From Disputed Waters to Seas of Opportunity: Overcoming Barriers to Maritime Cooperation in East and Southeast Asia

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1 the national bureau of asian research nbr special report #30 july 2011 From Disputed Waters to Seas of Opportunity: Overcoming Barriers to Maritime Cooperation in East and Southeast Asia Clive Schofield, Ian Townsend-Gault, Hasjim Djalal, Ian Storey, Meredith Miller, and Tim Cook CLIVE SCHOFIELD is Professor and Director of Research at the Australian Centre for Ocean Resource and Security (ANCORS), University of Wollongong, Australia. He currently holds an Australian Research Council Future Fellowship and is the principal investigator for NBR s Maritime Energy Resources in Asia: Opportunities for Joint Development project. He can be reached at <clives@uow.edu.au>. IAN TOWNSEND-GAULT is Director of Southeast Asian Legal Studies at the Centre for Asian Legal Studies, Faculty of Law, University of British Columbia. He can be reached at <itgault@law.ubc.ca>. HASJIM DJALAL is a member of the Indonesian Maritime Council; Senior Advisor to the Indonesian Minister for Maritime Affairs and Fisheries, the Indonesian Minister of Transport, and the Indonesian Naval Chief of Staff; and a member of the Legal Experts Team of the Indonesian Minister of Defense. He can be reached at <hdh@cbn.net.id>. IAN STOREY is a Fellow at the Institute of Southeast Asian Studies (ISEAS), Singapore, and Editor of the peer-reviewed journal Contemporary Southeast Asia. He can be reached at <ijstorey@iseas.edu.sg>. MEREDITH MILLER is Vice President of Trade, Economic, and Energy Affairs & Outreach at the National Bureau of Asian Research. She can be reached at <mmiller@nbr.org>. TIM COOK is a Senior Project Director at the National Bureau of Asian Research. He can be reached at <tcook@nbr.org>. 1

2 EXECUTIVE SUMMARY This report highlights findings from the National Bureau of Asian Research s three-year project Maritime Energy Resources in Asia: Opportunities for Joint Development, which assesses maritime jurisdictional disputes and opportunities for cooperation in East and Southeast Asia. MAIN FINDINGS Long-standing disputes over maritime jurisdictional claims in the East China Sea, South China Sea, and Gulf of Thailand threaten the long-term stability and prosperity of states in East and Southeast Asia. Despite numerous multilateral efforts in recent decades and international legal regimes such as the UN Convention on the Law of the Sea, tensions among claimant states and user states remain high. Resolution of these disputes has eluded the claimant states, given the complexity of the domestic political, historic, legal, economic, and strategic factors involved and the pressure to develop the estimated vast energy resources in the disputed areas. Concerns over resource access, coupled with the claimant states failure to implement confidence-building measures (CBM) to ease tensions, demonstrate that political resolution is unlikely in the near term. In the absence of a long-term agreement, claimant states must take concerted interim actions to ease tensions, foster cooperation and trust, and maintain joint stewardship of the environment and marine resources. POLICY IMPLICATIONS States can better manage current tensions by implementing CBMs, including those outlined in the Declaration on the Conduct of Parties in the South China Sea (DoC). These could include the use of telephone hotlines, advance notification of military exercises, joint search and rescue capabilities, cooperation on countering transnational threats, rules of conduct for engagement on the high seas, and increased military transparency. Notwithstanding the lack of progress in implementing the DoC, China and the ASEAN states should begin negotiations on a code of conduct for the South China Sea that would formalize CBMs and reduce destabilizing actions. Interim management of the multiple interconnected territorial and maritime disputes in Asia s waters is the best way to ensure the freedom of navigation and free flow of trade that is critical to the regional and global economies. Such arrangements need not prejudice states maritime claims in the near term.

3 The semi-enclosed maritime spaces of the East China Sea, South China Sea, and Gulf of Thailand host sea lines of communication (SLOC) that are critically important not only to the states of East and Southeast Asia but also to global trade. These waters moreover contain a marine environment of astonishing biodiversity that supports fisheries that, in turn, are primarily responsible for sustaining hundreds of millions of people. Further, it has long been speculated that these areas contain substantial reserves of seabed energy resources a possibility that is particularly attractive in an era of increasing energy security concerns. While seabed energy reserves have been discovered and are in the process of being developed on the peripheries of the East China Sea, South China Sea, and Gulf of Thailand, the full potential of these areas remains unproven and unrealized as a consequence of the territorial and maritime jurisdictional disputes that remain a persistent feature of these waters. Indeed, these maritime spaces are characterized by multiple sovereignty disputes over small and isolated islands, rocks, and reefs, together with broad, though not always well-defined, overlapping jurisdictional claims. Sovereignty and maritime jurisdictional disputes in East and Southeast Asia are long-standing flashpoints with the potential to threaten peace, security, and, accordingly, economic prosperity in these regions. Conflicting sovereignty claims over the islands and other insular features in these areas, together with associated overlapping maritime claims, have been sources of tension for decades. These disputes have led to numerous incidents and even armed confrontations between claimant states in the past. Given the persistence of these disputes, potential exists for such incidents to recur, with attendant risks of escalation into wider conflict. The absence of dispute resolution holds hostage the positive benefits that these maritime spaces and the resources thereof could otherwise afford states in the region. Particularly from an energy standpoint, Asia s sea lanes are critical transit points for and potentially significant sources of the hydrocarbons on which the region s economies depend to sustain their growth trajectories. Many states in the region are severely deficient in domestic energy resources and are increasingly dependent on imports to meet their requirements. For example, in East Asia, Japan and South Korea have long relied on imported crude oil to meet almost all of their requirements, and in 2009 China depended on imported crude to meet 53% of its needs. This dependence on imported oil and gas is predicted to rise sharply in the future for almost all East and Southeast Asian states (the exception being Brunei). The majority of these imported energy resources come from Africa and the Middle East and are transported by sea through maritime chokepoints in Southeast Asia such as the Straits of Malacca, Singapore, Sunda, Lombok, Makassar, and Balabac, before continuing through the South China and East China seas to their final ports of call. A major clash or demonstration of force in any of these bodies of water could seriously disrupt regional energy security, as ships adjust their navigation routes. Given the concentration of oil reserves, for example, in the Middle East, alternative sources of supply that do not require transit through the affected region are at present in short supply (see Figures 1 3). Regional disputes range from sovereignty claims over islands and associated waters to contention over the capacity of predominantly small, isolated, and uninhabited insular features to support extensive claims to maritime spaces. Disagreements over the weight that should be accorded to islands in delimitating maritime boundaries, as well as differences over the appropriate approach or methodology for boundary delimitation, exacerbate the complex nature of the disputes and ultimately delay final resolution. Attempts to resolve these disputes have been FROM DISPUTED WATERS TO SEAS OF OPPORTUNITY u NBR SPECIAL REPORT 3

4 f i g u r e 1 East China Sea s o u r c e : I Made Andi Arsana and Clive Schofield for the National Bureau of Asian Research, NBR SPECIAL REPORT u JULY 2011

5 f i g u r e 2 South China Sea s o u r c e : I Made Andi Arsana and Clive Schofield for the National Bureau of Asian Research, FROM DISPUTED WATERS TO SEAS OF OPPORTUNITY u NBR SPECIAL REPORT 5

6 f i g u r e 3 Gulf of Thailand s o u r c e : I Made Andi Arsana and Clive Schofield for the National Bureau of Asian Research, NBR SPECIAL REPORT u JULY 2011

7 ongoing for decades at the government and Track II levels with limited success. That said, advances in international legal approaches based on the UN Convention on the Law of the Sea (UNCLOS), bilateral boundary delimitation negotiations, and agreements for the joint development of resources have arguably served to temper state behavior, offer alternative options, and generally emphasize diplomacy and dialogue over military force in dispute settlement. Nevertheless, there are alarming signs of rising tensions among states in East and Southeast Asia over their overlapping claims. For example, on at least two occasions in the first half of 2011, Chinese patrol boats harassed seismic survey vessels chartered by the Philippine and Vietnamese governments, forcing them to temporarily suspend their exploration activities. The first event took place in March at Reed Bank, an area that the Philippines regards as part of its 200 nautical mile (nm) exclusive economic zone (EEZ), and the second in May in waters off the Vietnamese central province of Phu Yen. Both Manila and Hanoi protested the actions undertaken by Chinese patrol boats. Another recent incident occurred in September 2010 when the Japanese Coast Guard detained a Chinese fishing boat captain after a collision in disputed waters in the East China Sea. That episode, and the ensuing diplomatic fallout, stoked nationalistic tensions between the two countries and further dimmed prospects of implementing the 2008 agreement on a joint development zone and gas project. Meanwhile, in the Gulf of Thailand the significant deterioration in relations between Cambodia and Thailand, ostensibly as a consequence of disputes along their land boundary, retains the potential to spill offshore. These incidents and a host of similar spats have occurred frequently over the years. In every instance tensions and mistrust increase among the principal actors, calling into question the ability of states to resolve these disputes in the foreseeable future. Where overlapping maritime claims exist, uncertainty over jurisdiction inevitably complicates ocean resources management. Uncoordinated policies lead to destructive and unsustainable resource competition, especially over living marine resources. Confrontation between rival fishing fleets and the resulting friction can quickly embroil coastal states enforcement authorities, particularly when local security forces perceive themselves to be merely patrolling what is rightfully their maritime space. Resource competition also tends to stoke nationalist sentiments, as occurred with the protests in China over Japan s detention of the Chinese fishing boat captain. Such strident nationalism raises the stakes for political leaders as they risk appearing weak to their citizens if they back down. In the worst-case scenario, if tensions escalate into armed conflict, freedom of navigation and seaborne trade, including the transit of critical energy resources, would be compromised. A more immediate and problematic consequence of these sovereignty and maritime disputes and one of particular significance from the energy security perspective is that the presence of multiple overlapping claims to jurisdiction generally tends to prevent exploration for and access to any seabed energy resources that may be present. This is exemplified by the recent incidents in the South China Sea outlined above, where seismic survey activities have been disrupted by the objections and intervention of another claimant state. International oil and gas companies are generally reluctant to conduct exploration operations in disputed areas. Further, even if exploration activities were to be successful and seabed energy resources were discovered, their development tends to be unfeasible without fiscal and legal certainty and continuity. Resources located in disputed areas potentially have a crucial role to play in the economic well-being and political stability of the coastal states involved if such resources can be exploited. This is especially FROM DISPUTED WATERS TO SEAS OF OPPORTUNITY u NBR SPECIAL REPORT 7

8 the case if development can be realized in a timely manner, given the increasingly pressing nature of the energy security concerns of the states involved. Recognizing the fact that maritime jurisdictional disputes in the South China Sea, East China Sea, and Gulf of Thailand are not likely to be resolved in the foreseeable future, yet also cognizant of the immediate importance of the disputed waters for trade and the provision of vital resources for peoples and economies in the region, the National Bureau of Asian Research (NBR) set out to critically examine these disputes and their impacts with a view to offering fresh perspectives on how they might be managed and their consequences better addressed prior to political resolution. To accomplish this, NBR assembled an international team of rising experts, guided by principal investigator Clive Schofield and senior advisors Hasjim Djalal and Ian Townsend-Gault, to explore notable recent developments in the region and provide policymakers with new insights and practical tools to ameliorate or better manage these contentious disputes. This publication, compiled by the principal investigator, senior project advisors, and NBR staff, focuses on the policy-relevant aspects of NBR s Maritime Energy Resources in Asia (MERA) project. This report begins with a discussion of what is at stake in the East and South China seas and the Gulf of Thailand. From there, the report assesses recent trends, both positive and negative, including the unrealized benefits afforded by these maritime spaces. The subsequent section assesses potential ways claimant countries and other stakeholders could move forward. Finally, the report concludes with a viable set of policy recommendations for contributing to a more stable maritime regime, which would in turn promote the economic prospects of the region. 8 NBR What is at Stake? Sea Lane Security The maritime spaces that make up the East China Sea, South China Sea, and Gulf of Thailand are increasingly important to the coastal states involved, as well as regionally and internationally, for a number of reasons. A particularly salient concern relates to navigation and the free flow of maritime trade. This is of fundamental importance to the functioning of the exportoriented economies of East and Southeast Asia. According to the UN Conference on Trade and Development s (UNCTAD) Review of Maritime Transport 2010, over 80% of global trade is carried by sea. UNCTAD indicates that in 2009 the volume of seaborne trade was 7.8 billion tons, down 4.5% from 8.2 billion tons in 2008 due to the global downturn but still significantly greater than the almost 6.0 billion tons in 2000 and 2.6 billion tons in Further, Asia accounted for 41% of loaded seaborne goods. There is also an increasingly strong energy security dimension to navigational concerns held by the littoral states. The SLOCs through the South China and East China seas are already vital to the energy needs of the coastal states and their role is only likely to become more pronounced in the future. Indeed, International Energy Agency (IEA) figures suggest that growth in demand in Southeast Asia and China, coupled with maturing production there, will mean that net oil imports are likely to quadruple by If that is indeed the case, imports would account for 74% of Southeast Asia s oil demands, compared with 25% in This, in turn, implies substantially increased tanker traffic in key chokepoints, notably the Straits of Malacca and Singapore at the southwestern entrance to the South China Sea and those of Luzon and Taiwan to the north. Also of significance is the route via the Straits of Lombok and Makassar and the entrance to the South SPECIAL REPORT u JULY 2011