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The proposed Luzon Corridor is expected to attract more investments from companies that reduce risks from China

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The proposed Luzon Corridor is expected to attract more investments from companies that reduce risks from China

By means of Kyle Aristophere T. Atienza, News reporter

AN ECONOMIC CORRIDOR that The United States is looking to set up a branch on the Philippine main island of Luzon, which could attract American and Japanese companies looking to reduce dependence on China, according to trade experts.

Through this ambitious project that focuses on high-impact infrastructure, the Philippines, among others, canFview itself as an “alternative investment location” for American and Japanese investments leaving China for friendlier shores, said George N. Manzano, a trade expert at the University of Asia and the PaciFic.

“The corridor is likely to enhance the Philippines’ ability to participate in the global supply chain by increasing efficiency through better logistics, and opening up business opportunities for supply industries,” he said in an email.

The proposed Luzon Economic Corridor is the latest under the US-led G7 Partnership for Global Infrastructure and Investment (PGI) and the Ffirst of its kind in the Indo-PaciFic region, according to a statement from the US Department of State, which will oversee the implementation of the project.

The Group of Seven (G7) is a grouping of some of the world’s advanced economies such as the US, Canada, France, Germany, Italy, the United Kingdom and Japan, with a combined economic output of $46.3 trillion last year.

The proposed corridor aims to increase connectivity between the capital Manila, the southern province of Batangas in Luzon and two former US military bases Subic Bay and Clark, with an emphasis on high-impact infrastructure such as railways and ports and strategic investments in semiconductors. , clean energy and supply chains.

The project, which is considered a “major achievement” under the BGA component of the US-led Indo-PaciFic Economic Framework, will be pursued by Washington with the help of Japan, Manila’s largest source of overseas development assistance.

US President Joseph R. Biden Jr., Philippine President Ferdinand R. Marcos Jr. and Japanese Prime Minister Fumio Kishida announced the planned Luzon Corridor after their trilateral summit, held in Washington DC earlier this month amid increasing tensions with the United States. China.

China claims the South China Sea almost in its entirety, including areas well within the Philippines’ exclusive economic zone, conducting dangerous maneuvers and deploying water cannons to block Philippine supply and rotation missions.

The US, which has vowed to defend Manila in the event of an armed attack anywhere in the waterway, has been embroiled in a years-long trade war with China since 2018, when then-President Donald J. Trump imposed tariffs on Chinese products over alleged unfair trade practices .

“The Philippines can expect through the BGA a means to channel investments from the US and other like-minded countries such as Japan to develop its infrastructure, while adhering to international standards,” Mr. Manzano said.

SEMICONDUCTOR INDUSTRY
Mark Bryan Manantan, director of cybersecurity and critical technologies at the Hawaii-based Pacific Forum, said the Philippine semiconductor industry is likely to be among the first sectors to receive foreign investment that would be opened up by the corridor.

“The country is well prepared to absorb investments in the semiconductor industry given regulatory alignment with the US and Japan on strategic trade management, especially in highly sensitive technologies such as chips,” he said in an email .

A delegation led by U.S. Commerce Secretary Gina Raimondo pledged in March to help the Philippines set up a wafer-making plant, citing the potential for Manila to double the number of semiconductor factories.

The semiconductor and electronics sector accounts for about 60% of the country’s merchandise exports.

The Philippines is one of seven countries the U.S. is working with to diversify its semiconductor supply chain under the CHIPS and Science Act, which provides $52.7 billion in federal subsidies to encourage chip makers to move back from China to the US or to other friendly countries.

But Mr. Manantan said it would not be easy for the Philippines to pursue the ambitious Luzon corridor project as it still needs to address infrastructure gaps and produce a sufficient and skilled workforce.

“It should also strengthen the cybersecurity and resilience of the manufacturing industry, which is increasingly targeted by malicious actors,” he added. “Another challenge is an adequate energy supply.”

Luzon’s power grid has been under yellow and red alert since last week due to outages at several power plants.

The Philippines’ energy security is also threatened by the projected depletion of its only indigenous natural gas source by 2027.

“The US and Japan have vowed to help the Philippines build its civilian nuclear energy programme, but this will obviously take time,” Mr Manantan said.

Terry L. Ridon, chairman of Philippine infrastructure think tank InfraWatch, warned that China could hinder the passage of ships in areas it claims, potentially hampering the corridor’s routes.

“The fact that this corridor faces the West Philippine Sea should be considered a low risk as Beijing could pursue containment policies to discourage the free passage of goods and ships in areas it considers its territory,” he said in an email. .

“The success of the economic corridor depends on massive foreign support through infrastructure and investment, especially as bilateral relations with Beijing continue to deteriorate,” he added.

Mr. Manantan said the recent US trade mission and Marcos’ trilateral summit with his US and Japanese counterparts “aim to let China know that the US and Japan can coordinate their efforts to help the Philippines buffer any economic retaliation from Beijing .”

“For now, it remains to be seen how China will use its economic influence, but I believe the Marcos administration already made such a calculation when it entered into the trilateral agreement.”

China is the Philippines’ largest source of imports and its second largest export market. The US, on the other hand, is the largest destination of Philippine products and the fifth largest source of imports.

Experts have noted Washington’s efforts to boost economic partnerships with Manila as it strengthens security ties following the expansion of US military bases in the Philippines.

“While many Philippine policymakers welcome the prospects of deeper economic engagement from Washington DC, the reality is that everyone is in a wait-and-see mode given the volatility in US domestic politics, especially with the upcoming US presidential elections in November. Mr. Manantan said.

Amid political uncertainties, he noted that Manila could always rely on Japan, which has “always been the mediator” for the two countries amid domestic political shifts.

“Like the rest of Southeast Asia, Japan remains the trusted partner of choice for the Philippines to avoid over-dependence on China,” he added.

Mr. Manzano, meanwhile, said China would remain the Philippines’ top trading partner despite these developments.

“The US’s comparative advantage is very different from China’s.”

The U.S. State Department said Washington will work with multilateral development banks and the private sector “to deploy capital and development and financing instruments to support infrastructure projects across the (Luzon) corridor.”

A trilateral event to promote the corridor will be held on the sidelines of the Indo-Pacific Business Forum in Manila in May.