VZCZCXRO9490
RR RUEHCHI RUEHDT RUEHHM
DE RUEHML #2637/01 1750433
ZNR UUUUU ZZH
R 240433Z JUN 06
FM AMEMBASSY MANILA
TO RUEHC/SECSTATE WASHDC 1673
INFO RUCPDOC/USDOC WASHDC
RUEHZS/ASEAN COLLECTIVE

UNCLAS SECTION 01 OF 02 MANILA 002637 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON EINV EAID RP
SUBJECT: AMBASSADOR VISITS CLARK AND SUBIC ECONOMIC ZONES 
 
REF: MANILA 2257 
 
¶1.  SUMMARY: During June 15-16 visits to two former U.S. 
military bases, the Subic and Clark special economic zones, 
Ambassador Kenney highlighted continuing U.S. involvement in 
both regions.  Managers of these economic zones briefed the 
Ambassador on recent infrastructure projects and investment 
in both zones.  During visits to three U.S. companies, 
managers at Fedex, AOL and Asian Aerospace discussed their 
experiences investing in Clark and Subic.  Visits to a Peace 
Corps Volunteer site, an orphanage, and a USAID-supported 
HIV/AIDS project underscored continuing U.S. support for 
projects in nearby communities. 
 
----------------------- 
Rising Asian Investment 
----------------------- 
 
¶2. During the Ambassador's visits to the Subic Bay 
Metropolitan Authority (SBMA) and the Clark Development 
Corporation (CDC), managers touted several major 
infrastructure projects and rising investment from the East 
Asia region.  Following the 1991 closure of U.S. military 
bases, the GRP has offered investment incentives to develop 
these special economic zones that collectively host more 
than 900 companies with roughly 100,000 employees.  Subic 
Administrator Armand Arreza noted several recent projects to 
develop a cruise ship terminal, expand port capacity and 
improve the transportation link with Clark.  As China 
finances the construction of a railway link between Manila 
and Clark, a Chinese firm recently committed to invest $300 
million to produce glass products in Subic and a Korean firm 
was awarded a $30 million contract to develop tourism 
facilities in Clark.  These are in addition to the major $1 
billion Korean investment in a shipbuilding facility in 
Subic announced in February 2006.  The Japanese-funded Clark- 
Subic Expressway will sharply reduce travel time between the 
two former bases when it is completed in 2007.  During a 
lunch at Subic Bay Yacht Club hosted by SBMA, local leaders 
expressed enthusiasm for increased port visits by U.S. 
military vessels, noting the substantial economic benefits 
provided by these visits. 
 
¶3.  Delays in restoring promised tax incentives in Clark 
have underscored differences in the pace of development in 
these two economic zones.  Following an August 2005 Supreme 
Court decision to nullify longstanding tax incentives in 
Clark (see Reftel), the House took until May 31, 2006 to 
approve legislation to restore the incentives.  The CDC 
Chairman expressed optimism that the Senate will approve 
this legislation by mid-August but commented that the issue 
has served as a "sword of Damocles" hanging over the CDC, 
discouraging further investment.  The Ambassador emphasized 
that restoration of tax incentives is vital to maintain the 
credibility of the CDC with potential investors. 
 
------------------------------------- 
Fedex Confronts Relocation Challenges 
------------------------------------- 
 
¶4.  During the Ambassador's visit to Fedex's Regional Hub in 
Subic, Fedex managers discussed future challenges it will 
face in relocating its Asia Pacific hub from Subic to 
Guangzhou by 2008.  Regional Hub manager, Beng-Wee Tan, 
expressed concern that currently positive relations with 
SBMA and local officials may deteriorate as the relocation 
date approaches.  Although this decision was announced in 
2005, SBMA officials tend to treat the relocation as still 
hypothetical, suggesting that SBMA may not fully appreciate 
the finality of Fedex's decision.  Mr. Tan also noted that 
Chinese restrictions on importation of equipment and 
transfer of workers would pose additional challenges.  When 
the relocation is complete, Roughly 200 workers will be 
transferred to maintain Fedex's Philippine operations in 
Manila, while the remaining 580 jobs will be replaced by 
Chinese workers in China. 
 
----------------------- 
AOL and Asian Aerospace 
----------------------- 
 
¶5.  At the AOL Member Services center in Clark, the 
Ambassador observed an enthusiastic staff of consultants who 
provide technical support and monitor chat rooms for 23.5 
million subscribers.  AOL's emphasis on human resource 
development has helped this facility maintain a 10% worker 
attrition rate, far lower than 40% attrition rates typical 
for the booming call center industry.  Employee perks, 
including a recreation area, subsidized cafeteria, and a new 
gym contribute to an exuberant working atmosphere.  The 
Amcit General Manager explained that AOL is working with 
other call center consulting firms to expand into voice- 
 
MANILA 00002637  002 OF 002 
 
 
based technical support. 
 
¶6.  During a tour of the Asian Aerospace aircraft 
maintenance facility, CEO Peter Rodriguez outlined their 
business strategy for military and civilian aircraft 
maintenance.  A Philippine affiliate of Lockheed-Martin and 
other U.S. manufacturers, Asian Aerospace recently completed 
the US-funded refurbishment of a C-130 cargo plane that was 
turned over to the Philippine Air Force on April 28, 2006. 
During the briefing and in a letter to the Ambassador, Mr. 
Rodriguez expressed his interest in helping to provide 
maintenance services for the U.S. fleet of Hercules aircraft 
currently serviced in Singapore.  Asian Aerospace also 
aspires to become a regional maintenance hub for cargo 
aircraft. 
 
------------------------------ 
Peace Corps and USAID Projects 
------------------------------ 
 
¶7.  In visits to a Peace Corps Volunteer site, a USAID- 
funded HIV/AIDS project and the American Cemetery in Clark, 
the Ambassador highlighted continuing U.S. engagement in 
communities near Clark and Subic.  At the Lubao Reception 
and Study Center for Children, a Peace Corps Volunteer is 
coordinating staff development and developing programs for 
special needs children.  Angeles City Mayor Carmelo Lazatin 
joined the Angeles AIDS Council in briefing the Ambassador 
on the Angeles City Reproductive Health and Wellness Center 
and their work in combating the spread of HIV/AIDS in 
Angeles City and surrounding areas.  The center conducts HIV 
surveillance and HIV/AIDS prevention programs, targeting 
high-risk groups, notably sex industry workers.  Angeles 
City is one of 10 HIV/AIDS sentinel surveillance sites 
supported by USAID.  During a visit to the Clark American 
Cemetery, the Ambassador met American Citizen Services 
Wardens who also chair the cemetery committee created by 
locally resident U.S. veterans to maintain this final 
resting place for 2,030 fallen American soldiers. 
 
-------------- 
Media Coverage 
-------------- 
 
¶8.  During news media encounters in Lubao, Subic, Angeles 
and San Fernando, the Ambassador emphasized continuing U.S. 
engagement through private investment and community 
development projects.  The visit to the isolated Reception 
and Study Center for Children helped to publicize the need 
for foster parents and adoptive families.  During a radio 
interview near the end of the trip, the Ambassador answered 
a wide range of questions, underscoring successful examples 
of U.S. investment, Peace Corps support for the Lubao 
orphanage and USAID involvement in HIV/AIDS prevention 
programs. 
 
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Comment 
------- 
 
¶9.  The visits highlighted several dynamic and successful 
examples of U.S. investment at AOL and Fedex, as well as the 
high quality of maintenance and servicing available for U.S. 
aircraft through Asian Aerospace.  The tours of both zones 
showed that Clark continues to lag behind the Subic Freeport 
Zone in its level of development.  Although Subic managers 
articulated a clearer vision of their future development 
strategy, both briefings tended to stray from realistic 
strategy into wishful projections for future growth.  The 
relocation of Fedex and delays in restoring Clark's tax 
incentives have underscored the challenges these investment 
zones will continue to face in competing for new investors. 
 
KENNEY