The Philippines joined Pax Silica in April 2026, the US-led alliance launched in December 2025 to secure supply chains for AI, semiconductors, and critical minerals. The agreement includes establishing a 1,618-hectare Economic Security Zone in New Clark City designated as a network node. Economist JC Punongbayan, associate professor at the University of the Philippines School of Economics, published an analysis on Rappler.com identifying structural risks in the arrangement, including potential perpetuation of low-value manufacturing roles, data center resource demands, and trade-off costs from reduced China economic ties amid West Philippine Sea tensions.
Value-Chain Positioning Concerns
Punongbayan stated that countries performing semiconductor assembly, testing, and packaging capture minimal value compared to those controlling chip design and patents. He wrote that the Philippines has remained in lower-value chain segments for decades. The author specified that high-value work like chip design and wafer fabrication requires binding technology transfer and local supplier development written into agreements, not assumptions. He noted the risk that Pax Silica could rename existing arrangements where the Philippines provides land, labor, and minerals while partners retain technology, intellectual property, and profits.
Data Center Resource Requirements
The economist identified two specific concerns about hosting AI data centers. First, he stated these facilities cost substantial amounts to build but employ few people during operations, with the Philippines supplying land, electricity, and cooling water while capturing thin returns. Second, he noted AI data centers consume large amounts of power and water in a country already experiencing shortages and climate vulnerability. Punongbayan added that rare-earth mining acceleration could impose environmental costs in fragile ecosystems, stating that establishing an economic security zone could entail significant environmental expenses.
China Trade Relationship Trade-Offs
Punongbayan acknowledged the alliance aims to reduce dependence on China, noting Filipino sentiment to de-risk given Beijing's actions in the West Philippine Sea. However, he stated that with Donald Trump leading the US, Washington's commitments may become more transactional and less predictable. The economist wrote that China functions as both a serious economic and R&D powerhouse and sits at the center of mineral processing the alliance depends on. He stated that leaning away from China invites costs including loss of trade and technology ties difficult for a developing economy to replace.
Policy Recommendations Stated
Punongbayan specified that before further agreements are signed, the Philippines should demand answers on Economic Security Zone governance terms, immunities, and lease conditions. He wrote that binding commitments should cover technology transfer, local value capture, environmental safeguards, and labor standards. The author listed measurable targets that agreements should include: Filipino engineers trained, local suppliers accredited, Philippine firms integrated into higher-value production, and environmental liabilities assigned. He stated the administration faces pressure to announce foreign direct investment amid economic conditions, but warned a rushed deal could lock the country into a subordinate role for generations.
Punongbayan is co-founder of UsapangEcon.com and author of "False Nostalgia: The Marcos 'Golden Age' Myths and How to Debunk Them" published by Ateneo de Manila University Press in February 2023. His second book "Twin Plagues: How Duterte and Covid-19 Wrecked the Philippine Economy" is scheduled for publication by Penguin Random House SEA in June 2026.
