All talk

It seems that after all that show of the US Biden administration to support the Philippines in protecting its critical nickel resources and improving its trade relations with America early this year, the time is still not right even to just start talks on a Free Trade Agreement and a Critical Minerals Agreement.

Rene Almendras, Ayala Corp.‘s head of public affairs and who was Ayala Corp. chairman and current co-chair of the US-Philippines Society Jaime Zobel de Ayala’s point man in a recent meeting of US-Philippines Society, a lobby group that helps promote the Philippines’ interest in Washington, could not help but express his exasperation at the US government’s continued inaction to help the Philippines start talks on a US-Philippines FTA and CMA while prioritizing a CMA with our ASEAN neighbor Vietnam.

Admittedly though, Vietnam’s importance to the US is clear as it accounts for 18 percent of global nickel production compared to the Philippines’ share of just five percent. More importantly, Vietnam also has valuable rare earth resources estimated at 20 million tons with a value of $3 trillion. The Philippines has no known rare earth resources.

On the sidelines of last week’s 42nd anniversary of the Capital Markets Development Foundation Inc. at the Manila Golf Club in Makati, Almendras commented on the US government’s continued excuse to Philippine trade officials that “it’s the wrong time to talk about it” with the US in the midst of an election year that is not exactly going in favor of the current administration.

However, Almendras stresses the fact that “85 percent of the nickel importation of China comes from the Philippines and China is the largest nickel exporter in the world, which means galing sa atin (it comes from us) yung nickel ore na yon, and the Americans are so threatened because China is holding...the supply chain...the supply chain of critical minerals are being controlled by the Chinese because they are buying from us.”

Indonesia, Almendras pointed out, has already banned the export of nickel because they want to process it. In fact, Indonesia’s nickel export ban has already resulted in Chinese investments in the country in nickel processing plants. Estimates of Indonesia’s nickel ore production for this year is at 1.99 million metric tons, six times more than the Philippines’ projected output.

The Philippines’ nickel production last year, according to records of the Department of Environment and Natural Resources Mines and Geosciences Bureau was at 35,144,306 dry metric tons, with a value of P65.8 billion, an amount that a potential investor in a nickel processing plant may deem too low for the investment in a local processing plant especially as Philippine nickel ore in the past has been classified of lower quality.

Thus, what the Philippines needs to do, Almendras said, is to attract investors...” somebody to build processing plants here so that we do not export nickel ore, if we export processed nickel you don’t have to buy it from China anymore...The US can buy it from the Philippines.”

Furthermore, Almendras said, “if you tweak the Trade Act then our manufacturing will grow because we need manufacturing. Our country’s economy without manufacturing is so flimsy...may services naman tayo, wala naman tayong job generation.”

Additionally, he said, tweaking the Trade Act would also allow the Philippine semiconductor industry to start doing critical semiconductor components which would reinvigorate the semiconductor industry and the manufacturing sector. 

In the same vein, Almendras explained, having a  CMA would result in rural development because “mining is going to hire people... and let’s face it a lot of the nickel being exported to China is being smuggled out of the Philippines and we are not earning on that ...I told the Americans just do these two things and you are going to prop up our economy and make us less more China dependent.”

The Philippines, through the US-Philippines Society, has been working hard to attract investments in key areas that include infrastructure and distribution for energy, the digital sector and artificial intelligence, the manufacturing sector – particularly for the semiconductor industry, and for the minerals sector, specifically nickel which is being exported primarily to China as the Philippines lacks the capacity to process the raw nickel.

Of course, there is the strong likelihood that if the Philippines really wants to attract investors to put up a nickel processing plant, Chinese firms would still be the most interested.

The elder Marcos during his term had sought to establish a local nickel industry through his ambitious 11 industrial projects that had envisioned the country being self sufficient in the steel, aluminum, copper, nickel, heavy engineering, petrochemical, pulp and paper, coconut, diesel engine manufacturing, phosphate fertilizer and alcogas production. 

Unfortunately, the Philippine mining sector has through the years encountered stiff opposition from local environmentalists who pose strong opposition to what they call exploitative and pollutant industries such as the steel, nickel, copper and aluminum industries, thus contributing to the stunted growth of those key sectors and forcing the country instead to rely on imports of vital steel, copper, nickel and aluminum products.

Investments in the Philippine semiconductor industry would particularly benefit from the inclusion of the Philippines in the list of seven countries eligible for funding under the US Chips and Science Act that seeks to boost American research, development and production of semiconductors, and tackle supply chain vulnerabilities stemming from the US government’s previous reliance on China and Taiwan-made semiconductors.

Unfortunately, only two foreign companies – from Taiwan and South Korea – have qualified for funding under the US Chips Act, with the bulk going to US manufacturers.

The recent China military maneuvers around Taiwan last week clearly showed that China can easily choke off the Taiwan supply chain. 

The Philippines is also experiencing China’s choking ability as it continues to aggressively control part of the country’s exclusive economic zone which China is claiming as part of its territory.