South China Sea Arbitration: Implications for Maritime and O&G

By Joan M. Bondareff

A recent decision by an international tribunal in The Hague, Netherlands, has significant implications for other maritime disputes, freedom of navigation, and future oil and gas claims in the Arctic.   

The arbitral award issued on July 12, 2016, by a unanimous five-member panel or Permanent Court of Arbitration (PCA) in the dispute between the Philippines and China over rocks and elevations in the South China Sea, sounded a clarion call for the rule of law and the clearly defined maritime boundaries and environmental principles established by the United Nations Convention on Law of the Sea (Convention). It remains to be seen whether China will abide by the decision and enter into negotiations with the Philippines to resolve all remaining disputes to these territories and waters. To date, China, which never participated or recognized the authority of the PCA to arbitrate this case, has rejected the ruling and is continuing to build up its military presence in the region. 
The Dispute
Both the Philippines and China are parties to the Convention, which requires that parties to maritime disputes resolve them through arbitration.  The dispute essentially revolved around China’s drawing of a so-called “nine-dash-line” around several outcroppings in the South China Sea that borders both China and the Philippines.  China claimed that it had historical rights to these outcroppings and that no tribunal under the Convention could rule on its alleged sovereignty to this territory. Tired of having their fishermen harassed in open waters, and their vessels being harassed by Chinese law enforcement vessels, in 2013, the Philippines brought this dispute to the Hague in claiming that China was interfering with traditional Philippine fishing activities at Scarborough Shoal, an island in the South China Sea; that China had no “historic rights” with respect to the maritime areas of the South China Sea; that China had violated its duties under the Convention to protect and preserve the marine environment; that China had breached its obligations under the Convention by operating its law enforcement vessels in a dangerous manner causing serious risk of collision to Philippine vessels navigating in the vicinity; and that the reefs that China had claimed as low-tide elevations did not generate any entitlement to an exclusive economic zone or continental shelf. The Philippines were well-represented by a team of skilled U.S. lawyers, while China refused to attend or participate in the PCA’s deliberations because of its position that the tribunal could not rule on matters of sovereignty, which China claimed over all islands and reefs in the South China Sea, including the Spratly Islands and Scarborough Shoal.  [See map left.] 
The Ruling
The PCA first had to determine whether it had jurisdiction to hear the dispute. The PCA found that it did so because the dispute was not over territorial sovereignty—over which they admittedly had no jurisdiction—but was a dispute under the Convention over maritime boundaries and protection of the marine environment.
The PCA turned next to the merits of the case and found that China’s claim to historic rights to resources and waters of the South China Sea was fundamentally incompatible with the allocation of rights and establishment of maritime zones in the Convention.  Significantly, if China had any historic rights to resources and waters of the South China Sea, these rights were extinguished by the entry into force of the Convention and were incompatible with the Convention’s system of maritime zones, i.e., 12-mile territorial seas, and 200-mile Exclusive Economic Zones (EEZ). As a party to the Convention, China has accepted these boundaries.
The next question was whether the outcroppings in the South China Sea were entitled to a territorial sea or EEZ.  The PCA found that certain reefs were above water at high tide; therefore they were entitled to a 12-mile territorial sea.  However, other outcroppings claimed by China as having their own EEZ—encircled by the nine-dash-line—did not because they could not sustain human habitation or economic life on their own, despite China’s efforts to place runways and other buildings on these islands.  Although Chinese and other fishermen had used the Spratly Islands, this temporary usage did not amount to habitation by a stable community and therefore these features are just “rocks” that do not generate an EEZ or continental shelf.  Finally, the Tribunal concluded that China had violated its duty to respect the traditional fishing rights of Philippine fishermen by halting their access to Scarborough Shoal after May 2012, and that its large-scale land reclamation and construction of artificial islands at seven features in the Spratly Islands had caused severe harm to the coral reef environment, thus violating China’s obligations under the Convention to preserve and protect the marine environment. Regrettably, the PCA cannot enforce its award so it is up to China to decide how to react.  So far, the reaction has been fairly negative and China is continuing to operate patrols there, sending its aircraft to the Spratly Islands, and once again using Chinese coast guard ships to block access by Philippine fishermen to the Scarborough Shoal. 
Implications for U.S. Shipping and O&G Exploration in the Arctic
An estimated $5.3 trillion of maritime commerce passes through the South China Sea every year as a major shipping route between China, Japan, South Korea, Europe, and the Middle East. Should China choose to impede the rights of innocent passage and freedom of safe navigation, according to Esben Poulsson, President of the Singapore Shipping Association, this “would potentially drive up shipping costs, resulting in a detrimental impact on maritime trade.” 
Although no U.S.-flag vessel has been harassed to date by Chinese vessels, the United States is taking no chances and is sending its own ships to patrol the open waters of the South China Sea.  On August 6, amphibious assault ship USS Boxer completed a routine patrol in international waters of the South China Sea in order to “help promote the rights, freedoms, and lawful uses of the sea and airspace guaranteed to all countries,” according to Captain Patrick Foege, commander of U.S. Navy Amphibious Squadron 1.  Some Members of Congress, including Senator Dan Sullivan (R-AK), are calling on the United States to send two aircraft carriers there on a permanent basis to protect the fundamental right enshrined in the Declaration of Independence of freedom of navigation. (From a keynote speech of Senator Sullivan on July 12, 2016, at the 6th Annual South China Sea Conference of the Center for Strategic and International Studies.)  
Impacts of the Ruling on Other Claims
Now that the PCA has made clear the obligation of parties to the Convention to abide by its principles and boundaries, it is more important than ever for the United States to ratify the Convention, which creates not only a 200-mile EEZ but also an extended continental shelf out to 350 miles. This is critical if the United States wants to protect its claims to the vast oil and gas resources of the outer Continental Shelf (OCS) in the Arctic and counter claims of other nations, e.g., Russia, that may interfere with its own claims based on the U.S.-extended continental shelf adjacent to Alaska.  
Russia and more than fifty other nations have staked their claims to an extended OCS by filing submissions to the Commission on the Limits of the Continental Shelf pursuant to Article 76 of the Convention.  The United Nations was prepared to consider Russia’s claims this summer during the Commission’s 41st session.  The United States is an observer at the Commission proceedings, but since it is not a party to the Convention, it has no official role there.  While the United States can claim to and does abide by maritime principles under the Convention as a matter of customary international law, it will have better standing in the world to protect its own and other countries’ legitimate maritime boundaries and encourage China to abide by the rule of law if the United States is itself a party to the Convention.  
Oil and gas companies and their respective trade associations and many other groups have long urged the United States to ratify the Convention; it is time for the Senate to quickly and responsibly do so. 
The benefits of ratification clearly outweigh any perceived costs. 

The Author
Joan Bondareff, Of Counsel at Blank Rome LLP, focuses her practice on marine transportation, environmental, and legislative issues and represents clients in many industries and state and local governments.

(As published in the October 2016 edition of Maritime Reporter & Engineering News)
Maritime Reporter Magazine, page 14,  Oct 2016

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