(John Kemp is a Reuters market analyst. The views expressed are
By John Kemp
LONDON Aug 27 Shared development of oil, gas
and possibly other natural resources is the most promising
option for reducing tensions in the South China Sea and should
be the focus of efforts to improve diplomatic relations between
China and its coastal neighbours.
Joint development agreements (JDAs) are already common
across Asia. Most of the countries with a disputed claim in the
South China Sea have signed at least one joint agreement to
explore for oil and gas, either in the South China Sea or in
neighbouring areas like the Gulf of Thailand and the East China
Sea, so there are plenty of precedents to draw on.
The basic principle is that countries agree on a legal
framework for exploration and production, including sharing
fiscal revenues, while shelving their disputes over who actually
owns the islands, rocks, shoals and reefs in the area and the
seabed mineral rights that come with sovereign ownership.
Joint development agreements would be "without prejudice" to
sovereign claims and could allow for the peaceful exploration
and development of the area while allowing all the countries
involved to maintain their political claims and save face.
The 1982 United Nations Convention on the Law of the Sea
(UNCLOS), which all the coastal states have ratified, actively
encourages countries to manage disputes by entering into
"provisional arrangements of a practical nature" in a "spirit of
cooperation and understanding" which are "without prejudice to
the final delimitation" of maritime boundaries (Articles 74 and
The aim is to allow economic development to proceed and
avoid disputed areas falling into indefinite limbo while
improving relations among states.
GETTING TO AGREEMENT
There are already joint agreements covering some disputed
areas in Asia-Pacific between Malaysia and Thailand (1979);
Cambodia and Vietnam (1982); Malaysia and Vietnam (1992);
Cambodia and Thailand (2001); Malaysia and Brunei (2009); China
and Vietnam (2000); Japan and South Korea (1974); Japan and
China (2008); Australia and Indonesia (1989); and Australia and
East Timor (2002).
Joint development could bring much-needed revenues as well
as hydrocarbons to the rapidly developing economies bordering
the South China Sea. Without an agreement, it is unlikely most
oil companies other than national champions will risk committing
substantial capital to seismic surveys and drilling in disputed
Joint development agreements also have the potential to
promote better relations and reduce the potential for conflict
by giving all the countries concerned a stake in peaceful
development. But most JDAs have been concluded when relations
between the disputants were already improving.
The question of how to improve relations within the South
China Sea enough to make one or more JDAs a realistic
possibility was explored in detail at a conference hosted by the
National University of Singapore's Centre for International Law
in 2011 ("Conference on Joint Development and the South China
Sea" June 2011).
Delegates from a range of governments, international
organisations, non-governmental organisations and oil and gas
companies acknowledged: "Sovereignty disputes are unlikely to be
resolved in the immediate or near-term future (either by
negotiation or reference to an international court or tribunal)
given the national sensitivities associated with the dispute and
the potential access to resources which might come with
Setting aside sovereignty disputes and focusing on joint
development of natural resources was "the most realistic interim
Joint development could reduce the risk of a worsening
diplomatic or even military confrontation among the coastal
"While all the (claimant countries) have publicly expressed
their desire to resolve the dispute peacefully and it is
unlikely (though not impossible) that military conflict will
occur because of these disputes, there is no doubt that (they)
are a major irritant in relations which spills over into other
aspects of bilateral and multilateral relations."
China, Malaysia, Vietnam and Brunei have already been able
"to put aside contentious and seemingly intractable maritime
disputes in other areas in Asia" and it should be possible to
apply "the same reasoning and spirit of cooperation to resolve
their claims in the South China Sea."
NINE PRACTICAL STEPS
Joint development has the potential to be both the most
important benefit and the most important contributor to better
international relations. The issue is how to get to a deal.
The conference outlined nine practical steps that need to be
taken to move the idea of joint development closer to reality.
Among the most important was to encourage the various
parties to the disputes (China, Vietnam, Malaysia, Brunei,
Philippines and Taiwan) to clarify the exact extent of their
claims. At the moment, it is not clear exactly what some
countries, especially China, are claiming in the area, which
makes the dispute harder to manage.
Crystallising the claims is an essential step so that areas
in dispute can be identified and become the subject of
negotiations and allowing development in undisputed areas to
The conference also urged more surveying of the actual
physical features of the disputed islands, rocks and shoals,
perhaps by independent parties, with the consent of all the
states concerned, and without prejudice to eventual claims.
At the moment, the number of outcrops, and how many are
above the waterline at high and low tide, which affects their
legal status, has still not been defined properly.
The conferees also advocated joint seismic surveying for
potential hydrocarbons. Knowledge about oil and gas wealth below
the seabed is obviously a "double-edged sword." But past
experience suggests that the potential to exploit oil and gas
deposits has been an important factor in spurring previous joint
development agreements rather than making them harder.
Several previous agreements, including those between
Malaysia and Vietnam, as well as Australia and Indonesia, were
spurred by knowledge that hydrocarbons had been found in
Even if the oil and gas resources near the Spratly, Paracel
and other island groups in the South China Sea prove to be
modest, joint seismic work could help define potential areas for
joint development agreements.
There is a precedent for agreeing to joint work, including
the 2005 Joint Seismic Marine Undertaking between China, Vietnam
and the Philippines, even if that agreement was subsequently
derailed by Philippine politics and cannot be revived in
precisely its current form.
Crucially, the coastal states must become much better at
managing their domestic politics and controlling nationalist
rhetoric by avoiding stoking tensions and staking out public
positions from which it is difficult to back down.
Governments have a vital role in helping to educate public
opinion about the benefits of joint development while explaining
that it does not involve surrendering on the issue of
Oil and gas companies can play a vital role. Since they will
ultimately be carrying out any exploration and production work,
they can influence and educate governments on the legal,
political and fiscal requirements for a successful joint
development agreement, and how it could benefit all the
countries to the dispute. Oil companies can also open crucial
channels for communication.
But the biggest challenge is how to improve political and
diplomatic relations enough for negotiations or even
pre-negotiations on a JDA to begin.
Confidence-building measures are essential. Implementing the
2002 ASEAN-China Declaration on the Conduct of Parties in the
South China Sea would be a good start. The aim is to use the
Declaration as a stepping stone towards a JDA, not an end in
Other confidence building measures might include cooperation
on search and rescue, marine navigation as well as combating
piracy and controlling marine pollution.
Countries outside the region, including the United States,
also have a vital role to play in encouraging states around the
South China Sea to focus on seeking cooperative solutions rather
than relying on legal arbitration or the threat of military
Establishing one or more joint development agreements in the
South China Sea will not be easy, given decades of mistrust and
occasional military conflict in the area, but it is the best way
to manage one of the most volatile flashpoints in the world.
(Editing by Michael Urquhart)