The Navy’s Golden Chance to Return to Subic Bay

In recent years, the United States has struggled to persuade the Philippine government and the country’s citizens it is serious about honoring its commitments under the 1951 U.S.-Philippines Mutual Defense Treaty (MDT). China has been feeding this growing mistrust, hoping to drive a wedge between the two long-standing allies to the point one or both will move to terminate the treaty.

Twenty-seven years ago, the stars and stripes were hauled down for the final time at Naval Base Subic Bay, Republic of the Philippines, fulfilling the U.S. obligations to withdraw all military forces and vacate all bases after the Philippine Senate rejected a new military-bases agreement in September 1991. This ended 94 years of U.S.-military basing arrangements in the Philippines. At the time there was no peer competitor in the western Pacific, and then-Pacific Commander Admiral Charles Larson announced a new Pacific and Indian Ocean regional strategy of “places not bases,” which remains the strategy today. In 1998, a new visiting forces agreement was finally signed, allowing U.S. military personnel and ship visits to the Philippines. In 2014, the Enhanced Defense Cooperation Agreement (EDCA) was signed.¹

For more than two decades neither the U.S. nor Philippine governments were terribly concerned about the territorial defense of the Philippines or naval challenges to U.S. interests in the western Pacific. However, Philippine Secretary of National Defense Delphin Lorenzana recently said, “the [mutual defense] treaty needed to be reexamined to clear ambiguities that could cause chaos and confusion during a crisis.”  He cited China’s aggressive seizure in the mid-1990s of a Philippine-claimed reef, saying, “The U.S. did not stop it.”²

When the MDT was negotiated in the late 1940s, China was not a naval threat and the U.S. military was unchallenged in the Pacific. No one forsaw the emergence of China as a political, economic, and military juggernaut that would assert historical claims to South China Sea, islands, reefs, and territory. The U.S. Navy’s freedom of navigation operations and U.S. Air Force’s overflights are not deterring China from using a variety of asymmetric tactics to gradually secure de facto sovereignty over the South China Sea. Some Philippine officials have indicated that the MDT needs “tweaking” to update it for these asymmetric threats.³

In early March, U.S. Secretary of State Mike Pompeo stopped in Manila on his way home from the North Korea summit in Hanoi to reaffirm the U.S. commitment to defend the Philippines under the MDT. A public affirmation had not been done since Secretary of Defense William S. Cohen and U.S. Ambassador Thomas C. Hubbard issued a joint statement in 1999. Pompeo’s stop helped but did not fully assuage the Filipinos. While many Philippine leaders are increasingly worried about the U.S. meeting its commitments, others and much of the public are equally concerned the Philippines could be dragged into a conflict between China and the United States.

Despite the anti-U.S. rhetoric from the current Philippine President Rodrigo Duterte and others in his administration, the bond between the Filipino people and Americans remains strong, as evidenced by the recent return to the Philippines of the Bells of Balangiga (taken by U.S. soldiers from a Catholic church in 1901), removing a significant irritant in U.S.-Philippine relations. The United States should continue to look for and take advantage of opportunities to strengthen the relationship and keep China’s influence at bay.

As luck would have it, a new opportunity is now at hand, with the United States intending to grow its fleet to 355 ships and an acknowledgment it does not have enough public shipyard capacity to build and maintain a fleet even close to that number.

The U.S. Shipyard Problem

During five rounds of Base Realignment and Closure (BRAC) between 1988 and 2005, Congress agreed to close naval shipyards in Philadelphia, Pennsylvania; Charleston, South Carolina; and Hunters Point, Long Beach, and Mare Island, California. A shipyard in Guam was temporarily put in a caretaker status before being privatized and reopened in a limited capacity, primarily for Military Sealift Command merchant ships. The Navy retained shipyards in Portsmouth, Virginia; Kittery, Maine; Puget Sound, Washington; and Pearl Harbor, Hawaii (intermediate maintenance facilities were also retained in Pearl harbor and Bremerton, Washington). One of the most cost-effective naval shipyards prior to BRAC was in Subic Bay, but that obviously was lost when the United States pulled out of the Philippines in 1992.

While closing public shipyards was inevitable after the Cold War ended, the BRAC closures in hindsight went too far. In 2017, the Government Accountability Office wrote, “Navy data show that the cost of backlogged restoration and maintenance projects at the shipyards has grown by 41 percent over 5 years, to a Navy estimated $4.86 billion, and will take at least 19 years (through fiscal year 2036) to clear.” It further said, “The shipyards’ facilities and equipment remain in poor condition,” although the Navy in 2013 had invested to fix the yards. The report goes on to depict an even bleaker picture regarding the Navy’s 18 drydocks split among the four yards, which are on average 89 years old.⁴

At the January 2019 Surface Navy Association symposium, Ronald O’Rourke from the Congressional Research Service argued that for the Navy to achieve a 355-ship fleet, it needed to articulate a plan to Congress to—among other things—fix current shipyard capacity by investing in yards executing Navy programs and provide options for expanding shipyard capacity.

The Navy recently released its first-ever long-range ship maintenance and modernization plan to Congress. The report highlights a shortage of drydocks, the need to improve existing infrastructure at both public and private shipyards, and the need for process improvements across the shipbuilding enterprise. The report goes on to indicate the ratio of drydocks to ships in the Pacific is a significant challenge, “that reduces margin for schedule changes and growth.”⁵

Meanwhile, Admiral Phil Davidson, the commander of Indo-Pacific Command, in a March 2019 letter to Congress addressed what he needed to fulfill the FY19 National Defense Authorization Act’s requirement for an Indo-Pacific Stability Initiative (IPSI). One request was for military construction investments to allow Indo-Pacific Command to reset the joint force’s posture in the region.⁶ Clearly, the Navy will struggle to meet its mission in the western Pacific if it has to send ships all the way to Pearl Harbor for maintenance or repair.

The Subic Bay Hanjin Shipyard

In 2006 the Subic Bay Metropolitan Authority leased 300 hectares in the Subic Freeport Zone to Korea’s Hanjin Heavy Industries and Construction Company to build and operate a shipyard. Hanjin invested an estimated $2.3 billion and the first ship was produced in 2008. It quickly became the fifth-largest shipyard in the world. Since 2008, Hanjin has built 123 large cargo container vessels, bulk carriers, and carriers of crude oil, liquified petroleum gas, and mineral ores. It was the largest employer in Subic with more than 30,000 Filipinos, mostly skilled welders. However, its parent company, Hanjin Group of Busan, Korea, declared bankruptcy in February 2017. The shipyard closed in February 2019 with Hanjin Philippines filing for bankruptcy through the Regional Trial Court in Olongapo City, the biggest corporate bankruptcy ever in the Philippines.

Since the shipyard closed in February, there has been interest from foreign companies including at least one U.S. company, but the most active suitors are Chinese. This has compounded security concerns in the Philippine defense establishment.

The confluence of all these factors gives the U.S. Navy a perfect opportunity to return to Subic Bay, except this time as an equal partner respecting the laws and sovereignty of the Philippines and benefitting the Filipino people and economy. It also would send a strong message to Beijing that, despite its efforts, the alliance between the United States and the Philippines is strong and unbreakable.

To take advantage, several actions are required as soon as possible:

• The Navy needs to indicate to the Secretary of Defense it is interested in Hanjin shipyard

• The Secretary of Defense needs to inform the State Department of the Navy’s interest in Hanjin, and the State Department in turn must inform the Philippine government

• The Navy needs to gauge the interest of U.S. private shipbuilders in a public-private partnership to run Hanjin, including committing to sending work there

• Indo-Pacific Command must initiate a study to analyze the impact on operational readiness of more repair capacity in the western Pacific, including the impact on current workloads at Ship Repair Facility Yokosuka, Japan, and the Guam Shipyard Division

• The Philippine government needs to indicate it is willing to enter into a public-public-private partnership with the United States⁷

The Navy may not be able to grow to 355 ships, but adding a fifth public-private shipyard will go a long way to ensuring the ships in the Pacific are available and ready to fight. The party with the most to lose in a U.S. return to Subic will be the Chinese. And they know it.