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Thayer Consultancy Background Briefing:

ABN # 65 648 097 123

South China Sea: Arbitral
Tribunal Award - 2
Carlyle A. Thayer
July 11, 2017

[client name deleted]

We seek your input in a report we are preparing looking at the first anniversary of the
Permanent Court of Arbitration (PCA) ruling on the South China Sea dispute. We
request your assessment of the following issues:
Q1. One year after the historic PCA ruling, weve seen a lot of changes in the region
both in terms of geopolitical senses and public perceptions towards the maritime
dispute and tensions between China and its Southeast Asian neighbours. While we are
certainly not seeing any imminent solution to the longstanding dispute, it seems few
people, if any, still talk about the ruling, which has set an important precedent for
settlement of the dispute legally. Whats your overall assessment of the significance
of the ruling one year on? Are you surprised that the ruling and the controversy
surrounding it seem to have so quickly faded into oblivion, especially among
government officials in China and Southeast Asian countries and mass media? Whats
happened that changed things dramatically? Why?
ANSWER: Two descriptions of the Arbitral Tribunals Award in July 2016 come to mind
on its first anniversary: legal limbo and dead in the water. The ruling was significant
for three reasons. First, it advanced legal understanding of the difference between a
rock and an island that was left ambiguous in the United Nations Convention on the
Law of the Sea (UNCLOS). Second, it dismissed Chinas nine-dotted line claim over the
South China Sea as contrary to UNCLOS and without legal affect. Third, the ruling
clearly established that UNCLOS superseded any claim to historical rights or
sovereign rights beyond the legal limits permitted by UNCLOS. The ruling is now part
of international case law and maritime disputes that arise anywhere in the world will
have to take the Arbitral Tribunals unanimous Award into account.
Chinas vociferous denunciation of the compulsory dispute mechanism in UNCLOS, its
attack on the probity of the legal process and the actions of the judges, and its refusal
to comply have weakened UNCLOS and international law and thereby undermined a
rules based international order. Because UNCLOS contains no provisions for
enforcement might makes right. For example, the Arbitral Tribunal ruled that
Mischief and Sub Reefs, on which China has constructed three kilometer long runways,
are not subject to appropriation because they are low tide elevations and form part
of the Philippines continental shelf. In other words China has illegally seized these

features and violated Philippine sovereignty. This is a bad precedent for the future. As
long as the parties to the Award do not comply, and other nations refrain from
protesting, that gives rise to the supposition that the international community has
Initially, the U.S., Japan and Australia, meeting in a trilateral forum, made a strong
statement urging compliance with the Award. The Philippines and Vietnam were the
only two members of ASEAN to specifically mention the Arbitral Tribunal in their initial
reactions to its ruling. All other ASEAN states either made general statements or used
ASEANs longstanding circumlocution of legal and diplomatic processes.
China went ballistic in its attack on the Award. When things quietened down it was
taken as a sign that China was being given time to digest the ruling as a face saving
measure. No one could have predicted that newly elected President of the Philippines,
Rodrigo Duterte, would set aside the Award in his pivot to China. Since the Award was
legally binding on only China and the Philippines, no other state had a direct interest
in getting involved. Once relations between Beijing and Manila developed this
contributed to lowering tensions in the South China Sea. This was viewed as a more
positive development for regional security than enforcing the Award. In addition, all
regional states knew that if they pressed China on the Award they would incur
Beijings political wrath or worse.
Q2. Have you seen any behavioral/tactical changes on the part of China, its Southeast
Asian neighbours and other major parties over the past year? China apparently has
stepped up its efforts to make better use of its economic and trade leverages, such as
the Belt and Road initiative, in dealing with ASEAN nations and beyond, which appears
to have worked well to coerce smaller nations to embrace Beijings agenda. But public
resentment in the region towards China remains a different story. What lessons do
you think China has learned from the debacle over the ruling and what lessons they
have yet to learn? Will the ruling still have implications on the relations between
Beijing and its neighbours and on the unity of ASEAN nations?
ANSWER: After the Award, China has continued to consolidate and militarize its
presence on its seven artificial islands. And China has continued to challenge ships and
aircraft that transit its so-called military alert zone. In addition, China executed a
remarkable turnaround in its diplomacy with ASEAN. After the debacle at the ASEAN-
China Special Meeting of Foreign Ministers in June last year, China announced that it
would reach a draft Framework Code of Conduct with ASEAN by mid-2017. This has
been accomplished. China is now committed to meeting with ASEAN members to
begin work on the content and timeline of a Code of Conduct in the South China Sea.
This is the only game in town and ASEAN is pursuing this course as a matter of priority.
As a result of these discussions China has put the United States on notice that it is an
outsider and should not interfere in this process.
The removal of South China Sea maritime disputes as a major irritant in Chinas
relations with Southeast Asias claimant states, has opened the door for China to play
from its economic strength and push the One Belt One Road initiative (OBOR). The
OBOR is so ambiguous and grandiose that virtually any project that China proposes
can be put under its umbrella. China has for many years been the major trade partner

of Southeast Asian states and regional leaders are anxious not to disrupt the benefits
that flow from this relationship.
China was unprepared for the unanimous and sweeping nature of the Arbitral Tribunal
Award. It has undergone a period of introspection to learn how it could have got the
Award so wrong. There are straws in the wind that China is slowly bringing its
declaratory statements into broad alignment with international law without at the
same time abandoning its claims based on historic rights and the nine-dotted line.
In addition, China has drawn the lesson that assertiveness and use of coercion at sea
works against regional states and that none of the major powers such as Japan and
the United States has sufficient interests at stake to push back against China. The
lesson learned is how to modify Chinas aggressive use of lawfare to support its
geopolitical objectives. The lesson not learned is how to allay elite anxieties in
Southeast Asian concerning Chinas ultimate ambitions and popular resentment in the
region towards business practices by Chinese companies (hiring Chinese workers,
environmental destruction and bribery).
Q3. With Donald Trumps isolationist and skepticism towards Americas alliance
system pressing fast-forward on the decline of the US as a global leader, Beijing
appears to be eager to fill the void by projecting its political, economic and military
power in Asia Pacific and beyond in a more forceful manner. Some analysts even
argued that the US and its allies as well as ASEAN should accept the reality that Beijing
calls the shots in the South China Sea. Do you agree?
ANSWER: The Trump Administration is still on training wheels and is fixated on
resolving the North Korea nuclear issue. President Trump has generated heightened
strategic uncertainly across the Indo-Pacific Region about the willingness of the United
States to remain engaged. Trumps America First trade policies, protectionism and
anti-globalization, have removed a key prop in Obamas balance to the Asia strategy.
But Donald Trump cannot change U.S. material interests in the region. The U.S. is the
top foreign investor and ASEAN ranks fourth as a U.S. trading partner. The U.S.
Congress mandates that a new Administration must produce a National Security
Strategy (NSS) within 120 days of coming into office. The deadline has not been met
but the National Security Council is working on the NSS document. This will be a
product of inter-agency co-ordination. Once President Trump signs off on the NSS a
Maritime Strategy will be drawn up.
We can already see signs of a U.S. push back against China with U.S. arms sales to
Taiwan and the resumption of freedom of navigation operational patrols and
overflights by U.S. strategic bombers. China may be able to call some of the shots but
it cannot confront the U.S. Navy at the present moment. The Trump Administration
may recoup some of the initiative. It has already received the Prime Minster of
Vietnam and reaffirmed support for maritime security. Trump has invited the leaders
of Singapore, Thailand and the Philippines to The White House. And Trump has
indicated he will visit Manila to attend the ASEAN Summit and related meetings as
well as Vietnam for the APEC Summit at the end of this year.
It goes without saying that most Southeast Asian states do not want to choose sides.
And all Southeast Asian states do not want to see a marked deterioration in relations

between Washington and Beijing leading to a disruption of international trade or

confrontation at sea.
Finally, a distinction should be made between positive and negative power. China can
exercise negative power and sink or disrupt initiatives with which it disagrees. But
China has great difficulty employing positive power showing initiative that others
will follow. The key players in Southeast Asia will continue to modernize their military
forces, hedge in their relations with Beijing and encourage the United States to remain
engaged both economically and militarily.

Suggested citation: Carlyle A. Thayer, South China Sea: Arbitral Tribunal Award - 2,
Thayer Consultancy Background Brief, July 11, 2017. All background briefs are posted
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Thayer Consultancy provides political analysis of current regional security issues and
other research support to selected clients. Thayer Consultancy was officially
registered as a small business in Australia in 2002.