Asian Century Journal

An Asian Century Philippines Publication

Why unilaterally abrogate an agreement favorable to us?

By Rod P. Kapunan

Originally, our national boundary was demarcated in the Treaty of Paris signed by the US and Spain on December 10, 1898.  Our boundary facing the South China Sea is close to the island of Palawan that it practically excludes many islands, shoals, reefs off the archipelago.  This explains why many countries particularly China, Taiwan, Vietnam, and Malaysia encroached the area relying on the demarcated boundary.

Before that, we encountered problems of foreign ships navigating our internal waters under the principle of “right of innocent passage.” To stop this, senator Arturo Tolentino adopted the “archipelagic doctrine” It is defined “as all waters, around between and connecting different islands belonging to the Philippine Archipelago, irrespective of their width or dimension, are necessary appurtenances of its land territory, forming an integral part of the national or inland waters, subject to the exclusive sovereignty of the Philippines.” It is provided in the 2nd sentence of Article 1 of the 1987 Constitution. 

Despite the non-recognition of the “archipelagic doctrine”, the Philippines did not make much issue of that because of our subsequent ratification of the United Nations Convention on the Law of the Seas (UNCLOS) according the Philippines a 200-mile exclusive economic zone from the baseline.    The 200-mile EEZ included those portions of Kalayaan or Freedom islands which reason why Marcos issued two decrees affirming our right over these islands on the basis they form part of the country’s continental shelf and are within the 200-mile EEZ.  Adjacent states only have the right to develop and exploit the mineral resources adjacent to it. 

What complicated the issue is when China ratified the UNCLOS in 1978.  But China came out with a new demarcation called Nine-Dash Line which was first drawn by the government of  Taiwan on December 1, 1947. 

 This is also referred to as the ten-dash line and the eleven-dash line.  The contested area includes the Paracel Islands, the Spratly Islands, of which Taiping, the largest of the islands, is controlled by the ROC, and other areas including Pratas Island, the Vereker, the Macclesfield Banks, and the Scarborough Shoal

Unfortunately, the 9-Dash Line remained disputable and was rejected by the Permanent Arbitration Court (PAC).  

Nonetheless, in the San Francisco Peace Treaty in 1950, Japan was singled out to return all the islands it occupied in the South China Sea during World War II to China.  This includes the Paracel, Pratas, and Spratly Islands.    The significance of this document is that the US, for the first time, acknowledged Japan to surrender all the islands it occupied during the war specifically to China.  The Philippines was a signatory to that treaty. 

However, there was an error in the Peace Treaty because Taiwan insisted to be included as successor-in-interest of those islands much that Secretary of State John Foster Dulles failed to include ROC as inheritor of those islands ceded by Japan.  This was the Taiwan Peace Conference in 1952.    

We also had an incident in the Scarborough or Ayungin Shoal.  We insisted that the area is historical fishing ground to our fishermen in Zambales.  But the Shoal is 240 nautical miles or beyond the 200 EEZ.    

There is no valid reason for Locsin to abrogate a treaty.  The agreement merely became non-operational.  Treaties are supposed to be entered in good faith by the contracting parties.  This now becomes the basis in international law which state that “treaties are binding and must be carried out in good faith” or pacta sund servanda.  

There is only one instance where a treaty cannot be enforced or complied with: that is, when a party withdraws or terminate an agreement under the principle of rebus sic stantibus for accordingly, the circumstances no longer warrant compliance to an agreement or treaty.

The agreement signed by secretary of Foreign Affairs Teodoro Locsin, Jr. and China’s Foreign Minister Wang Yi attempted to operate at a different level or as one would put it, have different dimension to what the parties seek to achieve. The Philippines wanted to enforce the agreement based on our system of free enterprise while China wanted to apply the socialist system of sharing the resources to the people.  This should have been anticipated as potential source of disagreement. 

The Philippines, pursuant to the American economic system, wanted to implement the oil agreement through the government-owned Philippine National Oil Company (PNOC).  For its part, China applied the state-owned company, the China National Overseas Oil Corporation (CNOOC).  This is the second aspect where the two diverged in their interpretation of the agreement.

The two however agreed that pursuant to our Constitution as provided in section 22, Article XII, both will observe the 60-40 sharing of capital and revenue in our favor.  China agreed on the basis that the area to be jointly explored and exploited is within the 200-mile EEZ of the Philippines. 

Before Secretary Locsin unilaterally abrogated the agreement he signed on November 2018, PNOC already granted service contracts to foreign oil companies.  The problem is that the grant of service contracts is mostly located in the same area where the joint venture agreement with China will operate. The Philippines may not have directly violated the agreement but in substance, acted in bad faith. This is the third aspect of the misunderstanding. 

Remember the 60-40 sharing is in our favor.  We created our problem when we divided the sharing by the grant of service contracts to various private oil companies which, by experience, appear to be iniquitous against Filipinos. 

This will hurt the China’s interest, it being obligated to give the greater share of a partner only to end up in the coffers of foreign oil companies operating as subcontractor operating in the same designated area of the agreement.

Perhaps, China felt offended which reason why it dilly-dallied the start of the exploration agreement.   Like our PNOC’s experience of sharing of natural gas in Malampaya.  The 90 percent share was divided by the two oil companies, Shell and Chevron, with each getting 45 percent with the remaining 10 percent remitted as share of the government.      

Today, we have Energy Forum cited by Carpio as a British oil exploration company.  Some believe it is a front of Shell Corporation.   Shell sold its share to Udenna, owned by a Filipino Chinese named Dennis Uy.   Uy took over the shares of Shell knowing that by 2025, Malampaya will run out of natural gas.  Some say, the share of 10 percent is less because of tax liabilities leaving the government a net revenue of 3 percent.

Maybe China could sense the Philippines deviated from the agreement or that the Philippines is being dictated by foreign oil companies operating as subcontractors not  parties to the agreement. It sees the agreement as   lopsided.  The Philippines violated the agreement by giving service contracts in areas like the Reed or Recto Bank, an area covered by the joint venture agreement but is outside our territory as per Treaty of Paris.   The area happened to be ours by our adhesion to UNCLOS in 1984 giving us the right to exploit and develop the natural resources underneath the seabed.  

Incidentally, the US is not a signatory to UNCLOS and strictly speaking, is not qualified to join or participate in the exploration, development and exploitation of oil and gas in the service contract.

It was the Philippines that violated the agreement with China when it allowed PNOC to issue service contracts to oil exploration companies jointly with the Philippines in the Reed or Recto Bank.  The issuance by PNOC of service contract continued long after the signing of the agreement in 2018.  This is bad faith on our part. 

On second thought, 60 percent share is partly generated through China’s CNOOC only to go the coffers of foreign oil companies as subcontractors.  PXP Energy Corp. is owned by Philex Petroleum Corp. which was granted service contract to operate in Reed or Recto Bank in May 2022.  The same can be said of the Energy Forum which was also granted service contract in May 2022.

(rpkapunan@gmial.com)

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