Pax Silica cheers and fears

Pax Silica, the international partnership initiated by the United States to secure digital technology supply chains, has elicited cheers and fears from a public divided over whether we should embrace it or junk it. It has been the talk of the town since the Philippines became its 13th signatory last April. Much has already been said and written about it, and I won’t repeat things already widely cited in the public debates. I will focus here on its positive and negative implications that either receive little attention or are overlooked.

Supporters cite massive new jobs and foreign investments as its main benefits, but an under-discussed but potentially larger benefit is how Pax Silica would finally force us to shape up in things we have persistently lacked: power grid reliability, industrial water systems, logistics infrastructure, an engineering pool and pipeline, quality standards, regulatory quality, cybersecurity systems, and more. Our government has no history of proactiveness, and has always needed a strong push, whether from a disaster or an external force, to be jolted into action. Pressure from the dozen or so countries in the partnership could well provide that push. History tells us that countries that successfully went into higher-value industries benefited not only from the factories but from the institutional reforms they had to undertake to support them. Our real long-term gain may not be the artificial intelligence (AI) hub we would host, but our improved ability to run and maintain advanced industrial infrastructure.

Another little-mentioned advantage is increased bargaining leverage with multiple powers, including the strong economies of Japan, South Korea, the United Kingdom, Singapore, Australia, the Netherlands, Israel, Taiwan, the European Union, Canada, and the United Arab Emirates. All are important economic partners with whom there is a large scope to further deepen our trade and investment linkages. Discussions often frame Pax Silica as a binary choice between the US and China, neglecting to consider the boost to Philippine bargaining power in key global supply chains of the future—if we do things right. Being already embedded in key supply chains, we can gain even better leverage with those other countries, and more easily access technology partnerships, infrastructure financing, and industrial commitments. Pax Silica’s growing membership tells us that the framework would go far beyond a bilateral US-Philippines arrangement.

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On the downside, Pax Silica critics focus on four risks: environmental impacts (water, electricity, and land use stresses), displacement of communities, sovereignty issues, and geopolitical risks. Less discussed is the risk that we end up simply hosting a large industrial park without capturing significant parts of the value chain. While even that would still be a gain, it should not just be a question of getting investments, but more importantly, whether these would permit substantial domestic participation of our farms, minerals, indigenous power resources, and labor. We must also gain intellectual property, advanced engineering and manufacturing expertise, and supplier ecosystems. Our past experience with export processing zones admittedly lacked such depth in benefits gained. This time, we must stand firm on ensuring greater local content, transfer of technology, research and development, and workforce-development requirements. Without these, we could simply become a strategic node in someone else’s AI supply chain, not a technological power in our own right.

Critics most often warn that Pax Silica will consume an inordinate amount of water and power and deprive Filipinos of adequate supply of both (on which proponents have ready answers and assurances). Less-cited but possibly more consequential is whether it could divert our national development directions. Such a large strategic project will shape public investments in utilities, port development, technical education, research, and even political priorities. Heavily concentrating these around AI, semiconductors, and strategic manufacturing could undermine other imperatives like agriculture modernization, broader manufacturing diversification, and renewable energy and biotechnology innovation. Like climate change, the adverse consequences of such diversion will not be obvious now, but only be felt many years later.

As in all endeavors of this nature, the devil (or angel) will be in the details: on lease structures, tax arrangements, jurisdictional provisions, data-governance rules, intellectual-property ownership, local procurement requirements, technology-transfer provisions, and more. It’s in how we negotiate these details that would make Pax Silica either a transformative industrial policy success, or nothing more than a large enclave economy. Yes, we should go for it, but we must make sure our negotiating cards are strong.

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cielito.habito@gmail.com