The economic impact of a break in U.S.

Philippines ties
In an unexpected yet not entirely surprising turn of events, Philippines President Rodrigo Duterte
continued his anti-U.S. rhetoric in late October by declaring that the island country would be
breaking up with America.
The U.S. and the Philippines have shared strong relations dating all the way back to the late
19th Century when the U.S. occupied the Philippines as a colony. The relationship between the
two nations has even been described as a special relationship.
Announced on 17 November, the Philippine economy expanded 7.1% in the third quarter of
2016 despite Duterte's antics since taking over in June. The economy is going strong, for now. In
this post we take a look at what is at stake for the Philippine economy if Duterte does indeed
move to break off relations with their long-time ally and driver of economic growth, the U.S.
Duterte: "U.S. has lost"

Since taking office in June, President Duterte has shown a propensity for making outlandish
statements especially against the U.S. In August he called for an end to joint military drills with
the U.S. He also recently had expletive-laden words for both the U.S. Ambassador and President
Barrack Obama, himself.
Dutertes latest comments came during a visit to Beijing in which he declared that the U.S. has
lost and that hed look to realigned himself with China stating, Ive realigned myself in your
ideological flow and maybe I will also go to Russia to talk to Putin and tell him that there are
three of us against the world: China, Philippines, and Russia. It's the only way.
Following the speech, in what appears to be an attempt at damage control, Philippine Trade
Minister, Ramon Lopez, stated that the country would not stop trade and investment with the US.
"The statement the President made maintains the relationship with the West. What we are saying
is that there will be less dependence just on one side of the world."
The damage, however, was done as the White House began seeking answers shorthly thereafter.
U.S. State Department spokesman, John Kirby, said the US would be seeking an explanation, as
the U.S. was blindsided by Dutertes comments.
Kirby described the comments as "yet another string in some pretty strong rhetoric that we think
we believe is at odds with the kind of relationship that we have had and continue to have with the
Filipino people."
The economic impact: What does breaking up really mean?

Duterte elaborated on the exact kind of separation that he has in mind commenting, I announce
my separation from the United States, both in military, not maybe social, but economics also."
The separation could have implications for the Philippines and U.S. economies especially in
terms of labor and trade movements.
Remittances are vital to the Philippine economy, accounting for approximately 9.8% of GDP in
2015. They are an important source of income for many Filipino families and thus one of the
main drivers of private consumption. One of the main sources of Philippine remittances comes
from, of course, the U.S.
Business process outsourcing (BPO) is also very important to the Philippines
economy, something U.S. firms have invested heavily in the Philippines. According to CNBC, it
accounts for roughly 6 percent of GDP.
For the U.S., the separation could mean restricting entry of U.S. citizens to the Philippines.
As Duterte mentioned during his speech in Beijing, "The Americans can enter the Philippines
anytime without visas. Why? Why don't we make it reciprocal?"
Tighter rules on entry to the Philippines for Americans is a possibility. Other possibilities could
include, changes in access to resources, tax credits and preferential custom tariffs on industries
controlled by Americans, according to Ramon Casiple, executive director at Quezon City-based
think tank Institute for Political and Electoral Reform, in an interview with CNBC.
The U.S. economic impact would most likely be minimal, in the short term, in comparison to the
effect on the Philippines. However, as mentioned previously, U.S. businesses have invested
heavily in BPO in the Philippines as well as the electronic sector. The changes to access to
resources, tax credits and preferential custom tariffs on U.S. controlled industries could be
harmful.
The Pacific Century, a term used to describe how the 21st Century will be dominated, especially
economically, by the states in the Asia-Pacific region, is of particular concern for the U.S.,
especially in the longer-term. A realignment of ties with China is a blow to the U.S., as
Washington had made the Philippines a pillar of its foreign policy ambitions to firmly position
itself in the Pacific Century.
According to some analysts, the U.S. will find it hard to hold back China's increasing moves into
the South and East China seas in the event of a Philippines alignment with China.
According to a report by Max Boot, a senior fellow at the Council of Foreign Relations (CFR),
"if the Philippines becomes a Chinese satrapy [...] Washington will find itself hard-pressed to
hold the 'first island chain' in the Western Pacific that encompasses the Japanese archipelago, the
Ryukyus, Taiwan and the Philippine archipelago.

According to Boot, 5.3 trillion USD passes through the South China Sea per year, 1.2 trillion of
which is U.S. trade.
What about Asia?

Not only could Dutertes comments threaten U.S.-Philippines ties, but some analysts believe the
comments could also disrupt the entire Asia-Pacific region.
Chinas territorial claims over waters in the South China Sea have been hotly contested by many
ASEAN countries. Indonesia, Malaysia, and Vietnam have been particularly at odds with China
over the territorial disputes. If the Philippines indeed shifts its alliance from the U.S. to
China, this could give China more leverage to tighten its grip on the already tense region. The
major political effect this would have on the region could have spillover effects that negatively
impact the economies of the region.
Empty words?

Some analysts believe that Duterte's anti-U.S. rhetoric adds up to nothing but hot air.
"Part of me is thinking that this is all just posturing. After the U.S. elections, you could expect
the Duterte administration to come back to Washington [ ... ] Duterte and his minions are far
from being the master chess players they think they are, they are just muddling and bumbling
through every day," commented Joseph Franco, a research fellow at Singapore's Nanyang
Technological University.
The Duterte administration has yet to officially send a notification of termination of relations to
Washington, which signals to some that it could be nothing more than a PR stunt in an attempt to
make new friends.
More recently, Duterte seems to have changed his tune with regard to the U.S. now that Donald
Trump is heading to the Oval Office come January 2017. Nontheless, the potential economic and
political impact of a break up between the Philippines and the U.S. could be great. Keep an eye
on this spot to see how things unfold.

US wont interfere as PH turns to china,

russia
posted September 28, 2016 at 12:01 am by John Paolo Bencito

THE US State Department said Tuesday that Washington will not interfere with President
Rodrigo Dutertes decision to pursue alliances or partnerships with China and Russia, but said it
would regard the Philippines as a strategic ally until they hear otherwise.
With regard to them pursuing alliances or partnerships with China and Russia, theyre a
sovereign nation and were certainly not going to hold them back from pursuing closer relations
with either of those countries. And its not a zero-sum game, US State Department deputy
spokesperson Mark Toner said in a press briefing at Washington.
We believe that we can remain a close friend and partner with the Philippines. Its one of our
most enduring bilateral relationships within the Asia-Pacific region and its been a cornerstone of
stability for 70 years. And again, were going to keep up that cooperation until we hear
otherwise, he added.
On Monday, Duterte said that he was about to cross a point of no return in the Philippines
relationship with the United States, asking Americas rivals, Russia and China to help the
country.
Im about to cross the Rubicon between me and the United States, at least for six years, he
said, referring to his meeting with Russian Prime Minister Dmitry Mevdevev. He said he would
need Russian help and everything.

President Rodrigo Duterte

The President had earlier said he wanted to buy arms from Russia and China after the two
countries enticed him with attractive loan offers to buy military armaments that he wanted to
fight terrorism and the insurgency in the countrys south.
Foreign Affairs Secretary Perfecto Yasay on Tuesday said that the Philippine government will not
be rescinding its commitments to its long-term strategic ally, the United States, insisting that the
President simply wants to take independent foreign policy, which is mandated in the
Constitution.
Toner said that the US would continue to work closely with the Philippines in many of its mutual
interests, including counterterrorism and economic development.
He added, however, that the United States wasnt deaf to the continued anti-American slurs from
Duterte.
I did say a couple weeks ago, especially after his remarks withor alleged remarks regarding
President Obama, that words do matter. Were not deaf; we do hear what he says, Toner said.
With Sandy Araneta

Duterte had earlier questioned the US-Philippine alliance, which goes back to more than 65
years, suggesting that the United States will not come to the assistance of the Philippines in a
military conflict started by China in the disputed waters.
Toner declined to make a categorical statement about Dutertes accusations, saying, however,
that the US would continue its relations with the Philippines.
Well, again, I havent seen those specific comments, so its hard for me to react to them. I guess
I would say, arguing with the premise, is that the United States has a strong security presence in
the Asia-Pacific region, but were certainly not looking to start military action against anyone,
he said.
I would just say that our cooperation with the Philippine government remains strong and
unabated, so we continue to engage in close cooperation, as I said, on a number of areas of
interest, Toner said, adding that there seemed to be a disconnect between Dutertes words and
how both sides continued to work together.
In a press briefing, Yasay played down Dutertes promise to have an alliance with China by next
year.
It should not be understood as meaning that we are veering away from our commitments with
the US or our close friendship with the US, which is very strong... We have agreed that we will
move forward to strengthen even this relationship in the future, he added.
During his meeting with Washington officials, Yasay reiterated the countrys position to pursue
bilateral talks with China as a means to resolve the countrys ongoing sea row.
At this point... it is not in our national interest to pursue multilateral negotiations with other
countries who are not involved in... our dispute, Yasay said.
In the same press briefing, Yasay said the President has not issued any conflicting statements
following a proposal in the Senate to conduct an inquiry into his administrations position on
foreign policy.
I do not think that there is any conflict in so far as the statements of our President is concerned.
The President has always been consistent in explaining that in carrying out an independent
foreign policy, we should always pursue the paramount national interest, Yasay said.
Noting inconsistencies in Dutertes declarations, Senator Paolo Benigno Aquino IV called for an
inquiry into the Presidents foreign policy direction to protect the national interest.
But Yasay said Duterte has always been consistent.
The President said that other nations must respect our right in so far as addressing our domestic
challenges without any undue interference. This is always a consistent statement made by the
President, and I do not see any conflict in all of the statements that he has made, he added.

Also on Tuesday, ousted President and now Manila Mayor Joseph Estrada said he supported
Dutertes call for the US government and the UN not to meddle in the internal issues of the
Philippines.
Estrada, who met Duterte in Malacaang Monday afternoon, pointed out that neither the US nor
the UN has the right to tell what Duterte should do, particularly on matters of national
importance such as peace and order and the anti-terror campaign in Mindanao.
The Philippines is an independent nation, they do not know our problems here, but they are
suppressing our all-out war in Mindanao, Estrada said in a radio interview with dzRH, adding
that the fight against drugs and the need for more rehabilitation centers were among the issues
they discussed during their meeting.

But lets say Duterte is serious. If so, China will want something in return for the $13.5 billion in
economic help that a Philippine official told his countrys media would come from the Beijing
visit. There will be some sweets from China, big announcements but smaller disbursements if
any, predicts Alicia Garcia Herrero, chief Asia Pacific economist with the French investment
bank Natixis. It will certainly not come as a free lunch.
In realpolitik, everyone gets something from a deal. Here are two scenarios for what Beijing and
Manila will do for each other:
1. China treats the Philippines as a little brother
Chinese leaders are so happy that a long-time Washington supporter wants to switch to its side of
the world superpower divide they just lay on the largesse.
Communist officials would steer state companies to invest in Philippine manufacturing, which
lags in an economy where growth is driven now by overseas remittances and back-office
processing work for foreign MNCs.
They might also send in Chinese firms to build railways and power projects, something China
has done for others in Southeast Asia. The Philippines needs both, despite an increase in
infrastructure spending this year to 5% of GDP.
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China wont ask much in return right off, using the spoils of its huge economy as a loss leader.
That's how China treated Taiwan for seven years after a conciliatory president took office there
in 2008 and sought to build trust for the first time.

Similar again to Taiwan, Beijing would get restless in a few years if it saw no payback, in this
case fat returns for Chinese companies or Manila's acquiescence on the South China Sea dispute:
quiet bilateral talks and no protesting when China passes vessels or occupies islets within the
Philippine exclusive ocean economic zone. "Beijing has an opportunity here to make real
progress in settling the South China Sea issue on its own terms by treating the Philippines
magnanimously," says Denny Roy, senior fellow at the East-West Center think tank in Honolulu,
Hawaii.
2. China is on guard and seeks quick payback
Like everyone else, the Communist leaders may find Duterte hard to believe. Beijing knows the
U.S. alliance still holds despite the presidents remarks about separation. Duterte's comments
didn't mean an official break of the alliance, because it's not within his power to do that, says
Greg Poling, a fellow with the Southeast Asia Program at U.S. think tank CSIS.
Manila under a different president won a world court arbitration case in July against Beijing over
rights to contested parts of the South China Sea, keeping anti-China sentiment high in the
Philippines. China might give loans for infrastructure, encourage tourists to visit the Philippines
or land a few factories there. But right off it would want a certain level of access for Chinese
firms, which depend increasingly on offshore business due to Chinas competitive home market.
As a condition of economic help, Chinese leaders might formally require Duterte to keep quiet
(not his style) as they occupy one of the 10 Spratly archipelago features that Manila now controls
in the South China Sea.