Manila is facing an existential crossroads, as evidenced by new challenges of militarization and uncertainty in overseas work, tourism, trade and investment.
After a wargame exercise on Wednesday night by the House Select Committee on China, its chairman warned stressed the need to take action to “arm Taiwan to the teeth before any crisis begins.”
As reported by The Hill on Thursday, the key lesson is “the importance of coordination among allies and partners in the region, such as Japan, South Korea, Australia and the Philippines, to allow for U.S. military access to key jumping-off points, but also to prepare to put into action a coalition of like-minded states to oppose Chinese aggression.”
Launched first a year ago by the Center for New American Security (“CNAS plans for Asia,” TMT, Aug 1, 2022), the game depicted the Philippines as a vital logistical base to US response in Taiwan.
Taiwan wargames for $19B military sales
Along with its prime funders, Pentagon and the Big Defense, the CNAS, which is closely tied with the Biden administration (“The Centre of International Insecurity,” The World Financial Review, Jun. 10, 2022), is pushing for the White House to urgently deliver on a “backlog of $19 billion in military sales to Taiwan.”
Meanwhile, Philippine authorities pledged that the EDCA sites would have no military role in a potential Taiwan conflict. The vows contradicted fully the EDCA statements by their US counterparts, the Biden administration – and the CNAS wargamers.
That’s the confusing backdrop to President Biden’s meeting with President Marcos Jr. in the White House on May 1.
Preceded by the US secretaries of Defense and State meeting with their Philippine counterparts in Washington, the meeting announcement came right after the largest-ever joint US-Philippine military exercises in the South China Sea. These ensued days after the US gained greater military access into the Philippines.
Two months ago, I suggested that that the militarization could erode the economic futures of the Philippines and the ASEAN (TMT, Feb 20, 2023). The early signs do not bode well.
Geopolitics: rising military uncertainty
Last week, Foreign Affairs Secretary Enrique Manalo pledged to the Senate EDCA inquiry that the Philippines will not be allowing the US to stockpile weapons for use in operations in Taiwan at the EDCA sites.
Senator Imee Marcos, chair of the Senate foreign affairs panel, pointed to the possibility of the US caching weapons at EDCA sites. She made note of a provision in the 2023 US National Defense Authorization Act, which allowed for the creation of a contingency stockpile in Taiwan.
Pressed further by Marcos, Manalo added that the Philippines will not allow US troops to refuel, repair and reload at EDCA sites.
Marcos also told Defense chief Carlito Galvez Jr. that the Armed Forces of the Philippines (AFP) seemed to be ignoring military modernization: “We are just relying on foreigners to defend us while the armed forces remain rotten, old, under-armed and completely abject in the face of external threats?”
The bilateral ties with the US rest on the Mutual Defense Treaty (MDT, 1951), and the Enhanced Defense Cooperation Agreement (EDCA, 2014). In March 2016, the two countries agreed on the five locations of military bases for the American troops. In 2021 followed the renewed Visiting Forces Agreement (VFA); and earlier this year, the new four EDCA sites.
The Biden administration is in a hurry to integrate Philippine military alignments before the ASEAN and China finalize a code of conduct (COC) for the SCS.
Filipino futures in the region
In a recent address, Chinese Ambassador in Manila Huang Xilian said that “some tried to find excuse for the new EDCA sites by citing the safety of the 150,000 [overseas Filipino workers] in Taiwan, while China is the last country that wishes to see conflict over the Strait because people on both sides are Chinese.”
Oddly, in much of the Philippine media, particularly foreign-owned outlets, Huang’s remarks were framed as a “veiled threat” against Filipino OWFs in Taiwan.
In effect, the debate on the Filipinos and OFWs misses the regional big picture. In addition to Taiwan, Filipinos constitute the largest ethnic minority in Hong Kong, numbering over 190,000. According to ex-labor secretary Silvestre Bello III, in 2016 there were also up to 200,000 undocumented Filipinos working on the Chinese mainland as domestic workers. Recent official figures have not been released.
More importantly, many of the old and new EDCA sites are in proximity to major Philippine urban hubs. When their populations are added to more than half a million Filipinos in Taiwan, Hong Kong and mainland China, the final figure soars to millions.
And should nuclear weapons be mobilized in the region, as prepared by the US-UK-Australia trilateral AUKUS pact, which Manila has officially welcomed, the final tally could soar to tens of millions.
Tourism: self-imposed visa quotas, $2.5B lost?
With the new EDCA sites and increasing militarization, I argued two months ago, the anticipated inflows of Chinese mass tourism will not materialize. In 2019, there were more than 1.7 million arrivals from China, making up 22% of total arrivals to the Philippines. This translated to about 2.3 PHP billion in tourism receipts. Hence, the urgent need for visa reforms to address “tourism bottlenecks,” as Tourism Secretary Christina Frasco recently said.
The Department of Tourism (DOT) aims to have 2 million Chinese visit the Philippines this year. That would require 6,818 visas to be issued per day. Yet, according to Franco and reports from airlines, Philippine consular posts in China have issued advisories “limiting the acceptance of visa applications per day from only around 60 to 100.” Like Franco, Roberto Zozobrado, chief of the Philippine Tourism Congress, believes the hurdle to getting more Chinese back is the visa quota implemented by the Department of Foreign Affairs (DFA).
Based on data by the Philippine News Agency and the country’s leading media in late March, the current inflow of Chinese tourists would amount to just 1.5% of the official aim. The gross discrepancy between official targets and actual realities is stunning, especially if it is self-induced.
According to the DOT, revenue losses could amount to $2.5 billion “if the difficulties in obtaining visas is not immediately addressed.”
Trade: $8B in missed opportunity costs, another $12B at stake?
Recently, the Senate finally ratified the largest trade bloc in history, the Regional Comprehensive Economic Partnership (RCEP). Ex-President Duterte initiated the deal in September 2021. Without a timely ratification, Philippines has already lost billions of dollars and the strategic early-mover advantages.
In the early 2020s, the RCEP accounted for some 50% of Philippine exports and 68% of Philippine import sources, as estimated by Dr Henry Lim Son Liong, President of the Filipino-Chinese Chamber.
In terms of its impact, the RCEP could increase the Philippine GDP by up to 2 percent, according to some analysts. Since the country’s nominal GDP was $402 billion in 2022 and is estimated at around $425 billion for 2023, that could amount to up to 8.3 billion – in missed opportunity costs.
Nonetheless, with further militarization and EDCA sites, Philippines’ largest trading partner and largest source of imports could fade into history. And so could the country’s second-largest export market. What’s at stake annually is almost $12 billion in total trade.
Investment: $23B at stake
On Saturday, Foreign Affairs Secretary Manalo met his Chinese counterpart Qin Gan. The two said they seek to increase collaboration and elevate the bilateral relations. Manalo hoped for “the early realization of the $22.8 billion business and investment pledges made during the state visit of President Marcos to Beijing.”
In the past decade, the total bilateral trade did triple, thanks mainly to the Duterte government. As long as president Marcos builds on those policies, the expansion will prevail. But the reverse applies as well.
The first signals came last week when NEDA chief, Socioeconomic Planning Secretary Arsenio Balisacan allayed concerns that Philippine infrastructure projects under China’s Belt and Road Initiative (BRI) may be stalled due to the geopolitical tensions in the South China Sea and Taiwan Strait.
In other major ASEAN countries, which shun militarization and push development, the BRI ties are thriving. By contrast, those emerging economies that align themselves with the ailing Western economies will face more inflationary, monetary and currency pressures in the near future (“Is Philippines sleepwalking into economic and geopolitical minefield,” TMT, Mar. 20, 2022).
The Philippine choice was never between the US and China. It is between lethal geopolitics, which would derail the much-anticipated Asian Century, and economic development, which is very much in the long-term interest of the Philippines, China and the United States.
About the Author
Dr. Dan Steinbock is an internationally recognized strategist of the multipolar world and the founder of Difference Group. He has served at the India, China and America Institute (USA), Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see https://www.differencegroup.net