This blog is part of the series “Quo vadis Europa?”, hosted by the European Economic Policy program at Polis180.
Digital sovereignty is Europe’s latest „Independence Moment“. But in a globalized world this cannot be built in isolation. Here is why a free trade agreement with the Philippines is a crucial, yet overlooked, step towards securing Europe’s digital future.
A blog post by Jarno Hesse
In early June 2026, the European Commission unveiled its new technological sovereignty package. This made it clear that achieving technological sovereignty is crucial if Europe is to secure its position in the global struggle for geoeconomic power. Yet, for sovereignty, good software alone is not enough. European economies also need access to critical raw materials, secure supply chains and tech-savvy human capital. However, Europe’s strategic actions have long lagged behind its ambitious rhetoric. In January 2026, the European Parliament adopted a resolution urging the European Commission to reduce strategic dependencies on foreign actors. Surprisingly, an island nation in the Indo-Pacific could become a key partner in this shift.
Nickel, Cobalt and the Chinese Grip
The public discourse frequently centers on China’s dominance over rare earths and Taiwan’s importance for semiconductor production. The European Union acknowledges these dependencies; in fact, they are legally anchored in the Chips Act, the Critical Raw Materials Act (CRMA) and the latest Technological Sovereignity Package. All these policy initiatives highlight that Europe’s digital ambitions are materially dependent.
With the CRMA the EU aims at diversifying its supply chains to reduce excessive dependence on individual third countries. The list includes materials like Nickel, Cobalt and Copper, which constitute important components for power lines, communication technologies, batteries and chip production.
Considering this the Philippines suddenly looks much more important. The island nation is the 2nd-largest nickel producer globally with roughly seven percent market share and the 5th largest cobalt producer. It also holds a relevant amount of copper. Even though the EU has identified these materials as important and already concluded FTAs with provisions addressing raw materials with other ASEAN Nations, no ASEAN country currently appears among the EU’s formal CRMA partners.
Neighboring Indonesia serves as a blueprint for how to transform a primarily resource-exporting economy into a domestic processing powerhouse. This was mainly achieved through foreign direct investment. Recent C4ADS research estimates that Chinese companies control around 75 % of Indonesian nickel-refining capacity. Chinese capital and technology have become structurally important to Indonesia’s downstream nickel industry. The second largest nickel producer, the Philippines, is exporting about two thirds of its raw nickel ore directly to China. The rest of it goes to Chinese backed smelters in Indonesia. China thus has become a vital part of the processing ecosystem, effectively holding a monopoly at the start of the value chain.
The planned FTA is Europe’s most effective means of breaking this dependency. The FTA should not simply be conceived as increased Philippine exports but more as a strategic framework for European Foreign Direct Investment (FDI). This capital and industrial know-how would enable the Philippines to move up the value chain. However, foreign investment is currently constrained by restrictive investment rules. With the Foreign Investment Negative List, the foreign ownership in critical industries, like the exploration and processing of natural resources, is capped at 40 percent. While small-scale mining and certain midstream activities remain entirely closed to foreign involvement. Moreover, joint ventures with domestic partners are often a prerequisite for foreign investment. An FTA would need to address these structural barriers in the mining sector. Rather than simply exporting raw, unrefined nickel laterite ore to Chinese smelters, Manila could develop its own local refining facilities and manufacturing plants. In the long term, this industrial upgrading would forge a direct, resilient and China-free supply-chain of critical raw materials straight to European markets. The strategic imperative should not be to replace Chinese dependence with European dependence but rather help both Europe and the Philippines to diversify their economies, create more resilient supply chains and eventually break the Chinese dominance.
The Global Hub for Testing and Packaging
With the newly proposed Chips Act 2.0 of June 2026, the EU aims to accelerate the industrial deployment of semiconductors and reduce strategic dependencies across the entire value chain. To this end, Brussels is investing billions in the construction of new front-end factories. But without secured capacities at the back end of the supply chain, these factories remain vulnerable. While Taiwan and South Korea dominate capital-intensive chip production, the Philippines are a global hub for assembly, testing and packaging (ATP). In 2025 according to industry estimates the Philippines account for roughly 10 percent of global semiconductor ATP-capacity. In June 2026, the electronics sector constituted for around 59,9 percent of the Philippines‘ exports, with 2026 export revenues projected to hit more than 50 billion US dollars.
The Rise of IT Services
In addition to hardware, Europe is in urgent need of skilled professionals to secure its digital infrastructure. In November 2025, the EU recognized the Philippines as a key partner by launching the EU-Philippines Digital Economy Package. The EU contributed €20 million to this initiative, which explicitly targets building capacity in cybersecurity, 5G, and digital connectivity. According to the Philippine Statistics Authority (PSA) the digital economy of the country is responsible for 9,8 percent of GDP and is employing more than 10 million people. Manila is evolving rapidly from a traditional outsourcing destination into a strategically important hub for IT-Services for multinational corporations. Similar to the EU-Japan Economic Partnership Agreement (EPA) and the EU-Singapore Free Trade Agreement (FTA), a deal with the Philippines will probably include a chapter dedicated to digital trade. This chapter should focus on market access for European companies, establishing common standards for data protection and cloud services, simplifying temporary workforce mobility, as well as ensuring the resilience of European cybersecurity through Philippine-managed services.
The Strategic Imperative of the EU-Philippines FTA
With the launch of the Technological Sovereignty Package in June 2026, the EU has clearly mapped out its strategic ambitions. Yet, the physical requirements of this transition cannot be ignored. The Philippines holds some of the critical raw materials, the ATP-expertise in the semiconductor industry and the essential tech-workforce required for this exact transformation.
This partnership is obviously far more complex than can be covered in this short blog post. Negotiations have stalled for nearly a decade due to disagreements over labor rights, climate protection and restrictive foreign investment rules. Furthermore, there are legitimate concerns regarding political stability, and human rights in general, which must be an integral part of the negotiations. However, the window of opportunity is closing fast. As the EU Ambassador to the Philippines, Massimo Santoro, noted, the Philippines‘ preferential GSP+ status will end in 2027. The pressure to conclude the agreement is now higher on Manila than on Brussels. Under President Ferdinand Marcos Jr. the Philippines is following a multipolar pivot-strategy. President Marcos Jr. aims for an internationalization of the maritime dispute with China, the strengthening of the security alliance with the United States and the diversification of the economy, which currently is still heavily dependent on China. With security tensions rising in the south Chinese Sea, the Philippines have a strong incentive to finally conclude the FTA with the European Union. For Brussels the FTA is an important part of its strategic diversification strategy to achieve sovereignty in critical economic sectors. Manila may be far more closely linked to our future than we think.
Jarno Hesse has been a member of Polis180 since March 2026, focusing primarily on transatlantic relations and European trade and tech policy. He is currently working for the Government Affairs team of an international medtech company and is pursuing a bachelor’s degree in political science and history from the University of Potsdam. Furthermore, he has gained professional experience in the think tank sector and political consulting.
Image via Pixabay
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