The past year has been incredibly tumultuous, having reset the international stage and delivering incredibly unexpected political outcomes. From an international legal perspective, while events such as Brexit, Donald Trump’s election, and the crisis in Syria have undoubtedly raised important legal questions and will likely change international law in the future, there have been numerous other significant developments.
On 7 July 2016, during a visit to Beijing, United Nations (“UN”) the then Secretary-General Ban Ki-moon met with Chinese President Xi Jinping and Foreign Minister Wang Yi. The timing was unfortunate, owing to the imminent ruling of the United Nations Convention on the Law of the Sea (“UNCLOS”) Arbitral Tribunal on the South China Sea, handed down less than a week later.
Recently, the Australia-China Youth Association (ACYA) hosted Australia-China Emerging Leaders’ Summits (ACELS) in Shanghai and Sydney respectively, which brought together many prominent youth delegates from the two nations. Legal practice in the Asia-Pacific region was a strong focus. Amongst the delegates and networking participants, there were a number of legal practitioners and law students from both Australia and the People’s Republic of China. Additionally, interesting conclusions were reached regarding the prevalence of legal issues for cross-border commercial activities between the nations.
Foremost, government and business leaders from the two countries attended ACELS. The consistent message coming across was one that all lawyers will be familiar with — the complexity of navigating regulatory regimes between Australia and China. Despite an overall decrease in regulation (a result of the China-Australia Free Trade Agreement and similar initiatives), the primary challenges facing businesses that aim to have bilateral operations still appear to be legal requirements of compliance with regulatory systems and effective communication with relevant regulators. Without knowledge of the precise regulatory limitations for a business’ operations in a jurisdiction, it is difficult for companies to achieve commercial certainty. It is imperative to understand the existing law and its practical application. Attendees highlighted that an absence of this knowledge acts as a ‘legal handbrake’ on prospective commercial operations.
An Australian company, whose operations in China are about 1/50 the size of their presence in Australia, provided the following example. Despite this overwhelming difference in size, it must complete double the number of reports in China as in Australia for regulatory compliance,. Evidently, the complexity of regulatory requirements places substantial burdens on the company, whose operations in China are not large. For the majority of foreign companies operating in China, this appears to be a shared experience — the inability to obtain commercial certainty can hamper their investment options.
Importantly however, Chinese companies looking to invest in Australia have faced similar difficulties. Many large-scale proposed investments appear before the Foreign Investment Review Board, or are so politically-charged that the project’s future becomes uncertain, such as Shanghai Pengxin’s involvement in a bid for the Kidman pastoral empire (see for example this ABC article). Similarly, the recent approval of the bid by Chinese company Landbridge to operate the Port of Darwin has been highly controversial and subject to intense public scrutiny (see for example this ABC article).
These shared experiences at ACELS helped delegates to realise the high demand for cross-border commercial legal practice. Many commercial law firms specialise in advising foreign clients on the local regulatory environment, which presents an opportunity to the next generation of emerging commercial lawyers. They will need to be equipped with fluid skillsets, that enable them to not only advise clients on their home jurisdiction, but to collaborate with colleagues overseas in order to provide seamless advice that gives clients a holistic appraisal of regulatory conditions in each jurisdiction and the interplay between them. Following a string of newly signed free trade agreements between Australia and our major Asian trading partners in China, South Korea and Japan, much larger numbers of companies and investors will be exposed to the legal and regulatory difficulties associated with cross-border business. Naturally, this will lead to an increase in the demand for legal expertise in dealing with these issues.
David Douglas, President of the Australia-China Youth Association and graduate lawyer at a leading international law firm.
On 29 October 2015, an Arbitral Tribunal (Tribunal) issued its award on the questions of jurisdiction and admissibility in the arbitration between the Republic of Philippines and the People’s Republic of China concerning the South China Sea. In brief, the Tribunal found that it had jurisdiction to decide seven of the Philippines’ 15 substantive claims. As to the Philippines’ remaining claims, the Tribunal decided that the question of its jurisdiction needed to be deferred for further consideration in conjunction with its hearing of the merits of the claims.
The Philippines’ substantive claims were summarised in my previous article of 22 July 2015. To recap, its 15 claims can be broadly distilled as follows:
- China’s maritime entitlements or ‘historic rights’ over the waters, seabed and subsoil in the South China Sea do not extend beyond the limits of its entitlements under the United Nations Convention on the Law of the Sea (UNCLOS). The corollary is that China’s nine-dash line, insofar as it purports to define the limits of China’s ‘historic rights’ in the South China Sea, is not supported by UNCLOS or another source of international law;
- The various features relied upon by China to assert its maritime claims in the South China Sea are not islands (as China claims) but are properly characterised as either ‘rocks’ or ‘low tide elevations’ or are permanently submerged. China’s construction activities on particular maritime features cannot change their nature in law. This claim is critical to the arbitration because, under UNCLOS, the characterisation of these features determines the maritime entitlements they are capable of generating for a state (namely, an exclusive economic zone (EEZ) and/or continental shelf);
- China’s construction and occupation activities in relation to particular maritime features in the South China Sea constitute attempted appropriation of such features in violation of UNCLOS. Further, these activities, as well as China’s fishing and law enforcement activities, have interfered with the Philippines’ ability to freely navigate in its EEZ and the exercise of its sovereign rights in relation to the resources falling within its EEZ and continental shelf; and
- China has violated UNCLOS by engaging in fishing and construction activities that damage the marine environment in the South China Sea.
In summary, the Tribunal determined that it has jurisdiction over the second and fourth categories of claims (deferring consideration of the remaining first and third categories). In so finding, the Tribunal addressed each of the following issues in relation to the question of jurisdiction.
Did the Philippines’ claims raise a dispute concerning the interpretation and application of UNCLOS?
According to China’s Position Paper, the dispute could be characterised in two ways, both of which excluded the Tribunal’s jurisdiction. First, China characterised the dispute as concerning territorial sovereignty-related questions over features in the South China Sea. On that basis, China contended that the dispute did not concern the ‘interpretation and application of UNCLOS’, being the threshold requirement for the Tribunal’s jurisdiction under article 288 of UNCLOS.
The Tribunal rejected this characterisation, finding that, while a dispute between the parties did exist concerning land sovereignty over certain features, the Philippines’ claims did not require the Tribunal to make determinations on questions of sovereignty. The Tribunal found that each of the Philippines’ claims concerned the interpretation and application of UNCLOS.
Secondly, China contended that the dispute was properly characterised as relating to maritime boundary delimitation which, for the reasons given below, was excluded from the Tribunal’s jurisdiction by an exclusionary provision in the UNCLOS that China had activated in 2006.
In rejecting this contention, the Tribunal distinguished between a dispute concerning the existence of an entitlement to maritime zones (the present matter), and a dispute concerning the delimitation of those zones where parties’ entitlements overlap. The Tribunal also emphasised that, while it would determine the nature of particular maritime features in dispute, insofar as this resulted in overlapping entitlements between the parties the Tribunal’s determination would not go so far as to delimit boundaries.
Did any of the claims fall within the exceptions to jurisdiction in Part XV of UNCLOS?
As noted above, in 2006 China opted out of the Tribunal’s jurisdiction over particular categories of disputes, including those concerning:
- sea boundary delimitations;
- historic bays and titles;
- law enforcement activities; and
- military activities.
This action was taken in accordance with article 298 of UNCLOS, which entitles a party to opt out of compulsory dispute settlement procedures for specific types of disputes when signing or ratifying UNCLOS.
Considering each of the claims in turn, the Tribunal found that none of the exceptions to jurisdiction applied to the Philippines’ second and fourth category of claims. Consequently, it had jurisdiction to determine those claims.
As to the first and third categories, the Tribunal noted that the applicability of the above exceptions depended on merits of the claims and, as such, the possible jurisdictional objections did not possess an exclusively preliminary character. For that reason, the Tribunal reserved a decision on jurisdiction for consideration in conjunction with its determination of the merits of the claims. The Tribunal’s key considerations can be broadly summarised as follows:
- The Tribunal’s jurisdiction over the first category of claims (ie, the effect of any historic rights claimed by China) is dependent on whether the claims are caught by the exclusion for ‘historic bays and titles’ in article 298 of UNCLOS. This requires a determination as to the nature and effect of China’s claimed historic rights and their interaction with UNCLOS (ie, a merits determination);
- The Tribunal’s jurisdiction over the third category of claims (ie, concerning China’s various construction/interference activities) is dependent on the status of certain maritime features claimed by China and whether any such features generate maritime entitlements for China. Insofar as they generate entitlements for China and result in overlapping entitlements to maritime zones between the parties, the exclusion from ‘sea boundary delimitations’ in article 298 would prevent the Tribunal from addressing some of the Philippines’ claims. That is, such claims would first require a delimitation of the overlapping zones, which the Tribunal is not empowered to do; and
- The specifics of China’s activities in particular areas and whether they are military in nature (and therefore fall within the exclusion in article 298) are best assessed in conjunction with the merits.
Were the preconditions to the Tribunal’s jurisdiction met?
Relying on articles 281 and 282 of UNCLOS, China contended that state parties had agreed on a peaceful dispute resolution mechanism of their own choice, precluding recourse to the compulsory dispute settlement procedures under UNCLOS. The articles essentially prevent a state from resorting to the compulsory procedures in the event that they have already agreed on another means of dispute resolution. In this regard, China pointed to a series of joint statements by state parties starting in the mid-1990s that referred to the resolution of their dispute by negotiation, as well as the Treaty of Amity and Cooperation in South East Asia.
Having regard to these statements and instrument, the Tribunal concluded that they did not prevent the Philippines from resorting to arbitration under the compulsory dispute resolution provisions.
The Tribunal also found that the Philippines had satisfied the precondition for resorting to arbitration, namely, that the parties had an ‘exchange of views’ regarding settlement of the dispute (article 283). In so finding, the Tribunal relied upon diplomatic communications by the Philippines to affected parties in which it proposed multilateral negotiations to resolve the dispute. China insisted on bilateral talks only and the parties ultimately failed to identify a mutually agreeable mode of settlement.
The Tribunal also noted that it was not deprived of jurisdiction by either China’s non-participation in the arbitration to date or the absence of other states with claims to features in the South China Sea (such as Vietnam).
The dispute will now proceed to a substantive hearing to enable the Tribunal to determine the merits of the Philippines’ claims alongside the outstanding jurisdictional questions.
However, China has reiterated its position of non-acceptance of (and non-participation in) the arbitration. Its Vice Foreign Minister recently claimed that the outcome of the arbitration ‘will not impact China’s sovereignty, rights or jurisdiction over the South China Sea under historical facts and international law’. Without any power to enforce its rulings, the Tribunal could end up being entirely ignored by China insofar as the outcome is not in its favour. The proceeding could even prompt China to withdraw from UNCLOS altogether.
While the Philippines has acknowledged this risk, it hopes that an outcome unfavourable to China will encourage other states to defend their respective claims in the region and will result in sufficient diplomatic pressure to dissuade China from further construction activities in the South China Sea. In the meantime, the US has presented its most significant challenge yet to China’s claims in the South China Sea, sending a guided missile destroyer into waters within 12 nautical miles of one of the reefs in dispute days before the Tribunal published its award.
Lea Christopher is a lawyer at Clayton Utz in Canberra. The views expressed in this article are solely her own.
The ILA is pleased to announce that Dr Alison Pert will deliver a seminar which will cover the history and extent of the maritime territorial claims of China in this area, the competing claims from other states in the region, the arbitral proceedings brought by the Philippines, and the legal status of the islands being created or expanded through Chinese dredging and land reclamation.
Dr Pert will also briefly review the recent history of Russia’s intervention in Ukraine, focussing on the legal justifications advanced by Russia. In light of the status of Russia and China as permanent members of the UN Security Council, protected from Security Council censure by their veto power, Dr Pert will raise the question of the role of international law, and the UN Charter system of collective security in particular, in this new post-post-Cold War era.
The event will be held at 5.30 pm (for a 5.45 pm start), 20 August 2015 at Marque Lawyers, Level 4, 343 George Street, Sydney.
Please RSVP to Phoebe Saintilan (email@example.com) by 18 of August 2015.
A copy of the event flyer is accessible here.
From 7 to 13 July 2015, the Arbitral Tribunal held the first hearing in the arbitration between the Republic of Philippines and the People’s Republic of China in connection with their dispute in the South China Sea. The arbitration was submitted by the Philippines on 22 January 2013, pursuant to the compulsory dispute settlement provisions under part XV of the United Nations Convention on the Law of the Sea (UNCLOS). A five member ad hoc tribunal was constituted under annex VII of UNCLOS and sat in the Peace Palace, the headquarters of the Permanent Court of Arbitration, in the Hague. While the hearing was not open to the public, the Tribunal permitted the governments of certain states (Indonesia, Vietnam, Japan, Thailand and Malaysia) to send small delegations as observers.
The arbitration concerns disputes between the Philippines and China in relation to their maritime entitlements in the South China Sea. China has continued to reiterate its position of non-acceptance of (and non-participation in) the arbitration, maintaining that it believes in resolving disputes in the South China Sea via bilateral negotiations and that the arbitration violates previous agreements between the two states. The Philippines has sought to challenge this position at the hearing, submitting that they have pursued a course of bilateral and regional diplomatic efforts to resolve its disputes with China for almost two decades without success. The Philippines says that this has left no recourse other than arbitration.
In its Statement of Claim, the Philippines relies on UNCLOS which, it submits, defines and limits the entitlements of coastal states to a territorial sea, exclusive economic zone (EEZ) and continental shelf (and sets out states’ rights and obligations within those areas). In particular, the Philippines relies on provisions that provide that a state’s EEZ cannot extend beyond 200 nautical miles from its mainland coast (or any island over which the state has sovereignty) (article 57), and that its continental shelf extends to the same distance (unless it can be established that the state’s continental margin extends beyond that distance) (article 76).
According to the Philippines, China contravenes these provisions by claiming, on the basis of its nine-dash line, ‘historic rights’ to areas that are beyond its 200M limit, including some areas that fall within 200M of the coasts of the Philippines’ main islands. While China is a signatory to UNCLOS (which enabled the Philippines to commence the compulsory arbitral proceedings), it claims that it does not subscribe to some of its tenets.
However, the purpose of the first hearing was not to decide the Philippines’ substantive claims, but to decide whether the Tribunal has jurisdiction over these claims and whether they are admissible.
The Philippines’ substantive claims
At the hearing, the Philippines outlined the principal substantive claims that it intends to pursue if the Tribunal decides the question of jurisdiction in its favour. They can be summarised as follows:
- China is not entitled to exercise its alleged ‘historic rights’ over the waters, seabed and subsoil beyond the limits of its entitlements under UNCLOS. Its nine-dash line, insofar as it purports to define the limits of China’s ‘historic rights’, is not supported by international law;
- The various maritime features relied upon by China to assert its maritime claims in the South China Sea are not islands (as China claims) but are either ‘rocks’ (within the meaning of article 121, paragraph 3 of UNCLOS), ‘low tide elevations’ or are permanently submerged. While rocks generate an entitlement to a territorial sea of 12M (allowing China to exercise sovereignty over that area), they cannot generate an entitlement to an EEZ or continental shelf beyond that limit (and low tide elevations generate no entitlements). China’s significant construction activities on various maritime features cannot change their nature in law;
- China has breached UNCLOS by interfering with the Philippines’ exercise of its sovereign rights and jurisdiction; and
- China’s fishing practices have damaged the marine environment in the South China Sea, including within the Philippines’ EEZ, in breach of UNCLOS. UNCLOS requires states parties to adopt measures to protect the marine environment.
The jurisdictional question
In a position paper published in December 2014 (see also a summary of the paper here), China contended that the Philippines’ claims are beyond the scope of the Tribunal’s jurisdiction because they require the Tribunal to make determinations on territorial sovereignty and the delimitation of sea boundaries.
China made three interrelated claims in support of this contention. First, it claimed that UNCLOS does not give the Tribunal jurisdiction to address territorial sovereignty-related questions. According to China, in order to decide any of the Philippines’ claims, the Tribunal would be required to determine, directly or indirectly, the territorial sovereignty over various maritime features in the South China Sea, which is beyond the scope of UNCLOS.
Secondly, it claimed that in 2006, pursuant to article 298 of UNCLOS, China opted out of compulsory arbitration on particular categories of disputes, including those relating to sea boundary delimitations. Article 298(1) provides that, when signing or ratifying UNCLOS (or any time thereafter), a state may opt out of compulsory arbitration with respect to particular categories of disputes, one of which relates to sea boundary delimitations. Article 298(a)(i) then provides that, when such a dispute arises and no agreement within a reasonable period of time is reached in negotiations, the opted out party must accept, at the request of the other party, submission of the matter to conciliation.
The Philippines has not requested that the parties participate in conciliation pursuant to article 298(a)(a) presumably because, as discussed below, its position is that the dispute does not concern sea boundary delimitations and therefore has not been ‘opted out of’ by China.
The Philippines’ position
At the hearing, the Philippines submitted that its claims do not require the Tribunal to make determinations on the question of territorial sovereignty or the delimitation of sea boundaries (its statement is available here). It emphasised that the Tribunal is really being asked to do the following:
- To clarify the nature of the disputed features in the South China Sea (ie, whether they are rocks, islands or low-tide elevations) that are relied upon by China to assert its claims, because the features’ characterisations determine whether they can be appropriated by China or can generate their own 200M EEZ; and
- To examine the validity of China’s nine-dash line based on its ‘historical rights’.
According to the Philippines, the question to be determined by the Tribunal on this issue, therefore, is whether UNCLOS allows a state to claim maritime entitlements based on ‘historic’ rights beyond those provided for in UNCLOS.
Accordingly, a key issue in the dispute is whether it is possible for the Tribunal to make determinations about the nature of particular maritime features and their entitlements, without addressing who actually exercises sovereignty over those features. The Tribunal will also need to consider whether it can determine the validity of the nine-dash line without addressing sovereignty over any of the maritime features within the area delimited by the line.
On a higher level, the Philippines painted the case as being a test of the utility and feasibility of UNCLOS compulsory dispute resolution mechanisms. Emphasising China’s ‘aggressive and disconcerting’ activities in the South China Sea, the Philippines contended that the dispute resolution mechanisms give weaker states the opportunity to ‘challenge the powerful on an equal footing’ on the belief that ‘law triumphs over force’. On this basis, according to the Philippines, a finding that the Tribunal lacks jurisdiction to hear its claims would render the UNCLOS dispute resolution mechanisms almost valueless for small states parties vis a vis their more powerful neighbours.
Notwithstanding the Philippines’ contentions concerning the case’s significance to the international community, the jurisdictional questions facing the Tribunal turn on the characterisation of the Philippines’ substantive claims and, in particular, whether they involve the determination of questions of territorial sovereignty.
The Philippines now has until 23 July 2015 to provide supplementary written submissions in response to questions posed by the Tribunal at the hearing. The Tribunal expects to determine the issue of jurisdiction by the end of the year. If it decides that it does have jurisdiction over the Philippines’ claims (and they are admissible), the matter will proceed to a substantive hearing. However, China has reiterated that it will not alter its position in the South China Sea and, therefore, is unlikely to comply with any unfavourable ruling ultimately made by the Tribunal.
Lea Christopher is a lawyer at Clayton Utz in Canberra. The views expressed in this article are solely her own.