By Kyle Aristophere T. Atienza, Reporter
A PROPOSAL to expand the Philippines’ role in US semiconductor value chains could significantly reduce the value of Philippine exports, an economist warned.
Leonardo A. Lanzona, an economics professor with the Ateneo de Manila, said the price of semiconductors could significantly fall “once increased domestic production begins.”
“The Philippines will become just a source of cheap semiconductor imports for the US especially as countries like China, Taiwan and Singapore are already giving up these products and developing other higher value-added products,” he said in a Facebook Messenger chat.
Last week, the US announced that it will collaborate with the Philippines “to explore opportunities to grow and diversify the global semiconductor ecosystem” under the US CHIPS Act’s International Technology Security and Innovation Fund, a $52-billion subsidy program for US semiconductor manufacturers and research.
The initial phase will involve a comprehensive assessment of the Philippines’ semiconductor ecosystem and regulatory framework, as well as workforce and infrastructure needs. It was not immediately clear whether the partnership would involve technology transfer.
The US, through the CHIPS Act, is seeking to incentivize chipmakers to relocate from China back to the US or to other friendly countries. It is also concerned about the vulnerability of Taiwan’s advanced chip industry to disruption from China.
While semiconductors involve complex manufacturing processes and advanced technology in their production, “these products are just inputs to higher value-added products such as consumer electronics, industrial automation and renewable energy,” Mr. Lanzona said, noting that prices have decreased by almost 45% since the 1990s.
“We have learned enough technology from the production of (semiconductors). It is time to fly our own balloon and create our own global value chains.”
Electronics are the leading Philippine export, accounting for just under half of all shipments.
“This collaboration between the US and the Philippines underscores the significant potential to expand the Philippines’ semiconductor industry, to the benefit of both of our nations,” the US State Department said.
Asked to comment on the US-Philippines partnership in the semiconductor value chain, SEIPI President Danilo C. Lachica said in a Viber message: “Electronics account for 62% of Philippine commodity exports,” adding that he hopes the US will become a bigger investor and market.
The US and the Philippines are deepening their defense relationship in the context of an increasingly hostile China.
Speaker Martin G. Romualdez, a cousin to Mr. Marcos, said in a statement following the partnership that “US investments into the semiconductor sector will create more jobs for our people” and “generate considerable revenue for the government.”
“While increasing and strengthening the ties with the US especially for security purposes is welcome, it is important that we don’t fall into the trap of being on the losing end of the deal,” Mr. Lanzona said. “While we sell these inputs at a cheap price, we will end up buying the processed products at a much higher price.”
Last week, President Ferdinand R. Marcos, Jr. told the US Semiconductor Industry Association (SIA) that the Philippines wants to play a bigger role in US value chains.
The Philippines is ready to “absorb and support the additional corresponding capacity for assembly, packaging, and test “as the US increases its front-end wafer capacity for advanced technologies and products under the CHIPS Act,” he said in a roundtable discussion with SIA on the sidelines of the APEC Summit in San Francisco.
He proposed the establishment of a wafer fabrication facility in the Philippines that can support a proposed SEIPI science and technology center.
“Another viable alternative is to have a Philippine-based US semiconductor company build a proof-of-concept wafer fab near their facility with the participation of promising candidates such as Texas Instruments and Analog Devices,” he added.
Taiwan has been beset by increasing pressure from China, which considers the island a rogue province that it hopes to reunify with.
Don Mclain Gill, who teaches international relations at De La Salle University, said the partnership marks a significant milestone in Manila’s economic ties with Washington.
“More can be done from both ends to maximize their potential at a time when China has once again registered as the Philippines’ largest trade partner,” he said via Messenger chat.
He said Manila must continue to make domestic conditions conducive for foreign investment as western countries seek to “diversify their production and sources (in light of the) burgeoning US-China big-power competition.”
“While Vietnam and Indonesia have cemented their positions as large beneficiaries, the Philippines must continue to improve its domestic economic climate to leverage the current geopolitical dynamics.”
Citing national security, Washington last month reduced the types of semiconductors that US companies can sell to China, in a move that further tightened a set of similar export controls that President Joe Biden first introduced in October 2022.
In response, China, which accounted for 36% of US semiconductors sales last year, accused Washington of “weaponizing trade and tech issues.”
Mr. Lanzona called on the Philippines to come up with a “comprehensive industrial policy” at the national level.
“We need to think about the unintended consequences of these negotiations and consider how we can improve our innovation and resiliency, beyond producing these inputs which can be used to trample further our economy,” he said.
“Included in this industrial policy should be a well thought out skills development program since we cannot possibly move up the ladder and catch up with the other higher income countries without improving our skills, qualifications and competencies in producing higher-end products.”