Apr 28th 2015

The Rule of Law Is China's Challenge in the South China Sea

by Daniel Wagner

Daniel Wagner is CEO of Country Risk Solutions, a Connecticut-based cross-border risk advisory firm and author of the book Managing Country Risk. CRS provides a range of services related to the management of cross-border risk. He is also Senior Advisor with Gnarus Advisors.

News that the People's Republic of China is claiming ownership of and enlarging the size of some disputed islands in the South China Sea, and building air strips to enhance its ability to project its air power in the region, has been met with predictable alarm by a variety of countries in the region and around the world. Most notably so in the Philippines, where part of the PRC's construction projects is occurring within the Philippines' internationally recognized Continental Shelf and Exclusive Economic Zone. The PRC is doing this because it sees a strategic opportunity to expand its regional military footprint, and it knows that its actions will not be challenged militarily.

As a rising global power, and being the largest and most important economy and military power in Asia, the PRC has had the luxury of being able to do more or less whatever it wants in the region. And given that the U.S. 'pivot to Asia' looks less and less robust by the month (given its ongoing preoccupation with the Middle East), the PRC has achieved a new level of confidence in its own abilities and ambitions in the region. That said, the PRC must still contend with the legal issues associated with its actions.

Japan has vigorously contested the PRC's claim over the Senkaku Islands and the Philippines has taken its claim over the Spratly Islands to court. The Philippines pursued "compulsory process" under Article 287 of the United Nations Convention on the Law of the Sea (UNCLOS) and initiated arbitral proceedings under UNCLOS over the merits of the PRC's claim to much of the South China Sea (known as the West Philippine Sea to Filipinos).

The suit was immediately recognized as the first "legal case" against the PRC over a number of territorial and maritime disputes with its neighbors, many of them members of the ASEAN. In initiating arbitration in 2013, the Philippine government noted it had exhausted virtually all political and diplomatic avenues for a peaceful negotiated settlement since 1995, thus requiring the commencement of the arbitral suit.

In December 2014 the U.S. government released a report on the subject of the PRC's claims over islands in the South China Sea stating its support of UNCLOS, criticizing the ambiguity of the PRC's claims to the islands, and taking issue with the historical validity of the PRC's claims. The threshold question really is whether the PRC can be bound by UNCLOS courts and tribunals, including its arbitral panels.

The PRC ratified UNCLOS in 1996, but in 2006 the Chinese government filed a statement with UNCLOS saying that it "does not accept any of the procedures provided for in Section 2 of Part XV of the Convention with respect to all the categories of disputes referred to in paragraph 1 (a), (b), and (c) of Article 298 of the Convention." These provisions of the Convention refer to "Compulsory Procedures Entailing Binding Decisions" issued by at least four venues: the International Tribunal on the Law of the Sea, the International Court of Justice, an "arbitral tribunal" which may refer to the Permanent Court of Arbitration (PCA), and a "special arbitral tribunal."

While there are venues available for the resolutions of disputes under the UNCLOS regime, the PRC does not wish to be bound by its compulsory processes -- the ICJ and PCA included. In essence, it wants to be able to pick and choose which statutes of the treaties it has voluntarily signed it wishes to adhere to, and be free to ignore those that it finds 'inconvenient.' Can a state remain a party to a treaty or convention without being bound by its rules? Can contracting states adhere to an international legal regime and simultaneously opt out of any binding force required or to be required by that regime?

The PRC's 2006 statement effectively served as a "reservation" against any binding outcome of UNCLOS's grievance procedure in the future. It is worth pointing out that international law does accord states the freedom to disclaim whole corpuses of treaty rules through irreducible principles of self-determination, state independence, and state sovereignty. In short, the PRC can decide to opt out of treaty rules which it considers to be inconsistent with national or domestic policy, and it did so in the manner required by the treaty.

The Philippines' attempt to haul the PRC to an international tribunal is a problem because it is invoking the very compulsory jurisdiction which the PRC has disavowed since 2006. But even if the Philippine attempt to arbitrate fails, any marshaled argument can subsist, and that case may be fielded in other venues. If military conflict were to flare up, the same case can be brought to the United Nations Security Council -- the principal repository of enforcement powers under the UN system. A state can be found to be in violation of a substantive legal norm even without a coercive or compulsory judgment in a given venue, provided of course that there is truth to the argument supporting a violation and is appreciated by the alternative venue.

While the PRC disavows UNCLOS against the Philippines, it is expressly invoking UNCLOS provisions in its claims against Japan -- so it wants to have its cake and eat it, too. In 2009, the PRC submitted a claim over the Senkaku Islands (which, like Scarborough Shoal and the Spratlys, are believed to be fuel rich) and turned to UNCLOS rules in defining and delineating its Continental Shelf beyond the 200 nautical mile Exclusive Economic Zone, again within the meaning of UNCLOS. There is some international legal doctrine supporting the view that a state's acts in one place can be used as an admission and adversely bind that State in another set of circumstances.

The larger point is that the PRC has not personified the Rule of Law in this case, or in others related to maritime borders, and wants to be able to 'cherry pick' which provisions of international treaties it will willingly comply with, and which it will not. That is behavior unbecoming of a rising global power and will make states which are signatories to treaties with the PRC wonder if its signature is worth the paper it is printed on. This cannot be in the PRC's long-term interest.

The PRC has become masterful at playing the international system against itself, whether on issues related to maritime law or development finance, as has been skillfully demonstrated with the creation of the Asian Infrastructure Investment Bank. While the outcome of the suits against its maritime claims play out in international court, there is a chance it will ultimately prevail, given the complicated nature of the claims and that the courts are venturing into murky legal territory. If so, the PRC's various construction projects in the South China Sea will stand as a fait accompli and testament to its growing power in virtually every realm.

Daniel Wagner is CEO of Country Risk Solutions and author of "Managing Country Risk", please see below for link to Amazon. For Country Risk Solutions' web site, please click here.

You can follow Daniel Wagner on Twitter: www.twitter.com/countryriskmgmt



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