Exporters ravaged by virus face loss from EU threat

Coconut oil exports to the European Union accounted for 51% of the Philippines’ total coconut oil shipment. — BLOOMBERG

By Jenina P. Ibanez, Reporter

COTABATO-BASED entrepreneur Jerry M. Taray has been struggling to keep his virgin coconut oil business afloat due to movement restrictions amid a coronavirus pandemic.

“We’re doing our best to keep afloat because the farmers rely on us to sell their products,” he said in mixed English and Filipino by telephone.

His company, TreeLife, has 100 factory workers and buys coconut products from about 1,500 local farmers.

BW Bullseye 2020-focusThese workers are now at risk of losing their livelihood after European lawmakers threatened to suspend tariff incentives under the so-called GSP+ or Generalized Scheme of Preferences Plus. TreeLife exports 80% of its products to Europe.

“The risk could be aggravated by removing this GSP+,” Mr. Taray said.

Coconut oil exports are among 6,274 Philippine products that enjoy zero-tariff entry to the European Union (EU) under GSP+.

The Philippines and seven other beneficiaries retain their GSP+ incentives as long as they adhere to 27 core international conventions that include human and labor rights, environmental protection and good governance.

The European Parliament last month voted to revoke tariff perks enjoyed by Philippine products due to human rights violations related to President Rodrigo R. Duterte’s war on drugs.

It called on the European Commission to immediately start the procedure for the temporary withdrawal of GSP+ preferences enjoyed by the Philippines given the government’s failure to improve the human rights situation.

They also raised concerns about the detention of opposition Senator Leila M. de Lima and the convictions of Rappler founder Maria A. Ressa and former researcher Reynaldo Santos, Jr. for cyber-libel.

The European Commission, which will decide on the revocation, did not immediately reply to an e-mail seeking comments on the EU parliament proposal.

A quarter of Philippine exports to the EU last year or almost 2 billion euros received preferential treatment under the scheme, according to the resolution.

Without GSP+, TreeLife exports to the EU could lose out to competition. Mr. Taray said his coconut oil would be priced higher than the same products exported from Indonesia, Thailand and Vietnam.

Trade Secretary Ramon M. Lopez earlier said the trade perks would probably get retained. This wasn’t the first time these issues had been raised, he told the ABS-CBN News Channel.

Sergio R. Ortiz-Luis, Jr., president of the Philippine Exporters Confederation, Inc. has downplayed the incentives. The country does not fully use the GSP+, he said by telephone.

Goods exported under GSP+ preferences accounted for about a quarter of total Philippine exports to the EU in 2018. Philippine use of GSP+ compared with all eligible exports was 73.1%.

But certain industries that export many of their products to the EU under the trade agreement expect to become less competitive if the tariff perks are removed.

Most virgin coconut oil exporters are micro-, small- and medium-sized enterprises, Yvonne T.V. Agustin, executive director of the United Coconut Association of the Philippines, said in an e-mail.

Coconut oil exports to the EU accounted for 51% of total coconut oil shipment, or $544 million yearly, she added.

Roberto C. Amores, president of the Philippine Food Processors & Exporters Organization, Inc. said dried fruit exporters, including banana chip companies would now have to compete with other countries.

Local companies are less competitive without the trade perks because they have higher operation costs.

The added duties will increase exporters’ shipping costs, forcing them to cut prices, he said by telephone. “They can’t afford that.”

The loss of preferential trade in the 27-state market will affect not just direct exporters of banana chips but also indirect processors who supply the manually peeled fruit. “This specific product generates employment because the work is manually done,” Mr. Amores said.

Local communities in remote areas are the biggest beneficiaries of GSP+, including fishermen in General Santos City and coconut farmers in Lanao del Norte, according to a 2018 study by Uriel N. Galace, a former research specialist at the Foreign Service Institute.

GSP+ has not only enhanced economic growth but also made it more inclusive, encouraging foreign investors to come here and hire Filipinos, he said.

To adapt, a frozen food preserve exporter is considering prioritizing other markets.

“We have to be more aggressive with other markets like the US, Canada and the Middle East,” Philip C. Young, chief executive officer at Global Food Solutions, Inc. said in a telephone interview. This won’t let them fully recover lost sales, he added.

Tuna exporters, who also rely on the tariff perks, said ending the trade perks could lead to lower sales and joblessness in the sector.

“There are other potential new markets for our products but since the US and EU are the major markets for tuna, we might not be able to replace or sustain the volume and sales that we are delivering to the EU in the short term,” the Tuna Canners Association of General Santos said in an e-mail.

Losing the trade privileges won’t be a “death blow” to the economy especially if trade with China compensates for the loss, Mr. Galace said in his paper. But retaining it would help maximize economic growth, he added, citing the country’s increasing use of the tariff perks and the export sector’s reliance on a handful of key markets.

The EU was the fourth-biggest economic bloc destination of Philippine exports in 2019, taking up 10% market share, according to data from the Philippine Statistics Authority.

The Philippines was granted GSP+ status in December 2014. The country’s exports to the region in 2019 increased to EUR7.6 billion from EUR5.3 billion in 2014, according to the Trade department.

In 2019, EUR1.9 billion of exports to the EU used GSP+ preferences.

Mr. Amores said the Philippine government could still ask the European Commission to maintain the country’s trade status. But Philippine agriculture exports could bear the brunt of the potential loss, he added.

“If it so happens, the impact will cascade seriously to the manufacturers,” he said. “What could possibly happen? Unemployment, reduced export values, and of course the displacement of the agricultural export sector.”

Overall agriculture exports have been declining during the pandemic, dropping by 6.7% to $2.5 billion in the first half from a year earlier, government data showed.

Due to restrictions during the pandemic, Global Food has been struggling with maintaining manpower, Mr. Young said.

But the company retained some demand because consumers working — and cooking — from home started buying more of their food products. Continued demand for Philippine food exports to the EU will depend on pricing competitiveness.

Mr. Taray, the coconut oil businessman, said EU lawmakers shouldn’t raise their political concerns at the expense of Philippine business.

“It’s just an accusation and it must go through a process,” he said of the country’s human rights situation. “There are proper venues for that. We shouldn’t be cut off by the EU because we won’t meet our millennium development goals.”

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