Effects of Philippine Separation from the United States on Philippine

Economy,

Military Relations and Foreign Policy

I am no American puppet. I am the President of a sovereign country

and I am not answerable to anyone except the Filipino people. Agree or

not, these words perfectly describes the sentiments of the Philippines new

president Rodrigo Duterte and the new foreign policy that his

administration will most likely to adhere to during his six-year term as a

Philippine president. The enthusiasm of the United States towards the

Philippines began in the late nineteenth century, when political super

powers are claiming extraordinary force in politics and naval supremacy.

United States naval forces project US naval powers in the Atlantic and

Pacific by to avoid invasion in the US mainland. The Philippines has been a

Spanish colony for more than 300 years until the country was seized by the

Unites States navy in the Spanish-American war and the Philippines

eventually became a US colony. Prolonged insurgency and nationalist

rebellion rouse as opposition against the US colonization. US outposts were

made and local troops were trained to naturalize the growing insurgency.

The Philippines gradually achieved stability with the gradual increase of

self-governance but the United States remained in control of the military

bases which were installed at Subic and Clark. While the separation of the

Philippines from the United States would have negative implications in

Philippine economy and military relations, it would allow the Philippines to

strengthen its independent foreign policy.

If the separation between the Philippines and the United States would

push through, it would have an implication on Philippine economy especially

in terms of trade and labor. One specific industry that is most likely to be at

risk with this impending separation is the business outsourcing industry in

the Philippines. Business outsource companies which were the most

dynamic and fastest growing sectors in the Philippiness IT industry will

take the biggest hit should the Duterte administration pursue his

administrations US policy as the industry offer third party outsourcing and

captive markets for companies which are majorly from the United States.

The lower cost of services in the Philippines alongside the language

competence of Filipino BPO employees made the industry progress over the

years since the first BPO company in the Philippines was founded in 1992.

The current ranking of the Philippines is at the 39th in the world which

makes it a promising market for BPO companies. The all-time high rate of

employment in the BPO was recorde in 2014 when the work force grew

from 101,000 workers to over 930,000 in the first quarter. One of the

biggest threats to the booming BPO industry in the Philippines remains to

be the shifts in policies undertaken by the government.

President Dutertes pronouncement on the separation of the

Philippines from the United States reflects one major policy shift. Severing

ties with the United States may prompt US-based companies to look for
alternatives were foreign and economic policies are industry friendly, such

as the case of India. With almost 80-85% percent of its clientele coming

from multinational companies in the United States, BPO employees worry

over the possible withdrawals of US client accounts alongside other policy

shifts that may come as a result of this separation such as reduction of tax

holidays and temporary reduction of taxes which attract many US

multinational companies.

Aside from the BPO industry, remittances and cash flow from other

industries such as export are expected to receive a blow with the shift in

foreign policies. Majority of the export industry in the Philippines rely on

the US market. The President was serious in his statements to sever ties

with the US, it will definitely have a negative impact towards exports and

the outsourcing industry, (Tan, 2016). The business sector also emphasized

the effect the new foreign policy would have in remittances as Filipinos

derive money and livelihood either from remittances sent by Filipinos in the

United States or from BPO industries that employ them. Undoubtedly,

remittances are important in the development process, particularly when

the recipient is a developing country. Remittances contribute to economic

growth, poverty reduction and relieving social problems while enabling the

recipient families to increase consumption and to some scale, participating

in capital investment. However, there are some controversies regarding the

effect of remittances on growth in terms of inequality, its contribution to

productivity and growth, (Kumar, 2010).

 Despite the recent pronouncement of President Duterte over the

Philippines separation from the United States and the growing fear of the

economic implications it may bring to the Philippines, the Philippine

government pressed on that the Duterte administration is not severing its

diplomatic relations with the United States but merely making an expansion

of trade relations with the East since the economic base of the Philippines

has always been dependent with the West. Socioeconomic Planning

Secretary Ernesto Pernia also reiterated that the statement of the Philippine

president is aimed at "a rebalancing of economic relations to a broader base

of trade and investment relations and will maintain our ties with the West,

Europe, with Japan of course, and the US, the Latin America, and even

African countries. The current administration boasts economists as

consultants of the president who expressed that the BPO will remain

protected as policies are ensured to sustain the industrys development

through the creation of Department of Information and Communication

Technology. A summit for the BPO industry also presented a promising

roadmap for the industry in the next six years where employment is

targeted to increase by 11 percent and non-voice service offerings are

projected to spike from 34 percent to 42. As far as remittances are

concerned, the BPO industry has provided foreign exchange that is

consistently at par or even higher with OFW remittances. The

pronouncement of the president is also seen as a timely strategy as newly-

elected US President Donald Trump promised to bring BPO accounts back

to the United States to generate and provide jobs for Americans. Aside from

the fact that BPO gains equal those of remittances from the United States, it

is important to note that remittances of OFWs in other countries contribute

to the surge of the Philippine economy in the recent years. In a report by

the Banko Central ng Pilipinas in 2015 showing the breakdown of OFW

remittances by region, 46% or eleven million dollars worth of remittances

come from North and South America, 22% or five million dollars come from

Middle Eastern countries like Saudi Arabia and the United Arab Emirates,

15% or nearly four million dollars are remitted from OFWs in European

countries like Italy were most Filipinos work as caregivers or nannies.

OFWs in Asian countries like Hong Kong remit 15% or three million dollars

annually, OFWs in New Zealand, Australia and Papua New Guinea

contributes 2% or five hundred thousand dollars in remittances while

Filipinos working as mine engineers in Africa contribute 0.1% or twenty

nine thousand dollars in remittances.

Another possible effect of the Philippines-United States separation

revolves around the military relations of these two countries. The

Philippines has an ongoing dispute with China over territories that lie

across the West Philippine Sea. The Philippines has taken the dispute to the

United Nations Permanent Court of Arbitration which recently decided in

favor of the Philippines for lack of legal basis and historic rights over their

nine-dash line claim. Senators expressed their concern as the president

included military relations in the statement he recently made at the time

when the dispute over the Western Philippine Sea was at its peak. Senators
worry about the hostility the president shows the United States that has

been known to be backing up the Philippines claim over these territories.

The treaties that are most likely to be made with Russia and China might

present conflicts over the Tribunals decision as China continues to honor it.

Aside from the pronouncement made by President Duterte about the

Philippines separation from the United States, has also threatened to stop

the enactment of the Philippines-US enhanced Cooperation Agreement

(EDCA) in favor of a new policy that his administration is planning to

implement. The president emphasized that while it was an official document

which was not even signed by former president Aquinos administration, it

was an only an executive agreement as compared to the Mutual Defense

Treaty between the United States and the Philippines which was signed in

1951. The latter contained articles which dictated and ensure the support

expected from both nations should either be threatened or attacked by an

outside party. EDCA on the other hand allows the assignment and rotation

of American troops in the Philippines while granting the United States to

install and operate temporary facilities in the Philippines for the Philippines

and Unites States forces to use. The Philippines has always been an

important ally of the United States despite not being part of the North

Atlantic Treaty Organization (NATO) and the EDCA is a supplementary

agreement to the Visiting Forces Agreement inked in 1998 after the United

States left their bases in 1994. Apart from the trainings that Filipino troops

receive from their American counterparts, the most important aspect of

EDCA remains to be the disaster relief and response which was proved

timely and useful when the Philippines was struck by typhoon Hyan in 2013

with devastating effects. In the light of the recent dispute between

Philippines and China, EDCA reaffirms the Unites States position and

support for the Philippines as it promises to provide military trainings, arms

modernization and naval security in the next eleven years.

While the Philippines seem to be lagging behind its ASEAN

counterparts in terms of military and maritime strength, the country has

always been seen as a strategic importance in naval and trade which puts it

as a key player in attempts of rebalancing the Asian region. The possible

separation of the Philippines from the United States is what the Philippines

need to assert itself as an independent and sovereign country. President

Dutertes plans to stop EDCA maybe the first step to enable the country to

review some unfair practices that always seem to favor the United States

such as in the case of free use of Philippine facilities, tax-exemptions and

certain privileges for American troops accused of committing crimes in the

Philippines. The Philippine troops compared to their US counterparts only

have access to exercise venues only after security and safety requirements

are met as officials from the United States solely hold control of the

operations. The separation must be seen as a deliberate act of exercising

sovereignty and upholding the dignity as an independent nation.

Annotated Bibliography
Agcaoili, L. (2016). New US government critical to BPO, OFW cash flows. Philippine Star.

Retrieved, from http://www.philstar.com/business/2016/09/24/1626663/new-us-government-

critical-bpo-ofw-cash-flows. This article explains the possible effects of President Dutertes

rough talk against the United States and the possible implications this would merit upon the

election of a new US president. It further explains the impact it may possibly pose to foreign

investors, particularly from the United States as majority of the countrys BPO income are

from US fortune 500 companies.

Cerojano, T. (2016). Uncertainty over Duterte alarms investors. philstar.com. Retrieved 1

November 2016, from http://www.philstar.com/business/2016/10/02/1629587/uncertainty-

over-duterte-alarms-investors. This online news article explains the impending reservations

about Philippine President Duterte and his unconventional policies as the key factors said to

have weakened the Philippine peso as it plummeted to its lowest in seven years. Aside from

the Philippine peso this article also explains how largely affected the stock market has been

which has become the biggest upset for the business sector.

Dagooc, E. (2016). Severing ties with US bad for export, BPO industries. philstar.com. Retrieved

3 November 2016, from http://www.philstar.com/cebu-

business/2016/10/22/1636015/severing-ties-us-bad-export-bpo-industries. This article

explains why the business communities, both local and foreign, are concerned on the likely

effects as Philippine President Duterte stated his want to sever Philippines military and

economic ties with the United States. The article goes on to state how the United States has

been one major player in the export.

Kumar, R. (2010). Do remittances matter for economic growth of the Philippines? An

investigation using bounds test analysis. SSRN Electronic Journal, 1-19.

http://dx.doi.org/10.2139/ssrn.1565903. This article explains the link between remittances

and economic growth particularly in the Philippines where majority of the population either

work overseas or receive remittance from overseas. Furthermore, the article also seeks to

explain why and how remittances have been stably backing up the Philippine economy and

providing sustainable economic growth.

Liau, Y. & Sayson, I. (2016). [Philippine peso slides with stocks as Duterte unnerves

investors]. Bloomberg. Retrieved from http://www.bloomberg.com/news/articles/2016-09-

26/philippine-peso-slides-to-2009-low-as-duterte-unnerves-investors. This article discusses

how the Philippine peso had sunk to a seven-year low and how it adversely affected the

stock market since President Dutertes foreign and economic policies continue to be an issue

with the countrys business communities.

Serino, M. (2012). Effects of international remittances on the Philippine economy: A

cointegration analysis. DLSU Business & Economics Review, 21(2), 47-62. This paper

examines the relationship between international remittances and the growth of the

Philippine economy. It explains how it helps increase the economy's GDP and at the same

time how it can negatively affect the Philippine economys output.