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Economy

Duterte threatens to impose minerals export ban

Philippine president pushes for more domestic processing

MANILA President Rodrigo Duterte of the Philippines has said he is considering a ban on mineral exports to promote development of related downstream industries, rattling investors anew.

At the opening of the 17th Congress on July 24, Duterte said that he is fine with mining activities that benefit the poor but warned miners to observe environmental laws. He told them to comply or "I will tax you to death."

"I call on our industrialists, investors [and] commercial barons to put up factories and manufacturing establishments right here in the Philippines to process our raw materials into finished products," Duterte told a joint session of the House of Representatives and the Senate.

"At this point in my administration, if possible, we shall put a stop to the extraction and exportation of our mineral resources to foreign nations for processing abroad and importing them back to the Philippines in the form of consumer goods at prices twice or thrice the value," said Duterte, drawing applause from lawmakers.

The Philippines is a leading global producer of nickel and other minerals, but has no domestic processing industries. Last year, it exported 30 million tons of nickel ore to China, which consumes around 30% of global production, according to IHS Markit, a London-based financial services company.

The Chamber of Mines of the Philippines supports Duterte's plan to develop downstream industries, but opposes the idea of a mineral export ban.

"The government must attract investors to invest in processing plants," said Ronald Recidoro, the chamber's vice president for policy. "If processing is not feasible as a business due to high costs of inputs, then an ore export ban will not accomplish the purpose."

Duterte's policy signal follows Indonesia's move in 2014 to halt ore exports and develop domestic downstream processing. Indonesia relaxed the ban early this year after missing revenue targets.

"Any disruption to nickel exports to China can result in volatility in world nickel prices, as occurred during the first half of 2014, when Indonesia introduced tougher mineral processing rules," said Rajiv Biswas, Asia-Pacific chief economist for IHS Markit.

In the Philippines, shares of major nickel miners, such as Nickel Asia and DMCI Holdings, plunged a day after Duterte signaled the ban.

LONGTIME CRITIC Duterte had been critical of the mining industry long before he entered office on June 30 last year. He initially appointed Regina Lopez, an anti-mining activist, as environment minister. Lopez ordered a number of mine closures and suspensions, sending mining shares tumbling and metal prices surging. Her nomination was rejected by congress in May, however, and Duterte appointed Roy Cimatu, a retired army general, to replace her.

In his state of the nation address, Duterte also played up the gains made in his China-friendly foreign policy and renewed criticisms of the U.S., Manila's former colonial master and longtime ally.

He said agreeing to China's demands to resolve a territorial dispute in the South China Sea through dialogue has reduced tension in the contested waters, which are a vital international trade route rich in marine resources.

"We have cultivated warmer relations with China through bilateral dialogues and other mechanisms leading to easing of tensions between the two countries and improved [the] negotiating environment on the West Philippine Sea," he said, using the Philippine name for part of the South China Sea.

Duterte has opted not to invoke a tribunal decision last year by the Permanent Court of Arbitration at The Hague in the Netherlands in favor of the Philippines. The court rejected China's unilateral claim to almost the entire South China Sea. Duterte's soft response -- which has been criticized at home -- has been rewarded with major promises of aid from China.

"Thank you for the help," he said, addressing Zhao Jianhua, China's ambassador to Manila, who was among the diplomats listening to Duterte speak.

Duterte has openly expressed his disdain for the U.S., which has been critical of his controversial campaign against illegal drugs.

Over the past 13 months, thousands of suspected drug dealers have been killed by police and vigilantes, and Duterte said the fight against crime will be "unremitting" and "unrelenting." "Despite international and local pressures, the fight will not stop until those who deal in [drugs] understand that they have to cease. They have to stop because the alternatives are either jail or hell."

After praising China, the president sought to recover from the U.S. the Balangiga bells. At the height of the Philippine-American war in 1901, guerrillas killed some 48 U.S. soldiers in Balangiga, a town in Samar in the central Philippines. Historians describe the massacre as the worst single defeat in that country for the U.S. In retribution, Gen. Jacob Smith ordered the execution of every resident over the age of 10, and the reduction of the town to a "howling wilderness." Balangiga's church bells, which the guerrillas used to signal the attack, were taken as war booty. Two of the bells are on display at F.E. Warren Air Force Base in Wyoming, and the third is in a military museum at Camp Red Cloud in South Korea.

"Give us back those Balangiga bells," Duterte demanded. "They are ours -- they belong to the Philippines, they are part of our national heritage," he told an audience of lawmakers, government officials and diplomats, including Ambassador Sung Kim of the U.S.

Duterte is chair of the Association of Southeast Asian Nations this year, and has said he is determined to promote the Philippines' national interest on the international stage.

"We will strengthen and seek partnership with those who share our values," Duterte said, as the state broadcaster aired photographs of him with China's President Xi Jinping. "We will engage nations with full respect for the rule of law, sovereign equality and ... non-interference," he said. "These are the principles that we are upholding as we advance [through] this year."

Duterte's two-hour speech included off-the-cuff digressions on the government's war on tax evasion and stalled peace talks with communists.

The president also directed Finance Secretary Carlos Dominguez to accept 25 billion pesos ($494 million) in a tax settlement with local cigarette maker Mighty Corp., which has been offered 45 billion pesos for its assets by Japan Tobacco. This would be the largest single tax settlement in the Philippines to date.

On July 22, Duterte secured congressional approval to extend martial law in Mindanao until Dec. 31. He gave no specific details on government plans for Marawi, a Muslim majority city where government forces have spent two months fighting militants with links to Islamic State group.

The battle for Marawi has already claimed nearly 600 lives. Duterte did reveal that the government plans to bolster the military with 40,000 recruits, and announced that peace talks with communist rebels are at an end.

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