Philippines Preparing for Possible Economic Fallout With China Amid Sea Row

Cliff Venzon and Manolo Serapio Jr.
·3 min read
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(Bloomberg) -- The Philippines is seeking new avenues for trade in a bid to build economic resilience amid the possibility that escalating maritime tensions with its top trading partner China may lead to sanctions, according to the government’s top diplomat.

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Relations between the two nations have been strained over the past year as President Ferdinand Marcos Jr. pursues a more assertive posture to counter China’s sweeping claims of the disputed South China Sea. Part of that effort has seen Manila turn to its longtime ally, the US, for security as well as much-needed investments to spur one of Asia’s fastest-growing economies.

Manila has not ruled out the prospect of the tensions leading to economic retribution from a country that it did $40 billion in trade with last year, with China serving as a major export destination for products like bananas and nickel ore. That could include some form of trade sanctions and requires planning for, Foreign Affairs Secretary Enrique Manalo said during an interview on Friday.

“Unfortunately, sometimes that’s a possibility,” he said from his office in Manila. “That’s why you have to reach out to other partners and you don’t put your eggs in one basket. In the event it happens, at least you have a means of adapting.”

Beyond deepening its defense partnership with the US, the Philippines has been building ties with other countries in Asia as well as with America’s allies in Europe. Part of the strategy has included expanding economic ties with countries like South Korea and France while launching negotiations for a visiting forces agreement with Japan.

A US trade delegation led by Commerce Secretary Gina Raimondo is due to arrive in Manila next month and Manalo said the Philippines is also seeking a free trade agreement with the European Union.

The Philippines and China have been locked in a territorial dispute in the South China Sea, with Beijing claiming nearly all of the resource-rich waterway including areas that Manila says are part of its exclusive economic zone. Tensions came to a head last year when the Philippines ramped up troop rotation and resupply missions to BRP Sierra Madre, a rusting warship that it deliberately grounded in 1999 to serve as its military outpost in the Second Thomas Shoal in the Spratly Islands.

Some of those missions have been met with water cannons and near collisions from approaching Chinese ships. Despite moves by the Philippines to diversify its economy, trade sanctions from Beijing do not appear imminent, said Manalo. “So far nothing like that has happened. But you know, you have to prepare for any eventuality the best you can,” he said.

But the dispute has stalled the Philippines’ plans to explore oil and gas in areas that it considers as part of its territory. Marcos has said discussions with China have been in a deadlock even after both nations agreed to resume talks on joint exploration in the South China Sea in January last year.

Manalo said while Manila remains open to further negotiations with Beijing, it cannot agree to yield control of any venture to China as provided under Philippine laws.

“We haven’t closed the door to negotiations, but we have certain positions we have to maintain,” the minister said.

Other nations can also participate in the Philippines’ energy exploration plans within areas it claims in the South China Sea. “Other countries, if they’re interested, I suppose could make their offers,” he said.

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