2010, and finally by June 2010, a PCA was initialed at the conclusion of the seventh round of negotiations in Brussels.

RP-EU Economic Relations

The European Union is one of the country’s major trading partners. Philippine exports to the EU amount to 3.84 billion Euros, while EU exports to the Philippines amount to 2.9 billion Euros in 2009. The balance of trade leaves a healthy surplus of some 702 million in favor of the Philippines. Nonetheless, Philippine exports to the EU have been declining in recent years, at around 2% a year, in contrast to the exports of its ASEAN neighbors. The Philippines ranks only 51st among EU’s top trading partners, way below its ASEAN neighbors, notably, Singapore (18th), Malaysia (24th), Thailand (26th), Indonesia (34th) and Vietnam (44th).

While the EU is also the largest single source of Foreign Direct Investment (FDI) in the Philippines in the past decade (34% of total FDI in 2008), the volumes are below those of EU investment flows into comparable countries in the region. EU investments cover a broad range of economic interests, such as information technology and services, processed foods and beverages, infrastructure and utilities, agriculture products and allied services, chemical-based consumer products, among others. In terms of labor markets, Europe accounts for 7.5% of total deployed Overseas Filipino Workers around the world, and .15% of total OFW remittances. In 2009, Italy ranked eighth in terms of hosting the most number of deployed land-based OFWs, while the United Kingdom is also at the eight spot among the top ten destinations of deployed newly hired Filipino nurses.

The EU is also an important partner for Philippine development. EU support to Philippine development date back to 1976, with funds committed to co-finance NGO grassroots development actions in the country. A more substantial and structured development cooperation began in 1986, with the Aquino administration’s commitment to democratic development. The European Commission’s total cooperation funding for the Philippines, since these programmes began in 1976, now stands at over PHP 65 billion in total. Of this, 60% has been in grant funding, and 40% in loans from the European Investment Bank.

Key priorities for EU development cooperation with the country, for the period 2007-2013 focus on:
 Helping the Philippines meet its Millennium Development Goals (MDG), by supporting a more equitable access to quality basic social services, such as the health services, through budget support and sector-wide approaches;
 Helping the Philippines in its political, economic and social reform processes by providing support to boost trade and its investment flows, to restore peace and security, especially in Mindanao, and to deepen dialogue on governance with and among all sectors of society.

The EEU-Philippines Strategy Paper identifies the broad priorities for future co-operation between the Philippines and the European Commission: (1) assistance to the poorest sectors of society, and (2) assistance to trade and investment. Other areas of co-operation include human rights, stability and security. Finally, education, culture and science/technology will be emphasized as tools to enhance partnership and facilitate the visibility of the EU in the Philippines and vice-versa.

The main focus, in terms of the EU’s economic engagement with the Philippines, is the promotion and facilitation of trade and investment flows. This is to be achieved primarily through extension of trade-related assistance. The EU views increased trade as supporting its poverty alleviation objectives in the country, particularly to increase agricultural trade on account of its expected positive economic impact on agricultural stakeholders and on rural development.

On the Philippine side, the government sees a host of economic benefits from a trade pact with the EU, such as improved share in the EU market, broader and bigger EU investments in the Philippines, increased development aid, among others. In terms of improving market access, the Philippine government believes that the reduction of tariffs and the promotion of transparent and rational use of non-tariff barriers and sanitary and phytosanitary (SPS) measures will increase export opportunities for its products in the European market. However, such expected gains appear to be very minimal, mainly because EU tariffs on Philippine exports are already very low.

The real barriers to trade with the EU remain to be the continued proliferation of trade distorting subsidies, tariff barriers, and SPS. It is yet to be seen whether the EU negotiating mandate will include such issues. The Philippine government needs to have a firm understanding of the potential impact of these policy changes as a consequence of the PCA, and this cannot be effectively done if the various stakeholders are left out of the picture.

The EU-Philippine relationship has undoubtedly deepened over time, holding a promise of stronger economic links despite the hurdles presented by the Asian financial crisis and the global economic downturn, and emerging threats to global security. Both parties recognize that there is still great potential to increase mutually beneficial partnerships between European and Philippine businesses.

The Partnership and Cooperation Agreement

At the Asia-Europe Meeting Summit (ASEM) in Helsinki, Finland in September 2006, EU President Jose Manuel Barroso and then Philippine President Gloria-Macapagal Arroyo agreed to update the existing framework governing RP-EU relations. Further discussions along these lines occurred during the ASEM Summit in Beijing in October 2008, finally leading to the formal negotiations for a Partnership and Cooperation Agreement (“PCA”) in Manila by February 2009. Three rounds of negotiations were held in 2009, four rounds in 2010, and finally by June 2010, a PCA was initialed at the conclusion of the seventh round of negotiations in Brussels. However, copies of the RP-EU PCA have not yet been made publicly available. As an alternative to the RP-EU PCA, this primer will provide an overview of the general characteristics of the existing EU PCAs with other countries.

What is a PCA?

A Partnership and Cooperation Agreement (“PCA”) is a bilateral treaty signed and ratified by the European Union and an individual partner State. It serves as the legal framework of relations between the EU and the individual state that sets out their political, economic and trade relationship. The relationship is based on respect of democratic principles and human rights. It usually has a term of 10 years. It may include clauses on human rights, action against terrorism, and countering the proliferation of weapons of mass destruction.

The EU has concluded at least ten (10) PCAs with several Eastern European and Central Asian countries, and one with Indonesia. In the case of Russia and the other independent states of the former Soviet Union, the PCAs were intended to be non-preferential, but based on GATT principles, particularly on MFN treatment. However, the PCAs provide for eventually more extensive opening of the EC market by extending GSP treatment to these countries, with separate agreements covering trade in textiles and nuclear materials.

The terms and conditions of the 10 earlier agreements, particularly, Trade in Goods, are generally similar. Under the Trade in Goods provisions of these PCAs, in general, the parties agree to accord to one another most-favored nation treatment, freedom of transit, import duties exemption on goods admitted temporarily, and freedom from quantitative restrictions on their respective goods, among others. There are also special provisions on textiles, coal and steel and nuclear materials.

In addition to Trade In Goods, the PCAs cover areas such as business and investment, legislative and economic cooperation, democracy and human rights, illegal activities and illegal migration, cultural cooperation and technical assistance.
Unlike the other PCAs, the Indonesia-EU PCA has an initial term of five years, subject to renewal. The Indonesia-EU PCA is distinctly different from the other PCAs. The Trade and Investment relations between Indonesia are guided by the following principles:

a. Strengthened bilateral trade relations, while advancing the multilateral trade system
b. Improved market access conditions
c. Consideration of trade preferences scheme under the WTO
d. Access to information on matters relating to developments in trade and trade-related policies
e. Technical capacity-building in such areas as sanitary and phytosanitary issues; technical barriers to trade; intellectual property rights protection; trade facilitation; customs cooperation; investment; competition policy; and services.

The Indonesia-EU PCA also provide for bilateral and regional (ASEAN) cooperation, where the parties agreed to carry out related activities at the bilateral or regional level or through a combination of both frameworks. The parties also agreed to ensure, where appropriate, coherence with other activities involving the EU and ASEAN partners.

Cooperation in other sectors include tourism, financial services, economic policy dialogue, industrial policy and SME cooperation, information society, science and techonology, energy, transport, education and culture, human rights, environment and natural resources, forestry, agriculture and rural development, marine and fisheries, health, statistics, personal data protection, among others.

Why a PCA?

A Partnership and Cooperation Agreement (PCA) is designed to serve as the general framework of relations between the Philippines and the European Union (EU). The Philippine Department of Foreign Affairs states that the agreement aims to further advance the bilateral cooperation between the parties through dialogue and capacity-building in the areas of political security, human rights, counter-terrorism, trade and investment, development cooperation, education and culture, energy and transport for the mutual benefit of both parties.

Both parties see this as an important step towards the establishment between them of a Free Trade Agreement, after negotiations for an EU-ASEAN FTA suffered major setbacks. The EU remains committed to strengthening its competitiveness through increased market access in the ASEAN countries, and the EU Member-States have given the green light for the Commission to pursue, on a case-by-case basis, negotiations with individual ASEAN countries interested in negotiating comprehensive FTAs bilaterally. The Philippines is only the second ASEAN country after Indonesia to complete negotiations on a PCA with the European Union. Negotiations are currently on-going with Vietnam, Thailand, and Singapore.

A Primer on the Philippine-European Relations and the Partnership and Cooperation Agreement between the Republic of the Philippines and the European Union

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