The Philippines garment sector will emerge as the main beneficiary of EU GSP+

The Philippines garment sector will emerge as the main beneficiary of EU GSP+

The Philippines' garment sector is expected to be a key beneficiary of the country's inclusion within the European Union's (EU) GSP+ scheme from 1 January, allowing the export of 6,274 additional items of all kinds to the EU at zero tariffs over the next 10 years.

As the only Association of Southeast Asian Nations (ASEAN) member covered by the scheme, the Philippines government is expecting its competiveness as an outsourcing manufacturing location grow. But the lack of details at this stage does not allow for reliable impact estimates.

"It is clear that the garment sector will emerge as the main beneficiary, as EU importers have been more attuned to Philippine garments than to other export sectors here," Robert Young, president of the Foreign Buyers Association of the Philippines (FOBAP), told just-style.

However, he claims there is still confusion in the Philippines over the details of the rules of origin requirements for its exports to the EU to take advantage of the GSP+ scheme. If these are tight, then there could be problems for Philippines clothing manufacturers sourcing materials from abroad. "The Philippines lacks a developed textile industry that could produce the full scope of raw materials," Young adds.

He says that right after the EU's announcement on 18 December on granting the Philippines GSP+ status, agencies both in Brussels and Manila were closed for the Christmas holiday period. The Philippines side is now eagerly awaiting "the next visit by EU trade negotiator Walter van Hattum in mid-January," to clarify details of the new trade rights.

By including the Philippines in its GSP+ programme, the EU aims to create an economic incentive encouraging Filipino companies and its government to assume their responsibilities under core international conventions on human and labour rights, environmental protection and good governance, according to Guy Ledoux, the head of the EU delegation to the Philippines ambassador.

EU economic incentive
FOBAP's Young says the private sector was pushing the Philippines department of trade and industry to meet the EU's numerous requirements for achieving GSP+ status, such as participation in international conventions on human rights, effective environment programmes and sustainable economic development policies.

Prior to 1 January 2015, the Philippines had been a beneficiary of the EU's regular GSP programme which covers 6,209 products, only 2,442 of which were subject to zero duty while the rest were subject to lower tariffs. These lower tariffs had been saving garment exporters about 2% of ad valorem duty, which in turn helped garment exports to grow by 14.7% to US$1.6bn in the January-October period compared with the same period of 2013, according to the Philippine Statistics Authority.

This acceleration easily outpaced the total year-on-year export growth rate of 9.2% posted in the same period. FOBAP projects the creation of 40,000 jobs in the garment sector through GSP+ if the rules of origin are, ultimately, relatively generous.

"All other ASEAN countries want to take advantage of us, saying 'hey, can you ship this and that for me to the EU?'" notes Young. "Also Europe-based apparel companies have started sending enquiries, so that FOBAP urges all its members to get ready for production expansion and facility upgrades," he adds.

Young predicts that while the Philippines clothing and textile industry is as yet unclear over the rules of origin issue, "the EU will be less strict than the US" in its trade negotiations over these matters.

Garment makers cautiously optimistic
Meanwhile, Philippines garment manufacturers themselves say that while it may be still too early to be enthusiastic over GSP+, the development does bode well.

"The initial advantage is on the importers - it's up to them to decide whether the Philippines is now becoming a more attractive import source," said Kishore Chugani, a marketing director with Basicwear Export Inc, a manufacturer focusing on knitted garments that sources yarn locally and carries out the knitting and dyeing itself. "It may take a few years but we will likely see that eventually happening," he says.

Meanwhile, Vicson Vidallon, manager at sports garment-maker Wagadoo, indicates that EU import GSP+ concessions might indeed be a boon. The company focuses on supplying the US market with uniforms for "American sports", such as baseball, American football and basketball, because "the EU import duties have been twice as high as those of the US."

Vidallon predicts that Wagadoo shipments to the EU will grow as a result of GSP+ inclusion. And he says that the company will be getting ready "not only for the outreach to European importers but also for the production of soccer uniforms."