THE Philippine Independence Bill, passed by the Congress of the United States in January over the President's veto, provides for the relinquishment of American sovereignty over the Philippine Islands, subject to a plebiscite of the Philippine people. Within a year the Philippine Legislature is to call a convention to draft a constitution which, after being approved by the President of the United States, must be submitted directly to the Philippine people for acceptance. The government provided in this constitution, if accepted, would function under the control of the United States during a ten year transition period, before achieving full independent sovereignty. Under the terms of this bill, therefore, the Philippine Islands would within about twelve years become a foreign country vis-à-vis the United States, although certain military reserves might remain in the hands of the American army authorities. To understand the full implication of this we must know the exact nature of the investments and obligations of the United States Government in the Philippines, as well as American private economic interests in the Islands, the position of which would be affected by the change in sovereignty.

The United States made an initial investment of $20,100,000 in the Islands in its payment to Spain at the close of the Spanish-American War. Since that time the chief expenditures have been for military operations. The cost of pacification from 1898 to 1902 was in the neighborhood of $177,000,000 and from 1900 through 1931 the military and naval expenditures are estimated to have totalled $485,000,000. For the same period the civil expenditures have exceeded $8,000,000. Of this latter sum $3,000,000 was appropriated immediately after the war for general reconstruction, one-third for the Baguio road, the remainder for other public works; the other $5,000,000 was appropriated largely for geodetic surveys on a dollar-for-dollar basis with Philippine Government appropriations. In addition to the direct appropriations from the United States for the Philippine Government, there is a large annual payment to the Philippine Treasury in the shape of refunds of all taxes on Philippine goods collected in the United States. Refunds from customs duties, chiefly made before the establishment of free trade, have amounted to $3,709,957. Through 1931, internal revenue tax refunds have totalled $12,779,190.

The present annual expenditure of the United States Government in the Philippines amounts to about $670,000 in civil and $13,000,000 in military expenditures. The cost for the fiscal year 1931 was divided as follows:

Bureau of Insular Affairs $77,461.04
Coast Geodetic Survey 169,360.00
Public Health Service 47,202.62
Philippine Resident Commissioners 32,232.00
Customs duties to P. I. Treasury 11,581.14
Internal revenue refunded 323,461.13
Department of Agriculture 4,244.00
  Total Civil Expenditures $665,541.93
Army $9,378,088.35
Navy 3,172,738.35
  Total Military Expenditures $12,550,826.70
    Grand Total $13,216,368.63

During the proposed transition period, before independence, these expenses would probably remain about the same. The resident Philippine Commissioner would no longer be paid by the United States, but the High Commissioner who is to take the place of the Governor-General, at present paid by the Philippine Government, would be paid by the United States. On the granting of independence, the civil expenditures would be eliminated, but it is doubtful if the American army budget would be greatly reduced. Only $4,826,407.33 of this item would be saved completely, this representing the amount paid to the Philippine Scouts, a native troop. The other forces now in the Philippines are probably part of the minimum national forces of the United States and would be transferred to some other station. Moreover, naval expenditure might increase, because the Philippine Government now pays the upkeep of important naval stations in the Islands, and this cost would be transferred to the United States. Thus reductions in the federal budget would probably be nearer $5,000,000 than $13,000,000.

The second factor to be considered in summing up American economic interests in the Philippines is the United States Government's ownership of public domain. At present it nominally owns 80 percent of all the land area of the Islands, amounting to 11,470,000 acres of arable land. This is the land which has not yet been taken up by homesteaders under a formal title. The United States would grant to the Commonwealth of the Philippine Islands all this property, with the exception of military and other reservations designated by the President within two years after the consummation of independence.

The third category of the American Government's interests in the Islands has to do with its responsibility for the obligations of the Philippine Government. These obligations are limited by act of Congress to $96,094,853, representing 10 percent of the total assessed valuation of the property in the Islands, plus $7,000,000 for the bonds of purchase of the Friar Lands and $10,000,000 in collateral bonds, making possible a maximum bonded indebtedness of $113,904,853. All Philippine Government securities, including those of municipalities and provinces, are subject to veto by the Governor-General and the President of the United States at the time they are issued. They are issued through the Secretary of War, are tax exempt in this country, and are acceptable at par by the United States Treasury as security for deposits of public moneys. While the United States does not formally guarantee these obligations, both the War Department and the Department of Justice have invariably held that the bonds constitute a moral obligation of the United States because of the Government's authorization of them. On June 30, 1932, there were outstanding $76,082,000 worth of bonds of the Insular, Provincial, and Municipal Governments, the last of which expires in 1961. In addition, the Philippine Government, with the approval of the United States Government, guaranteed the interest on $21,766,000 bonds of the Philippine Railway Co. and the Manila Railroad Co.; the United States is morally obligated with respect to these bonds, which mature in 1937.

The Philippine Bill as passed by Congress specifically provides for taking care of this bonded debt during the transition period. No bonds can be floated by the Philippine Government in excess of the present limitations, and no debt can be contracted in foreign countries without the approval of the President of the United States. Export duties are to be collected on Philippine goods destined for free entry into the United States, to build up a sinking fund with which to pay off these obligations. In case of default, the High Commissioner is empowered to take over the administration of the customs in order to meet payment. Finally, the Act of Congress formally renounces all obligation, moral or otherwise, on the part of the United States regarding any further issues of the Philippine Government, provided they are not tax exempt in the United States. The Act provides that before independence is achieved the Philippine Government must make a treaty with the United States including a provision for the formal assumption by the new government of the outstanding debts of former governments, and "where bonds have been issued under the authority of an Act of Congress of the United States by the Philippine Government or any province or municipality therein, the Philippine Government will make adequate provision for the payment of the interest and principal, and such obligations shall be a first lien on the taxes collected in the Philippine Islands."

The extent of American private investments in the Philippines cannot be ascertained exactly. An estimate of the Bureau of Insular Affairs, as of January 2, 1932, puts the total at $257,751,000 distributed as follows:

Bonds $113,985,000
Real estate other than farm land 12,104,000
Agricultural land 10,616,000
Mines 2,609,000
Forests and lumbering 6,500,000
Manufacturing industries 35,474,000
Mercantile establishments 30,487,000
Bank capital 837,000
All other 45,179,000
     Total $257,791,000

The item covered by "bonds" is composed chiefly of the government obligations and the bonds of the Manila Railroad and the Philippine Railway, almost the complete issues of which were sold in the United States. The balance of this item, amounting to about $30,000,000, is in utilities such as the Manila Electric Co., the telephone system, bus lines, and radio. That the investment in farm land is not larger is due to the legal restrictions on the corporate ownership and control of land, which may not exceed 2,500 acres per corporation. Of the sum estimated as invested in manufacturing industries, nearly $28,000,000 is in sugar centrals and refineries, while $8,000,000 is in coconut oil refineries and related industries. The bank capital investment is small; in 1931 only one American bank had a branch in the Islands. In the miscellaneous item are included investments in hotels, newspapers, theatres, and philanthropic institutions. The investment in the latter is not large; in 1930 it was estimated that there was an investment of only $893,000 in religious organizations.

The Bureau of Insular Affairs estimates of American private investments in the Philippines placed them at $63,725,000 in 1914 and $144,500,000 in 1923. This shows an average annual increase in investments of $9,000,000 from 1914 to 1923 and of $14,000,000 from 1923 to 1931. This does not bear out the contention frequently made that uncertainty as to the future status of the Islands has recently been tending to discourage further investments there. The Independence Bill attempts to protect these investments to some extent. In the transition period, the religious, charitable and educational institutions are to be exempt from taxation. After independence, the treaty to be made with the United States will contain the provision that "all existing property rights of citizens or corporations of the United States shall be acknowledged, respected and safeguarded to the same extent as the property rights of the citizens of the Philippine Islands." The change in the status of the Islands might injure direct investments in such industries as sugar and coconut oil, which depend heavily on trade with the United States and the products of which would be subject to American tariff charges. Other direct investments would be affected in the same degree that the general prosperity of the Islands was affected by the separation from the United States.

Aside from its direct investments in the Philippines, the United States has general economic interests there of a commercial nature. There are ten American steamship lines operating between the United States and the Philippines. During the last six years these have carried on the average $119,870,333 of Philippine trade per year, which represents almost half of the total Philippine foreign trade. Similarly, American ships carried 46 percent of United States-Philippine trade in 1931. This figure contrasts with the 35 percent of total United States foreign trade carried in American bottoms. The lines serving the Philippines in 1932 received mail subsidies amounting to $37,097,000.

United States trade with the Philippines in the past ten years has averaged $173,532,000 per year, $72,924,100 in exports and $100,607,900 in imports, and has been growing rapidly since 1922. It constituted 1.5 percent of the total foreign trade of the United States in that year in contrast with 3 percent in 1931. These two items, shipping and commerce, would be affected in the transition period to the extent to which export duties to be imposed by the Philippine Government on goods destined for free entry to the United States, and the United States tariff charges on sugar, coconut oil and fiber products in excess of the quota limits, proved prohibitory. After independence, in the absence of a special agreement to the contrary, full tariff rates would be charged by both governments. These would inevitably affect the commercial interests of the two countries.

The American stake in the Philippines may be summarized, then, as follows: The Government has in the past spent there well over $500,000,000 and is at present spending annually $13,000,000; it is morally obligated in respect to bonds totalling $97,848,000, some of which run until 1961; it owns 11,470,000 acres of arable land in the Islands. Private individuals in the United States have an investment of $257,000,000 in the Islands, over half of it in direct investments. American shipping interests carry Philippine trade valued at $120,000,000 annually, and American industries engage in a commodity trade with the Islands which since 1921 has averaged $173,532,000 per year.

You are reading a free article.

Subscribe to Foreign Affairs to get unlimited access.

  • Paywall-free reading of new articles and a century of archives
  • Unlock access to iOS/Android apps to save editions for offline reading
  • Six issues a year in print, online, and audio editions
Subscribe Now