Easing geo-economic tensions in the South China Sea

Written by Faisal Ahmed | Updated: Nov 14 2012, 09:01am hrs
With the leadership change in China and with Obamas re-election, the world waits to see the new strategic dimensions in issues where the two countries converge and diverge. The geopolitical volatility of the South China Sea, which hosts some of the busiest shipping lanes of the world, is one such major issue seeking global attention. This instability is the result of long-standing territorial disputes among states which surrounds it. In fact, there are competing claims by China and some countries of the Association of Southeast Asian Nations (ASEAN) over exercising their maritime rights, which ultimately is an effort to control the regions natural resources.

Interestingly, the Sea itself controls a major chunk of the global maritime trade. Therefore, the whole scenario needs to be revisited in context of its influence on at least three significant stakeholdersthe region itself, the US and India.

The region constitutes primarily China and the countries of ASEAN including the Philippines, Vietnam, Brunei Darussalam and Malaysia, who have been seeking sovereign rights on their respective territorial claims in the Sea for more than three decades. However, the issue of discord is the parallel and competing claims, with states like Vietnam and the Philippines accusing China of violating the 1982 United Nations Convention on the Law of the Sea (UNCLOS).

Among the various issues covered under the UNCLOS, like those pertaining to navigation, marine environment protection, transit regimes, and continental shelf (that is, a seabed adjacent to the shore of a state), the one on exclusive economic zones (EEZ) is highly relevant in this context. The EEZ is a sea-zone that in most cases extends upto 200 nautical miles from the coast of a states territorial sea. As per the provisions of this Convention, the coastal state shall have special rights and privileges over the use of natural resources in the EEZ.

In a recent development on the issue of EEZ, the Philippines requested the United Nations (UN) to rename a part of South China Sea covering Philippines EEZ as the West Philippine Sea. However, it does not seem likely that such a renaming would impact Chinas claim on the said territory. Also, there is another framework known as Declaration on Conduct of Parties in South China Sea signed by China and ASEAN in 2002. However, it is also suffering from functional fiasco as they are yet to agree on the code of conduct because China wants the code to be developed on a bilateral basis and not on a multilateral level.

Earlier, the Chinese oil company, China National Offshore Oil Corporation (CNOOC) issued a tender inviting bid for exploration rights in nine oil blocks in the South China Sea. This move was contested by Vietnam as the blocks supposedly lie in the Vietnams EEZ and are thus the prerogative of PetroVietnam, Vietnams state-owned enterprise.

Thus, the resources of the Sea continue to be the hotbed of this ongoing regional tension. South China Sea is a hub of resources ranging from minerals to oil and fisheries. The growing industrialisation process has enhanced the usability of minerals, and has influenced the trade policies of states. For instance, recently China imposed export restrictions on some rare earth elements (REE)molybdenum and tungstenall of which serve as raw materials for industries engaged in manufacturing car components, mobile phones, and various gadgets that work on renewable energy. Just to mention that there are 17 REE which includes elements like Scandium (used in aerospace components) and Cerium (used as catalyst in oil refineries), among others. Owing to such restrictions on exports, the European Union (along with the US and Japan) has already filed a case against China in the World Trade Organisation (WTO) early this year.

Also, Chinas oil dependence is increasing and as per US Energy Information Administration, Chinas dependence on oil imports is estimated to be 75% by 2035. Another estimate suggests that the South China Sea is rich in both petroleum and natural gas and its oil reserves, though not proven, could be as much as 200 billion barrels. Moreover, the Straits of Malacca in the South China Sea is an important transit route for oil, with more than 40% of the globally produced oil moving through it.

Another major resource of the Sea is fisheries, as the Sea has emerged as a major fishing ground with potential to produce fish for meeting food requirements.

The resource-war has spread beyond the Sea as well. The US is now a major stakeholder and most recently it criticised the territorial assertions of China in the region. The Sea and its lines of communication are of geo-strategic importance for the US to compete and engage in President Obamas Asia Pivot, which is deemed to continue considering Obamas second term. Moreover, members of ASEAN have also been seeking the help of US, thereby soliciting US intervention in the region. For instance, recently the nuclear-powered USS George Washington aircraft carrier created a stir in the already troubled water of the Sea.

In line with such developments, India has already asserted that it has broad-based geo-economic engagements with China, though it has to remain cautious on its economic diplomacy front. For instance, Indias ONGC Videsh Limited (OVL) got a contract from Vietnam for oil exploration in one of the oil blocks, but the same block was claimed by China as being under its sovereignty and was part of a bid put forth by CNOOC, thus contesting Indias presence in the South China Sea. Though earlier OVL sought to terminate this contract citing techno-commercial reasons but it has again continued its activities on the block after getting incentives and assurances from Vietnam.

Also, ASEAN members geographically share the territorial water of the Indian Ocean, so it cannot be a one-sided game. Indian presence in the South China Sea is necessary for striking a balance of power among the stakeholders on both strategic and economic fronts. With such assertions and economic diplomacy pursuits, understanding the necessity for mutual interdependence is the only way ahead and a challenge as well.

The author is Associate Professor of International Business at FORE School of Management, New Delhi. Views are personal