Pax Silica: Show fine print first
One of the most divisive economic issues that has emerged under the Marcos Jr. administration is the proposal to set up a new economic zone exclusively devoted to the high technology business in New Clark City, Tarlac. The business enclave will host foreign companies that will engage in manufacturing semiconductors, microchips, and other components required in artificial intelligence (AI).
The business area will be part of Pax Silica, which is an international coalition organized by the United States to secure global supply chains for AI components in order to counter China’s growing dominance in the industry.
The demands on the environment are enormous. The hub is expected to require 130 million liters of water a day, which is comparable to the water consumption of a small city of 600,000 households, and it will require three gigawatts of electricity, which is the output of three coal plants or one nuclear facility, according to University of the Philippines scientist Dr. Teodoro C. Mendoza. The economic zone will occupy a land area of 1,619 hectares, plus an additional 750 to 1,250 hectares if a “pledged” solar farm of 500 megawatts capacity is utilized.
Because of its very high water and energy requirements, the project will surely cause water and energy shortages, unless the government makes the project conditional on the putting up of water and energy utilities that will add to, and not subtract from, current capacities. It does not help that, in response to the specter of water shortage, a project advocate cavalierly cites rainwater harvesting as a hypothetical solution, which sounds like a “Hail Mary” solution to a very critical problem.
The harm to the environment is ominously serious. Semiconductor manufacturers produce wastewater discharge that contains chemicals, heavy metals, complex organic compounds, and pathogens, according to Mendoza. Concrete solutions must be presented now, and not shelved for the future because they will either be forgotten or later on treated with frivolous solutions.
The incentives that will be given to the foreign businesses in the economic zone are huge. The government will allow rent-free use of the 1,619 hectares of land required, grant an income tax holiday of at least six to seven years with deductions or lower taxes for up to 27 years, give value-added tax (VAT) exemptions, allow duty-free imports, and other incentives, according to Ibon Foundation.
So what benefits will our country derive from the project? President Marcos touts that the project will benefit Filipinos through job creation, skills development, technology transfer, and training. It is peddled that the project will “generate up to 190,000 high-quality jobs for Filipinos.” The business initiative is also expected to “attract between $40 billion and $70 billion in investments, creating opportunities for Filipino engineers, researchers, computer science graduates, and other highly skilled professionals to build their careers in the country.”
The proposed business hub is not a new model. It is in the concept of an economic zone, similar to the many already existing economic zones operating all over the country, such as the Subic Freeport Zone and other export processing zones. However, Pax Silica will be a league of its own because it will be entitled to more privileges.
In our existing ecozones, the foreign manufacturing locators bring in their raw materials, manufacture them into finished products, and then ship them out of the country for the foreign market. They’re not subject to income tax or any sales tax, except for a fixed five percent tax on their gross income. In the case of Pax Silica locators, they will be tax-exempt for six or more years, so no tax revenue benefits will be derived by our country from their direct operations for the foreseeable future. In contrast, Philippine companies pay 25 percent corporate income tax, VAT, realty tax, and a slew of other taxes. On top of that, the project locators will enjoy rent-free use of the land.
There’s also the claim that Pax Silica will enable us to develop our upstream industries so that we will no longer be mere sellers of raw minerals and unprocessed materials. Again, this is a mere expression of hopes and dreams, without black-letter guarantees.
Without facts cited, the 190,000 jobs that the project will supposedly generate are an “ice candy” number pulled out of thin air. The kind of manufacturers that will operate in Pax Silica employ robotic operations. Apart from janitorial, security, and clerical personnel, what’s the factual basis for our government to assume that tens of thousands of engineers and professionals will get employment in the project? And with the high security and guarded patents that are standard in the microchips industry, what kind of technology transfer does our government expect?
The demands for our country’s water, energy, and land resources are immense. The specter of environmental damage is ominous. The benefits are aspirational and iffy. Let our people read the fine print. Secure for our country clear and specific guarantees.
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