Risks And Rewards Of Philippines Joint Development With China – Analysis


Pundits in and outside the Philippines are warning of the risks of it entering a joint development agreement with China to exploit oil and gas resources in areas both countries claim in the South China Sea.  There certainly are risks.   But there are also significant potential rewards.   The Philippines needs to carefully weigh both before deciding if and how to proceed.

China claims a large portion of the Philippines’ 200 nautical mile Exclusive Economic Zone including  Reed Bank which is known to contain petroleum resources.  According to Philippines President Rodrigo Duterte, China’s President Xi Jinping told him “Set aside the arbitral ruling – set aside your claim _ _ if there is something, we will be gracious enough to give you 60%, only 40% will be theirs (Chinese companies).” https://af.reuters.com/article/worldNews/idAFKCN1VW07I

 Joint development of petroleum can work.  That has been demonstrated in the South China Sea by Malaysia and Thailand, and Malaysia and Vietnam and, for fisheries, by Vietnam and China in the Gulf of Tonkin.  The concept is relatively simple and straight forward – both parties agree to set aside –not abandon— their jurisdictional claims and jointly explore for and exploit any resources in the area of overlapping claims. 

But of course the devil is in the details and there are certainly many particular obstacles to be overcome in this case.  Successful arrangements usually involve situations in which the two sides recognize that each other has some legitimate basis for their claim.  That is not the situation here.  The Philippines insists that China’s nine dash line historic claim is illegal.  Indeed it has been ruled as such by an international arbitration panel.  But China has imbued its populace with the notion that the area has been a part of “the motherland” since ‘time immemorial’ and thus cannot explicitly rescind its claim or recognize that of another to part of the same area. Thus explicit mutual recognition that the other has a legitimate basis for its claim will be nigh politically impossible and even implicit recognition by either will be difficult.

Another problem is that Duterte may be considering joint ownership –and all that often goes with that—like joint control and management. . https://www.msn.com/en-sg/news/newsother/dutertes-south-china-sea-u-turn-illegal-climbdown-or-clever-gambit-for-oil/ar-AAH9gAe If ‘joint’ means a state to state agreement, it would probably be a violation of the Philippines Constitution that cannot be finessed.

But if Xi means that China will accept a 40% share in a commercial arrangement with a contractor for the Philippines government, this would satisfy the Philippines constitutional requirement of at least a 60:40 split in the Philippines favor and  imply Philippine sovereignty over the resource.  https://www.msn.com/en-ph/news/national/china-will-reclaim-scarborough-shoal-before-end-of-dutertes-term-%E2%80%94-carpio/ar-AAHOtog 

However, the Philippines would still be sharing resources with China that the Philippines legally owns outright. That can be perceived as a “diminution of the country’s sovereignty” and national pride. https://amti.csis.org/closer-look-chinas-proposal-joint-exploration-with-philippines/ But the Philippines would have to “share” the resource or the profits from it with somebody because it cannot harvest it by itself. More serious is the position of some in the opposition to Duterte that despite a split in the Philippines favor that satisfies the Constitution, unless China explicitly recognizes the arbitration decision and thus Philippine sovereignty over the resources and some artificially built up features by China on the Philippines’ continental shelf, the Philippine Constitution would still be violated. 

Moreover,  accepting China’s proposal would mean implicit recognition that China’s historic claim has some merit and would thus undercut the claims and positions of fellow ASEAN members Brunei, Indonesia, Malaysia and Vietnam vis a vis that of China. Also if the Philippines does make a deal, it would also weaken whatever ASEAN ‘unity’ remains regarding opposition to China’s illegal claim.

Finally, even if agreement is reached, there is always the possibility that in its implementation, the deal may unravel and produce mutual disappointment, discontent and even hostility. 

These are the risks and obstacles for the Philippines to reach such an agreement with China.

 But there are many significant potential advantages for the Philippines to do so.

An obvious advantage of a successful arrangement is that both parties can reap the benefits of exploiting whatever resources exist in the disputed area. 

At the least, even the serious possibility of such an agreement –let alone an actual agreement–will lessen the tension and the chance that outside powers like the U.S. can continue to exploit the situation for their own political purposes.

 Perhaps most important – regardless of the commercial success of the arrangement – is the building of trust, respect and mutual confidence.  The negotiators could come to understand each other’s rationale and their consequent positions.  They can also come to respect the intellect and honesty of their opposite numbers and believe in their commitments.  They might even become friends.  This would be a path to the building of trust and confidence in each other.

Despite the obstacles, China’s proposal should not be rejected out of hand. It may not be right, legal or fair – but 60 percent is better than nothing – and the Philippines may consider it worth it compared to the alternatives.  Indeed, according to Gregory Polling, a well-known critic of China and the Philippines unwillingness to stand up to it, the likely “alternative would be to prepare for another years-long slog of rising military tensions, sporadic clashes, and diplomatic naming and shaming, with no guarantee of successful resolution.” Besides, Duterte and the Philippines would not be ‘abandoning‘ the result of the arbitration, just setting it aside for the time being to implement another day.  It will remain part of the body of international law. Certainly any joint development arrangement must contain a clause stating that nothing in the agreement constitutes recognition of the validity of each other’s claim.  Opposition to inclusion of this standard clause by China would be cause for great concern.

Perhaps clever, pragmatic lawyers, analysts and decision makers can devise wording acceptable to both countries.  But to do so, both sides will have to countenance a less than legally pure interim political solution.  Application of international law in this situation is a goal that should not be surrendered.  But it can be delayed.

In a strategic sense, the decision for the Philippines and others considering joint development with China is between resisting an inexorably rising and inevitably regionally dominant China or sharing of their potential resources with it.  The U.S. and others–for their own selfish purposes–will lobby intensely for the Philippines and others to resist.  But in the end, they are not risking their own people’s economic and political future if their advice is followed.  Indeed, this is a judgment that the Philippines– and others who might consider such joint development with China must make –- by themselves, for themselves. 

Mark J. Valencia

Mark J. Valencia, is an internationally known maritime policy analyst, political commentator and consultant focused on Asia. He is the author or editor of some 15 books and more than 100 peer-reviewed journal articles. He is currently an Adjunct Senior Scholar, National Institute for South China Sea Studies, Haikou, China.

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