Far Eastern Economic Review
January/February 2008

Manila’s Bungle in The South China Sea

by Barry Wain

When Vietnamese students gathered outside the Chinese Embassy in Hanoi last December to protest against China’s perceived bullying over disputed territory in the South China Sea, it signaled Hanoi’s intention to turn up the heat a bit.

And Beijing reacted in kind; instead of downplaying the incident, a foreign ministry spokesman complained, “China has indisputable sovereignty over the South China Sea islands.” The bluster on both sides, while just a blip in this long-running feud, is a timely reminder that the South China Sea remains one of the region’s flashpoints. What most observers don’t realize is that in the last few years, regional cooperative efforts to coax Beijing into a more measured stance have been set back by one of the rival claimants to the islands.

Philippine President Gloria Macapagal Arroyo’s hurried trip to China in late 2004 produced a major surprise. Among the raft of agreements ceremoniously signed by the two countries was one providing for their national oil companies to conduct a joint seismic study in the contentious South China Sea, a prospect that caused consternation in parts of Southeast Asia. Within six months, however, Vietnam, the harshest critic, dropped its objections and joined the venture, which went ahead on a tripartite basis and shrouded in secrecy.

In the absence of any progress towards solving complex territorial and jurisdictional disputes in the South China Sea, the concept of joint development is resonating stronger than ever. The idea is fairly simple: Shelve sovereignty claims temporarily and establish joint development zones to share the ocean’s fish, hydrocarbon and other resources. The agreement between China, the Philippines and Vietnam, three of the six governments that have conflicting claims, is seen as a step in the right direction and a possible model for the future.

But as details of the undertaking emerge, it is beginning to look like anything but the way to go. For a start, the Philippine government has broken ranks with the Association of Southeast Asian Nations, which was dealing with China as a bloc on the South China Sea issue. The Philippines also has made breathtaking concessions in agreeing to the area for study, including parts of its own continental shelf not even claimed by China and Vietnam. Through its actions, Manila has given a certain legitimacy to China’s legally spurious “historic claim” to most of the South China Sea.

Although the South China Sea has been relatively peaceful for the past decade, it remains one of East Asia’s potential flashpoints. The Paracel Islands in the northwest are claimed by China and Vietnam, while the Spratly Islands in the south are claimed in part or entirety by China, Taiwan, Vietnam, the Philippines, Malaysia and Brunei. All but Brunei, whose claim is limited to an exclusive economic zone and a continental shelf that overlap those of its neighbors, man military garrisons in the scattered islets, cays and rocks of the Spratlys.

After extensive Chinese structures were discovered in 1995 on Mischief Reef, on the Philippine continental shelf and well within the Philippine 200-nautical-mile exclusive economic zone, Asean persuaded Beijing to drop its resistance to the “internationalization” of the South China Sea issue. Instead of insisting on only bilateral discussions with claimant states, China agreed to deal with Asean as a group on the matter. Rodolfo Severino, a former secretary-general of Asean, has lauded “Asean solidarity and cooperation in a matter of vital security concern.”

Asean and China, however, failed in their attempt to negotiate a code of conduct. In the “Declaration on the Conduct of Parties in the South China Sea,” signed in 2002, they pledged to settle territorial disagreements peacefully and to exercise restraint in activities that could spark conflict. But the declaration is far from watertight. A political statement, not a legally binding treaty, it doesn’t specify the geographical scope and is, at best, an interim step.

Since the issuance of the declaration, a tenuous stability has descended on the South China Sea. With Asean countries benefiting from China’s booming economy, boosted by a free-trade agreement, Southeast Asian political leaders are happy to forget about this particular set of problems that once bedeviled their relations with Beijing. Yet none of the multifaceted disputes has been resolved, and no mechanism exists to prevent or manage conflicts. With no plans to discuss even the sovereignty of contested islands, claimants now accept that it will be decades, perhaps generations, before the tangled claims are reconciled.

Recent incidents and skirmishes are a sharp reminder of how dangerous the situation remains. In the middle of last year, Chinese naval vessels fired on Vietnamese fishing boats near the Paracels, killing one fisherman and wounding six others, while British giant BP halted work associated with a gas pipeline off the Vietnamese coast after a warning by the Chinese Foreign Ministry. In the past few months, Beijing and Hanoi have traded denunciations as the Chinese, in particular, maneuver to reinforce territorial claims. Vietnam protested when China conducted a large naval exercise around the Paracels in November.

China’s decision in December to create an administrative center on Hainan to manage the Paracels, Spratlys and another archipelago, though symbolic, was regarded as particularly provocative by Hanoi. The Vietnamese authorities facilitated demonstrations outside the Chinese diplomatic missions in both Hanoi and Ho Chi Minh City to make known their displeasure.

Friction can be expected to increase as the demand for energy by China and dynamic Southeast Asian economies rises and they intensify the search for oil and gas. While hydrocarbon reserves in the South China Sea are unproven, the belief that huge deposits exist keeps interest intense. As world oil prices hit record levels, the discovery of commercially viable reserves would raise tensions and “transform security circumstances” in the Spratlys, according to Ralf Emmers, an associate professor at the S. Rajaratnam School of International Studies in Singapore.

President Arroyo’s agreement with China for a joint seismic study was controversial in several respects. By not consulting other Asean members beforehand, the Philippines abandoned the collective stance that was key to the group’s success with China over the South China Sea. Ironically, it was Manila that first sought a united front and rallied Asean to confront China over its intrusion into Mischief Reef a decade earlier. Sold the idea by politicians with business links who have other deals going with the Chinese, Ms. Arroyo did not seek the views of her foreign ministry, Philippines officials say. By the time the foreign ministry heard about it and objected, it was too late, the officials say.

Philippine diplomats might have been able to warn her that while joint development has been successfully implemented elsewhere, Beijing’s understanding of the concept is peculiarly Chinese. The only location that China is known to have nominated for joint development is a patch off the southern coast of Vietnam called Vanguard Bank, which is in Vietnamese waters where China has “no possibly valid claim,” as a study by a U.S. law firm put it. Beijing’s suggestion in the 1990s that it and Hanoi jointly develop Vanguard Bank was considered doubly outrageous because China insisted that it alone must retain sovereignty of the area. Also of no small consideration was the fact that such a bilateral deal would split Southeast Asia.

The hollowness of China’s policy of joint development, loudly proclaimed for nearly 20 years, was confirmed long ago by Hasjim Djalal, Indonesia’s foremost authority on maritime affairs, when he headed a series of workshops on the South China Sea. Mr. Hasjim set out to test the concept of joint development, taking several years to identify an area in which each country would both relinquish and gain something in terms of its claims. In 1996, he designated an area of some thousands of square kilometers, amounting to a small opening in the middle of the South China Sea, which cut across the Spratlys and went beyond them. Joint development, unspecified, was to take place in the “hole,” with no participant having to formally abandon its claims. Beijing alone refused to further explore the doughnut proposal, as it was dubbed, complaining that the intended zone was in the area China claimed. Of course it was, that being the essence of the plan, without which it was difficult to imagine having joint development.

China’s bottom line on joint development at that time: What is mine is mine and what is yours is ours.

Beijing and Manila did not make public the text of their “Agreement for Seismic Undertaking for Certain Areas in the South China Sea By and Between China National Offshore Oil Corporation and Philippine National Oil Company.” After the agreement was signed on Sept. 1, 2004, the Philippine government said the joint seismic study, lasting three years, would “gather and process data on stratigraphy, tectonics and structural fabric of the subsurface of the area.”

Although the government said the undertaking “has no reference to petroleum exploration and production,” it was obvious that the survey was intended precisely to gauge prospects for oil and gas exploration and production. Nobody could think of an alternative explanation for seismic work, especially in the wake of year-earlier press reports that CNOOC and PNOC had signed a letter of intent to begin the search for oil and gas.

Vietnam immediately voiced concern, declaring that the agreement, concluded without consultation, was not in keeping with the spirit of the 2002 Asean-China Declaration on the Conduct of Parties. Hanoi “requested” Beijing and Manila disclose what they had agreed and called on other Asean members to join Vietnam in “strictly implementing” the declaration. After what Hanoi National University law lecturer Nguyen Hong Thao calls “six months of Vietnamese active struggle, supported by other countries,” state-owned PetroVietnam joined the China-Philippine pact.

Vietnam’s inclusion in the modified and renamed “Tripartite Agreement for Joint Marine Seismic Undertaking in the Agreement Area in the South China Sea,” signed on March 14, 2005, was scarcely a victory for consensus-building and voluntary restraint. The Philippines, militarily weak and lagging economically, had opted for Chinese favors at the expense of Asean political solidarity. In danger of being cut out, the Vietnamese joined, “seeking to make the best out of an unsatisfactory situation,” as Mr. Severino puts it. The transparency that Hanoi had demanded was still missing, with even the site of the proposed seismic study concealed.

Now that the location is known, the details having leaked into research circles, the reasons for wanting to keep it under wraps are apparent: “Some would say it was a sell-out on the part of the Philippines,” says Mark Valencia, an independent expert on the South China Sea. The designated zone, a vast swathe of ocean off Palawan in the southern Philippines, thrusts into the Spratlys and abuts Malampaya, a Philippine producing gas field. About one-sixth of the entire area, closest to the Philippine coastline, is outside the claims by China and Vietnam. Says Mr. Valencia: “Presumably for higher political purposes, the Philippines agreed to these joint surveys that include parts of its legal continental shelf that China and Vietnam don’t even claim.”

Worse, by agreeing to joint surveying, Manila implicitly considers the Chinese and Vietnamese claims to have a legitimate basis, he says. In the case of Beijing, this has serious implications, since the broken, U-shaped line on Chinese maps, claiming almost the entire South China Sea on “historic” grounds, is nonsensical in international law. (Theoretically, Beijing might stake an alternative claim based on an exclusive economic zone and continental shelf from nearby islets that it claims, but they would be restricted by similar claims by rivals.) Manila’s support for the Chinese “historic claim,” however indirect, weakens the positions of fellow Asean members Malaysia and Brunei, whose claimed areas are partly within the Chinese U-shaped line. It is a stunning about-face by Manila, which kicked up an international fuss in 1995 when the Chinese moved onto the submerged Mischief Reef on the same underlying “historic claim” to the area.

Some commentators have hailed the tripartite seismic survey as a landmark event, echoing the upbeat interpretation put on it by the Philippines and China. The parties insist it is a strictly commercial venture by their national oil companies that does not change the sovereignty claims of the three countries involved. Ms. Arroyo calls it an “historic diplomatic breakthrough for peace and security in the region.” But that assessment is, at the very least, premature.

Not only do the details of the three-way agreement remain unknown, but almost nothing has been disclosed about progress on the seismic study, which should be completed in the next few months. Much will depend on the results and what the parties do next. Already, according to regional officials, China has approached Malaysia and Brunei separately, suggesting similar joint ventures. If it is confirmed that China has split Asean and the Southeast Asian claimants and won the right to jointly develop areas of the South China Sea it covets only by virtue of its “historic claim,” Beijing will have scored a significant victory.

Mr. Wain, writer-in-residence at the Institute of Southeast Asian Studies in Singapore, is a former editor of The Wall Street Journal Asia.