Thayer South China Sea Joint Development Proposal

Thayer Consultancy ABN # 65 648 097 123

Background Briefing: China’s Proposal for Joint Development in the South China Sea Carlyle A. Thayer September 27, 2009

[client name deleted] Question: China proposes to move on with its joint development formula in the South China Sea. Should Vietnam and the Philippines take up this offer? Is the timing right? What is your assessment? Answer: All the claimants to the South China Sea are also signatories of the 2002 Declaration on Conduct of Parties in the South China Sea. This nonbinding declaration states that until there is a comprehensive and durable settlement of the disputes, the parties may undertake such cooperative activities as marine scientific research. China’s proposal is within the letter but not the spirit of this declaration. The spirit behind China’s proposal needs to be examined closely. There are three major concerns. First, the much touted 2005 tri-lateral exploration involved an initial bilateral agreement on joint marine seismic undertaking between China and the Philippines the year before. The Arroyo government broke ranks with its ASEAN partners by cutting this bilateral deal with China without consulting first. Also, the Philippines made major concessions to China since an estimated one-sixth of the area designated for the seismic survey lay within Philippine territorial waters. Because Vietnam was not directly involved it decided to join in this effort. The point of concern about the spirit of China’s offer is that China always pressed for joint development in the territorial waters of another country, never its own. The second concern about the spirit of China’s motivations is that official Chinese news reports, such as Xinhua, state that the 2005 agreement stopped because Filipino lawmakers claimed it was unconstitutional. Article 12 the 1987 Constitution stipulates that any consortium undertaking exploratory activities in Philippine waters must be sixty per cent owned by Filipinos. Nothing has changed since 2005 to alter this constitutional requirement. Indeed, the submission made by the Philippines this year on extended continental shelves based on redrawn baselines may have made it even more difficult for China and the Philippines to cooperate.

2 Chinese news accounts do not tell the full story of why the 2005 agreement was not renewed when it expired. In the first instance, after it was signed, the contents were not made public. Critics pointed to the agreement’s lack of transparency. For example, no details were provided concerning the exact locations of the survey sites. The third concern is that What is your comment on it? the agreement became an acrimonious domestic issue in the Philippines when charges were made China had bribed or used undue influence to obtain the agreement. Specifically, critics charged that the President Arroyo had agreed to the joint seismic survey in exchange for Chinese funding of a national broadband network and the upgrading of the country’s rail network. Both projects were investigated by the Philippine Senate in response to allegations of overpricing and bribery and both of these projects were subsequently cancelled.