Commentary: Trojan Horse in the West Philippine Sea

By: Florin T. Hilbay - @inquirerdotnet

In the recently concluded Belt and Road Forum in Beijing, the special envoy for intercultural dialogue Jose de Venecia Jr. revived proposals for joint oil and gas exploration in the West Philippine Sea, citing the joint seismic marine undertaking among the Philippines, China and Vietnam during the term of President Gloria Arroyo as a model for cooperation. He said “[i]t is obvious as members of the Asean family that today, with China, we must find ways and means to jointly develop the area’s hydrocarbon potential to help lessen our common dependence on distant petroleum sources in the Middle East.”

The government must exercise utmost caution and tread very carefully on this matter, for the protection of the national interest.

Prior to Philippines v. China, the idea of joint exploration and development in the WPS may have had some plausible justification on the ground that the rights of the Philippines and China in our exclusive economic zone were theoretically contested. After that decision, such plausible deniability is no longer tenable. Simply put, joint exploration and development are incompatible with the Constitution.

The arbitral award declared that the Philippines does not share with China any overlapping entitlements. In the language of our Constitution, areas in the WPS believed to contain oil and gas, such as Reed Bank, are part of our “marine wealth” and the State must “reserve [their] use and enjoyment exclusively to Filipino citizens.” Because they “are owned by the State,” their “exploration, development, and utilization … shall be under the full control and supervision of the State.”

What this means is that any joint agreement to explore, develop, and utilize our marine wealth with China is null and void. Such agreements effectively impair the authority of the State to control and supervise the use and enjoyment of our marine wealth through its institutional machineries—the executive, legislative and judicial branches. They also materially diminish the rights of Filipinos to the benefits arising from such resources. We cannot, for example, compel China to submit to the Commission on Audit and/or pay income or franchise taxes for its share in the income—forms of control sovereigns traditionally impose.

The most insidious aspect of a joint agreement with China is the fact that the basis of such economic sharing is the recognition of China’s sovereign rights over our exclusive economic zone—a culpable violation of the Constitution and an implied waiver of our victory at The Hague.

The Duterte administration must realize that whatever economic gains there may be from any joint agreement with China over the WPS can only be made at the expense of giving away our sovereign rights over the area. Joint agreements are a Trojan Horse against our country’s continuing efforts to effectively assert the rights we have won at The Hague.

Lest anyone forget, China is bound by that judgment because it is a party to the UN Convention on the Law of the Sea. We must construe its present refusal to abide by that judgment as a strategic effort on its part to buy time as it attempts to secure a waiver of judgment—express or implied—from any post-Aquino administration.

In response to criticisms that President Duterte has been timid on the matter of enforcing the Philippines’ rights against China, he recently revealed that he had previously informed Xi Jinping of his intention to drill oil in our EEZ, but was threatened with war. He seems to imply, in the balance of his remarks, that he does not intend to go to war with China over oil.

This is, of course, well and good, insofar as practical politics goes. But one also hopes that such a pacifist line is not later transformed into a pragmatic justification for entering into an unconstitutional and inequitable joint agreement over the WPS that simultaneously waives our sovereign rights.

Florin T. Hilbay is a former solicitor general. He was agent to the Republic in Philippines v. China.

In first under Trump, U.S. warship challenges Beijing's claims in South China Sea

The Arleigh Burke-class guided-missile destroyer USS Dewey prepares for a replenishment-at-sea in the South China Sea May 19, 2017. Picture taken May 19, 2017. Kryzentia Weiermann/Courtesy U.S. Navy/Handout via REUTERS

By Idrees Ali and Phil Stewart

WASHINGTON (Reuters) - A U.S. Navy warship sailed within 12 nautical miles of an artificial island built up by China in the South China Sea, U.S. officials said on Wednesday, the first such challenge to Beijing in the strategic waterway since U.S. President Donald Trump took office.

The officials, speaking on condition of anonymity, said the USS Dewey traveled close to the Mischief Reef in the Spratly Islands, among a string of islets, reefs and shoals over which China has territorial disputes with its neighbors.

The so-called freedom of navigation operation, which is sure to anger China, comes as Trump is seeking Beijing's cooperation to rein in ally North Korea's nuclear and missile programs.

Territorial waters are generally defined by U.N. convention as extending at most 12 nautical miles from a state's coastline.

One U.S. official said it was the first operation near a land feature which was included in a ruling last year against China by an international arbitration court in The Hague. The court invalidated China's claim to sovereignty over large swathes of the South China Sea.

The U.S. patrol, the first of its kind since October, marked the latest attempt to counter what Washington sees as Beijing's efforts to limit freedom of navigation in the strategic waters.

The United States has criticized China's construction of the man-made islands and build-up of military facilities in the sea, and expressed concern they could be used to restrict free movement.

U.S. allies and partners in the region had grown anxious as the new administration held off on carrying out South China Sea operations during its first few months in office.

Last month, top U.S. commander in the Asia-Pacific region, Admiral Harry Harris, said the United States would likely carry out freedom of navigation operations in the South China Sea soon, without offering any details.

Still, the U.S. military has a long-standing position that these operations are carried out throughout the world, including in areas claimed by allies, and they are separate from political considerations.

The Pentagon said in a statement it was continuing regular freedom of navigation operations and would do more in the future but gave no details of the latest mission.

"We operate in the Asia-Pacific region on a daily basis, including in the South China Sea. We operate in accordance with international law," Pentagon spokesman Captain Jeff Davis said in the statement.

U.S.-CHINA RELATIONS

Under the previous administration, the U.S. Navy conducted several such voyages through the South China Sea. The last operation was approved by then-President Barack Obama.

China's claims to the South China Sea, which sees about $5 trillion in ship-borne trade pass every year, are challenged by Brunei, Malaysia, the Philippines, and Vietnam, as well as Taiwan.

The latest U.S. patrol is likely to exacerbate U.S.-China tensions that had eased since Trump hosted Chinese President Xi Jinping for a summit at the U.S. leader's Florida resort last month.

Trump lambasted China during the 2016 presidential campaign, accusing Beijing of stealing U.S. jobs with unfair trade policies, manipulating its currency in its favor and militarizing parts of the South China Sea.

In December, after winning office, he upended protocol by taking a call from the president of self-ruled Taiwan, which China regards as its own sacred territory.

But since meeting Xi at his Mar-a-Lago resort, Trump has praised Xi for efforts to restrain North Korea, though Pyongyang has persisted with ballistic missile tests despite international condemnation.

U.S.-based South China Sea expert Greg Poling of the Center for Strategic and International Studies, said the operation was also the first conducted by the United States close to an artificial feature built by China not entitled to a territorial sea under international law.

Previous freedom of navigation operations have gone within 12 nautical miles of Subi and Fiery Cross reefs, two other features in the Spratlys built up by China, but both of those features are entitled to a territorial sea.

Mischief Reef was not entitled to a territorial sea as it was underwater at high tide before it was built up by China and was not close enough to another feature entitled to such a territorial sea, said Poling.

He said the key question was whether the U.S. warship had engaged in a real challenge to the Chinese claims by turning on radar or launching a helicopter or boat -- actions not permitted in a territorial sea under international law.

Otherwise, critics say, the operation would have resembled what is known as "innocent passage" and could have reinforced rather than challenged China's claim to a territorial limit around the reef.

(Reporting by Idrees Ali and Phil Stewart; Additional reporting and writing by Matt Spetalnick and David Brunnstrom; Editing by Cynthia Osterman and Sandra Maler)

Occupation with consent

AS EASY AS ABC By Atty. Alex B. Cabrera (The Philippine Star)

If occupying and building artificial islands within Philippine territory were a commercial deal, we would have done a valuation – what did they gain in exchange for what we gave up? Well, we have not given anything up yet, but we haven’t exactly been paid at all, either.

In an actual business valuation of a private company (which is done when an investor is coming in, or when the business is about to be sold), we look at a few things, such as physical assets, profitability and sustainability, cash flow and liquidity, and its market and intellectual properties.

The other thing that is quite important though is establishing the value of the business after the investor comes in or after it is bought, in the hands of the buyer. There could be a huge strategic value to the buyer’s business, and there could be a lot of synergies. As the seller, you would want to share in the value of that synergy. As a negotiator, if you can estimate in dollar terms what the strategic value of your business is to the investor, you can have leverage in negotiating for a better price.

The Jollibee-Mang Inasal deal fascinated people because Jollibee bought its Mang Inasal stake (the initial 70 percent) at three times what was offered by one potential buyer. The synergistic value to Jollibee was obvious because before the deal, Mang Inasal stores were already side by side with Jollibee’s. (And Jollibee loves to do that with McDonald’s.) The combined Jollibee-Mang Inasal offering was a bigger draw, and more importantly, the revenue is now in the same pocket after the deal. (Now, I suddenly miss that palabok, and that spiced chicken barbecue over rice, but that is not the point here.)

So, theoretically, if the value of your standalone business is 100, and to the buyer, with synergies and all, it is worth 1,000, you know you can get a bit more even if you are already offered 300.

The situation of the artificial islands built by China as being within Philippine territory (or most of it are) is already official as ruled upon by the UN Arbitral Court at The Hague. Just a brief refresh: the UN Tribunal has said that China has no historical rights because while they have always claimed it historically, other claimant states, especially the Philippines, do not agree with China’s claims.

To top it all, there is the international Law of the Sea that shows that China is way off the mark. Vietnam is about a bit more than the benchmark, at 200 miles away from the Spratlys, and Malaysia has an overlapping claim with the Philippines. To be fair, we only claim about seven “islands” out of the hundred there, but we want our 200-mile exclusive economic zone respected.

Assuming that occupation is consensual and not by coercion, they would need to give compensation to the Philippines for the tons of fishes, the oil and natural gas that are in there. (The US Energy Information Administration (USEIA) estimates that the South China Sea contains approximately 11 billion barrels of oil and 190 trillion cubic feet of natural gas in proven and probable reserves.)

You can count and conclude that the strategic value to China is bigger because they have bigger ships for fishing, more fishermen out of their much, much bigger population, better-equipped to extract the oil and natural gas in the area, and – very important to them – the military positioning and defense that the South China Sea offers.

Economically, and militarily, they simply have more at stake there than the Philippines, with one big “but”. The territory, within the 200-mile exclusive economic zone, is ours.

Sure, it is encouraging that investments, financing, and tourists are coming in or are promised by China. Allow me though to sound a little bit ungrateful here just to bring in a point. The investments have dividends for the investors, the trade deals benefit both countries, and the financing helps in the trade and even gets Chinese companies a piece of the action, and Chinese tourists know it is more fun in the Philippines. My point is, these are hardly compensation for the West Philippine Sea.

The reality is, they will not remove that structure they already built. This cuts out our work for us: we need to put in the Code of Conduct that is not inconsistent with the international Law of the Sea, secure just compensation for the Philippines, secure at least co-use and co-exploration, and rule against militarization of the islands. Let’s make it consensual and be mindful of what should be outside the commerce of men, like the preservation of marine life.

Regarding the Scarborough (Panatag) Shoal, which is figuratively a stone’s throw away from Subic, I guess we cannot be blamed for being suspicious about negative pregnant statements. When China said there were no radar systems there, could they mean that some other system was being developed there instead? After all, they did insist in the beginning that the artificial islands in the Spratlys were for marine research, and not to support a sturdy, permanent aircraft carrier with multiple runways.

I would believe the President when he said that he made no secret deal regarding Panatag, or the Spratlys for that matter, because what comes first in the job description of the President, as a civilian, is to lead the military in defending Philippine territory. We can start by sending erring anti-narcotics policemen to man a post in the Panatag Shoal. If their blood spills there during a standoff, they would have died not as villains, but as heroes.

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Alexander B. Cabrera is the chairman and senior partner of Isla Lipana & Co./PwC Philippines. He also chairs the Tax Committee of the Management Association of the Philippines (MAP). Email your comments and questions to aseasyasABC@ph.pwc.com. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.