Number 60, February 1996

**The South China Sea:
*Future Source of Prosperity or Conflict 
in South East Asia?

**by Richard E. Hull**
**Conclusions

The existence of oil and gas deposits in the South China Sea and overlapping claims of sovereignty overthe many mid-ocean land features and surrounding waters cause a risk of military confrontation amongthe claimants. 
It is currently unlikely that China will interfere with freedom of navigation on the strategic sea lanes ofthe South China Sea or attempt to force other claimant nations from the Spratlys. But neither of thesepossibilities can be ruled out in the longer run. 
Maintaining the status quo without an overall settlement of conflicting sovereignty claims would increasethe risk of confrontation as military and commercial activities increase in this area.
Uncertainty over China's long-term objectives complicates the task of formulating an overall settlement,but all claimants must be prepared to make substantial compromises for the sake of reaching agreement.   
Although binding arbitration by the International Court of Justice, or a similar impartial body, would bethe best means of assuring that a settlement conforms with current international law,  the claimants areunlikely to agree to submit to arbitration at this time.
ASEAN nations view the United States as the principal military deterrent to the use of force. The UnitedStates has a vital interest in keeping the South China Sea open to ships of all nations. However, settlementof conflicting sovereignty claims is a regional issue which can be peacefully resolved only by theclaimants.  **Background

	The South China Sea, an area of 648,000 square nautical miles between the coast of Asia and the islandsof Taiwan, the Philippines, Malaysia and Indonesia, is dotted with hundreds of islets, reefs, rocks and shoals,which are the subject of conflicting territorial claims. The presumed existence of large oil and gas deposits inthese waters and the strategic importance of shipping lanes between East Asia and South Asia, the MiddleEast and Europe have increased the risk of confrontations over disputed areas of the South China Sea and theurgency of averting these possible confrontations through a peaceful settlement.

**Complex and Overlapping Claims

	To the north, the Pratas Island and the submerged Macclesfield Bank are claimed by Taiwan and China.China and Taiwan have tacitly tolerated each other's identical claim to practically the entire South China Seabecause both base their claim on the same historic grounds. All the Paracel Islands are claimed by Vietnam,Taiwan and China, on historic grounds, although these have been occupied exclusively by China since 1974.China and Vietnam disagree over their maritime boundary in the Gulf of Tonkin. 
	Further south, the Spratly Islands are spread astride strategic sea lanes and are claimed by: China,Taiwan, Vietnam, the Philippines, Malaysia, and Brunei. Of the six, all but Brunei, have sought to strengthentheir claims by establishing a military presence on at least one of the Spratlys. Although their claims overlap,all six allege that their claims are fully supported under international law and under the 1982 United NationsConvention on the Law of the Sea ("1982 UNCLOS") which entered into force in 1994. Finally, the claims ofChina, Taiwan and Vietnam, overlap portions of Indonesia's claim in the Natuna area.
**China's Policy

	China has pursued an assertive policy of sovereignty claims which, if fully recognized, would extend itsjurisdiction over practically the entire South China Sea. However, since a brief clash with Vietnam at JohnsonReef in 1988, China's use of military force has been limited to occupying previously uninhabited islands andreefs or erecting structures on these. In February 1995, China erected permanent structures on Mischief Reef,an area claimed, although not occupied, by the Philippines. China's pattern may best be described as "thrustand reassure"--a steady sequence of small encroachments, each followed by protestations of peacefulintentions. True to form, China's Foreign Minister sought to defuse the situation in July 1995 at the annualMeeting of the Association of South-East Asian Nations (ASEAN) ministers in Brunei. After reaffirmingChina's "indisputable" sovereignty over the Spratlys, Minister Qian Qichen agreed that all disputes should beresolved by peaceful means on the basis of international law and the 1982 UNCLOS. He noted that ifsettlement of conflicting claims was not feasible at this time, then the issue of sovereignty should be deferred,but agreement should now be reached on joint development of the oil and gas resources in the area. Finally, heassured the ASEAN members (Indonesia, Malaysia, Brunei, Singapore, Thailand, the Philippines and, sinceJuly 1995, Vietnam) that China had no intention of interfering with  freedom of navigation in the South ChinaSea.       
	The problem with such assurances is that China has always insisted that the terms of "joint development"must be established through bilateral (rather than multilateral) agreements which would favor China, as thedominant power, and not achieve an overall settlement of the overlapping claims. Moreover, despite China'sprofessed respect for freedom of navigation, there is some concern that, if the South China Sea ever became aChinese *mare nostrum*, international shipping might be subjected to regulatory harassment, and foreignwarships might be required to obtain China's authorization before entering most of these waters.

**Will China Resort to Force?

	It is unlikely that China will attempt to seize the entire Spratly Islands by force of arms in the immediatefuture. Such aggression might trigger a military response from the ASEAN member nations and also U.S.intervention. China's power projection capabilities--naval and long-range air forces--are probably not yetup to the task of seizing and holding such a large ocean area 800 miles from the Chinese mainland. At best, itwould be a high-risk operation. Moreover, any resort to force would seem to be against China's interest inmaintaining close trade and economic ties with the more prosperous nations of the region. China's action onMischief Reef has already caused the ASEAN member nations to present a united front against what theyperceived as a threat to their regional security. Some of these nations have increased their military capability,and the press reported that Vietnam invited the United States to use its naval facilities at Cam Ranh Bay. Any resort to force would only bring the ASEAN members closer together. 
	China may believe it can achieve its objectives over time, without resorting to massive confrontation, byentering into bilateral agreements for joint development while deferring a multilateral settlement of all theconflicting claims over sovereignty. However, maintaining the status quo is fraught with risk. As the numberof competing commercial and military activities in the area increases, the likelihood of unintendedconfrontations between claimants will also increase. Moreover, some are concerned that China may only bebuying time until it has acquired the military capability to enforce its territorial claims. These concerns arecompounded by uncertainty over what the influence of the hard liners will be in the next few years. 

**U.S. Policy

	Although Japan has vital interests in the region, and Japanese tankers carry 70% of Japan's oil on the sealanes of the South China Sea, the United States is currently viewed by the ASEAN nations as the principaldeterrent to any outbreak of military hostilities. The United States has significant economic and strategicinterests in South East Asia and a mutual security treaty with the Philippines. In addition, several U.S. oilcompanies hold concessions in disputed areas (even though they were advised of the risks beforehand by theU.S. Government). The official U.S. policy on the South China Sea is that it takes no position as to the legalmerits of competing claims of sovereignty. However, freedom of navigation is a fundamental interest of theUnited States, and it would view with serious concern any maritime claim or restriction on maritime activityin the South China Sea not consistent with international law, including the 1982 UNCLOS.  
 	This policy is sound, and the United States should continue to discourage any use of force whileencouraging all the claimants to agree to a peaceful settlement as soon as possible. Although officially neutralon competing claims of sovereignty, this policy implies that the United States would not tolerate any claimantclosing off large navigable portions of the South China Sea. Given the importance the United States attachesto freedom of navigation, in order to avoid any risk of miscalculation on the part of China's hard liners, somepropose the United States should be more explicit in its public statements, as to just where it draws the line.However, others believe lecturing China publicly is usually counterproductive and, if required, this is amessage best conveyed privately to Chinese officials.     

**Binding Arbitration Unlikely   

	Given the complexity of the conflicting claims, the best means of assuring that an overall settlementwould conform closely with current international law would be through binding arbitration by theInternational Court of Justice or some other impartial body under the auspices of the 1982 UNCLOS.However, China would not be likely to agree to this approach, nor would all the other claimants. China wouldbe concerned arbitration might produce a ruling unfavorable to its basic interests as the dominant power inthe region, and possibly lead to international recognition of Taiwan. By the same token, the other claimantscould not realistically expect to be awarded everything they claim.    

**Uncertainty over China's Long Term Objectives  

	China has published maps with a boundary line enclosing nearly the entire South China Sea, but it isunclear whether it is claiming the entire area as historic waters, or sovereignty over all the mid-ocean landfeatures. The hard liners and the Foreign Ministry may be divided on this issue, and it may be impossible forChina to clarify its position at this time. However, knowing whether China's primary concern is territorial oreconomic would make it easier to formulate an overall settlement compromise. 
	In 1992, China adopted a law on the territorial sea and contiguous zones, identifying the Spratly Islandsand several other mid-ocean land features as Chinese territory. Even if China's claim of sovereignty over theSpratly Islands were to be recognized, it does not follow under the 1982 UNCLOS that China would beentitled to establish a territorial sea measured from archipelagic baselines drawn between the outermostislands or to claim exclusive rights over the sea bed in a contiguous zone surrounding the entire area. Undercurrent international law, rights over the seabed in the South China Sea would primarily be determined bycoastlines, rather than on historic grounds or by sovereignty over minuscule mid-ocean land features whichare, for the most part, uninhabitable and submerged at high tide.  

**A Multilateral Regional Authority**

	Although China would prefer to negotiate separately with each of the claimants, this approach would beunlikely to settle all the  conflicting claims. An overall settlement could be achieved by establishing amultilateral regional regime guaranteeing freedom of navigation to ships of all nations and joint developmentof the oil and gas resources according to a fair apportionment formula. Such an approach cannot be forced onthe claimants, and any undue pressure from the U.S. would most likely be counterproductive in bringingChina to negotiate. 
	Indonesia has sought to broker a peaceful settlement, but to date the claimants have been unable toresolve their differences. Now that Vietnam has become a member of the ASEAN, the ASEAN claimantsmay find it easier to reach some consensus on a fair settlement proposal. Even if such a proposal wererejected by China and Taiwan, it would at least serve to produce agreement among the ASEAN claimants. 

**Recommendations

With the closing of U.S. military bases in the Philippines and the end of any significant Russian navalpresence in Vietnamese ports, it is essential that the U.S. Navy remain actively engaged in the SouthChina Sea to underscore the importance of preserving peace and freedom of navigation in this region. 
The United States should  encourage all the competing claimants to peacefully settle their territorialdisputes by establishing a multilateral regional regime guaranteeing freedom of navigation to ships ofall nations and providing for the exploitation of the oil and gas resources under a fair apportionmentformula. 
As a regional solution to a regional dispute, this multilateral approach cannot be forced on theclaimants. Accordingly, the United States should avoid exerting undue pressure on any of theclaimants. **Richard Hull is a visiting fellow at INSS on detail from the Department of Commerce where he works on U.S.export control policy.  He is a lawyer, former naval officer, and a former general counsel of the FederalMaritime Commission.  He can be reached at (202) 287-9210, x565; by fax at (202) 287-9139; or, by e-mailat [email protected].

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