IN THE MATTER OF THE SOUTH CHINA SEA ARBITRATION

(PCA Case No. 2013-19)

The Law of the Sea

FACTS: This arbitration concerns disputes between the parties regarding the legal
basis of maritime rights and entitlements in the South China Sea, the status of certain
geographic features in the South China Sea, and the lawfulness of certain actions taken
by China in the South China Sea. The basis for this arbitration is the 1982 United
Nations Convention on the Law of the Sea (UNCLOS).

On January 22, 2013, the Philippines initiated compulsory arbitration proceedings

against China by Notification and Statement of Claim pursuant to Articles 286 and 287
and in accordance with Article 1 of Annex VII of the UNCLOS. In response, China
presented a Note Verbale to the Department of Foreign Affairs of the Philippines on
February 19, 2013, rejecting the arbitration and returning the Notification and Statement
of Claim to the Philippines.

Nevertheless, the arbitration being compulsory, the Philippines appointed Judge

Rüdiger Wolfrum, a German national, as a member of the arbitral tribunal. As China did
not appoint an arbitrator, the President of the International Tribunal for the Law of the
Sea, pursuant to Articles 3(c) and 3(e) of Annex VII to the UNCLOS, appointed Judge
Stanislaw Pawlak, a national of Poland, as the second arbitrator. The three remaining
arbitrators were appointed pursuant to Articles 3(d) and 3(e) of Annex VII to the
UNCLOS.

On July 12, 2013, the arbitral tribunal issued Administrative Directive No. 1,
pursuant to which the Permanent Court of Arbitration (PCA) was appointed as Registry.

China has consistently rejected the Philippines’ recourse to arbitration and has
adhered to a position of non-acceptance and non-participation in the proceedings.
China did not participate in the constitution of the arbitral tribunal, it did not attend the
Hearings on Jurisdiction or on the Merits, and it did not reply to the arbitral tribunal’s
invitations to comment on specific issues of substance or procedure.

Despite its decision not to appear formally at any point in these proceedings,
China has taken steps to informally make clear its view that the arbitral tribunal lacks
jurisdiction to consider any of the Philippines’ claims. In a position paper made public on
December 7, 2014, China argued that the arbitral tribunal lacks jurisdiction because:

(1) The essence of the subject-matter of the arbitration is territorial sovereignty

over several maritime features in the South China Sea, which is beyond the scope of
the UNCLOS. (Legal basis: Under Art. 286 of UNCLOS, compulsory arbitration merely
covers any dispute concerning the interpretation or application of the UNCLOS.)

(2) Even assuming some of the claims were concerned with the interpretation
and application of the UNCLOS, they would still be an integral part of maritime
delimitation, which has been excluded by China through its 2006 Declaration and
consequently is not subject to compulsory arbitration.

(3) Given that China and the Philippines have agreed to settle their disputes in
the South China Sea through negotiation, the Philippines is precluded from initiating
arbitration unilaterally. (Legal basis: Under Art. 286 of the UNCLOS, compulsory
arbitration may only apply “where no settlement has been reached” between the
disputants.)

ISSUE: Whether or not the arbitral tribunal has jurisdiction.

RULING: Yes, the arbitral tribunal has jurisdiction.

China’s non-participation cannot bar the continuation of the proceedings. Under

Art. 9 of Annex VII to the UNCLOS, if one of the parties to the dispute does not appear
before the arbitral tribunal or fails to defend its case, the other party may request the
tribunal to continue the proceedings and to make its award. Absence of a party or failure
of a party to defend its case shall not constitute a bar to the proceedings. Before making
its award, the arbitral tribunal must satisfy itself not only that it has jurisdiction over the
dispute but also that the claim is well founded in fact and law.

As set out above, where a party does not appear before the arbitral tribunal,
Article 9 of Annex VII to the UNCLOS requires as condition that “the arbitral tribunal
must satisfy itself not only that it has jurisdiction over the dispute but also that the claim
is well founded in fact and law.”

Although China did not participate in the constitution of the tribunal, the latter
held that it had been properly constituted pursuant to the provisions of Annex VII to the
UNCLOS. The tribunal had taken steps to satisfy itself regarding its jurisdiction,
including through questions posed to the Philippines and through its decision to
bifurcate the proceedings by convening a separate hearing to consider the matter of
jurisdiction and admissibility of the Philippines’ submissions. The tribunal also recalled
the steps it had taken to safeguard the procedural rights of both Parties in the
circumstances of China’s non-participation.

With respect to the question of whether the question concerns an interpretation

or application of the UNCLOS, the tribunal held in the affirmative. Indeed, there is a
dispute between the parties regarding sovereignty over islands, but held that the
matters submitted to arbitration by the Philippines do NOT concern sovereignty. That
there exists a dispute over sovereignty between the parties, does not mean that
sovereignty is also the appropriate characterization of the claims the Philippines has
submitted in the proceedings. Each of the Philippines’ claims reflected a dispute
concerning the UNCLOS. A dispute concerning the interaction between the UNCLOS
and other rights (including any Chinese historic rights) is a dispute concerning the
UNCLOS.

On the matter maritime delimitation excluded by China through its 2006

Declaration, the tribunal noted that a dispute concerning whether a State possesses an
entitlement to a maritime zone is a distinct matter from the delimitation of maritime
zones in an area in which they overlap. While a wide variety of issues are commonly
considered in the course of delimiting a maritime boundary, it does not follow that a
dispute over each of these issues is necessarily a dispute over boundary delimitation.

(Note: In connection with the foregoing, the tribunal earlier said that, among
others, the Philippines is merely seeking a declaration that China’s rights and
entitlements in the South China Sea must be based on the UNCLOS and not on any
claim to historic rights.)

With respect to China’s third argument, the tribunal held that the preconditions
under the UNCLOS before the application of compulsory arbitration has been complied
with. Under Art. 286 of the UNCLOS, any dispute concerning the interpretation or
application of the UNCLOS shall, where no settlement has been reached by recourse to
Section 1, be submitted at the request of any party to the dispute to the court or tribunal
having jurisdiction under this section.

Indeed, although the dispute settlement mechanism of the UNCLOS provides for
compulsory settlement, including through arbitration, it also permits parties to agree on
the settlement of disputes through alternative means of their own choosing. Articles 281
and 282 of the UNCLOS may prevent a State from making use of the mechanisms
under the same if they have already agreed to another means of dispute resolution.
Article 283 also requires the parties to exchange views regarding the settlement of their
dispute before beginning arbitration.

In this regard, the (1) 2002 China–ASEAN Declaration on the Conduct of Parties
in the South China Sea, and (2) the series of joint statements issued by the Philippines
and China referring to the resolution of disputes through negotiations were NOT
intended to be legally binding documents. With respect to the (3) Treaty of Amity and
Cooperation in Southeast Asia and the (4) Convention on Biological Diversity, both are
legally binding agreements with their own procedures for disputes, but neither provides
a binding mechanism and neither excludes other procedures.
 The Philippines had sought to negotiate with China and it is well established that
international law does not require a State to continue negotiations when it concludes
that the possibility of a negotiated solution has been exhausted.