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ARBITRATION 101: PHILIPPINES V. CHINA

BY JAY BATONGBACAL | JANUARY 21, 2015

CHINA, INTERNATIONAL LAW, PHILIPPINES

Introduction

The arbitration case launched by the Philippines against China currently stands as the most significant,
and most closely watched, development for specialists and observers of the maritime disputes in the
South China Sea (SCS). To help observers navigate through this foggy proceeding, this article attempts to
provide a focused overview of the arbitration case and developments in the bilateral dispute between
the two parties.

Preludes

Although the territorial and maritime issues in the SCS have technically been in existence since the
1930s, the case of the Philippines against China is a direct result of very recent events arising out of the
long-festering dispute between the two countries. In the aftermath of tensions between the Philippines
and China over the latter’s facilities in Mischief Reef in 1999 and the conclusion of a maritime
delimitation between China and Vietnam in the Gulf of Tonkin, a modus vivendi was reached with the
signing of the 2002 Declaration of Conduct of Parties in the SCS (DOC). By 2005 it appeared that relations
between the parties had stabilized enough that their national oil companies entered into a Joint Marine
Seismic Undertaking that was implemented until 2008. Relations took a downturn, however, in 2009
when submissions were made (one by Vietnam and Malaysia jointly, and another by Vietnam alone) for
areas of the continental shelf beyond 200 nautical miles in the SCS in accordance with UNCLOS. These
immediately prompted China’s protest and first official publication of its SCS claim known as the so-
called nine dashed line, which was followed by a sharp exchange of diplomatic notes. The tussle was
thereafter followed by a string of increasingly risky confrontations at sea.

On the Philippine side, the SCS disputes came to the attention of the fledgling Presidential
administration with an incident in 2011 involving interference by China Maritime Surveillance ships with
a Philippine seismic survey ship at Reed Bank. Soon after, China lodged a diplomatic protest against the
Philippines’ public auction of petroleum concession blocks which included two areas between Reed Bank
and the Philippine island of Palawan. The Philippines subsequently lodged its own diplomatic protests
against China’s fishing and military activities in Reed Bank and nearby areas. Relations increasingly
became strained as China’s press openly warned of military action, spurring an official response from the
Philippines. The exchange of protests continued well into the first quarter of 2012. Tensions between the
two countries reached a head in April that year with a months-long confrontation between Philippine
and Chinese vessels at Scarborough Shoal, which ended when Philippine ships left the shoal upon a
reported agreement for mutual withdrawal in June 2012. Shortly after, however, Chinese vessels
returned and have since been in control of the shoal.

Launching the Case

On January 23, 2013, the Philippine announced that it initiated an arbitration case against China by
issuing a Notification and Statement of Claim in accordance with the dispute settlement provisions of
UNCLOS, particularly under Art. 287 and Annex VII. Both the Philippines and China are signatories to
UNCLOS, having ratified it in 1984 and 2006 respectively.

UNCLOS provides for numerous means of peaceful settlement of maritime disputes, which include non-
binding means between the disputing parties and binding means involving third parties such as
arbitration and adjudication. While all States may resort to any of the non-binding means at any time,
Art. 287(3) requires them to select their preferred binding means involving third parties. If they do not
do so, they are deemed to have selected arbitration under UNCLOS Annex VII as the mode of dispute
settlement. Any selection, however, is subject to certain express limitations under Art. 297(2) and 297(3)
and/or optional exceptions under Art. 298(1).

Since neither the Philippines nor China expressed any preferred third-party dispute settlement
mechanism in their ratifications, both are deemed to have selected arbitration as the means to settle
maritime disputes between them concerning the interpretation and application of UNCLOS, unless any
of the express limitations and optional exceptions are applicable.

China formally rejected the Notification and Statement of Claim and returned it to the Philippines on
February 19, 2013. However, under Art. 9 of UNCLOS Annex VII, the absence of a party or its failure to
defend the case does not bar the proceedings.
Art. 3 of UNCLOS Annex VII provides for constitution of a five-member arbitral tribunal. The Philippines
began the process through the nomination of Rudiger Wolfrum as arbitrator in its Notification and
Statement of Claim. China had 30 days to likewise nominate one arbitrator, but did not do so in light of
its rejection of the arbitration. Normally, the arbitral tribunal is constituted upon mutual agreement of
the parties to the case, but light of the rejection and refusal of China to participate, Annex VII authorizes
the President of the International Tribunal on the Law of the Sea (ITLOS), upon request of the initiating
party, to appoint the arbitrator on its behalf. This was done with the appointment of ITLOS judge
Stanislav Polack as the second tribunal member on March 25, 2013. Subsequently, likewise upon request
of the Philippines, the President of ITLOS appointed the remaining three members of the tribunal,
namely Jean-Pierre Cot, Chris Pinto, and Alfred Soons. Chris Pinto was subsequently replaced by Thomas
Mensah, who was also appointed President of the Tribunal on June 24, 2013.

The Tribunal subsequently met for the first time at the Peace Palace in The Hague on July 11, 2013. China
reiterated its rejection of the proceedings in a Note to the Tribunal on August 1. The Tribunal thereafter
issued its first Procedural Order on August 27. The Order designated the Permanent Court of Arbitration
(PCA) to act as registry of the proceedings, and adopted the Tribunal’s Rules of Procedure and initial
timetable. The Tribunal is actually a separate entity and independent of either the ITLOS or the PCA; by
being the registry, the PCA primarily hosts the tribunal and provides its administrative support.

The Substantial Stage

Likewise in its first Procedural Order, the Tribunal fixed March 30, 2014 as the date on which the
Philippines was to submit its Memorial, which is the principal pleading stating its case in full. The
Philippines was asked to fully address all the issues, including matters relating to the jurisdiction of the
Tribunal the admissibility of its claims, and the merits of the dispute.

Pending submission of the Memorial, tensions between the parties continued to rise. In mid-2013, the
Philippines noted and protested the increased frequency and proximity of China Maritime Surveillance
ships around its outpost the Second Thomas Shoal, as well as the reported blocking of a Philippine
civilian vessel on its way to Pag-asa Island. Concrete blocks found by a surveillance flight to Scarborough
Shoal were mistaken to be preparations for a permanent Chinese facility on the reef; they were later
determined to be from previous and long-forgotten wrecks. In January and February 2013, it was
reported that Chinese ships had used water cannon against Philippine fishing boats. The most serious
incident occurred in March, just prior to the deadline for submission of the Memorial, when China
Maritime Surveillance ships prevented a Philippine Navy ship from re-supplying and replacing personnel
on its outpost on Second Thomas Shoal. Several weeks later, another ship with journalists on board
successfully evaded Chinese ships blocking its path and was able to carry out the resupply and personnel
rotation.

On March 30, 2014, the Philippines submitted to the Tribunal and China a lengthy Memorial, which is not
public but reportedly comprises 4,000 pages of arguments, documents, and maps. The Tribunal
thereafter convened on May 14, and gave China until December 15 to submit its Counter-Memorial in
response to the Philippines. However, China reiterated that it did not accept the arbitration proceedings
in a note to the Tribunal on May 21

Meanwhile, since 2012, South China Sea issues have prompted the Philippines to renew and strengthen
its military alliance with the United States. Several months of negotiations culminated in the signing in
April 2014 of the Philippines-US Enhanced Defense Cooperation Agreement (EDCA), to supplement
existing arrangements with the US for mutual logistics support and visiting forces. The agreement was
signed just in time for a brief visit of U.S. President Barack Obama to Manila on his official tour of Asia. It
is intended to assist the Philippines in modernizing its armed forces and developing its capabilities,
particularly in the areas of maritime security and maritime domain awareness.

Subsequently, in May 2014, the Philippines arrested a group of Chinese and Filipino fishermen engaged
in an illegal trade of 500 endangered marine turtles at Half-Moon Shoal, which is even closer to the
Philippines than Second Thomas Shoal but also claimed by China. China accused the Philippines of
provocation and demanded the release of its fishermen. This was followed by the release of surveillance
photographs of land reclamation taking place on a massive scale and at rapid pace on Johnson South
Reef. Similar activities have been reported on Cuarteron Reef, McKennan Reef, and Gaven Reef.
Subsequently, similar reclamation was confirmed in Fiery Cross Reef. Despite the Philippines’ repeated
protests, the reclamation activities continue unabated.

As China deployed an oil rig off the coast of Vietnam in the same month, the Philippines called for a
moratorium on all activities that created tensions. This was later formally proposed as the first and
immediate part of a “Triple Action Plan” to manage the territorial and maritime disputes. The second
involves full implementation of the 2002 DOC and conclusion of a regional Code of Conduct, while the
third proposes the establishment of a binding dispute settlement mechanism. China rejected this
proposal.

Tensions began to ease somewhat as the year drew to a close. In November 2014, Philippine President
Benigno S. Aquino III and Chinese President Xi Jinping met for the first time on the sidelines of the APEC
summit in Beijing. However, the December 15 deadline for submission of China’s Counter-Memorial had
some unexpected results that were technically outside of the proceedings.

External Events

On December 5, the United States released an official report which analysed China’s claims to the SCS,
and declared that its nine-dash line claim could only be internationally acceptable as a claim to territorial
sovereignty over the islands inside the lines. Insofar as the waters beyond those islands is concerned, the
claims could only be valid if made in accordance with UNCLOS. The State Department paper criticized
China’s ambiguity over the nature of its claims, and denied the validity of its claims to historic title or
historic rights that it sometimes expresses in official statements.

At the same time, Vietnam quietly submitted a confidential statement to the Tribunal regarding the case.
Vietnam stated that it requested the Tribunal to pay due regard to the legal rights and interests of
Vietnam, but recognized the Tribunal’s jurisdiction over the case and supported the Philippines’
arguments against the legality of China’s nine-dash line claim. The statement has not been released to
the public.

Two days later, China publicly released a position paper outlining its objections to the jurisdiction of the
arbitral tribunal while reiterating that it was not participating in the proceedings. It asserted that the
case was essentially founded on the issue of sovereignty over the islands and other maritime features in
the SCS, and that even if the Tribunal were to disregard these sovereignty questions, it could not decide
on the Philippine claims without first undertaking maritime delimitations. This meant that either way,
the case falls outside the Tribunal’s jurisdiction since it is within the optional exceptions to the
jurisdiction of binding dispute settlement mechanisms that China invoked in a 2006 declaration in
accordance with the terms of UNCLOS Art. 298(1). China also argued that the Philippines was acting in
bad faith and abusing its rights under the UNCLOS by unilaterally taking China to arbitration.

Status of the Proceedings as of January 2015

On December 17, 2014, the Tribunal issued its third Procedural Order. It recorded that China did not
submit a Counter-Memorial, and reiterated its decision to neither accept nor participate in the
arbitration. The Tribunal acknowledged that its members had been furnished with copies of China’s
public position paper while noting that it also expressly stated that the position paper should not be
regarded as acceptance or participation in the proceedings.

In accordance with its Rules of Procedure, the Tribunal gave the Philippines until March 15, 2015 to
submit a supplemental submission on the Tribunal’s jurisdiction and the merits of the case, in particular
to address the points raised by China’s position paper. After the submission, China will have a similar
period of 90 days within which to file a response.

The Tribunal also acknowledged receipt of Vietnam’s statement.

The Philippine Claims

The Notification and Statement of Claim of the Philippines contains numerous claims against China, but
these can all be summarized briefly into the following major groups:

First, the Philippines asserts that China is claiming rights and entitlements far in excess of what has been
agreed upon by the international community in UNCLOS. These excessive claims are signified by the
nine-dash line map, which China has invoked against the Philippines to justify its claims to sovereignty,
jurisdiction, historic title, or historic rights over maritime areas or activities within those lines. The
Philippine argues that China’s claims to maritime rights or entitlements based on the nine-dash line map
are contrary to UNCLOS and invalid. However, it acknowledges that any issues regarding sovereignty over
the land features within those lines are not within the jurisdiction of the Tribunal, and therefore does
not seek a ruling from the Tribunal on those issues.

Second, the Philippines argues that China has illegally occupied or controlled eight features within the
SCS. Specifically, it occupies Fiery Cross, Cuarteron, Subi, McKennan, Johnson South, Gaven, and Mischief
Reefs, and has taken exclusive control of Scarborough Shoal. The Philippines argues this is based on
illegitimate claims to title or sovereignty over completely submerged areas, or historic rights to living and
non-living natural resources, including control of maritime navigation. It argues further that China has
claimed excessive maritime rights and entitlements from these maritime features that it presently
occupies or controls, which should be governed by Art. 121 of UNCLOS.

Maritime Zones
At various instances, China has prevented the Philippines from lawfully exploring and exploiting the
marine resources within or around these reefs. It is argued that China’s actions against Philippine ships
and activities around these areas, and indeed throughout the area within the nine-dash line, assert
claims to rights and entitlements far beyond those allowed under Art. 121. The Philippines acknowledges
that at most, Scarborough, Johnson South, Cuarteron, and Fiery Cross reefs may be entitled to 12
nautical mile territorial sea zones on account of rocky protrusions above water at high tide, but no more;
China’s claims or activities beyond this distance from the features are illegal in international law. The
remaining occupied features do not generate any maritime zones at all, and therefore they are on the
seabed that are parts of the Philippines’ continental shelf and subject to the latter’s exclusive rights and
jurisdictions under UNCLOS.

Third, the Philippines asserts that China has unlawfully claimed rights or entitlements to, and unlawfully
exploited living and non-living natural resources in other areas within the Philippines’ Exclusive Economic
Zone and/or Continental Shelf, while preventing the latter from doing so. It is also asserted that China
has unlawfully interfered with its rights to navigation under UNCLOS. The Philippines argues that China’s
claim based on the nine-dash line map cuts off and deprives the Philippines of its maritime entitlements
to those maritime zones under international law.

The Philippine jurisdictional zones in the South China Sea are collectively and officially described in
Philippine domestic parlance as the West Philippine Sea. The term “West Philippine Sea” is used by the
Philippines to refer to the maritime areas within its sovereignty or jurisdiction in accordance with
UNCLOS, and is located within the geographic area of the South China Sea but directly adjacent to its
islands.

On the basis of these arguments, which are likely dealt with in great detail in the lengthy but still
confidential Memorial, the Philippines seeks reliefs in the form of a number of declarations and orders
from the Tribunal. The most important of these is a declaration of invalidity under international law of
China’s claims based on the nine-dash line map, and that China’s maritime rights and entitlements can
only be those based on UNCLOS. Other reliefs sought include a declaration that China’s occupation and
facilities on the various reefs are illegal, as well as an order for China to end its occupation thereof. It is
also requested for the Tribunal to order China to bring its domestic legislation in accordance with
UNCLOS, and stop preventing Philippine vessels from lawfully exploring and exploiting the natural
resources of the area, as well as any other activities inconsistent with UNCLOS. The Philippines also asks
the Tribunal to declare that the Philippines is fully entitled to its 12 nautical mile territorial sea and 200
nautical mile EEZ and continental shelf measured from its archipelagic baselines as enacted in 2009.
China’s Counter-Arguments

The position paper released by China on December 7, 2014 deals only with the issue of the jurisdiction
of the Tribunal, and does not delve into the merits of the Philippine case. From China’s standpoint, the
Tribunal does not have jurisdiction over the case filed by the Philippines mainly on the following
procedural and substantive grounds:

First, China asserts that the subject matter of the arbitration is, at its core, a dispute over territorial
sovereignty over the various features of the Spratly Islands and Scarborough Shoal. China claims
absolute sovereignty over those features on various historical and legal grounds, contrary to the
Philippines own claims to some of those features. It argues that unless the question of sovereignty over
those features is first determined, the issue of who may lawfully exercise the maritime rights and
entitlements around them cannot be resolved: the issue of sovereignty over the land and rights over the
adjacent seas are inseparable. Since the issue of territorial sovereignty has been expressly excluded by
the Philippines from the case, China concludes that it cannot have jurisdiction over the dispute.

Second, China argues that even if the Tribunal could resolve the maritime dispute without dealing with
the question of sovereignty over the adjacent land features, it cannot decide on the Philippines’ claims
without first undertaking a maritime delimitation. China points to the geography of the area, which aside
from the features it currently occupies and included in the case, contains numerous other features such
as large islands and other rocks above high tide, including the largest island Itu Aba. China argues that
the Philippine case dissects the Spratly island group, distorts the nature and scope of the dispute
between the two parties, and avoids questions as to the validity of the Philippines’ own claims to some
of the islands; these show that the geographic extent of the Philippines own maritime jurisdiction is still
undetermined, and therefore its own claims cannot be decided upon by the Tribunal.

Third, building on the two previous arguments, China invokes the optional exclusion from jurisdiction
under Art. 298, which China exercised through its 2006 declaration. It argues that the right granted to
States to exercise this optional exclusion, and the complementary prerogative of States to choose the
means for settlement of disputes under Art. 299, would be rendered meaningless. China views the
action of the Philippines of unilaterally initiating arbitration as an abuse of the compulsory dispute
settlement procedures of UNCLOS. In addition, China also sees it as contravening existing agreements
between China and the Philippines, such as the 2002 DOC, to seek a negotiated solution, and other
agreements reached between the two countries throughout the 1990s meant to improve the relations
between them, as well as the entire region, in spite of the dispute. China further asserts that the actions
of the Philippines as a whole to be in bad faith because it seeks a maritime delimitation in disguise, and
ignores the need for the two countries to resolve the issues in dispute directly through negotiations.

What Next?

Since arbitration was launched in January 2013, incidents over disputes territories and in disputed
waters have continued, and we might expect these to do so for the foreseeable future despite legal
proceedings. But there may also be opportunities for reducing tensions and minimizing the risk of
escalation if incidents do arise. A number of flashpoints for either conflict or cooperation may be
considered:

The Philippines will surely make a supplemental submission as requested by the Tribunal in order to
address the points raised in China’s position paper. Its counsel has welcomed the position paper as
providing concrete targets for future proceedings.

The Philippines will continue supplying its positions and personnel based in the Spratly Island group, but
without moving to maintain or repair damaged facilities and equipment in order to maintain the moral
high ground in the arbitration. However, given the precarious state of the derelict ship that it uses as an
outpost on Second Thomas Shoal, there is a possibility of an incident should the ship’s structure finally
yield to the unforgiving sea. Maritime encounters involving interference, and even collision, with
Philippine ships are also still possible.

As the Philippines continues to receive assistance and support in maritime capabilities from countries
like the U.S. and Japan, it will continue to create as great a presence in maritime law enforcement as it
can with its limited assets. It can be expected to pursue fishery enforcement patrols by military or civilian
services. The possibility remains that Chinese fishermen will be arrested and brought to trial, especially
in cases of marine environmental and fishery offenses in the near-shore areas. In light of China’s more
assertive and proactive protection of its fishermen, this will be a likely source of new tensions.

Since 2012, China has reportedly been organizing and mobilizing its civilian fishing fleet into a maritime
militia. Such a militia could also extend its range through China’s artificial islands, and the concentration
of such a fleet increases the possibility of even more incidents between them and fishers of other
countries, as civilian militias could be expected to have a little less discipline and act more unexpectedly
than trained armed forces.

China’s reclamation activities are expected to resume or continue at their very rapid pace since 2014,
and it is likely that at least one of these new artificial islands will achieve an interim operational
capability that will give China round-the-clock and year-long maritime surveillance initially within the
Spratly region, and later in the whole nine-dash line area. Enforcement capability will follow thereafter,
as surveillance will allow China to more efficiently allocate and utilize its maritime enforcement fleet.
Surveillance coverage and efficient enforcement could also lead to confrontations taking place in new
areas within the Spratly region that previously had not been the scene of such activities.

The conclusion of talks between the US and China for a MOU establishing rules for safety in air and naval
encounters may serve as a model for the initiation of similar arrangements between the Philippines and
China. There is a need for such an arrangement given the recent history of encounters between
Philippine and Chinese ships in the disputed areas.

Activities implementing the EDCA signed last April 2014 will likely commence sometime in 2015, unless
the Philippine Supreme Court rules against its constitutionality, or directs that it be subject to Senate
ratification, in the case currently pending before it. EDCA is envisioned to play an important role in the
modernization of the Philippine armed forces, including the maritime services. Initial plans for the
agreement included the development of Oyster Bay in Palawan as a naval base directly accessible to
Reed Bank and the disputed areas. If it pushes through, it may become another irritant in relations
between the parties even though it is entirely within the Philippine archipelago.

The consortium that owns Service Contract 72 on a concession area in Reed Bank has announced that it
will undertake drilling operations by 2016. The consortium attempted to negotiate an agreement with
China in order to proceed with petroleum operations, but to date, the political aspects of the dispute
have hindered commercial imperatives. However, financial and management considerations may drive a
decision to drill, as the consortium may have already made commitments to its investors since 2010
when the service contract was awarded.

The Philippines will host APEC in December 2015. Given the tentative steps toward at least a more
normal relationship demonstrated in the Aquino-Xi meeting last year, and with the arbitration now in full
stride, some room may finally be generated for reaching at least a new modus vivendi that reduces the
possibility of sudden escalating conflict. This, however, depends very much on diplomatic initiatives and
greater sensitivity to the prevention of untoward incidents.

As these and other events unfold, the arbitration will keep apace with the timetable established by the
Tribunal. Assuming that the Philippines submits its supplemental pleading in response to China’s position
paper on the March 15 deadline, the Tribunal will wait another 90 days for China to submit a rejoinder,
no matter how unlikely it may be for such to be given. This means that the next major milestone will be
reached in the middle of June 2015.

A ruling on the jurisdictional issue may be expected anytime within 3 to 6 months after the middle of
June 2015. This is on account of the importance of the crucial issue of jurisdiction, the pace at which the
Tribunal has proceeded thus far, and assuming that a hearing on oral arguments is not called for, and
that Vietnam’s statement does not result in additional proceedings. The latter depends largely on the
results of consultations on the matter. This ruling will determine whether the case will terminate at this
stage or proceed any further.
About Jay Batongbacal

Jay L. Batongbacal is an associate professor at the University of the Philippines College of Law and
director of the university’s Institute for Maritime Affairs and Law of the Sea. He was a U.S.-ASEAN
Fulbright Initiative Visiting Scholar in Washington, DC, in 2014-2015, assisted the Philippines in pursuing
its claim to a continental shelf beyond 200 nautical miles in the Benham Rise Region, and is listed as one
of the UNESCO/IOC experts for special arbitration under UNCLOS Annex VIII.

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