The Philippines has a golden chance to get Pax Silica right

When Trade Undersecretary Ceferino Rodolfo signed the Pax Silica declaration in April, the Philippines became the 13th signatory (Opens in new window) of a US-led coalition to secure semiconductor, critical mineral, and AI supply chains. The reaction in the Philippines was predictably divided, with rural groups calling it a sellout of land and sovereignty while the government insisted it had rejected any arrangement (Opens in new window) placing the planned hub beyond local jurisdiction.

Lost in the noise is a more uncomfortable truth: the agreement is the best chance the Philippines has had since the 1970s to restructure its economy toward higher-value production.

Three major reasons explain why.

First is the failure of the Philippines to build a manufacturing base comparable to that of its neighbours. It does manufacture, but mostly at the low-value back end of electronics, such as assembly, testing, packaging, and stayed there while neighbours climbed – Malaysia into semiconductors and EVs, Thailand into automotive supply chains, Indonesia into nickel processing for EV batteries. The OECD’s 2026 survey blames high input costs and infrastructure gaps: industrial electricity runs nearly 15 cents per (Opens in new window) kilowatt-hour, roughly 50% above Indonesia and Vietnam, while logistics eat about a quarter of sales.

No serious manufacturer sites a factory where power is unreliable and congested ports cost more than next door, and these are not problems Manila can fix with tax holidays.

Business process outsourcing, or BPO, is the industry of call centres and back-office shops that run customer service, tech support, and billing for companies abroad. That sector, however, is living on borrowed time, because the same artificial intelligence Pax Silica exists to feed is dismantling the routine, scriptable tasks that built it.

BPO’s foreign-investment success illustrates the difficulty. Business process outsourcing thrived precisely because it sidesteps the bottlenecks that strangle manufacturing: a call centre does not need a freight train, reliable provincial energy, or a deep-water port – only reliable fibre and English speakers. The IMF estimates about one-third of Philippine jobs (Opens in new window) are highly exposed to AI, with BPO at greatest risk – an industry worth roughly 7.4% of GDP, comparable to remittances.

Second, corruption shapes outcomes more than most debates admit. The key point from the relationship between corruption and development is that its level matters less than its direction (Opens in new window): rents can be skimmed or reinvested into projects that capitalise on global markets.

Southeast Asia divides along this line where the Philippines has been on the wrong side. Its corruption has meant plundering state coffers and building nothing lasting – most recently the 2025 flood-control scandal, where auditors confirmed 421 ghost projects (Opens in new window) out of 8,000 inspected. By contrast, when Jakarta banned raw nickel exports, corruption largely organised itself around the new industrial parks; despite land conflicts and oligarchic capture, the infrastructure got built and nickel-related exports rose (Opens in new window) from about US$6 billion in 2013 to nearly US$30 billion by 2022.

Finally, Pax Silica is an opportunity for the Philippines to entrench itself in the US-led supply chains, allowing Manila to capture US-led investments over other Southeast Asian neighbours.

This window might not last. The latest National Defence Authorisation Act (Opens in new window) codifies a prohibition on critical minerals mined, refined, or separated in non-allied nations and adds molybdenum, gallium, and germanium to the restricted list. The ban phases over five years but qualifying a supplier does not happen overnight, materials are tested, certified, and integrated years before they ship, so contractors compliant in 2031 are choosing sources now. More immediately, from June 2026 (Opens in new window) the Pentagon may not enter new contracts with blacklisted Chinese-linked firms, with an indirect ban following in 2027.

The Pentagon wants cost-imposing suppliers for the West Philippine Sea and wants a defence industrial base that does not run through Chinese inputs. The Philippines can offer both because it holds a rare, accidental advantage. Most of Southeast Asia is now deeply enmeshed in Chinese capital (Opens in new window) and technology, from the parks of Malaysia, Indonesia, Thailand and Vietnam, through the financial hub (Opens in new window) of Singapore, to the dependencies of Myanmar, Cambodia, and Laos. Those linkages are becoming a liability for anyone selling into the American defence base – leaving the Philippines able to credibly claim allied provenance in a way its neighbours increasingly cannot.

The deal remains uncertain because the declaration is non-binding (Opens in new window), comprising two pages with no enforcement mechanism. Pax Silica’s central offer is a 1,600-hectare economic security zone (Opens in new window) in the Luzon corridor with dedicated power and external capital. Critics warn developing economies may be confined to the low end (Opens in new window), supplying minerals and cheap labour while design and fabrication stay in richer members.

But these are arguments for negotiating hard. Joining is the start, not the prize. The real work is extracting stronger commitments on technology transfer, local hiring and training, and a clear ladder from mineral processing toward electronics and semiconductors. Manila could hold the line on jurisdiction and build some of the safeguards that local movements demand.

Negotiations cannot guarantee success. Pax Silica could deliver a glorified mineral concession with a coat of AI paint. But the alternative is the status quo, in which the Philippines watches another industrial cycle pass while its neighbours climb. This time the opening came from the country’s oldest and most powerful ally. The task is not to refuse it, nor to seize it out of desperation, but to negotiate it into something that finally moves Filipinos up the value chain.