Manila cannot afford to lose court battle over South China Sea territory, but winning will incur Beijing's economic wrath
As far as diplomatic gambits go, the stakes don’t get any higher than the Philippines’ decision to challenge China’s South China Sea territorial claims at a United Nations tribunal.
The 4,000-page plea that Manila filed before the Permanent Court of Arbitration in The Hague on March 30 essentially argues that China’s claims – based on the “nine-dash line”, a map which suggests that Beijing controls 90 per cent of the South China Sea – are “exaggerated” and “illegal”.
Beijing has refused to answer the charges, and has argued that unless it agrees to participate, the arbitration court should not even be entertaining the Philippines’ case.
The legal wrangling surrounding the case is expected to play out for at least two years. But what is immediately clear is that the Philippines cannot afford to lose this one.
If the international court rules in favour of China, the Philippines will effectively lose half its maritime territories. China’s nine-dash line practically carves out the entire sea 200 nautical miles west of the Philippines’ coastlines.
That will deny Manila opportunities to explore for oil and natural gas in a region that could hold plenty of both.
Worse, a loss for the Philippines will likely set a precedent that weakens the claims of Vietnam, Malaysia and Brunei. This may give China leverage to push deeper into waters that straddle the borders of these countries.
Even if the case ends in a stalemate, with the United Nations tribunal deciding that it lacks jurisdiction, Manila may find little sympathy in the region.
Not even Vietnam – which has as much at stake in the South China Sea – has the appetite to tangle with China right now.
The Philippines can technically continue to press its agenda during negotiations on a “code of conduct” meant to avoid maritime conflicts in the South China Sea.
Beijing, however, is already stacking that deck in its favour. It has said it will agree to a code of conduct, but only for areas outside its nine-dash line, and it has shot down a draft proposal calling for an end to military drills in the South China Sea.
Even a ruling in Manila’s favour will not be without consequences. For one thing, it is not hard to envision an angry China retaliating economically against the Philippines.
Days after the Philippines lodged its plea on March 30, there was already talk of punitive sanctions, such as removing visa-free access for Philippine officials and diplomats.
China can also put the squeeze on more than 166,000 Filipino maids in Hong Kong. It can trim their numbers or restrict the remittances they send home, which last year rose to US$555 million (Bt17.9 billion) from $420 million in 2012.
Already, remittances by Filipinos working on the mainland fell from $93 million in 2012 to $80 million last year, as tensions flared between the Philippines and China over Scarborough Shoal.
Remittances from overseas Filipino workers fuel much of the domestic consumption that has underpinned the Philippine growth story.
China can inflict more pain in another area: trade.
The Philippines exported over $6.58-billion worth of goods to China last year, making the mainland its third-biggest export market after Japan and the United States. The Philippines exported another $4.42 billion to Hong Kong. Combined, that’s nearly as much as the Philippines exports to Japan.
The trade squeeze can be as blunt as an outright ban or as subtle as a health inspection issue.
In May 2012, for instance, China refused entry to some 1,500 containers from the Philippines, and the Cavendish bananas inside them were left to rot on the docksides of Dalian, Shanghai and Xingang. The official explanation was that the bananas showed signs of disease.
But Philippine growers suspected retaliation for an incident that happened a month earlier when the Philippine navy tried to arrest the crew of eight Chinese fishing vessels caught illegally harvesting corals, giant clams and live sharks near the disputed Scarborough Shoal.
In terms of foreign direct investments, a protracted conflict with Beijing will put the Philippines out of contention for the roughly $90 billion that China invests overseas, mostly in Asia.
In short, win, lose or draw, Manila could pay a high price for this legal challenge to Beijing.
Still, China, too, cannot think it can emerge from this episode unscathed.
For one thing, it has its own economic stakes.
The Philippines imports more raw materials from China than any other country: $8 billion worth last year. That may be a drop in the bucket in China’s overall trade picture, but it will still hurt Chinese companies if the Philippines responds with trade sanctions of its own.
More importantly, however, China would not want to push Manila deeper into Washington’s arms and see a return to the days when the United States garrisoned the Philippines with sprawling military bases.
Then there is China’s Asian foil, Japan, which can mitigate some of the economic pain Beijing may rain down on the Philippines.
And like the US, Japan can supply the Philippines with enough military hardware for a more credible defence of its borders. It has already offered to donate patrol boats worth $11 million each to the Philippines.
The arbitration case now pending in The Hague will surely be a messy affair between the Philippines and China. Yet, in the end, it may lead to some advantages for the rest of the world.
It will, at least, force Beijing to show – rather than merely tell – the world what kind of great power it wants to be.
Can it play by the rules, even when they are not in its favour? Or will it bully its way and ignore the rules to suit its interests?
A verdict against it may not compel China to give up real estate in the South China Sea. But China has to realise that the repercussions of such intransigence will be felt in all of its dealings with other nations.
For starters, its push for freedom of navigation in the Indian and Arctic oceans will be met with greater suspicion. Regional partners may think twice about deepening cooperation with a giant neighbour that disregards international law observed by the community of nations.
China must accept that not all disputes can be settled bilaterally, that the world operates on a set of rules, enforced by courts that are not bound by national borders, and that these rules are not malleable because they are meant to ensure that all nations, regardless of their might, will be able to partake of the world’s bounties.
For that alone, the Philippines’ bold and costly move may be worth taking.