Thayer Consultancy

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Background Briefing: China and Vietnam Extend Joint Development in the Gulf of Tonkin (1) Carlyle A. Thayer June 20, 2013

[client name deleted] As a follow up to your oral briefing earlier this week, we request your assessment of the agreement in Beijing between President Xi Jinping and President Truong Tan Sang to proceed with joint development. ANSWER: The agreement on China-Vietnam joint development was to extend an existing agreement between PetroVietnam and China National Offshore Oil Compang (CNOOC) in the Gulf of Tonkin and to expand the area of operations. This joint development has seemingly foundered since it was stood up in 2006. This is the fourth time the original 2006 agreement has been renewed. The significance is really political, both sides are demonstrating their commitment to joint development in an area in which there are no third parties involved.

Suggested citation: Carlyle A. Thayer, “China and Vietnam Extend Joint Development in the Gulf of Tonkin,” Thayer Consultancy Background Brief, June 20, 2013. All background briefs are posted on Scribd.com (search for Thayer). Thayer Consultancy provides political analysis of current regional security issues to selected clients. It was officially registered as a small business in Australia in 2002.

Thayer Consultancy
ABN # 65 648 097 123

Background Briefing: China and Vietnam Extend Joint Development in the Gulf of Tonkin (2) Carlyle A. Thayer June 20, 2013

[client name deleted] It has been reported that Vietnamese President Truong Tan Sang kicked off his 3-day visit to China yesterday with a meeting with President Xi Jinping in Beijing, and a few of the usual statements came out from both sides about the need to deepen cooperation on issues in the South China Sea. We’re doing a report on the amended joint development agreement signed between PetroVietnam and China National Offshore Oil Company (CNOOC) during the meetings, which more than doubles the size of the JDA (Joint Development Area) between the two companies and extends it until 2016. There ha sn’t been much significant progress in the JDA since the initial agreement was signed, but the broadening and extension of the agreement would seem to fall under the umbrella of what China has typically been pushing for with its maritime disputes in the South China SEa: shelving the disputes and issues on which the two sides disagree, and focusing instead on joint development and cooperation on areas like energy – with a broader long term view to keeping any discussions and agreements on the territorial disputes strictly between the two sides. We request your assessment on whether China’s approach has been resonating to a greater extent with the Vietnamese leadership recently, or if you believe Viet Nam is still prioritizing a resolution to their South China Sea claims and looking to bring the UN and ASEAN into the discussion, even if this inevitably means more confrontation with China. ANSWER: The agreement to renew and extend joint development by PetroVietnam and CNOOC has greater political significance than commercial. No third party is affected. And joint development is not in the South China Sea proper but in an area that has already been agreed on for joint development. It is a potential model for the region, especially if oil or gas is discovered and jointly exploited. CNOOC and Petroleum Brunei have reached an agreement this past year. And negotiations are continuing between CNOOC and PHILEX. President Truong Tan Sang and his Chinese host President Xi Jinping agreed to step up discussions currently held between working level government officials about demarcating waters outside the Gulf of Tonkin on the basis of an earlier agreement on the Fundamental Principles to Guide the Resolution of Maritime Disputes. While

2 imminent progress is unlikely, it is clear that China is making efforts to lower tensions. These joint development activities are quite separate from negotiations on a Code of Conduct (COC). First, there has been progress on ASEAN-China discussions on search and rescue in the South China Sea. This is one of the cooperative areas mentioned in the 2002 Declaration on Conduct of Parties in the South China Sea (DOC). In April this year when Chinese and ASEAN senior officials met for regular consultations, China signaled that it was willing to commence discussion on a code of conduct. These were to be conducted within the framework of the Working Group to Implement the DOC and not as a separate set of negotiations on the COC. The Philippines is on its own in taking its case to the UNCLOS (United Nations Convention on the Law of the Sea) Arbitral Tribunal. Vietnam has taken note of the Philippine action but not officially endorsed it. It is highly unlikely that Vietnam would take its case to the UN in present circumstances. President Xi Jinping told his Vietnamese counterpart Truong Tan Sang that China opposes internationalising territorial disputes.

Suggested citation: Carlyle A. Thayer, “China and Vietnam Extend Joint Development in the Gulf of Tonkin (2),” Thayer Consultancy Background Brief, June 20, 2013. All background briefs are posted on Scribd.com (search for Thayer). Thayer Consultancy provides political analysis of current regional security issues to selected clients. It was officially registered as a small business in Australia in 2002.

Thayer Consultancy
ABN # 65 648 097 123

Background Briefing: China and Vietnam Extend Joint Development in the Gulf of Tonkin (3) Carlyle A. Thayer July 7, 2013

[client name deleted] We are preparing a report based on news from two weeks ago that China and Vietnam extended an agreement to jointly explore for oil and gas in the Gulf of Tonkin until 2016. Both countries also significantly expanded the area to be explored despite tensions between the two sides over large areas of the South China Sea that they both claim. Since to date, no commercially exploitable reserves have been found despite 3D seismic survey work and the drilling of just one well, to me it looks more like political posturing than anything substantial. PetroVietnam and CNOOC have agreed to extended an agreement to jointly explore for oil and gas in the Gulf of Tonkin until 2016. According to Vietnamese officials, cooperation is just between the two oil and gas groups in a shared offshore area overlapped by sea boundaries, and does not affect sovereignty claims of either nation in the Tokin Gulf. Are you able to give your assessment on this issue from a geo-political perspective? Q1. Since joint exploration under the agreement began in 2006 only one exploration well has been drilled and no resources found yet. What is your take on this disclosure? Is it mostly for political gain by either or both sides? ASSESSMENT: Both sides have their own diplomatic-political reasons for extending this agreement. China wants to demonstrate to other Southeast Asian claimants that disputes can be settled bilaterally and that joint development is possible. Vietnam is at pains to cooperate with and show superficial deference to Beijing in exchange for repeated assurances that China will not use force or coercion to settle their territorial disputes. Vietnam is also motivated to present itself as a cooperative player to fellow members of ASEAN. If Sino-Vietnamese relations are developing positively Vietnam undermines the argument that it, along with the Philippines, is a ‘trouble maker’ on South China Sea disputes. Q2. Also, while this would be conjecture, what do you think would happen if oil/gas is found in the Gulf? Albeit, the agreement states: "In case of oil and gas commercial discoveries in the Agreed Area, the Parties will jointly consider and discuss to proceed

2 to joint development phase in line with international oil and gas practices and legislation of each State, and on basis of respecting the sovereignty, sovereign rights of each country in the Gulf of Tonkin and ensuring the interests of both Parties." Seems to me that the two sides have been at odds for so long over the Paracel Islands and surrounding area with Indian interests now intersecting, that it is unlikely Beijing and Hanoi could agree on anything of substance, especially dividing oil/gas resources. ASSESSMENT: China and Vietnam have since the normalization of relations in 1991 successfully compartmentalized their various territorial disputes. They agreed on a delimitation of their land border. They then agreed on a delimitation of the Gulf of Tonkin including a joint fishery area. They have adopted Fundamental Principles for the Settlement of Maritime Disputes. A government to government working level group is now discussing the waters forming the mouth of the Tonkin Gulf. The Paracels have been quarantined from other disputes. If commercially viable reserves of oil or gas were discovered in the Gulf of Tonkin I would expect both China and Vietnam to proceed with joint development. This year the Vietnam Communist Party reviewed a ten-year Central Committee resolution on struggle and cooperation with the major powers. When it was drawn up it was noted that elements of friction existed in relations with friendly socialists states (China) with whom Vietnam traditionally cooperated. It was also noted that elements of cooperation existed in relations with adversaries (the United States) with whom Vietnam had ideological and political differences. In 2013 the Central Committee weighed up the pros and cons of this decade-long policy of cooperation and struggle to strike a contemporary balance in relations with China and the United States. The reissued resolution provides sanction for cooperation with China in areas that are in Vietnam’s national interest, and struggle (standing up) for Vietnam’s national interests when they are challenged or threated by China. In sum, Vietnam will cooperate with China in the Gulf of Tonkin even to the extent of joint development while protesting every Chinese action that impinges of Vietnamese fishermen operating in waters off the Paracel Islands.

Suggested citation: Carlyle A. Thayer, “China and Vietnam Extend Joint Development in the Gulf of Tonkin (3),” Thayer Consultancy Background Brief, July 7, 2013. All background briefs are posted on Scribd.com (search for Thayer). Thayer Consultancy provides political analysis of current regional security issues to selected clients. It was officially registered as a small business in Australia in 2002.

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