The domestic garment industry said it would be impossible to hit the $1-billion export target this year due to the strict rules of origin (ROO) of the EU which local manufacturers find difficult to comply with.
Robert Young, president of Foreign Buyers Association of the Philippines (FOBAP) and trustee for the textile, yarn and fabric sector of the Philippine Exporters Confederation Inc., said industry players are expected to hit just 80 percent of their garment and apparel exports target of at least $1 billion this year with EU’s enforcement of their ROOs.
Young explained that the Philippine-made wearables exported to the EU are currently subject to its GSP+ (Generalized Scheme of Preferences+). This means that Philippine garment exports can enter EU duty free.
However, these exports are still subject to a 12 percent duty because of EU's strict ROO, which imposes a ceiling for value-added inputs sourced from a non-GSP beneficiary country. Young said that this rule is not always possible, especially that neighboring China is a major textile source and a non-GSP beneficiary country.
The Philippines has no textile manufacturing industry and relies on imported fabric. Its source of textile, however, does not qualify for the EU ROO.
“We underperform now. How will we perform, you are not allowing us to use imported materials from non-GSP beneficiary country,” he said. “There is another way to use the imported material but we have to buy from an FTA country which has a bilateral agreement with the Philippines. We have to look for these kinds of countries,” added Young.
EU currently accounts for only 10 percent of the country’s total export receipts of garments, textile and apparel. The United States is the main export destination, followed by Australia, Canada and Japan.
With the EU’s ROO, he said the industry group has been requesting the government to submit a derogation letter to the EU to allow the country to use imported fabric even from a non-GSP beneficiary country.
The group has also urged the government to include garment in the preferential duty treatment under the proposed bilateral free trade agreement with the EU to extend the benefits from the planned trade pact to the local wearable manufacturers.
Meanwhile, garment exporters are pushing anew the establishment of more garment factories to supply more export orders, particularly from the EU. In fact, Young said they have been requesting the government to build a pilot commercial-scale wearable textile factory.
“Just one will be enough, we have to quickly start something so that these foreign investors will follow suit,” he said adding that once a textile plant is established here, “it can be a lifesaver to any economy just like in Bangladesh and Vietnam, India, Laos, (and) Cambodia.”
“They (EU) prefer that the fabric we will be using will be sourced from the Philippines. So, this is one way of saying the Philippines has to produce its own fabric,” he said.
Young said building a pilot factory to produce own fabric or textile is thus imperative especially as he expects that the revival of negotiations for the country’s bilateral free trade agreement (FTA) with the EU will also prescribe the same ROO on textile usage for exported garments.
In 2023, Young said the domestic industry exported approximately $1 billion for soft goods (apparel, textile, garments) and $400 million for hard goods (furniture, handicraft/woodcraft, gift and housewares).