Cooperative Development in the South China Sea: Policies, Obstacles, and Prospects [1 ed.] 0367529688, 9780367529680

Table of contents :
Contents
List of figures
List of tables
List of contributors
List of abbreviations
Acknowledgments
Introduction: Cooperative development among the South China Sea coastal States • Huaigao Qi and Song Xue
1 From joint cooperation to joint development in the South China Sea: Incentives, challenges, and prospects for Brunei Darussalam • Jolene Hui Yun Liew
2 China’s incentives and policy choices on joint development in the South China Sea • Huaigao Qi
3 Indonesian views of managing disputes through cooperation in the South China Sea and the obstacles • Evi Fitriani
4 Prospects for Sino– Malaysian joint development in the South China Sea: Lessons from Malaysia’s experiences • Ngeow Chow- Bing
5 Philippines–China Joint Development Agreement in the South China Sea under Duterte • Aaron Jed Rabena
6 Vietnam’s cooperative development in the South China Sea: Existing cases and policy suggestions • Bui Thi Thu Hien
7 The US approach to joint development in the South China Sea • Nong Hong
8 Promoting business connectivity among industrial parks in the South China Sea rim and its vicinity • Siswo Pramono and Bayu Rahmat Novita
9 Why joint development agreements fail: Implications for the South China Sea dispute • Song Xue
10 Conclusion: Bringing political calculations back to cooperative development in the South China Sea • Song Xue and Huaigao Qi
Index

Citation preview

Cooperative Development in the South China Sea

Boundary disputes in the South China Sea have been a long-​standing threat to peace and security in East and Southeast Asia. Without agreed definition of boundaries, provisional arrangements to develop resources in the disputed area have become the favored, and most effective, solution. Therefore, joint development between various countries has taken place in the form of ad hoc arrangements with the goal of achieving positive outcomes for all parties involved. Incorporating insights from ten authors from six countries (Brunei, China, Indonesia, Malaysia, the Philippines, and Vietnam), this book provides a comprehensive analysis of the incentives and policies for joint development in the South China Sea disputes. The authors also discuss the bottlenecks and proposed policy options. The authors ease doubts over joint development in South China Sea disputes and shed light on creative ways to promote cooperation. The book is a key reference for students and scholars in politics and international relations, Asian studies, and maritime law. Huaigao Qi is Associate Professor and Vice Dean at the Institute of International Studies, Fudan University. His research interests are China’s neighboring diplomacy, China’s ocean affairs, and Asia-​Pacific international relations. He has published several books on China’s foreign policy, the Belt and Road Initiative, etc. Song Xue is Assistant Professor at the Institute of International Studies, Fudan University. Her research focuses on Indonesian politics and foreign relations, ethnic studies, and China–ASEAN relations. Her research has been published in Contemporary Southeast Asia, Asian Ethnicity, and journals in Chinese.

China Perspectives

The China Perspectives series focuses on translating and publishing works by leading Chinese scholars, writing about both global topics and China-​ related themes. It covers Humanities & Social Sciences, Education, Media and Psychology, as well as many interdisciplinary themes. This is the first time any of these books have been published in English for international readers. The series aims to put forward a Chinese perspective, give insights into cutting-​edge academic thinking in China, and inspire researchers globally. Recent titles in politics partly include: The BRICS Studies Theories and Issues Xu Xiujun Cooperative Development in the South China Sea Policies, Obstacles, and Prospects Huaigao Qi, Song Xue China’s Maritime Boundaries in the South China Sea Historical and International Law Perspectives Jinming Li Shortening the Distance between Government and Public in China I A Theoretical Approach Liu Xiaoyan Shortening the Distance between Government and Public in China II Methods and Practices Liu Xiaoyan For more information, please visit www.routledge.com/​series/​CPH

Cooperative Development in the South China Sea Policies, Obstacles, and Prospects Edited by Huaigao Qi and Song Xue

First published in English 2021 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 52 Vanderbilt Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2021 selection and editorial matter, Huaigao Qi and Song Xue; individual chapters, the contributors The right of Huaigao Qi and Song Xue to be identified as the authors of the editorial material, and of the authors for their individual chapters, has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. With the exception of the Introduction, no part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. The Introduction of this book is available for free in PDF format as Open Access from the individual product page at www.routledge.com. It has been made available under a Creative Commons Attribution-​Non Commercial-​No Derivatives 4.0 license. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing-​in-​Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-​in-​Publication Data A catalog record has been requested for this book ISBN: 978-​0-​367-​52968-​0  (hbk) ISBN: 978-​1-​003-​07997-​2  (ebk) Typeset in Times New Roman by Newgen Publishing UK Visit the eResources: www.routledge.com/​9780367529680

Contents

List of figures  List of tables  List of contributors  List of abbreviations  Acknowledgments  Introduction: Cooperative development among the South China Sea coastal States 

vii viii ix xi xiii

1

H UAI G AO QI AN D SO N G X U E

1 From joint cooperation to joint development in the South China Sea: Incentives, challenges, and prospects for Brunei Darussalam 

17

J OL E N E H U I YU N  LI EW

2 China’s incentives and policy choices on joint development in the South China Sea 

31

H UAI G AO  QI

3 Indonesian views of managing disputes through cooperation in the South China Sea and the obstacles 

47

E V I F I T RI AN I

4 Prospects for Sino–​Malaysian joint development in the South China Sea: Lessons from Malaysia’s experiences 

58

N G E OW C H OW-​B I N G

5 Philippines–​China Joint Development Agreement in the South China Sea under Duterte  AARON J E D   RA BENA

77

vi Contents

6 Vietnam’s cooperative development in the South China Sea: Existing cases and policy suggestions 

97

BU I T H I T HU  H I EN

7 The US approach to joint development in the South China Sea 

117

N ON G   H ONG

8 Promoting business connectivity among industrial parks in the South China Sea rim and its vicinity 

130

SI S WO P RAM O N O A N D BAY U R A H MAT N OVITA

9 Why joint development agreements fail: Implications for the South China Sea dispute 

155

SON G   XU E

10 Conclusion: Bringing political calculations back to cooperative development in the South China Sea 

174

SON G XU E A N D H UA I G AO  Q I

Index 

184

Figures

0 .1 0.2 4.1

Map of the South China Sea  Illustrative map of oil-​and gas-​bearing basins in the SCS  Malaysia–​Thailand Joint Development Area and Malaysia–​Vietnam Commercial Arrangement Area  4.2 Malaysia–​Brunei maritime dispute and Commercial Arrangement Area  5.1 Risk factors for a JDA with China  8.1 The dawn of the Asian Century: Real GDP growth in 2019 and the Development of GDP PPP (current prices) in the EU, the US, and negotiating RCEP countries  8.2 Vietnam’s eastern coast at night (2012 and 2016)  8.3 The South China Sea by night (2016)  8.4 Interpretation of sources of light  8.5 Fragile State Index, 2019  8.6 Indonesia’s 12 indicators  8.7 Overall trend of ASEAN member states, China, and India (2006–​2019)  8.8 ASEAN economic zones  8.9 Greater Mekong Subregion’s new configuration of economic corridors  8.10 ASEAN’s gas/​LNG key infrastructure  8.11 ASEAN’s power grids  10.1 The proposed organizational structure of the SMRA 

2 7 61 64 87 133 136 137 138 140 141 142 144 148 149 150 180

Tables

2 .1 China’s policy choices on SCS joint development  35 4.1 Malaysia’s oil and gas joint developments with Thailand, Vietnam, and Brunei  65 4.2 Malaysia’s experiences in maritime joint development and cooperation  68 4.3 Factors resulting in Malaysia’s successful joint development efforts with its neighbors  69 4.4 Factors affecting Sino–​Malaysian joint development in the SCS  71 5.1 Classification of JDA literature on the SCS  78 7.1 Disputes over drilling and exploration in the SCS from the 1990s  119 8.1 GDP (PPP, current prices) of the EU, the US, and negotiating RCEP countries (USD trillion)  134 8.2 Twelve indicators of the Fragile States Index  141 8.3 Examples of economic zones in the SCS rim and its vicinity  145 8.4 Factors affecting FDI  147 9.1 Cases, conditions, and calibrations  164 9.2 Truth table  166 9.3 Analysis of necessary conditions  168

Contributors

BUI THI Thu Hien is Deputy Director at the Center of East Sea Studies, Vietnam Institute of Chinese Studies at Vietnam Academy of Social Sciences. Her research areas are law and political science. Her publications include a recent chapter in China and Its Neighbourhood: Perspectives from India and Vietnam (2017). FITRIANI Evi is Associate Professor in the International Relations Department, Faculty of Social and Political Sciences, Universitas Indonesia, and she was Head of Department from 2012 to 2016. Her latest publication is “Indonesian Perceptions of the Rise of China,” in The Pacific Review (2018). HONG Nong is Executive Director and Senior Fellow at the Institute for China–​America Studies. Selected publications include China’s Role in the Arctic:  Observing and Being Observed (Routledge, 2020)  and UNCLOS and Ocean Dispute Settlement:  Law and Politics in the South China Sea (Routledge, 2012). LIEW Jolene Hui Yun holds an MA in International Politics from Fudan University, where she specialized in Chinese Politics and Diplomacy. Her major research interests include small-​state alignment strategies, regional security and Sino–​US power interaction in Southeast Asia. NGEOW Chow-Bing is Director at the Institute of China Studies, University of Malaya. His research interests are Chinese politics and China–​Southeast Asia relations. He received his PhD in Public and International Affairs from Northeastern University. NOVITA Bayu Rahmat, S.IP, MProfStuds, is the Head of Subdivision for the East Asia Study at the Center for Policy Analysis and Development for Asia-​ Pacific and Africa, Policy Analysis and Development Agency, Ministry of Foreign Affairs of the Republic of Indonesia. His main research interests include regionalism with a particular emphasis on East and South Asia, global political economy, and norms in international relations.

x Contributors PRAMONO Siswo, LLM, is the Head/​ Director General of the Policy Analysis and Development Agency at the Ministry of Foreign Affairs of the Republic of Indonesia. His main research interests include international political economy, connectivity, and sustainability. QI Huaigao is Associate Professor and Vice Dean at the Institute of International Studies, Fudan University. His research interests are China’s neighboring diplomacy, China’s ocean affairs, and Asia-Pacific international relations. He has published several books on China’s foreign policy and on the Belt and Road Initiative. RABENA Aaron Jed is Research Fellow at Asia Pacific Pathways to Progress (a Manila-​based foreign policy think tank) and Consultant at Caucus Inc. (a business consulting firm with services including government relations and advocacy). He is a member of the Philippine Council for Foreign Relations. XUE Song is Assistant Professor at the Institute of International Studies, Fudan University. Her research focuses on Indonesian politics and foreign relations, ethnic studies, and China–​ASEAN relations. Her research has been published in Contemporary Southeast Asia, Asian Ethnicity, and various journals in Chinese.

Abbreviations

AFP AMTI ASEAN BCM BP BRI CAA CBM CLCS CNOOC CNPC COBSEA COC COSL CPV CSCAP DOC DPRK EEZ EIA EOL FDI GSEC JDA JMSU LNG JOMSRE MOU MTJA NASA ONGC PCA

Armed Forces of the Philippines Asia Maritime Transparency Initiative Association of Southeast Asian Nations bilateral consultation mechanism British Petroleum Belt and Road Initiative commercial agreement area confidence building measure Commission on the Limits of the Continental Shelf China National Offshore Oil Corporation China National Petroleum Corporation Coordinating Body on the Seas of East Asia Code of Conduct China Oilfield Services Limited Communist Party of Vietnam Council for Security Cooperation in the Asia Pacific Declaration on the Conduct of Parties in the South China Sea Democratic People’s Republic of Korea exclusive economic zone Energy Information Administration exchange of letters foreign direct investment geophysical service exploration contract joint development agreement joint marine seismic undertaking liquefied natural gas joint oceanographic and marine scientific research expedition memorandum of understanding Malaysia–​Thailand Joint Authority National Aeronautics and Space Administration Oil and Natural Gas Corporation Permanent Court of Arbitration

xii Abbreviations PEMSEA PNOC PNOC–​EC POA PSA PSC QCA RCEP SAR SC SCSW UFA UN UNCLOS UNIDO US VFA WAB-​21

Partnerships in Environmental Management for the Seas of East Asia Philippine National Oil Company Philippine National Oil Company–​Exploration Corporation principles of agreement production sharing agreement production sharing contract qualitative comparative analysis Regional Comprehensive Economic Partnership search and rescue service contract South China Sea Workshop Unitization Framework Agreement United Nations United Nations Convention on the Law of the Sea United Nations Industrial Development Organization United States visiting forces agreement Wan’an Bei 21

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Acknowledgments

The book is derived from the half-​ day panel discussion titled “Joint Development in the South China Sea” that was part of the 2019 Shanghai Forum held on 26 May 2019 at Fudan University. The book would not have been possible without the help, advice, and support of many people and organizations. We would like to thank the anonymous reviewers, and Ms. Sun Lian and Ms. Jing Ying of Taylor & Francis, and the production team. We would also like to thank the Center for China’s Relations with Neighboring Countries, Fudan University (CCRNC-​Fudan) and the Network of ASEAN–​China Academic Institutes (NACAI) for providing research networks. We would like to extend our gratitude to Dr.  Sun Tao at the Center for Historical Geographical Studies, Fudan University, who helped create Figure 0.2. Some sections in this book have previously appeared in other journals. Parts of Chapter  2 and Chapter  10 appeared in Huaigao Qi (2019) “Joint development in the South China Sea: China’s incentives and policy choices,” Journal of Contemporary East Asia Studies, 8  (2):  220–​239. Chapter  9 is a short version of Song Xue (2019) “Why joint development agreements fail,” Contemporary Southeast Asia, 41 (3): 418–​446. We would like to thank Waseda Institute of Contemporary Chinese Studies, Waseda University, and ISEAS-​ Yusof Ishak Institute for kindly granting permission to reproduce the articles. The panel discussion and the book are funded by Shanghai Municipal Education Commission and Fudan University under the University Think Tank of Shanghai 2019 program titled “How to Clear Bottlenecks of the Joint Development in the South China Sea” (Project No. 2019-​1-​2-​44).

Introduction Cooperative development among the South China Sea coastal States Huaigao Qi and Song Xue

The South China Sea (hereinafter referred to as the “SCS”) is a marginal sea in the western Pacific (see Figure  0.1). The SCS is a typical semi-​enclosed sea. It is almost entirely surrounded by continent, peninsula, and islands, with its north connecting the East China Sea with the Taiwan Strait, its east connecting the Pacific Ocean with many straits, and its southwest connecting the Indian Ocean with the Strait of Malacca. The northern part of the SCS connects Guangdong, Guangxi, Hainan, Fujian, and Taiwan of China. The eastern and southeastern part is adjacent to the Philippines. The southern part connects Malaysia and Brunei, including Kalimantan Island. The western and southwestern parts adjoin Vietnam and the Malay Peninsula (Zhang 2014, 11–​12). Clockwise from the north, six coastal States surround the SCS, namely China (including China’s Taiwan), the Philippines, Malaysia, Brunei, Indonesia, and Vietnam. The SCS hosts many territorial and sovereignty disputes, involving multiple coastal States, and it is often regarded as one of the biggest security and political threats to the Asia-​Pacific region. The claimant states have sought to solve problems through bilateral negotiations to delimitate maritime boundaries, or to manage potential conflicts through making rules such as the Declaration on the Conduct of Parties in the South China Sea or the Code of Conduct (COC), which is currently under discussion. Against this backdrop, some claimant states also advocate the joint development or cooperative development of living and non-​living resources in the disputed waters to ease tensions in the SCS while simultaneously sharing the economic benefit from developing natural resources. Some Southeast Asian countries, such as Malaysia and Thailand, have set commendable examples of successful joint development. This edited volume is a collective work of contributors from each of the six coastal countries in the SCS. Different from previous works on similar topics, which take an approach based on international laws, this book provides an alternative analytical approach. With backgrounds mostly as political scientists, policymakers, or policy consultants, the contributors to this volume keep a sharp eye on the changing dynamics of the interplay between regional order, domestic politics, and national interests in the SCS, and they

2

2  Huaigao Qi and Song Xue

Figure 0.1 Map of the South China Sea Note: The boundaries and names shown on this map are not necessarily authoritative. Source: This map is based on the following sources: United Nations (2012); Flanders Marine Institute (2018); International Hydrographic Organization (1953, 30–​31)

Introduction  3 ground their analysis on rich historical evidence. The concerns that they raise in this volume, which may impede joint development ventures and the policy orientations that they point to, are particularly useful for those interested in the ongoing SCS dispute and ways out of conflict.

Concepts of joint development and cooperative development The concept of “joint development” is used frequently by the authors in this book. Joint development here refers to: [a]‌procedure under which boundary disputes are set aside, without prejudice to the validity of the conflicting claims, and the interested states agree, instead, to jointly explore and exploit and to share any hydrocarbons found in the area subject to overlapping claims. (Shihata and Onorato 1998, 434) In this book, joint development focuses on sea areas with overlapping maritime claims. If the interested states have signed a maritime boundary delimitation agreement, even if they have agreed to jointly explore and exploit any transboundary hydrocarbons, this is not viewed as joint development. For example, China and Vietnam signed the Agreement on the Delimitation of the Territorial Seas, Exclusive Economic Zones and Continental Shelves in the Beibu Gulf (Gulf of Tonkin) in December 2000, which went into effect in June 2004. Not long after, the two countries discussed joint exploration and exploitation of transboundary oil/​gas resources. In November 2005, a China–​Vietnam joint statement spoke of “joint exploration and exploitation on transboundary oil/​gas structure in the Beibu Gulf ” (Government of China 2005); similarly in June 2013, a China–​Vietnam joint statement spoke of “joint exploration on transboundary oil/​gas structure in the Beibu Gulf ” (Chinese Ministry of Foreign Affairs 2013a). Nowhere did these two bilateral joint statements mention the term “joint development” in the Beibu Gulf. In the spirit of joint development, some countries advocate the concept of “cooperative development,” which has a more elastic meaning. The concept of cooperative development appears in a Memorandum of Understanding on Cooperation on Oil and Gas Development, signed by the governments of China and the Philippines in November 2018 (Chinese Ministry of Foreign Affairs 2018). The title of the 2018 China–​ Philippines memorandum of understanding (MOU) refers to “Cooperation on Oil and Gas Development” rather than joint development. While the MOU mentions “oil and gas exploration and exploitation in relevant maritime areas consistent with applicable rules of international law,” there is no definition of the areas considered “relevant.” Presumably, relevant maritime areas include sites previously targeted for joint development, such as Liyue Tan (Reed Bank); but they could include any other areas identified by both parties, even undisputed areas that China does not claim since there are no parameters or restrictions (Batongbacal 2018).

4  Huaigao Qi and Song Xue According to this analysis of the 2018 China–​Philippines MOU, the concept of “cooperative development” can pertain to areas with or without maritime boundary disputes. The subjects of cooperative development can be either states or companies, and it can be implemented consistent with one claimant state’s laws. Cooperative development enables a broader framework for claimant countries to work together to explore and/​or exploit hydrocarbon resources. In fact, the nature of cooperative development can be found in the Principled Consensus on the East China Sea Issue between China and Japan in June 2008 (the 2008 Consensus), despite the term not showing up in the official document. According to the 2008 Consensus, China and Japan define a small block in the northern part of the East China Sea for joint development. At the same time, under the 2008 Consensus, Chinese enterprises welcome the participation of Japanese corporations in the development of the existing Chunxiao (also known as Shirakaba) oil and gas field in accordance with the relevant laws of China (Chinese Ministry of Foreign Affairs 2008b). The Chunxiao oil and gas field is located on the Chinese side of a Japanese-​ claimed “median line” (Japanese Ministry of Foreign Affairs 2008). Chinese Vice Minister of Foreign Affairs Wu Dawei argued that the development of the Chunxiao field is a kind of cooperative development, not a joint development (Government of China 2008). According to China, the Chunxiao oil and gas field remains within the sovereignty of China and has absolutely nothing to do with joint development (Chinese Ministry of Foreign Affairs 2008a). In contrast, Japan regards investing in the development of Chunxiao as joint development (Japanese Ministry of Foreign Affairs 2008). Wu Dawei stressed that China does not recognize the so-​called “median line” claimed by Japan, and the 2008 Consensus, without prejudice to China’s sovereign rights and jurisdictions in the East China Sea (Government of China 2008). In this book, some authors also use the concept of cooperative development in reference to creation of a common “fishing zone” and/​or fisheries agreement in an overlapping area (see Chapter  10 by Song Xue and Huaigao Qi). Why does the title of this book refer to cooperative development instead of joint development? One reason is the significant lack of clarity in maritime claims by the SCS coastal States in the Spratly Islands area. Lack of clarity on overlapping claim areas has been one of the major difficulties in reaching joint development agreements. To facilitate oil and gas exploration and exploitation in relevant maritime areas, it’s a realistic choice for claimants to replace the concept of joint development with cooperative development. The other reason is that the concept of cooperative development can accommodate all the authors’ concerns on oil and gas exploration and exploitation among the SCS coastal States. Some authors in this book use the concept of joint development; some use other concepts, such as “joint cooperation” (Chapter 1 by Jolene Hui Yun Liew), “commercial arrangement” (Chapter 4 by Ngeow Chow-​Bing), and “joint exploration” (Chapter  5 by Aaron Jed

Introduction  5 Rabena). Authors’ use of different concepts is not wordplay, but determined by the official policies of claimants. Moreover, according to the definition of joint development, which pertains to a disputed area only, some states have concerns that by entering into a joint development deal they risk confirming the existence of a territorial dispute where they lay sovereignty claims, thus undermining their claims, despite Articles 74 and 83 of the United Nations Convention on the Law of the Sea (UNCLOS) ruling that provisional arrangements such as joint development will “be without prejudice to the final delimitation.” In contrast to the rigidness of joint development, cooperative development provides more flexibility, especially regarding the delimitation of cooperative development zones, which can include both disputed and non-​disputed areas. Therefore, cooperative development can offer a more neutral approach to developing hydrocarbon resources jointly in the SCS. The relevant literatures on cooperative development/​joint development in the SCS include the following. The Environment and Policy Institute (EAPI)/​ Co-​ordinating Committee on Offshore Prospecting (CCOP) Workshop, East-​ West Center, provided recommendations on the exploration and exploitation of hydrocarbon resources of the SCS (Valencia 1981). Valencia, Van Dyke, and Ludwig (1991, 3)  reviewed several types of organization that might be established to manage the commons area and its resources, ranging from the loose Spratly Coordinating Agency to the robust Spratly Management Authority. Miyoshi (1999) discussed the relations between joint development and maritime boundary delimitation, and analyzed the Malaysia–​Thailand Memorandum of Understanding of 21 February 1979 and the Malaysia–​ Vietnam Memorandum of Understanding of 5 June 1992. Beckman et  al. (2013, 6) explored forms of joint offshore resource development and provided a “toolbox” of options to address the management and governance of areas of overlapping maritime claims in the SCS. Wu and Hong (2014) tested the applicability of a joint development regime in the SCS and explored the prospect of the joint development of resources as a way to successfully manage conflict in the SCS. Beckman (2015, 261–​264) summarized nine recommendations for moving forward on joint development in the SCS. Yang et al. (2016, 146–​149) summarized seven legal aspects related to joint development in the SCS as follows: joint development member states, joint development zones, contract modes, management mechanisms, fiscal and taxation systems, environmental protection, and nontraditional security threats. Shao (2018) summarized successful joint development cases involving Southeast Asian countries and discussed their implications for China and the other SCS coastal States.

Recent state practices among SCS coastal States The SCS hosts many disputes, partly due to its large hydrocarbon reserves and potential for exploitation of these resources. The US Energy Information

6  Huaigao Qi and Song Xue Administration (2013) estimates that there are approximately 11  billion barrels of oil reserves and 190  trillion cubic feet of natural gas reserves in the SCS. There are more than 30 oil-​and gas-​bearing basins and 397 oil and gas platforms in the SCS (China State Geospatial Information Center 2017). Figure 0.2 features 18 major oil-​and gas-​bearing basins in the SCS. In the north part of the SCS, the major oil-​and gas-​bearing basins are: Taixinan (Southwestern Taiwan) Basin, Taiwan Strait and Western Taiwan Basin, Zhujiang Kou (Pearl River Mouth) Basin, Qiongdongnan Basin, Beibu (Tonkin) Gulf Basin, Yingge Sea (Song Hong) Basin, and Bijia’nan Basin. In the south part of the SCS, the major oil-​and gas-​bearing basins are: Wan’an (Tu Chinh, Vanguard Bank) Basin, Nanwei’xi Basin, Nanwei’dong Basin, Malay Basin, Zengmu (East Natuna and Sarawak) Basin, Brunei-​ Sabah Basin, Liyue (Reed Bank) Basin, Palawan Basin, Beikang Basin, Andu’bei Basin, and Jiuzhang Basin (see Figure 0.2). Due to the presumed large offshore oil and gas reserves in the SCS, the region is sometimes labeled the “new Persian Gulf.” Cooperative development/​joint development has been widely accepted as a provisional arrangement of a practical nature that can be used by countries with boundary disputes to manage their disagreements, without prejudice to the validity of the conflicting claims. It is also encouraged by UNCLOS for the management of boundary disputes. Successful cooperative development/​ joint development creates a benevolent atmosphere for claimants to negotiate on delimitation issues while, at the same time, allowing conflicting parties to reap economic benefits from the exploitation of natural resources. Given the competitive element in SCS disputes, it is fortunate that all the SCS coastal States share a similar vision of peace, development, and cooperation. The SCS coastal States actively search for solutions to their maritime disputes. Cooperative development/​ joint development may, therefore, be considered by the SCS coastal States as an ad  hoc arrangement to prevent potential conflict and to promote win-​win situations. In fact, cooperative development/​joint development initiatives in the SCS are not without precedent. In February 1979, Malaysia and Thailand signed a Memorandum of Understanding between Malaysia and the Kingdom of Thailand on the Establishment of the Joint Authority for the Exploitation of the Resources of the Sea Bed in a Defined Area of the Continental Shelf of the Two Countries in the Gulf of Thailand. In July 1982, Cambodia and Vietnam signed an Agreement on Historic Waters of Vietnam and Kampuchea (Kittichaisaree 1987, 180–​181). In December 1989, Indonesia and Australia signed a Treaty between Australia and the Republic of Indonesia on the Zone of Cooperation in an Area between the Indonesian Province of East Timor and Northern Australia. In May 1990, Malaysia and Thailand signed an Agreement between the Government of Malaysia and the Government of the Kingdom of Thailand on the Constitution and Other Matters Relating to the Establishment of the Malaysia–​Thailand Joint Authority. In June

Introduction  7

Figure 0.2 Illustrative map of oil-​and gas-​bearing basins in the SCS Note: This map is for illustration only. Source: This map is based on the following sources: Qi (2019, 222); Wang (2013, 415); China Geological Survey of Ministry of Land and Resources (2000, 26); Li (2011, 47)

1992, Malaysia and Vietnam signed a Memorandum of Understanding between Malaysia and the Socialist Republic of Vietnam for the Exploration and Exploitation of Petroleum in a Defined Area of the Continental Shelf Involving the Two Countries. In December 2000, Vietnam and China signed an Agreement on Fishery Cooperation in the Beibu Gulf Area between the Government of the People’s

8  Huaigao Qi and Song Xue Republic of China and the Government of the Socialist Republic of Vietnam (Chinese Ministry of Foreign Affairs 2000). In March 2009, Prime Minister of Malaysia Abdullah Badawi and Brunei’s Sultan Hassanal Bolkiah signed an Exchange of Letters (EOL) (Smith 2010), With the EOL, Malaysia dropped its claim to the two oil blocks, but both countries also designated the two blocks as a commercial arrangement area to be jointly explored by Brunei and Malaysia (Ong 2013, 206–​207). In January 2012, Malaysia and Indonesia signed an MOU on Common Guidelines Concerning Treatment of Fishermen by Maritime Law Enforcement Agencies of Malaysia and the Republic of Indonesia (Indonesian Ministry of Foreign Affairs 2012). The experience of, and lessons learned around, the commercialization of Malaysia, Vietnam, Brunei, Indonesia, and other ASEAN States could be adopted for future cooperative development/​joint development in the SCS. China has been in discussion with other coastal States on the cooperative development/​joint development of the SCS since the 1980s. During the late 1980s, Chinese leader Deng Xiaoping proposed managing SCS problems by putting disputes aside in order to prioritize joint development (Chinese Ministry of Foreign Affairs 2016). In September 2004, China National Offshore Oil Corporation and the Philippine National Oil Company signed an Agreement for Joint Marine Seismic Understanding in an area of about 142,886 square kilometers in the SCS (CNOOC and PNOC 2004). Then, in November 2004, these two companies also subscribed to an agreement on joint oil and gas exploration in the disputed area. Furthermore, a Tripartite Agreement for Joint Marine Seismic Undertaking in the Agreement Area in the South China Sea was reached by oil companies in China, the Philippines, and Vietnam in March 2005, with the aim of conducting research on petroleum resource potential (Chinese Embassy in the Philippines 2005; Vietnamese Ministry of Foreign Affairs 2005). This marked a positive step, encouraging other SCS coastal States to follow. What’s more, in April 2013 China and Brunei signed a joint statement in support of relevant enterprises in the two countries carrying out joint exploration and exploitation of maritime oil and gas resources (Chinese Ministry of Foreign Affairs 2013b). China and Vietnam’s joint statement in November 2015 declared that the two countries would actively negotiate on joint development in the area off the mouth of the Beibu Gulf (Chinese Ministry of Foreign Affairs 2015). Considering each coastal State’s familiarity with cooperative development/​ joint development, the drafting of the ASEAN–​China COC, and the relatively calm maritime situation since 2017, there is much hope for productive rounds of cooperative development/​joint development dialogue among the coastal States in the SCS. China and Vietnam agreed to foster joint development in the waters off the mouth of the Beibu Gulf and to continue to promote the efforts of the working group on joint development at sea (Chinese Ministry of Foreign Affairs 2017). According to China and the Philippines’ Memorandum of Understanding on Cooperation on Oil and Gas Development, signed in November 2018, “the two governments have decided to negotiate on an

Introduction  9 accelerated basis arrangements to facilitate oil and gas exploration and exploitation in relevant maritime areas” (Chinese Ministry of Foreign Affairs 2018). In October 2019, China and the Philippines convened the first meeting of the China–​ Philippines Inter-​ Governmental Joint Steering Committee on Cooperation on Oil and Gas Development (Philippines Department of Foreign Affairs 2019). Two conditions are necessary before there can be serious discussion on cooperative development/​joint development arrangements (Beckman et  al. 2013). First, joint development arrangements tend to be concluded in periods where good relations exist among the relevant parties. China and other coastal States in the SCS have taken steps to build confidence and trust among the claimants. New progress in the SCS, such as the ASEAN–​ China single draft negotiating text for the COC, are conducive to creating benign bilateral relations, which serve as a prerequisite to joint development. If benign relations can be established between China and other coastal States in the SCS, the first condition for joint development is met. Second, the parties must have the political will to make decisions that may face opposition within their own countries. China and other coastal States in the SCS are taking steps to reinforce among the public the underlying rationale for joint development and the advantages of pursuing this option, indicating that the second condition for joint development involves a process towards consensus.

Structure of the book This book consists of ten chapters. From Chapter 1 to Chapter 6, the book analyzes the cooperative development/​ joint development policies of the six SCS coastal States, namely Brunei, China, Indonesia, Malaysia, the Philippines, and Vietnam. Chapter 7 analyzes the US approach to joint development in the SCS, which plays an important third-​party role. Chapter  8 analyzes business connectivity among industrial parks in the SCS rim, which is related to cooperative development in the SCS. Chapter  9 is a theoretical analysis of the conditions related to the failure of implementation of joint development agreements. Chapter 10 provides an in-​depth analysis of the policies and prospects for cooperative development in the SCS. All the authors of this book are from the SCS coastal States. They hope to clear up misunderstandings and assuage doubts concerning cooperative development, as well as shedding light on creative ways to promote cooperative development in the SCS. In Chapter 1, Jolene Hui Yun Liew reviews Brunei’s ongoing cases of joint development/​joint cooperation with neighboring states Malaysia, China, and Vietnam. Liew points out three factors that have greatly influenced Brunei’s positive stance towards joint development/​joint cooperation in the SCS with its neighbors: Brunei’s nonconfrontational approach; the country’s wider economic diversification strategy; and the rather lax geopolitical atmosphere in the region during the 2000s. She also discusses three factors preventing multilateral

10  Huaigao Qi and Song Xue joint development from taking place between Brunei and its neighbors: the functional shortage of a new generation of Bruneian researchers; the lack of major breakthroughs by Brunei’s existing cooperative models; and the more complex geopolitical environment in this region today. In the face of the current predicaments, Liew makes two recommendations: first, focus on and enhance cooperation based on the existing bilateral joint development model, then discuss a multilateral joint development model later; second, as a starting point, claimants could consider cooperating on less sensitive areas of the SCS. In Chapter  2, Huaigao Qi discusses China’s economic and strategic incentives for its cooperative development/​joint development initiatives with Vietnam and the Philippines since 2017. The economic incentives encompass a broad spectrum of goals, including the domestic demand for energy, the construction of a “21st-​Century Maritime Silk Road,” the Hainan pilot free trade zone, and construction of a common market and future economic integration among the SCS coastal States. China’s strategic incentives are achieving its goal of becoming a leading maritime power, playing a constructive role in maintaining a peaceful and stable SCS, developing good relations with other coastal States, and reducing the intensity of China–​US competition in the SCS. China may prioritize a few policies to endorse cooperative development/​ joint development: first, to promote good faith in the SCS; second, to limit unilateral activities in disputed areas; third, to focus on less sensitive areas of the SCS; fourth, to reach joint development arrangements by establishing a relevant working mechanism; fifth, to begin the process in areas where there are only two claimants; and sixth, to define sea areas for joint development by seeking consensus. Indonesia, a non-​claimant country in the SCS, is also a keen stakeholder in the discussion of cooperative development/​joint development. In Chapter 3, Evi Fitriani recalls that Indonesia has been actively involved in promoting negotiations on SCS disputes and has been acting as a mediator since the early 1990s. Despite various efforts made to encourage dispute resolution and joint development, severe problems persist that hinder the negotiations of joint development, which include states’ unwillingness to make concessions, a lack of strategic trust, and the inadequate engagement of nonstate actors who weigh up the benefits of regional identity over national state identity. Disputes also occur when states try to decide on the boundaries of joint development zones, because states tend to pursue joint development in territories that lay outside their claims. To make states agree on the field to joint development is also problematic because states want to gain more economic benefit than their counterpart and rarely complement their preferred fields of cooperation with other states’ preferences. A  free-​rider attitude encourages states to only concentrate on profitable fields, while the common good, such as marine conservation, is more often than not ignored. Besides, with regard to the question of “who” is eligible to participate in joint development, the opinion on whether private sectors or institutions of extra-​regional states

Introduction  11 could be involved is changing over time. It is suggested that taking a multilateral, informal approach and involving youth could help to solve the deadlock of joint development in the future. In Chapter 4, Ngeow Chow-​Bing discusses prospects for Sino–​Malaysian joint development in the SCS by examining the existing cases of Malaysia’s experiences in maritime joint development with its neighbors. These cases include the Malaysia–​Thailand Joint Development Authority, the Malaysia–​ Vietnam Commercial Arrangement Area, the Malaysia–​Brunei Commercial Arrangement Area, and the Malaysia–​ Indonesia MOU on Fisheries. Common factors in the successful implementation of these cases include: all the disputes arise from continental shelf claims, which renders the negotiation of joint development more of a technical issue than a sovereignty conflict; all of these disputes were confined to disagreements over maritime boundaries, rather than sovereignty disputes; maintaining amicable relations with neighbors prevails over disputes; economic and technical imperatives were in place for both parties to enter into a joint development cooperation; and, finally, public aloofness on the disputes in Malaysia enabled policymakers to make decisions. However, in the case of joint development between Malaysia and China in the SCS, these favorable factors are either absent or only partially fulfilled. Nevertheless, proposals are put forward in support of exploration in the area by Malaysia and China. In Chapter  5, Aaron Jed Rabena examines the drivers and conditions that both enable and impair the prospects of Philippine joint development with China in the SCS. The drivers and conditions are determined by the following factors: the foreign policy strategy of the ruling government, pragmatism (energy security), and the desire to avoid a confrontational disposition vis-​à-​vis China. He also examines the political and legal challenges for the Philippines’ joint development with China in the SCS and recommends five measures necessary for this to succeed: maintenance of the status quo; finalization of the COC; improvement of Philippine and Chinese communication strategies to avoid misperceptions; adoption of a proper legal cover; and establishment of a fisheries agreement or bilateral mechanism for marine environmental protection in the SCS. In Chapter  6, Bui Thi Thu Hien discusses Vietnam’s cooperative development in the SCS, looking at the existing cases, challenges, and policy suggestions. The Vietnamese government’s position on cooperative development is reflected in its participation in international conventions as well as the Communist Party of Vietnam’s resolutions and Vietnam’s internal law documents. Bui Thi analyzes the 1992 Malaysia–​Vietnam MOU, the 2000 Sino–​Vietnamese Fishery Agreement, and the 2005 Tripartite Agreement. She puts forward eight policy suggestions on Vietnam–​China cooperative development in the SCS: (1) achieve the highest consensus of domestic public opinion; (2)  strengthen closer ties with other countries around the SCS; (3) begin with less sensitive issues; (4) make parallel efforts to speed up the negotiations on maritime delimitation; (5) combine forms of cooperation on

12  Huaigao Qi and Song Xue land and at sea, with the aim of creating mutual interaction; (6) strengthen mutual trust; (7)  develop an effective mechanism for a media campaign on cooperative development activities; and (8) promote negotiations aiming to set up a maritime cooperation fund. The US is considered the most important third party in SCS disputes. The US always looms in the background despite seldom meddling directly in joint development implementation in the area. In Chapter 7, Nong Hong claims that US concerns in the SCS are limited to navigational rights, a legally binding Code of Conduct, and maritime domination. Joint development in the SCS has neither been a topic of comment nor the subject of a stand-​alone or joint statement by the US government. As for US experts, academics, and think tanks, joint development has never been discussed in any systematic way. The only time there has been a focus on the issue was in late November 2018 when Chinese President Xi Jinping was in Manila and there was much anxiety that Duterte would “sell out” on the issue of joint development in the Philippines–​China Memorandum of Understanding on Cooperation in Oil and Gas Development. The US energy industry might wish to play a bigger role in resource development in the SCS, in the form of joint ventures, in circumstances where the claimant states have clearly overcome the political and legal hurdles that have existed for decades. In Chapter 8, Siswo Pramono and Bayu Rahmat Novita review the current situation in the SCS and argue that, while disputes continue, these are less violent than was the case decades ago. Most parties are willing to enhance regional stability and prosperity, which leaves ample space for cooperation. They evaluate the common traits of the economies of the littoral states and find that all of them, including China, suffer to some degree from politico-​ economic fragility. Improving national resilience through economic and social development would allow the respective parties to address that fragility. The two authors explore the relevant aspects of the ASEAN concept on a variety of economic zones, with a particular focus on industrial parks. They propose that industrial parks in the SCS rim will contribute to regional prosperity and trust-​building, which will support long-​term settlement of potential and real disputes. In Chapter 9, Song Xue explores the conditions related to failure in implementation of joint development agreements. Applying the Crisp-​set qualitative comparative analysis method to 19 joint development agreements that took place between 1958 and 2008, Xue distinguishes four aspects which often put obstacles in the way of joint development experiments:  domestic politics, laws and security; foreign relations; economic incentives; and factors associated with joint development arrangements. Xue argues that the only condition causally related to failed joint development is the deterioration of bilateral relations, mostly related to the boundary dispute itself; contrary to common assumptions, lack of economic incentive, energy independence, domestic oppositions, third-​party intervention, and disagreement over joint development arrangement do not generally show any correlation with failed

Introduction  13 joint development. This finding implies that improving bilateral relations is a prerequisite for implementing joint development, not the other way around. It is suggested that claimant states take the provisional and non-​prejudice clause in UNCLOS seriously and that they do not try to use joint development as a pretext to secretively consolidate a controversial boundary claim or confirm the status of a “dispute.” The concluding chapter summarizes the policy recommendations proposed in the previous chapters. The increasing imbalance of power among claimants in the SCS has created a tendency to politicize all issues related to boundary disputes in the area. The joint development of hydrocarbon resources in disputed waters falls victim to geopolitical calculations and the zero-​sum game mindset more often today than it did two decades ago. Understanding how interstate relations and domestic politics affect joint development provides a good angle for assessing the failure of previous joint development initiatives and finding ways to rebuild confidence on maritime cooperation. We put forward two approaches for promoting cooperative initiatives. One highlights restricting the relative gains mindset by: (1) investigating the misuse of the term “joint development” for political purposes rather than economic purposes; (2) finding alternative legal covers on a case-​by-​case basis to promote cooperative development; (3)  reinforcing the non-​prejudicial clause in provisional arrangements; and (4)  controlling tensions by building political trust and making rules to regulate actions and collectively manage resources in the SCS. The other approach highlights encouraging a non-​zero-​sum game mindset by: (1) restoring confidence in cooperative development arrangements by focusing on attainable goals; (2)  redesigning the incentive structure of cooperative development agreements by encouraging reciprocity between signatory states; (3)  providing a certain level of transparency of knowledge and policy orientation to inspire academic discussions and innovative ideas on cooperation; and (4) paying attention to public perception of cooperative developments and correcting misperceptions if necessary.

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14  Huaigao Qi and Song Xue China Geological Survey of Ministry of Land and Resources. 2000. Marine Geological Work Memorabilia of P.R. China (1949–​1999). Beijing: Ocean Press. China National Offshore Oil Corporation and Philippine National Oil Company. 2004. “An Agreement for Joint Marine Seismic Undertaking in Certain Areas in the South China Sea by and between China National Offshore Oil Corporation and Philippine National Oil Company.” 1 September. www.spratlys.org/​documents/​ agreement_​bilateral_​marine_​seismic_​undertaking.pdf. China State Geospatial Information Center. 2017. “Development and Utilization of Oil/​Gas Resources in the South China Sea (2013–​2014).” 10 July. http://​sgic. geodata.gov.cn/​web/​sgic/​zynyzygx/​info/​2017/​146.html. Chinese Embassy in the Philippines. 2005. “Oil Companies of China, the Philippines and Vietnam signed Agreement on South China Sea Cooperation.” 14 March 2005. http://​ph.chineseembassy.org/​eng/​zt/​nhwt/​t187333.htm. Chinese Ministry of Foreign Affairs. 2000. “Agreement on Joint Fishing Cooperation in the Beibu Gulf Area between the Government of the People’s Republic of China and the Government of the Socialist Republic of Vietnam.” 25 December. www. fmprc.gov.cn/​web/​ziliao_​674904/​tytj_​674911/​tyfg_​674913/​t556668.shtml. Chinese Ministry of Foreign Affairs. 2008a. “Foreign Ministry Spokesperson Answers Reporters’ Questions on China-​Japan East China Sea Issue.” 17 June. www.fmprc. gov.cn/​web/​fyrbt_​673021/​dhdw_​673027/​t466166.shtml. Chinese Ministry of Foreign Affairs. 2008b. “China and Japan Reached a Principled Consensus on the East China Sea Issue.” 18 June. www.fmprc.gov.cn/​web/​fyrbt_​ 673021/​dhdw_​673027/​t466568.shtml. Chinese Ministry of Foreign Affairs. 2013a. “Joint Statement between China and Vietnam.” 21 June. www.fmprc.gov.cn/​nanhai/​chn/​zcfg/​t1052237.htm. Chinese Ministry of Foreign Affairs. 2013b. “Joint Statement between China and Brunei.” 5 April. www.fmprc.gov.cn/​mfa_​eng/​wjdt_​665385/​2649_​665393/​t1029400. shtml. Chinese Ministry of Foreign Affairs. 2015. “Joint Statement between China and Vietnam.” 6 November. www.fmprc.gov.cn/​web/​zyxw/​t1312772.shtml. Chinese Ministry of Foreign Affairs. 2016. “China Adheres to the Position of Settling through Negotiation the Relevant Disputes between China and the Philippines in the South China Sea.” 13 July. www.fmprc.gov.cn/​mfa_​eng/​zxxx_​662805/​t1380615. shtml. Chinese Ministry of Foreign Affairs. 2017. “Joint Statement between China and Vietnam.” 13 November. www.fmprc.gov.cn/​web/​ziliao_​674904/​1179_​674909/​ t1510069.shtml. Chinese Ministry of Foreign Affairs. 2018. “Memorandum of Understanding on Cooperation on Oil and Gas Development between the Government of the People’s Republic of China and the Government of the Republic of the Philippines.” 20 November. www.fmprc.gov.cn/​nanhai/​eng/​zcfg_​1/​t1616644.htm. Flanders Marine Institute. 2018. “IHO Sea Areas.” Version 3.  www.marineregions. org/​, https://​doi.org/​10.14284/​323. Government of China. 2005. “Joint Statement between China and Vietnam.” 2 November. www.gov.cn/​govweb/​gongbao/​content/​2006/​content_​151863.htm. Government of China. 2008. “Vice Foreign Minister Remarks on China-​ Japan Principled Consensus on the East China Sea Issue.” 19 June. www.gov.cn/​xwfb/​ 2008-​06/​19/​content_​1021854.htm.

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1  From joint cooperation to joint development in the South China Sea Incentives, challenges, and prospects for Brunei Darussalam Jolene Hui Yun Liew

Introduction A calm and stable South China Sea (hereinafter known as the SCS) requires the close cooperation of all claimant states. Dispute resolution or, more specifically, joint development in the SCS has long been promoted by claimant states from the Association of South East Asian Nations (ASEAN) and China. In fact, several maritime boundary disputes in Southeast Asia had been effectively demarcated through the concept of joint development as early as 1979, indicating that this essential cooperative mechanism has already taken shape in the region. Looking at the current available cooperative modalities, wherein the majority of cooperation is being implemented in bilateral settings, this chapter intends to study the feasibility of implementing multilateral joint development in the SCS, particularly in the Spratly Islands (henceforth known as the Spratlys). In doing so, it reviews the existing cases of bilateral joint development/​cooperation that Brunei established with Malaysia, China, and Vietnam, respectively. Factors affecting the possible implementation of these bilateral joint development/​cooperation models are then highlighted. Considering these bilateral accomplishments, this chapter attempts to further probe the feasibility of reaching an ambitious multilateral joint development in the Spratlys. The analysis found the prospect of reaching such an ambitious target largely improbable, at least for the foreseeable future. To conclude, this chapter puts forward two humble suggestions on how claimants can best strive to prepare, approach, and achieve successful multilateral joint development in such troubled waters. Joint development is defined in this chapter as a provisional intergovernmental arrangement established between two or more parties to jointly explore, exploit, and develop resources within a delimited boundary area for economic gains. Joint cooperation, in contrast, refers to a provisional intergovernmental arrangement whereby two or more parties work together with the intention of exploring a better means of deepening the exploitation and utilization of resources within an overlapping area for potential economic

18  Jolene H. Y. Liew gain. By comparison, the degree of engagement in joint development is, by and large, more extensive than that found in joint cooperation.

Existing cases of bilateral joint development and joint cooperation between Brunei and its neighbors At present, Brunei has three ongoing cases of bilateral joint development/​ cooperation in the SCS, with Malaysia, China, and Vietnam. While all are established, Brunei’s joint development/​cooperation experiences with its three neighbors vary remarkably in terms of pace and intensity, and range from the oil and gas industry to the fisheries industry. Brunei–​Malaysia joint development Brunei’s (former) maritime dispute with Malaysia arose mainly from Malaysia’s initial reluctance to recognize Brunei’s Exclusive Economic Zone (EEZ) and continental shelf claims. Three years after gaining full independence from Britain in 1984, Brunei released three official maps detailing its rightful maritime zones (Haller-​Trost 1994, 2–​5, 55). These maps were rejected initially by Malaysia, which claimed that Brunei’s maritime boundary ended at a 100-​fathom isobath, as stated on its 1979 map (Haller-​Trost 1994, 54). Brunei rebutted and asserted that its maritime rights extend legally up to 200 nautical miles from the baselines of its territorial sea –​as specified on the 1982 United Nations Convention on the Law of the Sea (UNCLOS). Regardless of the official discrepancies between both governments, Brunei and Malaysia officially resolved their overlapping maritime claims in an amicable manner in 2009. The maritime resolution was made possible by the historic signing of an exchange of letters (EOL) between Sultan Bolkiah of Brunei and former Prime Minister Badawi of Malaysia, which essentially tweezed out an old political thorn that had pricked modern Brunei–​Malaysia relations for more than two decades. Under the 2009 EOL, two particular provisions resulted in the laudable success of the Brunei–​Malaysia joint development model. First, Brunei and Malaysia agreed to establish a final, permanent maritime boundary of their territorial sea, continental shelf, and EEZ. While the precise content of the maritime delimitation was not made available to the public, press releases and official statements confirmed that Malaysia had ceded two of the formally disputed oil blocks –​Block J and Block K (known as Block L and Block M in Malaysia)  –​to Brunei. By recognizing the aforesaid blocks to be within Brunei’s EEZ, the Ministry of Foreign Affairs Malaysia (2009) confirmed that Malaysia would be given the rights to co-​exploit and co-​develop the two formerly disputed oil blocks with its Bruneian counterpart for a period of 40 years. Second, following the final delimitation of their maritime boundaries, Brunei and Malaysia established a “commercial agreement area” on the

From Joint Cooperation to Joint Development  19 previously disputed oil blocks –​renamed as CA1 and CA2 (previously known as Block J and Block K) –​to further facilitate offshore oil and gas operations on a fully commercial basis. As part of the “extended gesture of friendship,” both countries agreed to share revenues obtained from joint oil and gas exploitation (Ministry of Foreign Affairs Malaysia 2010a). Precise details relating to the revenue split between the two national oil companies were, however, not disclosed to the public. To depoliticize cooperation, both governments had nominated their respective national oil companies to take full charge of the joint development on energy resources. This, in turn, led to the signing of the production sharing agreement (PSA) for blocks CA1 and CA2 between Brunei’s Petroleum Brunei and Malaysia’s Petronas in 2010 (Ministry of Foreign Affairs Malaysia 2010b). Since then, energy cooperation between Petroleum Brunei and Petronas (National Petroleum Limited of Malaysia) has grown positively, prompting governments from both sides to step up cooperation in the wider Bruneian waters. In 2013, local Malaysian newspaper Malay Mail reported that Petroleum Brunei and Petronas had signed a second PSA to further explore and exploit energy resources in the eastern shallow offshore waters of Brunei –​Block N and Block Q. The Brunei–​ Malaysia cooperative model in the SCS reached even greater heights in 2017 when both governments contracted the Unitization Framework Agreement to formally unitize and jointly develop four straddling hydrocarbon fields:  (1) Kinabalu West NAG (KN) field and Maharaja Lela North Panel (MLJ) field; and (2)  Gumusut/​Kakap (GK) field and Geronggong/​Jagus East (GRG/​JGE) field (Ministry of Foreign Affairs Malaysia 2017). Based on a recent working report released by the United States Securities and Exchange Commission, Brunei’s GRG/​JGE field (which lies in Block CA1) now forms part of a unitized field with Malaysia’s GK field. Similarly, the parameters for the GRG/​JGE and GK fields are established, based on a provisional production and cost-​sharing agreement (United States Securities and Exchange Commission 2018). Separately, Brunei’s MLJ field (located in block B offshore Brunei) now forms part of a unitized field with Malaysia’s KN field (a greenfield energy project). According to Jaipuriyar (2013), joint development in these oilfields is estimated to boost gas delivery to at least 5 million cubic meters/​day. While the current Brunei–​ Malaysia joint development model is still concentrated heavily in the oil and gas sector, since 2015 plans to extend cooperation and engagement in the fisheries sector have been repeatedly discussed by both heads of government during the Annual Leaders’ Consultation between Brunei and Malaysia (see Ministry of Foreign Affairs Brunei 2015, 2016, 2019b; Ministry of Foreign Affairs Malaysia 2017). According to Bandial (2015), a memorandum of understanding (MOU) that would allow fishermen from both countries to fish in the “traditional fishing areas even if they entered the waters of either country” is currently underway.

20  Jolene H. Y. Liew Brunei–​China joint cooperation In the case of Brunei and China, their dispute in the SCS involves two aspects:  boundaries and features. Although Brunei has never formally expressed its stance on (1) China’s nine-​dash line or (2) the status of Louisa Reef and Rifleman Bank (both located well within Brunei’s EEZ), one could perhaps take the Sultanate’s punctilious adherence to the 1982 UNCLOS and the official documents it submitted to the Commission on the Limits of the Continental Shelf in 2009 as a rough compass to where Brunei implicitly stands (Government of Brunei Darussalam 2009). Despite their overlapping maritime claims, Brunei and China have never stopped striving towards resolving the SCS issue by peaceful means. In 2004, the idea of joint development was raised by President Hu Jintao with Sultan Bolkiah. The Ministry of Foreign Affairs of China (2004) reported that the government of Brunei had responded positively towards China’s proposal of joint development in the SCS, noting that Brunei “welcome(s) Chinese businesses[’] exploit[ation] of oil and gas resources in Brunei.” Surprisingly, and despite keen rhetorical statements from both governments, the dearth of news coverage and official reports relating to Brunei–​China energy cooperation in the SCS during this time period perhaps seems to indicate otherwise. Nevertheless, incentives for both governments to jointly explore and exploit resources in the SCS regained momentum after 2011. Since then, at least five MOUs were signed between the two countries to promote energy/​ maritime/​fisheries cooperation within Brunei’s territorial waters (see Ministry of Foreign Affairs Brunei 2013; Ministry of Foreign Affairs China 2013; Darussalam Assets 2016). In 2018, Brunei and China inked their latest maritime-​related MOU, wherein both sides agreed to set up a joint steering committee at the ministerial level to expand working relations and cooperation in several key areas, including maritime and energy (Ministry of Foreign Affairs Brunei 2018a). Indeed, Brunei and China recently held their first Intergovernmental Joint Steering Committee meeting in January 2020, where both sides agreed to establish a working groups to explore and deepen future cooperation in ten key areas. Included among the ten areas is the aforementioned maritime and energy cooperation in the SCS (Ministry of Foreign Affairs China 2020). Similar to the Brunei–​Malaysia joint development model, the Brunei–​ China cooperation model also runs on a commercial basis, with no direct government involvement. In the oil and gas industry, Petroleum Brunei and the China National Offshore Oil Corporation (CNOOC) agreed to jointly deliver professional and efficient onshore and offshore oilrig drilling services in the waters of Brunei. The energy services will be provided directly by PB Services and China Oilfield Services Limited (COSL), a subsidiary of Petroleum Brunei and CNOOC, respectively (Xu 2014). Brunei’s Damai Holdings Limited and China’s Zhejiang Hengyi Petrochemicals, on the other hand, are responsible for the major development

From Joint Cooperation to Joint Development  21 of Brunei’s largest oil and gas (downstream) industry, as well as the Sultanate’s nascent chemical industry. Located on Brunei Bay, this multi-​billion-​dollar joint venture between China’s Hengyi and Brunei’s Damai Holdings is often dubbed a game changer for the future oil and gas industry in Brunei. Meanwhile, in the fisheries sector, Brunei Economic Development Board and Guangxi Hiseaton Foods have been assigned to jointly operate an offshore aquaculture farm in Bruneian waters (Darussalam Assets 2016), while China’s Wanjia Aquatic Products Sdn Bhd contributes its part by sharing cutting-​edge offshore aquaculture technology to help Brunei’s inadequate fishing industry breed high-​value aquaculture products that are later exported to the enormous Chinese market. Brunei–​Vietnam joint cooperation For Brunei and Vietnam, their maritime disagreement arose mainly because some parts of the maritime features occupied by Vietnam in the Spratlys overlapped with Brunei’s continental shelf claim. Similar to Malaysia and China, since 2007 Brunei has been working closely with Vietnam to explore joint development opportunities in the SCS. In 2007, national oil companies from Brunei and Vietnam  –​Petroleum Brunei and PetroVietnam –​signed their first MOU on oil and gas commercial cooperation (Department of Information 2007). While no further information was released, the successful renewal of their first MOU in 2012 could perhaps indicate a rather fair cooperative experience between both countries (see Ministry of Foreign Affairs Brunei 2018b). In 2014, PTSC M&C (an arm of PetroVietnam) was further assigned, as Cheang (2014) writes, to “provide engineering, procurement, construction and commissioning services” for the construction of the Maharaja Lela South platform in Bruneian waters. The oil platform was eventually completed in 2016. Besides oil and gas, Brunei and Vietnam also seek to jointly cooperate in the fisheries sector. In March 2019, the Ministry of Foreign Affairs Brunei (2019a) announced that both governments were currently working closely to welcome the signing of an MOU to deal with illegal, unreported, and unregulated fishing in the troubled waters. In addition, both governments also look forward “to further enhance maritime cooperation in aquaculture, law enforcement … at sea and freedom of navigation,” reiterating that a Brunei–​ Vietnam maritime joint cooperation that deals with nontraditional security issues in the SCS would soon be underway.

Factors enabling bilateral joint development and joint cooperation to take place between Brunei and its neighbors Given the complex nature of the SCS issue, it is therefore heartening to still witness several established and ongoing cases of joint development/​ cooperation in the SCS. Highlighting the factors leading to the possible

22  Jolene H. Y. Liew implementation of the three cooperative cases (Brunei–​Malaysia, Brunei–​ China, and Brunei–​Vietnam) is crucial for preventing maritime tension in troubled waters from ratcheting up further. Three factors that have greatly influenced Brunei’s positive stance towards joint development/​cooperation in the SCS with its neighbors are discussed below. First, Brunei’s nonconfrontational approach in dealing with the SCS issue has partly contributed to the possible implementation of several joint development/​cooperation models witnessed in troubled waters today. While critics have always accused Brunei of downplaying its sovereign maritime rights, they have also tended to overlook one simple fact; that is, incessant standoffs with the other claimants will only spur unhealthy nationalist feelings at home, in turn, further hampering the already complicated peace process in the SCS. After all, there exists a thin dividing line between “silent for the causes of war” and “silent for the causes of peace.” Brunei Darussalam (the abode of peace, as its name reads) is and will always be an avid defender of the latter. If anything, policymakers in Brunei possibly could have recognized that for complex geopolitical disputes like those in the SCS, greater cooperation, beyond just words, as well as the practice of self-​restraint against unilateral action are two prudent techniques to calm the complicated maritime situation. As a matter of fact, Brunei’s low-​profile approach is not limited to the regional and international stage. Within Brunei, the SCS issue is rarely reported or discussed by local media, and appears even less as a topic of common interest in the day-​to-​day conversations between ordinary Bruneians. To be fair, the majority of the Bruneian public would regard the SCS issue as something of a high-​level strategic matter that is preferably dealt with by relevant authorities spanning across different government ministries. The lack of public discourse on this particular maritime issue has allowed the Bruneian government to gain an upper hand in making efficient arrangements and necessary compromises for the nation’s and region’s long-​term peace and stability. Second, it is important to remember that the SCS issue is not always about geopolitical contestation. Since all claimant states in the region are still being listed as “developing” economies, this makes “development” a naturally common goal to pursue. In Brunei’s case, joint development/​cooperation in the SCS, following the core principles of mutual gain and mutual respect, forms an integral part of the Sultanate’s wider economic diversification strategy. To be sure, economic diversification has long been chalked up as part of Brunei’s national goal, from as early as the Second National Development Plan 1962–​1966. Since then, economic diversification has become one of the main policy imperatives being highlighted routinely in several of the country’s five-​year national development plans (see Department of Economic Planning and Statistics, n.d.; Yunos and Milojević 2016). Despite several attempts to

From Joint Cooperation to Joint Development  23 diversify away from its oil-​and-​gas-​dominant economy, results have not been particularly encouraging. Statistically, while the non-​oil-​and-​gas sector has contributed 47.5 percent to the nation’s gross value added at current prices in 2019 (Department of Economic Planning and Statistics 2020), the International Monetary Fund (IMF) warns that the Sultanate’s heavy reliance on the oil and gas sector is not yet over. The IMF estimates that 58 percent of the nation’s gross domestic product (GDP), and as much as 95  percent of its national exports, and 81 percent of government revenues still feed on the oil and gas industry (IMF 2019: 4). Some commonly identified factors leading to Brunei’s limited economic diversification include bureaucratic hindrances, a small population and small market, weak human capital development, a weak local corporate sector, and slow foreign direct investment outside the country’s energy industry (Bhaskaran 2010). Facing three compounding effects  –​a volatile global oil market, slow foreign investment growth (especially in the non-​ oil-​ and-​ gas sector) and contracting national GDP –​it is therefore crucial for Brunei to stay pragmatic and to seize every appropriate opportunity available to inch itself closer to its national development goals. Notwithstanding the significance of economic diversification, some critics may be quick to question its association with joint development, since most of Brunei’s existing cooperation in the SCS is hydrocarbon-​based. Taking into consideration the aforementioned barriers of economic diversification could perhaps help one appreciate Brunei’s situation better. Certainly, while continued reliance on hydrocarbons is not the most viable long-​term economic diversification strategy in the long run, the oil and gas industry remains ironically Brunei’s most popular platform in securing big-​ticket foreign investment opportunities and projects due to the country’s laggy development outside the oil and gas industry. In this regard, diversifying does not mean leaving the oil and gas industry totally redundant, especially when it is, and will continue to be, Brunei’s top-​performing industry in the foreseeable years. More often than not, joint energy cooperation in the SCS should therefore be regarded as a necessary springboard in preparing Brunei for future non-​oil-​and-​gas development opportunities. As of today, the oil and gas industry is still highly prioritized in Brunei, not only because it has been the economic backbone of the economy since the 1930s, but also because it enables the Sultanate to share as well as learn about advanced technological know-​how from its neighboring partners. This exchange of knowledge is essential to boosting Brunei’s industrial efficiency and reducing its overreliance on ageing oilfields and traditional oil and gas production methods. The joint venture between Brunei’s Damai Holdings and China’s Zhejiang Hengyi Group is a good example that focuses principally on modern, green concepts and technology to downstream oil and gas production. This energy joint venture also plays a critical role in helping

24  Jolene H. Y. Liew Brunei ensure its self-​sufficiency in refined petrochemical products for the foreseeable future. Besides the downstream of hydrocarbon resources, the SCS also holds full commercial potential to expose Brunei to wider foreign investment opportunities in areas linked to the fishing, logistics, and tourism industries. For instance, the Ministry of Primary Resources and Tourism, through its Department of Fisheries (n.d.), estimates that Brunei’s fisheries industry is worth at least B$88 million/​year, but the industry has yet to contribute even half of its projected value to the national economy. Essentially, this is largely due to the lack of major development programs due to conflicting traditional fishing grounds and, more importantly, the lack of fishing expertise and experience in the local fishing industry. Nevertheless, Brunei’s Department of Fisheries remains fairly optimistic, noting that “rooms are still available” to co-​develop in the Sultanate’s budding fishing industry. In this regard, Brunei could make good use of the existing hydrocarbon joint development/​cooperation models as a complementary entry point into the non-​oil-​and-​gas industry. Third, it should be reminded that when joint development first started to take shape in the SCS between ASEAN claimants and China in the 2000s, the SCS issue was not as complicated as it is today. The rather lax geopolitical atmosphere and media attention in the region during the 2000s were all conducive to pushing multiple joint development/​cooperation arrangements forward. The underlying reason behind the successful implementation of these cooperative modalities is fairly straightforward. Claimant states’ leaders were given much-​needed space to concentrate on and talk diplomatically about joint development/​cooperation among themselves, without being interrupted by domestic political pressure (e.g. nationalist-​ inspired protests) halfway through their official negotiations.

Factors preventing multilateral joint development taking place between Brunei and its neighbors Considering the rather successful implementation of several bilateral cooperation models, is it possible, then, for all SCS claimants to develop resources multilaterally in the Spratlys? Regrettably, the answer to this ambitious question is a resounding no –​at least in the immediate or near-​term future. This section explores three factors that make multilateral joint development in the SCS unrealistic. First, while it is very much accurate that Brunei’s nonconfrontational approach, or “quiet diplomacy,” has contributed significantly to the region’s ongoing maritime peace and stability, it could nevertheless dampen the interest and motivation of keen researchers in the country to study the SCS issue, let alone specialize in it. More often than not, the SCS issue has been tacitly considered a “taboo topic” that is best not to be discussed by academics  –​ openly at least.

From Joint Cooperation to Joint Development  25 For individuals who have attended enough maritime-​related forums  –​ regionally and/​or internationally –​it should not be hard to recall the Bruneian table as always “empty” or even “missing,” especially at the track II level. Academic conferences hosted by the Council for Security Cooperation in the Asia Pacific (CSCAP) is one good example. Although a committee member of the CSCAP, the presence and participation of Bruneian scholars remain largely wanting (personal communication August 2018). As a small state with a population of less than a million, Brunei’s lack of participation could understandably be partly constrained by its limited human resources capacity. Nevertheless, from an academic viewpoint, the functional shortage of a new generation of Bruneian researchers –​particularly in areas related to the international law of the sea  –​is disappointing. The country’s human capital shortage could present further challenge to its already undersized research community to keep up with research communities across the region, especially when the time is finally ripe for multilateral joint development to take place in the years ahead. After all, mechanisms involved in the negotiation for bilateral joint development are fairly different from those of multilateral joint development. For multilateral joint development to be effective, it requires not only robust political will from visionary leaders, but also a comprehensive and transparent platform with a team of well-​trained and forward-​thinking policymakers and researchers, working hand in hand towards the successful implementation of conciliatory policies that are prudent and in line with the best interests of their respective nations as well as the region. Second, while the Bruneian joint development/​ cooperation models discussed above may appear to progress quite well on the surface, a further probe will reveal that two of its three existing cooperative models are lacking major breakthroughs. Take the Brunei–​China cooperation model as an example. While Brunei had rhetorically expressed its openness to joint development in the SCS when the concept was first proposed by President Hu Jintao to Sultan Bolkiah in 2004, the amount of synergy needed to constitute and maintain a robust Brunei–​China joint development model in the SCS remains largely wanting at this time of writing. A similar hitch is also reflected in the Brunei–​Vietnam cooperation model. Using the Brunei–​Malaysia maritime cooperation model as a benchmark, the current stage of cooperation between Brunei–​China and Brunei–​Vietnam in the SCS is at best described as joint cooperation, rather than joint development. Third, the region’s geopolitical environment has today become more complex and uncertain. Today, the great power competition between China and the United States (US) is increasingly centered in the SCS, wherein military patrols –​often under the pretext of “freedom of navigation” –​have suddenly become much more common than before. To make matters worse, the SCS issue is also being increasingly scrutinized and sensitized by many regional and global media outlets.

26  Jolene H. Y. Liew Furthermore, bearing in mind that the ASEAN–​China Code of Conduct (COC) is “a necessary guarantee for joint development” (Xu Liping, cited in Liu 2018), the failure to agree the COC so far could reflect not only the continuing differences and mistrust between claimant states, but also the claimants’ ambiguity towards the very concept of joint development in the SCS. In addition, the rising Sino–​US powerplay in the SCS could hurt potential maritime/​energy investment opportunities, and the frequent negative media headlines reporting on China’s growing assertiveness in the SCS could spark public outrage and intensify domestic political pressure  –​especially in the Philippines and Vietnam, where nationalism is abnormally higher than in Brunei and Malaysia. As a result, claimants could be tempted to adopt a “wait and see” or an evasive approach when negotiating on multilateral joint development.

Ways forward In the face of current predicaments, this section offers two recommendations. Needless to say, each suggestion may face resistance, or even complications, when executed on a case-​by-​case basis. But, if the SCS issue continues on a downward spiral, this could further exacerbate the current status of maritime “dispute” to an even more difficult maritime “rivalry.” Crucially, therefore, before any practical and equitable recommendations can be made, three preconditions must be satisfied. (1) Claimants should regard joint development as a purely commercial, as opposed to geopolitical, undertaking that is without prejudice to their sovereign maritime claims. (2) Claimants should clarify the exact extent of their claims and reach a consensus on a designated area that could be subjected to joint development. Nevertheless, a major tricky underlying issue at present is the lack of clarity over what some countries are claiming for in the area (features, islands, reefs, etc.), making the SCS disputes even harder to discuss and manage. (3) Claimants must have an extraordinary political will to counter challenges and withstand criticisms along the joint development process –​domestically, regionally, and internationally. Governments could play a more active role in educating the public about the merits of joint development and remind people that joint development does not involve the issue of sovereignty. Only when these preconditions are met can policy recommendations in line with peaceful development and in accordance with UNCLOS be attempted. Below are two suggestions for promoting multilateral joint development in the Spratlys.

From Joint Cooperation to Joint Development  27 First, focus on and enhance cooperation with regards to an existing bilateral joint development model; then talk of a multilateral joint development model later. As mentioned elsewhere in this chapter, some of the existing bilateral joint development/​cooperation cases today lack major breakthroughs. In this regard, since there are already established cooperative platforms for claimant states to work on, claimants could make full use of these to build trust and confidence first, by co-​managing maritime resources in mutually beneficial and sustainable ways. Equally important, since not every claimant state has yet established bilateral joint development with neighboring countries  –​for example, Brunei–​Philippines, Malaysia–​Philippines, Malaysia–​China, etc.  –​ these countries should try working towards this aim. Realistically speaking, if claimant states have yet to see eye to eye in bilateral settings, how can they contribute towards, not to mention benefit from, multilateral joint development? To put it another way, having comprehensive bilateral joint development/​cooperation experience is essential for a successful multilateral joint development model. Nevertheless, disagreements over the application of preferred basepoints could be a major technical challenge when it comes to ascertaining and delineating specific common areas for joint development in the straddling waters  –​particularly in the Spratlys (Kadir 2017). Second, since not all countries are prepared to co-​develop the oil and gas resources in their EEZs, claimants could consider cooperating in less sensitive areas of the SCS as a starting point. Potential areas to consider include marine environmental/​ecological protection and marine scientific investigation. Since cooperation in these less sensitive areas is not aimed at political or economic interests, agreements on multilateral cooperation should be relatively easier to reach. Also, because cooperation would be on marine ecological sustainability –​ an increasingly prioritized policy given the rising environmental problems today –​this could enhance a positive and responsible image of the partnering countries and, in turn, lay a good foundation for future joint development in highly sensitive areas such as exploration and exploitation of oil and gas in the SCS. Positive image branding of multilateral joint development in the Spratlys is therefore of great importance.

Conclusion Notwithstanding the challenges of (multilateral) joint development in the SCS, the concept itself remains an attractive and durable template for peace. After all, joint development has proven to be the only realistic formula available that could reduce tension and boost diplomatic relations between the ASEAN claimant states and China. However, negotiating for, and realizing, joint development is never easy –​ either bilaterally and multilaterally. It requires an extraordinary amount of

28  Jolene H. Y. Liew sincerity, compromise, political will, and good faith from all claimant countries. While the present situation might not be conducive to any talk of multilateral development, bilateral joint development has proven easier insomuch as the maritime dispute is bilateral in nature. Finding a practical and peaceful way forward is therefore crucial. Every claimant should give joint development a chance to play its value-​added role in helping claimants reach consensus with one another in the disputed waters. Ultimately, cooperation and development should be the goal of an increasingly interconnected maritime Asia.

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From Joint Cooperation to Joint Development  29 Kadir, Rizal Abdul. 2017. “South China Sea and ASEAN–​China Relations:  Joint Development in the South China Sea?” The Institute for Strategic, Political, Security and Economic Consultancy, Issue 487. Liu, Z. 2018. “China and Brunei to Step Up Oil and Gas Development in Disputed South China Sea.” South China Morning Post, 19 November. www.scmp.com/​ news/​ c hina/​ d iplomacy/ ​ a rticle/ ​ 2 173959/ ​ c hina-​ a nd-​ b runei-​ s tep-​ o il-​ a nd-​ g as-​ development-​disputed-​south?utm_​source=Yahoo&utm_​medium=partner&utm_​ campaign=contentexchange. Malay Mail. 2013. “Malaysia-​ Brunei Cooperation under EOL Produces Positive Results, Says PM.” 9 December. www.malaymail.com/​news/​malaysia/​2013/​12/​09/​ malaysia-​brunei-​cooperation-​under-​eol-​produces-​positive-​results-​says-​pm/​578053. Ministry of Foreign Affairs Brunei. 2013. “Joint Statement Between the People’s Republic of China and Brunei Darussalam.” 11 October. www.mfa.gov.bn/​Lists/​ Press%20Room/​news.aspx?ID=74&ContentTypeId=0x01040055E31CAE71A9C1 44B21BBB007363093500B667C4949BC69D4394F4AC8FA016E767. Ministry of Foreign Affairs Brunei. 2015. “Joint Statement on the 19th Annual Leaders’ Consultation Between Brunei Darussalam and Malaysia.” The Daily Brunei Resources, 11 August. http://​bruneiresources.blogspot.com/​2015/​08/​joint-​ statement-​19th-​annual-​leaders.html. Ministry of Foreign Affairs Brunei. 2016. “Joint Statement on the 20th Annual Leaders’ Consultation Between Malaysia and Brunei Darussalam.” 4 October. www.mfa.gov.bn/​Lists/​Press%20Room/​news.aspx?ID=539. Ministry of Foreign Affairs Brunei. 2018a. “Joint Statement Between Brunei Darussalam and the People’s Republic of China.” 19 November. http://​mfa.gov.bn/​ Lists/​Press%20Room/​news.aspx?id=710. Ministry of Foreign Affairs Brunei. 2018b. “Socialist Republic of Vietnam.” www. mfa.gov.bn/​SitePages/​Socialist%20Republic%20of%20Vietnam.aspx, accessed 4 May 2019. Ministry of Foreign Affairs Brunei. 2019a. “Joint Statement on the Establishment of Comprehensive Partnership between the Socialist Republic of Vietnam and Brunei Darussalam on the Occasion of the State Visit of HM Sultan Haji Hassanal Bolkiah Mu’izzaddin Waddaulah.” 4 May. http://​mfa.gov.bn/​Lists/​Press%20Room/​ news.aspx?id=746&source=http://​mfa.gov.bn/​site/​home.aspx. Ministry of Foreign Affairs Brunei. 2019b. “Joint Statement on the 22nd Annual Leaders’ Consultation Between the Honourable Tun Dr Mahathir Mohamad, Prime Minister of Malaysia and His Majesty Sultan Haji Hassanal Bolkiah Mu’izzaddin Waddaulah, Sultan and Yang Di-​Pertuan of Brunei Darussalam.” 5 March. www.mfa.gov.bn/​Lists/​Press%20Room/​news.aspx?id=736&source=http://​ www.mfa.gov.bn/​site/​home.aspx. Ministry of Foreign Affairs China. 2004. “Joint Communique Between the People’s Republic of China and Brunei Darussalam.” 22 September. www.fmprc.gov.cn/​ mfa_​eng/​wjb_​663304/​zzjg_​663340/​yzs_​663350/​gjlb_​663354/​2691_​663386/​2692_​ 663388/​t161105.shtml. Ministry of Foreign Affairs China. 2013. “Premier Li Keqiang Holds Talks with Sultan Haji Hassanal Bolkiah of Brunei, Stressing to Further Uplift Level of China-​Brunei Strategic Cooperation.” 11 October. www.fmprc.gov.cn/​mfa_​eng/​ wjb_​663304/​zzjg_​663340/​yzs_​663350/​gjlb_​663354/​2691_​663386/​2693_​663390/​ t1088909.shtml.

30  Jolene H. Y. Liew Ministry of Foreign Affairs China. 2020. “Joint Press Release of the Inaugural Meeting of the Joint Steering Committee between the People’s Republic of China and Brunei Darussalam.” 22 January. www.fmprc.gov.cn/​mfa_​eng/​zxxx_​662805/​ t1734985.shtml. Ministry of Foreign Affairs Malaysia. 2009. “Statement on the Exchange of Letters between Malaysia and Brunei Darussalam, Dated 16 March 2009.” www.kln.gov. my/​archive/​content.php?t=7&articleId=735675, accessed 24 April 2019. Ministry of Foreign Affairs Malaysia. 2010a. “Brunei Will Share Oil Revenue on Disputed Oil Block  –​Anifah.” www.kln.gov.my/​archive/​content.php?t=4&article Id=695563, accessed 24 April 2019. Ministry of Foreign Affairs Malaysia. 2010b. “Joint Statement on the 14th Annual Leaders’ Consultation between Malaysia and Brunei Darussalam.” www.kln.gov. my/​archive/​content.php?t=3&articleId=937632, accessed 24 April 2019. Ministry of Foreign Affairs Malaysia. 2017. “Joint Statement on the 21st Annual Leaders’ Consultation between His Majesty Sultan Haji Hassanal Bolkiah Mu’izzaddin Waddaulah, Sultan and Yang Di-​Pertuan of Brunei Darrusalam and The Honourable Dato’ Sri Mohd Najib Tun Abdul Razak, Prime Minister of Malaysia.” 23 November. www.kln.gov.my/​web/​guest/​speeches-​statements/​-​/​asset_​ publisher/​mN2jZPwqWjGA/​content/​joint-​statement-​on-​the-​21st-​annual-​leaders-​ consultation-​between-​brunei-​darussalam-​and-​malaysia?redirect=%2Fweb%2Fgue st%2Fspeeches-​statements&inheritRedirect=true. United States Securities and Exchange Commission. 2018. “Murphy Oil Corporation 2017 Form 10-​K.” www.sec.gov/​Archives/​edgar/​data/​717423/​000071742318000011/​ mur-​20171231x10k.htm, accessed 18 January 2020. Xu, Yihe. 2014. “COSL and PB Services in Brunei Joint Venture.” Upstream, 25 April. www.upstreamonline.com/​weekly/​cosl-​and-​pb-​services-​in-​brunei-​joint-​venture/​ 1-​1-​1001649. Yunos, Haji Mohd Rozan, and Ivana Milojević. 2016. “Strategic Planning in Brunei Darussalam:  History, Experience and Lessons Learned.” CSPS Strategic and Policy Journal, 6: 48–​66.

2  China’s incentives and policy choices on joint development in the South China Sea Huaigao Qi

Introduction Joint development in the South China Sea (SCS) has been suggested as a solution to the Spratly Islands disputes since the 1980s. China was one of the earliest proponents of “pursuing joint development while shelving disputes.” Chinese leader Deng Xiaoping made his proposal for solving disputes over the Nansha (Spratly) Islands in June 1986 and April 1988 meetings with Philippines leaders (Chinese Ministry of Foreign Affairs 2016a). Since 2017, the Chinese government has actively discussed with the other coastal States the joint development of the SCS. China and Vietnam agreed to foster cooperation for mutual development in the waters off the mouth of the Beibu (Tonkin) Gulf and continue to promote the efforts of the working group on cooperation for development at sea (Nhân Dân 2017). China and the Philippines signed a Memorandum of Understanding [MOU] on Cooperation on Oil and Gas Development in November 2018 (Chinese Ministry of Foreign Affairs 2018b). This chapter is composed of two main sections:  one covers China’s incentives and the other, China’s policy choices on joint development in the SCS. China’s policy choices on SCS joint development are as follows: (1) to promote good faith in the SCS; (2)  to limit unilateral activities in disputed areas; (3) to focus on less sensitive areas of the SCS; (4) to reach joint development arrangements by establishing a relevant working mechanism; (5) to begin the process in areas where there are only two claimants; and (6) to define sea areas for joint development by seeking consensus.

China’s economic and strategic incentives There are some economic and strategic incentives behind China’s development of these schemes. China’s economic incentives include its domestic demand for energy, the construction of a “21st-​Century Maritime Silk Road,” the Hainan pilot free trade zone, the construction of a common market, and the future economic integration among SCS coastal States. China’s strategic incentives include achieving its goal of becoming a leading maritime power, playing a

32  Huaigao Qi constructive role in maintaining a peaceful and stable SCS, developing good relations with the other coastal States, and reducing the intense competition between China and the United States (US) in the SCS. China’s economic incentives China and the other SCS coastal States are facing increasing demand for energy, which can be viewed as a most important economic incentive for those states to jointly exploit oil and gas resources. China is the world’s second-​ largest oil consumer. China’s oil demand will grow at an annual rate of 2.7 percent until 2020 and will reach a ceiling of 690 million tonnes a year by 2030 (CNPC Economics & Technology Research Institute 2017; Reuters 2017). China became the world’s largest natural gas importer in 2019 and is predicted to purchase 171 billion cubic meters of imports by 2023 (International Energy Agency 2018). China’s natural gas consumption will rise to 620 billion cubic meters by 2030 (CNPC Economics & Technology Research Institute 2017; Reuters 2017). Oil remains the largest source of energy in Southeast Asia, and consumption is estimated to grow by 40  percent over the period from 2016 to 2040, with oil demand expanding from 4.7  million barrels per day in 2016 to an anticipated 6.6 million barrels per day in 2040 (International Energy Agency 2017, 11, 55). Natural gas consumption in Southeast Asia is also set to increase strongly, by 60 percent from 2016 to 2040, mainly due to its increased use in industry and power generation (International Energy Agency 2017, 55). Building a “21st-​ Century Maritime Silk Road” can be viewed as an important economic incentive for China to initiate a joint development model in the SCS. The SCS has been an important hub of the Maritime Silk Road since ancient times and played a significant role in boosting the “21st-​Century Maritime Silk Road” cooperation. There are three sea routes planned for the “21st-​Century Maritime Silk Road” initiative. The three sea routes include the China–​Indian Ocean–​Africa–​Mediterranean Sea Blue Economic Passage; the China–​Oceania–​South Pacific Blue Economic Passage; and a blue economic passage leading to Europe via the Arctic Ocean (Chinese National Development and Reform Commission and State Oceanic Administration 2018). For the first sea route, the SCS is a channel linking the Indian Ocean, and for the second sea route, the SCS is a channel linking the Pacific Ocean, so the SCS is a key sea area for the construction of a “21st-​Century Maritime Silk Road”. The construction of the Hainan pilot free trade zone can be viewed as a domestic economic incentive for China to initiative joint development in the SCS. The land area of Hainan is 35,400 square kilometers; the permanent residential population of Hainan was 9.1  million at the end of 2015. The Chinese government decided to make the whole island of Hainan into a pilot free trade zone in April 2018, when Chinese President Xi Jinping urged Hainan to explore and promote the establishment of a free trade port. Xi also

China’s Incentives and Policy Choices  33 said, “The pilot free trade zone will implement high-​level trade and investment liberalization and facilitation policies, and overseas businesses there will receive pre-​establishment national treatment with a negative list management system” (Xinhua 2018). We could foresee that Hainan would implement a more proactive opening-​up strategy, with the benefits of this radiating out to the other coastal States in the SCS. In the process of constructing the pilot free trade zone, Hainan could become a service guarantee base for the joint development of resources in the SCS. The construction of a common market and economic integration is a future economic incentive for China to initiate joint development in the SCS. As for the SCS coastal States, they are all anxious to reduce trade tariffs and remove discriminatory practices. In the process of reaching consensus on achieving a common market and realizing economic integration, establishing a common market for oil and gas can be a first step for the SCS coastal States. Cooperation in the field of oil and gas resources will generate a spillover effect, and cooperation among the six coastal States will spread to Association of South East Asian Nations cooperation (ASEAN 10+1 and ASEAN 10+3). The path of economic integration conforms to the regional integration goal advocated by ASEAN, and is conducive to construction of China’s Hainan pilot free trade zone and the “21st-​Century Maritime Silk Road” initiative. China’s strategic incentives China’s first strategic incentive is to achieve its goal of becoming a leading maritime power. China is a major maritime, as well as land-​based, country. The seas and oceans provide immense space and abundant resources for China’s sustainable development. In November 2012, then Chinese President Hu Jintao declared that China would be “a maritime power” (Hu 2012). In October 2017, Chinese President Xi Jinping declared that he would be “stepping up efforts to build China into a strong maritime country” (Xi 2017). If China is to become a leading maritime power, a modern marine economy is all-​important. China’s gross oceanic product exceeded RMB 8.34 trillion (about 1.26 trillion US dollars) in 2018, and the gross product value generated by China’s marine industry accounted for 9.3 percent of the country’s gross domestic product that same year (Chinese Ministry of Natural Resources 2019). Joint development and marine industry cooperation in the SCS will be conducive to China’s goal of becoming a leading maritime power. China’s second strategic incentive is playing a constructive role in maintaining a peaceful and stable SCS. Turning the SCS into the sea of peace is a shared vision of the SCS coastal States, including China. The SCS situation was viewed as one of China’s external factors that affected the successful pursuit of China’s two centenary goals, which are as follows: to finish building a moderately prosperous society by 2020 and then to embark on a new journey towards the second centenary goal of fully building a modern country from 2020 to the middle of this century (Xi 2017). Thus, in the near future, China’s

34  Huaigao Qi core task in the area of internal and foreign affairs is the achievement of the two above-​mentioned centenary goals. China’s third strategic incentive is developing good relations with the other coastal States. The SCS dispute in the period from 2009 to 2016 has badly affected China–​ASEAN relations. When a verdict was given on the SCS arbitration in July 2016, tensions in the SCS reached an apex. ASEAN claimants believe that China has become increasingly assertive regarding the SCS issue over the past few years (Xue and Cheng 2017). To balance China’s increasing influence in the SCS, ASEAN claimants propelled the internationalization of the SCS dispute and became more reliant on the US and other external states to deal with their security concerns. China views ASEAN states as its important neighbors and hopes to deepen relations with its ASEAN neighbors in accordance with the principles of amity, sincerity, mutual benefit, and inclusiveness. That is why, since 2017, China has initiated joint development proposals with the other coastal States. China also wants to use a joint development arrangement to reduce the SCS tension and improve relations with ASEAN claimants. China’s fourth strategic incentive is reducing the intensity of China–​US competition in the SCS, which includes island building, military deployment, and freedom of navigation. From China’s viewpoint, US navy warships deliberately enter into Chinese claimed waters and carry out reconnaissance activities against China in the SCS, which may cause concern about creating security hazards and potential incidents in the air and at sea between China and the US (Qi 2018, 12). From the US point of view, China’s island-​building activities are “unilaterally” altering the status quo in the SCS. If conflicts between China and the US erupt in the SCS, the situation would rapidly deteriorate and become uncontrollable. China and the US need to build a new military communication mechanism with which to manage any potential crises, avoid military misjudgment, and minimize the risk of confrontation. From the US perspective, supporting SCS joint development may be determined by two factors: whether the joint development arrangement will consider an appropriate place for the US; and whether the joint development will constrain China. If China can alleviate the two concerns of the US, the US has no reason to object to joint development in the SCS.

China’s policy choices on SCS joint development China’s policy choices on SCS joint development are as follows: (1) to promote good faith in the SCS; (2) to limit unilateral activities in disputed areas; (3) to focus on less sensitive areas of the SCS; (4) to reach joint development arrangements by establishing a relevant working mechanism; (5) to begin the process in areas where there are only two claimants; (6) to define sea areas for joint development by seeking consensus. The above-​mentioned six policy choices can be classified into two types: clear government policies (numbers 1, 2, 3, and 4) and implicit government policies (numbers 5 and 6) (see Table 2.1).

China’s Incentives and Policy Choices  35 Table 2.1 China’s policy choices on SCS joint development Types

Number

Policy choices

Notes

Clear government policies

1

To promote good faith in the SCS To limit unilateral activities in disputed areas To focus on less sensitive areas of the SCS To reach joint development arrangements by establishing a relevant working mechanism To begin the process in areas where there are only two claimants To define sea areas for joint development by seeking consensus

Can be found in the statements and MoU agreed by the Chinese government

2 3 4

Implicit government policies

5

6

May not appear in open statements, but can be shown by the actual behaviors of the Chinese government

Source: Author

(1) To promote good faith in the SCS The obligation of good faith in the context of the SCS means that claimants are willing to negotiate maritime boundaries or joint development zones with an open mind. Acts of a lack of good faith would include, for example, drilling in the seabed for oil and gas, and arresting the vessels of another state fishing in the area concerned. Less intrusive activities, such as seismic testing and other forms of marine scientific research, may be permissible, but may require the state that is conducting or authorizing the testing or research to share the information obtained thereby at some stage with the other state (British Institute of International Law and Comparative Law 2016, 19). China has done positive things to promote good faith in the SCS in recent years. Chinese Foreign Minister Wang Yi proposed the establishment of an SCS littoral states cooperation mechanism in March 2016 (Chinese Ministry of Foreign Affairs 2016b). Hainan Province proposed the establishment of a Pan-​South China Sea Tourism Economic Cooperation Rim by 2020, which will be focused on starting new international services and opening new cruise lines (Xinhua 2017b). China has reaffirmed with the Philippines that it will address territorial and jurisdictional disputes by peaceful means, increasing mutual trust and confidence and exercising self-​restraint (Chinese Ministry of Foreign Affairs 2017b). Chinese high-​level diplomats also showed goodwill to ASEAN claimants in recent years. For example, Cui Tiankai, Chinese Ambassador to the US, said China is not trying to take back the islands and

36  Huaigao Qi reefs that are illegally occupied by others (Chinese Embassy in the US 2016). Chinese mainstream media has focused on the idea of “pursuing joint development while shelving disputes” since 2017. The Chinese government has made a serious effort to manage domestic politics and tone down nationalistic rhetoric associated with the SCS dispute. The Chinese government has also educated the public on the benefits and importance of joint development and the fact that it does not involve a surrender of sovereignty. China still has plenty more work to do to promote good faith in the near future. For example, China should take steps to reassure the other claimant states that China’s joint development proposal is in their interests. China needs to provide more public goods, such as navigation safety, environment protection, maritime salvage, and weather forecasting. For example, China could open the Mischief Reef for emergency relief. China should try to negotiate fair and equal joint development agreements (JDAs) with ASEAN claimants in the future, which would contribute to long-​standing public support on joint development among the SCS coastal States. China needs to positively negotiate with ASEAN on the Code of Conduct in the SCS in the near future. China also needs to accommodate the interests of the relevant maritime powers in the design process. (2) To limit unilateral activities in disputed areas Unilateral development in the disputed areas does not meet the “spirit of understanding and cooperation” initiated by the United Nations Convention on the Law of the Sea (UNCLOS). Exploration and exploitation in the disputed waters is politically sensitive, lawfully uncertain, technically challenging, and financially risky. If one party conducts unilateral exploitation in waters that have overlapping claims of maritime rights and interests between two parties, the other party will certainly take corresponding action, which would complicate the maritime situation and may even escalate tensions, leading to no exploitation by either party (Chinese Ministry of Foreign Affairs 2017a). In short, the unilateral activities in disputed areas will create obstacles for the negotiation of JDAs in the future. China is the only state that owns the technology and capital necessary for deep-​water drilling among the SCS coastal States. In May 2012, China National Offshore Oil Corporation (CNOOC) launched a massive deep-​water drilling rig, the RMB  6  billion Haiyang Shiyou 981 (HYSY  981). Chinese oil companies have an increasing economic appetite that pressurizes the Chinese government into responding by undertaking unilateral exploration and development. Some analysts in China have called for unilateral measures to pressure uncooperative parties (International Crisis Group 2016, i). The China–​Vietnam oil rig standoff is a case in point, where it was possible to observe the two countries’ responses to the installation of a drilling rig in the area near the Paracel Islands. The HYSY 981 drilling rig incident in May–​July 2014 caused the China–​Vietnam oil rig standoff. The location

China’s Incentives and Policy Choices  37 of the HYSY 981 operation 1 was 15°29’35”N and 111°12’04”E on 2 May 2014 (Chinese Maritime Safety Administration 2014a); the location of the HYSY  981 operation 2 was 15°33’23”N and 111°34’37”E on 27 May 2014 (Chinese Maritime Safety Administration 2014b). From China’s perspective, these two locations were 17 nautical miles from both the Zhongjian Island of the Xisha Islands and the baseline of the territorial waters of the Xisha Islands, yet approximately 133 to 156 nautical miles away from the coast of the Vietnamese mainland (Chinese Ministry of Foreign Affairs 2014). From Vietnam’s perspective, the HYSY 981 was situated 120 nautical miles east of Vietnam’s Ly Son Island and 180 nautical miles south of Hainan (Green et al. 2017). The Chinese government claimed that the HYSY 981 drilling location was inside the contiguous zone of China’s Xisha Islands (Chinese Ministry of Foreign Affairs 2014), but the Vietnamese government claimed the drilling location was inside Vietnam’s Exclusive Economic Zone (EEZ) and continental shelf (Vietnamese Ministry of Foreign Affairs 2014). In July 2014, China claimed the rig had completed its mission and decided to relocate it in the sea area near Hainan Island. But some scholars argued that Vietnam’s persistence and risk acceptance appeared to have convinced China to withdraw the oil rig early (Green et al. 2017). After the HYSY  981 standoff in 2014, China stopped its oil companies from participating in unilateral exploration or development. The HYSY 981 has returned to the northwestern portion of the SCS several times since June 2015. However, on none of these occasions did it cross over to the Vietnamese side of the assumed median line between the two countries (excluding the Paracel Islands) (Green et al. 2017). For example, in June 2015, HYSY 981 was again deployed to an area near the Paracel Islands with the coordinates of 17°03’45”N and 109°59’03”E, 139 kilometers south of Hainan Island (Chinese Maritime Safety Administration 2015; Global Times 2015). Vietnam claimed that the rig location was in an overlapping sea area, but it is on the Chinese side of the assumed median line between the two coasts, so Hanoi largely remained silent at that time (International Crisis Group 2016, 8). China has also urged Vietnam to stop its unilateral action. In July 2017 and March 2018, the Vietnamese government suspended Repsol’s drilling in the area adjacent to Block  136/​03, following pressure from China (Hayton 2018). Block 136 is near Vanguard Bank, which is claimed by both China and Vietnam. To manage and control differences concerning maritime issues, China and Vietnam agreed to refrain from action that would make the situation complicated and worsen the disputes (Xinhua 2017a). China and the Philippines agreed that the two states would limit their unilateral development in the overlapping area (Chinese Ministry of Foreign Affairs 2017a). Considering the significant legal and political risks created by unilateral development in the disputed areas, the six coastal States have an obligation to limit any oil company’s unilateral action in disputed areas. States are under an obligation not to take any unilateral action that would permanently alter

38  Huaigao Qi the situation in disputed areas. This includes unilateral drilling and the unilateral exploitation of resources (Beckman et al. 2013, 318). Joint development arrangements are the only way in which the claimants can acquire legitimate access to resources in certain areas of the SCS. (3) To focus on less sensitive areas of the SCS Since not all countries are ready to co-​develop oil and gas resources in their EEZs, claimants could consider cooperating in less sensitive areas of the SCS as a starting point. To create an atmosphere conducive to joint development in the SCS, the Chinese government, since 2011, has positively initiated cooperation in less sensitive areas, along with the other coastal States in the SCS. In October 2011, China and Vietnam signed an agreement on principles for solving maritime issues. According to the principle agreement, both sides will positively promote less sensitive maritime cooperation, such as marine environmental protection, scientific research, search and rescue, and disaster reduction and prevention (China.org.cn 2011). The Chinese government established the Experts’ Working Group for Maritime Cooperation in Less Sensitive Areas with the Vietnamese government and, from May 2012 to December 2018, held 12 rounds of consultation (Chinese Ministry of Foreign Affairs 2018a). In October 2013, China and Vietnam completed research on cooperation in the management of the marine environment in the Beibu Gulf and the environment of its islands, which has achieved positive outcomes. China and Vietnam have conducted joint search and rescue exercises in the areas of the Beibu Gulf, and the two countries are taking positive measures to promote the signing of a China–​Vietnam maritime search and rescue cooperation agreement (Chinese Ministry of Foreign Affairs 2018a). China and the Philippines have convened a bilateral consultation mechanism (BCM) on the SCS. Part of the BCM covered cooperation in less sensitive areas. The First Meeting of the China–​Philippines BCM was held in Guiyang, Guizhou Province, China, on 19 May 2017. Since then another three meetings have been held, and in the Fourth BCM in April 2019, China and the Philippines exchanged views on ways to enhance maritime cooperation in areas such as maritime search and rescue, maritime safety, marine environmental protection/​marine scientific research, and fisheries, using relevant working group meetings under the framework of the BCM (Chinese Ministry of Foreign Affairs 2019). (4) To reach joint development arrangements by establishing a relevant working mechanism According to the Memorandum of Understanding on Cooperation on Oil and Gas Development between China and the Philippines, signed in Manila on 20 November 2018, the two governments have decided to negotiate, on

China’s Incentives and Policy Choices  39 an accelerated basis, arrangements to facilitate oil and gas exploration and exploitation in relevant maritime areas (Chinese Ministry of Foreign Affairs 2018b). The two governments also agreed to establish a relevant working mechanism, such as a committee and one or more working groups (Chinese Ministry of Foreign Affairs 2018b). The two governments will establish an Inter-​Governmental Joint Steering Committee (“Committee”) and one or more Inter-​Entrepreneurial Working Groups (“Working Group”). The Committee will be cochaired by the foreign ministries, and co-​vice chaired by the energy ministries, with the participation of the relevant agencies of the two governments, and will comprise an equal number of members nominated by the two governments. Each Working Group will consist of representatives from enterprises authorized by the two governments (Chinese Ministry of Foreign Affairs 2018b). The Committee will be responsible for negotiating and agreeing the cooperation arrangements and the maritime areas to which they will apply (“cooperation area”), and decide upon the number of Working Groups to be established and which part of the cooperation area each Working Group will concentrate on (“working area”). Each Working Group will negotiate and agree on inter-​entrepreneurial technical and commercial arrangements that will apply in the relevant working area (Chinese Ministry of Foreign Affairs 2018b). China has authorized CNOOC as the Chinese enterprise for each Working Group. The Philippines will authorize the enterprise(s) that has/​have entered into a service contract with the Philippines with respect to the applicable working area or, if there is no such enterprise for a particular working area, then the Philippine National Oil Company–​Exploration Corporation (PNOC–​EC) will be the Philippine enterprise for the relevant Working Group (Chinese Ministry of Foreign Affairs 2018b). In October 2019, China and the Philippines convened the first meeting of the China-​Philippines Inter-​Governmental Joint Steering Committee on Cooperation on Oil and Gas Development. The Memorandum of Understanding on Cooperation on Oil and Gas Development between China and the Philippines is the first joint development MOU which was released with the full text. CNOOC and PetroVietnam signed and implemented a framework agreement on oil and gas cooperation in the agreed offshore area of the Beibu Gulf on 31 October 2005 (China National Offshore Oil Corporation 2005). It should be noted that China and Vietnam signed an Agreement on the Delimitation of the Territorial Seas, Exclusive Economic Zones and Continental Shelves in the Beibu Gulf (Gulf of Tonkin) on 25 December 2000, which entered into force on 30 June 2004 (McDorman 2005). China and DPRK signed an Agreement on the Joint Exploitation of Offshore Oil between the two governments on 24 December 2005, agreeing to jointly exploit oil in their adjacent maritime areas (Xinhua 2005). This was viewed as the first time China substantially cooperated with an adjacent country to exploit oil and gas in a disputed area (Chinese Ministry of

40  Huaigao Qi Foreign Affairs 2006). The above-​mentioned CNOOC–​PetroVietnam framework agreement and the China-​DPRK Agreement on the Joint Exploitation of Offshore Oil have not yet been released in full text. With regard to the Chinese government’s open statements and released MOUs, it has insisted on two legal issues on joint development arrangements. The first is that joint development and cooperation between China and the state concerned shall be conducted in accordance with the respective national laws and regulations of both countries and of international law, including the 1982 UNCLOS, and without prejudice to the respective positions of the two countries on sovereignty rights and jurisdiction (Chinese Ministry of Foreign Affairs 2017b). The second is that joint development is a provisional arrangement that conflicting states establish prior to the final settlement of maritime disputes, without prejudice to the final delimitation (Chinese Ministry of Foreign Affairs 2016a). (5) To begin the process in areas where there are only two claimants In general, it is more likely for the parties to reach a JDA on the overlapping claim areas that are claimed by two states. There are some areas involved where only two states lay claim in the SCS, for example, certain waters in the northwest of the SCS are only claimed by China and Vietnam. China and Vietnam have reached consensus on joint development in the area off the mouth of the Beibu Gulf. In future, China and Vietnam will be able to negotiate the possibility of jointly developing the Wan’an Tan (Vanguard Bank). Only China and the Philippines claim certain waters in the east of Liyue Tan (Reed Bank), so the two states can negotiate and reach a fair JDA. The Philippines in March 2018 identified two areas (SC 72 and SC 57) in the SCS where joint exploration for oil and gas may be undertaken with China, including one in territory that both sides have argued over for years (Reuters 2018). The 888,000-​hectare (8,880-​square kilometer) SC 72 at the Reed Bank is the one claimed by China and the Philippines. The 720,000-​ hectare (7,200-​square kilometer) SC 57 lies beyond China’s nine-​dash line claims in the SCS. In order to reduce the difficulties faced in oil and gas development in the SCS, the following technical aspects should be observed. First, initiate development in the less sensitive areas, and develop gradually. The less sensitive areas include marine environmental protection, marine scientific research, the detection of oil and gas reserves, the prevention and treatment of oil pollution, etc. Second, in order to weaken the influence of geography and sovereignty in the shares of different states, funds, technology, and the location of a factory should be added into the negotiation. This would be of benefit to the government when reporting to its citizens on issues of concern and thus gain their support. Third, in order to reduce the difficulty of the negotiation, the agreement of the joint development should set a transitional period of five to ten years to reduce obstacles.

China’s Incentives and Policy Choices  41 (6) To define sea areas for joint development by seeking consensus The main difficulty in reaching JDAs is the lack of clarity around the overlapping claim area. The SCS coastal States of Brunei, China, Indonesia, Malaysia, Vietnam and the Philippines, lay overlapping claims in the SCS. Indonesia insists it is a non-​claimant state in the SCS and does not recognize any existing maritime delimitation dispute with China. But China insists that Indonesia’s EEZ and continental shelf, which lies off the coast of Natuna, overlapped China’s “nine-​dash line.” So this chapter argues that Indonesia is a coastal State in the SCS. All the SCS coastal States have made claims to a territorial sea, EEZ, and continental shelf from their mainland. But at present, there is a significant lack of clarity on the basis, nature, and extent of the maritime claims in the Spratly Islands area. It is not clear what maritime zones, if any, are being claimed from the Spratly features by the various claimants. ASEAN claimants, at least for now, appear to be treating the Spratly features as either “rocks” (entitled only to a 12-​nautical mile territorial sea) or low-​tide elevations (not entitled to any maritime zone), but they have not expressly stated this (Beckman 2015, 261). The main concern of ASEAN claimants is on the coordinates and legal basis of China’s nine-​dash line. The other claimants fear that joint development before agreeing on the disputed areas would amount to legitimizing China’s nine-​dash line (International Crisis Group 2016, 17). The Chinese government stated in July 2016 that China has territorial sovereignty and maritime rights and interests in the SCS, including, inter alia: China has sovereignty over Nanhai Zhudao, consisting of Dongsha Qundao, Xisha Qundao, Zhongsha Qundao and Nansha Qundao; China has internal waters, territorial sea and contiguous zone, based on Nanhai Zhudao; China has exclusive economic zone and continental shelf, based on Nanhai Zhudao; China has historic rights in the South China Sea. (Chinese Ministry of Foreign Affairs 2016c) But the Chinese government still retains its ambiguity by clarifying neither the coordinates nor the legal basis of that line. The reasons for this are as follows: one is that China wants to keep friendly relations with ASEAN claimants. If China clarifies the coordinates of its nine-​dash line, the Chinese public will inevitably require its government to take back the islands and reefs that are occupied by others. If the Chinese government takes military action in the disputed Spratly Islands, it will mean relations between China and ASEAN claimants will be irrevocably damaged. The other reason is that China has no intention of changing its freedom of navigation. If China announces its territorial sea baselines of the Spratly Islands, it will mean a disruptive influence on freedom of navigation in the SCS. Based on the above-​mentioned reasons, it is not realistic to expect the Chinese government to clarify its dotted line claims in the SCS in the near future.

42  Huaigao Qi For China, although it is difficult to publicly clarify its dotted line, claims can be clarified in a closed-​door scenario in some areas where there are only two claimant states –​for example, in the area off the mouth of the Beibu Gulf, the area near Wan’an Tan (Vanguard Bank), and the area of Liyue Tan (Reed Bank). China and Vietnam could define overlapping claims in the area outside the mouth of the Gulf of Tonkin by following customary international law and UNCLOS principles with closed-​door consultations. In exchange, Vietnam might refrain from trying to open talks on the Paracel Islands (International Crisis Group 2016, 25). In principle, it is axiomatic that clearly defined areas of overlapping claims significantly contribute to the conclusion of joint development arrangements. But in reality, especially in the Spratly Islands area, it is very difficult to define the overlapping areas. In future, the six coastal States in the SCS could define their maritime claims and decide the joint development zones through a consensus-​seeking approach. Considering that the exploration and exploitation of hydrocarbon resources in offshore areas is a capital-​intensive venture predicated on the funding and technical expertise of oil companies, a successful joint development should ensure political, legal, and fiscal certainty over a disputed area claimed by two or more states. Deciding the joint development zones by a consensus-​seeking approach among the six coastal States in the SCS can make up for the uncertainty of a “provisional arrangement of a practical nature” in the context of Articles 74 and 83 of UNCLOS, which will be conducive to guaranteeing the massive commercial investments of oil companies.

Conclusion When it comes to the issue of who has jurisdiction over disputed resources in the SCS, joint development is a kind of provisional arrangement, not a solution; but it is the only pragmatic approach for the six coastal States. Since 2017, thanks to concerted efforts made by China and regional countries, the situation in the SCS has cooled down and is stable. Good relations between the SCS coastal States and the political will to make decisions are the two conditions necessary to be met before serious discussions on joint development arrangements can take place. The first condition for joint development has been basically met; the second condition is in a consensus process, so the serious discussion of joint development is entering a period of opportunity. To seize this rare historical opportunity, China, as the largest coastal State in the SCS, has actively initiated a joint development proposal with the Philippines and Vietnam since 2017. China’s policy choices on SCS joint development can be classified into two types:  clear government policies and implicit government policies (see Table 2.1). The clear government policies include four points: to promote good faith in the SCS; to limit unilateral activities in disputed areas; to focus on less sensitive areas of the SCS; and to reach joint development arrangements by establishing a relevant

China’s Incentives and Policy Choices  43 working mechanism. The above-​mentioned four policies can be found in the statements and released as an MOU by the Chinese government. The implicit government policies include two points: to begin the process in areas where there are only two claimants and to define sea areas for joint development by seeking consensus. These two policies may not be found in open statements by the Chinese government, but they can be attested to by the behaviors of the Chinese government during joint development negotiations. ASEAN claimants also should seize the rare historical opportunity for joint development in the SCS. Joint development between ASEAN claimants and China can bring greater confidence to the SCS, alleviating some of the uncertainties that have plagued the area for the past two decades. The spillover effect, generated by cooperation in the field of oil and gas resources, will create a more stable environment for future maritime delimitation negotiation among the SCS coastal States. More importantly, the way of gradual functionalism, beginning with cooperation in the field of oil and gas resources, will finally result in interdependence among the SCS coastal States and permanent regional peace.

Note This chapter was originally published in the Journal of Contemporary East Asia Studies in December 2019 (Vol. 8, No. 2, pp.  220–​239) with the title “Joint Development in the South China Sea: China’s Incentives and Policy Choices.” The author made some modifications to this manuscript when it was incorporated into this book. The author thanks the Journal of Contemporary East Asia Studies for the granted permission to reuse the manuscript.

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3  Indonesian views of managing disputes through cooperation in the South China Sea and the obstacles Evi Fitriani

Introduction Indonesia and the Association of South East Asian Nations (ASEAN) have been paying attention to South China Sea (hereafter known as the SCS) disputes for several decades. As early as 1990, Indonesia conducted informal workshops on the issue. The early workshops and lobbies led to ASEAN’s Declaration on the South China Sea in 1992, that calls not only for peaceful settlement of the disputes but also for regional cooperation in the area (ASEAN 1992). The 1992 document recognizes that the issues involve sensitive questions of sovereignty and jurisdiction of the parties directly concerned, and it recommends that all parties apply the principles of the Treaty of Amity and Cooperation in Southeast Asia as the basis for establishing a code of international conduct over the SCS (ASEAN 1992). Thus, cooperation among involved states has been encouraged since the early 1990s, but it seems that it is not easy to turn the dispute zone into a cooperation area. The cooperation should be without prejudice to sovereign rights and claims on delimitation of boundaries. It should be based on more than just the exploration and exploitation of hydrocarbons in the area. Indonesia’s perspective on collaboration involves multilateral parties and focuses on common goods in the SCS rather than short-​term goals to exploit hydrocarbons in the SCS. Cooperation is viewed as collaborative efforts to maintain maritime security and navigation safety and to protect and preserve marine environment resources, as well as other relevant cooperative efforts that will eventually contribute to trust building among claimant states. This sort of scientific, practical, and functional cooperation can be undertaken even though sovereignty and jurisdictional issues are not yet settled. Further discussion on potential cooperation in the conflict area needs to consider what cooperation proposals have been explored and why they, so far, have not been undertaken successfully. This chapter discusses the Indonesian perspective on transforming conflicts in the SCS into cooperation, starting with an overview of Indonesia’s involvement in SCS issues, then a brief discussion of previous cooperation proposals and an analysis of problems that

48  Evi Fitriani have hindered cooperation. Finally suggestions for future cooperation are provided.

Indonesian involvement in SCS issues For decades, Indonesia has closely observed the claims and disputes in the SCS, which involve six claimants:  China, Chinese Taipei, Vietnam, the Philippines, Malaysia, and Brunei. The SCS disputes have created concern among Indonesians because of:  (1) the proximity of the disputed areas to Indonesia’s territory; (2)  the country’s interests for the safety of navigation and aviation in the area, given that it is one of the major trading routes in Southeast Asia; (3)  the potential for dispute escalation; (4)  the negative impacts of the disputes on Southeast Asia and ASEAN; and (5)  the involvement and contestation of extra-​regional powers in the disputed area. Indonesia is concerned that the SCS disputes have created flashpoints that not only endanger Indonesia’s territory and Southeast Asian stability, but also challenge ASEAN unity and centrality. As a keen supporter of ASEAN and a country that has a direct border with the SCS, Indonesia has sought peaceful solutions to disputes in the area and encourages all parties to cooperate. As a proponent of stability and good neighborliness in Southeast Asia, Indonesia has felt obliged to encourage all parties to manage, if not resolve, their disputes. In doing so, Indonesia emphasizes:  first, the strategy of peaceful communication through several channels of dialogue; second, cooperation; third, application of the rule of law in dispute settlement and management; and, fourth, the involvement of relevant actors. In addition, Indonesia invites the participation of nonstate actors in discussion and the search for peaceful solutions to disputes. Being a non-​claimant country in the dispute and with a reputation as a bridge between other countries in the region, Indonesia has initiated four kinds of effort to diffuse SCS disputes. The first and longest-​lasting initiative is the informal South China Sea Workshop (SCSW), that started in 1990 and involve ASEAN countries and participants from China and Chinese Taipei. According to Dr. Hasjim Djalal, one of the key persons in the workshops, the informal workshop process has three objectives:  to develop cooperation programs; to encourage dialogue between the relevant parties; and to promote a confidence building process (Djalal 2016). The workshops originally covered six topics: political and security issues; territorial and jurisdictional problems; marine scientific research; marine environmental protection; safety of navigation, shipping and communication; and mechanisms for cooperation. Former Indonesian Minister of Foreign Affairs Dr. Marty Natalegawa (2018) writes that the main objective of the informal workshops was to transform potential conflicts in the SCS into opportunities for cooperation without prejudice to the official positions of the disputing parties. The last SCSW was conducted in Manado, Indonesia, in November 2018. As the host, Indonesia’s vice minister of foreign

Indonesian Views of Managing Disputes  49 affairs highlighted Indonesia’s stand that joint development and cooperation in the SCS must involve all stakeholders (Antara News 2018). Second, Indonesia has led initiatives to support ASEAN countries to communicate and negotiate with China regarding the dispute and has strived to build a common position on the issue among ASEAN countries. These initiatives include the ASEAN Declaration on the South China Sea in 1992, the ASEAN–​China Declaration on the Conduct of Parties in the South China Sea in 2002, the Joint Statement on the Application of the Code for Unplanned Encounters of Sea in the SCS in 2016, the Framework for the Code of Conduct for the South China Sea in 2017, and the Discussion on Draft Zero of the Code of Conduct in 2018. These initiatives derive from the concern that disputes threaten ASEAN unity and centrality, so it is important for Indonesia to encourage other ASEAN member states to cooperate to seek conflict resolution and secure conflict management on the SCS. Third, as territorial claims may be unforeseen and involve a delicate process, Indonesia encourages stakeholders in the SCS to refer to Article 33 of the United Nations Convention on the Law of the Sea (UNCLOS) when undertaking joint development and joint cooperation. This is the legal basis on which Indonesia suggests all involved parties turn the dispute zone into a cooperation area. As a promotor of UNCLOS prior to its adoption in 1982, Indonesia has an interest in the convention becoming a main reference for disputing parties. There are several provisions in UNCLOS that stipulate cooperation. Fourth, Indonesia has played an important role as mediator among ASEAN countries as well as between ASEAN and China. As a non-​claimant state, Indonesia has provided forums for dialogue but has also undertaken diplomatic means to encourage discussion between disputing parties, maintained communication channels and opened room for compromise. Since the 45th ASEAN Ministerial Meeting in Phnom Penh, Cambodia, in 2012, the minister has been involved directly, through “shuttle diplomacy,” in bridging disagreements among ASEAN countries. Natalegawa (2018, 129) emphasizes that “Indonesia worked ceaselessly to ensure that it would be able to preserve ASEAN unity while constantly demonstrating its appreciation of the fine calibration of the other states’ positions on the issue.” With such a long and significant involvement in dispute management, Indonesia has not always been successful in persuading disputing parties to restrain from complicating the circumstances and to opt for cooperation. Nevertheless, the country has consistently encouraged cooperation in the disputed sea. There are strategic and political incentives for Indonesia to promote cooperation in the SCS. Strategically, cooperation in the disputed area would calm down flashpoints in the region, one of the biggest security threats for Indonesia. It would also mitigate the possibility of conflict escalation, that can endanger Indonesian territory. Indonesia has a strong interest in protecting its territory bordering the SCS, especially the Natuna islands and the surrounding water that becomes the country’s Exclusive Economic

50  Evi Fitriani Zone. Cooperation can also serve as impetus for confidence building and development of strategic trust among disputing countries and, hopefully, can prevent the development of tension among big powers in the region. As a strong promotor of stability in the region, Indonesia perceives those strategic incentives to be in line with its national interests. Politically, cooperation also provides incentives for Indonesia in several ways: promoting an atmosphere of friendship and cooperation among ASEAN countries as well as between ASEAN countries and relevant external countries, enhancing ASEAN unity and solidarity, and reflecting confidence on Article 33 of UNCLOS on “joint development and joint cooperation” –​Indonesia was one of the initiators of the convention in 1982. Those incentives have become Indonesia’s motivation in encouraging cooperation in the SCS.

Previous proposals for multilateral cooperation Fully understanding the importance of cooperation for mitigating conflicts, ASEAN and other parties have suggested several proposals for multilateral cooperation in the disputed areas of the SCS. The ASEAN Declaration on the South China Sea in 1992 suggested that all parties explore the possibility of cooperation relating to safety of maritime navigation and communication, protection against pollution of the marine environment, coordination of search and rescue operations, combating piracy and armed robbery as well as campaigning against illicit trafficking in drugs. This first official ASEAN document is in line with Indonesia’s stand that practical and functional cooperation can be undertaken even though sovereignty and jurisdictional issues are not yet settled. In addition, the informal workshops have resulted in a number of agreements or projects; and some have been implemented. These include an expedition on biodiversity, research on climate change and rising sea level, and a training program through the South East Asia Network for Education and Training. It is interesting to note that some projects –​such as a study on hydrography, assessments of living and non-​living resources, joint developments, etc. –​have been postponed in order to find “appropriate time” (Djalal 2016). Moreover, Indonesia has taken leadership in the informal workshops on several proposals for conflict management and cooperation. First, Indonesia has suggested that ASEAN countries that are in dispute settle their own maritime boundaries. This has been done by Malaysia and Brunei but not Malaysia and the Philippines. Should ASEAN countries undertake this “homework,” the ASEAN position in the conflict management and settlement process would, hopefully, be less complicated. Second, Indonesia has on several occasions suggested a “formula” of 6+4+2 or 6+4+1+1 for conflict management and settlement (Djalal 2016). The six refers to non-​claimant states (Cambodia, Indonesia, Laos, Myanmar, Singapore, and Thailand), and the four refers to claimant states (Brunei, Malaysia, the Philippines, and Vietnam). The six countries would play the

Indonesian Views of Managing Disputes  51 role of facilitator to encourage and invite the four to negotiate on disputed issues with non-​ASEAN claimants (China and Chinese Taipei). There have been a mix of responses to this proposal, but, so far, there has been no objection from the disputing parties. Third, Indonesia has initiated several areas of “consensus” that have already been agreed by all relevant parties in the SCS. These include agreement to promote cooperative programs, including the possibility of joint development, on joint marine scientific research and on marine environmental protection; to encourage dialogue between parties that have been involved in territorial and jurisdictional disputes; and to develop confidence building processes and measures through diplomacy rather than military action (Djalal 2016). Fourth, despite the fact that ASEAN and China have not yet concluded their official codes of conduct, Indonesia has long promoted an “unofficial” code of conduct for relevant parties in the SCS. The top priorities are that all parties maintain and promote peace, stability, and development in the area of the SCS; that all parties develop, establish, and respect “governance” in the SCS; and that military activities and other provocative actions should be avoided as far as possible; that non-​littoral states are helpful and careful in dealing with disputes so as not to be perceived as complicating the situation, let alone creating more tensions in the area; that bigger states in the region exercise restraint in their actions and be mindful of the views of their smaller counterparts so as to avoid the perception that they dominate or bully their smaller neighbors (Djalal 2016). Furthermore, there have also been a number of recommendations and programs for bilateral or trilateral joint development involving either all countries bordering on the SCS or only disputing states. These have been proposed by two or more countries and have originated both within and outside Southeast Asia. The two longest-​ surviving institutions are discussed below. The Coordinating Body on the Seas of East Asia (COBSEA) was an intergovernmental institution established in 1981 and revived in 1994 by the United Nations Environmental Programme. However, unlike other Regional Seas Programmes, in East Asia “[t]‌here is no regional convention but instead the programme promotes compliance with existing environmental treaties and is based on member country goodwill” (UN Environment Programme, n.d.). Thus, COBSEA aimed to promote compliance with existing environmental treaties. The participating states were Australia, Cambodia, China, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Thailand, and Vietnam. This institution was dormant after 2008 due to insufficient funding, lack of professional expertise, and inertia of participating states, among other reasons (Van Dyke 2018). However, China has taken leadership in the last few years, and COBSEA has introduced its New Strategic Direction 2018–​2022. The new direction encompasses two substantive themes –​land-​based marine pollution and marine and coastal planning and management –​as well as an overarching governance theme.

52  Evi Fitriani Partnerships in Environmental Management for the Seas of East Asia (PEMSEA) is another conservation institution covering the SCS. PEMSEA was established in 1993 to promote coastal conservation and received financial support from the Global Environmental Facility. The states participating in PEMSEA are Cambodia, China, Indonesia, Japan, Laos, North Korea, the Philippines, South Korea, Singapore, Timor-​Leste, and Vietnam. In addition to state members, PEMSEA also includes nonstate actors that have come to be stakeholders in seas in East Asia, such as national and local governments, civil society, private sector organizations, research and education institutions, communities, international agencies, etc. (Van Dyke 2018). Overall, an extensive number of projects and programs have been tabled, discussed, and partially implemented in the SCS. However, problems remain in relation to implementation.

Implementing proposals for joint development in the SCS Despite many proposed and agreed programs for joint development in the SCS, severe territorial disputes and lack of strategic trust continue to hinder effective regional cooperation and joint development. States are not ready to make concessions despite having already agreed that cooperation and joint development are “without prejudice to territorial and jurisdiction claims” in the sense that the arrangements, processes, and results of the cooperation or joint development cannot be used to affect their claims. Nonstate actors, especially intergovernmental institutions, are too powerless to overcome intense political and legal disputes among conflicting parties in the SCS. Van Dyke (2018) found that nongovernmental organizations, in complying with COBSEA and PEMSEA, have not been able to promote a regional identity that could overcome contentious national interests. Thus, neither state nor nonstate actors are capable of overcoming fundamental problems to push forward robust implementation of cooperation and joint development. Indeed, problems arise in discussing or planning and implementing cooperation programs or joint developments. There are fundamental issues that tend to hinder the process of developing cooperation plans or joint development proposals. The first is definition of the area or location of cooperation or joint development (where). The UNCLOS provision dictates that cooperation should be undertaken in disputed areas (emphasis by author). This is a very delicate issue. Indonesians have found in the series of informal workshops and other negotiation processes that disputed areas are usually off limits, as claimant states insist those areas are their territory and reject claims by other countries. Naturally, those countries aim to push the location of cooperation or joint development outside of the area where they have a claim. A stand by one state usually provokes others to take reciprocal measures, so the tendency to define cooperative areas outside one’s “territory” has spread. Consequently, defining the area for cooperation is a common source of disagreement in negotiations.

Indonesian Views of Managing Disputes  53 Second, defining the field or activities for cooperation is also problematic. UNCLOS stipulates that conflicting parties are obliged to cooperate in preserving maritime biodiversity and environment as well as in pursuing marine scientific research. Nevertheless, states are usually more interested in pursuing cooperation that can yield real advantages, such as economic benefits. In the SCS, economic incentives are offered by joint developments on resources –​namely, fishery and mineral exploration, especially in oil and gas. In the informal workshops, Indonesia found that disputing countries tended to promote cooperation in the fields that most benefited them, and they rarely complemented their preferred fields of cooperation with other countries’ preferences, especially if –​in their perception –​the other parties were likely to gain more than them (personal communications December 2017, June 2018, May 2019). Negotiation would get tougher when parties perceived joint developments as taking more resources from “their territories” than those of their counterparts. This consideration of relative gain creates very difficult circumstances for formulating cooperation and joint development. The fear of “free-​riders” also haunts negotiation processes, as parties tend to prioritize cooperation involving exploration of resources (fishery projects or oil/​gas explorations) rather than the preservation of marine environment and biodiversity in the SCS. Conservation projects and marine research are costly, and disputing parties are discouraged from undertaking this work as they perceive that others –​who may have invested less in marine conservation and research efforts –​will receive greater economic benefits than them. Hence, despite the UNCLOS provision on duty of cooperation among disputing parties to conserve and preserve environments, cooperation and joint development in these noble fields tend to be limited or postponed until it is “the right time.” The third hurdle in negotiation processes for cooperation or joint development in the SCS is who defines terms. Participants in the informal workshops expressed a wide range of opinions and positions on this issue, each representing the national interests of the states involved. These were on a spectrum, with some arguing that only claimants should have a say, while others thought littoral states of the SCS, ASEAN member states, China (including Chinese Taipei) or all stakeholders of the sea should have a say (personal communications December 2017, June 2018). Often, claimants’ definition of the actors involved in cooperation or joint development is limited to the disputing parties themselves, including their private sectors or research institutions. But this position raises questions regarding whether or not companies or scientific institutions owned by extra-​regional states that are awarded concessions by relevant disputing parties can also participate in cooperation or joint development. This delicate issue seems to be a major stumbling block in undertaking cooperation on hydrography, assessment of living and non-​living resources, some biodiversity expeditions, and some other joint developments. In this regard, Indonesia’s position has changed slightly. At the beginning of the informal workshop series in the early 1990s,

54  Evi Fitriani Indonesia insisted that cooperation efforts in the SCS should involve littoral states regardless of their claimant status. Later, the country took the issue to regional level and persuaded ASEAN to get involved as the disputes grew into dangerous flashpoints and became a main security concern for ASEAN. Recently, a high-​ ranking Indonesian officer asserted that cooperation and joint development in the SCS should involve all (emphasis by author) stakeholders (Antara News 2018). These three delicate issues in pursuing cooperation and joint development in the SCS indicate the lack of strategic trust among disputing states. They seem to be trapped in a “prisoner’s dilemma” that discourages cooperation. It is clear that sufficient strategic trust is needed for parties to undertake cooperation or joint development. Trust may be built on experience, but it is also shaped by external influences and domestic pressures. Current global politics, marked by strained relations between the United States and China, and regional dynamics, in which China has exercised a charm offensive, are not conducive to nurturing trust. Likewise, nationalism in China and anti-​China sentiments in other involved states, as well as the development of populist politics in some states, seem to have hardened positions, making states less willing to compromise. It is no wonder that there has been a big gap between what is said in the informal workshops or in ASEAN–​China declarations and the realties in the SCS.

Another proposal for cooperation or joint development? Despite these obstacles, cooperation is an obligation in the SCS. Indeed, calls for cooperation and collaborative efforts have become much louder and more urgent recently because disputed areas have become dangerous flashpoints, marine biodiversity and resources have been depleted, and the oceanic environment has been endangered. Involved states should provide some room for compromise, as security and environmental challenges from the SCS threaten peace and prosperity not only of the region but also for claimant states and other stakeholders. Embracing the liberal premise that connected, interlinked, or interdependent states would aim to avoid war that can damage their common interests, Indonesia has encouraged disputing states to nurture, maintain, and enhance cooperation, especially in providing common goods in the SCS. Indonesia has consistently undertaken such efforts despite the hurdles previously explained. Based on experiences in the long-​running informal workshops, one may suggest some options for future cooperation plans or proposals:  first, taking a multilateral and informal approach and, second, involving (and educating) young people. The aim of taking a multilateral approach is not to complicate circumstances but to give more room for negotiation and ideas; previous bilateral cooperation or joint development was generally trapped in a rigid “zero-​sum game” and was

Indonesian Views of Managing Disputes  55 viewed negatively in domestic politics. Inclusion of multilateral actors should provide a better basis for trust building, as respective parties will have to demonstrate responsibility and credibility to not just one but several counterparts. A multilateral approach also means that responsibilities and costs are spread across more parties, so transactional costs will be lower for each participant. More importantly, the multilateral approach indicates extending the duty of cooperation to all littoral states, ASEAN member states –​for whom regional security and stability are at stake –​or all stakeholders. The choice of multilateral actors will depend on negotiation and compromise among disputing parties with fundamental preconditions that the chosen actors must not complicate the disputes and that they must be agreed by all actors in the dispute. It is also important to note that this multilateral approach is for cooperation on parties’ common interests without prejudice to claims related to territory and jurisdiction. Unlike settling territorial disputes, which may be done more effectively through a bilateral or a trilateral approach, managing disputes and nurturing trust should involve more actors, especially those that are affected by the SCS disputes. The “ASEAN way” has worked in a number of previous negotiations. One of the key aspects of the this approach is informality, as it gives more room for ideas as well as allowing for flexibility among those involved. Informal dialogue and communication can move forward negotiations on cooperation plans and joint development proposals that have previously yielded limited results. An informal approach takes time, but the result may be more sustainable as parties involved need to build genuine trust rather than merely display official politeness or use diplomatic rhetoric. In the spirit of friendship and collegiality, this informal approach was applied by Indonesia in many ASEAN cases, and the results were positive. An informal approach can contribute to the drafting of official cooperation plans and proposals, before the formal process takes over. The second option discussed here is to involve young people. One of the most effective ways to nurture trust is through educating young people to accept differences, respect others’ strengths, and work together for a common future. Focusing on youth through relevant education and experiences –​such as the launch of the Peace and Conservation Friendship Boat or Summer Camps in the SCS –​will provide important forums for socialization for young people from ASEAN countries, China, and Chinese Taipei. They need to have personal experience of sailing the sea, observing the problems, and seeking common grounds for cooperation in the SCS. This experience will, along the way, educate them that cooperation and connectedness is the main currency of their future. They will also learn to compromise and consider other parties’ perspectives. Trust can grow from positive socialization and friendships. It is the duty of their teachers and trainers to find good formulas for peace education in the SCS.

56  Evi Fitriani

Conclusion Despite their claims over some or all areas of the SCS, the disputing states are bound by UNCLOS to cooperate, and they must cooperate to avoid future catastrophes involving security threats or environmental dangers. A number of cooperation plans and joint development proposals have been suggested by disputing states, but their implementation has been limited. Indeed, current circumstances show a discouraging paradox between what is discussed in meeting rooms or declared in papers and the reality in the SCS. Participant observation on negotiation processes has identified three main problems in pushing a cooperation agenda or proposals for joint development: defining the area for cooperation –​the location; defining the fields and activities for cooperation; and defining the actors involved in the cooperation or joint development. All three indicate a lack of strategic trust among disputing parties. Indonesia has long been involved in managing disputes, if not pursuing peaceful settlement, in the SCS. Indonesia’s most remarkable achievement has been the organizing of an annual informal workshop series, which started in 1990. Involving relevant parties and aiming for dialogue and friendly discussion, the workshops have over time been able to initiate and encourage ASEAN initiatives on the SCS, either among its members or between ASEAN and China. Informality and encouraging the habit of dialogue are two strategies employed by Indonesia in encouraging cooperation and joint development in the SCS. For Indonesia, political and strategic incentives seem to be more important than economic ones when it comes to pursuing such delicate endeavors. Indonesia’s interests lie in protecting its territory and the exclusive economic zone around the Natuna islands as well as in maintaining ASEAN unity and stability in the region. Transforming the disputed area into a cooperation zone is Indonesia’s purpose in encouraging dialogue among relevant parties on the SCS. Be it multilateral cooperation or bilateral/​trilateral/​multilateral joint development, all are welcome as long as they contribute to stability in the region. Obtaining financial benefits from such cooperative efforts should not worsen the tension and complicate the disputes. Rather, those efforts should contribute to the development of strategic trust among disputing parties. In order to nurture trust among littoral states in the SCS, another type of cooperation is worth considering: a boat project for the youth across ASEAN countries, China and Chinese Taipei –​in addition to multilateral and informal approach –​not only to educate them on the problems and challenges but also to nurture trust and cooperation in the future.

References Antara News. 2018. “Kemlu LCS Harus Dikelola Melalui Kerjasama Seluruh Pihak Berkepentingan.” 10 September. www.antaranews.com/​berita/​747057/​ kemlu-​lcs-​harus-​dikelola-​melalui-​kerja-​sama-​seluruh-​pihak-​berkepentingan.

Indonesian Views of Managing Disputes  57 ASEAN. 1992. “Declaration on the South China Sea.” https://​cil.nus.edu.sg/​wp-​ content/​uploads/​2017/​07/​1992-​ASEAN-​Declaration-​on-​the-​South-​China-​Sea.pdf. ASEAN. 2002. “Declaration on the Conduct of Parties in the South China Sea.” https:// ​ a sean.org/ ​ ? static_ ​ p ost=declaration- ​ o n- ​ t he- ​ c onduct- ​ o f- ​ p arties- ​ i n- ​ t he-​ south-​china-​sea-​2. Djalal, Hasjim. 2016. “The South China Sea Issues and International Law.” Papers presented at Sochow University, Taipei, 14 April. Natalegawa, Marty. 2018. Does ASEAN Matter? A View from Within. Singapore: ISEAS. UN Environment Programme. n.d. “Coordinating Body on the Seas of East Asia.” www.unenvironment.org/​ e xplore-​ t opics/​ o ceans-​ s eas/​ what-​ w e-​ d o/​ working-​ regional-​seas/​regional-​seas-​programmes/​east-​asian, accessed on 20 February 2020. Van Dyke, Jon M. 2018. “Regional Cooperation in the South China Sea.” In The South China Sea:  A Crucible of Regional Cooperation or Conflict-​ making Sovereignty Claims? edited by C.  J. Jenner and Tran Truong Thuy, 266–​ 274. New York: Cambridge University Press.

4  Prospects for Sino–​Malaysian joint development in the South China Sea Lessons from Malaysia’s experiences Ngeow Chow-​Bing

Introduction Compared to Vietnam and the Philippines, Malaysia as a claimant state generally has had friendlier relations with China, even during the periods of tension in the South China Sea (SCS) in recent years. Some scholars point to Malaysia (and Brunei) as having better prospects than other countries in the region for joint development with China, given the cordial bilateral relations China has with these countries (Chan and Li 2014, 192–​193). Interestingly, however, Malaysia has never seriously considered undertaking any kind of joint development with China (Forbes 2013, 165). As far as this author is aware, Malaysia has not even pursued a serious discussion with China about joint development; this is notwithstanding the fact that Malaysia has already been engaging in joint development with several of its maritime neighbors. This chapter looks at the history of maritime joint development and cooperation between Malaysia and its neighbors. It analyzes the factors contributing to the successful negotiation of cooperative agreements. Based on the lessons from these experiences, it then considers why there are difficulties in establishing joint development involving Malaysia and China. Finally it discusses some possible options.

Joint development and cooperation between Malaysia and its maritime neighbors After Malaysia published its official map in 1979, the country inevitably entered into several maritime disputes with almost all of its maritime neighbors (Haller-​ Trost 1998; Salleh 2012; Basiron 2012). Subsequently, Malaysia has managed to establish three cases of joint development of oil and gas in disputed areas. These were with Thailand (1979), Vietnam (1992), and Brunei (2009).1 In terms of fisheries, Malaysia also signed a memorandum of understanding (MOU) with Indonesia in 2012, which can be considered not as a case of active joint development, but as an effort to create a semi-​common fisheries area in the Strait of Malacca. These four cases are examined in turn.

Sino–Malaysian Joint Development  59 Malaysia–​Thailand Joint Authority Malaysia and Thailand have overlapping continental shelf claims in the Gulf of Thailand. The two countries began negotiating to settle on common maritime boundaries adjacent to their land border in the early 1970s. By 1972, the negotiations produced a bilateral agreement on continental shelf boundary delimitation up to 29 nautical miles offshore. However, the negotiations subsequently failed to produce an agreement, primarily because Malaysia disagreed with the Thai position on using Ko Losin  –​a high-​tide rock, 39 nautical miles offshore –​as a base point “to extend the putative boundary line southwards at the expense of Malaysia. From the nearer point (29 nautical miles offshore), their respective boundary claims diverge north and south” (Ong 1999, 223; see also Miyoshi 1999, 13–​14; Nguyen 1999, 80–​81). Ong (1999, 225)  also suggests that both sides had hardened their negotiating positions on becoming aware of potential oil and gas deposits in the overlapping area (about 7,250 square kilometers) and took preemptive measures (such as awarding exploration contracts to foreign companies) to strengthen their respective claims. In early 1979, to address the impasse, Malaysia’s then Prime Minister Hussein Onn proposed that the area should be jointly exploited. His counterpart, then Thai Prime Minister Kriangsak Chamanan, agreed and reportedly said that “it was better to drink water from the same well than to fight over it” (Nadarajah 2000, 197). In February 1979, an MOU was signed by both parties. The MOU established the Malaysia–​Thailand Joint Authority (MTJA), which was empowered to assume all rights and responsibilities on behalf of both Parties for the exploration and exploitation of the non-​living natural resources of the sea-​bed and subsoil in the overlapping area (hereinafter referred to as the joint development area) and also for the development, control and administration of the joint development area. The MTJA was to be led by two co-​chairs (one from each country) together with a council consisting of an equal number of members from each country. All the costs, expenses, revenues, and benefits were to be equally borne and shared by both sides. While the purpose of the MOU was primarily for oil and gas exploration and extraction, the MOU did make a point of mentioning that [t]‌he rights conferred or exercised by the national authority of either Party in matters of fishing, navigation, hydrographic and oceanographic surveys, [and] the prevention and control of maritime pollution … shall extend to the joint development area and such rights shall be recognized and respected by the Joint Authority.

60  Ngeow Chow-Bing It also contained an interesting clause delimitating the “criminal jurisdictions” for Thai and Malaysian authorities, noting that such jurisdictions “shall not be in any way construed as indicating the boundary line of the continental shelf ” of the two countries. The term of the MOU was set at 50 years, although it provided that if no satisfactory outcome had been achieved in the boundary negotiation by then, the MOU would continue after the expiration (for the text of the MOU, see Forbes and Basiron 2008, 171–​173; see also Arifin 1985; Ong 2013, 200–​204). The MOU, according to legal scholar David Ong, “could not be taken to be anything other than an expression of intent between the two states parties” and as such should be understood as an “interim arrangement” (Ong 1999, 227). The vague provisions of the MOU needed to be negotiated further. And indeed it took the two countries another ten years to sort out their differences over legal terminology and licensing regime (Miyoshi 1999, 15; Ong 1999, 228–​230). Ong (1999, 229)  notes, for instance, that Malaysia preferred a “production-​sharing system similar in style to that which it used in its own national petroleum development, while Thailand preferred the older system of granting royalty-​taxed concessions.” The negotiation finally led to a more formal agreement in 1990. The 1990 agreement established the MTJA with a juristic personality, reaffirmed the co-​chair structure, fixed the membership numbers, and stipulated in more detail the powers and functions of the MTJA and its officers. The agreement also spelled out in more detail the production sharing contract (PSC) –​the licensing system preferred by Malaysia (Malaysia was able to convince the Thai side to accept its preferred model) –​to be awarded by the MTJA as well as the financial provisions, accounts and records, auditing, budget, customs, excise, and taxation of the MTJA. Interestingly, there was no more reference to fishing and other matters in the 1990 agreement. Instead, the document focused solely on petroleum, and the mention of “criminal jurisdictions” was dropped (for the full text of the agreement, see Forbes and Basiron 2008, 173–​179; see also Ong 2013, 200–​204). Following the 1990 agreement, the MTJA was finally launched in Bangkok in 1991 (see Figure 4.1). After the formation of the MTJA, two PSCs were awarded in 1994 to two different contractors for exploration in the joint development area, which was divided into three blocks (A-​18, B-​17, and C-​19). The two contractors represented a fifty-​fifty consortium between the national oil companies (or their nominees) of Malaysia and Thailand (see Table 4.1). With the agreement, the first well (called Cakewarala) was successfully completed, and drilling began in 1995. By 2010, Cakewarala’s accumulative production had reached 1 trillion cubic feet of gas.2 Malaysia–​Vietnam Commercial Arrangement Area Immediately adjacent to the Malaysia–​Thailand Joint Development Area is the Malaysia–​Vietnam Commercial Arrangement Area (sometimes referred

Sino–Malaysian Joint Development  61

Figure 4.1 Malaysia–​ Thailand Joint Development Area and Malaysia–​ Vietnam Commercial Arrangement Area Notes: The illustration represents only a partial image and is best understood in the context of the full illustration (please refer to the source). “JDA” refers to Malaysia–​ Thailand Joint Development Area; “ACA” stands for Agreed Common Area, which is the Malaysia–​Vietnam Commercial Arrangement Area. Source: Forbes and Basiron (2008, 38)

to as the “Agreed Common Area”), a narrow strip where the Gulf of Thailand meets the southwestern edge of the SCS. The area is situated to the northeast coast of Peninsular Malaysia and to the southwest coast of Vietnam. The dispute between Malaysia and Vietnam is a result of overlapping continental shelf claims, each country having its own application of the “median line” principle in international law. Vietnam draws a median line on the seabed between the coastal islands of Malaysia and Vietnam; however, Malaysia’s 1979 map shows the outer claim of the continental shelf of Malaysia as a

62  Ngeow Chow-Bing median line between a Malaysian coastal island and the Vietnamese cape of Ca Mau, thus ignoring Vietnamese coastal islands (Nguyen 1999, 81). Talks to demarcate the maritime boundaries began in the 1980s but were hampered by mutual strategic distrust over the Cambodian conflict. However, bilateral ties improved in the early 1990s as the Cambodian issue was settled and Vietnam was determined to normalize relations with ASEAN, with the intention of eventually joining the organization. Nevertheless, in May 1991, Vietnam protested when Petronas, Malaysia’s national oil company, began operations in the overlapping area after Hamilton, an American oil company contracted by Malaysia, announced that gas reserves in the overlapping area could be around 1.1 trillion cubic feet (Nguyen 1999, 81). After Vietnam protested, Malaysia suspended operations in the disputed area. The principle idea of joint development of the disputed area was discussed and agreed to during visits by top leaders in early 1992 (Amer 1995, 306). In June 1992, bilateral talks were held in Hanoi. An MOU was reached, establishing the Malaysia–​Vietnam Commercial Arrangement Area. It should be noted here that the successful conclusion of the agreement on the MTJA, just two years earlier, gave strong impetus, especially to the Vietnamese side, to agree to a joint development project with Malaysia. The structure of this joint development provides “a more flexible model” (Nguyen and Amer 2007, 311) than the MTJA. There is no formal government authority involved in the organizational structure. Instead, the two national oil companies, Petronas (for Malaysia) and PetroVietnam (for Vietnam) were respectively nominated to undertake exploration and exploitation of petroleum in the commercial arrangement area (designated as block PM-​3). The MOU empowered both companies to enter into a commercial arrangement, provided the terms and conditions of such arrangement were approved by their respective governments (for the text of the MOU, see Forbes and Basiron 2008, 182–​183). There is no expiration date for the MOU. After the MOU was signed, Petronas and PetroVietnam signed a number of agreements on oil and gas sharing, taxation, and other issues; and in 1993, they set up a Coordination Committee as the governance authority of the commercial arrangement area. The Coordination Committee has eight members, with the two oil companies equally represented, and it has adopted a model of unanimous decision-​making. The chairmanship of the committee alternates between the two parties every two years. Meanwhile, the PSCs that were signed by Petronas continue to be honored by the Coordination Committee, with the following additions: PetroVietnam now has to be duly informed of the progress of the operations; PetroVietnam’s approval is required for any changes and supplements to these contracts; and equal profit-​sharing has to be ensured (Nguyen 1999, 82–​83; Ong 2013, 196–​199). According to a Vietnamese scholar, Nguyen Hong Thao (1999, 83), Vietnam acknowledged that Petronas had far better business and technical expertise and experience and, hence, was eager to learn from Petronas in the joint development.

Sino–Malaysian Joint Development  63 Due to the more flexible model applied in the Malaysia–​ Vietnam Commercial Arrangement Area, the first petroleum was successfully extracted in 1997, just a few years after the 1992 MOU. In 2016, it was reported that there were five active producing fields in the commercial arrangement area, and Petronas and PetroVietnam announced the extension of PSCs with the existing partners to further develop newly discovered fields in the area (The Star 2016; see also Table 4.1). The joint development has proved to be economically beneficial to both countries. Malaysia–​Brunei Commercial Arrangement Area Malaysia and Brunei have had long-​running territorial and maritime disputes (Haller-​Trost 1994; Smith 2010; Salleh 2012, 10–​13; Leong 2010). Brunei is situated entirely within the eastern Malaysian state of Sarawak but has a coastline facing the SCS. Malaysia’s 1979 map seemed only to recognize Brunei’s maritime claim up to 100-​fathom isobaths, based on two British colonial-​era regulations from 1958 (Order in Council No. 1517 and Order in Council No. 1518) that delimited Brunei’s maritime boundaries at that time. But beyond 100-​fathom isobaths, the maritime boundaries between Brunei and Sarawak were not delimited. Malaysia’s 1979 map seemed to encompass Brunei’s potential claim beyond 100-​fathom isobaths and, by implication, denied Brunei the right to legally claim the continental shelf adjacent to its own coast (Haller-​Trost 1994, 41, 1998, 45; Leong 2010). In return, Brunei asserted its right beyond 100-​fathom isobaths, including its claim to a 200-​ nautical mile exclusive economic zone (EEZ) and a continental shelf, based on the United Nations Convention on the Law of the Sea. This dispute was further complicated by the dispute over Louisa Reef, a small feature (probably a rock) that is about 125 nautical miles off the coast of Brunei, though Malaysia’s 1979 map includes it as part of Malaysia. Two oil blocks lying outside the 100-​fathom isobaths of Brunei’s coast and which Malaysia claimed as part of its continental shelf according to its 1979 map became the source of tension for a rare episode of naval standoff between the two countries in 2003. In an attempt to assert its claim, Malaysia awarded a concession of the two oil blocks (named blocks L and M by Malaysia, and blocks J and K by Brunei) to Petronas and Murphy Oil; Brunei also awarded concessions of the same blocks to several international companies. But none of these companies could do anything. In March 2003, a vessel belonging to Murphy Oil was chased away by a Bruneian gunboat, while in the following month, Malaysian navy also blocked entry to the area by a ship owned by Total, one of the companies awarded the concession by Brunei (Leong 2010; Salleh 2012, 12). The naval standoff prompted both governments to enter into negotiations. In March 2009, Malaysia–​Brunei territorial and maritime disputes seemed to have been resolved comprehensively with an Exchange of Letters (EOL) between then Prime Minister of Malaysia Abdullah Badawi and

64  Ngeow Chow-Bing Brunei’s Sultan Hassanal Bolkiah (Smith 2010). With the EOL, Brunei appeared to have agreed to drop its claim to the Limbang land area, which divides the two portions of Brunei on land. In return, Malaysia appeared to have accepted Brunei’s maritime claim and, perhaps, also to have dropped its claim to Louisa Reef. With the EOL, Malaysia dropped its claim to the two oil blocks, and both countries agreed to designate the two oil blocks as commercial arrangement areas (now named CA1 and CA2) to be jointly explored by the two countries (Ong 2013, 206–​207; see Figure  4.2 and Table 4.1). The Malaysia–​Brunei Commercial Arrangement Area was modeled after the Malaysia–​Vietnam Commercial Arrangement Area. National oil companies are the major participants, as opposed to governments playing a direct role. However, this commercial arrangement area is no longer a disputed

Figure 4.2 Malaysia–​Brunei maritime dispute and Commercial Arrangement Area Source: Leong (2010)

Sino–Malaysian Joint Development  65 Table 4.1 Malaysia’s oil and gas joint developments with Thailand, Vietnam, and Brunei Joint Development

Block

Production sharing contract

Appointed operator

Malaysia–​ Thailand Joint Development Area

A-​18

PC JDA Limited (50%) Hess Oil Company of Thailand (JDA) Limited (49.5%) Hess Oil Company of Thailand Ltd. Co. (0.5%) PTTEP International Limited (50%) PC JDA Limited (50%)

Carigali Hess Operating Company Sdn. Bhd.

B-​17

Malaysia–​ Vietnam Commercial Arrangement Area Malaysia–​Brunei Commercial Arrangement Area

C-​19

PTTEP International Limited (50%) PC JDA Limited (50%)

PM-​3

Talisman Malaysia (35%) Petronas Carigali (35%) PetroVietnam Exploration (30%)

CA1

Total (54%) BHP Billiton (22.5%) Hess (13.5%) Petronas Carigali (5%) Murphy Oil (5%) Petronas Carigali Brunei Limited Canam Brunei Oil Ltd. (Murphy) Shell Deep Water Borneo Ltd. ConocoPhillips Diamond E&P B.V. (Mitsubishi)

CA2

Carigali-​PTTEPI Operating Company Sdn. Bhd. Carigali-​PTTEPI Operating Company Sdn. Bhd. Talisman Malaysia

Total

Petronas Carigali Brunei Limited

Note: PC JDA is a wholly owned subsidiary of Petronas Carigali. Source: Author’s compilation from the following sources: The Star 2016; www.mtja.org/​; www. nrgedge.net/​project/​ca1-​deepwater-​offshore-​block;      www.nrgedge.net/​project/​ca2-​deepwater-​ offshore-​block

area, as Malaysia conceded to Brunei’s claims and, perhaps in return, Brunei allowed Malaysia to be the oil and gas development partner for a period of 40 years. The detailed terms of this partnership were not finalized until 2015 (The Borneo Post 2015).

66  Ngeow Chow-Bing Malaysia–​Indonesia Memorandum of Understanding on Fisheries The 2012 MOU between Malaysia and Indonesia on fisheries in the Strait of Malacca is the latest agreement between Malaysia and its neighbor over disputed maritime areas. The dispute lies in differences over a common EEZ boundary. In 1969, both countries signed an agreement on the continental shelf boundary on the seabed in the Strait of Malacca. Malaysia proceeded to draw this line on its 1979 map as its maritime boundary with Indonesia and, in 1996, unilaterally declared the line to be Malaysia’s EEZ boundary with Indonesia in the Strait of Malacca. The line is a median line between the straight baselines connecting the outer islands off the coasts of both countries. Based on this line, Malaysia gained a substantially larger portion of the continental shelf, since the base points from which the median line was drawn appeared to be two of its outer islands –​Pulau Perak (55 nautical miles off the nearest Malaysian land and 84 nautical miles off Indonesian land) and Pulau Jarak (25 nautical miles off the nearest Malaysian land and 30 nautical miles off the nearest Indonesian baseline) (Bernard 2015, 202–​204). Malaysia argues that the continental shelf boundary (governing the seabed delineation and allocation of resources) and the EEZ boundary (governing resources in the water columns; i.e. fisheries) should be the same. The 1969 agreement dealt with the seabed boundary only, and when it was signed, the EEZ regime concept was still not prevalent in international law. By the time the concept took hold, Malaysia was arguing that the same line should be equally applicable to Malaysia’s EEZ boundary with Indonesia. Some scholars contend that the Malaysian government did intend the 1969 agreement to be interpreted in this way (Rusli 2017; Hamzah et al. 2014, 210). Furthermore, from Malaysia’s perspective, although the 1969 agreement meant that it gained a larger share of the continental shelf than if the line had been drawn from the western coast of the Malay Peninsula, the agreement also showed Malaysia’s support for Indonesia’s claim as an “archipelagic state,” since the median line was “derived from the archipelagic baselines proclaimed and published by Indonesia in 1960” (Hamzah et al. 2014, 208). However, Indonesia disagrees, arguing that a different EEZ boundary is needed and that there was no consensus from the Indonesian side for the 1969 agreement to be used as the maritime boundary with Malaysia (Agusman and Nurbintoro 2015; Pratomo 2016; Arsana 2014, 192–​ 199, 354–​ 361). Indonesia’s claim is that the EEZ boundary should be drawn between the baseline of Indonesia and the coast of Malaysia, while the two offshore islands of Malaysia each generate a zone of territorial water of 12 nautical miles. Differences between Malaysia and Indonesia over the EEZ line created an overlapping area of about 14,300 square kilometers in the Strait of Malacca (Arsana 2014, 360). The overlapping area is rich in fisheries resources. Fishermen from both countries frequently enter the disputed area under the belief that they are fishing legally with in the EEZ maritime boundary of their respective countries.

Sino–Malaysian Joint Development  67 When maritime law enforcement from both countries attempt to enforce the respective laws, incidents of dispute and tension are bound to occur. In 2011, Malaysian law enforcement helicopters confronted Indonesian law enforcement ships after the latter detained Malaysian fishermen and fishing vessels. Although violence was avoided, bilateral relations were negatively affected. Indonesians demanded strong law enforcement against Malaysian fishermen, while Malaysians felt the Indonesians had been unnecessarily aggressive (Arsana 2014, 364–​365). After the 2011 incident, Malaysia and Indonesia began negotiations, and in January 2012 they signed the Memorandum of Understanding in respect of the Common Guidelines Concerning Treatment of Fishermen by Maritime Law Enforcement Agencies (Antara News 2012).3 The main purpose of the MOU is to avoid the use of force by enforcement agencies. Article 3 stipulates that pending the delimitation of maritime boundaries, the law enforcement agencies from both states agree to take only preventive measures; that is, “inspection and request to leave the area” for all fishing boats in case of encroachment. “In other words, if fishermen from Malaysia enter an overlapping area, they should not be captured by Indonesian authorities but, instead, be told to return to Malaysia. This is also equally applicable to Indonesian fishermen encountered by Malaysian authorities” (Arsana 2014, 273–​274). This in effect creates a partial common “fishing zone” in the disputed area (partial in the sense that fishermen may still be asked to leave, but no longer risk being arrested). The four cases: Summary and discussion These four cases represent the major cases of joint development and cooperation between Malaysia and its neighboring countries (see Table  4.2 for a summary). All these cases have been quite successful. In the case of Brunei, settlement of territorial and maritime dispute was basically achieved. The fisheries MOU with Indonesia counts only as a qualified success, because incidents of Indonesian authorities arresting Malaysian fishermen continued to occur (Zack 2019), albeit at a much reduced level. Yet, without the MOU, the situation could have been much more volatile and Malaysia–​Indonesia relations could have been negatively affected. Several factors had a positive influence on the ability of Malaysia and these neighbors to come to agreements on joint development. First, the disputes all arose from overlapping continental shelf claims (in the case of Indonesia, differences over the EEZ). While Malaysia and its neighbors operate on the same set of international law and legal principles, their interpretations and application are different. There is a common understanding that the countries’ respective legal claims are based on different applications of the same sets of law rather than them being unjustified sovereignty claims. In the words of Malaysian scholar J.N. Mak, these “conflicts” are fundamentally “technical rather than sovereignty conflicts” (Mak 2009, 122). This common

68  Ngeow Chow-Bing Table 4.2 Malaysia’s experiences in maritime joint development and cooperation Joint development

Legal instrument

Nature of dispute

Size of overlapping area

Status of dispute

Malaysia–​ Thailand Joint Development Area Malaysia–​ Vietnam Commercial Arrangement Area Malaysia–​Brunei Commercial Arrangement Area

1979 MOU 1990 bilateral agreement

Overlapping area of continental shelf claims Overlapping area of continental shelf claims

7,250 km2

Not resolved

2,008 km2

Not resolved

11,880 km2

Resolved

Malaysia–​ Indonesia Memorandum of Understanding on Fisheries

2012 MOU

Brunei’s continental shelf claim not recognized by Malaysia Overlapping area of EEZ claims

14,300 km2

Not resolved

1992 MOU

2009 EOL

Source: Author’s compilation

understanding has enabled the concerned parties to proceed in good faith with discussion on joint development. Second (and closely related to the first factor), with the partial exception of Brunei (over the competing claims to Louisa Reef), all of the disputes were confined to disagreement over maritime boundaries, rather than sovereignty disputes over land or pieces of physical territory (such as islands, reefs, rocks, etc.). This meant that the disputes were relatively simple and manageable. Third, all of the disputes occurred within Malaysia’s immediate neighborhood, and a desire for good relationships with neighbors prevailed over differences and disputes. Essentially, Malaysia negotiated joint developments with Thailand, Vietnam, Brunei, and Indonesia in the spirit of maintaining amicable ties with these countries. It should be noted that at the time of negotiating joint developments, all these countries, except Vietnam, were members of ASEAN (by 1992, Vietnam too was getting ready to join ASEAN). A sense of neighborhood, community, and even family did (and still does) exist. This is best exemplified by the MTJA motto:  “Brothers Drinking from the Same Well.”

Sino–Malaysian Joint Development  69 Fourth, economic and technological imperatives were present in the cases of joint development with Thailand, Vietnam, and Brunei. As mentioned earlier, a major factor prompting Vietnam to agree to joint development with Malaysia was the opportunity to learn from the more experienced Petronas. The economic context of the joint development negotiations between Malaysia and Thailand was that both countries were transitioning from agriculture-​to industrial-​based economies and required substantial input of energy. Joint development in the disputed area would allow both countries to tap into the energy sources present in the area (Arifin 1985, 537–​538). In the case of the Brunei–​Malaysia joint development, the countries had been prevented from exploring and exploiting oil blocks for more than 20  years due to dispute between the countries. Finally, at least in the case of Malaysia, there was a degree of public distance and aloofness from these disputes. The Malaysian public, generally speaking, were not easily riled up over these territorial disputes, and they did not demand that the government hold on to absolutist claims. Any nationalist sentiments that did exist were not strong enough to prevent the government from making compromises and undertaking pragmatic measures. Even so, it should be noted that the Malaysian government took great care to manage public perception with this kind of negotiation. For instance, the exact details of the 2009 EOL with Brunei have still not been made public (by either country). Table 4.3 summarizes these factors (see also Beckman et al. 2013a). Table 4.3 Factors resulting in Malaysia’s successful joint development efforts with its neighbors Factors

Present for Malaysia and Thailand

Present for Malaysia and Vietnam

Present for Malaysia and Brunei

Present for Malaysia and Indonesia

Common legal principles No claims to physical territory Good bilateral relations and a sense of neighborhood Economic and technological imperative Public aloofness on the issue

Yes

Yes

Yes

Yes

Yes

Yes

Partially

Yes

Yes

Partially

Yes

Yes

Yes

Yes

Yes

Partially

Yes

Yes

Yes

Partially

Source: Author’s compilation

70  Ngeow Chow-Bing

Sino–​Malaysian joint development in the SCS: Possibilities and prospects Having analyzed Malaysia’s experience in joint development with some of its neighboring countries, we can now turn to possibilities of joint development or other forms of cooperation between Malaysia and China in the SCS. While Malaysia is not averse to pursuing joint development, a strong case has never been made in Malaysia for joint development with China in the SCS. Even during the time of Prime Minister Najib Abdul Razak (2009–​2018), who is seen by many as the most “pro-​China” prime minister of Malaysia in the past decade or so, Malaysia ruled out joint development. We now have a paradoxical situation in which Malaysia–​China relations have been cordial and positive, but there is no momentum to discuss joint development in the disputed area. Applying the framework in Table  4.3, we can see that the prospects are not very bright for Sino–​ Malaysian joint development in the SCS (see Table  4.4). First, China’s claim, based on the nine-​dash line, or U-​shaped line, is inconsistent with the understanding of the vast majority of Malaysian policymakers, officials, and international law scholars of how international maritime boundary is drawn. China’s line is neither a continental shelf claim, nor a claim over EEZ. It is described as a “traditional maritime boundary line” with no further clarification, or at least no clarification consistent with the legal principles that are familiar to Malaysian officials and legal scholars. No matter how much this line is seen as valid in the eyes of Chinese scholars and policymakers, it has no equivalence in Malaysia. Without a common basis of understanding, most Malaysian officials feel that the nine-​dash line represents an unjustified claim. Furthermore, Malaysian officials do not even recognize that there is a “dispute,” and henceforth it is difficult to officially designate a “disputed area,” notwithstanding how much this contradicts the reality on the ground. Agreeing to joint development is seen as tantamount to agreeing that there is a dispute and a disputed area. Second, China and Malaysia have overlapping claims not just over maritime areas but also about ten features (reefs, shoals, etc.) in the disputed area. This has made the dispute much more complicated and negotiation over joint development more difficult. Third, although Malaysia–​China relations have remained amiable, Chinese behavior in the SCS in recent years has made Malaysia more apprehensive. The friendlier atmosphere between China and Southeast Asian claimant states in the early 2000s, which would have been more conducive to joint development, has by now evaporated (Vu 2017). Chinese proposals for joint development have elicited skeptical responses from many countries, including China-​ friendly Malaysia. Deng Xiaoping’s formula of gezhi zhengyi, gongtong kaifa (put aside dispute and develop together) is accompanied by two more phrases –​zhuquan shuwo (sovereignty remains ours [China’s]) and

Sino–Malaysian Joint Development  71 Table 4.4 Factors affecting Sino–​Malaysian joint development in the SCS Factors

Present for Malaysia and China

Common legal principles No claims to physical territory Good bilateral relations and a sense of neighborhood Economic and technological imperative Public aloofness on the issue

No No Partially Partially Partially

Source: Author’s compilation

helping jiejue (peaceful resolution). The phrase zhuquan shuwo could easily be interpreted as China insisting that all parties would have to recognize Chinese sovereignty over an area of joint development, which defeats the purpose of benefiting from joint development while also shelving disputes (Haller-​Trost 1998, 354–​355). Chinese scholars, however, do not see the phrase as impeding joint development.4 Nevertheless, the existence of this phrase is likely to make some countries, including Malaysia, skeptical of China’s joint development proposal. Fourth, there is no strong technological imperative for Malaysia to pursue joint oil and gas development with China, as Petronas is a well-​run company with years of experience and its foreign partners, such as Shell, are also strong when it comes to technology. Unless China is able to offer something substantially more cost-​efficient and technologically more advanced, the incentive for the Malaysian government or Petronas to entertain the idea of joint development is rather weak. However, in terms of fisheries, there is a wide technological gap between China’s and Malaysia’s fisheries sectors. Fifth, unlike in the past (and unlike the four cases discussed above), the SCS dispute has increasingly become an issue that at least a section of the Malaysian public pays attention to. Malaysians are still, relatively speaking, less nationalistic than the Chinese, Vietnamese, and Filipinos. However, there is no doubt that the rising saliency of the SCS issue is generating rising nationalist sentiment as well. The social media age has amplified such sentiment, and the advent of a more open but also more partisan democratic politics in Malaysia since the change of government in May 2018 is making it even more politically challenging to consider joint development with China. Given this analysis, what are the prospects for joint development between Malaysia and China in the SCS? The particular difficulty of adhering to the same set of legal principles and, from there, proceeding to identify an “area in dispute” can theoretically be overcome by agreeing on “areas of joint development without addressing the merits of the claims” (Beckman et al. 2013b, 322–​323) of either country. One option to desensitize joint development is for Malaysia and China to jointly establish two commercial arrangement areas (Malaysia–​ China

72  Ngeow Chow-Bing reciprocal commercial arrangement areas), one off the coast of Sarawak (the area where the dispute is bilateral in nature), the other within the vicinity of China (such as off the coast of Hainan Province), without ever touching the sensitive question of who owns what. Both commercial arrangement areas will proceed based just on commercial collaboration terms, as a reciprocal sign of mutual goodwill and the completely commercial nature of the ventures. Another possibility is for Malaysia to finally agree that there is a dispute (and perhaps China has to do its part also by clarifying the nine-​dash line) and proceed from there to identify the “disputed area” involving China and Malaysia only. Recognizing that there is a dispute will implicitly mean that Malaysia somehow has to take China’s nine-​dash line into account but without recognition or acceptance of Chinese maritime and sovereignty claims. After such an acknowledgment, it would be possible to establish a commercial arrangement area with China, using the Malaysia–​Vietnam model. While such an arrangement would mean that Petronas can further explore areas inside the nine-​dash line (presumably partnering with an oil company nominated by China), the downside for Malaysia would be that since there is a “disputed area” now, the area is presumably subject to maritime and territorial boundary negotiation in the future. This is why Malaysia is so reluctant to recognize that there is a dispute, notwithstanding the reality on the ground. Perhaps not going as far as joint oil and gas development is a joint maritime survey of the features in the disputed area, since the geographical characteristics of these features are still not well known and are evolving. This can be couched in technical and scientific exploration terms, and the results of such a survey can serve as a public good for the science community and fishermen. Establishing the terms of such a joint scientific survey will be challenging, but it will be a good step towards building some trust. In terms of fisheries, at present, fishing disputes between Malaysia and China are relatively few, notwithstanding an incident that occurred in 2015 where many Chinese fishing vessels, apparently in a coordinated manner, appeared in an area Malaysia considers within its EEZ. Most of the Malaysian maritime law enforcement arrests on the SCS are actually of Vietnamese fishermen. While not a pressing issue to resolve, still, fisheries cooperation in the SCS can take different forms, such as fisheries surveys and conservation efforts. However, since fish stocks are migratory, a multilateral rather than bilateral fisheries conservation regime is probably more useful (Fu 2006). Another possibility is to cooperate on commercial fishing. As mentioned earlier, Malaysia lacks deep-​sea fishing technology and experience, and the Malaysian fishing sector has yet to be able to fully exploit the fisheries resources within its EEZ due to limitations of technology. Malaysia and China could form a joint venture company to engage in deep-​sea fishing in certain areas that both countries can agree to, not clearly demarcating them so as to avoid the legal implications; and this could include areas inside and outside Malaysia’s EEZ. The effort should be pursued, however, with the

Sino–Malaysian Joint Development  73 recognition that the exploitation of fisheries resources must be balanced by a well-​designed fisheries conversation program. A possible way forward would be to commission a bilateral, noncommittal preliminary feasibility study for the proposals mentioned above (or any other proposals put forward), to be undertaken at the Track II level (but with support and input from Track I). This could clarify the needs, advantages, disadvantages, challenges, and implications of joint development, and present policymakers with a more definite set of costs and benefits.

Conclusion Joint development in the SCS has been proposed repeatedly, and many scholars have come up with ideas about how to proceed.5 Within Southeast Asia, many cases of joint development are already in place, and there are lessons to be found that may prove useful for similar efforts in the SCS. This chapter reviews the experiences of Malaysia in working with Thailand, Vietnam, Brunei, and Indonesia to establish joint development and cooperation, and highlights the major factors contributing to successful negotiation and implementation. Yet, the case with China in the SCS is more difficult. Most of the enabling factors are found to be either absent or, at best, partially fulfilled. Fundamentally, the lack of strategic trust between Southeast Asian claimant states and China is still quite high, and only an extraordinary level of political will and authority will overcome this. Malaysia is no exception. Despite enjoying cordial relations with China, it is still politically very challenging (though not impossible) for Malaysia to undertake joint development with China. This chapter has sketched out some possible proposals, such as a reciprocal commercial arrangement area, a joint scientific survey, and a joint stock fishing company.

Notes 1 Some scholars contend that since the dispute between Malaysia and Brunei has apparently been resolved, theirs is no longer a case of joint development, but should be seen as commercial partnership. I do not disagree that this might technically be true, but given that the negotiation of this partnership was very much related to the dispute between the two countries, I discuss this case together with other cases of joint development. 2 This information is provided on the MTJA website: www.mtja.org/​home.php. 3 It should be noted that while the main purpose of this MOU is to deal with disputes in the Strait of Malacca, the MOU is also applicable to other overlapping claims in maritime areas involving Indonesia and Malaysia. 4 As a Chinese scholar explained to the author, “the statement of zhuquan shuwo indeed appears in Chinese leaders’ speech, but this was mainly for China’s domestic audience, to placate the Chinese people. When China talked with the other SCS coastal States on joint development in overlapping maritime areas, China never

74  Ngeow Chow-Bing mentioned zhuquan shuwo. When China talks about shelving the dispute, no party (including China) should mention zhuquan shuwo. If any party uses the statement of zhuquan shuwo, then joint development can never be carried on.” 5 Most recently, the Center for Strategic and International Studies in Washington, DC, convened an expert group to come up with proposals on joint development for oil and gas resources and for fisheries. The blueprints were published online in late 2018.

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Sino–Malaysian Joint Development  75 Forbes, Vivian Louis. 2013. “Malaysia and China: Economic Growth Overshadows Sovereignty Dispute.” In Beijing’s Power and China’s Borders: Twenty Neighbors in Asia, edited by Bruce A. Elleman, Stephen Kotkin, and Clive Schofield, 155–​167. London: M .E. Sharpe. Forbes, Vivian Louis, and Mohd Nizam Basiron. 2008. Malaysia’s Maritime Realm Atlas. Kuala Lumpur: Maritime Institute of Malaysia. Fu, Kuen-​chen. 2006. “Regional Cooperation for Conservation and Management for Fisheries Resources in the South China Sea.” In China–​ASEAN Relations: Economic and Legal Dimensions, edited by John Wong, Zou Keyuan, and Zeng Huaqun, 219–​ 244. Singapore: World Scientific. Haller-​Trost, R. 1994. The Brunei-​Malaysia Dispute over Territorial and Maritime Claims in International Law. Durham:  International Boundaries Research Unit, Department of Geography, University of Durham. —​—​—​. 1998. The Contested Maritime and Territorial Boundaries of Malaysia:  An International Law Perspective. London: Kluwer. Hamzah, B.  A., V.  L. Forbes, Jalila Jalil, and M.  N. Basiron. 2014. “The Maritime Boundaries of Malaysia and Indonesia in the Malacca Strait:  An Appraisal.” Australian Journal of Maritime and Ocean Affairs, 6 (4): 207–​226. Leong, Shen-​li. 2010. “A Tale of Two Oil Blocks.” The Star, 9 May. www.thestar.com. my/​news/​nation/​2010/​05/​09/​a-​tale-​of-​two-​oil-​blocks/​. Mak, J. N. 2009. “Sovereignty in ASEAN and the Problem of Maritime Cooperation in the South China Sea.” In Security and International Politics in the South China Sea: Towards a Cooperative Management Regime, edited by Sam Bateman and Ralf Emmers, 110–​127. Abingdon: Routledge. Miyoshi, Masahiro. 1999. “The Joint Development of Offshore Oil and Gas in Relation to Maritime Boundary Delimitation.” Maritime Briefing, 2 (5):  1–​51. www.dur.ac.uk/​ibru/​publications/​download/​?id=236. Nadarajah, K. N. 2000. Tengku Ahmad Rithauddeen: His Story. Subang Jaya: Pelanduk Publications. Nguyen, Hong Thao. 1999. “Joint Development in the Gulf of Thailand.” IBRU Boundary and Security Bulletin, 7 (3): 79–​88. Nguyen, Hong Thao, and Rames Amer. 2007. “Managing Vietnam’s Maritime Boundary Disputes.” Ocean Development and International Law, 38 (3): 305–​324. Ong, David M. 1999. “The 1979 and 1990 Malaysia–​Thailand Joint Development Agreements: A Model for International Legal Co-​operation in Common Offshore Petroleum Deposits?” International Journal of Marine and Coastal Law, 14 (2): 207–​246. —​ —​ —​ . 2013. “Implications of Recent Southeast Asian State Practice for the International Law on Offshore Joint Development.” In Beyond Territorial Disputes in the South China Sea: Legal Frameworks for the Joint Development of Hydrocarbon Resources, edited by Robert Beckman, Ian Townsend-​Gault, Clive Schofield, Tara Davenport, and Leonardo Bernard, 181–​217. Northampton, MA: Edward Elgar. Pratomo, Eddy. 2016. “Indonesia–​Malaysia Maritime Boundaries Delimitation:  A Retrospective.” Australian Journal of Maritime and Ocean Affairs, 8 (1): 73–​84. Rusli, Mohd Hazmi Mohd. 2017. “Asserting Malaysia’s Sovereign Rights in the Strait of Malacca.” Malay Mail, 27 July. www.malaymail.com/​news/​what-​you-​think/​ 2017/​07/​27/​asserting-​malaysias-​sovereign-​rights-​in-​the-​straits-​of-​malacca-​mohd-​ hazmi-​m/​1430177.

76  Ngeow Chow-Bing Salleh, Asri. 2012. Malaysia’s Territorial Disputes, 1963–​2008. Shah Alam: Penerbir Universiti Teknologi Mara. Smith, Jeffrey J. 2010. “Brunei and Malaysia Resolve Outstanding Maritime Boundary Issues.” ASIL Law of the Sea Reports, 1: 1–​5. The Borneo Post. 2015. “Malaysia, Brunei Finalize O&G Exploration in Overlapping Area.” 12 August. www.theborneopost.com/​2015/​08/​12/​malaysia-​brunei-​finalise-​ og-​exploration-​in-​overlapping-​area/​. The Star. 2016. “Petronas, PetroVietnam Extend PSC for 10 More Years.” 9 May. www.thestar.com.my/​business/​business-​news/​2016/​05/​09/​petronas-​petrovietnam-​ extend-​psc-​for-​10-​more-​years/​#JxxHdmbk1JudxpM1.99. Vu, Truong-​Minh. 2017. “The Logic of Strategic Restraint and Prospects for Joint Development in the South China Sea.” In Unresolved Border, Land and Maritime Disputes in Southeast Asia:  Bi-​and Multilateral Conflict Resolution Approaches and ASEAN’s Centrality, edited by Alfred Gerstl and Maria Strasakova, 231–​249. Leiden: Brill. Zack, Justin. 2019. “Fishermen, Boat Owners Gather at Indonesian Embassy to Protest Boat Seizures.” The Star, 23 July. www.thestar.com.my/​news/​nation/​2019/​ 07/​23/​fishermen-​boat-​owners-​gather-​at-​indonesian-​embassy-​to-​protest-​boat-​ seizures/​.

5  Philippines–​China Joint Development Agreement in the South China Sea under Duterte Aaron Jed Rabena

Introduction Territorial and maritime disputes in the South China Sea (SCS) or what the Philippines calls the “West Philippine Sea” have been a major irritant in Philippines–​China relations. There were heated episodes between Manila and Beijing in 1995–​1998 (Mischief/​Panganiban/​Meiji Reef Incident) and in April 2012 (Scarborough/​Panatag Shoal/​Huangyan Dao Standoff) in maritime areas claimed by the Philippines within its 200-mile Exclusive Economic Zone (EEZ). The Mischief Reef Incident happened when China occupied and built fishermen’s shelters and, eventually, fortified structures (multistory fishermen’s shelters and a military garrison with bunkers, gun emplacements, and a helipad) on a Philippine-​claimed reef. These acts were construed by Philippine policymakers as a kind of “creeping invasion” (Lim 2000, 92) and, arguably, activated the “China threat” narrative in the Philippine psyche (Lim 2000, 95).1 This, consequently, served as an impetus for the Philippines to pursue greater security alignment with the United States (US) and partly impelled the modernization program for the Armed Forces of the Philippines (AFP). The Mischief Reef Incident caused Philippine public opinion to be supportive of greater military cooperation with Washington through a visiting forces agreement (VFA) (De Castro 2007, 2; Lim 2000, 70), which came to fruition during the Fidel V.  Ramos administration. The VFA paved the way for the resumption of American military access to the Philippines, after the expulsion of US aerial and naval bases in Clark and Subic in 1991. The Scarborough Shoal Standoff, on the other hand, came about when China Marine Surveillance vessels claiming jurisdiction over the area had a two-​ month-​long standoff (April to June 2012)  with Philippine law enforcement ships (Navy, Coast Guard, Bureau of Fisheries) as the former prevented Philippine apprehension of Chinese fishermen for illegally fishing large quantities of endangered species, such as live sharks and giant clams.2 It should be noted that in the post-​Scarborough Shoal Standoff period, which was during the time of former President Benigno “Noy” Aquino III, tensions with China continued with frequent blockades to halt access by

78  Aaron Jed Rabena Philippine fishermen and supply vessels in Scarborough Shoal and the Spratly Islands (Spratlys). Like the Mischief Reef and because of perceived Chinese assertiveness in the SCS, the Scarborough Standoff resulted in the Philippines signing an Enhanced Defense Cooperation Agreement with the US in April 2014, which was meant to serve as a “deterrent” against China (Burgonio 2014). A  few months later, China began to construct artificial islands in the SCS, referred to by one American Admiral as the “great wall of sand” (The Washington Post 2015). This move was viewed in the Philippines as an alarming activity (Department of Foreign Affairs 2015). However, things began to change when Rodrigo Duterte became Philippine President in 2016, as he chose to emphasize the pragmatic side of relations with China and opted for a moderated approach to dispute settlement in the SCS. Evidence of strengthening ties between the Philippines and China include, on the part of China, increased security assistance to the Philippines and naval port calls and, on the part of the Philippines, active participation in China’s Belt and Road Initiative. In addition, the prospect of a “Joint Development Agreement” (JDA) with China in the SCS has been put forward by the Duterte administration. As a result, during Chinese President Xi Jinping’s state visit to Manila in November 2018, a Memorandum of Understanding (MOU) on Cooperation in Oil and Gas Development was signed. Given the potential for enormous oil and gas deposits in the SCS and the number of claimant countries involved, a JDA in the disputed waters is of keen importance not only to claimant states, but also to international scholars and think tanks like the US-​based Center for Strategic and International Studies (South China Sea Expert Working Group 2018) and the International Crisis Group (2016), among others. JDAs have academic and legal definitions that make reference to both living and non-​living resources (Baviera and Batongbacal 1999, 6). As shown in Table 5.1, for the Philippines, the literature on the SCS can be classified into four groups according to whether it deals with (1) pre-​arbitration or (2) post-​arbitration and whether it relates to (3) a “soft” JDA or (4) a “hard” JDA.3 The pre-​arbitration (see, for example, Banlaoi 2012, 13) and post-​arbitration narratives distinguish the degree of legal morality of Philippine maritime claims, which dictates the level of flexibility for the Philippines to enter into a compromise (i.e. cooperation based on the nullity of China’s nine-​dash line claims and the absence of overlapping maritime zones). Soft and hard JDAs

Table 5.1 Classification of JDA literature on the SCS Time period

Type of resources

Pre-​arbitration Post-​arbitration

Soft JDA Hard JDA

Source: Author’s compilation

Philippines–China Joint Development  79 refer to the hydrocarbon cooperation and exploitation. Specifically, soft JDAs include cooperation on “low politics” issues (Banlaoi 2012, 9), such as scientific research and marine environmental protection (fisheries) (Encomienda 2001, 182)  or the joint management of resources through conservation (Baviera 2012, 2). Broadly speaking, the SCS, owing to the overlapping claims of various regional states, is governed by the 2002 Declaration on the Conduct of Parties in the South China Sea (DOC), which aims to ensure the avoidance of conflict through restraint and promotion of functional cooperation (e.g. marine environmental protection, marine scientific research, safety of navigation and communication at sea, search and rescue, transnational crime) (ASEAN [Association of South East Asian Nations] 2002).4 While falling short on oil and gas resource cooperation, the negotiated draft of the Code of Conduct (COC) has included stipulations on the same (Thayer 2018).

Philippine attitudes and policies on JDA It is clear that based on the Philippine EEZ and China’s nine-​dash line, there are overlapping claims over Reed Bank (also called Recto Bank and Liyue Tan). In retrospect, the Philippines started to become “economically” interested in the Spratlys  –​particularly the Reed Bank, which contains the Sampaguita gas field –​in March 1976 when hydrocarbon deposits were said to have been discovered. This prompted then President Ferdinand Marcos (1965–​1986) to secure the area by creating the Western Command of the AFP (Lim 2000, 78).5 Forum Energy, the Philippines Department of Energy, and the US Energy Information Agency have all estimated vast oil and gas reserves in Reed Bank (Martelino-​Reyes 2014; Gonzales 2013). On 11 June 1978, based on the legal principle of terra nullius (“nobody’s land” or “finders keepers”), Marcos issued two Presidential Decrees to formally legitimize the Philippine claim over the Spratlys and maritime entitlements. These were Presidential Decree No. 1596 (Declaring Certain Area [Kalayaan Island Group or Spratlys] Part of the Philippine Territory and Providing for their Government and Administration) and Presidential Decree No. 1599 (Establishing an Exclusive Economic Zone and for Other Purposes). These laws later formed the basis for renaming parts of the SCS where the Philippines have territorial and maritime claims to “West Philippine Sea”, by virtue of Administrative Order No. 29, issued during the Benigno Aquino administration in 2012. As far as a JDA in the SCS (specifically Reed Bank) is concerned, the attitude in the Philippines has often been shaped by, and dependent on, the foreign policy (or China policy) of ruling governments. During the time of Marcos, there was hardly any mention of a JDA with China, as Marcos’ maneuver to occupy and annex the Spratlys greatly displeased China (Tiglao 2011). It was after the Marcos presidency, starting with the Corazon “Cory” Aquino administration (1986–​1992), that talks of a JDA in the SCS started. In then

80  Aaron Jed Rabena President Cory’s state visit to Beijing, her counterpart, Chinese paramount leader Deng Xiaoping, suggested to her –​as was the case in Chinese disputes with Japan over the Diaoyu/​Senkaku Islands in the East China Sea  –​that both countries uphold the principle of “setting aside disputes and pursuing joint development” (Ministry of Foreign Affairs of the People’s Republic of China 1998).6 This proposition highlights China’s preference for bilateralism in the settlement of disputes. Cory, for her part, agreed to shelve the disputes (Lim 2000, 82) but was silent on the JDA. After the Cory Aquino administration, during the Ramos administration (1992–​1998), it is said there were talks of a JDA with China to explore for oil in Reed Bank, but these did not succeed (Lim 2000, 85). However, the 1992 ASEAN Manila Declaration on the SCS and the bilateral agreement on an eight-​point COC reflected in the Philippines–​China Joint Statement on Consultations on the South China Sea and other Areas of Cooperation (August 1995) (Thuy 2011) were adopted. In 1994, Manila and Hanoi, as a confidence building measure and given the limited scientific information concerning the SCS, launched a Joint Oceanographic and Marine Scientific Research Expedition (JOMSRE) in the southern part of the SCS (Bensurto Jr. 2010).7 In May of the same year, the Philippines awarded a contract to Alcorn (a subsidiary of US VAALCO) for desktop exploration in Reed Bank (Lim 2000, 84). In July 1994, Ramos renewed his call for the demilitarization of the Spratlys, the shelving of sovereignty issues, and the development of the area through cooperation (Lim 2000, 84). Two years later, in July 1996, the proposal for a regional COC was officially endorsed at the 29th ASEAN Ministerial Meeting in Jakarta. Under Ramos’ successor, Joseph “Erap” Estrada (1998–​2001), tensions over Mischief Reef ensued. There was no mention of a JDA in Reed Bank; the only discussions were about a Joint Committee on Fisheries Research and Marine Environmental Protection (Lim 2000, 100)  and the proposal for a regional COC. Midway into Estrada’s term of office, due to political scandal (concerning ill-​gotten wealth), he was kicked out of office through the “People Power Revolution.” The last three years of his term was served by his Vice President, Gloria Macapagal-​Arroyo. Interestingly, only a year after Arroyo’s assumption of the presidency in 2002, the DOC was finalized and signed. With Arroyo as president (2001–​2010), there was a great improvement in bilateral ties with China. This was even declared by Arroyo and then Chinese President Hu Jintao as the “golden age of partnership.” During Arroyo’s presidency, a JDA in the form of “Joint Marine Seismic Undertaking” (JMSU) was signed between the Philippines and China (1 September 2004). This covers an area of 142,886 square kilometers about 80 nautical miles west of the Philippines’ Palawan Island that includes Reed Bank (Service Contract [SC]  72), formerly Geophysical Service Exploration Contract (GSEC) No. 101.8 Although Vietnam objected to the accord, as it felt left out as a claimant state, it was brought into the fold when the JMSU became a “Tripartite

Philippines–China Joint Development  81 Agreement for Joint Marine Scientific Research in Certain Areas in the South China Sea” (July 2005–​June 2008). This was signed by the state-​owned petroleum companies of the three countries: China National Offshore Company (CNOOC), Vietnam Oil and Gas Group (PetroVietnam), and Philippine National Oil Corporation (PNOC). It is worth remembering that in April 2005, United Kingdom (UK)-​based Forum Energy Plc, which bought the stakes from Sterling Energy (that acquired the contract in 2002), got the rights to explore in SC 72 and in August 2005 announced the completion of a 3D seismic survey over the Sampaguita gas discovery (FEC Resources 2005). Quite surprisingly, Arroyo, in 2009, before stepping out of office and to the dismay of China, signed into law the Philippine Baselines Law (Republic Act 9522), which strengthened Philippine maritime and territorial claims by clarifying the basis of the country’s maritime boundaries, zones, and jurisdiction as a coastal State under the United Nations Convention on the Law of the Sea (UNCLOS).9 Under Arroyo’s successor, Benigno Aquino (2010–​ 2016), Philippines–​ China relations arguably plunged to their lowest levels. The diplomatic and political fallout started with the Scarborough Shoal Standoff, when China took control of the area, its ships remaining while those of the Philippines’ withdrew based on an agreement for mutual withdrawal brokered by the Americans (Tordesillas 2012). To the Aquino administration, this signaled unprecedented maritime assertiveness by China, which served as an impetus for the internationalization of the SCS issue.10 The Aquino government took legal recourse to challenge China’s maritime claims (based on the nine-​dash line and historic rights) –​embodied in a 4,000-​page Memorial –​ before an Arbitral Tribunal constituted under Annex  VII of UNCLOS in January 2013.11 It should be noted that during the Scarborough Shoal Standoff, there were efforts by private actors in the Philippines (Philex Petroleum Corporation) to initiate exploratory talks with CNOOC for a JDA in Reed Bank or SC 72, but these did not succeed due to lingering sovereignty issues (Dumlao 2012).12 Nevertheless, both companies had agreed to cooperate commercially and technically once political issues are ironed out (Martelino-​Reyes  2014). In 2010, the Department of Energy awarded exploration rights to Forum Energy, which has a 70 percent stake in Reed Bank/​SC 72 (covering an area of 880,000 square kilometers) and is 64.45 percent owned by Philex Petroleum (headed by Philippine business magnate Manuel V. Pangilinan).13 Monte Oro Resources and Energy Inc., owned by tycoon Enrique Razon, has a 30 percent stake in SC 72. It may be recalled that in March 2011, two Chinese patrol ships, citing Chinese jurisdiction, blocked the seismic survey operations of a Philippine vessel (MV Veritas Voyager) chartered by Forum Energy at Reed Bank (Senate of the Philippines 2011). In June 2011, the Aquino government put forward a proposal for a Zone of Peace, Freedom, Friendship, and Cooperation, which envisaged joint development of the “disputed” (the Spratlys) and “non-​disputed” areas (the

82  Aaron Jed Rabena Philippine EEZ). This was unsuccessful, as other ASEAN countries preferred the dispute management mechanism within the DOC framework. As a consequence of the third-​party arbitration that the Philippines pursued against China, in December 2014, the Department of Energy imposed a moratorium (force majeure) on drilling and exploration operations in the SCS (which covers Reed Bank), as the area was the subject of the arbitration case that the Philippines filed against China.14 As Aquino’s term ended and the Duterte administration assumed office in June 2016, Philippines–​China relations took a turn for the better, as evidenced by Duterte’s willingness to make China one of his first foreign trips. Even while still campaigning for the presidency in 2016, Duterte had already made it known he was open to a JDA with China (Ranada 2018). There are several factors behind Duterte’s wish to pursue a JDA with China in the SCS: to avoid armed/​unarmed confrontation; to ease regional geopolitical tensions; to engage in conflict management; to pursue preventive and economic diplomacy (Rabena 2018); and to regulate resource competition for practical gains. In fact, Duterte had repeatedly mentioned that resources in the SCS should be “shared” rather than claimants resorting to war (Geducos, Mabasa, and Torregoza 2018), and he even called the possible JDA with China a kind of “co-​ownership” (Salaver 2018). According to a former Chief Geologist of the PNOC, in terms of dividends and given the Philippines’ lack of capital (needed to cover the tremendous costs of offshoring drilling, oil/​gas wells, and fixed/​floating production facilities) and technical expertise, a JDA with a foreign partner (China) would help serve Philippine economic interests and energy security by avoiding power crises and oil market fluctuations in the Middle East (cited in Cabreza 2019).15 As a former president of the PNOC had said, among Arroyo’s motivations for developing the Reed Bank were the rising oil prices and increasing dependence on imported crude oil and petroleum products (cited in Xie and Li, 2016). As Section 2(4) of Article XII of the 1987 Philippine Constitution provides, partnerships to exploit, develop, and utilize petroleum resources should be “based on real contributions to the economic growth and general welfare of the country” (Philippine Constitution 1987). Relatedly, the Malampaya gas field (SC 38), located 65 kilometers northwest of Palawan Island, which supplies 40 percent of Luzon’s (the island peninsula where Manila is situated) energy requirements, and 25 percent of the country’s electricity, is expected to be depleted by around 2024–​2027.16 The MOU on Cooperation in Oil and Gas Development in the South China Sea, signed by presidents Duterte and Xi in November 2018, noted the creation of an Inter-​Governmental Joint Steering Committee and an Inter-​Entrepreneurial Working Group, which would firm up the specifics of a cooperation framework within a year. The Committee is comprised of members of both countries’ foreign affairs and energy establishments, while the Working Group is composed of representatives from CNOOC and the Philippine National Oil Company–​Exploration Corporation (PNOC–​EC).

Philippines–China Joint Development  83 Other notable features of the MOU include: the non-​specificity of the geographic scope of the JDA; the non-​prejudicial clause; and the non-​creation of rights and obligations under international law. It has been widely presumed that the area being considered for a JDA is Reed Bank (SC  72), although other possibilities, which are also within China’s nine-​dash line, are Northwest Palawan (SC  75), West Balabac (SC  59), and West Calamian (SC  58) (see Republic of the Philippines PNOC Exploration Corporation. n.d.). Unexpectedly, the signing of the MOU generated positive feedback even from the country’s staunchest China critics, such as retired Supreme Court Associate Justice Antonio Carpio and former Secretary of Foreign Affairs Albert del Rosario. Both believed that the Philippines was “safe” because the Philippine government stipulated that a JDA will be implemented by Philippine contractors (e.g. Forum Energy in SC  72)  –​or China as a subcontractor –​which, in essence, means a recognition of Philippine sovereignty and sovereign rights (Paterno 2018). For Justice Carpio, the wording of the MOU is appropriate because “joint exploration and exploitation is prohibited in [the Philippine] Constitution, which requires that the Philippines shall have ‘full control and supervision’ in the exploration and exploitation of natural resources” (Punay 2018).

Political and domestic challenges for the Philippines As some scholars have argued, media, public reaction, state of political ties, and nationalist sentiment are all crucial variables for JDAs (Beckman et al. 2013). This was the case in the 2001 Cambodia–​Thailand JDA, which was not implemented because of thorny bilateral relations, and in the 2009 Malaysia–​Brunei Agreement, which was seen by the Malaysian public as a sign of weakness (Beckman et al. 2013). In connection with these, one major stumbling block for pursuing a JDA with China is the country’s unfavorable image in the Philippines. According to a public opinion poll conducted by Pulse Asia in July 2018, only 17 percent of Filipinos had a favorable view of China, while traditional partners such as the US, Japan, and Australia were rated positively by 74, 45, and 32 percent, respectively (Viray 2018). In the same survey, 70 percent of Filipinos wanted the Duterte administration to assert sovereignty claims in the SCS in accordance with the international Arbitral Award. In another survey, conducted by Social Weather Stations in April 2019, only 27 percent of Filipinos trusted China’s good intentions for the Philippines (Rappler 2019). In the Philippines, the staunchest critics of China and opponents of the JDA cut across the political spectrum, including left-​leaning groups and other political parties. As far as the SCS is concerned, there are four key reasons for Filipinos’ mistrust and negative perceptions of China:  (1) incidents of restriction of fishing activities by the Chinese Coast Guard; (2)  the commission of illegal fishing activities (e.g. destruction of coral reefs and harvesting of endangered species in Scarborough Shoal) by Chinese fishermen; (3)  previous cases of

84  Aaron Jed Rabena Chinese interception of Philippine supply vessels and patrol aircraft; and (4) the reclamation and militarization of maritime features in the Spratlys.17 It is not surprising, then, that reports of hundreds of Chinese fishing vessels surrounding the Philippine-​occupied island of Pag-​Asa (Thitu) in the Spratlys in April 2019 were immediately publicized as “swarming” tactics meant to intimidate the Philippines (Mangosing 2019). Similarly, when a Chinese shipping vessel accidentally rammed a Philippine shipping vessel in June 2019, this was immediately believed to have been deliberately carried out by China’s maritime militia (ABS-​CBN News 2019a). To determine how Philippine domestic politics figure in foreign relations, it is important to take stock of the Arroyo administration’s engagement with China. After Arroyo sought and won re-​election in 2004, her entire term was hounded over questions of legitimacy due to alleged electoral fraud and corruption involving her government and family (Philippine Daily Inquirer 2018; Sisante 2008). This caused the public and her political foes to be vigilant of her every move. Thus, when the JMSU was signed in 2005, there were widespread protests by political forces antipathetic to Arroyo. Critics and leftist militant groups saw the controversial deal as a “blunder,” a “sellout,” and a form of “treason” (Philippine Center for Investigative Journalism 2008) that will prejudice Philippine national interests (Espina 2012, 11). There are four reasons for this belief. First, some reports suggest that in exchange for the JMSU, the Arroyo administration received immense amounts in loans from China, as evidenced by the record-​breaking number of bilateral agreements that were signed (Go 2008).18 Second, the total area of the JMSU was 80 percent within the Philippines’ EEZ, giving the impression that the Philippine government had given tacit acknowledgment that the area –​which is of great strategic value –​is disputed and is therefore a concession of Philippine sovereignty and in violation of UNCLOS (Go 2008). Third, the signed deals with China were said to be tainted with corruption and overpriced (e.g. the $329 million National Broadband Network-​ZTE deal and the $421 million Northrail Project deal) (Go 2008). Fourth, there was an alleged lack of transparency as the Department of Foreign Affairs had no knowledge of the said projects (Go 2008). Accordingly, in May 2008, leftist groups (Anakpawis, Bayan Muna, Gabriela) filed a case against the Arroyo government before the Philippine Supreme Court for the reason that the JMSU goes against Article  XII, Section 2 of the 1987 Philippine Constitution (Bernal 2014) (this part of the Constitution is discussed in the next section). For the petitioners, the word “seismic” in JMSU, as far as oil and gas is concerned, is a precursor to “exploration” which, as stated in the Constitution, should be “under the full control and supervision of the State” (Navallo 2018). Interestingly, however, the Supreme Court has not yet decided on the matter even though follow-​up resolutions were made by the petitioners in 2014 and in

Philippines–China Joint Development  85 2018. It is worth noting that, during the JMSU, Arroyo cancelled the China-​ funded National Broadband Network-​ZTE in 2007 and the Northrail Project in 2008 due to alleged irregularities and kickbacks. It could be argued that Arroyo did this as a form of damage control, as she was beset by a series of intense political scandals (e.g. congressional investigations, mass protests, and threats of impeachment) that chipped away at her approval ratings, which reached negative levels (−33 in 2005 and −38 in 2008) (see Arroyo’s unpopularity in Generelao and Pedroso 2009). As for the Duterte government, it may still be exposed to risk, as was the case with the Arroyo administration, as the SCS and China-​funded projects continue to be highly political and controversial in the eyes of the Filipino public. While Duterte’s popularity at home  –​on account of his swift and tangible delivery of public goods  –​may offset the unpopularity of a JDA, it remains to be seen whether the momentum for a JDA can be sustained throughout his term, especially in the event of underperformance, mismanagement of crises, and/​or accumulation of political scandals that might compound problems associated with China’s unpopularity. There has already been an instance where Duterte has shown vulnerability to public pressure. When he was a presidential candidate in 2015, his electoral ratings declined (Philippine Daily Inquirer 2016) as a result of massive public uproar over his cursing of the Catholic Pope (especially problematic in a Catholic-​dominated country like the Philippines). This eventually prompted him to express remorse and issue a public apology (ABS-​CBN News 2016).

Twin legal barriers: The Philippine Constitution and the Arbitral Award The resounding questions associated with JDAs have always been about whose laws and which ones apply. In this regard, the Philippine Constitution and the Arbitral Award pose two legal hurdles in finalizing a JDA with Beijing in Reed Bank. First, the Constitution imposes constraints. Article XII, Section 2 reads as follows: All lands of the public domain, waters,  … petroleum,  … forces of potential energy, fisheries, … and other natural resources are owned by the State.  … The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-​ production, joint venture, or production-​ sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens. […] The State shall protect the nation’s marine wealth in its archipelagic waters, territorial sea, and exclusive economic zone, and reserve its use and enjoyment exclusively to Filipino citizens. […]

86  Aaron Jed Rabena The President may enter into agreements with foreign-​ owned corporations involving either technical or financial assistance for large-​ scale exploration, development, and utilization of minerals, petroleum, and other mineral oils according to the general terms and conditions provided by law. (Philippine Constitution 1987) In sum, a JDA can only be possible if it is in accordance with Philippine laws or where the Philippine government exercises “full [not joint] control and supervision” (retired Justice Carpio, quoted in Gregorio 2018). Retired Philippine Supreme Court Chief Justice Artemio Panganiban (2018) has defined “full control” as that exercised by the board of directors of a private corporation; the performance of managerial, operational, financial, marketing and other functions may be delegated to subordinate officials or given to contractual entities, but the board retains full residual control of the business. In this context, the conventional wisdom is that the Oil and Gas Cooperation Agreement cannot be a government-​to-​government agreement and should be in conformity with the Philippine SC system where foreign partners are only allowed as subcontractors (e.g. Farm-​In Agreements), the implication being that the Philippines has sovereign rights over Reed Bank. Furthermore, the constitutional clause on production sharing agreements is further embodied in Presidential Decree No.  87 of 1972 or “An Act to Promote the Discovery and Production of Indigenous Petroleum” and Presidential Decree No. 1459 of 1978, issued by then President Marcos, which stipulates that 60 percent of the net profits arising from the exploration, development, and utilization of petroleum resources should go to Filipinos and only 40 percent to foreign partners. To China, this may be symbolically inauspicious considering that it asserts sovereign rights claims over the SCS islands (the Pratas/​Dongsha Islands, the Paracel/​Xisha Islands, the Zhongsha Islands and the Spratly/​ Nansha Islands) and their adjacent waters, and likewise maintains “historic rights” within the “nine-​dash line” (Ministry of Foreign Affairs of the People’s Republic of China 2014). As for the ownership of SCs that fall under the category of financial and/​or technical assistance agreements for exploration and development of petroleum minerals, foreigners can have 100 percent ownership, as was stated in the Supreme Court Case of La Bugal-​ B’laan vs. Ramos (1 December 2004). This was the case in Malampaya gas field (SC 38), where Shell Philippines Exploration BV was the operator on behalf of joint venture partners Chevron Malampaya LLC and PNOC–​EC, and in Calamian (SC 54), where CNOOC has a 51 percent stake. SC 38 and SC 54 are both located off the island of Palawan and are proximate to the disputed Reed Bank (SC 72) (see Republic of the Philippines PNOC Exploration Corporation, n.d.). Relatedly, an

Philippines–China Joint Development  87 important question to be answered is which state will secure the extraction area (Reed Bank) when exploration, development, and utilization of natural resources commence. Again, if it will be “jointly” secured, then the Philippine Constitutional clause on “full control and supervision” might be violated. Second, the Arbitral Award is an international landmark case that distinguishes the legal narrative on the JDA with China vis-​à-​vis the period when there was still no ruling. Specifically, the Arbitral Award not only affirmed Philippine maritime entitlements as an archipelagic state, but also undermined the legitimacy of China’s claims where it was held that China’s nine-​dash line and historic claims are inconsistent with UNCLOS and that certain maritime features such as Reed Bank are well within the Philippine EEZ; this means that there are no legitimate overlapping claims (EEZ and continental shelf) with China. According to Articles 74(3) and 83(3) of UNCLOS, a JDA can be done if there is an overlapping EEZ or continental shelf between two claimant states. Based on this, the JDAs and maritime delimitations agreed between Malaysia and Thailand (1990), Cambodia and Vietnam (1982), Malaysia and Vietnam (1992), Thailand and Vietnam (1997), Indonesia, Malaysia, and Vietnam (2000), China and Vietnam (2005), and Brunei and Malaysia (2009) all have legitimate overlapping maritime claims under international law. Figure 5.1 summarizes the factors associated with mistrust and risk for a JDA with China.

Strategic -Militarization of Islands -Access Blockade (Fishing Activities and Resupply Missions) -Other Activities that have political/military implications

Mistrust

Negative Perceptions on JDA

Mistrust Environmental -Reclamation of Islands -Illegal, Unreported, Unregulated Fishing

Figure 5.1 Risk factors for a JDA with China Source: Drawn by the author

Mistrust

Philippine Domestic Conditions -Reputation/Image of Chinese Projects and Investments -President Duterte’s Popularity/Political Capital

88  Aaron Jed Rabena

Conclusion and policy considerations Clearing bottlenecks for a Sino–​ Philippine JDA entails a multifaceted approach. It should be noted that the SCS issue is not just a resources issue, but also encompasses environmental, legal, political, and strategic concerns. This means that if only one problem is targeted (e.g. hydrocarbon resources), other issues would still stand out, create mistrust (undermine confidence), and put the broader SCS issue in a bad light, thus leading to “dysfunctional” or “ineffective” cooperation. Put differently, if the issues are not confronted simultaneously or holistically, the legitimacy of the policy for pursuing a JDA and/​or the broader policy of its of its proponent (i.e. Duterte) may be impaired or substantially impacted. For instance, the 2008 China–​Japan JDA on the Chunxiao/​Shirakaba gas field was disrupted due to inflated nationalist sentiments (Nguyen and Amer 2009). Keeping this in mind, there are five measures that both China and the Philippines could adopt in order to steadily facilitate the prospects of a JDA and mitigate negative perceptions. First, to preserve the political stability of the SCS, the status quo should be maintained through an abstention by China to refrain from further reclamation of maritime features and militarization of already occupied man-​made islands, as these cause profound uneasiness on the part of smaller claimant states. In addition, reclamation and militarization would only draw more media sensation and, thus, lead to the escalation of tensions and take a toll on China’s soft power gains. Second, the finalization of the COC should be expedited; if the finalization is prolonged, doubts about China’s intentions and sincerity will amplify. This is because gray areas would remain unaddressed, and conflicting parties would impose their own interpretations of the open provisions of the DOC. An effective COC could be in place if there are stronger mechanisms to regulate sustainable fishing and maritime safety and navigation that involves fishermen. However, China’s proposal that cooperation related to the marine economy –​particularly oil and gas –​cannot be done with countries outside the region (Thayer 2018) may challenge Philippine laws that allow companies from any foreign country to become a partner/​investor. Third, there is a serious need to improve the strategic communications strategies of both Chinese and Philippine governments. China needs to manage its political messaging for its internal and external audiences, especially the strong rhetoric and posture that it has to project before its domestic audience, which has adverse implications for its neighbors. Strong rhetoric issued by this great power, especially given China’s economic size and military power, can have an intimidating or chilling effect on smaller claimant countries. As Brantly Womack (2003, 92) argues: An asymmetric bilateral relationship is not simply one in which each side brings vastly different capacities and vulnerabilities to the negotiating table. The difference in capacity creates a difference in perspective.

Philippines–China Joint Development  89 From the vantage point of the weaker side …, the stronger side has to be watched carefully because of the salience of … risks that it presents. Given its authoritarian political system, China undoubtedly has greater power to limit the media compared to the Philippines, which is a democracy with an open society and a free media. For its part, the Philippines, in order to avoid triggering domestic opposition on the JDA, should desist from making defeatist or underdog statements so that the deal with China will not be perceived as lop-​sided or a form of sovereign concession. Fourth, a proper legal cover should be adopted. This is the most complex part of the JDA, as a legal framework should not be in violation of Philippine (i.e. the Arbitral Award and the Philippine Constitution) and Chinese claims (historic rights and nine-​dash line), in order to save face in front of domestic audiences. A JDA could be in place without expressly stipulating the Arbitral Award and the Philippine Constitution (or domestic laws) as long as the spirit is not violated. In lieu of the Philippine SC system –​which China would likely oppose as it is tantamount to deference to Philippine laws (i.e. the stipulation of ownership by the Philippine state and that the governing law shall be Philippine law) (Flores 2018) –​a bilateral “treaty” could instead be forged, as has been suggested by Philippine maritime expert Jay Batongbacal (ABS-​CBN News 2018a). The signing of a treaty is imperative for a JDA to have legal basis. As Section 2(3) of Article XII of the Philippine Constitution states: “The President may enter into agreements with foreign-​owned corporations involving either technical or financial assistance for large-​scale exploration, development, and utilization of … petroleum … according to the general terms and conditions provided by law.” “Provided by law” here refers not only to existing Philippine laws on petroleum, but also to treaties as “implementing laws” (Silva 2019).19 As for the treaty, the following critical issues need to be addressed: governing labor laws, tax laws, contract laws, the operating authority, profit-​sharing terms, transparency, and the dispute settlement mechanism (e.g. arbitration, negotiation, mediation, conciliation, consultation) (ABS-​CBN News 2018a), based on Article 33 of the United Nations Charter. Profit-​sharing should not be a contentious issue for China, as in some of its land border disputes with its neighbors, it has conceded more land area (see boundary agreements in Harris 2008, 225). These kinds of arrangements have led to a more stable periphery for China. In regard to international law, Articles 74 and 83 of UNCLOS, which state that JDAs in “provisional arrangements” can only be implemented if there is an overlapping EEZ or continental shelf between concerned states, may be circumvented. The converse legal construction of this clause is that even without overlapping EEZ or continental shelf, a hybrid JDA in the form of an interstate (bilateral) oil and gas cooperation, through a treaty, which is not a “provisional arrangement,” could be made.20 As the time-​tested legal maxim goes, “everything which is not forbidden is allowed.” Another potential game-​changer and political window that could make for a more flexible

90  Aaron Jed Rabena Philippines–​China JDA is the likelihood of a change to the Constitution under the Duterte administration. This could make possible an amendment on the constitutional provision on “full control and supervision.” Fifth, there should be a fisheries agreement and a bilateral mechanism for marine environmental protection in Scarborough Shoal in order to put an end to illegal/​destructive fishing practices (e.g. mass harvesting of giant clams and destruction of coral reefs by Chinese fishermen) and ensure regional public goods (Mendoza and Siriban 2017, 21). This is urgent because total stocks and catch rates in the SCS have been declining, and it is said these will be depleted by 2024 (ABS-​CBN News 2019b). It has been estimated that the Philippines loses $660 million every year due to damaged reef ecosystems in Scarborough Shoal and reclamation operations undertaken by China in the Spratlys (Enano and Ocampo 2019). Suggestions for a “marine peace park” may also be explored, as the Philippines has already done with Malaysia (Principe and Licuanan 2017, 52). With these points in mind, there is great reason to cooperate. For one thing, the 2016 Arbitral Award had classified Scarborough Shoal as a traditional fishing ground of both Chinese and Filipinos. In addition, Article 123 of UNCLOS mandates that “States bordering an enclosed or semi-​enclosed sea should cooperate with each other in the exercise of their rights and in the performance of their duties under this Convention,” which include the coordination of the management, conservation, exploration, and exploitation of the living resources of the sea and the protection and preservation of the marine environment.

Notes 1 The Mischief Reef Incident, along with the growth of Chinese military and maritime law enforcement capability and nationalism, were the early sources of mistrust of China for the Philippines (Baviera 2013, 201). 2 At one point, the number of Chinese ships in the standoff with Philippine vessels reached up to 90 (see Tordesillas 2012). 3 JDA can refer to cooperation on oil and gas resources and on fisheries resources (Baviera and Batongbacal 1999, 1; Banlaoi 2012). 4 The principles of the DOC are rooted in ASEAN’s 1976 Treaty of Amity and Cooperation in Southeast Asia, the 1995 Treaty on Southeast Asian Nuclear Weapons Free Zone, and the 1992 Manila Declaration. 5 The first petroleum contract in Reed Bank was awarded by the then Ministry of Energy in 1975 (Gatdula 2011). In 1976, the Philippines issued contracts to local and Swedish companies to explore for oil (Lim 2000, 78). 6 This, however, was with the precondition that China would have sovereignty over the disputed areas/​features. 7 The JOMSRE had four phases, which lasted until 2007. For a good reading on the historical evolution of joint cooperation/​development in the SCS based on the Philippine experience (i.e. Exercise Palawan or Exercise Luzon Sea which is an informal workshop preceded the mechanisms JOMSRE and JMSU), see Encomienda (2014).

Philippines–China Joint Development  91 8 The Philippine SC System is based on Presidential Declaration No. 1857, also known as “The Oil Exploration and Development Act of the Philippines,” and the Republic Act No. 387, also called the “Petroleum Act of 1949.” The JMSU was said to be a pet project of then House Speaker Jose V. De Venecia, an ally of President Arroyo who served as the middleman in pushing for the JMSU (Go 2008). The JMSU covers activities such as data gathering and interpretation (Philippine Center for Investigative Journalism 2008). GSEC becomes an SC upon confirmation and verification of available hydrocarbon deposits. 9 To know more about Philippine maritime space, see the primer authored by a former Philippine Solicitor General titled “The Ocean Space or the Maritime Area of the Philippines” (cited in ABS-​CBN News 2017). 10 Forum Energy vessels were able to complete the Reed Bank survey where 2D and 3D seismic data were obtained (Gatdula 2011). 11 For an excellent articulation of the Philippine legal position on the SCS/​West Philippine Sea, see Carpio (2017). For other authoritative books on Manila’s maritime case against China, see Vitug (2018) and Robles (2019). 12 Philippine businessman Manuel Pangilinan met with the President of CNOOC and informed him that “the Chinese government has granted CNOOC exploration rights over [SC 72]” (Tordesillas 2018). There were also reports that, as the Track 1/​official channel with China over the Scarborough Shoal Standoff seemed to be bogged down, Pangilinan had been dispatched by then Secretary of Foreign Affairs Albert del Rosario, with whom he had business ties, to open another diplomatic channel with the Chinese (Tordesillas 2012). 13 GSEC  101 had been awarded to the UK-​based Sterling Energy in June 2002 (seismic work done in 2003)  before it was acquired by Forum Energy in April 2005 (Gatdula 2007). GSEC was converted into an SC on 15 February 2010 (PXP Energy, n.d.). 14 At the time of writing, the force majeure or exploration ban has not yet been lifted by the Department of Energy. 15 Philippine presidents that followed Marcos were not able to develop gas fields (Cabreza 2019). 16 For the former Chief Geologist of PNOC, geothermal energy is also an option, but the warming of the weather might cause complications for its operationalization (cited in Cabreza 2019). 17 For a study on the adverse impacts of maritime disputes on Philippine domestic stakeholders, see Baviera (2016). 18 Even while still Vice President, Arroyo had expressed her openness for a JDA with China (Go 2008). 19 This legal construction was based on an interview with a Philippine lawyer based at the University of the Philippines’ Institute for Maritime Affairs and Law of the Sea. 20 Ibid.

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92  Aaron Jed Rabena ABS-​CBN News. 2017. “Estelito Launches Primer on Philippine Maritime Space.” ABS-​CBN News, 20 April. https://​news.abs-​cbn.com/​news/​04/​20/​17/​ estelito-​mendoza-​launches-​primer-​on-​ph-​maritime-​space. ABS-​CBN News. 2018a. “PH-​China Joint Exploration Needs Treaty Framework.” ABS-​CBN News Channel, 6 March. www.youtube.com/​watch?v=MxHjzUbIFJI. ABS-​CBN News. 2019a. “Military Vessel Under Chinese Navy Command Rammed Filipino Fishing Boat:  Carpio.” ABS-​CBN News, 15 June. https://​news.abs-​cbn. com/​news/​06/​15/​19/​carpio-​chinese-​militia-​vessels-​have-​reinforced-​steel-​hulls-​for-​ ramming-​fishing-​boats. ABS-​CBN News. 2019b. “Maritime Law Expert:  West Philippine Sea’s Resources Will Be Depleted 5 Years.” ABS-​CBN News, 23 July. https://​news.abs-​cbn. com/​ v ideo/​ s potlight/​ 0 7/​ 0 3/​ 1 9/​ m aritime-​ l aw-​ e xpert-​ w est-​ p hilippine-​ s eas-​ resources-​depleted-​in-​5-​years. Banlaoi, Rommel C. 2012. “Functional Cooperation and Joint Development: A Way Ahead in the South China Sea.” Paper presented at the International Conference on Recent Development of the South China Sea Dispute and Prospects of Joint Development Regime, Haikou, Hainan, 7 December. www.academia.edu/​2265490/​ Functional_ ​ C ooperation_ ​ a nd_ ​ Joint_ ​ D evelopment_​ A _​ Way_​ A head_​ i n_​ t he_​ South_​China_​Sea. Baviera, Aileen S. P. 2012. “Some Thoughts on Joint Development in the South China Sea.” Paper presented at the 4th Conference on Sea Lanes of Communication, Taipei, 26 September. www.academia.edu/​7777175/​Phil_​Perspectives_​on_​Joint_​ Devt_​in_​the_​South_​China_​Sea. Baviera, Aileen. 2013. “Perspectives on Joint Development in the South China Sea.” In Philippines-​China Relations: Sailing beyond Disputed Waters, edited by Teresita Ang-​See and Chito Sta. Romana, 195–​213. Quezon City: Philippine Association for Chinese Studies. www.pacs-​phcn.org/​wp-​content/​uploads/​2019/​07/​PACS-​ Journal-​10-​2013.pdf. Baviera, Aileen S. P. 2016. “Territorial and Maritime Disputes in the West Philippine Sea: Foreign Policy Choices and their Impact on Domestic Stakeholders.” Public Policy, 15 (2):  12–​ 49. https://​cids.up.edu.ph/​wp-​content/​uploads/​Public-​Policy-​ Journal-​vol.15-​no.2-​2016.pdf. Baviera, Aileen S.  P., and Jay Batongbacal. 1999. “When Will Conditions Be Ripe? Prospects for Joint Development in the South China Sea.” Paper presented at the 13th Asia-​Pacific Roundtable, Kuala Lumpur, 31 May–​2 June. www.academia.edu/​ 28391856/​When_​Will_​Conditions_​Be_​Ripe_​Prospects_​for_​Joint_​Development_​ in_​the_​South_​China_​Sea. Beckman, R., C. Schofield, I. Townsend-​Gault, T. Davenport, and L. Bernard. 2013. “Factors Conducive to Joint Development in Asia  –​Lessons Learned for the South China Sea.” In Beyond Territorial Disputes in the South China Sea:  Legal Frameworks for the Joint Development of Hydrocarbon Resources, edited by R. Beckman, I. Townsend-​Gault, C. Schofield, T. Davenport, and L. Bernard, 291–​ 311. Cheltenham, UK:  Edward Elgar. https://​ro.uow.edu.au/​cgi/​viewcontent. cgi?referer=https://​www.google.com.ph/​&httpsredir=1&article=2236&context=lh apapers. Bensurto, Henry Sicad, Jr. 2010. “Cooperation in the South China Sea.” East Sea Studies, 20 July. http://​nghiencuubiendong.vn/​en/​conferences-​and-​seminars-​/​ second-​international-​workshop/​593-​cooperation-​in-​the-​south-​china-​sea-​views-​on-​ the-​philippines-​-​vietnam-​cooperation-​on-​maritime-​and-​ocean-​concerns-​by-​henry-​ s-​bensurto-​jr.

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94  Aaron Jed Rabena Geducos, Argyll, Roy Mabasa, and Hannah Torregoza. 2018. “No Need to Fight China; We Can Share –​Duterte.” Manila Bulletin, 21 May. https://​news.mb.com. ph/​2018/​05/​20/​no-​need-​to-​fight-​china-​we-​can-​share-​duterte/​. Generelao, Minverva, and Kate V. Pedroso. 2009. “Arroyo’s Performance, Trust ratings. It’s Downhill after 2004.” Philippine Daily Inquirer, 27 July. https://​ 2010presidentiables.wordpress.com/​the-​presidency-​of-​gloria-​macapagal-​arroyo-​ reviews-​point-​of-​views/​arroyo’s-​performance-​trust-​ratings-​it’s-​downhill-​after-​ 2004-​minerva-​generalao-​kate-​v-​pedroso/​. Go, Miriam Grace A. 2008. “A Policy of Betrayal.” ABS-​CBN News, 14 March. https://​news.abs-​cbn.com/​special-​report/​03/​14/​08/​policy-​betrayal-​first-​three-​parts. Gonzales, Iris. 2013. “US Agency Sees Huge Oil, Gas Potential in Spratlys.” Philippine Star, 11 February. www.philstar.com/​business/​2013/​02/​11/​907251/​us-​agency-​sees-​ huge-​oil-​gas-​potential-​spratlys. Gregorio, Xavier. 2018. “Carpio:  Oil Cooperation Would Make China Concede to PH Sovereign Rights.” CNN Philippines, 11 December. https://​cnnphilippines.com/​ news/​2018/​12/​10/​antonio-​carpio-​oil-​deal-​china-​philippines-​sovereign-​rights.html. Harris, Stuart. 2008. “Case Studies in China’s ‘New’ Diplomacy: United States, Latin America, Six-​Party Talks, Energy Security, and Regional Neighbors.” In China’s New Diplomacy: Tactical or Fundamental Change? edited by Pauline Kerr, Stuart Harris, and Qin Yaqing, 209–​228. New York: Palgrave Macmillan. International Crisis Group. 2016. Stirring up the South China Sea (IV): Oil in Troubled Waters. Crisis Group Asia Report. No. 275. 26 January. www.refworld.org/​pdfid/​ 56a785c64.pdf. Lim, Benito. 2000. Tempest over the South China Sea: The Chinese Perspective on the Spratlys. Asian Studies Journal, 36 (2):  69–​132. https://​asj.upd.edu.ph/​mediabox/​ archive/​ASJ-​36-​2-​2000/​lim.pdf. Mangosing, Frances. 2019. “Chinese Sea Militia Swarms around Pag-​Asa Island  –​ Military.” Philippine Daily Inquirer, 30 March. https://​globalnation.inquirer.net/​ 173963/​afp-​notes-​surge-​of-​chinese-​fishing-​vessels-​around-​pag-​asa. Martelino-​Reyes, Theresa. 2014. “Chinese Firm Rejects MVP Offer for Share in PH Project in Reed Bank.” ABS-​CBN News, 9 March. https://​news.abs-​cbn.com/​ business/​03/​09/​14/​chinese-​firm-​rejects-​mvp-​offer-​share-​ph-​project-​reed-​bank. Mendoza, Ronald, and Charles Siriban. 2017. “International Cooperation and the Blue Economy.” In Traversing the Challenges:  Political, Economic, and Environmental Dimensions of Maritime and Regional Security, edited by Benedikt Seemann and Sebastian Bersick, 21–​26. Makati, Philippines: Konrad-​Adenauer-​Stiftung. www. ruhr-​uni-​bochum.de/​ipea/​docs/​KAS_​Publication2017-​Manila. Ministry of Foreign Affairs of the People’s Republic of China. 1998. “Set aside Dispute and Pursue Joint Development.” www.fmprc.gov.cn/​mfa_​eng/​ziliao_​665539/​3602_​ 665543/​3604_​665547/​t18023.shtml. Ministry of Foreign Affairs of the People’s Republic of China. 2014. “Position Paper of the Government of the People’s Republic of China on the Matter of Jurisdiction in the South China Sea Arbitration Initiated by the Republic of the Philippines.” 7 December. www.fmprc.gov.cn/​nanhai/​eng/​snhwtlcwj_​1/​t1368895.htm. Navallo, Mike. 2018. “SC Asked to Rule on Petition Seeking to Nullify 2005 Joint Oil Exploration Deal.” ABS-​CBN News, 23 November. https://​news.abs-​cbn. com/​news/​11/​23/​18/​sc-​asked-​to-​rule-​on-​petition-​seeking-​to-​nullify-​2005-​joint-​ exploration-​deal.

Philippines–China Joint Development  95 Nguyen, Hong Thao, and Ramses Amer. 2009. “A New Legal Arrangement for the South China Sea?” Ocean Development and International Law, 40 (4):  333–​349. www.tandfonline.com/​doi/​abs/​10.1080/​00908320903077209. Panganiban, Artemio. 2018. “Constitutionality of Joint Explorations in WPS.” Philippine Daily Inquirer, 11 March. https://​opinion.inquirer.net/​111646/​ constitutionality-​joint-​explorations-​wps. Paterno, Esmaquel, II. 2018. “Carpio, Del Rosario Say PH ‘Safe’ with China Oil Deal.” Rappler, 23 November. www.rappler.com/​nation/​217412-​carpio-​del-​rosario-​say-​ philippines-​safe-​with-​china-​oil-​deal. Philippine Center for Investigative Journalism. 2008. “The Spratlys Deal: Selling out Philippine Sovereignty?” The PCIJ Blog, 17 March. https://​old.pcij.org/​blog/​2008/​ 03/​17/​the-​spratlys-​deal-​selling-​philippine-​sovereignty. Philippine Daily Inquirer. 2016. “Elections 2016 Surveys on Presidential, VP Candidate Preference.” 20 April. https://​newsinfo.inquirer.net/​780507/​elections-​2016-​surveys-​ presidential-​vp-​candidate-​sws-​pulse-​asia-​laylo. Philippine Daily Inquirer. 2018. “Arroyo Survives Multi-​million Peso Scandals.” 26 July. https://​newsinfo.inquirer.net/​1014535/​arroyo-​survives-​multimillion-​peso-​scandals. Principe, Alexis, and Wilfredo Licuanan. 2017. “Coral Reefs and Maritime Disputes.” In Traversing the Challenges:  Political, Economic, and Environmental Dimensions of Maritime and Regional Security, edited by Benedikt Seemann and Sebastian Bersick, 48–​54. Makati, Philippines: Konrad-​Adenauer-​Stiftung. www.ruhr-​uni-​ bochum.de/​ipea/​docs/​KAS_​Publication2017-​Manila. Punay, Edu. 2018. “Antonio Carpio: ‘Joint Exploration, Exploitation in West Philippine Sea Unconstitutional.’ ” The Philippine Star, 27 November. www.philstar.com/​ headlines/​2018/​11/​27/​1872058/​antonio-​carpio-​joint-​exploration-​exploitation-​west-​ philippine-​sea-​unconstitutional. PXP Energy. n.d. “SC 72 Recto Bank.” www.pxpenergy.com.ph/​service-​contracts/​sc-​ 72, accessed on 25 February 2020. Rabena, Aaron Jed. 2018. “Duterte’s Push for Joint Exploration in the South China Sea,” The Strategist, 31 January. www.aspistrategist.org.au/​dutertes-​push-​joint-​ exploration-​south-​china-​sea/​. Ranada, Pia. 2018. “DOCUMENT:  Oil, Gas Development Deal between Philippines, China.” Rappler, 26 November. www.rappler.com/​nation/​217559​memorandum-​understanding-​philippines-​china-​oil-​gas-​development-​deal. Rappler. 2019. “Only 2 in 10 Filipinos Believe that China Has Good Intentions for PH.” 6 April. www.rappler.com/​nation/​227520-​filipinos-​trust-​china-​sws-​ survey-​december-​2018. Republic of the Philippines PNOC Exploration Corporation. n.d. “Petroleum Service Contracts.” https://​pnoc-​ec.com.ph/​services/​petroleum-​service-​contracts, accessed 20 February 2020. Robles, Alfredo, Jr. 2019. The South China Sea Arbitration: Understanding the Awards and Debating with China. Eastbourne, UK: Sussex Academic Press. Salaver, Leah. 2018. “Joint Exploration with China is Co-​ownership, Says Duterte.” Philippine Daily Inquirer, 1 March. https://​globalnation.inquirer.net/​164677/​joint-​ exploration-​china-​co-​ownership-​says-​duterte. Senate of the Philippines. 2011. “Statement on the Reed Bank Incident.” 8 March. www.senate.gov.ph/​press_​release/​2011/​0308_​angara2.asp. Silva, Neil. 2019. Interview by author. University of the Philippines. 23 May.

96  Aaron Jed Rabena Sisante, Jam. 2008. “Pinoys Bid Good-​bye to another Unstable Year.” GMA News, 31 December. www.gmanetwork.com/​news/​news/​nation/​141975/​pinoys-​bid-​good-​ bye-​to-​another-​unstable-​year/​story/​. South China Sea Expert Working Group. 2018. “A Blueprint for Oil and Gas Production in the South China Sea.” Asia Maritime Transparency Initiative, 25 July. https://​amti.csis.org/​a-​blueprint-​for-​cooperation-​on-​oil-​and-​gas-​production-​ in-​the-​south-​china-​sea/​. Thayer, Carl. 2018. “A Closer Look at the ASEAN–​China Single Draft South China Sea Code of Conduct.” The Diplomat, 3 August. https://​thediplomat.com/​2018/​08/​ a-​closer-​look-​at-​the-​asean-​china-​single-​draft-​south-​china-​sea-​code-​of-​conduct/​. The Constitution of the Republic of the Philippines. 1987. Official Gazette. www. officialgazette.gov.ph/​constitutions/​1987-​constitution/​. The Governments of the Member States of ASEAN and the Government of the People’s Republic of China. 2002. “Declaration on the Conduct of Parties in the South China Sea.” ASEAN, 17 October. https://​asean.org/​?static_​post= declaration-​on-​the-​conduct-​of-​parties-​in-​the-​south-​china-​sea-​2. The Washington Post. 2015. “A ‘Great Wall of Sand’ in the South China Sea.” 8 April. www.washingtonpost.com/​opinions/​a-​great-​wall-​of-​sand/​2015/​04/​08/​d23adb3e-​ dd6a-​11e4-​be40-​566e2653afe5_​story.html?utm_​term=.a3e25044ce61. Thuy, Tran Truong. 2011. “Compromise and Cooperation on the Sea:  The Case of Signing the Declaration on the Conduct of Parties in the South China Sea.” East Sea Studies, 11 February. http://​nghiencuubiendong.vn/​en/​conferences-​and-​ seminars-​/​509-​compromise-​and-​cooperation-​on-​the-​sea-​the-​case-​of-​signing-​the-​ declaration-​on-​the-​conduct-​of-​parties-​in-​the-​south-​china-​sea#_​ftn4. Tiglao, Rigoberto. 2011. “The Spratlys:  Marcos’ Legacy, or Curse?” Philippine Daily Inquirer, 22 June. https://​opinion.inquirer.net/​6789/​the-​spratlys-​marcos’-​ legacy-​or-​curse. Tordesillas, Ellen T. 2012. “Backchannels of Diplomacy: Trillanes, MVP, US Talk to China for PHL.” GMA News, 21 September. www.gmanetwork.com/​news/​news/​ nation/​274903/​back-​channels-​of-​diplomacy-​trillanes-​mvp-​us-​talk-​to-​china-​for-​ phl/​story/​. Tordesillas, Ellen T. 2018. “Again, the Risks of Joint Exploration in Philippine EEZ.” ABS-​CBN News, 7 March. https://​news.abs-​cbn.com/​blogs/​opinions/​03/​07/​18/​ opinion-​again-​the-​risks-​of-​joint-​exploration-​in-​philippine-​eez. Viray, Patricia Lourdes. 2018. “Pulse Asia: 7 in 10 Filipinos Want Duterte to Assert Rights in West Philippine Sea.” The Philippine Star, 12 July. www.philstar. com/​ h eadlines/​ 2 018/​ 0 7/​ 1 2/​ 1 832894/​ p ulse-​ a sia- ​ 7 - ​ 1 0- ​ f ilipinos- ​ want- ​ d uterte-​ assert-​rights-​west-​philippine-​sea. Vitug, Marites. 2018. Rock Solid: How the Philippines Won Its Maritime Case Against China. Quezon City: Ateneo de Manila University Press. Womack, Brantly. 2003. “Asymmetry and Systemic Misperception:  China, Vietnam and Cambodia during the 1970s.” Journal of Strategic Studies, 26 (2):  92–​119. www.tandfonline.com/​doi/​abs/​10.1080/​01402390412331302995. Xie, Yanmei, and Adam Lee. 2016. “The Philippines’ Misguided Plan to Stop South China Sea Tensions.” The National Interest, 16 August. www.crisisgroup.org/​asia/​south-​ east-​asia/​philippines/​philippines-​misguided-​plan-​stop-​south-​china-​sea-​tensions.

6  Vietnam’s cooperative development in the South China Sea Existing cases and policy suggestions Bui Thi Thu Hien

Introduction Known internationally as the South China Sea (SCS), it is called the “East Sea” in Vietnam, the “Nan Hai” in China, and the “West Philippine Sea” in the Philippines. The SCS is an area of strategic importance for Asia-​ Pacific countries in particular and, more generally, for countries around the world. Over the past few years, the situation in the SCS has changed quite quickly, having been complicated by territorial disputes over sovereignty rights, jurisdiction, and maritime delimitation, which have caused continuous tensions. The reasons for these regional tensions are perceived differently among the countries involved. In 2009, Vietnam and Malaysia made a joint submission on the continental shelf to the United Nations Commission on the Limits of the Continental Shelf; following this, China sent a diplomatic note to oppose the two countries, attaching a map with a controversial U-​shaped line (Permanent Mission of China to the United Nations 2009). Vietnamese scholars often consider 2009 as a milestone year when assessing the process of growing disputes in the SCS. It is assumed that from this year onwards, disputing parties have further shown their position and policies towards the sea areas in the region pursuant to the principles of international law. Besides this, a series of events occurred, such as the interaction between Chinese naval vessels and a US surveillance ship in 2009, the Viking  2 exploration cables incident in 2011, the Binh Minh  2 exploration cables incident in 2012, the Scarborough incident in 2012, and the Haiyang Shiyou 981 (HD 981) oil rig incident in 2014. In this context, China and Association of South East Asian Nations (ASEAN) countries have identified specific objectives to better manage disagreements and to promote peace negotiations to resolve disputes in the SCS on the basis of international law, including the United Nations Convention on the Law of the Sea (hereinafter referred to as “UNCLOS”). In recent years, as China and ASEAN accelerated the negotiation to develop the Code of Conduct of Parties in the South China Sea (COC) and with the efforts of the concerned parties, the regional situation cooled down

98  Bui Thi Thu Hien somewhat. Thus the issue of cooperation development in the SCS is again being discussed. The cooperative development/​joint development in the SCS brings many benefits to stakeholders and helps maintain peace and stability in the region. First of all, cooperative development will contribute to solving problems related to exploitation of the natural resources of countries around the SCS area. For a long time in the region, Southeast Asian countries such as Vietnam, Malaysia, and Indonesia have been associated with traditional fishing grounds in this sea area. In the context of escalating disputes, the fact that countries have made different claims about their waters and increased law enforcement efforts to drive away fishermen from other countries has caused the decline of captured fisheries production, affecting people’s livelihoods. But joint exploitation activities allow stakeholders to mutually exploit fisheries in a specific sea area, with fishing boats fully licensed by relevant authorities and fishermen protected by law enforcement. Through joint exploitation activities in fisheries, it is possible for the stakeholders to be active in preserving aquatic resources and fight against unlicensed fishing activities in the area. Aside from aquatic resources, joint exploitation cooperation in the SCS area is also discussed in relation to oil and gas exploration and production. There have been some models of compliance in the field of oil and gas in the region with initial success. This cooperation also helps the concerned parties to address growing energy needs in their processes of economic development, while also contributing to regional peace and stability. Moreover, with China promoting many regional initiatives –​the Belt and Road Initiative, the expanded South China Sea Economic Belt, and the establishment of the Asian community of shared destiny to name a few –​cooperative development involving China and the SCS coastal States will help the parties to build trust, promoting cooperation and proactivity in regional initiatives. Some countries in the region have taken great interest in these initiatives by China. However, other SCS coastal States continue to respond cautiously, since the recent maritime tensions were mainly about national territorial sovereignty, a very sensitive issue. Besides, the successful development of joint exploitation projects involving the disputed parties in the region has also helped the public to better understand the economic benefits from maritime cooperation activities. This has contributed to reducing pressure from recently emerging nationalist movements and has helped to create a consensus between the government and the people, which is an important factor in facilitating negotiations among countries on the COC or on maritime delimitation. Vietnam is a coastal country in the SCS, with a coastline of more than 3,260 kilometers and more than 3,000 large and small islands, near and far. Of Vietnam’s 63 provinces and cities nationwide, 28 are coastal (Propaganda and Education Journal 2018). The country’s sea area is three times the size of its long and narrow land area; the economy of Vietnam is thus based heavily on the sea and ocean. Industries such as fishing and aquaculture, oil

Vietnam’s Cooperative Development  99 and gas, tourism, transport, and seaports all account for a very large proportion of the country’s national income. The renovation policy over the past 30 years has brought Vietnam strong economic development gains, while also posing challenges to the country in the course of its development. With a small area of land and a large area of sea and islands, the demand for economic development based on the latter is becoming increasingly urgent. The Communist Party of Vietnam (CPV) and the State of Vietnam have made clear decisions on marine economic development strategy in the past and for the next 30 years. However, for Vietnam to develop its marine economy, the most important thing is to maintain a peaceful and stable environment in the region. Being aware of the importance of maintaining peace and stability at sea, Vietnam has regularly made efforts to actively contribute to peacekeeping activities in the SCS, participating in most of the relevant bilateral and multilateral forums in the region and globally. It has also promoted negotiations on the delimitation of overlapping sea areas with many countries in the region to fundamentally resolve disputes. Vietnam considers negotiations on cooperative development in the SCS to be one of the most effective tools to help countries in the region build trust and satisfy their need to exploit natural resources. In summary, with regional development showing “favorable” signs and given the benefits of promoting cooperative development/​joint development, countries in the SCS region, including Vietnam, are looking for ways to work together on these projects in accordance with the interests of the parties concerned. In doing so, the SCS coastal States aim to strengthen and build trust by facilitating peace and stability in the region. However, scholars from countries in the region have always affirmed that because national interests are at stake, achieving successful cooperative development/​ joint development is “easy to say, difficult to do.” Great political determination from the governments of these countries, on the basis of a new social consensus, is necessary to help speed up and succeed in joint exploitation projects in the future.

Vietnam’s delimitation with its maritime neighbors Vietnam has recently negotiated maritime delimitation with several of its maritime neighbors, namely Indonesia, Thailand, and China. Some cases of delimitation are related to oil/​gas cooperative development/​joint development with the country’s maritime neighbors. Delimitation of the continental shelf between Vietnam and Indonesia Based on continental shelf claims between Vietnam and Indonesia, the two sides have an overlapping area of almost 37,000 square kilometers in the southeast part of the SCS (Nguyen 2009). In 1972, the government of the Republic

100  Bui Thi Thu Hien of Vietnam (South Vietnam) took part in negotiations with Indonesia; however, no solution was reached between the two parties. After national reunification, Vietnam officially opened the floor for negotiations, and the two sides gradually overcame their differences and figured out an appropriate and reasonable settlement to their overlapping claims. On 26 June 2003, the two sides signed an Agreement on the Delimitation of the Continental Shelf Boundary (hereinafter referred to as “the Vietnam-​ Indonesia Boundary Agreement”). The Vietnam–​ Indonesia Boundary Agreement entered into force on 29 May 2007. The agreement covers just over 250 nautical miles (McDorman and Schofield 2011, 4301). In addition, the two countries agreed to enter into negotiations for a settlement of their exclusive economic zone (EEZ) in the near future (Nguyen 2009). With the continuous strengthening of strategic partnership relations between the two countries, the leaders of Vietnam and Indonesia have affirmed “to enhance maritime cooperation, by prioritizing sustainable maritime economy and marine resources, marine investment schemes, marine scientific research and development related capacity building activities and environmental sustainability” (Nhân Dân 2018). The two sides also agreed “to further promote cooperation on energy sector and encouraged active participation of state-​owned and private enterprises from both countries in particular in the oil and gas exploration and production, refinery industry and services” (Nhân Dân 2018). With the signing of an agreement on the delimitation of the continental shelf between the two parties, cooperation activities will be further promoted in the future. Delimitation of maritime boundaries between Vietnam and Thailand Claims by Vietnam and Thailand relating to the Gulf of Thailand have resulted in an overlapping area totaling 6,074 square kilometers (Nguyen 2009). Vietnam and Thailand officially entered into negotiations in 1992 to determine the maritime boundaries. Agreement was reached after nine rounds of negotiation over seven years, with Vietnam being granted 32.5 percent of the overlapping area (Nguyen 2009). On 9 August 1997, after lengthy negotiation, Vietnam and Thailand signed an Agreement on the Delimitation of the Maritime Boundary between the Two Countries in the Gulf of Thailand (hereinafter referred to as “the Vietnam–​Thailand Boundary Agreement”). The Vietnam–​Thailand Boundary Agreement entered into force on 27 December 1997. The single segment boundary of approximately 76.5 nautical miles has been described as Vietnam’s first maritime boundary delimitation agreement (McDorman 2002, 2683). The main contents of the Vietnam-​Thailand Boundary Agreement are as follows: (1) the two countries delimitate the boundary by a straight line drawn from Point C to Point K; (2) the maritime boundary constitutes the continental shelf boundary and the EEZ boundary between the two countries; (3) if

Vietnam’s Cooperative Development  101 any single geological petroleum or natural gas structure or field, or other mineral deposit of whatever character, extends across the boundary line, the Contracting Parties shall communicate to each other all information and agree how to effectively exploit the field or deposit; (4) the two countries pledge to negotiate the delimitation of the continental shelf with Malaysia in the overlapping area among the three countries (McDorman 2002, 2692–​2694). Thus, the Vietnam–​Thailand Boundary Agreement has helped stabilize and develop relations between Vietnam and Thailand. This is the first maritime delimitation agreement to be concluded in the Gulf of Thailand, paving the way for other maritime delimitation negotiations in the region. Apart from the issue of maritime delimitation, the two sides also reached an agreement on working together to ensure maritime security and to protect biological resources through joint patrol activities. The Vietnam-​Thailand Boundary Agreement has laid the foundation for a stable relationship between the two countries. Delimitation of historical waters between Vietnam and Cambodia Vietnam and its neighbor Cambodia have adjacent sea areas. Historically, the two countries have disputed sovereignty claims over some coastal islands and regarding overlapping areas in territorial seas, involving the EEZ and continental shelf, which have yet to be resolved. On 7 July 1982, after many years of negotiation, Vietnam and Cambodia signed an Agreement on Historical Waters. The agreement gives the status of historic internal waters to an area of over 8,000 square kilometers in the maritime overlapping area between the two countries in the Gulf of Thailand (Nguyen 2009). Under this agreement, the two countries agreed to use the Brévie Line, adopted by Governor Brévie in 1939 as the dividing line for sovereignty over islands situated between the two countries. In other words, according to this agreement, disputes over the sovereignty of islands between the two countries have been settled. According to the agreement, it was also agreed that the two countries would determine their maritime overlapping area at a suitable time (Nguyen 2009). Although so far Vietnam and Cambodia have not completed the delimitation of the maritime boundaries, the two parties at least have a common agreement to clearly define their positions. In the spirit of solidarity and willingness to promote friendly peace relations between the two countries, the functional bodies of the two sides have contributed to managing maritime disagreements, ensuring a stable environment, which has been beneficial to their recent economic development at sea. Delimitation of maritime boundary between Vietnam and China The Gulf of Tonkin (the Beibu Gulf in Chinese and the Bac Bo Gulf in Vietnamese) covers a total area of 126,250 square kilometers (36,000 square

102  Bui Thi Thu Hien nautical miles). Its maximum width is around 310  kilometers (176 nautical miles), and its narrowest width, at its mouth, is around 207.4 kilometers (112 nautical miles) (Nguyen 2009). The process of negotiation between Vietnam and China over the maritime boundary in the Gulf of Tonkin had three stages: brief negotiations in 1974, initiated by Vietnam; negotiations between October 1977 and June 1978; and negotiations from 1992 to 2000 (Zou 2005, 13). The last stage involved 7 rounds of negotiation at government level, 3 meetings between the heads of government-​level negotiating teams, 18 rounds of negotiation at the operational level, and 49 meetings of the Joint Working Team and the Mapping Team (Zou 2005, 13). On 25 December 2000, the two sides signed an agreement on the Delimitation of the Territorial Seas, Exclusive Economic Zones and Continental Shelves in the Beibu Gulf (hereinafter referred to as “the Sino–​ Vietnamese Boundary Agreement”) and a Fishery Agreement for the Beibu Gulf. The Sino–​Vietnamese Boundary Agreement came into force on 30 June 2004. It sets out 21 geographic points that define the maritime boundary in the Gulf of Tonkin. The length of the delimitation line is approximately 500 kilometers. Of the area subject to delimitation in the Gulf, Vietnam has obtained 53.23  percent and China 46.77  percent, a difference of approximately 8,000 square kilometers (Tran 2019). The Sino–​Vietnamese Boundary Agreement is the first maritime boundary that China has agreed with a neighboring country, while it is the second of three agreements Vietnam has signed with a neighboring country (the others being with Thailand in 1997 and with Indonesia in 2003). The leaders of the two countries noted in May 2004 that the principles of “long-​term stability, future orientation, good neighborly friendship and comprehensive cooperation” have become the guiding principles for the maintenance and development of bilateral relations between China and Vietnam (China Daily 2004). Regarding maritime delimitation between Vietnam and China, apart from the Tonkin Gulf, the two parties still have a much larger sea area which needs to be delimited, such as the area outside the mouth of the Tonkin Gulf. For the purpose of negotiations on the delimitation of maritime boundaries outside the mouth of the Gulf of Tonkin, Vietnam and China agreed to conduct a joint survey in the area. The discussed quadrilateral area around four coordinates  –​ 17°49’10”N/​108°00’09,” 17°37’32”N/​108°14’38,” 17°32’45” N/​ 108°10’03,” and 17°44’49”N/​ 107°55’49”  –​could, in future, represent a new zone of joint exploitation outside the waters of the Gulf of Tonkin (Vietnamnet 2015). Groups of experts from both countries met, practicing the utmost discretion, seven times between 2010 and 2011; from 2012 onwards, the exchanges moved from being “among experts” to having “official” status (de Tréglodé 2016, 41). Officially, China wished to demarcate the waters of this “annex” to the Gulf of Tonkin and eventually, in line with the model for what was achieved in the Gulf, to establish a system of joint cooperation with Vietnam (de Tréglodé 2016, 41).

Vietnam’s Cooperative Development  103 Meanwhile, Vietnam and China have also conducted negotiations on joint development activities at sea. For example, Vietnam and China’s joint statement in November 2015 pointed out that the two countries would actively negotiate on joint development in the area off the mouth of the Gulf of Tonkin (Chinese Ministry of Foreign Affairs 2015). Based on guidelines on the settlement of maritime issues set out by the two countries’ leaders, as of December 2019 the two sides have held 12 rounds of negotiation involving the working group on the waters outside the Gulf of Tonkin and 9 rounds of negotiations involving the working group on maritime joint development (Chinese Ministry of Foreign Affairs 2019). Summary of the four cases and their implications for cooperative development From the four cases of maritime delimitation negotiations between Vietnam and its maritime neighbors, it can be seen that negotiations on maritime delimitation usually leave open the possibility that the concerned parties will conduct cooperative development of cross-​border resources. Furthermore, stakeholders are keen to promote cooperative development at sea so that they can avail of maritime resources such as aquatic resources, oil fields, and gas fields, which are all difficult to define clearly, unlike those which exist on land. The process of cooperative development among different countries at sea will help preserve aquatic resources against the destructive fishing activities which deplete those resources by continuing to catch regardless of breeding seasons. Although there remain many difficulties in negotiation with neighboring countries, the Vietnamese government has recently been trying to promote negotiation on maritime delimitation and cooperative development, showing the country’s determination to address these issues in the SCS.

Vietnam’s position on and laws for cooperative development in the SCS The Vietnamese government’s position on dealing with cooperative development/​joint development is reflected in its participation in international conventions as well as the CPV’s resolutions and Vietnam’s internal law documents. Participation in international conventions On 23 June 1994, the Vietnam National Assembly officially ratified UNCLOS, making Vietnam the 63rd member of this “Constitution for the Oceans.” By becoming a member of UNCLOS, Vietnam is always committed to implementing its provisions. UNCLOS clearly defines the cooperation among SCS coastal States, including states bordering enclosed or semi-​enclosed seas, in Article 123. As the SCS is a semi-​enclosed sea area with many overlapping

104  Bui Thi Thu Hien regions among coastal countries, joint exploitation is always the recommended solution for disputes. CPV guidelines and the state’s legal system on the issue of marine exploitation First, from the start of the renovation process, the Central Committee of the CPV clearly defined the policy of promoting marine economic development towards industrialization and modernization. In 1997, the Political Bureau issued Directive No.20-​CT/​TW to promote marine economic development towards industrialization. The directive affirmed the determination of the CPV and the Vietnamese government to turn the country into a strong maritime nation, promoting socioeconomic development in the sea and on the islands. On February 9 2007, to affirm and consolidate the goals of maritime economic development in the 21st century, the Political Bureau of the Central Committee of the CPV issued Resolution No. 09/​2007/​NQ-​TW on Vietnam’s sea strategy towards 2020 (Nguyen 2012). This emphasized making Vietnam a strong maritime nation. At the same time, the resolution emphasized the exploitation of resources for socioeconomic development, marine environmental protection, an active open-​door policy, and development of internal resources as well as the attraction of international cooperation and external resources pursuant to the principles of equality and mutual benefit. After more than ten years of implementation, the Central Committee of the CPV has conducted an overall review, including full assessment of marine economic development. In October 2018, Resolution No. 36-​NQ/​TW on the sustainable development strategy of Vietnam’s maritime economy, which has goals for 2030 and a vision to 2045, has once again affirmed the role and position of the maritime economy in the development of Vietnam. This resolution is a comprehensive and long-​term guide for the overall economic development of the sea and islands. Second, the system of legal and regulatory documents has clearly specified the regulations related to the issue of the sea and islands. The most basic of these is the Law of the Sea of Vietnam, passed in June 2012, which, in Article 6, clearly defines the international coalition on the maritime issue. International cooperation on maritime matters includes:  1. The State of Vietnam strongly promotes international cooperation on maritime matters with countries and regional and international organizations on the basis of international law and respect for independence, sovereignty and territorial integrity, equality and mutual benefit. 2. International cooperation on maritime matters includes: a) Maritime and oceanic surveys and researches; scientific, technical and technological applications; b) Climate change response, natural disaster prevention, control and warning; c) Protection of marine biodiversity and ecology; d) Prevention and combat against marine environmental pollution, treatment of waste discharged

Vietnam’s Cooperative Development  105 from maritime economic activities, and response to oil spill incidents; e) Search and rescue at sea; f) Prevention and combat against crimes at sea; g) Sustainable exploitation of marine resources and development of sea tourism. (Viet Nam News 2012) Apart from basic laws such as the Law of the Sea of Vietnam, joint exploitation activities between Vietnam and other relevant countries are also governed by specialized laws such as the Petroleum Law of Vietnam (1993), the Law on Natural Resources and Environment of the Sea and Islands (2015), the Mineral Law of Vietnam (2010), etc. In addition to the system of specialized laws regulating activities to exploit biological and mineral resources, there are also regulatory activities carried out by law enforcement agencies at sea, such as the Law on Coast Guard of Vietnam (2018) and the Maritime Law of Viet Nam (2005). In short, the policy of the CPV and the Vietnamese government is to develop the marine economy quickly and on the basis of science and technology. In order to achieve this strategy by 2030, and the vision for 2045, Vietnam needs to maintain an environment of peace and stability. Being aware of that, apart from making efforts to promote an open-​door foreign policy, Vietnam also wishes to speed up peace negotiations to resolve maritime disputes while, at the same time, expanding joint cooperation activities with other countries in the region. Although there are still different views on joint exploitation in the disputed sea areas, certain success in joint exploitation models between Vietnam and other countries in the region have shown clear evidence that Vietnam’s policy is sound, as well as providing valuable experience that can inform future joint exploitation activities in the region.

Cooperative development between Vietnam and its maritime neighbors In the 1990s and 2000s, Vietnam signed some cooperative development/​ joint development agreements with its maritime neighbors, namely the 1992 Malaysia–​Vietnam MOU, the 2000 Sino-​Vietnamese Fishery Agreement, and the 2005 Tripartite Agreement. These are described in turn. MOU for exploration and exploitation between Vietnam and Malaysia According to an announcement of the Government of the Republic of Vietnam in 1971 and the boundary of the continental shelf shown on the Malaysian maritime map published in 1979 (Haller-​Trost, 1998, 431), there is an overlapping area of about 2,800 square kilometers between Vietnam and Malaysia in the Gulf of Thailand (Nguyen 2009). Although the overlapping area is not large, according to experts, it has potential for oil and gas discovery.

106  Bui Thi Thu Hien On 5 June 1992, Vietnam and Malaysia signed a Memorandum of Understanding for the Exploration and Exploitation of Petroleum in a Defined Area of the Continental Shelf Involving the Two Countries (hereinafter referred to as the 1992 Malaysia–​Vietnam MOU) (for the text of the MOU, see Forbes and Basiron 2008, 182–​183). The major activities set out in the 1992 Malaysia–​Vietnam MOU include:  determining the coordinates of the overlapping area (the Defined Area); agreeing to explore and exploit petroleum by pending final delimitation of the boundary lines of their continental shelves; affirming that the joint exploration and exploitation would be without prejudice to the position and claims of either party in relation to and over the Defined Area, etc. The MOU has no expiry date. According to the 1992 Malaysia–​Vietnam MOU, Malaysia and Vietnam shall cause Petroliam Nasional Berhad (Petronas) and Vietnam National Oil and Gas Company (PetroVietnam), respectively, to enter into a commercial arrangement for the exploration and exploitation of petroleum in the Defined Area, provided that the terms and conditions of that arrangement shall be subject to the approval of the Government of Malaysia and the Government of Vietnam. After the 1992 Malaysia–​ Vietnam MOU, Petronas and PetroVietnam signed a number of agreements about oil and gas sharing, taxation, and other issues; and in 1993 they set up a Coordination Committee as the governance authority for the commercial arrangement area. On 29 July 1997, they saw the first barrel extracted on a commercial basis (Nguyen 2009). Joint development activities in the area are being carried out successfully, contributing to enhanced economic development as well as bilateral relations. Fishery agreement between Vietnam and China During the process of negotiations on the delimitation of the Gulf of Tonkin, Vietnam and China negotiated fishing cooperation. In the 1950s and 1960s, Vietnam and China had signed a number of agreements on fishing cooperation in the Gulf of Tonkin, such as the 1957 Agreement on Sailboat Fishing, the 1961 supplementary Protocol to the 1957 Agreement on Sailboat Fishing, and the 1963 Agreement on Fishing Cooperation in the Tonkin Gulf (Nguyen 2009; Zou 2002, 128). Because of the deterioration of Vietnam–​China relations in the 1970s, however, there was no further fishery agreement between the two countries until the end of 2000. The fishery issue was first put forward by the Chinese side, which wanted to include cooperation on fishery management with the issue of maritime boundary delimitation in the gulf (Zou 2002, 132). After careful consideration of the provisions of UNCLOS on the cooperation among states in the EEZ and the closed and semi-​closed water areas, the exploration and exploitation of the Gulf of Tonkin, and the natural conditions of the fishery resources, and with the aim of meeting the legitimate interests of fishermen in both countries, Vietnam and China agreed to start negotiations to conclude an Agreement on Fishing Cooperation in parallel

Vietnam’s Cooperative Development  107 with the negotiations on an Agreement on the Delimitation of the Gulf of Tonkin (Nguyen 2009). On 25 December 2000, China and Vietnam officially signed an Agreement on Fishery Cooperation in the Gulf of Tonkin (hereinafter referred to as the “Sino–​ Vietnamese Fishery Agreement”) together with an Agreement on Maritime Boundary Delimitation in the Gulf of Tonkin between the two countries. The Sino–​Vietnamese Fishery Agreement came into effect on 30 June 2004. According to the agreement, the two sides would establish a common fishery zone in the Gulf of Tonkin from 20°N down to the closing line of the gulf mouth. “This area is 30.5 nautical miles wide from the delimitation line on each side and has a total area of 33,500 km2, which is about 27.9% of the gulf area” (Phung 2001). According to Article 22  (2) of the Sino-​Vietnamese Fishery Agreement, the term of validity of this agreement shall be 12 years, and extend to another 3 years automatically after that (Zou 2002, 148). The two sides established a Joint Fishery Committee to create regulations related to the common fishery zone. After 15 years of implementation, the relevant agencies of the two sides confirmed that “the Agreement has contributed to stabilizing security and order in the Gulf of Tonkin area,” noting that “this is not an easy outcome of promoting cooperation between Vietnam and China. China evaluated the agreement positively in dealing with the common fishery issues between the two countries” (Bnews.vn 2019). Tripartite agreement among Vietnam, China, and the Philippines In September 2004, China National Offshore Oil Corporation (CNOOC) and the Philippine National Oil Company (PNOC) signed an Agreement for Joint Marine Seismic Understanding in an area of about 142,886 square kilometers in the SCS (CNOOC and PNOC 2004). Then, in November 2004, these two companies also subscribed to an agreement on joint oil and gas exploration in the disputed area. Being aware of the role of the Agreement for Joint Marine Seismic Understanding, Vietnam had raised the issue of joint exploration with the Philippines and China, aiming to conduct research on their petroleum resource potential. On 14 March 2005, PetroVietnam, the CNOOC, and the PNOC signed a Tripartite Agreement for Joint Marine Seismic Undertaking in the Agreement Area in the South China Sea (Chinese Embassy in the Philippines 2005; Vietnam Ministry of Foreign Affairs 2005). According to the tripartite agreement, the three companies would coordinate the collection of 2D and/​or 3D seismic data in an area of 142,886 square kilometers within three years. Under the tripartite agreement, the companies signed a commitment to strictly implement UNCLOS and the Declaration on the Conduct of Parties in the South China Sea (DOC). The three countries expressed their determination to turn the SCS into a region of peace, stability, and development (Vietnam Ministry of Foreign Affairs, 2005).

108  Bui Thi Thu Hien After signing the tripartite agreement, the three companies implemented the first seismic survey project in Shenzhen, Guangdong Province, China. The Petroleum Investment and Development Company, under PetroVietnam, would go on to join this project. For the Chinese side, China Oil Service Company, a company in which CNOOC held 65  percent of shares, also joined the project (Khoahoc.tv, 2005). According to the China oil and gas authorities, “[t]‌he mutual respect and trust among the three countries has ensured an important development in joint exploration of the South China Sea” (Khoahoc.tv, 2005). Although demonstrating the political determination of the three countries in relation to the joint exploration project, and because of the fast changes in the regional political context (especially after the generational transfer of leadership in the Philippines), the project could not continue beyond the expiry period of the tripartite agreement. In May 2017, Philippine President Rodrigo Duterte also expressed his stance on exploring the SCS’s natural resources with China and Vietnam (The Manila Times 2017). Summary and discussion of the three cases The three cooperative development cases in which Vietnam has taken part in the SCS area have once again reaffirmed the position and policy of Vietnam on the situation in the SCS. The main successes of the three cases are summarized next. First, the model for fishery cooperation in the Gulf of Tonkin area between Vietnam and China has demonstrated the need for a suitable joint model in the negotiation process on maritime delimitation between the two countries. In the past, along with promoting fishery cooperation, the two sides have conducted many joint patrol and inspection activities. Apart from a media campaign to prevent potential infringement activities by fishing vessels, the functional authorities of the two countries also carried out protection measures for fishermen involved in exploitation activities. The two sides have also maintained maritime production and security well. Most fishing vessels are licensed, ensuring compliance with regulations, and fishermen are also required to conform to inspection and supervision by the coastguard, fishery surveillance, and border guard. China also claims that in the spirit of friendship and mutual trust, the order of fisheries production in the common fishery zone is relatively stable. “The Vietnam-​China Fishery Cooperation Agreement in the Gulf of Tonkin is a great achievement, which is not easy for the two sides in cooperation promotion activities” (Law of Vietnam Newspaper, 2019). Since 2006, the authorities of the two countries have conducted 16 common fishery inspection operations in the Tonkin Gulf. Both sides have also released marine breeds to conserve aquatic resources, and they have carried out rescue exercises and professional exchanges of maritime law enforcement as well as exchange activities for young officers in the maritime police forces (Vietnam Coast Guard 2019).

Vietnam’s Cooperative Development  109 Second, the 1992 Malaysia–​Vietnam MOU has also satisfied the two countries’ demands for oil and gas exploitation in the overlapping area, having conducted negotiations on the joint exploitation area. both investment contributions and profits will be equally divided between the parties. Although the joint oil and gas exploitation project between Vietnam and Malaysia was minor in scope, it has brought stability to the vast sea area when disputes over sovereignty rights in the overlapping area have still to be resolved. Third, although the joint exploration project among the three parties only took place over a short time, the project has laid the foundation for strengthening trust among the parties, contributing to maintaining stability in the region. With many signs of stability in the region after the ruling of the South China Sea Arbitration issued in July 2016, especially as China and ASEAN have shown their commitment to the COC negotiation process, cooperative development is one of the better models for the parties to implement at the present time. From these three remarkably effective cases of cooperative development/​ joint development, the following are identified as key factors in the cooperation process. First, cooperative development must be based on the political determination of the concerned parties in the disputed area. Through Vietnam’s participation in bilateral and multilateral cooperation in the region, it can be seen that joint exploitation initiatives must go through a long negotiation process from idea to implementation, and they will only proceed in the context of enhanced bilateral or multilateral relations. To strengthen regional relations, the concerned parties need to show strong political commitment and be willing to put aside small disagreements to preserve peace and stability in the region. Second, joint exploration or exploitation activities must be conducted in the context of peace and stability in the region. While resource exploitation projects in the SCS area are directly in line with the interests of the people, they are located in waters where the parties have claims over sovereignty rights and jurisdiction and are, thus, considered very sensitive for the countries involved. As a result, external factors could stir unrest in the region and easily lead to disruption in joint exploitation cooperation projects. Therefore, in order to promote joint cooperation for exploitation of resources, aside from political will in the countries involved, all parties need to make efforts to preserve peace and stability in the region. These two issues are interrelated and complementary. Third, on entering into cooperative development agreements, the parties must make efforts to promote negotiation to help them better understand the needs and aspirations of all parties for joint exploitation cooperation projects. The negotiation process for joint exploitation projects is normally carried out in parallel with negotiation of the delimitation of sea areas, which is a very difficult and complicated issue, possibly leading to “dead ends.” Nonetheless, as well as peaceful negotiations to resolve disputes and manage disagreements,

110  Bui Thi Thu Hien the concerned parties should strive to promote the most effective and satisfactory options for joint projects. Fourth, as well as addressing the actual needs of countries involved, cooperative development activities aim to preserve peace and stability in the area. Disputing parties in the region need to make economic concessions to one another in order to promote regional cooperation projects, which bring great benefits to the region and ensure the economic development of stakeholders. Fifth, although parties may agree to conduct cooperative development in a disputed area, they reserve the right to pursue sovereignty and jurisdiction claims over the sea area. The issue of territorial sovereignty is sacred for any country or nation. Therefore, participation in cooperative development in disputed areas should not mean the parties lose their claims of sovereignty and sovereignty rights under the provisions of international law.

Difficulties and challenges in cooperative development, and recommendations Joint exploitation cooperation in the SCS is a very significant issue, not only for coastal States but also for countries outside the region, as shown in Articles 74 (1) and 74 (3) of UNCLOS. The delimitation of the exclusive economic zone between states with opposite or adjacent coasts shall be effected by agreement on the basis of international law, as referred to in Article 38 of the Statute of the International Court of Justice, in order to achieve an equitable solution. […] Pending agreement as provided for in paragraph 1, the States concerned, in a spirit of understanding and cooperation, shall make every effort to enter into provisional arrangements of a practical nature and, during this transitional period, not to jeopardize or hamper the reaching of the final agreement. Such arrangements shall be without prejudice to the final delimitation. Therefore, there are significant legal grounds for SCS coastal States to conduct joint exploitation projects. Although, as described in the fourth section of this chapter, there have been several successful cases of cooperative development in the area, many difficulties and complications remain, expressed in the following aspects. First, cooperative development projects are greatly influenced by public opinion. This is clearly shown in the third-​party joint exploration project involving Vietnam, the Philippines, and China. The Philippines, under the pressure of domestic public opinion, and influenced by the new ruling party as well as its changing foreign and economic policies, has decided to withdraw from the project. In another case, current public opinion in Vietnam also

Vietnam’s Cooperative Development  111 raises certain concerns for joint cooperation projects, especially in the context where Vietnam and China are in dispute on territorial sovereignty in the SCS; for example, the HD 981 oil rig incident in 2014. Second, cooperative development projects are also greatly influenced by political trust among stakeholders. When considering projects in the region, it is vital that they are promoted in the context of favorable relations among countries. The case of the Agreement on Fishery Cooperation signed between Vietnam and China in 2004 has clearly proved this. The period from 2000 to 2009 is considered the most significant period of development since the normalization of relations in 1991. The good relations between the two countries provided very favorable conditions for the signing and implementation of the agreement. It has been 15 years since the two countries concluded and enforced the agreement. Both sides have assessed the achievements positively, emphasizing especially the role the agreement has had in ensuring regional stability in the common fishery zone between the two countries. Apart from these two difficulties, the cooperative development projects among the parties are also affected by the economic potential of the parties. China is a large country with much greater economic potential than Southeast Asian countries that lie along the SCS. Therefore, it can be difficult to resolve issues relating to the promotion of projects between China and other countries and to identify suitable economic contribution models for joint exploitation projects. In addition, the issue of profit-​sharing from joint exploitation projects needs long-​term negotiation before any final decisions can be made, especially when it comes to multilateral cooperation projects. Although there remain certain obstacles and difficulties in joint exploitation cooperation activities among China, Vietnam, and other countries in the region, all governments affirmed their wish to continue. With these projects, trust between parties is strengthened through the process of negotiation, and energy and marine life needs of the countries are satisfied. Moreover, since it takes a lot of time to resolve territorial border disputes, cooperation projects provide a practical way to lay the foundation for negotiation of delimitation in the future. Despite the many setbacks that parties come up against in cooperative development in the SCS, the parties aim at friendly cooperation, maintaining peace, and a win-​win stability. This makes cooperative development a trend that stakeholders continue to favor. Simply put, to promote cooperative development, the relevant countries, especially Vietnam and China, must resolve the following issues. First, the parties carrying out joint exploitation programs need to have high political determination and achieve the highest consensus of public opinion domestically. Thus, there needs to be a focus on propaganda to raise social awareness on joint exploitation cooperation issues. Apart from focusing on social awareness, regional countries need to avoid unilateral actions that may lead to regional instability. The CPV and state leaders of Vietnam and China

112  Bui Thi Thu Hien have clearly defined the guiding principles in resolving maritime disputes between the two countries. In the process of seeking basic and long-​term solutions for sea-​related issues, in the spirit of mutual respect, equal and mutually beneficial treatment, the two sides actively discuss transitional and temporary measures that do not affect the stances and policies of the two sides, including studies and discussions on cooperation for mutual development. (Principle No. 4, Agreement on the Basic Principles Guiding the Settlement of Sea-Related Matters between the Socialist Republic of Vietnam and the People’s Republic of China, signed on 11 October 2011) Second, Vietnam also needs to strengthen ties with other countries around the SCS. Since most countries in the region are members of ASEAN, Vietnam needs to continually contribute to ASEAN’s central role in resolving regional peace-​and security-​related issues. Recently, China and ASEAN have continued to accelerate the COC negotiation process, which provides both sides with a good opportunity to establish an effective mechanism for managing disagreements and maintaining peace and stability in the SCS area. Third, to ensure the security and safety of the public, cooperative development should begin with less sensitive issues, which are closely related to economic development. This is mentioned in the DOC as the basic principle guiding the settlement of sea-​related issues. The SCS disputes are related to territorial sovereignty, one of the most sensitive issues for any country. As this issue can easily incite waves of extreme patriotism, joint cooperation activities should be based on less sensitive issues, such as exploitation of natural resources, search and rescue, piracy prevention, or nontraditional maritime security issues. These projects, if promoted well, will bring economic benefits to the people, increasing mutual understanding between countries and creating stability in the disputed sea areas. Fourth, along with promoting negotiations on cooperative development, disputing parties need to make parallel efforts to speed up negotiations on maritime delimitation in disputed areas. Maritime delimitation and joint cooperation are usually carried out simultaneously, the reason being that joint cooperation is only considered as a temporary solution to enhance trust among parties involved and resolve immediate conflict, whereas it is much more difficult to completely resolve maritime disputes. Maritime disputes need to be resolved through peace negotiations based on the principles of international law, including the UNCLOS, of which China and ASEAN countries in the SCS area are members. Only by completing negotiations on maritime delimitation among the parties in the SCS can long-​term peace and stability in the region be maintained. Fifth, as Vietnam and China share not only maritime boundaries but also land borders, it is necessary to combine forms of cooperation on land and

Vietnam’s Cooperative Development  113 at sea to create mutual interaction. The two sides have many nontraditional security issues that need to be dealt with jointly, such as the trafficking of women and children, smuggling, counterfeit goods, and terrorism. The two countries also share the important Red River and the Mekong River. For a downstream country like Vietnam, ensuring water supply and controlling water environmental protection activities in the upstream countries are legitimate concerns. Given the range of issues requiring joint attention, it is important that as well as promoting maritime cooperation, the two sides make efforts to promote cooperation on land, creating synchronicity in joint cooperation activities. This will benefit both sides and contribute to regional peace and stability. Sixth, the key to the success of cooperative development projects is the strengthening of mutual trust among the two countries. Vietnam and China have recently made efforts to promote alternative channels for dialogue to increase trust, such as through party-​level exchanges and cultural and youth exchanges between the two countries. By setting up hotlines to handle maritime issues, the two sides have established regular contact that lets them resolve problems as they arise, preventing long-​term regional instability and maintaining excellent relations between the two countries. Seventh, the concerned parties in Vietnam and China need to develop an effective mechanism for a media campaign on cooperative development activities. In the past, media campaign activities on the issue of cooperative development have not been well received by the parties concerned. In many cases, joint cooperation projects have been reported incorrectly by some subversive elements, misrepresenting the guidelines of the CPV and the state and leading to misunderstanding among the public. In the booming era of information technology, parties should be more focused on the direction of public opinion. Eighth, to effectively carry out joint exploitation projects, the concerned parties should promote negotiations to set up a maritime cooperation fund. This fund will help provide the resources necessary for the exploration and establishment of feasible joint exploitation projects. Furthermore, human resources should be qualified to maintain effective operation in joint exploitation projects. The cooperation fund can also provide funding for high-​quality training activities for joint exploitation projects.

Conclusion As stated by the Vietnamese Prime Minister at the 2nd Belt and Road Initiative Summit, held by China in Beijing on April 25 2019, Vietnam and China continue to adhere to basic principles for handling maritime issues, persevering with peace negotiations on the grounds of international law, striving for new progress in negotiating about delimitation of the outer area of the Gulf of Tonkin by 2020. (Vnxpress 2019)

114  Bui Thi Thu Hien To achieve these goals, the two countries should promote cooperative development projects, creating a foundation for building trust between the parties, facilitating a stable and peaceful environment in the area for more successful results from negotiations. Recently, Indonesia and the Philippines also announced that they have reached a consensus in their negotiation on disputed waters. These are good signs for efforts to promote cooperative development activities in the SCS in coming years. Although there are still difficulties in the short term, successful cases of cooperative development help to show the needs and wishes of the regional countries on this issue. In the current complicated regional context, cooperative development in the SCS area is one of the more worthwhile, valuable, and practical solutions; researchers and politicians should explore effective models for this option.

References Bnews.vn. 2019. “15 Years of Implementing the Tonkin Gulf Agreement on Fisheries between Vietnam and China.” 31 March. https://​bnews.vn/​15-​nam-​thuc-​thi-​hiep-​ dinh-​hop-​tac-​nghe-​ca-​vinh-​bac-​bo-​viet-​nam-​trung-​quoc/​117188.html. China Daily. 2004. “Consensus on Border Reached with Viet Nam.” 10 August. China National Offshore Oil Corporation and Philippine National Oil Company. 2004. “An Agreement for Joint Marine Seismic Undertaking in Certain Areas in the South China Sea by and between China National Offshore Oil Corporation and Philippine National Oil Company.” 1 September. www.spratlys.org/​documents/​ agreement_​bilateral_​marine_​seismic_​undertaking.pdf. Chinese Embassy in the Philippines. 2005. “Oil Companies of China, the Philippines and Vietnam Signed Agreement on South China Sea Cooperation.” 14 March. http://​ph.chineseembassy.org/​eng/​zt/​nhwt/​t187333.htm. Chinese Ministry of Foreign Affairs. 2015. “Joint Statement between China and Vietnam.” 6 November. www.fmprc.gov.cn/​web/​zyxw/​t1312772.shtml. Chinese Ministry of Foreign Affairs. 2019. “China and Vietnam Held the 12th Round of Negotiations of the Working Group on the Waters outside the Beibu Gulf and the 9th Round of Negotiations of the Working Group on Maritime Joint Development in Beijing.” 26 December. http://​new.fmprc.gov.cn/​web/​wjbxw_​ 673019/​t1728015.shtml. de Tréglodé, Benoît. 2016. “Maritime Boundary Delimitation and Sino-​Vietnamese Cooperation in the Gulf of Tonkin (1994–​2016).” China Perspectives, No. 3: 33–​41. DOI: 10.4000/​chinaperspectives.7030. Forbes, Vivian Louis, and Mohd Nizam Basiron. 2008. Malaysia’s Maritime Realm Atlas. Kuala Lumpur: Maritime Institute of Malaysia. Haller-​ Trost, R. 1998. The Contested Maritime and Territorial Boundaries of Malaysia: An International Law Perspective. London: Kluwer. Khoahoc.tv. 2005. “China, Vietnam and Philippines Ending Seismic Exploration in the South China Sea.” 21 November. https://​khoahoc.tv/​tq-​vn-​va-​philippines-​ket​thuc-​tham-​do-​dia-​chan-​bien-​dong-​1444. Law of Vietnam Newspaper. 2019. “Vietnam-​China:  15 Years of Implementing the Tonkin Gulf Fisheries Cooperation Agreement.” 11 April. https://​baophapluat.vn/​ kinh-​te/​viet-​nam-​trung-​quoc-​15-​nam-​thuc-​hien-​hiep-​dinh-​hop-​tac-​nghe-​ca-​vinh-​ bac-​bo-​447558.html.

Vietnam’s Cooperative Development  115 McDorman, Ted L. 2002. “Thailand-​Vietnam.” In International Maritime Boundaries, Vol. IV., edited by Jonathan I. Charney and Robert W. Smith, 2683–​2694. The Hague, The Netherlands: Martinus Nijhoff Publishers. McDorman, Ted L., and Clive Schofield. 2011. “Indonesia-​Viet Nam.” In International Maritime Boundaries, Vol. 6., edited by David A. Colson and Robert W. Smith, 4301–​4315. Leiden, The Netherlands: Martinus Nijhoff Publishers. Nguyen, Ba Dien. 2012. “An Overview of Vietnamese Policy and Law of the Sea.” Vietnam Law and Legal Forum Magazine, 28 September. http://​vietnamlawmagazine. vn/​an-​overview-​of-​vietnamese-​policy-​and-​law-​of-​the-​sea-​3215.html. Nguyen, Manh Dong. 2009. “Maritime Delimitation between Vietnam and Her Neighboring Countries.” UN-​Nippon Foundation Alumni Meeting, 13–​16 April. www.un.org/​Depts/​los/​nippon/​unnff_​programme_​home/​alumni/​tokyo_​alumni_​ presents_​files/​alum_​tokyo_​dong.pdf. Nhân Dân. 2018. “Vietnam, Indonesia Issue Joint Statement.” 12 September. https://​en.nhandan.com.vn/​politics/​item/​6603302-​vietnam-​indonesia-​issue-​joint-​ statement.html. Permanent Mission of China to the United Nations. 2009. “Note Verbale CML/​18/​ 2009.” 7 May. www.un.org/​depts/​los/​clcs_​new/​submissions_​files/​vnm37_​09/​chn_​ 2009re_​vnm.pdf. Phung, Le Cong. 2001. “The Agreement on the Delimitation of the Tonkin Gulf and the Agreement on Fisheries between Vietnam and China in the Tonkin Gulf.” Vietnam Ministry of foreign Affairs, 2 January. www.mofahcm.gov.vn/​vi/​mofa/​cs_​ doingoai/​cs/​ns04081808401148. Propaganda and Education Journal. 2018. “Vietnam Sea and Island –​Protecting the Nation’s Living Space.” 1 December. http://​tuyengiao.vn/​bien-​va-​hai-​dao-​viet-​ nam/​bien-​dao-​viet-​nam-​bao-​ve-​khong-​gian-​sinh-​ton-​cua-​dan-​toc-​117008. The Manila Times. 2017. “Duterte Open to South China Sea Deals.” 16 May. www. manilatimes.net/​2017/​05/​16/​news/​latest-​stories/​duterte-​open-​south-​china-​sea-​ deals/​327493/​327493/​. Tran, Cong Truc. 2019. “Important Notes when Interpreting and Applying the Sino-​ Vietnamese Boundary Delimitation Agreement in the Gulf of Tonkin in the Current Context.” Vietnam Education, 21 April. https://​giaoduc.net.vn/​tieu-​diem/​ mot-​so-​luu-​y-​khi-​giai-​thich-​va-​ap-​dung-​hiep-​uoc-​phan-​dinh-​vinh-​bac-​bo-​hien-​ nay-​post197616.gd. Viet Nam News. 2012. The Law of the Sea of Viet Nam. 7 August. https://​vietnamnews. vn/​politics-​laws/​228456/​the-​law-​of-​the-​sea-​of-​viet-​nam.html. Vietnam Coast Guard. 2019. “Coast Guards of Vietnam and China Inspected Fisheries Together in the Gulf of Tonkin 2019.” 26 April. http://​canhsatbien.vn/​ portal/​hop-​tac-​quoc-​te/​canh-​sat-​bien-​viet-​nam-​va-​trung-​quoc-​kiem-​tra-​lien-​hop-​ nghe-​ca-​vinh-​bac-​bo-​2019. Vietnam Ministry of Foreign Affairs. 2005. “Tripartite Agreement for Joint Marine Seismic Undertaking in the Agreement Area in the South China Sea,” 14 March. www.mofa.gov.vn/​en/​tt_​baochi/​pbnfn/​ns050314164241/​view. Vietnamnet. 2015. “Vietnam and China Join Forces to Explore the Area in the Mouth of the Gulf of Tonkin.” 19 December. https://​vietnamnet.vn/​vn/​thoi-​su/​viet-​trung-​ khao-​sat-​chung-​vung-​bien-​ngoai-​cua-​vinh-​bac-​bo-​279873.html. Vnxpress. 2019. “The Vietnamese Prime Minister Nguyen Xuan Phuc Meets with the Chinese President Xi Jinping.” 25 April. https://​vnexpress.net/​the-​gioi/​thu-​tuong-​ nguyen-​xuan-​phuc-​hoi-​kien-​chu-​tich-​trung-​quoc-​tap-​can-​binh-​3915032.html.

116  Bui Thi Thu Hien Zou, Keyuan. 2002. “Sino-​Vietnamese Fishery Agreement for the Gulf of Tonkin.” The International Journal of Marine and Coastal Law, 17 (1): 127–​148. Zou, Keyuan. 2005. “The Sino-​ Vietnamese Agreement on Maritime Boundary Delimitation in the Gulf of Tonkin.” Ocean Development & International Law, 36 (1): 13–​24.

7  The US approach to joint development in the South China Sea Nong Hong

Introduction Modern state practice has developed a number of possible alternatives for settlement of boundary disputes that involve the exploitation of natural resources. These practices emphasize the management aspects of agreements and eschew the stricter, more rules-​based approach towards boundary delimitation (Forbes 2001). Given the complex nature of territorial and maritime disputes in the South China Sea (SCS), temporary arrangements are the most practical solution pending final settlements. Joint development of the offshore oil and gas in a sea area that is under dispute, commonly referred to as “inter-​state cooperation,” is the concept that is discussed most often. This chapter explores the approach of the United States (US) as a non-​ coastal State that claims legitimate interest in joint development within the SCS region. It outlines US energy companies’ engagement in the resource development of each state in the SCS and then unfolds the US perspective on joint development in the area. In particular, it focuses on the US perception of the 2018 China–​Philippines Memorandum of Understanding [MOU] on Oil and Gas Development. Although the US energy industry wishes to play a bigger role in resource development in the SCS, the evidence from the area on hurdles to joint development practice suggests that US companies should only get involved in joint ventures when claimant states in the region have been able to clear the political and legal obstacles that have existed for decades. In contrast to a formal government agreement, a commercial arrangement may appear to be an alternative for exploration involving different governments.

Resource development and SCS disputes Based on decades of study, there are 13 large or medium sediment basins within the disputed region of the SCS. Despite extensive exploration having been carried out, it is difficult to determine the amount of oil and natural gas in the region, not only because so much remains to be explored but also because estimated figures from each coastal State vary to a large extent. One

118  Nong Hong older Chinese estimate puts potential SCS oil resources as high as 213 billion barrels, although many Western analysts have repeatedly claimed that this seems extremely high (Daiss 2019). The 1993/​1994 US Geological Survey report estimated the sum total of discovered and undiscovered resources in the offshore basins of the SCS at 28 billion barrels (Baystreet.ca. 2018), which appears to be particularly low. In 2013, the US Energy Information Administration (EIA) estimated there to be “approximately 11 billion barrels of oil reserves and 190 trillion cubic feet of natural gas reserves in the South China Sea” (US EIA 2013).1 These numbers represent both proved and probable reserves, making them closer to a high-​end estimate. The total area of the SCS is estimated to stretch 619,500 square kilometers, 417,000 of which lies within China’s self-​ claimed U-​ shaped line.2 Older estimates believe this China-​claimed area holds 23.5 billion tons of oil and 10,000 billion steres of natural gas (Wu and Hong 2006). Besides these two hotly contested resources, there is a large quantity of gas hydrates (also known as “flammable ice”) in the SCS region. The race for oil in the SCS started in 1969–​1970 when a report by the United Nations predicted the prospect of finding huge reserves of oil and gas in the sea. Today, both foreign and regional companies are operating in the SCS, often through joint ventures. Most oil production endeavors are taking place in uncontested areas, but commercial discoveries of gas have been made within the U-​shaped line by companies operating under concessions from other governments: Malaysia is already producing in the Central Luconia gas fields off the coast of Sarawak; the Philippines operate within the Camago and Malampaya fields located northwest of Palawan; Indonesia has the Natuna gas field with a pipeline connected to Singapore; Vietnam’s Lan Tay and Lan Do gas fields are operated by British Petroleum (BP) in a joint venture between the Indian oil company ONGC and PetroVietnam (Hong 2008). Compared with other claimant states in the SCS, China has made little progress in regional energy development, due to political considerations. In the early 1980s, China surveyed the Spratly Islands for oil, although this only consisted of physical geography reconnaissance. In 1992, the China National Offshore Oil Corporation (CNOOC) signed a contract with Creston Energy Corporation of America on joint development of gas and oil at Wan’an Tan –​ commonly known as Vanguard Bank. However, this could not be implemented due to objections from Vietnam, which claims jurisdiction in the same area. Table  7.1 shows the disputes among claimant states over drilling and exploration in the SCS since the 1990s, clearly indicating the difficulty for energy development in the disputed SCS region.

US energy companies’ engagement in the SCS At present, there are over 200 foreign companies involved in energy exploration and exploitation in the SCS, with over 1,000 wells in operation. Coastal States are attracted to both investment and technical advantages

 119

The US Approach to Joint Development 119 Table 7.1 Disputes over drilling and exploration in the SCS from the 1990s Year

Countries

Dispute

1992

China, Vietnam

1993

China, Vietnam

1993

China, Vietnam China, Vietnam

In May, China signed a contract with US firm Crestone to explore for oil near the Spratly Islands in an area that Vietnam says is located on its continental shelf, over 600 miles south of China’s Hainan Island. In September, Vietnam accused China of drilling for oil in Vietnamese waters in the Gulf of Tonkin. In May, Vietnam accused a Chinese seismic survey ship of interfering with BP’s exploration work in Vietnamese waters. The Chinese ship left Vietnam’s maritime exploration Block 06 following the appearance of two Vietnamese naval ships. In December, Vietnam demanded that Crestone cancel offshore oil development in nearby waters. Crestone joined a Chinese partner in exploring China’s WAB-​21 block. Vietnam protested that the exploration was in Vietnamese waters; specifically, in blocks 133, 134, and 135. China offered to split Wan’ Bei production with Vietnam as long as China retained all measures of sovereignty. In August, Vietnamese gunboats forced a Chinese exploration ship to leave an oilfield in a region claimed by the Vietnamese. In April, Vietnam leased exploration blocks to the US firm Conoco and ruled out cooperation with US oil firms that had also signed Chinese exploration contracts in disputed waters. Vietnam’s blocks 133 and 134 cover half the zone leased to Crestone by China. In May, China protested and reaffirmed their national law claiming the SCS as its own. In March, Vietnam issued a protest after the Chinese Kantan-​3 oil rig drilled near the Spratly Islands. The drilling occurred offshore of Da Nang in an area designated by Vietnam as Block 113. This block, located 64 nautical miles off Chan May cape in Vietnam, is 71 nautical miles from China’s Hainan Island. Following the diplomatic protests, the Chinese rig departed. In December, Vietnam protested against the Chinese Exploration Ship No. 8 and two supply ships that had entered the Wan’ Bei exploration block. All three vessels were escorted away by the Vietnamese navy. In September, Vietnam protested after a Chinese report stated that Crestone and Chinese representatives were continuing their survey of the Spratly Islands and the Tu Chinh region (Wan’ Bei in Chinese). This dispute was later resolved by an agreement between China and Vietnam, concluded in December 2000.

1994

1994

China, Vietnam

1996

China, Vietnam

1997

China, Vietnam

1997

China, Vietnam

1998

China, Vietnam

(continued)

120

120  Nong Hong Table 7.1 Cont. Year

Countries

Dispute

2003

Malaysia, Brunei

2011

Vietnam, China

2014

Vietnam, China

2017

Vietnam, China

2018

Vietnam, China

In May, a patrol boat from Brunei acted to prevent Malaysia from undertaking exploration activities in an area offshore of its northern Borneo island, which was disputed by the two countries. In May, Vietnam accused China of cutting the exploration cables of an oil survey ship. China claimed that the fishing net of one of their boats became tangled with the cables of a Vietnamese oil exploration vessel that was operating the waters claimed by China and was, therefore, dragged for more than an hour before being cut free. The Chinese state-​owned CNOOC moved its Hai Yang Shi You 981 oil platform to waters near the Paracel Islands in the SCS, resulting in a harsh response by Vietnam, meant to prevent the platform from establishing a fixed position. The Vietnamese government issued a last-​minute order for Spanish energy company Repsol to suspend work on a planned oil and gas project in part of the Red Emperor (Ca Rong Do) field. Repsol, which had begun drilling a well in a nearby block, was ordered to stand down after Chinese authorities put pressure on the Vietnamese government.

Source: Summary from the EIA

brought by the foreign companies, while the foreign companies are also induced by coastal States’ favorable commitments regarding profit-​sharing. The foreign companies include:  Shell (the Netherlands), ExxonMobil/​ ConocoPhillips (US), BP (United Kingdom), Japex/​ Inpex/​ Nissho Iwai/​ AOC (Japan), Total (France), BHP (Australia), NESTRO (Russia), ONGC (India), Statoil (Norway), Pedco (Republic of Korea), and PetroCanada/​ CanOxy (Canada). American energy companies that have been engaged in the SCS include ConocoPhillips, ExxonMobil, Chevron, Hess Corporation, and Murphy Oil. ExxonMobil has one of the largest international oil interests in the region. In 2008, it opened a venture office in Hanoi to conduct oil and gas exploration activities, including acquiring seismic data, drilling exploratory wells, and advancing the development of the Ca Voi Xanh project to produce natural gas from offshore central Vietnam. The company currently holds one operating license under a petroleum production sharing contract (PSC) for blocks 117, 118, and 119 offshore of Da Nang in central Vietnam (ExxonMobil 2020). In 2009, when Rex Tillerson –​former US Secretary of State (2017–​2018) –​ was the company’s Chief Executive, ExxonMobil and Vietnam’s state-​owned PetroVietnam signed a PSC for two sets of blocks amounting to 14 million square acres in the SCS (Rahn 2017). The deal was signed quietly due to both

The US Approach to Joint Development  121 the maritime disputes between China and Vietnam and the concern that part of the blocks were within China’s U-​shaped line. This deal made ExxonMobil the largest offshore acreage holder in Vietnam. In 2009, ExxonMobil acquired blocks 117, 118, and 119 in the Phu Khanh Basin from BP (Project Smart Explorer 2012). In addition, ExxonMobil took four licenses for exploration and production in areas off Vietnam’s southeast coast. In 2010, ExxonMobil chartered their Seadrill semi-​submersible drilling rig West Aquarius to proceed to a first campaign of exploration in Vietnam’s Block 118. The first well, named CA Voi Xanh-​1X, was dry, but some “material” was discovered in the second well, named CA Voi Xanh-​2X. Exploration began in the third well, 118 Ca Voi Xanh-​3X, in the second quarter of 2012, and this ended with positive results after encountering a higher proportion of hydrocarbons. ExxonMobil did not give any indications about the nature and size of the resources discovered in Block 118 until all the data had been analyzed (Project Smart Explorer 2012). In 1980, ExxonMobil signed a PSC for the East Natuna block located in the SCS. This zone is estimated to contain around 222 trillion cubic feet of wet gas with almost 46 trillion cubic feet of recoverable hydrocarbon gas (Slav 2017). In August 2012, a consortium consisting of Esso Natuna Ltd. (an ExxonMobil affiliate), PT Pertamina (a Persero affiliate), and PTT Thailand signed a renewed principles of agreement (POA) with the Indonesian government for a new PSC to develop East Natuna (ExxonMobil Indonesia 2016). In December 2015, the government of Indonesia agreed to extend the POA for 30  months, acknowledging the need to further assess and review technology and global market conditions in order to find a way to commercialize the resources. Petronas Carigali Sdn. Bhd., a branch of Malaysian national oil company Petronas, began first production from Angsi field in the SCS off Malaysia. This project began six months ahead of schedule and came in at 30 percent below the original approved cost. ExxonMobil Exploration & Production Malaysia Inc. is Petronas Carigali’s 50  percent partner in the development (OGJ Online Staff 2001). ConocoPhillips’ involvement in Malaysia began in 2000. The company currently holds 2.2 million net acres in the country across six blocks in varying stages of exploration, development, and production (ConocoPhillips 2019). Three blocks are located off of the eastern Malaysian state of Sabah: Block G, Block J, and the Kebabangan Cluster (KBBC). In Malaysia, production growth continues from several fields in these blocks (ConocoPhillips 2019). Three other blocks, Block SK304, Block SK313, and Block WL4-​00 are operated by ConocoPhillips and are located off of the eastern Malaysian state of Sarawak (ConocoPhillips 2020). ConocoPhillips has had a presence in Indonesia for more than 45 years. It currently operates several producing fields in South Sumatra as well as three onshore blocks: the Corridor Block PSC and the South Jambi “B” PSC, both in South Sumatra, and the Kualakurun PSC in Central Kalimantan.

122  Nong Hong

US perception of the joint development regime in the SCS US concerns regarding the SCS are limited to navigational rights and the need for the Code of Conduct to be legally binding. Joint development in the SCS has neither been a topic of comment nor a stand-​alone or joint statement by the US government. Joint development has never been discussed in any systematic way by US experts, academics, or think-​tanks. However, lately, the US government’s silence on energy development in the SCS appears to have changed. In August 2019, in a very rare move, the US Department of State released a statement (see below), which “emphasizes the value of the South China Sea’s largely untapped oil and gas reserves, and the US’s interest in having its own oil companies involved in joint projects with Southeast Asian nations” (Mollman 2019). China’s actions undermine regional peace and security [and] impose economic costs on Southeast Asian states by blocking their access to an estimated $2.5 trillion in unexploited hydrocarbon resources. […] US companies are world leaders in the exploration and extraction of hydrocarbon resources, including offshore and in the South China Sea. The United States therefore strongly opposes any efforts by China to threaten or coerce partner countries into withholding cooperation with non-​ Chinese firms, or otherwise harassing their cooperative activities. (Morgan Ortagus, US Mission China 2019) This rare, blunt government statement regarding energy development in the SCS should not be read as an expected policy change, given the US criticism in late November 2018 when Chinese President Xi Jinping was in Manila and there was much anxiety that Philippine President Duterte would “sell out” on the issue of joint development in the Philippines-​China MOU. In November 2018, President Xi conducted a two-​day state visit to Manila, the capital of the Philippines, during which 29 agreements were signed between Xi and President of the Philippines Rodrigo Duterte. One agreement was an MOU on joint oil and gas development in the SCS. According to the Chinese-​language version of the two-​page draft of the agreement, the proposed joint exploration for oil and gas would be carried out in accordance with the principles of “mutual respect, fairness and mutual benefit, flexibility and pragmatism and consensus through equal and friendly consultations.” In addition, “[w]‌ithout prejudice to their respective positions, the two parties should, based on the outcome of the joint exploration, make arrangements for the relevant bilateral cooperation including joint exploration.” The draft cited the political basis for the agreement as the joint statements between the Philippines and China on 21 October 2016 and on 16 November 2017 as well as the MOU between the energy agencies of the two countries on 15 May 2018. The outcome of the joint exploration would be shared only by the Philippines and China.

The US Approach to Joint Development  123 The draft agreement stipulates the establishment of an intergovernmental joint steering committee which would be led by the foreign affairs and energy departments of the Philippines and China, as well as other relevant agencies. The draft agreement also enforces the establishment of an inter-​ entrepreneurial working group. Experts at the Asia-​Maritime Transparency Initiative (AMTI)3 warned that the MoU might “hinder unilateral exploration and development by the Philippines” of other areas of the SCS, forming an “exclusionary policy that eventually locks the Philippines into partnerships with only Chinese companies” (Batongbacal 2018). Bill Hayton, an associate fellow at Chatham House’s Asia-​Pacific Programme, said that “China’s Holy Grail is securing joint development projects in other countries’ exclusive economic zones (EEZs) in the South China Sea” (Gavin 2019). He sees these projects as state-​to-​state deals where countries agree to share the resources in their EEZ as an alternative under which “China tends to avoid joint venture deals where five countries might be sharing resources” (Gavin 2019). Mark J. Valencia, a Hawaii-​based maritime policy analyst, holds the view that “[b]‌y proposing joint development or mutual use of disputed areas and capitalizing on its economic power, China could lure Southeast Asia away from the US.” He predicts two scenarios for future China–​US engagement with Southeast Asian countries in the SCS. Facing the issue of trust deficit in these countries due to the long-​lasing regional maritime disputes, China could sway many Southeast Asian states away from the US either towards Beijing or to neutral ground. “Compromises  –​like joint development or implicit acceptance of at least mutual use of disputed areas –​combined with China’s burgeoning economic investment, trade and aid” could work towards decreasing US influence in the region (Valencia 2018). As described by Valencia (2018) in the South China Morning Post, China could first stop interfering with petroleum exploration companies operating under concessions from rivals in areas beyond its EEZ and potential extended continental shelf. The next step would be the sharing of resources in those disputed areas, including joint development and joint enforcement of agreed regimes against regional and extra-​regional violators. In this manner, as discussed by Valencia, “China could edge the US out” of the SCS politically. He elaborates that the US could, and likely would, continue its freedom of navigation operations, but it would probably have less support from Southeast Asian countries in doing so. Second, an alternative strategy for China to decrease US influence in the SCS would involve Beijing persisting enforcement of its U-​shaped line claim in the SCS to prevent other claimants from exploiting resources within areas claimed by Beijing. In this scenario, China would continue to provide

124  Nong Hong openings for the US to alienate the Southeast Asian nations that Washington needs in its camp to protect its maritime domination (Chen 2018). Compared with the government and think tanks, the energy industry in the US has a stronger voice and may wish to play a bigger role in resource development within the SCS region. Many of the US companies’ activities in the SCS region occur in nearshore areas of coastal States. Because of this, many of these activities are located in disputed waters. The current engagement by the US energy industry in oil and gas development is in the form of joint ventures. Whether the US energy sector will be able to play a role in the disputed areas where regional coastal States agree on setting joint development efforts depends on the claimant states being able to clear political and legal hurdles which have existed for decades.

Hurdles to joint development in the SCS and implications for US engagement The pending maritime delimitation in the SCS creates significant hurdles for foreign companies to operate in this region. For example, several spats between China and Vietnam, two major claimants in the SCS, resulted in foreign companies being called to suspend their projects. In March 2018, Repsol, a Spanish energy company stopped all ongoing work on a planned offshore natural gas project in waters disputed between Vietnam and China in the SCS after a request to do so by Vietnamese state oil firm PetroVietnam (Panda 2018). Repsol’s project and offshore activities in Block  136-​06, in the southeastern reaches of Vietnam’s claimed EEZ, had drawn Chinese scrutiny since summer 2017. Continued pressure from China led to the decision by Repsol to halt planned offshore natural gas projects in Block 136-​06. This block contains the “Red Emperor” field, and it is located on the frontier of Vietnam’s EEZ claim over Vanguard Bank, north of Indonesia’s claimed EEZ, and within the southern reaches of China’s claims in the SCS. Vanguard Bank has long been a disputed area between China and Vietnam. In May 1992, China signed an oil/​gas exploration agreement with US company Crestone Energy Corporation. The agreement includes references to Wan’an Bei 21(WAB-​21), a 10,000-​square mile area in the SCS where much of the area encompassed by the concession lies in or near the Nansha Islands (Amer 2002). The western boundary of WAB-​21 lies 84 miles off the coast of Vietnam (Murphy 1994/​1995). Vietnam reacted negatively towards mention of this region within the agreement and claimed that the area was located on Vietnam’s continental shelf (Amer 2002). In his 1992 report to Crestone Energy Corporation on conflicting claims to WAB-​21, Dzurek argues that China’s right to the resources of this region is based on the EEZ that could be established by the Nansha Islands, which China claims but Vietnam occupies (Valencia et al. 1999). In signing the agreement, China assured Crestone that it would defend American exploration crews within the region. Crestone

The US Approach to Joint Development  125 publicly estimated that oil reserves lying under the concession were in excess of one billion barrels (Murphy 1994/​1995). China’s Crestone Oil deal triggered immediate reaction from Vietnam, which heightened the tension. Vietnam entered into a contract with Norwegian company Nopec to conduct a seismic survey in an area that overlaps with the concession China granted to Crestone (Valencia et al. 1999). At the farewell of Chinese Prime Minister Li Peng’s visit in December 1992, Vietnam’s Foreign Minister Nguyen Manh Cam said that Hanoi had nonnegotiable sovereignty over the Vanguard area and all claimants of the nearby Spratly Islands should hold talks. Around the same time, BP spudded the Lan Do 1 well in Vietnam’s Block 06, near the Crestone concession at WAB-​21 (Dzurek 1996). Repsol is not the only international firm to have its prospective exploration and drilling activities offset by geopolitical tensions in the SCS. US oil firm ExxonMobil and India’s state-​run ONGC Videsh have also conducted activities in and near disputed blocks. Although ExxonMobil’s plans to exploit natural gas reserves are outside of the U-​shaped line, the undersea deposits could possibly reach across the line. In early May 2018, Russian oil company Rosneft began drilling a new production well at the Lan Do field in Block  06.1, which is part of Vietnam’s most important offshore energy project. To date, Russian companies engaged in Vietnam’s offshore energy sector have not faced the same pressure from Beijing as their Western counterparts, but it’s not clear whether that will remain the case. The release of a draft negotiating text for an SCS Code of Conduct (COC) in August 2018 was an important step forward, with some interesting policy implications. Most notably, Washington has expressed concern over draft provisions put forward by China that would restrict parties to the CoC from conducting joint exercises with external security partners and prevent oil and gas companies from third-​party states conducting exploration in disputed waters. (Kudo 2018) The unresolved territorial and maritime disputes, as well as nationalism, are key stumbling blocks in promoting joint development in the SCS. Increasing strategic assertiveness and defense modernization are creating strategic mistrust between claimant states. The perceived power and strategic competition between China and the US in the region further complicates the existing regional tensions and distrust. While, in the US, the government and scholars keep silent on the discourse of joint development within the SCS, the US energy industry might wish to play a bigger role in this region through resource development in the form of joint ventures. However, whether the US energy sector has a role to play in the disputed areas where the coastal States agree on the setting of joint development depends on the claimant states being able to clear the political and legal hurdles that have existed for decades.

126  Nong Hong

Prospects for joint development in the SCS Though foreign energy companies, including those of the US, want to play a bigger role in resource development in the SCS, it is difficult for them to begin operation before the political and legal obstacles are addressed properly. Given the concerns of claimant states, commercial arrangements may appear to be an appealing alternative to a formal agreement for exploration between governments, since formal agreements may be misinterpreted as acknowledging the other country’s territorial and maritime claims (Trajano 2019). Since 2005, the Philippines has failed to unilaterally develop the Reed Bank due to maritime tensions with China, since Beijing has, in recent years, repeatedly deployed patrol vessels in the vicinity of the Reed Bank in order to block PXP Energy’s survey ships (Heydarian 2017). Since 2013, Manila’s PXP Energy and the Philippine National Oil Company have been discussing with CNOOC a possible joint exploration agreement in the Reed Bank, an immense offshore area claimed by both the Philippines and China (Rivera 2018). The 2018 MOU between the two countries was inked in light of their improving diplomatic and economic ties since the SCS arbitration in 2016. Once the stated joint study stipulated in the MoU leads to a commercial arrangement between Chinese and Philippine companies, it may present an opportunity for both countries to successfully explore, exploit, and share natural gas from the Reed Bank. (Trajano 2019) Existing commercial agreements in the region, such as the joint development agreement between Malaysia and Vietnam, and the joint development agreement between Vietnam and Thailand within their overlapping claims in the Gulf of Thailand, serve as successful models for future bilateral joint development arrangements between claimants states. Such arrangements can benefit claimants such as China and the Philippines through the cooperation between their oil firms. It is common practice for these commercial agreements to use PSCs, whereby the rights of each country to develop and utilize oil and gas are managed by their respective national oil companies (Grieder 2016). The fair nature of the co-​management structure, jointly setup by the oil companies, contributes to the sustainability of cooperation in joint development areas (Grieder 2016). In conjunction with commercial agreements, the area of shared management should also be an agreed demilitarized zone of peace, extending the ASEAN Zone of Peace, Freedom, and Neutrality to the whole of the SCS and thereby helping achieve one of ASEAN’s (and China’s) stated objectives: removing opportunities for great power intervention and interference in regional affairs. Because all the claimants except China are state parties to

The US Approach to Joint Development  127 the Treaty on the Southeast Asia Nuclear Weapon-​Free Zone, which includes China’s EEZ, the treaty’s provisions could be extended to the Spratly features and the area of shared management (Valencia and Hong 2013).

Notes 1 In October 2019, the EIA announced that a complete update of the approximate oil and natural gas reserves will be available soon. 2 China’s U-​shaped line is also commonly referred to as the “nine-​dash line” or, at times, the “ten-​dash line” or the “eleven-​dash line.” Despite the variation, each title refers to the undefined and vague demarcation line used initially by the Republic of China (1912–​1949) and the People’s Republic of China for their claims to the major part of the SCS. 3 The AMTI is a program at the Center for Strategic and International Studies, a Washington-​based think tank.

References Amer, R. 2002. “The Sino-​Vietnamese Approach to Managing Border Disputes,” International Boundaries Research Unit Maritime Briefing, No. 3. Durham: IBRU. Batongbacal, Jay. 2018. “The Philippines-​China MoU on Cooperation in Oil and Gas Development.” Asia Maritime Transparency Initiative, 5 December. https://​amti. csis.org/​philippines-​china-​mou-​cooperation-​oil-​gas-​development/​. Baystreet.ca. 2018. “How Oil Drives The South China Sea Conflict.” 15 March. www. baystreet.ca/​commodities/​1754/​How-​Oil-​Drives-​The-​South-​China-​Sea-​Conflict, accessed 17 January 2020. Chen, Stephen. 2018. “Beijing Plans an AI Atlantis for the South China Sea  –​ without a Human in Sight.” South China Morning Post, 26 November. www. scmp.com/​news/​china/​science/​article/​2174738/​beijing-​plans-​ai-​atlantis-​south-​ china-​sea-​without-​human-​sight. ConocoPhillips. 2019. “Other International and Exploration Fact Sheet  –​March 2019.” https://​static.conocophillips.com/​files/​resources/​19-​0043-​fact-​sheets-​19q1-​ other.pdf. ConocoPhillips. 2020. “Operations: Asia Pacific & Middle East.” www.conocophillips. com/​operations/​asia-​pacific-​middle-​east/​, accessed 17 January 2020. Daiss, Tim. 2019. “South China Sea Energy Politics Heat Up.” OilPrice.com, 2 March. https://​oilprice.com/​Geopolitics/​Asia/​South-​China-​Sea-​Energy-​Politics-​Heat-​ Up.html#, accessed 17 January 2020. Dzurek, D.  J. 1996. “The Spratly Islands Dispute:  Who’s on First?” International Boundaries Research Unit Maritime Briefing, No. 2. Durham: IBRU. ExxonMobil. 2020. “Vietnam:  Overview.” https://​corporate.exxonmobil.com/​ Locations/​Vietnam, accessed 17 January 2020. ExxonMobil Indonesia. 2016. “ExxonMobil Indonesia at a Glance:  Country Fact Sheet.” April. www.exxonmobil.co.id/​-​/​media/​Indonesia/​Files/​Indonesia-​ publications/​news_​pub_​fs_​country.pdf. Forbes, Vivian Louis. 2001. Conflict and Cooperation in Managing Maritime Space in Semi-​enclosed Seas. Singapore: National University of Singapore Press.

128  Nong Hong Gavin, James. 2019. “Manila Opens the Door to Chinese E&P.” Petroleum Economist, 9 July. www.petroleum-​economist.com/​articles/​politics-​economics/​asia-​pacific/​ 2019/​manila-​opens-​the-​door-​to-​chinese-​ep. Grieder, Thomas. 2016. “Bridge Over Troubled Waters:  Energy Cooperation in the South China Sea and the Gulf of Thailand.” In Non-​Traditional Security Issues and the South China Sea: Shaping a New Framework for Cooperation, edited by Shicun Wu and Keyuan Zou, 225–​240. New York: Routledge. Heydarian, Richard. 2017. “Sharing Resources Could Calm Seas for China and Philippines.” South China Morning Post, 26 July. www.scmp.com/​ news/​ c hina/​ d iplomacy-​ d efence/​ a rticle/​ 2 104097/ ​ b eijing- ​ s ees- ​ j oint- ​ e nergy-​ venture-​manila-​model. Kudo, Mercy A. 2018. “The Geopolitics of Oil and Gas in the South China Sea.” The Diplomat, 12 December. https://​thediplomat.com/​2018/​12/​the-​geopolitics-​of-​oil-​ and-​gas-​in-​the-​south-​china-​sea/​. Mollman, Steve. 2019. “The US Says China is Blocking $2.5 Trillion in South China Sea Oil and Gas.” Quartz, 25 August. https://​qz.com/​1694322/​south-​china-​seas-​oil-​ and-​natural-​gas-​pretty-​important-​after-​all/​. Murphy, B. K. 1994/​1995. “Dangerous Ground: The Spratly Islands and International Law.” Ocean and Coastal Law Journal, 1: 187–​212. Hong, Nong. 2008. “Chinese Perceptions of the South China Sea Dispute.” Geopolitics of Energy, 30 (6): 12–​19. OGJ Online Staff. 2001. “Petronas, ExxonMobil bring Angsi field in South China Sea on line.” Oil & Gas Journal, 26 December. www.ogj.com/​general-​interest/​companies/​article/​17262194/​petronas-​exxonmobil-​bring-​angsi-​field-​in-​south-​china-​sea-​on-​line. Panda, Ankit. 2018. “Vietnam Requests Spain’s Repsol Suspend Work in Disputed South China Sea Oil Block.” The Diplomat, 25 March. https://​thediplomat.com/​ 2018/​03/​vietnam-​requests-​spains-​repsol-​suspend-​work-​in-​disputed-​south-​china-​ sea-​oil-​block/​. Project Smart Explorer. 2012a. “ExxonMobil hits gas in Phu Khanh Basin Offshore Vietnam.” 2B1st Consulting, 13 August. www.2b1stconsulting.com/​exxonmobil-​ hits-​gas-​in-​phu-​khanh-​basin-​offshore-​vietnam/​, accessed 17 January 2020. Rahn, Wesley. 2017. “Will the US Fight for Oil in the South China Sea?” Deutsche Welle, 22 February. www.dw.com/​en/​will-​the-​us-​fight-​for-​oil-​in-​the-​south-​china-​ sea/​a-​37677319. Rivera, Danessa. 2018. “PXP Energy Sends Feelers to CNOOC for Possible Joint West Philippine Sea Exploration.” The Philippine Star, 2 May. www. philstar.com/​ b usiness/​ 2 018/​ 0 5/​ 0 2/​ 1 811234/​ p xp-​ e nergy-​ s ends-​ f eelers-​ cnooc-​ p ossible-​ j oint-​ w est-​ p hilippine-​ s ea-​ e xploration#hgDcjh1uyuGYR e3H.99. Slav, Irana. 2017. “Exxon Pulls Out Of Indonesian Offshore Gas Field Project.” OilPrice.com, 18 July. https://​oilprice.com/​Latest-​Energy-​News/​World-​News/​ Exxon-​Pulls-​Out-​Of-​Indonesian-​Offshore-​Gas-​Field-​Project.html. Trajano, Julius C. 2019. “Resource Sharing and Joint Development in the South China Sea: Exploring Avenues of Cooperation.” NTS Insight, IN19 (01). www.rsis.edu. sg/​wp-​content/​uploads/​2019/​03/​NTS-​Insight-​March2019-​The-​South-​China-​Sea-​ as-​a-​Shared-​Asset.pdf. US Energy Information Administration. 2013. “South China Sea: Analysis.” EIA.gov, 7 February. www.eia.gov/​beta/​international/​regions-​topics.php?RegionTopicID=S CS, accessed 17 January 2020.

The US Approach to Joint Development  129 US Mission China. 2019. “China Escalates Coercion against Vietnam’s Longstanding Oil and Gas Activity in the South China Sea.” US Embassy & Consulates in China, 21 August. https://​china.usembassy-​china.org.cn/​china-​escalates-​coercion-​against-​ vietnams-​longstanding-​oil-​and-​gas-​activity-​in-​the-​south-​china-​sea/​. Valencia, Mark J. 2018. “China Could Edge the US Out of the South China Sea by Softening its Approach to Southeast Asian Rivals.” South China Morning Post, 28 November. www.scmp.com/​comment/​insight-​opinion/​united-​states/​article/​ 2175341/​china-​could-​edge-​us-​out-​south-​china-​sea. Valencia, Mark J., and Nong Hong. 2013. “Joint Development Possibilities:  What, Where, Who and How?” Global Affairs in Focus, 8 (2): 102–​109. Valencia, Mark J., J. M. Van Dyke, and A. N. Ludwig. 1999. Sharing the Resources of the South China Sea. Honolulu, HI: University of Hawaii Press. Wu, Shicun and Nong Hong. 2006. “Energy Security of China & the Oil and Gas Exploitation In the South China Sea.” In Recent Developments in the Law of the Sea and China, edited by Myron H. Nordquist, John Norton Moore and Kuen-​ chen Fu, 145–​155. Leiden: Martinus Nijhoff Publishers.

8 Promoting business connectivity among industrial parks in the South China Sea rim and its vicinity1 Siswo Pramono and Bayu Rahmat Novita

Introduction The purpose of this chapter is to examine possible business connectivity among industrial parks located in the South China Sea2 (SCS) rim and its vicinity, as a measure to improve the business climate and, at the same time, help nurture confidence building among claimants in the jurisdictional dispute as well as non-​claimants in the SCS. The vicinity is defined as the immediate hinterland of the rim. This chapter does not purport to discuss any kind of cooperation, economic or otherwise, in the areas where overlapping claims of jurisdiction persist. The issues to be addressed are: first, how to improve common interests given the trust deficit among parties; and, second, how such common interests can be molded into business activities and cooperation projects, which then can become a practical modality for supporting long-​term dispute settlement. As such, this chapter is not about the dispute settlement per se, but rather about innovative ways to create an enabling environment for a possible settlement. It approaches the issues from a liberal paradigm of the study of international relations. The chapter begins with an overview of the development of disputes and peace processes in the SCS. It argues that although disputes continue, the existing conflict is much less violent than it was decades ago. Then, the chapter discusses the current development in the SCS in the context of the dawn of the “Asian Century.” There are more opportunities now for parties to work together to create an enabling environment. Next, politico-​economic fragility, a common trait of economies surrounding the SCS, is discussed. This is experienced to varying degrees. The argument is that states have long-​ established common interests in maintaining peace in the SCS. Most parties, including China, are internally fragile. Improving national resilience through economic and social development is one way for the respective parties to address this fragility. And national development will only be successful if founded on regional peace and economic integration. To follow up the discussion on regional economic integration, the chapter then touches on the relevant aspects of the Association of South East Asian Nations (ASEAN) concept for a variety of economic zones, with particular focus on industrial

Promoting Business Connectivity  131 parks. Finally, it proposes various forms of business connectivity and cooperation in the SCS. As the region becomes more and more integrated as a single production base, parties are moving towards common welfare –​and hence, common resilience –​as a common destiny. Regional resilience and trust make up the new modality for parties to work together to settle residual conflicts.

SCS as a region of distrust Jurisdictional dispute in the SCS has posed a threat to regional and global security for almost five decades. Potential conflicts notwithstanding, the Sea Lanes of Communication in the region, which are increasingly vital for the global economy, remain unhindered. While the issue of militarization in the SCS persists –​the development of features into types of “facility” on the one hand and freedom of navigation operations on the other –​countries in the rim have been able to secure some prospect for peace in the last couple of years. Incidents in the SCS, while persistent, are nevertheless less violent than in the past. Self-​restraint is an important factor in maintaining peace in the region. In one episode, in January 2013, the Philippines lodged a case with the Permanent Court of Arbitration (PCA) challenging China’s overwhelming claim in the SCS. In July 2016, the PCA issued its verdict. It ruled, among other things, that: China’s historic rights and nine-​dash line are contrary to the United Nations Convention on the Law of the Sea (UNCLOS); disputed features in the SCS are only rocks, which are not entitled to extended maritime zones beyond 12 nautical miles; China’s encroachment into the exclusive economic zones of other countries in the SCS (via coastguard activities, reclamation of features, or illegal, unreported and unregulated fishing) is contrary to UNCLOS; and some of China’s activities in the SCS are considered damaging to the environment. In the post-​PCA context, Bill Hayton (2017a) offered a more optimistic view about the SCS. Despite China’s resistance to the PCA’s decisions, as it continues using its Coast Guard to support its activities in the disputed areas, Hayton maintained that “China’s new position seems to represent a major step towards compliance with UNCLOS and, therefore, the ruling.” However, Hayton (2017b) also noted some alarming developments, including, as previously discussed, that China would be unlikely to give up the artificial islands built in the disputed areas in the SCS. Whether or not China is going to adopt a “standstill” (rather than a rollback) policy is yet to be seen. On this issue –​ in particular on the question of construction that might support military purposes –​ASEAN has, through various documents, consistently called for non-​militarization of the SCS.3 While China (and also Chinese Taipei) rejected the PCA’s ruling, it has maintained some self-​restraint in order to calm the fragile situation in the SCS. So far, following the PCA ruling, China has not designed a new policy towards the SCS, as it has anticipated the outcome. In general, China’s response to the PCA is determined, but measured.

132  Siswo Pramono and Bayu Rahmat Novita The PCA’s decision aside, in practical efforts to manage potential conflicts in the SCS –​though not yet touching the legal or political solutions to the dispute –​ASEAN member states and China have worked together to produce the Declaration on the Conduct of Parties in the South China Sea (DOC) in 2002. Now, ASEAN and China are working to conclude the Code of Conduct in the South China Sea (COC). There is an increasing expectation that the COC can be ready within two years. As an inference, the issue of overlapping jurisdiction in the SCS is so complex that one cannot expect a settlement any time soon. Continuous engagement, which should be constructive in nature, is the best way to maintain peace and stability in the region. As such, the daunting issues in the SCS region have been addressed not only through official, or formal, engagement, but also by creative Track 1.5 diplomacy (government actors participating unofficially with and non-​government actors) as well as Track 2 diplomacy (no government actors). Indonesia’s persistence over the last three decades in organizing the Workshop on Managing Potential Conflicts in the South China Sea is a case in point. More creative and innovative proposals to promote an enabling environment for just and peaceful settlement of disputes in the SCS are badly needed. The dawn of the Asian Century offers an opportunity for conflicting parties to work together to create a favorable environment.

SCS in the light of the Asian Century Change is inevitable in the global political landscape. Asia is on the rise, relative to North America and Western Europe. The daunting task is to ensure that such a rise will also bring new ideas and opportunities for tangible progress in the handling of delicate SCS issues. As previously mentioned, common interests translate into common motivation for cooperation. In the last few decades, ASEAN has developed a strategic approach in which national resilience is considered the foundation of regional stability. This strategy was developed by Indonesia’s Lemhanas (the Jakarta-​based National Resilience Institute). Attaining regional resilience through the improvement of resilience at the level of nations represents common interest and aspiration in the region. The way to improve national resilience is through well-​ planed economic development at national level, supported by cooperation at regional level. The latter part of this chapter discusses how ASEAN member states have managed to strengthen their national resilience and, hence, improved regional resilience. In so doing, they have addressed the issue of state fragility. Through decades of national development (or reform), as a political and economic aggregate, Southeast Asia has emerged as a less fragile, yet stable, region. The absence of major inter-​state war in the last five decades has contributed to the dawn of the Asian Century. The dawn of the Asian Century (depicted in Figure 8.1) marks geopolitical and geostrategic shifts in global politics. If gross domestic product (GDP)

 133

newgenrtpdf

Promoting Business Connectivity  133

Figure 8.1 The dawn of the Asian Century: Real GDP growth in 2019 and the Development of GDP PPP (current prices) in the EU, the US, and negotiating RCEP countries Source: IMF (2020), IMF Data Mapper, World Economic Outlook, October 2019 data set; modified by the authors

134  Siswo Pramono and Bayu Rahmat Novita Table 8.1 GDP (PPP, current prices) of the EU, the US, and negotiating RCEP countries (USD trillion)

China EU US India ASEAN Japan Indonesia Russia Republic of Korea Australia New Zealand

1985

2000

2015

2021

2024

0.65 5.51 4.34 0.64 0.72 1.65 0.31 No data 0.17 0.23 0.04

3.70 11.80 10.25 2.09 2.41 3.42 0.96 1.64 0.79 0.56 0.08

19.74 19.51 18.22 8.03 6.99 5.13 2.86 3.85 1.94 1.16 0.17

31.85 24.49 23.18 13.56 10.42 6.04 4.30 4.71 2.54 1.49 0.23

39.81 27.24 25.79 17.83 12.86 6.51 5.33 5.29 2.93 1.71 0.26

Note: Cambodia and Myanmar were excluded from calculations for ASEAN in 1985, as data were not available. Source: IMF (2020), World Economic Outlook, October 2019; processed by the authors

(based on purchasing power parity [PPP], current price) is used as a measuring rod, then accelerated shifts began in 2015. Data for 2019 from the International Monetary Fund (IMF 2020; analyzed by the authors) portray a new configuration of the global political landscape.4 Color versions of Figures 8.1, 8.2, 8.3, 8.4, 8.6, and 8.7 are can be found at the following link: https://drive.google. com/drive/folders/1Pok2HDAMTm6s0ow6jFAJPT1YdOPfrmcP. 1) The purple circle in Figure  8.1 represents GDP in 1985, and Table  8.1 provides the actual figures. Thus, for instance, in 1985, the European Union’s (EU’s) GDP was USD 5.51 trillion, and the United States’ (US’s) GDP was USD 4.34 trillion. China’s GDP was just USD 0.65 trillion, and ASEAN’s was USD 0.72 trillion. 2) By 2015, following decades of relative peace, that gave birth to the Asian tigers phenomenon, the size of GDP (as represented by the orange circle in Figure 8.1), had progressively increased in all main Asian economies. As the EU reached USD 19.51 trillion and the US, USD 18.22 trillion, China surpassed the two with USD 19.74 trillion. ASEAN’s GDP, by this time, had reached USD 6.99 trillion. 3) According to projections for 2021, China will still be at the top with USD 31.85 trillion, followed by the EU with USD 24.49 trillion and the US with USD 23.18 trillion. The other main Asian economies will also skyrocket, led by India with USD 13.56 trillion, Japan with USD 6.04 trillion, Russia with USD 4.71 trillion, Indonesia with USD 4.3 trillion, the Republic of Korea with USD 2.54 trillion, Australia with USD 1.49 trillion, and New Zealand with USD 0.23 trillion. 4) As indicated by IMF Data Mapper 2019, the Asian zone is undergoing economic growth ranging from 6–​10  percent to 0–​3  percent. Ceteris

Promoting Business Connectivity  135 paribus, this trend will likely continue in the next decade. Thus, it can be expected, unless the region plunges into acute political instability (though the region is working hard to improve national and regional resilience), that the Asian Century will see the region as the (not “a”) largest and the most influential, global economic powerhouse in the next decade. It should be noted, however, that the outbreak of a novel coronavirus, beginning in December 2019, will likely have an impact on China’s economic growth, and that of the region. However, as mentioned by The New York Times (Goodman 2020), China’s experience with the severe acute respiratory syndrome outbreak in 2002 and 2003 was that the economy slowed but then bounced back towards recovery. 5) As Figure 8.1 shows, the new constellation of the world economy, which is anchored in East and South Asia, should be viewed from the perspective of economic gravity that emphasizes the correlation between geographical proximity and size of GDP. This signals good prospects for integration of the Asia region through arrangements like the Regional Comprehensive Economic Partnership (RCEP). It would seem that with this regional integration, an Asian-​centered global economy is inevitable. Note, however, that the region, so far, remains undecided about how fast the RCEP can be materialized. As indicated by a survey (ISEAS-​ Yusof Ishak Institute and ASEAN Studies Center 2019, 6) “29.2% of the respondents are either ‘confident’ (27%) or ‘very confident’ (2.2%) that the RCEP will be signed in 2019,” whereas “23.7% see the RCEP negotiations to be a drawn-​out affair that is ‘unlikely’ (21.3%) or ‘highly unlikely’ (2.4%) to be wrapped up in 2019.” About 47.1  percent of respondents were largely undecided. The point is that, pending conclusion of the RCEP and an ASEAN–​EU Free Trade Agreement, the Asian Century has already boosted economic integration in Asia (particularly in East Asia and South Asia). The RCEP and ASEAN–​EU Free Trade Agreement will further enhance the impacts of economic gravity in East Asia in Europe and Oceania as well. And this is also true in the case of the SCS. It is in this context that economic cooperation in the SCS rim will find momentum and further enhance prosperity and stability in the region. In fact, there is evidence to support this possibility, as the development of the eastern coastline of Viet Nam, bordering the SCS, shows. Figure 8.2 illustrates the development using satellite photographs of the coastline at night, comparing the situation in 2012 and 2016 (a four-​year difference). These satellite photographs are available on the US National Aeronautics and Space Administration (NASA) website (NASA 2017). The difference in the density of lights between 2012 and 2016 is marked. The lights in the eastern coastline of Viet Nam were much denser and brighter in 2016 compared to 2012. The method of comparing lights in this way is not new. Researchers use light (as observed via satellites) as a variable to measure economic development, for instance in the study of living standards in the developing world.

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Figure 8.2 Vietnam’s eastern coast at night (2012 and 2016) Notes: The photograph on the left depicts 2012, and the one on the right shows 2016. The authors made the photographs brighter using Microsoft Photos 2019. Source: NASA Earth Observatory; modified by the authors

One particular study, by Maxim Pinkovskiy and Xavier Sala-​i-​Martin (2016), used satellite-​recorded nighttime lights as a third variable (along with GDP per capita measured in national accounts and via household surveys) to estimate living standards in developing countries. Their study concentrated, in part, on the density of lights to indicate changes in living standards in Southern Africa in 2000 and 2009 and in India in 1994 and 2010. They found that national accounts and nighttime lights sufficiently measure well-​being in less-​developed areas. The change in the density of lights found in India was in line with IMF data on GDP per capita (current prices), which increased from USD 362.366 in 1994 to USD 1,422.929 in 2010 (IMF 2020). Looking at the coastline of Viet Nam, the satellite photographs for 2012 and 2016 are in line with the increase in GDP per capita from USD 1,750.756 to USD 2,172.012 in the same period. Figure 8.3 shows satellite photographs of lights in the SCS, depicting the energies used and the economic activities in the region. The sources of light can be cities, including the sites of designated economic zones. The lights from the middle of the SCS could be from fishing and other shipping activities during the night. This chapter focuses on the lights from the eastern coastline of Viet Nam, the western coastline of the Philippines, and the northern coastline of Borneo Island (i.e. Sabah, Sarawak, and Brunei Darussalam –​these locations are indicated by circles in Figure 8.3).

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Figure 8.3 The South China Sea by night (2016) Note: The blue circles were added by the authors. Source: NASA Earth Observatory; modified by the authors

The next step is to locate the sources of light on a map. Figure 8.4 shows the location of industrial parks along the rim of the SCS and its vicinity, the coordinates of which likely coincide with the sources of lights depicted in Figure 8.3. In combination, these two figures depict the economic activities in the rim of SCS and its vicinity. The task now is how to harness such activities as way to not only boost the welfare of the people in the region, but also strengthen the common economic interests that will eventually help improve confidence building among parties in the region. But, as indicated earlier in this section, before this chapter touches on economic integration in the SCS, the common interest within the region in promoting national resilience (which will eventually transform regional resilience) is discussed.

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Figure 8.4 Interpretation of sources of light Notes: The map is intended for illustration only. The green dots represent possible sources of light, based on a publicly available web-​based map. Source: NASA Earth Observatory; modified by the authors

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Measuring fragility in the SCS rim and its vicinity The Fund for Peace’s (FFP’s) Fragile States Index measures states’ stability (in a positive tone) or fragility (in a negative tone), as depicted in Figure 8.5. The ideal is to be politically “sustainable” (shown in black). The second-​best option is to be politically “stable” (shown in dark grey). This is followed by a “warning” (shown in white) and, finally, an “alert,” (shown in light grey). Each of these degrees is further classified into three sub-​degrees, which represent levels of severity.5 It is clear now that the warning category applies to most of Asia (South Asia, Southeast Asia, and Northeast Asia). If we take the negotiating RCEP region into account, then Australia, New Zealand, and Singapore are sustainable economies, while Japan, South Korea, and Brunei Darussalam are stable. The other RCEP economies –​ASEAN (minus Singapore, Brunei, and Myanmar), China, and India –​are in the warning category. Myanmar in in the alert category. Given this finding, it would be safe to say that the dawn of the Asian Century (as depicted in Figure 8.1), characterized by a sky-​rocketing economy, is actually founded on a rather fragile template of stability. Most Asians live in the paradoxical context of a rapidly growing economy, which is becoming naturally integrated, but with severe state fragility. Economies with the same potential and the same challenges should work together in addressing state fragility. Economic cooperation and partnership are now the keywords of the Asian Century. The FFP (n.d.-​d) devised 12 indicators to measure the degree of state fragility. These factors are clustered into five categories: cohesion, economy, politics, social, and cross-​cutting indicators (Table 8.2). The FFP carries out analysis for each indicator regularly, using content analysis, statistics provided by international organizations such as the World Bank and the United Nations, and qualitative review by a group of experts. This methodology is used to measure the scoring as the basis of the Fragile States Index.6 Figure 8.6 shows how it works, using Indonesia as an example. Figure 8.6 should be read with the following in mind. 1) As a general rule, the more a curve slopes downward, the better the quality of the indicator; conversely a curve with an upward slope indicates lower quality. 2) The average shown in the figure is based on the data set of all Indonesia’s indicators from 2006 to 2019; the average value is 6.6. For practical purposes, indicators which remain above the average level represent areas for improvement. 3) The time frame covers 13 years, from 2006 to 2019, to provide an objective picture of fragility in Indonesia over time.

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140  Siswo Pramono and Bayu Rahmat Novita Figure 8.5 Fragile State Index, 2019 Notes: Author modifications are as follows: (1) some boundary segments for China–​India, India–​Pakistan, North Korea–​South Korea, Sudan–​ South Sudan, and Ethiopia–​Somalia were redrawn on the basis of maps from the United Nations (“The World Map,” Map No. 4170, R.18.1, February 2020; www.un.org/​Depts/​Cartographic/​map/​profile/​world.pdf) and the World Bank (“The World by Income: Atlas of Sustainable Development Goals 2018”; https://​datatopics.worldbank.org/​world-​development-​indicators/​images/​figures-​png/​world-​by-​income-​sdg-​atlas-​ 2018.pdf); (2) a change was made to Chinese Taipei. This figure is for illustration only. Source: Fund for Peace (n.d.-​c), https://​fragilestatesindex.org/​analytics/​fsi-​heat-​map/​; modified by the authors

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Promoting Business Connectivity  141 Table 8.2 Twelve indicators of the Fragile States Index Cohesion

Economy

Politics

Security apparatus Factionalized elites Group grievances

Economic State decline legitimacy Uneven Public services economic Human rights development and rule of Human flight law and brain drain

Social

Cross-​cutting

Demographic pressures Refugees and internally displaced people

External intervention

Source: Fund for Peace –​https://​fragilestatesindex.org/​indicators/​; compiled by the authors

Figure 8.6 Indonesia’s 12 indicators Note: The authors added labels for each indicator as well as the average value and corresponding line. Source: Fund for Peace (n.d.-​a, https://​fragilestatesindex.org/​country-​data/​; modified by the authors

Figure  8.6, therefore, captures the dynamics of the 12 indicators over time; taken together, these reflect overall progress in Indonesia. Quality has improved in the last 13 years for security apparatus, public services, economy, uneven economic development, refugees and internally displaced persons, external intervention, and state legitimacy. However, Indonesia still has work to do when it comes to group grievances, factionalized elites, human flight and brain drain, demographic pressures, and human rights. In general, it is safe to say that national resilience in Indonesia is improving, in the sense that the country is less fragile compared to a decade ago.

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142  Siswo Pramono and Bayu Rahmat Novita Having observed the situation in Indonesia, one can assume that, based on the same measuring rod, other ASEAN member states, and also China and India, have moved in the same direction. In other words, regional resilience is getting better, or the region is less fragile than a decade ago. Due to the constraint of space in this chapter, it is impossible to dwell on the progress of individual countries in relation to each of the 12 indicators. Figure  8.7, therefore, depicts only the overall trends in fragility of the ten ASEAN member states, China, and India. In all countries, the overall trend is improvement; regardless of the different starting points, most of the curves tend to slope downwards. Only in the case of India and the Philippines do the curves end up in slightly higher positions. However, if the measures for these two countries is taken from the year 2010, instead of 2006, then the overall trend would be downwards. Figure 8.7 suggests a good foundation for the Asian Century. The improvement in national resilience in ASEAN member states, China, and India will eventually contribute to regional resilience. This is a region that links the Indian Ocean and Asia-​Pacific regions to form a single geopolitical theater, and where major inter-​state wars have been absent in the last 50  years. As such, the role of ASEAN in maintaining peace and security in Southeast Asia will contribute positively to the future of the Asian Century. At the dawn of the Asian Century, it is important to devise practical policy to build confidence in the SCS region so that common interests, including the flourishing of businesses in the region, can be served.

Figure 8.7 Overall trend of ASEAN member states, China, and India (2006–​2019) Source: Fund for Peace (n.d.-​b), https://​fragilestatesindex.org/​excel/​; authors’ analysis

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Business connectivity among industrial parks in the SCS rim and its vicinity It is clear now that through increased resilience, ASEAN has become an important pillar for the fast-​growing East Asia economy. The SCS, which is a semi-​enclosed sea under UNCLOS, has also transformed itself to be a lake of opportunity for the region. Fifty years ago, Southeast Asia, including the SCS, represented the zone for Cold War proxy conflicts. Now, Southeast Asia, and ASEAN for that matter, means business. Countries who were used to being the masters of proxy wars are now strategic partners in business. The improving business climate in the region has materialized, among other reasons, due to the mushrooming of more than 1,000 economic zones in the ASEAN region, as found in a study by the United Nations Industrial Development Organization (UNIDO) Country Office in Viet Nam (2015). The majority of economic zones in the region qualify as industrial parks. UNIDO (1997) defines industrial parks as a tract of land developed and subdivided into plots according to a comprehensive plan with provision for roads, transport and public utilities with or without built-​up (advance) factories, sometimes with common facilities and sometimes without them, for the use of a group of industrialists. (UNIDO 1997, 10) The current development of ASEAN economic zones is captured in Figure 8.8. ASEAN member states have long worked together, in line with the regional project of the ASEAN Economic Community, to develop economic zones of various types. Connectivity among the 1,000 plus industrial parks gained momentum with the adoption by the 34th ASEAN Summit of ASEAN Outlook on the Indo-​ Pacific. One of the main aspects of cooperation addressed by the ASEAN Outlook is connectivity. The ASEAN Outlook document mentions that “existing and future connectivity initiatives in the Indo-​ Pacific region should complement and support the existing Master Plan on ASEAN Connectivity (MPAC) 2025.”7 As such, connectivity among industrial parks in the SCS rim should be based on ASEAN principles and mechanisms as well. In ASEAN’s experience, while industrial parks represent the most common type of economic zone, other types  –​such as special economic zones, eco-​ industrial parks, technology parks, and innovation districts  –​have also developed rapidly. As depicted in Figure 8.8, the various types of economic zones are subject to different stages of competitive development:  stage 1 (factor-​driven), which transitions to stage 2 (efficiency-​driven), which transitions to stage 3

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Figure 8.8 ASEAN economic zones Note: The authors combined three different figures from the source (pages 12, 15 and 16). Source: UNIDO Country Office in Viet Nam (2015); modified by the authors

(innovation-​driven). The UNIDO Country Office in Viet Nam (2015, p. 15) has clustered the ASEAN member states according to different stages and transition periods. Stage 1 includes Cambodia, Lao PDR, and Myanmar; Transition 1 includes the Philippines and Viet Nam; Stage 2 includes Indonesia and Thailand; Transition 2 includes Malaysia; and Stage 3 includes Brunei Darussalam and Singapore. For ASEAN, as is the case with other developing countries, production of goods and services in the industrial parks represents a source of welfare for nations. At the regional and global levels, industrial parks represent an essential element of trade, which is the “fuel” of economic globalization. Thus, in line with the study by UNIDO Country Office in Viet Nam (2015, 19), there are three main objectives for business connectivity among industrial parks in a particular region: (1) to advance economic growth and employment as well as to improve workers’ capabilities at the levels of regency, province, state/​economy, and region:  (2) to enhance the quality and quantity of foreign direct investment (FDI); and (3) to encourage industrialization, particularly value-​added industries. In the case of the SCS, business connectivity, involving various actors and activities, will strengthen trust and partnership in the region. Business connectivity of industrial parks along and across the SCS rim will serve as the foundation for confidence building measures (CBMs) to attain peace through cooperation. Table 8.3 gives examples of some industrial parks and their location in the SCS rim and its vicinity; this is by no means an exhaustive list.

Promoting Business Connectivity  145 Table 8.3 Examples of economic zones in the SCS rim and its vicinity Tai Po Industrial Estate Yuen Long Industrial Estate Tseung Kwan O Industrial Estate Hengqin Free Trade Zone Giao Long Industrial Phase 1 & 2 An Hiep Industrial Park Co Chien Industrial Park My Thanh Industrial Park Ninh Quoi Industrial Park Thanh Hai Industrial Park Chau Duc Industrial Park Ham Kiem 1 & 2 Industrial Park Sungai Liang Industrial Park Pulau Muara Besar Industrial Park Kota Kinabalu Industrial Park Sipitang Oil and Gas Industrial Park Samalaju Industrial Park Matadeng Industrial Park Tanjung Manis Halal Hub Malaysia–​China Kuantan Industrial Park Gebeng Industrial Park First Philippine Industrial Park Clark Freeport Zone Subic Bay Gateway Park Carmelray Industrial Park Rio Tuba Export Processing Zone Batamindo Industrial Estate Bintan Industrial Estate Ketapang Industrial Estate

China (Hong Kong and Guangdong)

Vietnam (Ben Tre, Tra Vinh, Soc Trang, Bac Lieu, Ninh Thuan, Ba Ria–​Vung Tau, and Binh Thuan)

Brunei Darussalam (Belait and Brunei-​Muara) Malaysia (Sabah, Sarawak, and Pahang)

Philippines (Cavite, Laguna, Batangas, Rizal, Quezon, Pampanga, Zambales, Bataan, and Palawan)

Indonesia (Riau Islands and West Kalimantan)

Source: Indonesian Embassies and Consulate Generals in ASEAN member states; processed by the authors

Littoral states consider the SCS as providing their main access to regional and global markets; hence, the coastlines provide ideal sites for industrial parks. Viet Nam is one of the countries seriously developing industrial parks as the cornerstone for its economic development. It has developed its eastern coast to provide sites for industrial parks. According to Mr. Tran Duy Dong, Director General of the Economic Zones Management Department in the Ministry of Planning and Investment of Viet Nam, the policy of developing industrial parks is associated with reform of the economy towards industrialization and modernization (Ministry of Planning and Investment of Viet Nam 2018, 150–​152). He reported that as of June 2018, 326 industrial parks had been established, covering more than 95,000 hectares of natural land. Those industrial parks had attracted FDI capital over USD 174 billion from 8,000 projects by the end of June 2018.

146  Siswo Pramono and Bayu Rahmat Novita In many cases, ASEAN member states have also developed industrial parks jointly with partner countries. While, currently, joint industrial parks are not necessarily located in coastal sites in the SCS, states are starting to see the benefit of strategic locations in the rim. ASEAN has also benefited from increasing Chinese investment in the region. The Chinese government has developed border economic zones with its neighboring countries (e.g. Hekou, Pingxiang, and Dongxing, bordering Viet Nam; Mohan, bordering Laos; and Ruili, bordering Myanmar). Since the China–​ASEAN Strategic Partnership was formed in 2003, the following joint industrial parks have been developed: • • • •

China–​Singapore Suzhou Industrial Park Thai–​Chinese Rayong Industrial Zone Cambodia Sihanoukville Special Economic Zone China–​Vietnam (Shenzhen–​Haiphong) Economic and Trade Cooperation Zone • China–​Indonesia Economic and Trade Cooperation Zone • China–​ Malaysia Qinzhou Industrial Park in the Guangxi Zhuang autonomous region • Vietnam–​Singapore Industrial Park The US–​China trade war is expected provide incentive for China to relocate its industries to the ASEAN market. In fact, as analyses by Wong (2018) and Kumar (2019) indicate, it is not only Chinese companies that would relocate to ASEAN sites, but also American companies that used to operate in China. As ASEAN will be a safe haven for foreign firms during the trade war, as argued by George Yeo (2018), this relocation will boost the development of industrial parks in the SCS rim and its vicinity. This positive development will eventually attract more FDI from economies outside the region. The next section looks at the prospect for investment in the SCS rim and its vicinity.

Prospect for investment in the SCS rim and its vicinity There is a good prospect for investment in the SCS rim as a consequence of the dawn of the Asian Century. And, as previously discussed, in the last decade countries and economies in the region have dealt with the question of fragility. For all ASEAN states littoral to the SCS, and in its vicinity (claimant and non-​claimant), the three Fragile State Index indicators directly relevant to investment –​economic decline, uneven economic development, and human flight and brain drain –​have been well managed. Most of these states have also made good progress, to various degrees, on political, social, and cohesion indicators, as indicated by the capacity to deal with demographic pressure, security apparatus, and public service. Two of them (Indonesia and the Philippines) even managed to improve the underlining political indicator

Promoting Business Connectivity  147 of state legitimacy. This means that the economy and socio-​political factors of states littoral to the SCS are conducive to FDI. In line with the better handling of fragility indicators, the Foreign Direct Investment Survey conducted by the Multilateral Investment Guarantee Agency of the World Bank Group (World Bank 2002, 19)  looked at determinants for FDI, when locating operations overseas (Table  8.4). According to that survey, which should apply in the SCS rim as well, investors are attracted to a particular region (location) mostly due to the following influential factors: market access (77 percent), stable socio-​political environment (64 percent), ease of doing business (54 percent), and reliability and quality of infrastructure and utilities (50 percent). The complete list of determinants included in the survey appear in Table 8.4. The availability of cross-​border infrastructure also serves as an important determinant for FDI. In this respect, the region is prepared, with a Master Plan of Connectivity, the infrastructure aspect of which has been implemented. The Greater Mekong subregion (depicted in Figure 8.9) is now better connected than it was a decade ago. This connectivity offers links from the Indian Ocean to the SCS through the East–​West and Southern economic corridors. Figure  8.10 shows a good outlook for the availability of energy (gas and liquefied natural gas [LNG]) for industrialization in the region. And Figure  8.11 promises a good electricity supply through the interconnected

Table 8.4 Factors affecting FDI Top 20 critical location factors

Percent

Access to customers Stable social and political environment Ease of doing business Reliability and quality of infrastructure and utilities Ability to hire technical professionals Ability to hire management staff Level of corruption Cost of labor Crime and safety Ability to hire skilled laborers National taxes Cost of utilities Roads Access to raw materials Availability and quality of university and technical training Available land with all services in place Local taxes Access to suppliers Labor relations and unionization Air service

77 64 54 50 39 38 36 33 33 32 29 28 26 24 24 24 24 23 23 23

Source: Multilateral Investment Guarantee Agency of the World Bank Group, 2002

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Figure 8.9 Greater Mekong Subregion’s new configuration of economic corridors Note: As stated on the map, this map was produced by the cartography unit of the Asian Development Bank. The boundaries, colors, denominations, and any other information shown on this map do not imply, on the part of the Asian Development Bank, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries, colors, denominations, or information. Source: Asian Development Bank, October 2018

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Figure 8.10 ASEAN’s gas/​LNG key infrastructure Note: The authors added the title in the top left corner of the figure. Source: S&P Global Platts, © 2020 S&P Global Inc; modified by the authors

power grids in the region. But an integrated network of industrial parks demands an integrated network of energy. At present, it seems that more collaboration across parties is needed to build an integrated and clean energy mix in the SCS rim. In other words, the development plan for gas/​LNG infrastructure (Figure 8.10) should be better integrated with the development plan for power grids (Figure 8.11). Thus, although the region is blessed with abundant sources of energy (such solar, natural gas, wind, tidal, coal, and hydro), a more regional approach to dialogue and planning is needed. Better integration when it comes to development of local sources of energy would serve regional industrialization well. Taking all these factors into consideration  –​improvement in relation to state fragility, FDI, and the basic infrastructure plan –​the region has good prospects for business connectivity among the industrial parks in the SCS rim and its vicinity.

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Figure 8.11 ASEAN’s power grids Note: The authors added the title in top left corner of the figure. Source: Pranadi in ASEAN Centre for Energy (2016); modified by the authors

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Concluding note Efforts have been made by countries surrounding the SCS to mitigate the impact of real and potential disputes with regard to overlapping jurisdiction in the region. Despite the rather slow progress, diplomacy has been intensified at multilevel tracks to produce tangible results such as the DOC and the ongoing COC process. In the meantime, global strategic development has given birth to the Asian Century. As Asia becomes a global center of growth, sustained among other things by the economies of China, India, Japan, South Korea, and ASEAN (including Indonesia), countries surrounding the SCS have also enjoyed economic progress. In past decades, CBMs on the SCS issue have been initiated only in the political realm. With the dawn of the Asian Century, it is now time to intensify real business and economic cooperation across the SCS as a way to attain common prosperity and build political trust. International law, in particular UNCLOS, should remain the guiding principle for such cooperation,8 alongside the principles of inclusiveness and partnership. At this juncture, the mushrooming of industrial parks and industrial estates in the SCS rim provides an opportunity for more business connectivity across the region. Cooperation among industrial parks and estates will enhance not only the welfare of the region, but also the trust building process, thus supporting the long-​term settlement of potential and real disputes. As cooperation among industrial parks and estates is concentrated in the rim of the SCS, not in the disputed maritime zones, this endeavor has a great chance for success. While this cooperation will promote more interdependence among the coastal States, the expected result is an enabling environment for attaining a peace based on justice in the region. Finally, seizing this momentum, it is worth considering a future project to promote business connectivity. As a non-​claimant state that consistently promotes practical solutions for the region, Indonesia is well placed to play a key role. This chapter proposes a project with the following elements: • • • • •

an international seminar based on Track 2 or Track 1.5 diplomacy; taking the theme of promoting business connectivity among industrial parks in the SCS rim and its vicinity; promoting the principles of peace, cooperation, mutual benefit, inclusiveness, and common prosperity; hosted by Indonesia (and partners from the SCS) and with a tentative date of 2021; followed up with a biennial dialogue forum for industrial parks in the SCS rim and its vicinity, which would be open for participation of business entities at regional and global levels.

152  Siswo Pramono and Bayu Rahmat Novita This proposed project could contribute to efforts to improve practical cooperation as well as CBMs in the SCS.

Notes 1 The views expressed in this chapter are those of the authors and do not necessarily reflect the views and policies of the Indonesian government. We would like to thank Bassam Sebti (World Bank Group), Dinh Thu Huong (UNIDO Country Office in Viet Nam), Ferry Murdiansyah (Indonesian Embassy in Hanoi), J.  J. Messner (FFP), Kevin Ward (NASA), Kristel Gonzales (Asian Development Bank), Melissa Tan (S&P Global Platts), Michael Kristiono (PADA), Nella Nabila (AEC), and Patricia Loo (IMF) and Annisa Nasti (HAPUA Secretariat) for their help. The responsibility for the content of this chapter lies with the authors. The digital archive of Figures 8.1, 8.2, 8.3, 8.4, 8.6 and 8.7 are stored in https://drive.google.com/drive/folders/1Pok2HDAMTm6s0ow6jFAJPT1 YdOPfrmcP 2 The SCS as a geographical area in this chapter refers to International Hydrographic Organization (1953, 30–​31). 3 For instance, see Chairman’s Statements at the 31st, 33rd, and 34th ASEAN Summits. 4 The data set and the background map are from the IMF (2020). The map indicates the level of economic growth by countries. The authors modified the map by adding circles which depict the size of GDP (PPP, current prices) of countries and groups of countries (ASEAN and the EU) in any given period, indicated by different colors. 5 This chapter does not go into detail on the methodology used. See the FFP’s website for more information on this and to access the Fragile States Index:  https://​ fragilestatesindex.org/​category/​publications-​and-​downloads/​ 6 For a more complete explanation, please see the FFP website, particularly the methodology section: https://​fragilestatesindex.org/​methodology/​ 7 The full text of the ASEAN Outlook on the Indo-​Pacific can be downloaded at:    https://​asean.org/​storage/ ​2019/​06/​ASEAN-​Outlook-​on-​the-​Indo-​Pacific_​ FINAL_​22062019.pdf 8 This position is in line with the Press Statement by the Chairman of the ASEAN Foreign Ministers’ Retreat (Nha Trang, 16–​17 January 2020), particularly point 15: “We reaffirmed that international law, including the 1982 UNCLOS is the basis for determining sovereignty, sovereign rights and legitimate interests over maritime areas. We further reaffirmed that the 1982 UNCLOS is the overarching framework of legal order for the seas that must be respected by all countries.”

References ADB. 2018. Greater Mekong Subregion:  Twenty-​Five Years of Partnership. Manila: ADB. www.adb.org/​publications/​greater-​mekong-​subregion-​25-​years-​partnership. CC-​BY 3.0 IGO. Fund for Peace. n.d.-​a. “Country Dashboard.” https://​fragilestatesindex.org/​country-​ data/​, accessed 8 February 2020. Fund for Peace. n.d.-​b. “Download Data in Excel Format.” https://​fragilestatesindex. org/​excel/​, accessed 8 February 2020.

Promoting Business Connectivity  153 Fund for Peace. n.d.-​c. “Fragile States Index Heat Map.” https://​fragilestatesindex.org/​ analytics/​fsi-​heat-​map/​, accessed 8 February 2020. Fund for Peace. n.d.-​d. “Indicators.” https://​fragilestatesindex.org/​indicators/​, accessed 8 February 2020. Goodman, Peter S. 2020. “SARS Stung the Global Economy. The Coronavirus Is a Greater Menace.” The New  York Times, 3 February. www.nytimes.com/​2020/​02/​ 03/​business/​economy/​SARS-​coronavirus-​economic-​impact-​china.html, accessed 10 February 2020. Hayton, Bill. 2017a. “Beijing Shifts Strategy in South China Sea Authorities Modify Legal Position After Last Year’s Tribunal Defeat.” Nikkei Asian Review, 12 July. https://​asia.nikkei.com/​Politics/​Beijing-​shifts-​strategy-​in-​South-​China-​Sea2. Hayton, Bill. 2017b. “Denounce but Comply: China’s Response to the South China Sea Arbitration Ruling.” Georgetown Journal of International Affairs, 18 (2) (Summer/​ Fall 2017): 104–​111. doi: 10.1353/​gia.2017.0025. International Hydrographic Organization. 1953. Limits of Oceans and Seas. Special Publication No. 23, 3rd ed. Monte Carlo. https://​web.archive.org/​web/​201404070 60601/​http://​www.iho.int/​iho_​pubs/​standard/​S-​23/​S-​23_​Ed3_​1953_​EN.pdf. International Monetary Fund. 2020. “Data from:  World Economic Outlook.” October 2019 data set. www.imf.org/​external/​datamapper/​NGDP_​RPCH@WEO/​ OEMDC/​ADVEC/​WEOWORLD, accessed 7 February 2020. ISEAS-​Yusof Ishak Institute and ASEAN Studies Centre. 2019. The State of Southeast Asia: 2019 Survey Report. Singapore: ASEAN Studies Centre at ISEAS-​Yusof Ishak Institute. www.iseas.edu.sg/​images/​pdf/​TheStateofSEASurveyReport_​2019.pdf. Kumar, P Prem. 2019. “Southeast Asia Set to Gain from Trade War Business Relocations.” Nikkei Asian Review, 17 June. https://​asia.nikkei.com/​Economy/​ Trade- ​ war/ ​ S outheast- ​ A sia- ​ s et- ​ t o- ​ g ain- ​ f rom- ​ t rade- ​ war- ​ business- ​ relocations, accessed 23 June 2019. Ministry of Planning and Investment of Viet Nam. 2018. 30 Years of FDI Mobilization in Viet Nam:  New Vision, New Opportunities in New Era. www.economica.vn/​ Content/​ f iles/​ P UBL%20%26%20REP/ ​ 3 0%20Year%20of%20FDI%20in%20 Vietnam.pdf, accessed 2 February 2020. NASA Earth Observatory. 2017. “Earth at Night: It’s the End of the Night as You Know It; You’ll See Fine.” https://​earthobservatory.nasa.gov/​features/​NightLights, accessed 27 January 2020. Pinkovskiy, Maxim, and Xavier Sala-​i-​Martin. 2016. “Lights, Camera  … Income! Illuminating the National Accounts-​Household Surveys Debate.” The Quarterly Journal of Economics, 131 (2): 579–​631. doi: 10.1093/​qje/​qjw003. Pranadi, Aloysius Damar. 2016. “How Electricity Trades Progress in ASEAN.” ASEAN Centre for Energy, 7 October. https://​aseanenergy.org/​how-​electricity-​ trades-​progress-​in-​asean/​. UNIDO. 1997. Industrial Estates: Principles and Practice. Vienna: UNIDO. https://​ digitallibrary.un.org/​record/​414834?ln=en. UNIDO Country Office in Viet Nam. 2015. “Economic Zones in the ASEAN: Industrial Parks, Special Economic Zones, Eco Industrial Parks, Innovation Districts as Strategies for Industrial Competitiveness.” www.unido.org/​sites/​default/​files/​2015-​ 08/​UCO_​Viet_​Nam_​Study_​FINAL_​0.pdf. Wong, Sue Lin. 2018. “Many U.S. Firms in China Eyeing Relocation as Trade War Bites:  Survey.” Reuters, 29 October. www.reuters.com/​article/​us-​usa-​trade-​china-​ impact/​many-​u-​s-​firms-​in-​china-​eyeing-​relocation-​as-​trade-​war-​bites-​survey-​ idUSKCN1N30ZE, accessed 23 June 2019.

154  Siswo Pramono and Bayu Rahmat Novita World Bank. 2002. Foreign Direct Investment Survey (English). Washington, DC: World Bank.    http://​ d ocuments.worldbank.org/​ c urated/​ e n/​ 6 69281468764093551/​ Foreign-​direct-​investment-​survey. Yeo, George. 2018. “China’s Trade War Pain Can be ASEAN’s Gain: How Southeast Asia is Reaping a Windfall of Shifting Trade and Investment.” South China Morning Post, 16 October. www.scmp.com/​week-​asia/​geopolitics/​article/​2168703/​chinas-​ trade-​war-​pain-​can-​be-​aseans-​gain-​how-​southeast-​asia, accessed 23 June 2019. Yep, Eric. 2018. “Analysis: Trans-ASEAN Gas Projects Losing Relevance Amid the Fast-Paced LNG Growth.” S&P Global Platts, 7 November 2018. www.spglobal. com/platts/en/market-insights/latest-news/natural-gas/110718-analysis-transasean-gas-projects-losing-relevance-amid-the-fast-paced-lng-growth.

9  Why joint development agreements fail Implications for the South China Sea dispute1 Song Xue

Introduction Since the 1958 Bahrain–​Saudi Arabia Joint Development Agreement (hereinafter “JDA”), about 20 JDAs have been signed to explore for and exploit hydrocarbon resources in disputed areas. However, only a few JDAs have proceeded to the implementation phase. Many scholars argue that the failure to implement such joint agreements lies in factors outside the domain of international law, such as lack of economic incentives, the intervention of third parties, domestic opposition, or the deterioration of relations between the signatory states. These factors are sometimes subsumed under the category of “political will.” William Stormont and Ian Townsend-​Gault (1995, 61), for instance, argue that political will is “the single most important ingredient in the successful conclusion and continuation” of any JDA. However, the definition of political will, in the words of Clive Schofield (2007, 298), is “somewhat nebulous.” Despite consensus over the importance of political will in determining the outcome of JDAs, research is based largely on meticulous case-​by-​case analysis, whereas no systematic comparative analysis of all the cases has been conducted to unravel the causal links behind the failure of JDAs. This chapter is designed to fill this literature gap. This study uses the qualitative comparative analysis (QCA) method to examine six variables that are often cited to explain the failure of JDAs. They are:  (1) low oil prices; (2)  energy independence; (3)  domestic opposition; (4) deterioration of bilateral relations; (5) third-​party intervention; and (6)  bilateral disagreements over the details of the JDA. These were tested against 19 joint development ventures between 1958 and 2008 in Europe, Africa, the Asia-​Pacific, and Latin America. The chapter concludes that deterioration in bilateral relations is the only consistent causal condition associated with the failure of JDAs. The precipitating cause of worsening bilateral relations varies in each case, but is generally the result of ongoing territorial or maritime boundary disputes, such as when the signatory states try to secretively consolidate their claims or confirm the status of a “dispute”2 while ostensibly moving forward with joint development.

156  Song Xue Two findings are pertinent to the prospect of joint development projects in the South China Sea (hereinafter “SCS”). First, since joint development and delimitation are mutually exclusive strategies in managing disputes, claimant states should not enter into JDAs as a false pretext to advance their boundary claims. Second, since friendly relations between signatory states are crucial for the implementation of JDAs, committing to a set of binding rules (such as a Code of Conduct) that will regulate the actions of all disputing claimant countries is critically important.

Four possible factors placing joint development in peril There are several definitions of joint development. Most notable are those advanced by Townsend-​ Gault (1988, 275), Masahiro Miyoshi (1999, 3), Bernard Taverne (1994, 237), and the British Institute of International and Comparative Law (1989, 45). This chapter adopts the following definition: Joint development is an inter-​ governmental arrangement of a provisional nature between two or more countries, designed for the functional purposes of joint exploration for and/​or exploitation of hydrocarbon resources, whether onshore or offshore, in overlapping or disputed areas, or in areas where countries have not achieved agreement on delimitation. This definition is primarily based on Miyoshi’s (1999, 3), with some minor amendments. It is important to emphasize four points. First, this definition excludes arrangements involving states and private entities entering into contracts to jointly develop resources. However, exceptions are made for agreements between state-​owned enterprises. Such agreements can be considered intergovernmental since the state-​owned enterprises usually act on behalf of their respective states. Second, it confines the scope of JDAs to those located in disputed waters or territories (Taverne 1994, 147–​170). Third, it emphasizes the provisional nature of JDAs, which implies that the arrangement is subject to revision, cancellation, or termination in the event that the delimitation of the disputed area is finalized. Fourth, this chapter confines itself to discussing the joint development of hydrocarbon resources. Between the 1970s and 1990s, a number of joint development arrangements were signed. However, actual implementation of JDAs remains relatively rare. The total number of agreements that have been effectively implemented is very small when compared to the number of boundary disputes that are fueled by competition over mineral resources (Weinberg 2013, 237). Factors that cause JDAs to stall are complex and often overlapping. In general, they fall into four categories: domestic factors (involving politics, law, and security), foreign relations, economic incentives, and factors inherent in the joint development arrangements themselves.

Why Joint Development Agreements Fail  157 Domestic politics, law, and security In terms of domestic politics, three kinds of phenomena frequently pose a challenge to the success of JDAs. The first is exclusivist nationalism. joint development in contested waters often attracts criticism from hardline nationalists or opposition parties, who accuse the government of sacrificing national interests. The ensuing public outcry against the agreement creates obstacles to its implementation. A more severe situation occurs when governments used to endorsing militant nationalist rhetoric find themselves under attack by the very nationalists they have cultivated. This leads to a deadlock in which neither the negotiation of delimitation nor an agreement over joint development with a rival claimant state is viable from the perspective of domestic politics (Weinberg 2013, 237). The negotiation of a JDA between China and Japan in 2008 is a case in point. The negotiations were harshly criticized by Chinese nationalists, which meant that Beijing was unable to simply sideline its boundary claims when stipulating the terms of the JDA with Tokyo. China later insisted on calling the arrangement a “cooperative development” in order to sidestep the boundary dispute. However, ultimately Beijing and Tokyo failed to reach an agreement regarding the boundaries of the joint development zone. This episode reveals how domestic pressures, especially in the form of exclusivist nationalist sentiments, can hamper the prospect of joint development, even in China. A second domestic factor impeding the implementation of joint development is the weak political position of the incumbent leader. Under such circumstances, domestic oppositions would challenge the JDA for reasons such as energy security, sovereign interests, and domestic laws. Facing fierce accusations and legal procedures, the incumbent administration is likely to lack the capacity to follow through with the joint development project. An example of this was the 2005 Philippine–​China–​Vietnam Joint Marine Seismic Undertaking (JMSU). The corruption allegations involving then Philippine President Gloria Arroyo and Chinese-​backed infrastructure companies, as well as the low popularity of the president, triggered a series of investigations against her, including one into the JMSU, which her opponents said violated the Constitution (Parameswaran 2017). The third factor involving domestic politics is the challenge of developing an internal consensus in the country. The negotiation of a JDA often involves multiple domestic agencies, and the difficulty of reaching a consensus among domestic stakeholders can threaten the effective implementation of the agreement. Even in unitary states, the decision-​making process involves multiple domestic players with different interests. For instance, the Chinese navy has occasionally adopted a hawkish stance towards the SCS dispute which is incompatible with the interests of the Chinese Ministry of Foreign Affairs. The actions of the Chinese navy also undermines the provincial governments of Hainan and Guangxi, which are keen to pursue joint development (Lee and Chen 2009, 163). The complexity involved in reaching consensus among

158  Song Xue domestic institutions belies the conventional expectation that it is easier for non-​democracies to establish a consensus on collective action (Drifte 2008, 45). Compared to the obstacles posed by domestic political issues, the challenge posed by domestic law is more manageable as long as there is sufficient time to amend the legislation to accommodate the requirements of the JDA. For instance, the 1979 Malaysia–​Thailand agreement was tested by the issue of two different contractual systems (Valencia 1986, 671). Malaysia’s 1974 Petroleum Development Act granted oil and gas resource development rights to Petronas and adopted a production sharing system. However, Thailand’s 1971 Petroleum Act had adopted a concession system. Prolonged negotiations between Malaysia and Thailand took place throughout the 1970s and 1980s, but it was only in 1990 that the Malaysia–​Thailand Joint Authority (MTJA) was established, marking the beginning of the implementation of the 1979 agreement. The final domestic factor concerns energy security. States are willing to enter into joint development arrangements in order to increase their energy independence. In the aftermath of the global oil crisis of the 1970s, many countries sought to enhance their energy security. The 1974 JDA between Japan and South Korea was one such example, as both countries were spurred by the need to counter the global oil crisis (Wu and Mu 2018, 30) by exploiting new sources of energy (Miyoshi 1985, 551). Similarly, the imperative to protect its energy security may incentivize China to shelve its boundary disputes with the littoral states of Southeast Asia and instead pursue joint development ventures. Furthermore, since over 70  percent of China’s oil imports passes through the Strait of Malacca, making peace with littoral states would help China increase its energy security (Lee and Chen 2009, 161). Foreign relations There are three aspects of foreign relations that may negatively impact the implementation of JDAs. Friendly bilateral relations between countries is a prerequisite for the participating states to be predisposed towards joint development (Ong 1999, 213). Any deterioration in bilateral relations between the signatory states could, therefore, derail the agreement. For instance, due to the sporadic conflicts along the Thai–​Cambodia border near the Preah Vihear Temple and Cambodia’s appointment of ousted Thai Prime Minister Thaksin Shinawatra as an economic adviser, the Thai government was, in 2009, reportedly considering the unilateral revocation of the 2001 Cambodia–​Thailand memorandum of understanding (MOU) regarding overlapping continental shelf claims in the Gulf of Thailand (Schofield 2014). The implementation of the 2008 JDA between China and Japan also failed, partially due to the collision of a Chinese fishing boat with a Japanese coast guard vessel in 2010 and the Japanese government’s purchase of one of the disputed Senkaku/​ Diaoyu Islands in 2012 (Wang 2017, 19). The 1979 agreement between

Why Joint Development Agreements Fail  159 Malaysia and Thailand was also negatively affected by bilateral disputes over fishing rights (Schofield 2007, 293). The absence of “shared values” between signatory countries is not conducive to implementing joint development ventures. It has been argued that JDAs among Southeast Asian countries have benefited from a sense of shared values arising from a common Association of South East Asian Nations (ASEAN) identity. For instance, the inclusion of Cambodia and Vietnam into ASEAN has purportedly contributed to the success of joint development in the Gulf of Thailand (Nguyen 1999, 86). A similar argument could be made about the impact of a pan-​Arabic identity on the success of the joint development venture between Kuwait and Saudi Arabia in the Neutral Zone in 1965 (Valencia 1986, 676). However, arguments about “shared values” are often made in rather sweeping terms that do not clearly explain the causal mechanism. Moreover, third-​party interventions can also disrupt the implementation of joint development projects. The opposition of a third-​party claimant state can increase the risks for international energy companies seeking to participate in the JDA, thus hampering investment prospects and technical expertise. Deteriorating relations with a third-​party claimant country can also have spillover effects on other bilateral issues, such as trade and foreign direct investment. The 1974 Japan–​South Korea JDA provoked official protests from Beijing, which claimed sovereign rights over part of the joint development zone. Although Beijing did not undertake any retaliatory action, opposition parties in the Japanese parliament cited Beijing’s protests as an excuse to block the ratification of the JDA for four years (The New York Times 1978). Other non-​claimant countries may also intervene on the grounds of geostrategic calculation. According to some Chinese researchers, the United States (US) has attempted to block China’s efforts to broker the joint development of hydrocarbon resources in the East China Sea and the SCS (Yang 2011, 73). Two joint development attempts between China and the Philippines were supposedly unsuccessful due to the intervention of the US (Li 2018, 75). Economic incentives There are two relevant economic factors that encourage claimant states to pursue joint development: the significance of the resources to the countries concerned and the degree of benefit that could be gained from coordinating their efforts (Richardson 1988, 450). The potential economic return is often a strong motivating factor in joint development. For example, Thailand was eager to conclude the JDA with Malaysia in 1979, as it was seeking to reduce its reliance on oil imports (Nguyen 1999, 85). Global oil prices also affect the prospects for joint development:  when prices surge, countries are more likely to consider entering into joint development arrangements; conversely, when oil prices are low, interest in joint

160  Song Xue development wanes. This is relevant to the MOU signed between China and the Philippines in November 2018 regarding cooperation on oil and gas development. As the current price of crude oil is only slightly higher than the average cost of exploitation, the motivation is insufficient in both countries (Kang and Luo 2018, 124). An accurate assessment of the size of hydrocarbon deposits is also conducive to an agreement being reached, as it increases the prospects of commercial success (Nguyen 1999, 86). The 1992 Malaysia–​Vietnam agreement was quickly settled after Malaysian contractors discovered significant seabed resources (Schofield 2007, 297). Conversely, Valencia is right to caution that a more accurate assessment of the deposits might actually make claimant states reluctant to engage in joint development, because they are reluctant to share what they consider rightfully belongs to them (Valencia 1986, 675). Factors associated with JDAs There are factors associated with joint development arrangements themselves that may disrupt cooperation between the signatory states. Disagreement may arise about the size and borders of the joint development zone, the issue of preexisting rights, operational costs, revenue distribution, the legal regime, the function of the authoritative body, etc. While it is possible for such disputes to be resolved through further negotiations, some JDAs have been shelved or canceled due to such problems. For instance, there was a delay in implementing the 1979 Malaysia–​ Thailand MOU due to disagreements between the two parties over the roles of the MTJA. Although the two countries initially intended to emulate the 1974 Japan–​ South Korea agreement and form a supranational authority, both countries were later reluctant to grant governing rights to the MTJA (Luo and Guo 2012, 48). The Thai authorities were also embroiled in a commercial dispute over preexisting rights that had already been granted to two oil companies (Schofield 2007, 293). The physical size of the joint development zone can also affect the success of a JDA. A  geographically larger joint development zone is more difficult for signing parties to delimit (as was the case with the 1974 Japan–​South Korea agreement), while a smaller zone helps states reach an agreement on joint development more easily (as in the case of the 1992 Vietnam–​Malaysia agreement) (Nguyen 1999, 86). The duration of the agreement is also relevant to the implementation procedure. Short-​term agreements may hasten the implementation due to time constraints, while longer-​term agreements provide more flexibility on time (Valencia 1986, 672). In general, JDAs are examined within the framework of international law and analyzed as a legal document. However, a comparison of the various joint development ventures reveals that their effective implementation is dependent more on the political relationship between the parties concerned and their political will than the stipulated legal clauses and mechanisms. As

Why Joint Development Agreements Fail  161 Lucio Pitlo (2017) notes, “at the end of the day, joint development remains a political exercise of defining their national interests and calculating domestic and international responses.”

Hypotheses, methodology, and data This section elaborates the hypotheses derived from the literature review to discuss the conditions that can alter a country’s “political will” to implement a JDA. It is followed by a discussion of the methodology, case selection, and calibration of conditions. Hypotheses This section sets out six hypotheses which may explain the impediments to joint development. Before elaborating on the hypotheses, it is necessary to define further an implementation failure. In this study, an implementation failure occurs when the signing parties fail to take action to make substantial progress towards the intended objectives of the signed JDA within five years of the agreement taking effect, or the agreement being terminated or canceled at any time within the validity of the agreement. Actions that count as substantial progress include, but are not limited to, establishing a framework to further regulate the cost and revenue distribution arrangements, stipulating the functions of the joint development authority, signing commercial contracts with petroleum companies under the framework of the JDA, and the actual act of joint exploration. If either or both parties announce the cancellation or termination of the agreement, this would count as an implementation failure. However, a termination due to force majeure is not considered an implementation failure. The five-​year deadline for the implementation of joint development is arbitrary but necessary for a comparison of outcomes. With the complexity of developing hydrocarbon resources in mind, a period of five years generally represents sufficient time for the signatories to make substantial progress towards joint development. Based on the literature review above, the following six hypotheses are proposed to explain an implementation failure. 1)  Absence of economic incentives The lack of economic incentives can cause signatory states to delay taking action to jointly explore and exploit hydrocarbon resources. Rather than terminating the agreement, the countries are more likely to postpone the implementation indefinitely and wait for a more opportune occasion. Economic incentives are particularly weak when global crude oil prices are low. Hypothesis 1:  Implementation failure occurs when global crude oil prices are low.

162  Song Xue 2)  Energy security States with a high energy independence ratio may show less enthusiasm for negotiating the exploration, exploitation, and development of hydrocarbon resources. Signatory states that are less energy-​independent are thus more likely to implement JDAs. Hypothesis 2: Implementation failure is likely to occur when signatory countries enjoy high levels of energy independence. 3)  Domestic politics Domestic politics often poses obstacles to the ratification and sustainability of JDAs. Factors in this category include extreme popular nationalism, the difficulty of brokering consensus among domestic government agencies, and objections from opposition parties or domestic movements against joint development. These factors could not only impede the ratification of the agreement by the relevant authorities, but also hamper the implementation of the JDA. Hypothesis 3: Implementation failure is likely to occur when consensus among domestic stakeholders cannot be achieved. 4)  Foreign relations Worsening bilateral relations between the parties of a joint development venture can also disrupt the implementation of the agreement. Breakdowns in bilateral relations may either be directly related to the joint development project (such as when a party unilaterally pursues a course of action in the joint development zone) or otherwise. The breakdown in bilateral relations can manifest itself in various ways, ranging from an official diplomatic protest to military posturing. Hypothesis 4: Implementation failure is likely to occur when bilateral relations between signatory countries have deteriorated. 5)  Third-​party intervention The intervention of either a third-​party claimant state or a non-​claimant state can disrupt negotiations for, or the ratification of, the agreement. It could also disrupt the implementation of the joint development venture, particularly with respect to concession contracting. Hypothesis 5: Implementation failure is likely to occur when there is an intervention by a third party.

Why Joint Development Agreements Fail  163 6)  Disagreements over the details of joint development Disagreements can arise between signatories regarding important details of the joint development arrangement, including issues relating to sharing operational costs and revenue distribution, the jurisdiction and boundaries of the joint development zone, the functions of the managing authority, and the protection of the marine environment and living resources. These issues may delay or even reverse the process of implementing the JDA. Hypothesis 6:  Implementation failure is likely to occur when disagreements arise concerning the details of the joint development project. Methodology, case selection, and calibration This study uses QCA (or more specifically, the Crisp-​set QCA) to analyze the various configurations of conditions which can explain the failure to implement JDAs. QCA is useful when applied to qualitative data in order to explore the individual effect of each factor, and it is particularly suitable for studies in which the interaction between the causal conditions and outcomes are not yet well understood and have the potential for theory-​building. Furthermore, the number of cases (19) involved in this study fits comfortably within the midrange (10–​50) of case studies that QCA can accommodate. This study covers 19 cases of joint development in Europe, Africa, the Asia-​ Pacific, and Latin America between 1958 and 2008 (see Table 9.1 for the cases, conditions, and calibration). The data set excludes JDAs whose texts or development activities are not in the public domain. The joint development venture between Thailand and Malaysia is problematic, as two separate agreements were signed in 1979 and 1990. In this section, the Thailand–​Malaysia case is treated as two different entities, referred to as TLMY79 and TLMY90, respectively. TLMY79 is considered an implementation failure. This distinction is justified by the fact that the 1990 agreement fundamentally changed the underpinnings of the 1979 agreement. In vesting different functions to the Joint Authority and introducing a production sharing contract system, the legal regime established by TLMY90 was significantly different from that of TLMY79, implying the two parties’ intention to discontinue the latter. In this study, six hypotheses were tested.3 For Hypothesis 1, the economic incentive is represented by the price of global crude oil, as adjusted for inflation using the Consumer Price Index provided by the US Bureau of Labor Statistics. The median price of global crude oil between 1962 and 2018 was US$39.49 per barrel. This serves as the binary threshold for calibration. For Hypothesis 2, energy independence is measured by the ratio between the country’s energy consumption and energy production in the year that the JDA was signed. If the energy independence ratios of both signatories are below 1, or both signatories are net energy exporters, then the energy independence is calibrated as 1, which denotes that the signatories do not need to

164

newgenrtpdf

Code

Signatory 1

Signatory 2

Year

Failed

Low oil price

Energy independence

Domestic politics

Worsening bilateral relations

Third-​party intervention

Disagreement over arrangements

BRSA58 NLGE62 KWSA65 IRIR67 IRSJ71 JPKR74 SDSA74 TLMY79 VTCB82 TNLB88 AUID89 TLMY90 MYVT92 CLJM93 ENAG95 THCB01 NGSP01 AUET01 CNJP08

Bahrain Netherlands Kuwait Iran Iraq Japan Sudan Thailand Vietnam Tunisia Australia Thailand Malaysia Columbia UK Thailand Nigeria Australia China

Saudi Arabia West Germany Saudi Arabia Iraq Sharjah South Korea Saudi Arabia Malaysia Cambodia Libya Indonesia Malaysia Vietnam Jamaica Argentina Cambodia STP Timor-​Leste Japan

1958 1962 1965 1967 1971 1974 1974 1979 1982 1988 1989 1990 1992 1993 1995 2001 2001 2001 2008

0 0 0 0 1 0 0 1 1 0 0 0 0 1 1 1 0 0 1

1 1 1 1 1 0 0 0 0 1 1 0 1 1 1 1 1 1 0

1 0 1 1 1 0 0 0 0 1 1 0 0 0 1 0 0 1 0

0 0 0 0 0 0 0 0 0 0 0 1 0 0 1 0 0 0 1

0 0 0 0 1 0 0 1 0 0 0 0 0 0 1 1 0 0 1

0 0 0 0 0 1 0 1 1 0 1 1 0 0 0 0 0 0 0

0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 1 0 0 1

Source: Author

164  Song Xue

Table 9.1 Cases, conditions, and calibrations

Why Joint Development Agreements Fail  165 address their energy security needs urgently through the joint development of a hydrocarbon block. The energy production and consumption data for 1980 to 2016 are from the US Energy Information Administration (Energy Information Administration n.d.), while data relating to energy imports and consumption are from the World Bank (n.d.). The calibration for Hypotheses 3 to 6 is determined by substantive knowledge of the various cases. Since these conditions are highly qualitative and rooted in context, it is difficult to calibrate using a universal quantitative standard. If the disincentives in the hypotheses did occur and was documented in research papers or analytical articles in newspapers or online sources, the corresponding condition for that case will be calibrated as 1. The outcome (i.e. implementation failure) is calibrated by examining whether either of the following two conditions is fulfilled: signatories do not achieve substantive progress within five years of the agreement taking effect, or the agreement is either unilaterally or mutually terminated. This threshold provides for clear calibration in most cases. However, the 1974 agreement between Japan and South Korea, which has remained inactive since the early 1990s, is a special case. This case is calibrated as a non-​failure because both countries succeeded in creating a viable plan to authorize concessionaires to manage the joint development and conducted exploration activities in the joint development zone beginning in 1980 (Miyoshi 1999, 41; Zhang 2015, 10). The agreement was only terminated because the countries did not find any lucrative oil reserves. Among the 19 cases under examination, 7 were calibrated as an implementation failure: Iran–​Sharjah 1971, Thailand–​Malaysia 1979, Vietnam–​Cambodia 1982, Columbia–​Jamaica 1993, United Kingdom (UK)–​ Argentina 1995, Thailand–​Cambodia 2001, and China–​Japan 2008.

Unravelling the myth of political will The analysis of the cases finds that worsening bilateral relations is the necessary condition for the failure to implement joint development schemes, while economic incentives, energy security, domestic politics, third-​party intervention, and disagreements on the details of joint development lack consistent and stable correlations with the outcome. The 19 cases were analyzed in the following sequence:  construction of a truth table; creation of pathways to bridge conditions and outcomes through minimization; and analysis of the necessary conditions. The truth table (Table  9.2) presents the configurations of conditions that correspond to the outcome of an implementation failure. The cases of the 1982 Vietnam–​Cambodia agreement and the 1993 Columbia–​Jamaica agreement are not included in the truth table, as they provide contradicting observations. According to the analytical procedure of QCA, if the contradicting observations cannot be resolved, the observation should be deleted and instead interpreted separately using a qualitative-​historical, case-​ specific, approach.

newgenrtpdf

166  Song Xue

Table 9.2 Truth table Cases

Low oil price

Energy independent

Domestic politics

Worsened bilateral relations

Third-​party intervention

Disagreement over arrangement

Outcome (fail = 1)

SDSA74 JPKR74 TLMY79 TLMY90 CNJP08 NLGE62, MYVT92, NGSP01 THCB01 KWSA65, IRIR67, AUET01, BRSA58, TNLB88 AUID89 IRSJ71 ENAG95

0 0 0 0 0 1

0 0 0 0 0 0

0 0 0 1 1 0

0 0 1 0 1 0

0 1 1 1 0 0

0 0 1 0 1 0

0 0 1 0 1 0

1 1

0 1

0 0

1 0

0 0

1 0

1 0

1 1 1

1 1 1

0 0 1

0 1 1

1 0 0

0 0 0

0 1 1

Source: Author

Why Joint Development Agreements Fail  167 In this instance, Schofield (2007, 292–​ 293) has argued that the 1982 Vietnam–​Cambodia agreement has a “very different character” compared to other joint development schemes. The main objective of the agreement was not so much to develop the hydrocarbon resources in the area, but to confirm their respective sovereignty over islands that had previously been disputed, and which had the effect of reducing the area of overlapping maritime claims between the parties. The agreement also facilitated the integration of the parties’ baseline claims. Therefore, the conventional logic of joint development does not apply to the 1982 Vietnam–​Cambodia agreement, since its main objective was political rather than economic. The 1993 Colombia–​Jamaica agreement is the other contradictory case. While the agreement is still valid, Colombia and Jamaica have deferred its implementation without explanation (RJR News 2010). After the minimization procedure, five prime implicants or “pathways” leading from the conditions to an implementation failure can be established. These pathways mean that when each of the conditions or combination of conditions occurs, the outcome will occur as well (consistency = 1). However, this does not suggest that the pathway is the only cause for such an outcome. In other words, these pathways are equivalent to sufficient conditions. 1) 2) 3) 4) 5)

Low oil price ∗ domestic politics ⇒ failed implementation. Energy independence ∗ domestic politics ⇒ failed implementation. Domestic politics ∗ third-​party intervention ⇒ failed implementation. Worsening bilateral relations ⇒ failed implementation. Disagreements over the arrangements ⇒ failed implementation.

On further analysis, the only necessary condition associated with a failed implementation is worsening bilateral relations, with a consistency score at 1.0000004 and a coverage score at 1.000000. The other conditions fail the test of consistency and coverage (see Table 9.3). The analysis of sufficient and necessary conditions shows that the deterioration of bilateral relations is both a necessary and sufficient condition for an implementation failure. Thus, it suffices to say that the deterioration of bilateral relations is the cause of an implementation failure. As previously discussed, the deterioration of bilateral relations that leads to an implementation failure can be precipitated by incidents that are either independent of or directly related to the joint development venture. Whatever the precipitating causal issue, worsening bilateral relations exert a negative influence on the implementation of JDAs. Among the various instances of failed implementations, boundary disputes relating to the joint development zones were the cause of worsening bilateral relations in the cases of Malaysia–​ Thailand 1979,5 China–​Japan 2008,6 Iran–​Sharjah 19717 and UK–​Argentina 1995.8 However, the implementation failure of Thailand–​Cambodia 2001 is the result of worsening relations arising from the dispute over their land border rather than an issue related to the joint development zone.9

168  Song Xue Table 9.3 Analysis of necessary conditions Condition

Consistency

Coverage

Low oil price ˜Low oil price Energy independent ˜Energy independent Domestic politics ˜Domestic politics Worsened bilateral relations ˜Worsened bilateral relations Third-​party intervention ˜Third-​party intervention Disagreement over arrangements ˜Disagreement over arrangements

0.600000 0.400000 0.400000 0.600000 0.400000 0.600000 1.000000 0.000000 0.200000 0.800000 0.600000 0.400000

0.250000 0.400000 0.250000 0.333333 0.666667 0.214286 1.000000 0.000000 0.250000 0.307692 1.000000 0.142857

Note: ˜ represents negation of the condition. Source: Author

The result shows that despite the provisional nature of joint development, which is non-​prejudicial to delimitation claims, signatory states are exceptionally cautious in determining the boundaries of the joint development zone. For some states, establishing and acknowledging the boundaries of the joint development zone might appear as an act of conceding their territorial claims. To shelve concerns about the boundary dispute and engage in joint development is thus easier said than done.

Implications for the SCS dispute This chapter demonstrates that worsening bilateral relations between signatory parties is highly detrimental to joint development. In most of the cases, the breakdown in bilateral relations transpired out of the very same disputes which the countries had initially sought to address through joint development. Perhaps the most interesting finding of this study is the factors it does not find relevant in explaining implementation failures. The study suggests that the lack of economic incentives due to low oil prices, lack of a domestic consensus, energy independence, third-​party intervention, and disagreement over the details of the joint development, either individually or in combination, do not detrimentally affect the implementation of joint development in most cases. However, in a few cases which deserve individual analysis, while these factors do not lead to an implementation failure as defined in this chapter, they can exert an impact and cause an impasse in implementation. The finding of this study is relevant to the territorial and maritime boundary disputes in the SCS, which are unlikely to be resolved in the near future. Many policy analysts have thus suggested joint development as a solution to prevent conflict and resolve the deadlock in the disputed waters of the

Why Joint Development Agreements Fail  169 SCS (Ong 1999, 212). One encouraging factor for joint development in the SCS is the fact that many of the claimant states have experience of engaging in either joint development or cooperative development. The JDAs signed between Malaysia and Thailand, Cambodia and Vietnam, Malaysia and Vietnam, as well as the establishment of a commercial arrangement area in 2009 between Brunei and Malaysia, have provided these claimant states with the necessary experience and knowledge to effectively manage delimitation disputes (Schofield 2007, 290). This chapter’s findings can shed light on how to avoid implementation failures in joint development in the SCS. There are currently only two mutually exclusive mechanisms to manage the various SCS disputes in the short term: boundary delimitation or joint development. Because many Southeast Asian countries are suspicious of China’s strategic intentions in the SCS, it will be nearly impossible for claimant states to follow the example of Malaysia and Brunei, which simultaneously advanced cooperative development and established an agreement on maritime boundaries in 2009. The claimant states should therefore have a clear vision of their policy orientation, which means choosing either delimitation or joint development as a priority. If the countries in the SCS choose to engage in joint development for mutual economic benefits, it is important for them to engage in good faith and to avoid using joint development as a pretext to consolidate their respective boundary claims or to trap other signatory states into confirming the status of “dispute” by referring to the definition of “joint development” and hoping that other signatory states would acquiesce. Such actions may undermine mutual trust and make future negotiations more difficult. Moreover, even though joint development does not prejudice the outcome of a final delimitation, signatory states could also introduce into the agreement terms reaffirming the non-​prejudicial nature of the joint development. The agreement should therefore employ less controversial wording, such as the more inclusive “collaborative development” or “cooperation in oil and gas development” rather than the term “joint development,” in order to avoid the latter’s connotation that the area in question is a “disputed” one. The 2018 agreement between China and the Philippines is a good example of setting aside the dispute in favor of cooperating for mutual economic gain. Jay Batongbacal (2018) argues that the Duterte administration may not be, at least temporarily, insisting on full compliance of the 2016 Arbitral Tribunal award. China has returned the favor by allocating 60 percent of the revenue of the joint development to the Philippines. Hence, if joint development was seen in economic rather than geopolitical terms, this could encourage claimant states to shelve their territorial disputes and pursue joint development. However, this would require a spirit of reciprocity between the states, a diplomatic process of give and take on the basis of mutual respect and equality. Also, as this study has indicated, because worsening bilateral relations are detrimental to joint development, it is imperative for claimant states to agree

170  Song Xue on a set of binding rules to regulate every claimant’s actions in the SCS in order to create a regional environment conducive to joint development. The 2002 Declaration on the Conduct of Parties in the South China Sea (DOC) was considered as a major step towards the peaceful management of the dispute by claimant states. Vietnam has frequently cited the DOC to protest against China’s assertive actions in the SCS (Hiep 2019, 3). The Code of Conduct for the SCS, which is currently being negotiated by ASEAN and China, is expected to facilitate the “prevention, management, and settlement of disputes” in the area (Kembara 2018) with the introduction of more binding rules to regulate the actions of the parties involved.

Notes 1 This chapter is a shortened version of Song Xue’s article “Why Joint Development Agreements Fail:  Implications for the South China Sea Dispute,” first published in Contemporary Southeast Asia Vol. 41 (3), Dec. 2019. This article is reproduced here with the kind permission of the publisher, ISEAS-​Yusof Ishak Institute, http://​ bookshop.iseas.edu.sg. 2 Joint development pertains to disputed areas only, so if two states agree to sign a JDA, it means that both states confirm the existence of a territorial dispute regarding the joint development zone. 3 Six to seven conditions is a common practice for intermediate-​N analysis (10–​40 cases). 4 The csQCA consistency score is typically set at least 0.75. This study uses 0.75 as the threshold for a reliable consistency score. 5 Progress in the 1979 Malaysia–​Thailand agreement was impeded by the release of a map by the Malaysian government in December 1979 which unilaterally included the boundary of its continental shelf in the joint development zone. In April 1980, the Thai government filed an official protest against the action of the Malaysian government (see Luo and Guo 2012, 46). Malaysia also implemented an exclusive fishing zone beyond the boundary of its territorial sea, an action that was similarly regarded unfavorably by Thailand. For more details, see Townsend-​Gault (2012, 128). 6 The 2008 agreement between China and Japan was affected by boundary issues as well as other diplomatic conflicts. Japan’s Minister of Foreign Affairs protested China’s resumption of development activities in the Chunxiao/​Shirakaba natural gas field in 2010, although China insisted that it possessed sovereign rights in the area. The diplomatic tension escalated after the collision of a Chinese fishing boat and a Japanese coast guard ship in September 2010 and Japan’s purchase of Uotsuri Island, one of the disputed Senkaku/​Diaoyu Islands in 2012 (see Yang 2011, 71). 7 Iran and the Ruler of Sharjah signed an MOU on 29 November 1971 to establish a revenue sharing arrangement over the territorial sea near the island of Abu Musa. A day later, Iran seized control of islands (see Banaszewska 2018, 89). Abu Musa remains the subject of a dispute between Iran and the Emirate of Sharjah. 8 In March 2007, Argentina withdrew from the 1995 UK–​Argentina Joint Declaration on Co-​operation over Offshore Activities in the South West Atlantic after insisting

Why Joint Development Agreements Fail  171 on the inclusion of sovereignty in the negotiations with regards to fishing and conservation (see Miller 2012, 13). 9 Bilateral relations between Thailand and Cambodia deteriorated when Cambodia named Thaksin Shinawatra, the ousted prime minister of Thailand, a government adviser in 2009 (see The Economist 2009). The dispute over the land border in the vicinity of the Preah Vihear Temple also reportedly led to the revocation of the MOU by the Thai government (see Schofield 2014).

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10  Conclusion Bringing political calculations back to cooperative development in the South China Sea Song Xue and Huaigao Qi During the 1970s to the 1990s, joint development was a popular option to manage conflicts and gain material benefits for states dealing with maritime disputes. However, the enthusiasm for agreeing on this kind of provisional arrangement seems to have waned worldwide in the last 20  years. The tendency was not exceptional in the South China Sea (SCS) despite the fact that, in the past, several states in the SCS were the best exemplars in terms of innovating joint development schemes, negotiating terms of development with their counterparts, implementing what they had agreed on, and, undoubtedly, benefiting a great deal economically. The SCS is a sea of disputes as much as a sea of resources and possibilities. The paucity of recent cases of successful joint development raises questions about the obstacles to making joint development work in the SCS. This is the question that this book set out to explore. This concluding chapter summarizes the policy recommendations proposed in the previous chapters. We argue that the increasing imbalance of power among claimants in the SCS has created the tendency to politicize all issues related to the boundary disputes in the SCS, including bona fide maritime cooperation arrangements. Joint development of hydrocarbon resources in disputed waters falls victim to geopolitical calculations and the zero-​sum game mindset more often today than two decades ago. Attempting to understand how inter-​state relations and domestic politics affect joint development arrangements provides a good angle to assess the failure of previous joint development initiatives and find ways to rebuild confidence on maritime cooperation. We put forth two approaches to move forward cooperative initiatives for natural resources development in the SCS. One approach highlights restricting the relative gains mindset. Contributors of this book suggest (1)  reinvestigating the misuse of the term “joint development” for political purposes rather than economic purposes; (2) finding alternative legal covers on a case-​ by-​case basis to promote cooperative arrangements for marine resources development; (3)  reinforcing the without prejudice clauses in provisional arrangements related to the SCS disputes; and (4)  controlling tensions and avoiding conflicts by building political trust and making new rules to regulate actions and collectively manage resources in the SCS.

Conclusion  175 The other approach highlights encouraging the non-​zero-​sum game mindset by:  (1) restoring confidence on cooperative development arrangements by focusing on attainable goals, such as bilateral deals instead of multilateral deals and less sensitive fields of cooperation; (2)  redesigning the incentive structure of cooperative development agreements by encouraging reciprocity between signatory states; (3)  providing a certain level of transparency of knowledge and policy orientation to inspire academic discussions for innovative ideas on cooperation; and (4) paying attention to the public perception of cooperative developments and correcting perceptions where people have been misled.

Bringing political calculations back in The analysis of joint development has been a traditional stronghold for experts in the law of the sea. They have made considerable breakthroughs to reveal to policymakers the legal implications, caveats, and pros and cons of each kind of joint development arrangement. Beyond where their professional expertise excels, they have not underestimated the role of political thinking which underpins the strategic calculation for making decisions on joint development arrangements (Beckman et  al. 2013, 316). In this respect, not only the economic costs and benefits, but also the implications for settlements of territorial disputes in the future, nationalism and public sentiments, foreign relations with countries in dispute, and the objections from domestic political oppositions regarding sharing high-​value natural resources with a neighboring country are all indispensable pieces that make up the bigger picture. Despite unanimous consensus on the importance of looking into the political calculations of interested states, political scientists have not taken up this research query seriously enough in a comparative or systematic way; even in-​depth case study research is not abundant. In this book, all the authors contributed meticulous country-​level studies on the policies and practices of joint development in the SCS, with a special emphasis on breaking down the pull and push factors of joint development by delving into the strategic thinking and political calculation of each contending state and actors. Thus, the analysis in each chapter constitutes the building blocks for summary and comparison from the political approach mentioned above, which we refer to as “bringing political calculations back in.” The approach of political calculation analysis has become more relevant to the discussion of joint development in the SCS in recent years, as China has been perceived by its Southeast Asian neighbors as showing off its muscle in the sea. China’s rebuttal of the 2016 tribunal award, which concluded that the relevant part of the “nine-​dash line” is contrary to the United Nations Convention on the Law of the Sea (UNCLOS) (Permanent Court of Arbitration 2016, 117), stirred up the turbulent waters even more. The occasional clashes on the sea between China and Vietnam, Indonesia, and other Southeast Asian countries, not to mention China’s ambitious land reclamation

176  Song Xue and Huaigao Qi activities in the SCS, have raised serious concerns. The prolonged negotiation of Code of Conduct in the SCS between China and ASEAN added up to uncertainty to the regional peace and stability. The rising tension in the SCS has a significant and direct impact on maritime cooperation including joint development, which is the politicization of maritime cooperation. Although maritime cooperation in the SCS was never a 100 percent economic activity in a global market, today more than ever it is marred by geopolitical thinking and domestic political calculation. The turn of politicization of maritime cooperation in the SCS makes it more difficult for states to cooperate on joint development. Before the turn, decision makers regarded joint development primarily as an ad hoc cooperative arrangement to boost energy production (absolute gain) benefiting all the signatory parties, which reflected a non-​zero-​sum mindset endorsed by liberalists. As the SCS turned into a battlefield of geopolitical competition, the realists’ mindset (emphasizing, for instance, a zero-​sum game or relative gains), increasingly took up a dominant position in the political sphere, which logically rejects joint development, especially when the counterpart in negotiation is the country that poses the biggest threat on the sea. When the two mindsets collide, they seldom point to the same policy direction for the Southeast Asian countries; rejection of cooperation in the very beginning, strategic ambiguity, policy alteration, or inconsistency are all possible scenarios. There are two ways in which the dominance of the geopolitical competitive mindset is not conducive to joint development; it either hampers joint development and other forms of maritime cooperation from happening, or encourages policymakers to misuse the arrangements of cooperation to compete for power. Some states have tried to manipulate the delimitation of joint development zones to back their territorial claims, or to use joint development as a pretext to trap other signatory states into confirming the status of a “dispute” by referring to the definition of “joint development,” which only pertains to disputed areas (Xue 2019, 420). When states take advantage of joint development in a way that is not intended, they risk stigmatizing this kind of cooperative arrangement and the benevolent intention it carries by subsuming it under realpolitik in which inter-​state peace is a desired but transient treasure. The erosion of the term “joint development” is a starter for realpolitik capture. The approach of political calculation analysis has also become more relevant to the study of joint development because the roles played by domestic actors (such as opposition parties, media, petroleum corporations) have been more visible in recent cases. Oppositions and media made thematic connections between joint development projects and sovereignty, corruption, and domestic laws, and then they mobilized the masses to challenge incumbents. In a similar vein, those in power rode the social tide of nationalism discourse against so-​ called infringement upon sovereignty in order to boost their popularity. The opposition to cooperation with China in the SCS that was mobilized during

Conclusion  177 the Arroyo and Aquino  III administrations in the Philippines support this argument. Thus, joint development is caught in a vicious circle because of intertwined relations between geopolitical tension and domestic political dynamics. To bring political calculations back in means putting the two-​level games at the center of the analysis of joint development in the SCS at this moment when the transformation of the regional order is collapsing the wall between domestic politics and inter-​state relations in corners we would not have expected.

Narrowing the zero-​sum game mindset Back to the research question raised at the beginning, removing the barriers to joint development requires dealing with regional tensions on the sea and domestic politics at the same time. To tackle the former problem, the rationale is to redirect policy orientations towards the win-​win situation that joint development is designed to achieve –​which can ensue from measures to encourage calculation of absolute gain rather than relative gain –​and cultivate the non-​ zero-​sum game mindset rather. In terms of narrowing the zero-​sum game mindset, a good starting point would be to reinvestigate how the term “joint development” has been applied. On the one hand, joint development is sometimes subject to and hindered by various interpretations of international law and the constraints of domestic laws. Aaron Jed Rabena’s chapter provides a good account of that by explaining the conundrum faced by the government of the Philippines, which is caused by incompatibility between the joint development arrangement and the Philippine Constitution. Thus, reinvestigating the meaning and policy implications of joint development for each country concerned is an important step towards understanding why states are willing, or hesitant, to enter into an JDA. On the other hand, joint development sometimes falls victim to intentional misuse for geopolitical purposes. To prevent the misuse of JDAs in the SCS where claimants have not reached consensus on the existence of disputes, we suggest replacing this term with one that entails more flexibility, “cooperative development.” As discussed in the introduction to this book, this would minimize the emphasis on territorial “dispute,” as the term pertains to both disputed and non-​disputed areas. In essence, the rationale is that when joint development is no longer an appropriate legal cover to propel inter-​state cooperation, especially on energy development, alternative legal covers should be considered on a case-​by-​case basis to serve the purpose. Aaron Jed Rabena endorses Jay Batongbacal’s idea that for the energy deal between China and the Philippines to work out, a treaty may be imperative to deal with the alleged violation of the Philippine Constitution and provide a cooperative development agreement with a legal basis. Nong Hong endorses Trajano’s (2019) opinion that a commercial arrangement may appear to be a suitable alternative to official agreements, as the latter risk being misinterpreted as acknowledging other countries’ territorial and maritime claims.

178  Song Xue and Huaigao Qi Moreover, to further limit geopolitical repercussions in cooperative development agreements, it is suggested to reinforce the without prejudice clauses in the provisional arrangement. An example is in the Memorandum of Understanding [MOU] on Cooperation on Oil and Gas Development between the Government of the People’s Republic of China and the Government of the Republic of the Philippines, 2018. Article  IV notes that the MOU and relevant parties’ activities “will be without prejudice to the respective legal positions of both governments” and that the MOU “does not create rights or obligations under international or domestic law” (Chinese Ministry of Foreign Affairs 2018). Fundamentally, the way forward to ease the geopolitical tension is undeniably to stop the zero-​sum game mindset from eroding cooperative development instruments, managing conflicts, and solving territorial disputes in the SCS. As many have discussed, both in this book and elsewhere, ideally claimants should clarify their claims and reach consensus on disputed boundaries as the first step towards solving the disputes. However, since China is not ready to clarify the meaning of its “nine-​dash line,” claimants can’t know the exact location of the disputed area. In fact, many ASEAN countries perceive the nine-​dash line as an unjustified claim, which means that the premise of dispute resolution –​that is, recognizing the existence of disputes and properly defining the dispute –​is questionable in reality (Ngeow Chow Bing’s chapter). It is not just states, but also nonstate actors that face dead ends. Over the years, nonstate actors have contributed little to shape a regional identity that overcomes conflicting national interests, and they are not promising to achieve that goal in the future. Thus, it can be claimed that both state and nonstate actors are trapped in a deadlock (Evi Fitriani’s chapter). If solving disputes is not achievable in short term, controlling tensions and avoiding conflicts is perhaps a more viable way to keep from making the situation worse, and this could even contribute directly to cooperative development. Good relations with the countries involved in dispute is vital for the successful implementation of a joint development project (Beckman et  al. 2013, 312), and this is backed by the detailed analysis of the Malaysian joint development cases (Ngeow Chow Bing’s chapter) and a qualitative comparison study of joint development cases worldwide (Song Xue’s chapter). There are various ways to rebuild political trust among disputed parties. Huaigao Qi suggests that China should send benevolent signals to other countries by providing public goods in the SCS and refraining from unilateral activities in disputed areas. This approach should help show good faith and build political trust with other claimants (Huaigao Qi’s chapter). Southeast Asian countries call for China to refrain from reclamation and militarization in the SCS to prevent conflict escalation, and for it to balance its political messaging between its internal and external audiences, especially the strong rhetoric that it has to project before its domestic audience (Aaron Jed Rabena’s chapter). The way that China is expected to behave may provide insights for other claimants too. States in disputes are encouraged to negotiate the guiding

Conclusion  179 principles to resolve their maritime disputes, as suggested by Bui Thi Thu Hien, citing the official document between the Communist Party and state leaders of Vietnam and China. Evi Fitriani claims that for the purpose of cultivating broad and credible political trust, a multilateral approach is better than a bilateral approach, because states should must credibility to multiple parties and the cost is split between members. One special instrument of the multilateral approach is the Code of Conduct to be finalized soon; this should be prioritized by China and ASEAN. An ambitious approach to regulating the actions of stakeholders in the SCS is management of natural resources by a supranational body. Inspired by Valencia et al.’s (1991, 206–​209) proposal to set up a “Spratly Management Authority,” Huaigao Qi (2019, 233–​ 235) discusses the possibility of the six coastal States in the SCS setting up a “Spratly Resource Management Authority” (SRMA). This would be a joint resource development administration with supranational character, empowered to independently design plans for the exploration of hydrocarbon resources in the Spratly Islands area; decide the distribution quotas for oil and gas; establish a technical standard for member states’ energy trade; levy taxes, collect loans, and grant funds for oil and gas development; and impose penalties on enterprises which evade obligations. The SRMA would be composed of a Council of Ministers, a Secretary-​General, a Secretariat, and six sub-​committees (Figure 10.1). The Council would be the decision-​making body, consisting of one representative from each coastal State (Brunei, China, Indonesia, Malaysia, Vietnam, and the Philippines). Each of the other non-​claimant states of ASEAN (Burma, Cambodia, Laos, Thailand, and Singapore) could dispatch a representative to the Council without voting rights, just to voice their opinions. Relevant maritime countries or international organizations  –​such as Australia, the European Union, India, Japan, South Korea, the United States, ASEAN, and the United Nations –​might be considered as interested observers. The Secretary-​General would be appointed by the Council and be responsible to the Council, execute the Council’s orders, and undertake the daily operation of the SRMA. The Secretariat would consist of six sub-​committees. The members of the sub-​committees would be appointed by the six member states according to the principle of equality. The sub-​ committees could submit advisory opinions to the Council. Decisions could be taken by simple majority, or a two-​thirds or three-​quarters majority, with or without equal or special veto powers (Valencia et al. 1991, 208). To avoid the “noodle bowl” effect of rules and managing bodies in the SCS, coastal States can integrate the SRMA with ASEAN-​led mechanisms.1

Encouraging the non-​zero-​sum game mindset In the interest of encouraging the non-​zero-​sum game mindset and jointly developing natural resources in the SCS in spite of all the disputes, a certain level of transparency of knowledge sharing and policy orientation is

180  Song Xue and Huaigao Qi

Figure 10.1 The proposed organizational structure of the SMRA Source: (Qi 2019, 234)

necessary. It is necessary for all the claimants to open up space for academic discussions to encourage quality communication and ideas (Jolene Hui Yun Liew’s chapter). This opinion is not novel, but it is worthy of mention for two reasons: one is that some states in dispute have been practicing “quiet diplomacy” or remaining ambiguous in regard to cooperative development, which may shut off potential opportunities for cooperative initiatives; the other is that the academic research on provisional arrangements of cooperative development under UNCLOS is in need of advancement in respect of comprehensive analysis of theories and cases to provide guidance, alternative legal covers, and examples of best practices for reference. The question is how much transparency the state should offer to the public. Ngeow Chow Bing argues that the Malaysian government acted discreetly in negotiations and disclosed limited information so as to carefully manage public perception; this was in spite of the fact that the government had not faced an acrimonious challenge from the public. Similar measures to manage public perception have been applied in China, Brunei, and Vietnam. This

Conclusion  181 raises questions about the relations between regime types, the level of transparency on cooperative development agreements, and the influence of public opinion on the outcome of such arrangements. Contributors to this book also suggest a few practical measures to restore confidence in cooperative development instruments between coastal States –​ for example, by focusing on implementing existing bilateral cooperative development arrangements. Huaigao Qi suggests that implementing cooperative development agreements on hydrocarbon resources in disputed areas should start from waters that are claimed by only two countries; then it will be possible to move on to more complicated multilateral agreements. Countries without bilateral cooperative development arrangements should aim to start negotiations on subjects that are less sensitive, such as ecological protection and joint marine research, in order to become active in dialogue (Jolene Hui Yun Liew’s chapter). However, Evi Fitriani argues that environmental protection and joint research are often costly and sometimes create a free-​ rider problem, which may discourage small or middle powers. She advises testing out different models of maritime cooperation, such as multilateral and informal approaches on less sensitive subjects. One example would be an educational program involving young people. This sort of approach is easier to manage than, for instance, working towards an energy sharing scheme right from the beginning; and they are also less costly, which should be attractive to non-​claimant ASEAN members as well. In the same vein, Aaron Jed Rabena supports the idea of a “marine peace park” to protect the marine ecosystems, which the Philippines has already cooperated on with Malaysia (Principe and Licuanan 2017, 52). Bui Thi Thu Hien proposes nontraditional security issues as good starting points, such as search and rescue and pirate prevention. Siswo Pramono and Bayu Rahmat Novita propose the promotion of business connectivity among industrial parks in the SCS rim and its vicinity as a measure to improve the business climate and, at the same time, help nurture confidence building among relevant parties in the area. Moreover, Ngeow Chow Bing points in the direction of improving incentive structures in joint development agreements. Under a joint development arrangement, it usually happens that one or all parties involved feel deprived of the resources in the disputed area that could have belonged solely to them. A  way to balanced out economic incentives is to encourage reciprocity in deals. This is where “cooperative development” comes into play. Cooperative development makes it possible for states to combine the development plans for disputed and non-​disputed areas in one agreement and to compensate the party who feels deprived by giving them access to the development rights or privileged policies in a non-​disputed area belonging to their counterpart. For instance, Ngeow Chow Bing proposes a cooperative development plan for China and Malaysia (Malaysia–​China Reciprocal Commercial Arrangement Areas) with one zone off the coast of Sarawak, where the dispute is bilateral in nature, and another zone within the vicinity of China in an area without dispute, thus providing an economic incentive for Malaysia to work with

182  Song Xue and Huaigao Qi China in the disputed zone. In the case that economic incentives alone are not enough for states to put their resources into costly cooperative development agreements, adding technological transfer to the equilibrium may incentivize states to cooperate. Cooperative development does not happen in a domestic vacuum. Several failed cases illustrate the salience of domestic politics and sentiments in joint energy developments, notably the failed attempt of the 2005 Philippine–​ China–​Vietnam Joint Marine Seismic Undertaking. In regard to gathering domestic support for cooperative development, a preliminary finding in this book is that mass mobilization against cooperative development in the name of upholding sovereignty and nationalism is likely to leave a lasting and devastating effect on such arrangements. Malaysia was exposed to less mass mobilization and criticism from the opposition than the Philippines on that score, lending the Malaysian government more leeway to maneuver (Ngeow Chow Bing’s chapter and Aaron Jed Rabena’s chapter). This raises interesting questions about whether a state can restore public support for a cooperative development arrangement once the domestic audience has already mobilized against it, and how to achieve that goal. The signing of the cooperative development MOU between China and the Philippines in 2018 appears so far to offer a promising answer to the first question, but the final outcome awaits to be seen. Some argue that the government should play a more active role in providing knowledge of joint development to the public to correct any misperceptions and depoliticize the issue (Jolene Hui Yun Liew’s chapter and Bui Thi Thu Hien’s chapter). In short, it is difficult to proceed with joint development given the tensions and complexities in the SCS nowadays as well as the erosion of this legal regime as a result of geopolitical capture. That is why policymakers and researchers should bring political thinking back to the center of analysis and problem resolution and work on effective and innovative ways to minimize the detrimental effect of power competition on good intentions for cooperation.

Note 1 Thanks to Aaron Jed Rabena for proposing this idea.

References Beckman, Robert, Clive Schofield, Ian Townsend-​ Gault, Tara Davenport, and Leonardo Bernard. 2013. “Moving Forward on Joint Development in the South China Sea.” In Beyond Territorial Disputes in the South China Sea:  Legal Frameworks for the Joint Development of Hydrocarbon Resources, edited by Robert Beckman, Ian Townsend-​Gault, Clive Schofield, Tara Davenport, and Leonardo Bernard, 312–​331. Cheltenham, UK: Edward Elgar Publishing. Chinese Ministry of Foreign Affairs. 2018. “Memorandum of Understanding on Cooperation on Oil and Gas Development between the Government of the People’s

Conclusion  183 Republic of China and the Government of the Republic of the Philippines.” 27 November. www.fmprc.gov.cn/​nanhai/​eng/​zcfg_​1/​t1616644.htm. Permanent Court of Arbitration. 2016. “The South China Sea Arbitration Award of 12 July 2016.” www.pcacases.com/​pcadocs/​PH-​CN%20-​%2020160712%20-​ %20Award.pdf. Principe, Alexis, and Wilfredo Licuanan. 2017. “Coral Reefs and Maritime Disputes.” In Traversing the Challenges:  Political, Economic, and Environmental Dimensions of Maritime and Regional Security, edited by Benedikt Seemann and Sebastian Bersick, 48–​54. Makati, Philippines: Konrad-​Adenauer-​Stiftung. www.ruhr-​uni-​ bochum.de/​ipea/​docs/​KAS_​Publication2017-​Manila. Qi, Huaigao. 2019. “Joint Development in the South China Sea: China’s Incentives and Policy Choices.” Journal of Contemporary East Asia Studies, 8 (2): 220–​239. Trajano, Julius C. 2019. “Resource Sharing and Joint Development in the South China Sea: Exploring Avenues of Cooperation.” NTS Insight IN19 (01). www.rsis.edu.sg/​ wp-​content/​uploads/​2019/​03/​NTS-​Insight-​March2019-​The-​South-​China-​Sea-​as-​ a-​Shared-​Asset.pdf. Valencia, Mark J., Jon M. Van Dyke, and Noel A. Ludwig. 1991. Sharing the Resources of the South China Sea. The Hague: Martinus Nijhoff Publishers. Xue, Song. 2019. “Why Joint Development Agreements Fail:  Implications for the South China Sea Dispute.” Contemporary Southeast Asia, 41 (3): 418–​446.

Index

Note: Page numbers in bold and italics denote tables and figures, respectively. Page numbers with “n” denote notes. Andu’bei Basin 6 Aquino, Corazon 79–​80 Aquino III, Benigno 77, 79, 81–​82, 177 arbitration 34, 78, 82, 89, 109, 126, 131, 175 archipelagic baselines 66 archipelagic state 66, 87 archipelagic waters 85 Arctic Ocean 32 Armed Forces of the Philippines (AFP) 77, 79 Arroyo, Gloria Macapagal 9n18, 80, 81, 82, 84, 85, 91n8, 157, 177 artificial islands 78, 131 ASEAN (Association of South East Asian Nations) 8, 17, 24, 53, 142, 142, 146–​147, 179; and China 34–​36, 56, 97, 146, 178; commercialization of states 8; Declaration on South China Sea (1992) 47, 49, 50, 80; and DOC framework 82, 90n4, 132; economic zones 130–​131, 143–​144, 144; FDI in 147; gas/​LNG key infrastructure 149; and Indonesia 47, 48–​49, 50, 55; industrial parks 146; joint development agreements (JDAs) 36, 43; and nine-​dash line 41–​42, 178; power grids 149, 150; regional integration goal 33; security concerns 54; unity and centrality, threat to 48, 49, 50, 56; and Vietnam 62, 68, 113 ASEAN 10+1 cooperation 33 ASEAN 10+3 cooperation 33 ASEAN–​China COC 8–​9, 26, 36, 51, 97–​98, 109, 112, 132, 176

ASEAN–​China Declaration on the Conduct of Parties in the South China Sea in 2002 1, 49, 79, 80, 82, 88, 90, 107, 112, 132, 151, 170 ASEAN–​EU Free Trade Agreement 135 ASEAN Outlook on the Indo–​Pacific 143, 152n7 ASEAN Zone of Peace, Freedom, and Neutrality 126 Asia-​Maritime Transparency Initiative (AMTI) 123, 127n3 Asian community of shared destiny 98 Asia-​Pacific 1, 97, 123, 142, 155, 163 Australia 6, 51, 83, 120, 134, 139, 164, 179 Badawi, Abdullah 8, 18, 63 Bangkok 60 Batongbacal, Jay 3, 78, 89, 123, 169, 177 Beckman, Robert 5, 9, 38, 41, 69, 71, 83, 175, 178 Beibu Gulf (Gulf of Tonkin) 3, 7–​8, 38–​40, 42, 101–​103, 106–​108, 113, 119 Beikang Basin 6 Belt and Road Initiative 78, 98, 113 Bijia’nan Basin 6 Binh Minh 2 exploration cables incident (2012) 97 blocks: Block 118 121; Block 136 37; Block 136/​03 37; Block 136-​06 124; Block CA1 see blocks, Block L/​J; Block G 121; Block L/​J (Block CA1) 18–​19, 65, 121; Block M/​K (Block CA2) 18–​19, 65; Block N 19; Block PM-​3 65; Block PSC 121; Block Q 19;

Index  185 Block SK304 121; Block SK313 121; Block WL4-​00  121 blue economic passage 32 Bolkiah, Hassanal 8, 18, 20, 25, 64 BP (British Petroleum) 118, 119, 120, 121, 125 Brévie, Governor 101 Brévie Line 101 Britain 18 British Institute of International Law and Comparative Law 35 Brunei 1, 6, 9–​10, 17–​18, 26–​28, 139; blocks 19; and China 8, 17, 18, 20–​21, 23, 25; commercialization of 8; Department of Fisheries 24; Economic Development Board 21; economic diversification 22–​23; EEZ 18, 20; foreign investment opportunities 24; geopolitical environment 25–​26; joint development and joint cooperation, affecting factors 24–​26, 58; joint development and joint cooperation, enabling factors 21–​24; lack of major breakthroughs 25; low-​profile approach 22; and Malaysia 8, 11, 18–​19, 20, 25–​26, 50, 63–​65, 64, 65, 67–​69, 69, 73n1, 83, 87, 169; management of public perception in 180; Ministry of Foreign Affairs 19, 20, 21; Ministry of Primary Resources and Tourism; nonconfrontational approach 22, 24–​25; overlapping claims 41, 48; and Philippines 27; Spratly Resource Management Authority (SRMA) 179; and Vietnam 17, 18–​28, 21, 25 Brunei-​Sabah Basin,  6 Bui Thi, Thu Hien 11, 97–​114, 179, 181, 182 Burma 179 Cakewarala 60 Ca Mau 62 Cambodia 50, 62, 144, 159, 179; Coordinating Body on the Seas of East Asia (COBSEA) 51; Partnerships in Environmental Management for the Seas of East Asia (PEMSEA) 52; Spratly Resource Management Authority (SRMA) 179; and Thailand 58, 83, 167, 169, 171n9; and Vietnam 6, 87, 101, 165, 167, 169

Cambodia–​Thailand JDA (2001) 83, 169 Cambodia–​Thailand memorandum of understanding (MOU) (2001) 5, 158, 167 Carpio, Antonio 83, 86, 91n11 Ca Voi Xanh project 120, 121 Center for Strategic and International Studies in Washington, DC 74n5, 78, 127n3 Chatham House 123 Chevron 86, 120 China: and ASEAN 34–​36, 146; ASEAN (Association of South East Asian Nations) 34–​36, 56, 97; ASEAN–​China COC 8–​9, 26, 36, 51, 97–​98, 109, 112, 132, 176; ASEAN–​ China Declaration on the Conduct of Parties in the South China Sea in 2002 1, 49, 79, 80, 82, 88, 90, 107, 112, 132, 151, 170; and Brunei 8, 17, 18, 20–​21, 23, 25; China National Petroleum Corporation (CNPC) 32; and claimant states 36, 42, 70, 73; CNOOC (China National Offshore Oil Corporation) 8, 20, 36, 39–​40, 81–​82, 86, 91n12, 107–​108, 118, 120, 126; Coast Guard 83, 131; Coordinating Body on the Seas of East Asia (COBSEA) 51; dotted line in the South China Sea (nine-​dash line, U-​shaped line) 20, 40, 41–​42, 70, 72, 78, 79, 81, 83, 86–​89, 127n2, 131, 175, 178; EEZs 70, 72, 124, 127, 131; Embassy in the Philippines 8, 107; Embassy in the US 36; Geological Survey of Ministry of Land and Resources 7; and Japan 4, 80, 88, 157, 158, 170n6; and Malaysia 11, 58–​74, 71, 146, 181–​182; management of public perception in 180; Marine Surveillance 77; Ministry of Foreign Affairs 3, 4, 8–​9, 20, 31, 35–​41, 80, 86, 103, 157, 178; Ministry of Natural Resources 33; National Development and Reform Commission 32; and North Korea 39–​40; overlapping claims 41, 42, 70, 79, 87; Partnerships in Environmental Management for the Seas of East Asia (PEMSEA) 52; and Philippines 3–​4, 8–​9, 11–​13, 31, 35–​40, 77–​91, 87, 117, 122–​123, 126, 132, 159–​160, 169, 177–​178, 182; Sino–​US powerplay in the SCS 25, 26, 32, 34, 97, 159;

186 Index and Southeast Asian countries 70, 73, 111, 123, 158, 169, 175, 178; Spratly Resource Management Authority (SRMA) 179; and Spratlys 41, 79, 90, 118; State Geospatial Information Center 6; State Oceanic Administration 32; two centenary goals 33; and United States 54, 122, 146; and US–​China trade war 146; and Vietnam 3, 7–​8, 31–​42, 97, 105–​107, 111, 118–​121, 119–​120, 124–​125, 146, 157, 170, 179, 182; Vietnam–​China–​Philippines 105, 107–​108 China, People’s Republic of 127n2, 179 China, Republic of (1912–​1949) 127n2 China–​Brunei Strategic Cooperation China–​Indian Ocean–​Africa–​ Mediterranean Sea Blue Economic Passage 32 China–​Japan Principled Consensus on the East China Sea Issue (2008) 4 China–​Malaysia Qinzhou Industrial Park 146 China–​Oceania–​South Pacific Blue Economic Passage 32 China Oil Service Company 108 China–​Philippines Bilateral Consultation Mechanism on the South China Sea 38 China–​Philippines Inter-​Governmental Joint Steering Committee on Cooperation on Oil and Gas Development 9, 13, 39, 82, 132 China–​Philippines Inter-​Governmental Joint Steering Committee on Cooperation on Oil and Gas Development (2019) 9, 39 China–​US competition 10, 34, 123 China–​Vietnam oil rig standoff in May–​July 2014 36–​37, 97, 111 Chunxiao (also known as Shirakaba) oil and gas field 4, 88, 170n6 claimant states: from ASEAN 17, 27; and China 36, 42, 70, 73; and Code of Conduct 26; developing economies 22; dispute resolution 1; energy development 118, 159; and Indonesia 50, 52, 54; and JDA 87, 88, 156, 157, 160, 169–​170; joint development 27; and provisional and non-​prejudice clause in UNCLOS 13; Southeast Asian countries 70, 73; third-​party

159, 162; trust building among 47; and US companies 117, 124, 125, 126; and Vietnam 80–​81 Clark 77, 145 COBSEA (Coordinating Body on the Seas of East Asia) 51, 52 Code for Unplanned Encounters at Sea 49 Code of Conduct (COC) 1, 11, 49, 80, 125, 151, 156; ASEAN–​China 8–​9, 26, 36, 97–​98, 109, 112, 132, 176; finalization of 88, 179; and US 12, 122 commercial agreement area 18–​19, 126 Commission on the Limits of the Continental Shelf (CLCS) 20, 97 common fishery zone 107, 108, 111 common market 10, 31, 33 Communist Party of Vietnam (CPV) 11, 99, 103, 104, 105, 111, 113 confidence building measures (CBMs) 48, 51, 80, 137, 144, 151, 152, 181 ConocoPhillips 65, 120, 121 contiguous zone 37, 41 continental shelf: Brunei 18, 21, 63; Indonesia 41, 66, 99–​100; Malaysia 18, 59–​60, 61–​62, 63, 66, 97, 170n5; overlapping claims 11, 59, 61, 67, 87, 158; Thailand 59–​60; Vietnam 21, 37, 61–​62, 97, 99–​100, 124 cooperation area 39, 47, 49 COSL (China Oilfield Services Limited) 20 Council for Security Cooperation in the Asia Pacific (CSCAP) 25 Creston Energy 118 Damai Holdings Limited 20, 21, 23 Da Nang 119, 120 Defined Area 6, 7, 106 Deng Xiaoping 8, 31, 70, 80 Diaoyu/​Senkaku Islands 80, 158, 170n6 Directive No.20-​CT/​TW  104 DOC see ASEAN–​China Declaration on the Conduct of Parties in the South China Sea in 2002 Dongsha Qundao (Pratas Islands) 41, 86 dotted line see nine-​dash line (dotted line, U-​shaped line) DPRK see Korea, Democratic People’s Republic of Duterte, Rodrigo 12, 77–​78, 82–​83, 85, 88, 90, 108, 122, 169

Index  187 East China Sea 1, 4, 80, 159 East Natuna and Sarawak 6 East Timor 6 economic integration 10, 31, 33, 130, 135, 137 energy security 11, 82, 157, 158, 162, 165 Enhanced Defense Cooperation Agreement (2014) 78 Estrada, Joseph 80 European Union 134, 179 exchange of letters (EOL) 8, 18, 63, 64, 68, 69 exclusive economic zones (EEZs) 38, 106, 123; of Brunei 18, 20, 63; Cambodia 101; China 70, 72, 124, 127, 131; Indonesia 41, 56, 66–​67, 100; Malaysia 66–​67, 70; overlapping claims 68, 70, 72, 87, 89, 101; Philippines 77, 79, 82, 84, 87; Thailand 100; Vietnam 37, 100, 101, 124 ExxonMobil 120, 121, 125 FDI (foreign direct investment) 23, 144, 145, 146, 147, 149, 159 financial and/​or technical assistance agreement 86 finders keepers 79 fisheries agreement 4, 11, 90 fisheries cooperation 20, 72 fisheries industry 18, 24 fishing zone 4, 67, 170n5 Fitriani, Evi 10, 47–​56, 178, 179, 181 Forum Energy 79, 81, 83, 91n10, 91n13 freedom of navigation operations 21, 25, 34, 41, 123, 131 Fujian 1 functional cooperation 47, 50, 79 geopolitical environment 10, 25 Geronggong/​Jagus East (GRG/​JGE) field 19 Global Environmental Facility 52 good faith 10, 28, 31, 34, 35, 36, 42, 68, 169, 178 Greater Mekong Subregion 148 gross value added 23 GSEC (geophysical service exploration contract) 80, 91n8, 91n13 Guangdong 1, 108 Guangxi Hiseaton Foods 1, 21, 146, 157 Guiyang 38 Guizhou Province 38

Gulf of Thailand 6, 59, 61, 100, 101, 105, 126, 158, 159 Gulf of Tonkin see Beibu Gulf (Gulf of Tonkin) Gumusut/​Kakap (GK) field 19 Hainan 1, 35, 37, 72, 157 Hainan pilot free trade zone 10, 31, 32–​33 Haiyang Shiyou 981 (HYSY 981; HD 981) 36–​37, 97, 111 Hanoi 37, 62, 80, 120, 125, 152n1 Hayton, Bill 37, 123, 131 Hess Corporation 65, 120 historical waters 101 historic rights 41, 81, 86, 89, 131 Hong, Nong 12, 117–​127, 177 Hu, Jintao 20, 25, 33, 80 hydrocarbon resources: Brunei 19, 23–​24; downstream of 23–​24; exploration and exploitation 3, 4, 5–​6, 42, 47, 155, 156, 179, 181; Indonesia 47; and JDA 161–​162, 165, 167, 174; joint development 13; Malaysia 16, 19, 23–​24; Philippines 79, 88, 91n8; United States approach 121, 122, 159; Vietnam 42, 160 illegal, unreported and unregulated fishing 131 India 120, 125, 134, 136, 139, 140, 142, 151, 179 Indian Ocean 1, 32, 142, 147 Indonesia 1, 10–​11, 47–​48, 56, 98, 99, 114, 118; and ASEAN 47, 48–​49, 50, 55; and Australia 6; commercialization of 8; conflict management and settlement formula 50–​51; consensus areas 51; cooperation development 54–​55; Coordinating Body on the Seas of East Asia (COBSEA) 51; EEZs 41; fragility measurement 139, 141, 141–​142; informal workshops 48, 50, 52–​54, 132; involvement in in SCS issues 48–​50, 151, 152n1; joint development in the SCS, implementing proposals for 52–​54; and Malaysia 8, 11, 58, 66–​67, 68, 69, 73n3; mediation between ASEAN and China 49; Ministry of Foreign Affairs 8; multilateral cooperation, previous proposals for 50–​52; overlapping claims 41; PEMSEA 52;

188 Index and Philippines 114, 146; political and strategic incentives 56; security threats 49–​50; SRMA 179; and Thailand 121, 144; and UNCLOS 49; unofficial code of conduct 51; and Vietnam 48, 50, 51, 52, 99–​100, 124 Indo-​Pacific 143, 152n7 interconnected maritime Asia 28 Inter-​Entrepreneurial Working Group 39, 82 Inter-​Governmental Joint Steering Committee 9, 39, 82 International Crisis Group 36, 37, 41, 42, 78 island militarization 84, 88, 131, 178 Jakarta 80, 132 Japan 139, 151; and China 4, 80, 88, 157, 158, 170n6; Coast Guard 158, 170n6; Ministry of Foreign Affairs 170n6; PEMSEA 52; and Philippines 83; and South Korea 158, 159, 160, 165 Japex 120 Jiuzhang Basin 6 JMSU (joint marine seismic undertaking) 8, 80, 84, 85, 90n7, 91n8, 107, 157, 182 joint development agreements (JDAs) 12, 36, 65, 155–​156, 167–​169, 170n2; associated factors 160–​161; Bahrain–​ Saudi Arabia 155; Cambodia–​ Thailand 83; China–​ASEAN 36; China–​Japan 158; China–​Philippines 40, 77–​91, 87; China–​Vietnam 105, 106–​107; difficulty in reaching 41; and disagreements 163; and domestic politics 157–​158, 162; and economic incentives 159–​160, 161; and energy security 162; and foreign relations 158–​159, 162; hard JDAs 78, 78–​79; implementation failure hypotheses 4, 9, 161–​163; incentive structures in 181; Japan–​South Korea 158, 159, 160, 165; Malaysia–​Thailand 61, 158, 159; misuse, prevention of 177; overlapping claims 40; soft JDAs 78, 78–​79; and third-​party intervention 162; Vietnam–​China–​Philippines 105, 107–​108; Vietnam–​Malaysia 105–​106, 126 joint development area 59–​60, 126 joint development ventures 3

joint exploitation 3, 39–​40, 98, 99, 102, 104, 105, 109–​113 joint exploration 3–​4, 8, 40, 83, 106–​110, 122, 126, 156, 161 joint fishing cooperation 23, 106–​107 joint scientific survey 72, 73 joint steering committee 9, 20, 39, 82, 123 joint stock fishing company 73 joint submission by Malaysia and Vietnam to the CLCS (2009) 97 joint ventures 12, 21, 23, 72, 85–​86, 117–​118, 123–​125 JOMSRE (Joint Oceanographic and Marine Scientific Research Expedition) 80, 90n7 Kalayaan Island Group 79 Kalimantan Island 1 Kinabalu West NAG (KN) field 19 Ko Losin 59 Korea, Democratic People’s Republic of: and China 39–​40; PEMSEA 52 Korea, Republic of 120, 139, 151, 179; COBSEA 51; and Japan 158, 159, 160, 165; PEMSEA 52 Kriangsak Chamanan 59 Lan Do gas field 118, 125 Lan Tay gas field 118 Laos: Partnerships in Environmental Management for the Seas of East Asia (PEMSEA) 52; Spratly Resource Management Authority (SRMA) 179 Law of the Sea of Vietnam (2012) 104, 105 Law on Coast Guard of Vietnam (2018) 105 Law on Natural Resources and Environment of the Sea and Islands of Vietnam (2015) 105 less sensitive areas 10, 11, 27, 31, 34, 35, 38, 40, 42, 112, 175, 181 Liew, Jolene Hui Yun 4, 9–​10, 17–​28, 180, 181, 182 Limbang 64 Li Peng 125 Liyue Tan (Recto Bank; Reed Bank) 3, 6, 40, 42, 79–​83, 85–​87, 90n5, 91n10, 126 low politics 79 Luzon 82, 90n7 Ly Son Island 37

Index  189 Maharaja Lela North Panel (MLJ) field 19, 21 Malampaya gas field (SC 38) 82, 86, 118 Malay Basin 6 Malay Peninsula 1, 66 Malaysia 1, 41, 58, 67–​69, 68, 69, 78, 118, 121, 180; and Brunei 8, 11, 18–​19, 20, 25–​26, 50, 63–​65, 64, 65, 67–​69, 69, 73n1, 83, 87, 169; and China 11, 58–​74, 71, 146, 181–​182; commercialization of 8; Coordinating Body on the Seas of East Asia (COBSEA) 51; and Indonesia 8, 11, 58, 66–​67, 68, 69, 73n3; Ministry of Foreign Affairs 18–​19; overlapping claims 41; and Philippines 27, 90, 181; Spratly Resource Management Authority (SRMA) 179; and Thailand 1, 5–​6, 11, 58–​61, 65, 68–​69, 69, 73, 158–​160, 163, 167, 169, 170n5; and Vietnam 5, 7–​8, 11, 58, 60–​63, 64, 65, 68, 69, 72, 73, 97, 105–​106, 109, 126, 160, 169 Malaysia–​Brunei Commercial Arrangement Area (2009) 8, 11, 63–​65, 64, 65, 68 Malaysia–​China Reciprocal Commercial Arrangement Area 181 Malaysia–​Indonesia MOU on Fisheries (2012) 11 Malaysia–​Thailand Joint Authority (MTJA) 6, 59, 60, 62, 68, 73n2, 158, 160 Malaysia–​Thailand Joint Development Area 60, 61, 65, 68 Malaysia–​Thailand Joint Development Authority 11 Malaysia–​Vietnam Commercial Arrangement Area (1992) 11, 60–​63, 61, 65, 68 Malaysia–​Vietnam MOU (1992) 11, 105, 106, 109 Manila 12, 38, 77–​78, 80, 82, 108, 122, 126 Manila Times, The 108 Marcos, Ferdinand 79, 86, 91n15 marine environmental/​ecological protection 5, 11, 27, 38, 40, 48, 79, 90, 113, 181 marine industry 33 marine peace park 90, 181 marine scientific investigation 27, 35, 38, 40, 48, 51, 53, 79, 100

maritime cooperation 13, 21, 25, 38, 98, 100, 174, 176, 181 maritime cooperation fund 12, 113 maritime delimitation 3, 11, 18, 41, 43, 87, 97–​103, 108, 112, 124 maritime economy 100, 104 Maritime Law of Vietnam (2005) 8, 67, 105 maritime power 10, 31, 33, 36 maritime search and rescue (SAR) 38 median line 4, 37, 61, 62, 66 Mekong River 113, 147, 148 memorandum of understanding (MOU) 19, 68, 73n3; Brunei–​China 20; Brunei–​Vietnam 21; Cambodia–​ Thailand 158, 167, 171n9; China–​ Philippines MOU 3–​4, 8, 12, 31, 38–​40, 78, 82–​83, 117, 122, 126, 160, 178, 182; Iran—​the Emirate of Sharjah 170n7; Malaysia–​Indonesia 8, 11, 58, 66–​67; Malaysia–​Thailand 5, 6, 59–​60, 160; Malaysia–​Vietnam 5, 7, 11, 62–​63, 105–​106, 109 Mineral Law of Vietnam (2010) 105 Mischief/​Panganiban/​Meiji Reef Incident (1995–​1998) 36, 77–​78, 80, 90n1 Miyoshi, Masahiro 5, 59, 60, 156, 158, 165 Murphy Oil 63, 65, 120 Najib, Abdul Razak 70 Nanhai Zhudao 41 Nansha Qundao see Spratly Islands (Spratlys) Nanwei’dong Basin 6 Nanwei’xi Basin 6 nationalism 26, 54, 90n1, 125, 157, 162, 175, 176, 182 nationalist sentiments 69, 88, 157 Natuna gas field 118 Natuna islands 41, 49, 56 natural gas consumption 32, 120, 124 natural gas reserves 6, 101, 117–​118, 125, 127n1, 170n6 Ngeow, Chow-​Bing 4, 11, 58–​74, 178, 180, 181, 182 Nguyen, Hong Thao 59, 62, 88, 159 Nguyen, Manh Cam 125 Nguyen, Manh Dong 99, 100, 101, 102, 105, 106, 107 Nhân Dân 31, 100

190 Index nine-​dash line (dotted line, U-​shaped line) 20, 40–​42, 118, 121, 123, 125, 127n2; and ASEAN 178; contrary to UNCLOS 97, 131, 175; and Malaysia 70, 72; and Philippines 78–​79, 81, 83, 86–​87, 89 nobody’s land 79 Northwest Palawan 83 Novita, Bayu Rahmat 12, 130–​152, 181 Ong, David 8, 59, 60, 62, 64, 158, 169 ONGC (Oil and Natural Gas Corporation) 118, 120, 125 Onn, Hussein 59 Onorato, William T. 3 overlapping claims 3, 4, 36, 40, 41, 79, 130; Cambodia–​Thailand 158; China–​ Malaysia 70; China–​Philippines 79, 87; China–​Vietnam 42; lack of clarity on claim areas 4, 40–​41; Malaysia–​ Thailand 59, 61, 67; unilateral exploitation 36; Vietnam–​Indonesia 100; Vietnam–​Thailand  126 overlapping sea areas 37, 99 Pacific Ocean 1, 32 Pag-​Asa Island (“Thitu Island” or “Zhongye Island”) 84 Palawan Basin 6, 77, 80, 82, 83, 86, 90, 118, 145 Panganiban, Artemio 77, 86 Paracel Islands (Xisha Islands) 36, 37, 41, 42, 86, 120 Pearl River Mouth 6 PEMSEA (Partnerships in Environmental Management for the Seas of East Asia) 52 Peninsular Malaysia 61 Permanent Court of Arbitration (PCA) 131, 132, 175 Permanent Mission of China to the United Nations 97 Petroleum Brunei 19, 20, 21 Petroleum Investment and Development Company 108 Petroleum Law of Vietnam (1993) 105 Petronas (Petroliam Nasional Berhad) 19, 62, 63, 65, 69, 71, 72, 106, 158 Petronas Carigali Sdn. Bhd. 65, 121 PetroVietnam 65, 81, 106, 107, 108, 118, 120, 124; and CNOOC 39–​40; and Petroleum Brunei 21; and Petronas 62, 63, 106

Philex Petroleum Corporation 81 Philippine Constitution 82, 84, 85–​87, 89, 177 Philippines 1, 41, 48–​52, 77, 97, 110, 118, 144, 145, 179; Arroyo and Aquino III administrations in 177; and Brunei 27; and China 3–​4, 8–​9, 11–​13, 31, 35–​40, 77–​91, 87, 117, 122–​123, 126, 132, 159–​160, 169, 177–​178, 182; China–​Philippines MOU 3, 4, 8, 12, 31, 38, 39, 117, 169, 182; COBSEA 51; Department of Energy 79, 81, 82, 91n14; Department of Foreign Affairs 9, 78, 84; and India 142; and Indonesia 114, 146; and Japan 83; joint development with China in the SCS 11; and Malaysia 27, 90, 181; overlapping claims 41; PEMSEA 52; and Permanent Court of Arbitration (PCA) 131; Philippine attitudes and policies on JDA 79–​83; political and domestic challenges 83–​85; and Spratly Islands 79, 84; SRMA 179; tripartite agreement 107–​108; and United States 77, 78, 79, 83; and Vietnam 10, 26, 42; Xi Jinping’s visit to Manila 122 Phu Khanh Basin 121 PNOC (Philippine National Oil Company) 8, 39, 81, 82, 83, 86, 107, 126 PNOC–​EC (Philippine National Oil Company–​Exploration Corporation) 39, 82, 86 policy orientations 3 political trust 13, 111, 151, 174, 178, 179 political will 9, 26, 28, 42, 73, 155, 160, 161, 165 Pramono, Siswo 12, 130–​152, 181 preemptive measures 59 Presidential Decree No. 87 (1972) 86 Presidential Decree No. 1459 (1978) 86 Presidential Decree No. 1596 (1978) 79 principles of agreement (POA) 121 production sharing agreement (PSA) 19 production sharing contract (PSC) 19, 60, 65, 86, 120, 121, 163 provisional arrangement 5, 13, 40, 42, 110, 174, 178; of cooperative development 6, 180; Joint Development Agreements (JDAs) in 89 public aloofness 11, 69, 71

Index  191 public opinion 11, 77, 83, 110, 111, 113, 181 Pulau Jarak 66 Pulau Perak 66 Pulse Asia 83 pursuing joint development while shelving disputes 31, 36, 71 PXP Energy 91n13, 126 Qi, Huaigao 1–​13, 31–​43, 174–​182 Qiongdongnan Basin 6 quiet diplomacy 22, 24–​25 Rabena, Aaron Jed 5, 11, 77–​91, 177, 178, 181, 182 Ramos, Fidel V. 77, 80, 86 Razon, Enrique 81 Recto Bank see Liyue Tan (Recto Bank; Reed Bank) Red River 113 Reed Bank see Liyue Tan (Recto Bank; Reed Bank) Regional Comprehensive Economic Partnership (RCEP) 133, 134, 135, 139 Repsol 37, 120, 124, 125 Resolution No. 09/​2007/​NQ-​TW  104 Resolution No. 36-​NQ/​TW  104 Rosario, Albert del 83, 91n12 Sampaguita gas field 79, 81 Sarawak 6, 63, 72, 118, 121, 136, 145, 181 SC 38 82, 86 SC 57 40 SC 58 (West Calamian) 83 SC 59 (West Balabac) 83 SC 72 (Reed Bank) 40, 80–​81, 83, 86, 91n12 SC 75 (Northwest Palawan) 83 Scarborough Shoal 78, 83, 90 Scarborough Shoal Standoff (2012) 77, 81, 91n12 Schofield, Clive 100, 155, 158, 159, 160, 167, 169, 171 Sea Lanes of Communication 131 Senate of the Philippines 81 Senkaku Islands see Diaoyu/​Senkaku Islands Shell 65, 71, 86, 120 shelving disputes 31, 36, 71 Shihata, Ibrahim F. I. 3 Shirakaba 88, 170 Singapore 50, 51, 52, 118, 139, 144, 146, 179; Coordinating Body on

the Seas of East Asia (COBSEA) 51; Partnerships in Environmental Management for the Seas of East Asia (PEMSEA) 52; Spratly Resource Management Authority (SRMA) 179 Sino–​Vietnamese Boundary Agreement (2000) 102 Sino–​Vietnamese Fishery Agreement (2000) 11, 107 Social Weather Stations 83 South China Morning Post 123 South China Sea (SCS) arbitration (2013–​2016) 34, 109, 126 South China Sea (SCS) coastal States 4–​9, 31–​32, 33, 36, 41, 42, 43, 73n4, 98, 99, 103, 110, 179 South China Sea Economic Belt 98 South China Sea (SCS) rim 9, 12, 130–​152, 181 South China Sea Workshop 48 Southeast Asia 48, 51, 124, 132, 139, 170, 176; maritime boundary disputes in 17; natural gas consumption in 32; oil reserves 32 Southeast Asian countries 176; association with traditional fishing grounds in SCS 98; China and 70, 73, 111, 123, 158, 169, 175, 178; joint development cases in 1, 5, 73; US’s interest in joint projects with 122; see also ASEAN (Association of South East Asian Nations) Southwestern Taiwan 6 spirit of understanding and cooperation 36, 110 Spratly Islands (Spratlys) 4, 5, 24, 78, 81, 86, 119, 125, 127; and China 41, 79, 90, 118; demilitarization of 80; hydrocarbon resources in 179; joint development in the SCS 31; maritime claims in 41; overlapping areas in 42; and Philippines 79, 84; promotion of multilateral joint development in 26–​27; and Vietnam 21 Sterling Energy 81, 91n13 straight baseline 66 Strait of Malacca 1, 58, 66, 73n3, 158 Subic 77, 145 Taiwan 1, 6 Taiwan Strait 1, 6 Taixinan (Southwestern Taiwan) Basin 6 terra nullius 79

192 Index Thailand 50, 51, 60, 99, 102, 105, 121, 164, 165, 169, 179; and Cambodia 5, 58, 83, 167, 169, 171n9; COBSEA 51; and Indonesia 121, 144; and Malaysia 1, 5–​6, 11, 58–​61, 65, 68–​69, 69, 73, 158–​160, 163, 167, 169, 170n5; Malaysia–​Thailand Joint Authority (MTJA) 59–​61, 158; Petroleum Act (1971) 158; SRMA 179; and Vietnam 100–​101, 126 Tillerson, Rex 120 Timor-​Leste  52 Total 63, 65, 120 Track I 73 Track II 73 transboundary oil/​gas structure 3 Treaty of Amity and Cooperation in Southeast Asia 47, 90n4 Treaty on the Southeast Asia Nuclear Weapon-​Free Zone 90n4, 127 Tripartite Agreement for Joint Marine Seismic Undertaking in the Agreement Area in the South China Sea (2005) 80, 107, 157, 182 Tu Chinh 6, 119 UNCLOS (United Nations Convention on the Law of the Sea) 5, 6, 13, 56, 97, 143, 151, 152n6, 180; approach of political calculation analysis 175; in Brunei–​China joint cooperation 20; in Brunei-​Malaysia joint development 18, 63; consensus-​seeking approach 42; for implementing proposals in the SCS 52–​54; and Indonesia 49, 50; on joint development arrangements 40; joint exploitation cooperation in the SCS 110; in jurisdictional dispute in the SCS 131–​132; to limit unilateral activities in disputed areas 36–​38; and Philippines 81, 84, 87; and policy considerations 89, 90; and policy recommendations 26; and Vietnam 103, 106, 107 unilateral development 36, 37 unilateral exploitation 36, 38 United Nations (UN) 51, 97, 118, 139, 179 United Nations Environmental Programme 51 United Nations Industrial Development Organization (UNIDO) 143

United States 117–​127, 133, 134; and China 54, 146; Department of State 122; Energy Information Administration (EIA) 5–​6, 118, 120, 127n1, 165; Geological Survey 118; Mission China 122; and Philippines 77, 78, 79, 83; Securities and Exchange Commission 19; Sino–​US powerplay in the SCS 25, 26, 32, 34, 97, 159 Unitization Framework Agreement 19 University of the Philippines’ Institute for Maritime Affairs and Law of the Sea 91n19 U-​shaped line see nine-​dash line (dotted line, U-​shaped line) Valencia, Mark J. 5, 123–​125, 127, 158, 159, 160, 179 Vanguard Bank (Wan’an Tan) 6, 37, 40, 42, 118, 124, 125 Venecia, Jose V. De 91n8 Vietnam 87, 97–​114, 145, 146, 157, 159, 164, 175, 180; and Brunei 17, 18–​28, 21, 25; and Cambodia 6, 87, 101, 165, 167, 169; and China 3, 7–​8, 31–​42, 97, 105–​107, 111, 118–​121, 119–​120, 124–​125, 146, 157, 170, 179, 182; commercialization of 8; Coordinating Body on the Seas of East Asia (COBSEA) 51; Coast Guard 108; and Indonesia 48, 50, 51, 52, 99–​100, 124; and Malaysia 5, 7–​8, 11, 58, 60–​63, 64, 65, 68, 69, 72, 73, 97, 105–​106, 109, 126, 160, 169; management of public perception in 180; Ministry of Foreign Affairs 8, 37, 107; overlapping claims 41; Partnerships in Environmental Management for the Seas of East Asia (PEMSEA) 52; Philippines 10, 26, 42; regional profile 1; Spratly Resource Management Authority (SRMA) 179; state practices among SCS coastal States 5–​9; and Thailand 100–​101, 126 Vietnam–​Cambodia Historical Waters Agreement (1982) 101 Vietnam–​Indonesia Boundary Agreement (2003) 100 Vietnam National Assembly 103 Vietnam National Oil and Gas Company see PetroVietnam Vietnam–​Thailand Boundary Agreement (1997) 100, 101

Index  193 Viking 2 exploration cables incident (2011) 97 visiting forces agreement (VFA) 77 WAB-​21 (Wan’an Bei 21) block 119, 124, 125 Wan’an Bei (Tu Chinh) Wan’an Tan (Vanguard Bank) 6, 37, 40, 42, 118, 124, 125 Wang Yi 35 Wanjia Aquatic Products Sdn Bhd 21 West Balabac 83 West Calamian 83 Western Taiwan Basin 6 Womack, Brantly 88 working area 39 Wu, Shicun 5, 118 Wu Dawei 4

Xi Jinping 12, 32, 33, 78, 122 Xisha Islands (Paracel Islands) 36, 37, 41, 42, 86, 120 Xue, Song 1–​13, 34, 155–​170, 174–​182 Yingge Sea (Song Hong) Basin 6 Zengmu (East Natuna and Sarawak) Basin 6 Zhejiang Hengyi Petrochemicals 20, 23 Zhongjian Island 37 Zhongsha Qundao 41 Zhujiang Kou (Pearl River Mouth) Basin 6 Zone of Peace, Freedom, Friendship, and Cooperation 81 Zou, Keyuan 102, 106, 107