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Subic Bay: A Model for Transforming Military Bases into Charter Cities

CCI Researcher Jeff Mason writes about a more viable model for the transformation of military bases into charter cities that exists in the Philippines: the Subic Bay Special Economic and Freeport Zone.

Two years ago I wrote about how using decommissioned American military bases as sites for charter cities, while an attractive idea, ran into an important problem: most existing American bases were simply too small for a city-sized project contained within the physical footprint of the base. Panama Pacifico, constructed on the former site of Howard Air Force Base, has proven successful, albeit at a relatively limited scale (1400ha). Guantanamo Bay, a notable exception in terms of foreign base size, bears its own set of unique political challenges. However, a more general, viable model for the transformation of military bases into charter cities exists in the Philippines: the Subic Bay Special Economic and Freeport Zone.

In 1991/92, US forces withdrew from the Philippines, returning various installations to the Philippine government, including Naval Base Subic Bay. In the wake of the US withdrawal, Philippine policymakers established a program to redevelop these bases as economic development initiatives. Adopted in 1992, the Bases Conversion and Development Act (RA 7227) established a framework for converting US military installations in the Philippines to civilian use, with a principal focus on the US installation at Subic Bay to the west of Manila. The law transferred various base properties at Subic Bay (and elsewhere in the Philippines) to a new Bases Conversion and Development Authority (Conversion Authority) to develop the land (or in some cases to sell the land) as new special economic zones. The Conversion Authority, under the authority of the Office of the President, was tasked with creating the Subic Special Economic Zone as a self-sustaining jurisdiction and center for industry, commerce, finance, investment, and job creation.

To achieve these economic objectives, the Subic SEZ would be managed as a separate customs territory with free movement of goods and capital, financial liberalization, no local or national taxes, and no currency controls. In lieu of existing national and local taxes, businesses were required to pay 3% of gross income to the national government, 1% of gross income to each local government unit included within the Subic Bay Metropolitan Authority (discussed below), and 1% of gross income to a local municipal development fund. The existing infrastructure and facilities, including a ship repair and building facility, container port, oil storage and refueling facility, and other infrastructure would be maintained as an economic base for the new jurisdiction.

To develop and manage this dynamic new economic hub, the Bases Conversion and Development Act established the Subic Bay Metropolitan Authority (SBMA) as the implementation arm of the Conversion Authority. The SBMA was tasked with managing and investing in the facilities and infrastructure of the zone, regulating economic activities in the zone, and providing a variety of other services including education, healthcare, forest protection, and pollution controls. So not only would the SBMA manage this new special economic zone, but it would also effectively operate as a municipal government and replace much of the existing national regulatory bureaucracy.

What I’ve described so far is a very advanced special economic zone regime with a great deal of devolved administrative control—most special economic zones do not enjoy such expansive self-governing powers. But what makes Subic Bay and this enabling law particularly unique is how it addressed the establishment of the SEZ and its relationship with the surrounding communities. When the SBMA was established, each neighboring local government was given the choice of whether or not to join the special jurisdiction. The city of Olongapo and the municipalities of Subic, Morong, and Hermosa all voted to join with broader SBMA, with the Mayor of Olongapo, Richard Gordon, serving as the first Chairman of the SBMA. Rather than simply keeping the base itself as a standalone special jurisdiction, the Philippine government’s wise decision to permit surrounding municipalities to opt-in to the zone not only helped overcome questions of scale in terms of number of residents (currently over 500,000) and size (the entire SBMA is over 67,452ha or 262 sq miles), but also provided access to a much improved administrative and regulatory environment to tens of thousands of local people, rather than retaining that regime only for businesses or workers within the much smaller fenced-in area of the zone.

Under Gordon’s leadership, a massive volunteer effort maintained the facilities at Subic and prevented the looting seen at other abandoned bases following the American withdrawal, quickly making the former base investment-ready. Within four years, the Subic SEZ saw over 200 companies (including FedEx, now-defunct energy firm Coastal, Taiwanese computer manufacturer Acer, and French creative technology company Technicolor SA) invest $1.6 billion, creating over 55,000 jobs (American bases employed 68,000 Filipinos nationwide before the withdrawal) and annual exports of over $263 million. As of 2015, employment in the Subic SEZ had risen to over 100,000.

By all accounts, the redevelopment of Subic Bay from military base to economic zone was a resounding economic success for the Philippines and for the people of the surrounding region. While Naval Base Subic Bay was already a large jurisdiction (262 square miles), it offers two key lessons for the contemporary transformation of smaller bases into charter cities. (1) Take advantage of existing infrastructure. Quality port terminals, airports, roads, and other utilities and infrastructure are valuable as tools for generating and investment and utilizing existing facilities saves an enormous amount of capital investment. Subic Bay was prepared to receive over $1.6 billion in investment within its first four years as an SEZ. (2) Treat the surrounding community as a partner to be engaged and included. If the communities surrounding a former base are keen to become a part of a new charter city or special jurisdiction, this will provide a natural constituency to support, maintain, and invest in the jurisdiction. In an increasingly multipolar world that may see the US defense umbrella recede in some places in favor of others, base closures present an extremely valuable economic development opportunity for host governments that should not be ignored. And as governments throughout the Global South consider their budget constraints, in many cases converting unnecessary bases to mixed-use special jurisdictions could prove to be substantial economic windfalls.

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