U.S.-Philippine Relations - Background

Until November 1992, pursuant to the 1947 Military Bases Agreement, the United States maintained and operated major facilities at Clark Air Base, Subic Bay Naval Complex, and several small subsidiary installations in the Philippines. In August 1991, negotiators from the two countries reached agreement on a draft treaty providing for use of Subic Bay Naval Base by US forces for 10 years. The draft treaty did not include use of Clark Air Base, which had been so heavily damaged by the 1991 eruption of Mount Pinatubo that the United States decided to abandon it.

In September 1991, the Philippine Senate rejected the bases treaty, and despite further efforts to salvage the situation, the two sides could not reach an agreement. As a result, the Philippine Government informed the United States on December 6, 1991, that it would have 1 year to complete withdrawal. That withdrawal went smoothly and was completed ahead of schedule, with the last US forces departing on November 24, 1992. On departure, the US Government turned over assets worth more than $1.3 billion to the Philippines, including an airport and ship-repair facility. Agencies formed by the Philippine Government have converted the former military bases for civilian commercial use, with Subic Bay serving as a flagship for that effort.

The post-US bases era saw US-Philippine relations improved and broadened, with a prominent focus on economic and commercial ties while maintaining the importance of the security dimension. US investment continued to play an important role in the Philippine economy, while a strong security relationship rests on the 1951 US-Philippines Mutual Defense Treaty (MDT).

An estimated 600,000 Americans visit the Philippines each year, while an estimated 300,000 reside in-country. Providing government services to US and other citizens, therefore, constitutes an important aspect of the bilateral relationship. Those services include veterans' affairs, social security, and consular assistance. Benefits to Filipinos and US citizens resident in the Philippines from the US Department of Veterans Affairs and the Social Security Administration totaled approximately $502 million in fiscal year 2010. Many people-to-people programs exist between the United States and the Philippines, including Fulbright, International Visitors, and Aquino Fellowship exchange programs, as well as the US Peace Corps.

The United States competes closely as one of the Philippines’ top two trading partners. Two-way US merchandise trade with the Philippines--which declined from $17 billion in 2008 to $12.6 billion in 2009 following declines in global trade flows--increased to $15.4 billion in 2010. Merchandise trade had already reached $14.1 billion as of October 2011 (US Census Bureau data). According to Philippine Government data, 9.8% of the Philippines' imports for the first ten months of 2011 came from the United States, and 14.9% of its exports were bound for America. In 2010, the Philippines was America's 30th-largest export market and our 36th-largest supplier. Key exports to the United States are semiconductor devices and computer peripherals, automobile parts, electric machinery, textiles and garments, wheat and animal feeds, and coconut oil. In addition to other goods, the Philippines imports raw and semi-processed materials for the manufacture of semiconductors, electronics and electrical machinery, transport equipment, and cereals and cereal preparations.

The United States traditionally has been the Philippines' largest foreign investor, with close to $6 billion in total foreign direct investment as of end-2009. The United States has a bilateral Trade and Investment Framework Agreement with the Philippines.

Since the late 1980s, the Philippines has undertaken reforms that encourage foreign investment as a basis for economic development, subject to certain restrictions. For example, it opened the power generation sector to foreign investment, introduced competition to the telecommunications and sea and air transport sectors, ratified the Uruguay Round agreement, and became a member of the World Trade Organization. The Aquino administration signaled that it is pro-business, and is making efforts to open up the country to foreign investment, especially in large infrastructure projects. Business process outsourcing operations, also known as call centers, tourism, and mining likewise offer investment opportunities. Major obstacles include a prohibition on foreign ownership of land, and constitutional restrictions on majority foreign ownership of public utilities.