Bui Sang Minh [1]
In the face of the urgent demand for energy for the development of the country, ever since the 1980s, the Philippines has been searching for opportunities to utilize oil and gas resources within its economic exclusive zone, including joint energy development with China in disputed areas in the South China Sea, especially the Reed Bank [2].
Under the former administration of President Rodrigo Duterte, the Philippines adopted an appeasement and soft-balancing policy toward China. In 2018, the two countries signed the Memorandum of Understanding on Cooperation on Oil and Gas Development, beginning a new period of negotiations for specific joint development projects. However, in June 2022, the Philippines announced that it had terminated talks with China about joint exploration in the South China Sea. The then-Secretary of Foreign Affairs of the Philippines, Teodoro Locsin Jr., explained that this was to prevent a “constitutional crisis” from happening. In other words, the Philippines ended the discussions with China regarding the joint oil and gas exploration in the South China Sea because it realized that the negotiations carried the risk of being unconstitutional [3]. So, what are the specific factors concerning Philippine domestic law and politics holding back the talks for a joint exploration agreement in the South China Sea?
Legal Barriers
Even though the Philippines and China have made several attempts, there remain a lot of differences between the two countries’ views of joint energy exploration in the South China Sea.
The Philippines has placed great importance on exploiting oil and gas resources in the South China Sea ever since it first discovered the Sampaguita gas field in the Reed Bank in March 1976 [4]. Despite that, until now, the Philippines still has to depend on imported fuel. The Malampaya gas field, which is located northwest of the island of Palawan, provides about 40% of the energy requirements of Luzon, which is home to the country's capital city, Manila. However, it is predicted to become depleted by 2024 [5]. Because the Philippines lacks the ability and technology to exploit oil and gas resources on its own, it has to seek cooperation opportunities with other countries. The prerequisite is that these agreements on joint exploration and exploitation have to be compatible with the Constitution of the Philippines [6].
Meanwhile, for a long time, China has been pursuing a joint oil and gas exploration agreement with the Philippines within the nine-dash line. During the visit to China of Philippine President Corazon Aquino in April 1988, for the first time, China mentioned the possibility of a joint exploration agreement with the offer to “set aside dispute and pursue joint development” [7]. China views this offer as a measure to assert sovereignty in the negotiated area [8]. Most of the areas in which China has brought up such offer are well within other countries’ economic exclusive zones and continental shelves.
Nevertheless, this offer from China is not in accordance with the provisions of international law concerning joint development. According to Article 74 of the UNCLOS, joint development agreements in areas of overlapping maritime claims are merely a “provisional” arrangement pending the final delimitation of the disputed areas between the related parties. In addition, Article 83(3) of the UNCLOS also said that a treaty on joint development can only be arranged if an area of overlapping maritime claims exists between two countries.
Moreover, the negotiation process between the Philippines and China during the period of 2018-2020 revealed a few challenges that the Philippines finds difficult to overcome.
Firstly, the 2018 Memorandum has provisions that are inconsistent with the South China Sea Arbitration Award. The Memorandum did not reference the Award, although this is a crucial legal basis for the settlement of maritime disputes between the Philippines and China. According to Jay Batongbacal, an expert from the University of the Philippines (UP) Institute of Maritime Affairs and Law of the Sea, if the Arbitration Award is dismissed, the Philippines will lose an advantage that can be used to assert its exclusive right to exploit oil and gas in the country’s water [9].
Paragraph 697 of the Arbitration Award declared that the Reed Bank falls within the continental shelf of the Philippines; therefore, the country possesses sovereign rights in this area. In Paragraph 270, the Arbitration overruled the legal legitimacy of China’s claims, including the nine-dash line claim and the historic right to living and non-living resources in the South China Sea [10]. This means that according to the Award, there are no overlapping sovereignty claims between the Philippines and China in this area.
The joint oil and gas exploration between the Philippines and China could have been possible before the Award was released because back then, the Reed Bank was still perhaps an area where the Philippines’ claim overlapped with China’s. But due to the Arbitral Award, which determines that the area belongs to the Philippines’ continental shelf, the possibility for joint exploitation between the two countries in this area has perished. For that reason, if the negotiations for joint development succeed, China will turn the water and continental shelf within the Reed Bank back into a disputed area, and China will have even more reasons to enforce its claim here and overturn the Award.
Secondly, the Constitution of the Republic of the Philippines is extremely strict about its sovereign rights over oil and gas resources within its EEZ and continental shelf. According to Article XII (2) of the 1987 Constitution of the Republic of the Philippines, all lands of the public domain, waters, minerals, coal, petroleum, and other natural resources are owned by the State. At the same time, the exploration, development, and utilization of these natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least 60% of whose capital is owned by such citizens. Foreign-owned corporations can provide technical or financial assistance to explore, develop and utilize these energy resources [11].
Nonetheless, during the negotiations, China wanted to split the profits equally. It will be unconstitutional for the Philippines to accept this offer. The country can also lose control over the oil and gas resources within the area that is said to be disputed with China in the South China Sea.
Thirdly, provisions regarding confidentiality of the Memorandum contradict the Philippines’ oil and gas policy. Article V of the Memorandum requires that all information and documents concerning joint development projects will be kept confidential by the two governments. However, the current Filipino oil and gas policy allows information to be released publicly after five to seven years. As explained by Jay Batongbacal, such a wide range of confidentiality may prevent third parties, scholars and experts from supervising joint development activities to protect the Philippines’ interests.
The Memorandum also emphasizes that all disputes regarding joint development activities will be settled by the joint committee or by working groups of both nations. This is also the bilateral procedure to settle disputes that China always yearns for when it comes to disputes in the South China Sea, in order to eliminate any third-party’s participation and to apply pressure on the opponent with ease [12].
The Philippines’ internal factors
Within the Philippines, concerns regarding joint development with China still exist.
Firstly, when the Memorandum was signed, many Filipino officials rigorously warned about the unforeseen consequences that the Philippines might encounter and could potentially pose a threat to the Philippines’ security. According to Rolio Golez, former National Security Advisor of the Philippines, China could take advantage of the cooperation to deploy maritime forces close to the Philippines. Even though comparison is relative, the detrimental effect of such action on Philippine security may be greater than that of unclear economic benefits in the future [13].
Moreover, the Philippines also faces the possibility of China manipulating survey data. It has Former Philippine Senator Antonio Trillanes once mentioned this possibility. China can modify statistics regarding the economic benefits of joint development activities, allowing the Philippines receive less profit than what have been agreed on [14].
Secondly, Filipinos are suspicious of the cooperation with China. Public opinion polls conducted in recent years show that Filipinos' faith in China has fallen. According to the survey conducted by Pulse Asia in July 2018, a few months before the signing of the Memorandum, only 17% of Filipino had a positive view on China, while 70% of those surveyed wanted President Duterte’s administration to strengthen the Philippines’ stance in the South China Sea by the 2016 Award [15]. There had been no significant improvement in Filipinos' trust in China until the negotiation stopped. Pulse Asia’s survey in June 2022 showed that 36% of Filipinos chose “not to invest much trust” in China and 31% chose “not to trust China at all” [16].
The constant repetition of harassment of fishermen, supply ships and the Philippine Coast Guard’s vessels has subjected China to harsh criticisms of the Filipino people [17]. Meanwhile, the execution of China’s $24 billion commitment to build infrastructures has been advancing slowly, and has not displayed the intended effectiveness [18]. Therefore, there is little chance that Filipinos will have faith in cooperating with China to exploit resources in their water.
Thirdly, during the final years of his term, it seems that President Duterte himself ha adopted a tougher line on the South China Sea. He brought up the Arbitration Award at the United Nations, while proactively and directly protesting China’s actions in Philippine waters at both bilateral and multilateral levels [19]. At the ASEAN-China Summit in November 2021, President Duterte condemned China for blocking ships intended to supply food to the Philippines’ garrison on the Second Thomas Shoal [20].
President Duterte’s tougher stance on China, combined with the termination of the negotiation of joint oil and gas exploration with China in the South China Sea, is to create an advantage in the general election for his preferred candidates at that time, especially Senator Ferdinand Marcos Jr. and his daughter Sara Duterte. These actions also expressed the uncompromising attitude of the Duterte administration, as well as marking a heritage for the next Philippine government regarding the protection of the Philippines’ national interests in the South China Sea and the refusal to engage in cooperation agreements that violate international and domestic law.
The prospect of joint development with China during Ferdinand Marcos Jr.’s presidency
At the moment, the Philippines is lagging behind its Southeast Asian neighbors in terms of independence and self-sufficiency of energy, because this country depends heavily on the import of oil and gas, while demand for energy continues to rise. Balancing the urgent need for energy and national sovereignty has become one of the top priorities of the Marcos administration.
There have been several signals from China and the Philippines indicating their wills to return to the negotiating table. Chinese Foreign Minister Wang Yi and Chinese Communist Party’s International Liaison Department’s head Liu Jianchao visited the Philippines in July and August of 2022, respectively, but did not bring back any meaningful results [21].
With all the unsettled legal barriers, there is little chance that the two countries might jointly extract oil and gas in the South China Sea in the near future. As a populist president and a person who has strongly stated that he would protect every “single square millimeter” of maritime territory [22], President Marcos will not easily sign any agreement that contradicts the Constitution of the Philippines and the desire of the Filipino people.
However, with the fact that China is still open to the possibility of restarting negotiations, the Philippines could completely be proactive in devising a type of joint energy development that is legally appropriate and economically viable. If the administration of President Marcos manages to convince China to allow a Chinese company to invest in the area covered by Service Contract (SC) 72 in the Reed Bank under the supervision of the Philippines, with a 60-40% sharing agreement in favor of the Philippines, this agreement will become compatible with the Philippines’ national laws and the Arbitration Award [23].
Above all, the Philippines might as well remain committed to its stance, try not to fall for the the “setting disputes aside and pursuing joint development” concept and refrain from prioritizing economic benefits over maintaining its sovereignty in the process. 
List of references:
[1] Undergraduate student at the Faculty of International Law, Diplomatic Academy of Vietnam; Intern at the South China Sea Institute.
[2] Aaron Jed Rabena, "Philippines–China Joint Development Agreement in the South China Sea under Duterte", extracted from the book “Cooperative Development in the South China Sea", Huaigao Qi & Song Xue, 2020 https://library.oapen.org/handle/20.500.12657/41632 
[3] "Philippines abandons joint energy exploration talks with China", Rappler, accessed on September 24th, 2022. https://www.rappler.com/nation/philippines-says-offshore-joint-energy-exploration-talks-with-china-terminated/ 
[4] Benito Lim, “Tempest over the South China Sea: the Chinese perspective on the Spratlys”, Asian Studies: Journal of Critical Perspectives on Asia, vol. 36, no. 2, pp. 69-132, accessed on October 15th, 2022 http://www.asj.upd.edu.ph/mediabox/archive/ASJ-36-2-2000/lim.pdf 
[5] Majah-Leah V. Ravago, "Running out of gas in the Philippines: A boon or bane?", Asia Pacific Bulletin, accessed on September 24th, 2022 https://www.eastwestcenter.org/publications/running-out-gas-in-the-philippines-boon-or-bane 
[6] Aaron Rabena, "The challenges facing Philippines - China joint development in the South China Sea", Asia Maritime Transparency Initiative, accessed on October 15th ,2022 https://amti.csis.org/the-challenges-facing-philippines-china-joint-development-in-the-south-china-sea/ 
[7] Ministry of Foreign Affairs of the People’s Republic of China, "China Adheres to the Position of Settling Through Negotiation the Relevant Disputes Between China and the Philippines in the South China Sea", accessed on October 15th, 2022. https://www.fmprc.gov.cn/mfa_eng/wjdt_665385/2649_665393/201607/t20160713_679474.html 
[8] Ministry of Foreign Affairs of the People’s Republic of China, “Set aside dispute and pursue joint development", accessed on September 24th, 2022. https://www.fmprc.gov.cn/mfa_eng/ziliao_665539/3602_665543/3604_665547/200011/t20001117_697808.html 
[9] Jay Batongbacal, "The Philippines-China MOU on Cooperation in oil and gas development", Asia Maritime Transparency Initiative, accessed on September 24th , 2022.https://amti.csis.org/philippines-china-mou-cooperation-oil-gas-development/ 
[10] PCA Case No. 2013-19: The South China Sea Arbitration (The Republic of the Philippines v. The People’s Republic of China), Award on the Merits in the matter of the South China Sea Arbitration before an Arbitral Tribunal constituted under Annex VII of the UNCLOS between the Philippines and China, accessed on September 24th, 2022. https://docs.pca-cpa.org/2016/07/PH-CN-20160712-Award.pdf 
[11] Section 2, Article XII, 1987 Constitution of the Republic of the Philippines, accessed on September 24th, 2022. https://www.officialgazette.gov.ph/constitutions/the-1987-constitution-of-the-republic-of-the-philippines/the-1987-constitution-of-the-republic-of-the-philippines-article-xii/
[12] Jay Batongbacal, "A closer look China's proposal Joint exploration with Philippines", Asia Maritime Transparency Initiative, accessed on September 24th, 2022 https://amti.csis.org/closer-look-chinas-proposal-joint-exploration-with-philippines/ 
[13] Van Khoa, “Consequences of joint development with China in the South China Sea”, The Youth Newspaper, accessed on September 24th, 2022 https://thanhnien.vn/he-luy-tu-khai-thac-chung-voi-trung-quoc-o-bien-dong-post879922.html
[14] Xuan Mai, “Joint project with China: A warning for the Philippines”, The Laborer Newspaper, accessed on September 24th , 2022 https://nld.com.vn/thoi-su-quoc-te/loi-canh-bao-cho-philippines-20180810214650329.htm 
[15] Viray, Patricia Lourdes. 2018. “Pulse Asia: 7 in 10 Filipinos Want Duterte to Assert Rights in West Philippine Sea.” The Philippine Star, accessed on September 24th , 2022 https://www.philstar.com/headlines/2018/07/12/1832894/pulse-asia-7-10-filipinos-want-duterte-assert-rights-west-philippine-sea   
[16] Neil Arwin Mercado, "Filipinos believe PH should trust US the most; China, Russia the least — survey", Inquirer, accessed on September 24th ,2022  https://globalnation.inquirer.net/205616/filipinos-believe-ph-should-trust-us-the-most-china-russia-the-least-survey 
[17] Hoang Thi Ha, "Southeast Asians’ Declining Trust in China”, ISEAS Perspective,  accessed on September 24th ,2022   https://www.iseas.edu.sg/articles-commentaries/iseas-perspective/iseas-perspective-2021-15-southeast-asians-declining-trust-in-china-by-hoang-thi-ha/ 
[18] Andreo Calonzo, "China Yet to Deliver Promised Billions Despite Duterte’s Pivot", Bloomberg, accessed on September 24th ,2022    https://www.bloomberg.com/news/articles/2021-07-04/duterte-s-pivot-to-china-yet-to-deliver-promised-billions-in-infrastructure  
[19] "Statement of President Rodrigo Duterte during the High-level General debate of the 76th session of the United Nations General Assembly", Ministry of Foreign Affairs of the Philippines, accessed on September 24th, 2022 https://ops.gov.ph/wp-content/uploads/2021/09/1632277138258067.pdf 
[20] Hoai Thanh, “Filipino President officially comments on the water cannon incident in Second Thomas Shoal, The News, accessed on September 24th, 2022 https://baotintuc.vn/the-gioi/tong-thong-philippines-chinh-thuc-len-tieng-ve-vu-phun-voi-rong-tai-bai-co-may-20211122172216250.htm 
[21] Alyssa Nicole O. Tan, "DFA: No progress yet in oil talks between Philippines and China", Business World, accessed on September 24th, 2022 https://www.bworldonline.com/the-nation/2022/09/05/472669/dfa-no-progress-yet-in-oil-talks-between-philippines-and-china/ 
[22] Katrina Domingo, "Marcos wants 'bilateral cooperation with China' while 'asserting' claim in West PH Sea", ABS-CBN News, accessed on October 15th, 2022 https://news.abs-cbn.com/news/05/26/22/marcos-rejects-trampling-of-coastal-rights-in-west-ph-sea 
[23] “Failing or incomplete? Grading the South China Sea arbitration”, Asia Maritime Transparency Initiative, accessed on September 24th, 2022 https://amti.csis.org/failing-or-incomplete-grading-the-south-china-sea-arbitration/?lang=vi