US Congressional Panel Proposes Taiwanese Role in Funding Philippine Base Upgrades

US Congressional Panel Proposes Taiwanese Role in Funding Philippine Base Upgrades

The U.S.-China Economic and Security Review Commission (USCC), an advisory body to the U.S. Congress, has proposed that Taiwan could help finance the upgrade of military bases in the Philippines. This suggestion is part of a broader strategy to enhance regional security architecture under the Enhanced Defense Cooperation Agreement (EDCA). The proposal is noted as potentially controversial, likely to draw significant reactions from both Beijing and Manila.

Context & What Changed

The strategic landscape of the Indo-Pacific is defined by intensifying competition between the United States and the People's Republic of China (PRC). A key theater in this competition is the South China Sea, where the Philippines is a frontline state and a U.S. treaty ally. The legal and security framework for U.S.-Philippine defense cooperation has been significantly revitalized under the 2014 Enhanced Defense Cooperation Agreement (EDCA). EDCA allows the U.S. to rotate troops for extended stays and to build and operate facilities on Philippine bases for the purposes of both countries' security. After a period of stagnation, the agreement was reinvigorated under the administration of President Ferdinand Marcos Jr., expanding from five to nine strategic locations (source: U.S. Department of State). These sites are critical, with several in the northern Philippines located less than 400 kilometers from Taiwan, and others on the western island of Palawan, facing the contested Spratly Islands in the South China Sea.

Upgrading these bases is a capital-intensive endeavor, requiring improvements to runways, fuel storage, barracks, and the installation of modern defense systems. To date, the U.S. has allocated over $100 million for infrastructure projects across the initial five sites (source: U.S. Embassy in the Philippines). However, the full scope of required modernization to achieve a credible deterrent posture would cost significantly more, likely running into billions over the next decade. This financial pressure, combined with a strategic desire for greater burden-sharing among allies, forms the backdrop for the recent proposal.

What changed is the formal introduction of Taiwan as a potential third-party funder for this bilateral security arrangement. The U.S.-China Economic and Security Review Commission (USCC), in its latest annual report to Congress, explicitly recommended exploring a model where Taiwan would contribute financially to the upgrades of EDCA sites. The USCC is a congressionally-mandated commission designed to provide non-partisan analysis and recommendations on the national security implications of the U.S.-China relationship (source: uscc.gov). While its recommendations are not binding, they are highly influential and often inform legislative debate and the drafting of bills, such as the National Defense Authorization Act (NDAA). This proposal, therefore, represents a significant shift from a traditional hub-and-spokes alliance model to a more networked security architecture. It aims to link two critical nodes of the U.S. alliance system in the First Island Chain—the Philippines and Taiwan—in a novel and direct way, creating a more integrated operational environment to deter potential PRC aggression.

Stakeholders

United States: The primary driver. For the U.S. Congress and Department of Defense, this proposal serves multiple objectives: 1) Burden-Sharing: It lessens the direct financial load on the U.S. taxpayer for Indo-Pacific defense. 2) Strategic Integration: It tangibly connects the security of Taiwan with the security of the Philippines, complicating Beijing's military planning. 3) Alliance Networking: It moves beyond bilateral ties to create a mini-lateral arrangement, strengthening the overall deterrence fabric. The risk for the U.S. is overplaying its hand and forcing an ally (the Philippines) into a position that is domestically untenable or regionally destabilizing.

Philippines: The host nation and central actor. The Marcos Jr. administration seeks to modernize the Armed Forces of the Philippines (AFP) and bolster its ability to defend its sovereignty in the West Philippine Sea. Accessing additional funding for base upgrades is highly attractive. However, Manila is engaged in a delicate balancing act. Accepting Taiwanese funding, even if channeled through the U.S., would provoke a severe reaction from the PRC, its largest trading partner (source: Philippine Statistics Authority). There is also significant domestic political risk from pro-China factions and nationalist groups who may frame the deal as Manila being a pawn in a U.S.-led conflict, potentially violating the Philippines' own "One-China Policy."

Taiwan: A potential beneficiary and contributor. For the government in Taipei, this is an opportunity to achieve several long-standing foreign policy goals. 1) International Legitimacy: Participating in a U.S.-led regional security initiative provides de facto recognition and strengthens its international standing. 2) Enhanced Security: Bolstering Philippine bases, particularly those in Luzon, directly improves Taiwan's own defense by creating a southern bastion that could complicate a potential PRC invasion or blockade. 3) Alliance Deepening: It demonstrates Taiwan's value as a security partner to the U.S., potentially unlocking further U.S. support. The primary risk is that this overt security cooperation makes it a more immediate target for PRC coercion.

People's Republic of China: The primary antagonist. Beijing will view this proposal with extreme hostility. From its perspective, it represents a grave provocation and a further hollowing out of the U.S. "One China" policy. It would be seen as: 1) Interference: An attempt to internationalize the Taiwan issue. 2) Containment: The creation of a de facto anti-China military coalition on its periphery. 3) Escalation: A move that formalizes security links between Taiwan and other U.S. allies. Beijing would be expected to use its full spectrum of diplomatic, economic, and military tools to prevent this arrangement from materializing.

Regional Actors (ASEAN, Japan, Australia): These nations will watch developments closely. Japan, which has its own security concerns regarding Taiwan, may view the proposal favorably as it aligns with its own efforts to build security partnerships in Southeast Asia. For ASEAN, the move would be divisive. It would test the bloc's principle of "centrality" and could exacerbate existing splits between maritime members concerned with PRC expansionism and mainland members with closer economic and political ties to Beijing.

Evidence & Data

The strategic value of the EDCA sites is geographically evident. The three northern sites—Camilo Osias Naval Base, Lal-lo Airport, and Melchor Dela Cruz Camp—are situated in Cagayan and Isabela provinces, providing proximity to the Luzon Strait, a critical waterway separating the Philippines and Taiwan. This strait is a key strategic chokepoint for the People's Liberation Army Navy (PLAN) to access the Western Pacific. Upgraded facilities here could host U.S. and Philippine assets capable of monitoring and responding to a cross-strait contingency. The total U.S. investment in EDCA to date, over $100 million, has focused on foundational work like runway repairs, warehousing, and training facilities (source: CSIS Asia Maritime Transparency Initiative). The USCC report implies a need for a much larger capital injection to fund more advanced capabilities, such as air and coastal defense systems, expanded fuel and munitions storage, and upgraded command-and-control facilities.

Taiwan's capacity to contribute is material. Its official defense budget for 2024 was approximately NT$606.8 billion, or around US$19 billion (source: Taiwan Ministry of National Defense). While its own defense modernization is the priority, a contribution of several hundred million dollars, spread over several years, would be financially feasible and represent a significant political investment. This form of security assistance would be an extension of its "New Southbound Policy," which aims to deepen ties with countries in Southeast Asia, South Asia, and Australasia to reduce its economic dependence on the PRC.

The economic leverage the PRC holds over the Philippines is substantial. In 2022, total bilateral trade exceeded $40 billion, with the PRC being a primary market for Philippine agricultural products like bananas and industrial materials like nickel ore (source: oec.world). Beijing has a demonstrated history of using trade as a coercive tool, as seen in its unofficial bans on Australian coal and wine and its restrictions on Lithuanian goods. A similar action against the Philippines could inflict hundreds of millions, if not billions, of dollars in economic damage, creating immense domestic pressure on the government in Manila.

Scenarios (3) with probabilities

Scenario 1: Symbolic Adoption & Strategic Ambiguity (Probability: 60%)

In this scenario, the core idea is accepted, but its implementation is deliberately low-profile and ambiguous. The U.S., Philippines, and Taiwan agree on a mechanism for Taiwanese funding, but it is channeled indirectly, perhaps through a U.S.-managed development fund or a non-governmental entity. The funds are earmarked for dual-use infrastructure, such as runway extensions, port upgrades for humanitarian assistance and disaster relief (HADR), or coastal monitoring facilities, rather than explicitly offensive military hardware. Public statements would emphasize HADR and regional stability. This approach would allow the Philippines to accept needed funding while maintaining a degree of plausible deniability regarding a direct security link with Taiwan. The PRC would protest vehemently through diplomatic channels and likely engage in some low-level gray-zone coercion (e.g., increased coast guard presence around Philippine-held features), but would likely stop short of broad, economically damaging sanctions to avoid pushing the Philippines further into the U.S. camp. This scenario allows all three proponents to achieve their core objectives while managing escalation.

Scenario 2: Full & Overt Implementation (Probability: 15%)

Driven by a hawkish U.S. Congress and a Philippine administration determined to take a hard line against the PRC, the proposal is implemented fully and publicly. A formal trilateral agreement is announced, with Taiwan committing significant funds (e.g., >$500 million) specifically for defense-related upgrades at EDCA sites. This would be hailed in Washington and Taipei as a landmark step in integrated deterrence. The PRC’s reaction would be swift and severe. It would likely include: 1) The recall of its ambassador to the Philippines. 2) The imposition of sweeping sanctions on key Philippine exports. 3) A significant increase in PLA military exercises around Taiwan and aggressive naval and air patrols in the West Philippine Sea, potentially including a temporary blockade of key Philippine-held features like Second Thomas Shoal. Regional tensions would spike, and the risk of miscalculation and direct military confrontation would rise significantly.

Scenario 3: Political Rejection & Status Quo (Probability: 25%)

Faced with intense pressure from Beijing and significant opposition from domestic political and business elites, the Marcos Jr. administration formally rejects the proposal. The Philippine government would publicly reaffirm its commitment to its “One-China Policy” and state that all EDCA funding must come from the United States. This would be a major diplomatic setback for the U.S. and Taiwan, highlighting the limits of U.S. influence and the effectiveness of PRC economic statecraft. The PRC would claim a major victory, likely rewarding the Philippines with renewed investment pledges or a temporary de-escalation of pressure in the South China Sea. The status quo of slower, U.S.-funded EDCA upgrades would continue, leaving a key element of the U.S. deterrence strategy under-resourced.

Timelines

Short-Term (0-6 months): The USCC report will be debated within U.S. congressional committees. The State Department and DoD will conduct initial, quiet diplomatic soundings with counterparts in Manila and Taipei. Beijing will issue initial diplomatic warnings through official and media channels.

Medium-Term (6-24 months): If Scenario 1 or 2 is pursued, this period will involve detailed negotiations on the funding mechanism, legal frameworks, and project specifics. Legislative language authorizing such a fund transfer could be included in the U.S. NDAA. The PRC's coercive actions would begin during this phase to deter a final agreement.

Long-Term (2-5 years): This would be the implementation phase, with construction and upgrades beginning at the selected EDCA sites. The long-term geopolitical and economic consequences of the chosen scenario would become fully apparent, setting a new baseline for regional security dynamics.

Quantified Ranges

Potential Funding Scale: A Taiwanese contribution could range from a symbolic gesture of $20M – $50M (aligned with Scenario 1) to a strategically significant sum of $200M – $750M over a multi-year period (aligned with Scenario 2).

Infrastructure Costs: The full modernization of the nine EDCA sites is a multi-billion dollar effort. Upgrading a single airfield with hardened shelters, extended runways, and fuel depots can cost between $80M and $300M. Installing a comprehensive coastal defense system could add another $50M – $150M per location.

Economic Risk to the Philippines: In a high-coercion scenario, the PRC could target a portion of its ~$40 billion annual trade with the Philippines. A ban on the top five agricultural and mineral exports could result in an annual loss of $1B – $3B for the Philippine economy, representing a significant portion of its GDP growth.

Risks & Mitigations

Risk 1: Severe PRC Retaliation (High): The primary risk is that this move crosses a red line for Beijing, triggering a disproportionate military or economic response that destabilizes the region.

Mitigation: Prioritize ambiguity and dual-use framing (as in Scenario 1). Ensure any agreement includes robust U.S. security and economic backstops for the Philippines, such as pre-arranged loan facilities from the U.S. or Japan, and increased joint patrols to deter military aggression.

Risk 2: Philippine Domestic Political Instability (Moderate-High): The proposal could be weaponized by political opponents of the Marcos Jr. administration, potentially leading to policy reversal or even a leadership challenge.

Mitigation: The narrative must be controlled by Manila, not Washington. The benefits for the AFP's modernization and local economic development near EDCA sites must be heavily emphasized. Any agreement must explicitly affirm Philippine sovereignty and control over all facilities.

Risk 3: Fracturing ASEAN Cohesion (Moderate): A public trilateral security deal could be seen by some ASEAN members (e.g., Cambodia, Laos) as an escalatory move that undermines the bloc's neutrality.

Mitigation: The U.S. and Philippines should conduct extensive diplomatic outreach within ASEAN before any public announcement, framing the initiative as a contribution to regional stability and freedom of navigation, from which all members benefit.

Sector/Region Impacts

Defense, Engineering, and Construction: A decision to proceed would create significant opportunities for U.S. and international defense contractors, as well as local Philippine construction and engineering firms involved in the base upgrades. Taiwanese tech firms specializing in command-and-control or surveillance systems could also become suppliers.

Global Shipping and Logistics: The Luzon Strait and South China Sea are vital arteries for global trade, with over $3.4 trillion in goods passing through annually (source: CSIS). Increased militarization and the heightened risk of conflict could lead to rising insurance premiums for shipping and potential supply chain disruptions.

Finance and Investment: Heightened geopolitical risk could introduce a discount for assets in the Philippines and potentially the wider region. Foreign Direct Investment may pivot from sectors vulnerable to PRC coercion towards more resilient or security-aligned industries.

Regional Security Architecture: This move would accelerate the shift from a U.S.-centric hub-and-spokes system to a more distributed, networked latticework of security partners. It could set a precedent for similar arrangements, such as Japan contributing to security infrastructure in Vietnam or Australia.

Recommendations & Outlook

For the Philippine Government: This proposal offers a significant opportunity but carries commensurate risks. A thorough, classified cost-benefit analysis is imperative. Recommendation: Pursue a cautious path aligned with Scenario 1. Engage in trilateral discussions but insist that any funding be channeled through a U.S.-led mechanism and be designated for infrastructure with clear dual-use applications. This allows for modernization while providing a defensible political narrative and mitigating the most extreme PRC responses. (Scenario-based assumption: assumes that national security modernization is a primary goal, but that maintaining economic stability and domestic political capital is an equally critical constraint).

For the U.S. Government: The USCC has presented a creative but high-stakes policy option. Recommendation: Avoid a public pressure campaign. Use quiet, patient diplomacy to build consensus among all three parties. The U.S. must be prepared to offer Manila tangible economic and security assurances to offset the risks of PRC coercion; without these, the proposal is likely to fail. (Scenario-based assumption: assumes the long-term goal is a resilient, voluntary coalition, which cannot be built through coercion).

For Large-Cap Industry Actors: Geopolitical risk in the Indo-Pacific is now a core business consideration. Recommendation: Defense, construction, and logistics firms should actively monitor this policy's development as a leading indicator of contracting opportunities and operational risks. Financial institutions and multinational corporations with supply chain exposure to the region should stress-test their portfolios and operations against the possibility of a rapid escalation in tensions (Scenario 2), even if its probability is lower. (Scenario-based assumption: assumes that geopolitical tensions will remain elevated and that proactive risk management will provide a competitive advantage).

Outlook: The proposal to involve Taiwan in funding EDCA base upgrades is a paradigm-shifting concept. Its true significance lies not in the immediate dollars, but in its potential to formally link the security of Taiwan and the Philippines, creating a more integrated front to deter PRC aggression. The most probable path forward is one of cautious exploration, likely resulting in a symbolic, low-profile implementation. However, the logic of integrated deterrence is compelling, and the groundwork laid by these discussions will shape the region's security architecture for years to come. The reactions from Manila and Beijing over the next 12 months will be a critical barometer for the future of U.S. strategy and stability in the First Island Chain.