I. INTRODUCTION

A. BACKGROUND OF THE STUDY

1. Factual Antecedents

a. The period when there is no opportunity for negotiations

The JMSU and the Baseline Law

In 2005, a tripartite agreement to explore the 142,886 square kilometers of the

West Philippine Sea (“WPS”) was entered into by the Petron, China National Offshore

Oil Company and PetroVietnam.1 The agreement was not renewed and expired in July

1, 2008.2

In March 10, 2009, President Gloria Macapagal-Arroyo signed the controverted

baseline bill, which included, as part of the Philippine territory, the Scarborough Shoal

and the Spratly Islands.3 This, according to Vietnam, further made the relations of the

Philippines with Vietnam4 and, logically, with other claimants, worse. Vietnam added

that the bill that turned into a law is “against the trend of cooperation in the region.”5

Harassment of Philippine Exploratory Vessel by China

In the past, China prevented the exploration team commissioned by the

Philippines.6 The exploration team is group of experts sent by the Philippines to

1 ERNEST BOWER, THE JMSU: A TALE OF BILATERALISM AND SECRECY IN THE SOUTH CHINA SEA 1.2 Delon Porcalla, JMSU deal under review, The Phil. Star, Sept. 17, 2008, available at http://www.philstar.com/microsite/noynoy_aquino_inauguration_2010/article.aspx?articleId=401015&publicationSubCategoryId=63 (last accessed 25 June 2012).3 Vietnamese Ministry of Foreign Affairs, Vietnam’s response to Philippine President’s signing of the Baseline Act. 12 March 2009, available at http://www.mofa.gov.vn/en/tt_baochi/pbnfn/ns090313185641 (last accessed 16 June 2012).4 Id. 5 Id.6 John Brinsley and Patrick Harrington, China Naval Action Draws Growing Protests from Japan, Vietnam, Philippines, BLOOMBERG, 9 March 2011, available at http://www.bloomberg.com/news/2011-

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determine the amount of oil and natural gas.7 China justified these acts of aggression as

an act to protect its territory.8 It claims that the provision on continental shelf and EEZ

under the UNCLOS justifies its territorial claim over the entire West Philippine Sea.9

The Stand-off

Two Chinese maritime surveillance vessels – Zhonggou Haijian 75 and

Zhonggou Haijian 84 – had a confrontation with the Philippine Navy’s BRP Gregorio

del Pilar last April 10, 2012.10 The Philippine vessel caught Chinese fishermen illegally

exploiting corals, giant clams and live sharks.11 Since such acts are illegal under the

Philippine law, the Philippine Navy also tried to arrest the other fishermen.12 To

prevent the allegedly illegal arrest, the Chinese vessels rushed to the location of the

other Chinese fishermen and “placed themselves between the Philippine Navy vessel

and the fishing vessel . . . .”13

b. The period when there is a slight opportunity for

negotiations

Talks between the Heads of State

03-09/japan-protests-after-chinese-helicopter-buzzes-destroyer-in-east-china-sea.html (last accessed 15 June 2012).7 Petro.in, Technology & Process, available at http://www.petro.in/ic/tp/tp.html (last accessed 15 Jun 2012).8 Nong Hong, Post-2002 Development in the South China Sea: Seeking for Confidence Building & Regional Cooperation, 2 (1) THE JOURNAL OF DEFENCE AND SECURITY, 54, AT 64 (2011).9 East Asia Forum. The China-Philippines dispute in the South China Sea: does Beijing have a legitimate claim?, 28 March 2012, available at http://www.eastasiaforum.org/2012/03/28/the-china-philippines-dispute-in-the-south-china-sea-does-beijing-have-a-legitimate-claim/ (last accessed 16 June 2012).10 Philippine Star. Philippine warship in standoff with Chinese vessels, PHIL. STAR, 11 April 2012, Available at http://www.philstar.com/nation/article.aspx?publicationsubcategoryid=63&articleid=795956 (last accessed 16 June 2012).11 Id.12 Id.13 Id.

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A fishing ban was posted by the Chinese administration over some parts of the

West Philippine Sea.14 Although the Philippine President did not elaborate the contents

of the ongoing talks between China and the Philippines, he confirmed that there are

peaceful negotiations between the two States.15 He also confirmed that various legal

solutions by different legal think-tanks were proposed.16 More importantly, he

confirmed that this time, the negotiations were gaining a definite destination.17

Newly Appointed Diplomatic Agent to China

Sonia Brady is the newly appointed Philippine Ambassador to China after the

former Ambassador, Commission on Appointments did not consent to the appointment

of Domingo Lee.18 Brady is a retired career foreign service officer19 and considered to

be a “veteran diplomat” “who is already familiar with the politics and the culture of

[China].”20 The proponent believes that without an Ambassador, the negotiation will be

delayed again since the Philippines will again become unrepresented.

c. The period when the conflict is beginning to rise again

China Pursued Plans on Drilling Oil Near the EEZs of the Philippines

14 Chichi Conde, Philippines, China move to ease tensions in Scarborough, INTERAKSYON, May. 14, 2012, available at http://www.interaksyon.com/article/31851/philippines-china-move-to-ease-tensions-in-scarborough (last accessed 24 June 2012).15 Id.16 Id.17 Id.18 Aurea Calica. Brady expected to breakthroughs in negotiations with China, available at http://www.philstar.com/Article.aspx?articleId=813142&publicationSubCategoryId=63 (last accessed 16 June 2012).19 Id. 20 Agence France-Presse, Sonya Brady named to old post as ambassador to China, INTERAKSYON, May 26, 2012, available at http://www.interaksyon.com/article/32944/sonya-brady-named-to-old-post-as-ambassador-to-china (last accessed 24 June 2012).

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Despite the growing tension between China and the Philippines, the former still

remained steadfast in its intent to harness the oil and natural gas locked inside the deep

seabed of the WPS. Last May 9, 2012, China, through its State-owned oil company,

Chinese National Offshore Oil Corporation (“CNOOC”), started drilling in an area

within the WPS, 320 Kilometers from Hong Kong.21

Although the drilling site is not within the EEZ of the Philippines, this move of

China is significant. The proponent believes that if oil and/or natural gas are indeed

found in that area near the EEZ of the Philippines, it is highly probable that oil and/or

natural gas can also be located within the Philippines’ EEZ. This inference is not

baseless. An oil or natural gas reserve is a large basin-like cavity in the deep seabed

containing oil and/or natural gas.22 Therefore, if indeed there is oil in the current

Chinese drilling site, then there is a possibility that the oil and natural gas reserve

crosses the EEZ of China and find itself also located within the EEZ of the Philippines.

Nonetheless, China remained silent on whether they intend to continue

exploring beyond its EEZ.23 The decision to do so may be distant but possible. When

this happens, another zone of conflict shall be created in addition to the conflict in the

Spratly islands.

21 China.org.cn, Deep-water drilling beings in S. China Sea, available at http://www.china.org.cn/business/2012-05/09/content_25339532.htm (last accessed 21 June 2012).22 See FORUM ENERGY PLC, ANNUAL REPORTS & ACCOUNTS 2.23 Reuters, China tests troubled waters with $1-billion rig for South China Sea, INTERAKSYON, June 21, 2012, available at http://www.interaksyon.com/article/35443/china-tests-troubled-waters-with-1-billion-rig-for-south-china-sea (last accessed 24 June 2012).

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d. The Current Geo-Political Situation

Recent news revealed that the President, through Senator Antonio Trillanes IV,

resorted to backchanneling.24 A “back channel” has been defined as “a secret,

unofficial, or irregular means of communication.”25 Senator Trillanes justified his

actions by saying that this move of the President “enabled us to normalize the situation

with China without even ceding anything.”26

The proponent is of the opinion that this news about the backchanneling efforts

of the Aquino administration supports the position that China’s aggression is to thwart

any impression that it is weaker than other nations. The proponent opines that the

Philippine media has been too “noisy” about the WPS dispute to the extent that any

sign of China backing down from its claim will create an impression that China gives in

to the claims of the Philippines.

The Philippines is not the only country that is being “bullied” by China. China

also takes an aggressive stance against Japan.27 Even though the ownership over the

disputed territory remains unresolved, the Japanese Coast Guard recently reported that a

Chinese maritime surveillance ship was spotted near the disputed islands.28 China, on

24 Gil Cabacungan, Aquino’s back channel to China is Trillanes, Philippine Daily Inquirer, September 19, 2012, available at http://globalnation.inquirer.net/50558/aquinos-back-channel-to-china-is-trillanes (last accessed 3 November 2012).25 Merriam-Webster, “Back channel” available at http://www.merriam-webster.com/dictionary/back%20channel (last accessed 3 November 2012).26 Cabacungan, supra note 24.27 Martin Fackler, China Patrol Ships Pressuring Japan Over Islands, The New York Times, November 2, 2012, available at <http://www.nytimes.com/2012/11/03/world/asia/china-keeps-up-pressure-on-japan-over-disputed-islands-with-patrols.html?pagewanted=all&_r=0> (last accessed November 3, 2012).28 Id.

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the other hand, justified this incursion by saying that the reported Chinese vessels are

only doing their patrol within the territory of China.29

Chen Jie explains China’s aggressive stance against the Philippines and other

neighboring nations. She explains that:

. . . it is embedded in the Chinese national psyche that the Spratly archipelago has been part of the motherland's territory since ancient times, and the Chinese do not see themselves as 'joining" the claim to the Spratlys with the end of the Cold War. In their eyes, the nature of the dispute is crystal clear: initially taking advantage of China's turbulent domestic politics and its preoccupation with superpower threats, regional countries have occupied China's islands and reefs, carved up its sea areas, and looted its marine resources. While other regional countries perceive China in recent years as aggressive and provocative in the South China Sea, Beijing intrinsically sees its assertive policy as a long-overdue and legitimate action to protect its territorial integrity. Conceptually and theoretically, until its sovereignty over the entire Spratly archipelago is recognized, China regards itself as a victim of regional countries' aggression and encroachment.30 (Emphasis supplied)

If Chen Jie’s perception is to be adopted, China’s aggression is only a rational

reaction towards the Philippines’ enactment of Republic Act 9522, which can be

considered as an open declaration of its claim over the West Philippine Sea. As Chen

Jie explained, China does not want to be victimized again by other States.31

Chen Jie also explained that the islands are not susceptible to development.32

China, therefore, intends to harness the oil and fishery resources of the Spratly islands

and not to occupy the islands.33

29 Id.30 Chen Jie, China’s Spratly Policy: With Special Reference to the Philippines and Malaysia, 34 ASIAN SURVEY 893 (1994).31 Id.32 Id. 895.33 Id.

6

If such is the intention of China, then resolving the WPS dispute is possible.

Later in this study, it will be shown that the Chinese government gets its income from

fees and royalties. In contrast, the Philippine government gets its income from selling

the extracted oil after paying the contractor its investment and reasonable profit. This

two contrasting legal regimes makes it legally possible for both States to co-exist and

operate together without losing their “normal income.”

In summary, Chen Jie reveals that China does not intend to start a war with its

neighboring countries. Moreover, the later part of this study will reveal that it is not

legally impossible for both States to operate together. If the geo-political situation

between the Philippines and China is seen under this light, it cannot be denied the

proposition of this study – that both the Philippines and China conclude a JDA – is not

impossible.

2. Legal Developments

a. JDA becoming an Instrument of Economic Development

Much focus has been given to concluding a final delimitation agreements under

Article 74, paragraph 1 of the UNCLOS rather than concluding provisional agreements

under Article 74, paragraph 3 of the same Convention.34 This study proposes that, in

times like this, a provisional agreement is more effective than a permanent one.

Joint Development Agreements (“JDA”) are provisional agreements referred to

under the UNCLOS.35 It does not tackle the issue of ownership of the territory. In

34 DOMINIC ROUGHTON, THE RIGHTS (AND WRONGS) OF CAPTURE: INTERNATIONAL LAW AND THE IMPLICATIONS OF THE GUYANA/SURINAME ARBITRATION 9.35 See Chapter II (B) (3).

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general, it contains provisions governing the rights and responsibilities of the parties in

conducting an exploration and exploitation activity within the disputed area.

Provisional arrangements like the JDA “shall be without prejudice to the final

delimitation.36

There is currently a debate regarding the existence of customary international

law requiring States in dispute to conclude a JDA with other disputing States.37 The

affirmative side believes that there is a custom requiring States to conclude a JDA if

their territorial boundaries overlap. The custom was primarily created in accordance

with the rule prohibiting States from unilaterally appropriating the resources within the

disputed area.38 On the other hand, the opposition side mainly relies on the absence of

opinio juris that is constitutes of a custom.39

Whether or not there is a custom requiring the conclusion of a JDA, there is

another duty provided under Article 74 of the UNCLOS, which is to negotiate in good

faith.40 Article 74 provides that States must “make every effort to conclude provisional

arrangements of practical nature.” However, the broad language used in Article 74 of

the UNCLOS creates an issue of whether the said provision is binding. The alleged

lack of standards deprives the Philippines a means to compel China to negotiate.

36 Convention on the Law of the Sea, Dec. 10, 1982, Article 74 ¶ 3, 83 ¶ 3 1833 U.N.T.S. 3. [hereinafter “UNCLOS”].37 See Nguyen Hong Thao, Joint Development in the Gulf of Thailand, IBRU BOUNDARY AND SECURITY BULLETIN 79, at 85 (Autumn 1999).38 William T. Onorato. Apportionment of an International Common Petroleum Deposit. 26 (2) THE INTERNATIONAL AND COMPARATIVE LAW QUARTERLY, 324, 337 (APR. 1977).39 David M. Ong, Joint Development of Common Offshore Oil and Gas Deposits: “Mere” State Practice or Customary International Law? 93 (4) THE AMERICAN JOURNAL OF INTERNATIONAL LAW 771, 793 (OCT., 1999) [hereinafter “Ong”]. 40 See Chapter IV (A) (1).

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b. JDA becoming an Instrument of Maintaining Peace

Christine Bell coined the term “lex pacificatoria” or the law of the peacemaker.

According to her, the aim of lex pacificatoria is to end interstate and intrastate conflict.

Bell illustrates Lex Pacificatoria in the manner stated below:

The lex pacificatoria at its deepest has been illustrated to constitute a new set of relationships between states, their nonstate armed opponents and a range of third party states, international organizations and NGOs, in the form of an internationalized transitional constitution, and hybrid transitional regime.41

Bell further explained that a peace agreement in accordance with lex

pacificatoria is not “determinative of a particular constitutional outcome.”42 In short,

they are “meta-constitutional laws” that regulate the relations of the parties.43

In this aspect, JDAs are like peace agreements. Both types of agreements

contain compromises that the participating States must make.44 Both agreements face

the problem of making sure that they are “legally-sound.”45 More importantly, both

agreements are written like a framework agreement..46

However, JDAs and peace agreements are two different agreements. Entering

into a JDA is a form of compliance with an international obligation. In effect, a JDA

only prevents the conflict between States from being created and does not end a

territorial dispute. In contrast, a peace agreement is not an obligation of a State under

any international law. Consequently, entering into a peace agreement is not a form of

41 CHRISTINE BELL, ON THE LAW OF PEACE: PEACE AGREEMENTS AND THE LEX PACIFICATORIA 293.42 Id.43 Id., 5-6, 9.44 Id., 5-6.45 Id. 46 Id.

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compliance to any rule or law. And unlike a JDA, a peace agreement ends a pre-

existing conflict.47 In other words, a peace agreement is not a provisional but a final

agreement between the parties.

In summary, JDAs are not totally the same as peace agreements following the

lex pacificatoria. A JDA is a preventive measure while a peace agreement is a mode of

dispute resolution. Consequently, it would be inappropriate to strictly apply the

emerging rules under lex pacificatoria in creating a JDA. The issue of whether a JDA

must be formed between China and the Philippines should not be affected by the lack of

concrete legal basis under international law of lex pacificatoria.

With this in mind, the proponent broadly structures this study in this manner:

first, the study will determine whether there is an existing international obligation;

second, the study will interpret the meaning of the obligation using the Vienna

Convention on the Law of Treaties; and third, the study will determine whether there is

compliance with the obligation.

B. STATEMENT OF THE PROBLEM

Is there a duty to conclude a joint development agreement (“JDA”) over the petroleum resources in the disputed area?

States have gained the ability to utilize the resources of the deep seabed.48 With

this newfound capacity coupled with the necessity of having large supply of oil and

natural gas, States can no longer ignore the territorial claims over uninhabitable areas of

47 Id.48 BBC News & Canada. Oil industry ‘double checking’ deep drilling safety, available at http://www.bbc.co.uk/news/10298342 (last accessed 16 June 2012).

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the seas. However, States cannot just appropriate for itself the resources because

disputing legal claims must be resolved first before the resources can be appropriated.49

Resolving a dispute through conventional means is long and difficult. As an

alternative, a provisional solution is provided for by international law. The UNCLOS

provides that States must enter into a provisional agreement called a “JDA.” This

solution does not address the issue of who owns the disputed territory. Instead, it

addresses the issue of how to share the resources inside the disputed area.

Consequently, States need not to wait a long time before they can become capable of

utilizing the resources in the disputed area.

A legal problem, therefore, presents itself: is there a duty to conclude an

agreement allowing the disputing States to appropriate the resources in the disputed

area without tackling the issue of ownership? In short, is there a duty to conclude a

JDA?

An international duty can only exist when there is a law requiring it. In the

absence of a international law, States cannot be compelled to enter into a JDA. Among

the sources of international law applied by the ICJ, custom and conventions may

support this duty. The proponent will extensively explore the presence or absence of a

Customary International Law or Custom requiring the conclusion of a JDA. If there is

a custom, then the Philippines and China can be said to have violated this duty.

Consequently, neither parties can ask for a remedy under the principle of pari delicto.

49 UNCLOS, supra note 36 Article 74 ¶ 3, 83 ¶ 3.

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The proponent will focus more on the existence of a custom since the

proponent’s extensive review of the treaties, general principles of law, and subsidiary

sources of International law does not support the existence of an international duty to

conclude a JDA.

As regards the issue of the existence of a custom, two writers had taken the

opposite sides of the issue – Onorato and Ong. Onorato affirms that there is a custom

compelling States to conclude a JDA. The position is primarily based on the growing

practice of States, as evinced by the increasing number of bilateral treaties that were

entered into during the 1970s. Bolstered by actions made by the North Sea States,

Onorato believes that the obligation to negotiate a sharing agreement had evolved and

became an obligation to conclude sharing agreements.50

Ong, on the other hand, opposes this theory of Onorato and mainly attacked the

latter’s position by proving the absence of an opinio juris, which is a primary

component of an international custom. No matter how prevalent the practice is, custom

cannot exist if there is no opinio juris.

Reliance on the debate of both writers is not sufficient when both allegations are

credible on its face. In an attempt to put the opinions of two writers in the same plane,

resort to the opinion of the Committee on Formation of Customary (General)

International Law is warranted. The said Committee formulated a set of rules that

encompassed the standpoints of both Onorato and Ong. Using these rules, the debate

may be put to an end. Without any intention of revealing the answer at the outset, the

50 Chapter III.

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resolution of the debate is only limited to three possible outcomes. First, there is no

custom. Second, there is a custom. Lastly, it still depends on the nature of the

circumstances.

How is good faith exercised by Statesin concluding JDAs?

One must distinguish the duty to conclude a JDA and the duty to negotiate in

good faith a JDA. In the former duty, a JDA must be formed by the parties, while the

latter, a JDA may or may not be formed.

On the issue of whether there is a duty to negotiate a JDA, the answer is clear.

The UNCLOS provides that there is a duty to negotiate in good faith. The duty can be

found in Articles 74 and 83 of the said treaty. However, the language employed by the

treaty – “shall make every effort” – produces a void in the law. A law without

standards is no law at all. Because of the language, the obligation appears to be akin to

a directive or a policy that is not binding. Yet, basic to statutory construction is to

adopt the interpretation that would give effect to the law rather than to destroy it. More

importantly, the ICJ has already recognized the obligation in two of its decisions – one

in the North Sea Continental Shelf cases and the other is in the Delimitation of the

Maritime Boundary in the Gulf of Maine Area case.51

Indeed, there is an obligation but the lack of clarity as to its proper interpretation

prevents its enforcement. Good faith as a standard for negotiation has found its

meaning in the domestic courts decision and works of experts in negotiation. Although

States and the international courts are the usual interpreters of treaties, the interpretation

51 Chapter IV.

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of domestic courts and experts in are also under the Vienna Convention on the Law of

Treaties.

Whether or not a State can be compelledto enter into a JDA when the circumstancesreveal that cooperation is possible

Every thesis ends with a legal proposition. This study proposes and believes

that in a supposed absence of a custom requiring the conclusion of a JDA, the good

faith aspect required in every negotiation can compel States to enter into a JDA.

C. OBJECTIVES OF THE STUDY

This study takes a legal approach of determining the nature, legality, and effects

of a JDA. Its main objective is to determine whether it is compulsory for States to enter

into a JDA if the individual legal frameworks of China and the Philippines favor its

creation.

In practical terms, this study aims to provide the Philippine Government a

sufficient arsenal of arguments that it can offer to China during diplomatic talks. In a

territorial dispute, States will hold on tightly to their position. The parties will close

their ears to the position of the other. In order to rebut any refusal to negotiate, a strong

legal basis to compel States to negotiate is necessary.

The task, therefore, is to show that a refusal to enter into a JDA is an act done in

bad faith. Under international law, domestic laws cannot be used as reasons for refusal

to comply with the obligation. This study aims to create a legal framework where the

interplay of the two laws is possible without substantial harm on the part of the States.

In the end, the domestic laws of both States can be fitted together to form a joint

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regime. Consequently, a peaceful co-existence of both States can be achieved. The

desire of both States for a large domestic supply of oil will not result into an armed

conflict between States.

D. METHODOLOGY

This study first explains the definition of a JDA and the essential circumstances

that will lead to its application. It intends to define a JDA using opinions of the leading

authors in this field like Masahiro Miyoshi, David Ong and Yusuf Mohammad Yusuf.

The proponent will also define a JDA using the general elements of a contract – parties,

consideration and subject matter. To further the understanding of what is a JDA, the

types of JDAs, as explained by the experts in the field, shall also be discussed. The

materials that will be used in this chapter shall be the international conventions,

journals, concluded JDAs, ICJ and Permanent Court of Arbitration (“PCA”) decisions,

and writings of experts in the field.

The Proponent would like to stress that this study intends to discuss two duties

of States under international law – the duty to conclude a JDA and the duty to negotiate

a JDA. In Chapter III, the duty to conclude a JDA shall be discussed. In order for a

duty under international law to exist, there must be a law requiring it. The Statute of

the International Court of Justice (“ICJ”) enumerates the sources of international law.

This Study shall primarily discuss the issue of whether there is a custom requiring

States to conclude a JDA. In contrast, the other sources shall be discussed briefly. In

the process, this study shall be using the following materials: the UNCLOS, UN official

documents like the GA Resolution and UNEP Guidelines, writings of most highly

15

qualified publicists, PCIJ and ICJ decisions, the leading materials in JDA written by

William Onorato and David Ong, the Final Report of the London Conference, journals,

bilateral delimitation treaties, past JDAs concluded, and data from the CIA World

Factbook.

In Chapter IV, the duty to negotiate a JDA shall be discussed. The emphasis in

this Chapter is defining the good faith requirement in negotiations. To determine what

is the definition of good faith in negotiations, this chapter will resort to VCLT provision

on interpretation of treaties, PCIJ and ICJ decisions defining good faith in negotiations,

U.S. and Philippine Courts decision as regards bargaining in good faith and, expert

opinions of negotiation analysts.

Chapter V is a continuation of Chapter IV but its focus shifts to applying the

definition derived in Chapter IV. In the early part of this chapter, journals of experts in

Chinese Nationalism and general information about how oil fuels economic growth in

the present situation shall be used to show the significance of a concluded JDA. In the

later part of Chapter V, a reasonable and legal offer shall be made. To make the offer

to China acceptable, the relevant Chinese laws must be reviewed. Consequently, in

later part of this chapter, various Chinese laws in mining and the relevant Philippine

law in mining shall be used. To make sure that the relevant Philippine law is

constitutional, the note of Tecson, Villareal and Migallos shall be used.

E. SIGNIFICANCE OF THE STUDY

As the world oil supply continue to decrease, oil prices continue to increase. If

the supply increases, the price of oil will decrease. The oil locked inside the WPS can

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supply the local demand for oil and can even create a surplus for exportation.52 The

WPS is reported to contain 28 billion to 213 billion barrels of oil.53 The Philippines

consumes 310,000 barrels of oil per day, with an oil domestic production of only

33,110 barrels per day.54

However, no State may take advantage of the petroleum resources without a

final or provisional delimitation agreement. A JDA is a form of a provisional

delimitation agreement.55

This study proposes that there is an obligation for both China and the

Philippines to enter into a JDA. It will be explained later in this study that the duty to

conclude arises from the UNCLOS and not from customary international law. If both

States enter into a JDA, they will be able to immediately reduce the amount of oil they

are importing.

Aside from the economic benefits that will result from a concluded JDA, the

said agreement can also maintain the peaceful co-existence between China and the

Philippines. Peaceful co-existence may only be achieved if the States agree to refrain

from using force and intimidation. Having a JDA that embodies this intention in

written form is a step towards achieving this goal.

F. SCOPE AND LIMITATIONS

This study is limited to a JDA with China only

52 Reuters, supra note 23. 53 Id. 54 Central Intelligence Agency, East & Southeast Asia: Philippines, available at https://www.cia.gov/library/publications/the-world-factbook/geos/rp.html (last accessed 24 June 2012).55 Yusuf, infra note 85.

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A possible Joint Development Agreement (“JDA”) between the Philippines and

China will be the one that will be discussed in this study. The primary reason for this

limitation is a JDA with China is the most significant issue at the present because of the

aggressive stance China has over its claims. China’s aggression poses as a threat to its

peaceful co-existence with the Philippines. A limited scope will better show the

function of a JDA as an instrument of peace and economic betterment.

This study will not discuss the constitutionality of the Rules governing a JDA

A JDA is basically a provisional sharing agreement between States that is

mandated by UNCLOS to be negotiated in good faith.56 The sharing agreement has for

its subject matter the natural resources, which includes oil and natural gas, within the

maritime area where the EEZs overlap.57 To determine whether oil and natural gas

exist, an oil and natural gas exploration must first be commenced.58 If it was

determined after exploration that oil and natural gas do exist, exploitation or mining

will be done.59

However, before exploration of the natural resources can commence, States

must first determine the limits of their territory within the overlapping EEZ. If not,

then they will be violating Article 74, paragraph 3 of the UN Convention on the Law of

56 See Chapter II (B) and IV (A).57 Id.58 GOVERNMENT DU QUEBEC, STRATEGIC ENVIRONMENTAL ASSESSMENT OF OIL AND NATURAL GAS EXPLORATION AND DEVELOPMENT IN THE ANTICOSTI, MADELEINE AND BAIE DE CHALEURS BASINS (SEA2) 20.59 Id., 23.

18

the Seas (“UNCLOS”).60 This can be done through agreement or through a decision of a

third-party court.61

States do not need to wait for the conclusion of a final delimitation agreement or

for the decision of a court. States may enter into provisional agreements.62 These

provisional agreements govern the sharing of resources, until a final delimitation is

made.63 They may also govern the relations of the parties and set rules that the parties

must follow while the issue of ownership is being determined.64

However, a preliminary issue must be resolved first. Are the States allowed by

their national laws to enter into a provisional agreement like a JDA? To answer this

issue, the proponent partly relied on the study of other authors

Atty. Ma. Christina Tecson had already discussed the constitutionality of

Presidential Decree 87 (“P.D. No. 87”), which is the governing law on oil exploration

and exploitation. She concluded that oil exploration and exploitation with foreign

corporations are constitutional as long as that the constitutional safeguards under the

1987 Constitution are added with the requirements under P.D. No. 87.65

This study will include a discussion of the provisions under P.D. No. 87.

However, the purpose is not to prove their constitutionality. The discussion is meant to

determine whether there are irreconcilable provisions between the Chinese Mining

60 UNCLOS, supra note 36, Art. 74 ¶ 3; see Chapter V (C) for discussion.61 Id.62 Id.63 See Chapter II (C) (2).64 See Nigeria JDA, infra note 265, Footnote 85.65 Ma. Christina E. Tecson, Exploring Exploration: Fitting the Joint Marine Seismic Undertaking and Oil Exploration Laws into the Mold of Section 2, Article XII of the 1987 Constitution, 55 ATENEO L.J. 149, 172-181, 207-208 (2010).

19

Legal Framework and that of the Philippines. A chapter of this study is devoted to a

discussion on whether the Service Contract Regime of the Philippines and the

Concession Regime of China can operate together.66

This study is limited to a possible JDA over the petroleum resources in the “Delta Sea”

The UNCLOS made it mandatory for States to negotiate for a provisional

agreement like a JDA when an overlapping EEZ or continental shelf exists.67 If there

are no overlapping territories, States are not mandated to negotiate.68

There are several overlapping EEZs between the Philippines and the other

Southeast Asian Nations, this study will only discuss a possible JDA over the petroleum

resources in the overlapping EEZ between China and the Philippines. Micah Saturday

Alciso, author of the Juris Doctor Thesis entitled The Delta Sea, illustrated in detail the

overlapping EEZ between China and the Philippines and coined it as the “The Delta

Sea.” This study shall no longer go through the same tedious and hardworking process

as Mr. Alciso did. The credibility of the work of Mr. Alciso is obvious from the fact

that professors and lecturers have used his work.

This study, however, shall adopt the details of the end product of his work – an

illustration of where and how big is the overlap of the EEZs.69 This proves the theory

66 See Chapter V.67 UNCLOS, supra note 36, Art. 74 ¶ 3; see Chapter IV for the discussion on the obligation to negotiate.68 Id.; To negotiate is not synonymous with to conclude. See Chapter III for the discussion on the existence of an international obligation to conclude a JDA.69 Micah Saturday Alciso, The Delta Sea: Resolving the Overlapping 200 Nautical Mile Exclusive Economic Zones of the Republic of the Philippines and the People’s Republic of China in the West Philippine Sea in Light of the UNCLOS and Republic Act 9522, at Annex 10 (2012) (unpublished J.D. thesis, Ateneo de Manila University) (on file with the Professional Schools Library, Ateneo de Manila University).

20

of the proponent that there is so much in that area that the Philippines would not want

to neglect. Greater focus has been consistently given in the Scarborough and Spratly

islands area when an equally important territory exist in the northwestern area of the

Philippines, almost west of the Batanes island.

This study shall not discuss the modes ofdispute resolution under the Article 74, paragraph 1and Part XV of the UNCLOS

A JDA is neither a mode of negotiation nor a mode of dispute resolution. Its

legal basis is Article 74, paragraph 3 of the UNCLOS, which provides that States must

“make every effort to enter into a provisional agreements of a practical nature” pending

the conclusion of a final agreement. Authors incorporate a dispute-resolving aspect to

it because it prevents the escalation of the dispute and returns the relations back to

status quo ante.70 However, it is improper to treat it as a mode of dispute settlement.

A JDA is an agreement regarding the exploration and exploitation of petroleum

resources. However, it does not touch upon the issue of ownership. The overlap

remains to be disputed until a final delimitation is created.71

This study shall not discuss the proper final delimitation of the overlapping EEZ

in light of the non-conclusive nature of the nine dotted lines – how the boundaries have

to be divided and the extent of each other’s territory.

To reiterate, a JDA is not a final delimitation agreement. It is a provisional

agreement resorted to by States until a final agreement is created. Although putting

States in status quo ante is not its main purpose, States entering into a JDA agree to

70 Nguyen Hong Thao, supra note 37, at 79.71 UNCLOS, supra note 36, arts. 74 ¶ 3, 83 ¶ 3.

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suspend the issue on ownership and focus more on sustaining the need of States for a

stable supply of resources, especially oil.

This study will do a critique of the differingopinions as to the existence of a customof the experts in JDA.

One of the issues that this study seeks to resolve is the presence or absence of a

customary international law requiring the conclusion of a JDA. If it is determined that

there is a custom, then the discussion of the true legal definition of the phrase “make

every effort to enter into provisional arrangements of a practical nature” is not

necessary. If a custom exists, States are not only required to exert every effort. They

are mandated to conclude.

To determine the presence or absence of a custom, the proponent looked into the

publications of the two most highly qualified publicists in this field – William Onorato

and David Ong. William Onorato proposed that there is a custom requiring States to

enter into an agreement that has for its subject matter the utilization of the resources in

a disputed area.72 David Ong opposed this proposition by arguing that there is no

opinio juris to the proposed practice.

This study will discuss the salient points of their arguments and will provide an

analysis of their arguments using the rules formulated by the Committee on the

Formation of Customary International Law (“Committee”). It shall be shown that both

experts coincide and operate jointly in the same plane when both arguments are viewed

72 Onorato, supra note 38.

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using the rules provided by the Committee. Under such rules, it shall be determined

who has a better opinion.73

This study will discuss how the duty to negotiate is complied.

This study differentiated the duty to conclude a JDA and the duty to negotiate a

JDA. The duty to negotiate is found in the UNCLOS itself, which states that States

“shall make every effort to enter into provisional arrangements of a practical nature.”

The duty to conclude a JDA is independent from the duty of to negotiate a

provisional agreement. The obligation has been reiterated in at least two decisions of

the ICJ, namely the North Sea Continental Shelf cases and the Gulf of Maine case.

G. ORGANIZATION OF THE THESIS

Chapter 2 shall discuss the presence of overlapping EEZs between China and

the Philippines. In this chapter, the legal bases used in determining the EEZs of both

States shall be discussed. It shall be revealed that the overlap of the two EEZs produces

an area too significant to be neglected.

Chapter 3 shall discuss JDA as an emerging concept in international law. The

discussion under this chapter shall be two-pronged: first, the JDA as an agreement shall

be discussed; second, the JDA as capable of resolving a dispute shall be discussed.

Chapter 4 shall discuss the duty of States to negotiate in good faith. The chapter

will first discuss that the duty is recognized by the ICJ in its two decisions namely, the

North Sea Continental Shelf cases and the Gulf of Maine case. Then, it will proceed on

discussing the how the void in the law is to be resolved using the modes authorized by

73 See Chapter III.

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the VCLT. The chapter will be concluded by a discussion on Negotiation Analysis

Approach, which basically states that the duty to negotiate involves an evaluation of

what can and cannot be compromised.

Chapter 5 is a continuation of Chapter 4. It will mainly focus on applying the

Negotiation Analysis Approach to the WPS dispute. Through the process of evaluation,

the benefit of a status quo and of having a cooperative agreement shall be discussed. It

will be revealed that a cooperative agreement will mutually benefit both States.

However, every agreement starts with an offer so, in this chapter, a reasonable and legal

offer of the Philippines shall be explored. The offer must conform not only to the legal

mining framework of the Philippines. It must also conform to the legal mining

framework of China to make the offer acceptable. In order make the offer acceptable to

both States, an evaluation of the legal frameworks shall be done. In the end, it shall be

argued that both legal frameworks can operate within the same environment; that, the

normal profits of both governments are not diminished and; that, the financial burden is

primarily with the Contractor but this burden is not unbearable considering the profits a

Contractor makes in its business. In order to reinforce the previous position, this study

will look at the possible compromises, which the parties may have to agree, in order to

remove some impediments to a possible cooperation.

Chapter 6 shall be the Conclusion and Recommendation. In this part, the entire

study shall be explained, the purpose and relevance of every part of the thesis, and how

each part contributes to the legal proposition, which, broadly stated, is whether or not,

24

in the conflict between the Philippines and China, the duty to negotiate a JDA is also a

duty to conclude.

25

II. JDA AS AN EMERGING CONCEPT IN INTERNATIONAL LAW

A. THE PHILIPPINES AND CHINA ARE BOUND TO COMPLY WITH

THE UNCLOS

1. The Philippines Signed and Ratified the UNCLOS

Under Article 11 of the Vienna Convention on the Law of Treaties (“VCLT”),

“[t]he consent of a State to be bound by a treaty may be expressed by signature,

exchange of instruments constituting a treaty, ratification, acceptance, approval or

accession, or by any other means if so agreed.“74 Article 24, paragraph 3 of the VCLT

further provides that “[w]hen the consent of a State to be bound by a treaty is

established on a date after the treaty has come into force, the treaty enters into force for

that State on that date, unless the treaty otherwise provides.”75 More importantly, the

Article 26 of the VCLT restated the general principle of pacta sunt servanda, which

states that “[e]very treaty in force is binding upon the parties to it and must be

performed by them in good faith.“76

The Philippines agreed to be bound by the UNCLOS and the provisions of the

said convention also became part of the laws of the Philippines upon concurrence of the

Senate. Section 21, Article VII of the 1987 Constitution provides that two-thirds of the

Senate must concur to give effect to the treaty before such treaty enters into force. 77

The Philippines signed the treaty on 10 December 1982 and the Senate concurred to

74 Vienna Convention on the Law of Treaties art. 11 May 23, 1969, 1155 U.N.T.S. 331 [hereinafter “VCLT”].75 Id., at Art. 24 ¶ 3.76 Id., at Art. 26.77 PHIL. CONST. ART. VII, § 21.

26

make it effective in 8 May 1984.78 Therefore, the Philippine is bound to comply with

the provisions of the UNCLOS in the international and in the domestic sense.

2. China Signed and Ratified the UNCLOS

China also ratified the UNCLOS on 7 June 1996.79 However, it made a

declaration 10 years after or on 25 August 2006, which states that “[t]he Government of

the People's Republic of China does not accept any of the procedures provided for in

Section 2 of Part XV of the Convention with respect to all the categories of disputes

referred to in paragraph 1 (a) (b) and (c) of Article 298 of the Convention.”80

B. ARTICLES 74 (3) APPLIES WHEN THERE IS AN OVERLAPPING

EEZ

1. Overlapping EEZ

The Declaration of the Government of the People’s Republic of China (“PRC”)

and the Law of the PRC on the Territorial Sea and the Contiguous Zone law are the

legal bases for China’s EEZ.81 Republic Act 9522, on the other hand, is the basis for

determining the EEZ of the Philippines.82 Plotting the coordinates provided by both the

Chinese Laws and Philippine law and extending them to 200 nautical miles will reveal

78 Division for Ocean Affairs and the Law of the Sea, Declarations and statements, available at http://www.un.org/Depts/los/convention_agreements/convention_declarations.htm#Philippines Understanding made upon signature (10 December 1982) and confirmed upon ratification (last accessed 12 June 2012). 79 Division for Ocean Affairs and the Law of the Sea, Declarations and statements, available at http://www.un.org/Depts/los/convention_agreements/convention_declarations.htm#China Upon ratification (last accessed 12 June 2012).80 Id.81 Alciso, supra note 69, p.59.82 Id., p.11.

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the overlapping EEZ, the size of which is almost the same as the terrestrial territory of

Taiwan.83

2. Void in the Law

Articles 74.3 and 83.3 of the UNCLOS provides that:

Pending agreement as provided for in paragraph 1, the States concerned, in a spirit of understanding and cooperation, shall make every effort to enter into provisional arrangements of a practical nature and, during this transitional period, not to jeopardize or hamper the reaching of the final agreement. Such arrangements shall be without prejudice to the final delimitation.84

There are some parts of the provision that are definite and categorical. First,

there is no delimitation yet of the overlapping clams. And second, the phrase “such

arrangements” refers to agreements that are provisional or still subject to the final

agreement of the parties. This also implies that Article 74 are speaking of two different

agreements that disputing States must agree to enter into. First is the delimitation or

final agreement. And the second one is the provisional agreement.

More importantly, there is a void in the law. The provision did not define what

specifically the “provisional arrangements of a practical nature” is. Moreover, the

phrase “shall make every effort to enter” produces a void in the law. It does not say

whether or not there is a duty to conclude a provisional arrangement.

3. JDA as a Provisional Arrangement of a Practical Nature

Yusuf opines that “the creation of a joint development zone, pending boundary

delimitation, in order to develop offshore petroleum resources certainly qualifies as an

83 Id., Annex 10.84 UNCLOS, supra note 36, arts. 74 ¶ 3, 83 ¶ 3.

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example of a ‘provisional agreement.’”85 The opinion of Yusuf was supported by the

decision of the Guyana Suriname Arbitration, which favored a joint development

between the disputing States.86 It was also supported by the ICJ which ruled that

disputing States may either equally or proportionately divide the disputed area or they

may “decide on a regime of joint jurisdiction, user, or exploitation for the zones of

overlap or any part of them” (Emphasis omitted).87

C. Definition of a JDA

Joint Development Agreements (“JDA”) are agreements, concluded by States,

allowing States to explore and exploit the resources in the disputed area, containing

stipulations governing the exploration and exploitation within the disputed area.

1. Parties to the JDA

Only States can enter into a joint development agreement.88 The general rule is

only States have international legal personality.89 However, according to Malcolm

Shaw, non-State entities can also gain legal personality because:

International personality is participation plus some form of community acceptance. The latter element will be dependent upon many factors, including the type of personality under question. It may be manifested in many forms and may in certain cases be inferred from practice. It will also reflect a need. Particular branches of international law her are playing a crucial role. Human rights law, the law relating to armed conflicts and international economic law are especially important in generating and

85 Yusuf Mohammad Yusuf, Is joint development a panacea for maritime boundary disputes and for the exploitation of offshore transboundary petroleum deposits?, I.E.L.R. 2009, 4, 130-137, AT 135 [hereinafter “Yusuf”].86 Id., at 136; citing Guyana-Suriname Arbitration (Guyana/Suriname), Hague Ct. Rep. 153 ¶ 462 (Perm. Ct. Arb. 2007), available at http://www.pca-cpa.org/showfile.asp?fil_id=664 (last access 18 June 2012).87 Id. at 135; citing North Sea Continental Shelf cases (Federal Republic of Germany/Denmark; Federal Republic of Germany/Netherlands), 1969 I.C.J. Rep. 3, at p.53, ¶ 101(C)(2), available at <http://www.icj-cij.org/docket/files/52/5561.pdf>, (last accessed 18 June 2012).88 UNCLOS, supra note 36, Art. 74¶3, 83¶3.89 MALCOLM SHAW. INTERNATIONAL LAW. 196 (6th ed. 2008).

29

reflecting increased participation and personality in international law.90

Hence, when the community afforded non-State entities with legal personality through

the subsequent enactments of international laws, they acquire the capacity of a State.91

However, the wording of Articles 74.3 and 83.3 is specific.92 It used the word

“State” as the entity that has the capacity to enter into “provisional agreements,” which

include joint development agreements. According to the Montevideo Convention,

“[t]he state as a person under international law should possess the following

qualifications: a ) a permanent population; b ) a defined territory; c ) government; and

d) capacity to enter into relations with other states.”93 The meaning accorded cannot be

similar with non-State entities such as individuals or corporations. Therefore, only

States remain to be entitled to enter into a JDA.

2. JDA allows Exploration and Exploitation Pending Delimitation

JDA was defined in different ways by different authors. Yusuf defines it as a

“legal arrangement that allows to or more coastal neighbours to conduct the joint

exploration and production of petroleum resources situated in areas of overlapping

claims.”94 David Ong defines joint development as “a generic term given to

international agreements between states whose main function is to provide for the co-

operative exploitation of hydrocarbon resources that come under the jurisdiction of two

90 Id. at 197.91 Id.92 UNCLOS, supra note 36, Art. 74¶3, 83¶3.93 Montevideo Convention on the Rights and Duties of States, Article 1 Dec. 26, 1933 (entered into force Dec. 26, 1934).

94 Yusuf, supra note 85, 131.

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states.”95 Lastly, Miyoshi defines it as “an inter-governmental arrangement of a

provisional nature, designed for functional purposes of joint exploration and for and/or

exploitation of hydrocarbon resources of the sea-bed beyond the territorial seas.”96

Basic to the definitions provided above is the fact that States enter into a JDA to

allow them to explore and exploit the hydrocarbon or oil resources within overlapping

territories. But Miyoshi’s definition is unique in a sense that he described a JDA as

provisional. Indeed, a JDA does not determine the issue of ownership over the disputed

territory.97 As discussed above, a JDA is a separate agreement entered into by disputing

States while the dispute is being resolved.98 Although the territorial boundaries are not

yet determined with finality, Article 74, paragraph 3 of the UNCLOS allows States to

enter into “provisional agreements of a practical nature.”99 As discussed in Chapter II

(B), these agreements include JDAs. Therefore, by synthesizing the definitions of the

three known authors in the field of JDA with the provisions of the UNCLOS, a JDA

can be defined as an agreement the consideration for which is the capacity to explore

and exploit the hydrocarbon resources even if there is no final determination yet as to

the limits of each of the States’ territory.

95 Id.; citing DAVID M. ONG. THE PROGRESSIVE INTEGRATION OF ENVIRONMENTAL PROTECTION WITHIN OFFSHORE JOINT DEVELOPMENT AGREEMENTS, in EXPLOITATION OF NATURAL RESOURCES IN THE 21ST

CENTURY 116 (M. Fitzmaurice and M. Szuniewicz, eds., 2003).96 Id., at 132; citing Masahiro Miyoshi, The Joint Development of Offshore Oil and Gas in Relation to Maritime Boundary Delimitation, 2(5) MARITIME BRIEFING 1, at 3.97 Elliot L. Richardson, Jan Mayen in Perspective, 82 AM. J. INT’L L 443, 449 (1988).98 Chapter II (B) (3).99 UNCLOS, supra note 36, Art. 73¶3.

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D. Types of Joint Development

Although there are a number of JDAs that have been concluded by States, it is

highly unlikely that two distinct JDAs will be the same.100 Stipulations are dependent

on the political and socioeconomic climate of the State.101 Since every State has

different political and economic conditions from other States, then, it is highly unlikely

that two JDAs are the same.

1. Single Model

In a Single Joint Development Model, only one of the States oversees the

operation.102 The other State’s participation is limited to the profit sharing.103 An

example of this type of Joint Development is the Saudi Arabia/Bahrain Agreement in

1958.104

In the Saudi Arabia/Bahrain Agreement, both States agreed to jointly develop an

area in the Arabian Gulf.105 Saudi Arabia and Bahrain are located opposite to each

other, approximately 95 to 135 miles apart.106 Both States agreed that they would

equally divide the disputed area.107 Moreover, they both agreed that the sovereignty of

100 Yusuf, supra note 85, 134; citing Joint Development of Offshore Oil and Gas, 1 Brit. Inst. of Int’l. Comp. L. 115 (Fox et. al. eds, 1989).101 Id.102 PETER CAMERON AND RICHARD NOWINSKI. JOINT DEVELOPMENT AGREEMENTS: LEGAL STRUCTURE AND KEY ISSUES [hereinafter “Cameron & Nowinski”]103 Id.104 Id.105 Miyoshi, supra note 96, p. 27.106 Richard Young, Equitable Solutions for Offshore Boundaries: The 1968 Saudi-Arabia-Iran Agreement, 64 AM. J. INT’L L. 152, 152 (1970). 107 Miyoshi, supra note 96, p.28.

32

Saudi Arabia over that area would not be affected even though the joint development

zone covers such area.108

2. Compulsory Joint Model

In a Compulsory Joint Model, operators from both States form a joint venture.109

An example of this type is the Japan-South Korea Agreement.110 In that agreement, the

disputed area is divided into subzones.111 In a subzone, there are two or more

concessionaires, each licensed by the State parties.112 Then, one of the concessionaires

will be selected as the operator.113 The laws that will be applicable in the area will

depend on the nationality of the concessionaire that was chosen as the operator.114

With regard to sharing of revenues and expenses, the agreement states that the

concessionaires will share them equally.115 The revenues of the State will be in the

form of taxes to which their concessionaires are liable to pay.116

3. Joint Authority Model

In a Joint Authority Type, a separate entity was established by State-parties.117

A recent example of an agreement that adopted this framework is the Thailand-

108 Id.109 DAVID M. ONG. IMPLICATIONS OF RECENT SOUTHEAST ASIAN STATE PRACTICE FOR THE INTERNATIONAL LAW ON OFFSHORE JOINT DEVELOPMENT.110 Id.111 Ana E. Bastida, et. al, Cross-Border Unitization and Joint Development Agreements: An International Law Perspective, 29 Hous. J. Int’l. L. 355, 399 (2007).112 Id.113 Id.114 Id.115 Id.116 Id.117 CAMERON & NOWINSKI, supra note 102.

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Malaysia Memorandum of Understanding (“MOU”).118 In the Thailand-Malaysia

MOU, the separate entity has been granted by both States with “administrative and

developmental powers incidental or connected with the discharge of its petroleum

operations functions.”119

118 Id.119 Bastida, supra note 111, 402.

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III. INTERNATIONAL OBLIGATION TO CONCLUDE A JDA

Article 38(1) of the Statue of the International Court of Justice (“ICJ”)

enumerates the following sources of law, which would also constitute the State’s

sources of obligation:

a. International conventions, whether general or particular, establishing rules expressly recognized by the contesting states;

b. International custom, as evidence of a general practice accepted as law;

c. The general principles of law recognized by civilized nations;d. Subject to the provisions of Article 59, judicial decisions and the

teachings of the most highly qualified publicists of the various nations, as subsidiary means for the determination of rules of law.120

The existence of international conventions and general principles of law shall

not be substantially discussed. No convention requires States to conclude a JDA. The

existing and relevant convention – the UNCLOS – expressly states that the duty is only

to negotiate and not to conclude.121 Article 74, paragraph 3 uses the words “shall make

every effort” implying that the conclusion of a JDA remains to be voluntary on the part

of the States.122

There can also be no general principle of international law supporting the duty

to conclude a JDA. Bin Cheng provided a two-pronged test. The rule must, first, be

considered a principle that “expresses a general truth, which guides our action, serves

as a theoretical basis for the various acts of our life.”123 Second, it must be “recognized

120 United Nations, Statute of the International Court of Justice, Article 38 ¶ 1, available at http://www.unhcr.org/refworld/docid/3deb4b9c0.html (last accessed 24 June 2012) [hereinafter “Statute of the ICJ”]121 UNCLOS, supra note 36, art. 74 ¶ 3.122 Id.123 BIN CHENG, GENERAL PRINCIPLES OF LAW AS APPLIED BY INTERNATIONAL COURTS AND TRIBUNALS 24.

35

by civilised nations.”124 Bin Cheng succinctly discussed at what point in time can a

principle be considered as a source of international law:

Lord Phillimore also explained that the principles referred to in Article 38 I (c) were those which were “accepted by all nations in foro domestico.” M. de La Pradelle took them to mean that general principles of law were the basis of the municipal law of all or nearly all States. The recognition of these principles in the municipal law of civilized peoples, where the conception of law is already highly developed, gives the necessary confirmation and evidence of the juridical character of the principle concerned. The qualification “recognized by civilised nations” was intended to safeguard against subjectivity and possible arbitrariness on the part of the judge.125 (Underscoring supplied)

In other words, the rule that States must conclude a JDA must first be

considered a principle. The second test is that this principle must be able to reach the

level wherein it can be considered as embedded in the domestic laws of civilized

nations. Since none of the tests were complied with, there can be no general principle

of law requiring States to enter into a JDA. Therefore, what is left to discuss is the

existence or non-existence of custom, which can either be general or universal and

regional.

A. The Debate: Existence or Non-existence of a General Custom

This part of the study seeks to determine the existence or non-existence of a

custom that will mandate the conclusion of a JDA. If there is such a custom, then the

duty to negotiate a JDA provided under the UNCLOS is useless. If States must

conclude a JDA, the later part of this study, which discusses the true definition of good

faith negotiation, is not necessary. The proponent is of the position that there is no

124 Id., p.24-25.125 Id.

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custom requiring the conclusion of a JDA. Thus, it becomes necessary to determine the

true meaning of good faith negotiation.

1. Elementary Requirements of State Practice and Opinio Juris

The Committee on Formation of Customary (General) International Law

(“Committee”), composed of Professor Mendelson, as the Chairman, Professor

Mullerson, as the Rapporteur, and other most highly qualified publicists of different

countries like Dr. Villiger, Professor Bin Cheng and Professor Schroder,126 created a set

of rules “for practical guidance” in determining the existence of customary international

law (“custom”).127

According to the Committee, the International Court of Justice in the North Sea

Continental Shelf cases gave an elaborate explanation of what is a custom:

Not only must the acts concerned amount to a settled practice, but they must also be such, or be carried out in such a way, as to be evidence of a belief that this practice is rendered obligatory by the existence of a rule requiring it. The need for such a belief, i.e. the existence of a subjective element [emphasis added], is implicit in the very notion of the opinio juris sive necessitatis. The States concerned must therefore feel that they are conforming to what amounts to a legal obligation. The frequency, or even habitual character of the acts is not in itself enough. There are many international acts, e.g., in the field of ceremonial and protocol, which are performed almost invariably, but which are motivated only by considerations of courtesy, convenience or tradition, and not by any sense of legal duty.128 (Emphasis omitted)

This has also been the position of members of the Committee.129 That is, a

custom has two elements – State practice and opinio juris sive necessitates (“opinio

126 London Conference. London, U.K., July 2000, Statement of Principles Applicable to the Formation of General Customary International Law, Final Report of the Committee, London, 2000, p. 1127 Id., at p. 3-4.128 Id. at p. 6; citing North Sea Continental Shelf cases, 1969 I.C.J. Rep. at p.44, ¶ 77.129 London Conference, supra note 126, at p. 7.

37

juris”).130 Similarly, the Statute of the ICJ breaks down custom into general practice

and the element that it is accepted as a law.131 These elements have been thoroughly

discussed by the Committee in Parts II an III of their final report, which shall be re-

discussed in this study. Also, opinion of Malcolm Shaw will be inserted to supplement

the Committee’s opinion.

In this part of the study, Part III (A), the sub-elements of State Practice and

Opinio Juris is defined. In Part III (B), regional custom shall be explained. Lastly, in

Part III (C) of this study, the issue of whether there is State Practice and Opinio Juris or

not shall be answered, including whether a regional custom exists in Southeast Asian

region.

2. The Elements of State Practice

The Committee’s discussion of what is State practice can be broken down into

three parts. They first discussed the acts contributive to the creation of a State practice.

Then, they discussed who or what must be the actor of the practice. Lastly, they

discussed the density of the practice.

a. Acts Contributive to State Practice

The act of a State may either be physical or verbal.132 Physical acts refer to

“arresting people or seizing property”133 and the like. On the other hand, verbal acts,

refer to the:

[d]iplomatic statements (including protests), policy statements, press

130 Id.131 Statute of the ICJ, supra note 120, art. 38 ¶ 1.132 London Conference, supra note 120, at p. 14.133 Id.

38

releases, official manuals (e.g. on military law), instructions to armed forces, comments by governments on draft treaties, legislation, decisions of national courts and executive authorities, pleadings before international tribunals, statements in international organizations and the resolutions these bodies adopt.134

However, the formal verbal or physical acts, which contribute to State practice, must be

further sieved from opinions of the actors, which do not contribute.135 Not only must

the acts of the States be sieved, they must also be based on the influence and

contribution of the act to the evolving State practice.136

Moreover, the act must be public or disclosed to other States.137 Shaw agrees

and posits that the “factor of conspicuousness emphasizes . . . the more significant

elements of the overt act which affirms the existence of a custom.”138 Disclosure, as

defined by the Committee, is tantamount to an announcement to other States.139 What

the Committee argues as non-constitutive of a custom is an internal communication

within the State alone.140 Consequently, at least two States must know about the act to

make such act public and constitutive of State practice.141

The last type of act that contributes to the creation of State practice includes

those considered as omissions.142 The Committee disagrees with the decision of the ICJ

134 Id.135 Id., at p. 15.136 SHAW, supra note 89, p.80.137 London Conference, supra note 120, at p. 15.138 SHAW, supra note 89, p.84.139 London Conference, supra note 120, p.15..140 Id.141 Id.142 Id.

39

in the Lotus case. It treats the “abstention of States” as omissions constitutive of a State

practice when such abstention is not ambiguous.143

To Shaw, omissions or “[f]ailures to act are in themselves just as much evidence

of a state’s attitudes as are actions.”144 But Shaw added, as a way of caution, that “a

failure to act can arise from either a legal obligation not to act, or an incapacity or

unwillingness in the particular circumstances to act."145 He further cautioned that the

omission must be a conscious act. The States, as actors, must be “aware that they were

not acting a particular way because they were under a definite obligation not to act that

way.”146

b. The Actors in Acts Constitutive of State practice

The Committee limited the acts constitutive of State practice to those performed

by the executive, legislative and judicial organs of the State, and those performed by

intergovernmental organizations.147 On the other hand, those performed by individuals,

corporations, and territorial governmental entities do not contribute to State practice,

unless ratified by the State.148

Last but not the least, acts of international courts and tribunals also do not

contribute to State practice.149 In contrast, acts of the international organizations

143 Id.; citing the Case of the S.S. “Lotus”, PCIJ, Ser. A, No. 10, 4, p. 28 (Sept. 1927) (“for only if such abstention were based on their being conscious of having a duty to abstain would it be possible to speak of an international custom”)144 SHAW, supra note 89, p.80-81.145 Id.146 Id., citing S.S. “Lotus”, 1927 PCIJ p. 28.147 London Conference, supra note 120, 16-19.148 Id., at p. 16-17149 Id., at p. 18-19

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accorded with international personality, like the United Nations (“UN”), contribute to

State practice.150 According to Shaw, the latter’s acts through its resolutions evince

State practice.151

c. Uniform, Extensive, Representative, and has been Practiced

for a Considerable Length of Time

Aside from the issue of selecting a State practice, there is also the issue of

whether the practice is uniform, extensive and representative, and whether States are

following the practice for a considerable period of time.

i. Uniformity

Uniformity of the practice is generally described as consistency.152 There are

two kinds of uniformity. One is internal uniformity and the other is the “collective

uniformity.”153

Internal uniformity is explained in the Nicaragua case as the opposite of

“inconsistencies between what a State says is the law and what it does.”154 In the same

case, it was explained by the Committee that such inconsistencies would not affect the

uniformity of the practice provided the non-conforming State “does not try to excuse its

non-conforming conduct by asserting that it is legally justified.”155 The ICJ held that:

150 SHAW, supra note 89, p.83.151 Id.; See Legal Consequences of the Construction of the Wall in the Occupied Palestinian Territory, Advisory Opinion, I.C.J. Reports 2004, p. 136, 171 ¶ 86.152 London Conference, supra note 120, p. 22153 Id; citing MENDELSON, 272 COLLECTED COURSES, 211-14.154 London Conference, supra note 120, 22; citing Case Concerning Military and Paramilitary Activities In and Against Nicaragua (Nicar. v. U.S.) Merits, p.98, ¶ 186 (27 June 1986), available at http://www.icj-cij.org/docket/files/70/6503.pdf (last accessed 19 June 2012).ICJ Rep. 1986, p. 14 at p. 98.155 London Conference, supra note 120, 22; citing Military and Paramilitary Activities, 1986 I.C.J. at p.98, ¶ 186

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If a State acts in a way prima facie incompatible with a recognized rule, but defends its conduct by appealing to exceptions or justifications contained within the rule itself, then whether or not the State’s conduct is in fact justifiable on that basis, the significance of that attitude is to confirm rather than to weaken the rule.156

Collective uniformity, on the other hand, focuses on the inconsistencies found in

the acts of the States.157 The Committee took the position that if the inconsistency is so

great, then State practice cannot be held to exist.158 However, if the inconsistencies are

only “minor departures” to the consistent practice of States, there can still be

uniformity.159 The Committee cited the Asylum case to illustrate inconsistency.160

In Asylum case, the Colombian Ambassador granted an asylum in favor of M.

Victor Raul Haya de la Torre, the head of the American People’s Revolutionary

Alliance.161 De la Torre and others was accused of a rebellion.162 De la Torre sought

asylum in the Colombian Embassy in Lima. Heeding to the request of De la Torre, the

Colombian Ambassador requested that De la Torre be given a safe exit. Peru refused

and the case was referred to the ICJ.163

In The ICJ refused the request of an asylum on the ground that Colombia failed

to prove uniformity in the practice.164 In a portion of its decision, the ICJ held:

The facts brought to the knowledge of the Court disclose so much uncertainty and contradiction, so much fluctuation and discrepancy in the exercise of diplomatic asylum and in official views expressed on

156 Military and Paramilitary Activities, 1986 I.C.J. at p.98, ¶ 186.157 London Conference, supra note 120, p. 22-23.158 Id.159 Id.160 Id.161 Asylum (Colom. v. Peru), 1950 I.C.J. 266, 272-279 (Nov. 20).162 Id.163 Id.,164 Id.

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various occasions, there has been so much inconsistency in the rapid succession of conventions on asylum, ratified by some States and rejected by others, and the practice has been so much influenced by considerations of political expediency in the various cases, that it is not possible to discern in all this any constant and uniform usage, accepted as law, with regard to the alleged rule of unilateral and definitive qualification of the offence.165

ii. Extensive and Representative

Moreover, the practice must be extensive and representative.166 According to

the Committee, the extensiveness of the practice “is not simply a question of how many

States participate in the practice.”167 It must be representative or considers only the

practice “of States whose interests are specially affected.”168

The Committee posits the view that “if all major interests (‘specially affected

State’) are represented, it is not essential for a majority of States to have participated …

if important actors do not accept the practice, it cannot mature into a rule of general

customary law.”169 The Committee justified this “undemocratic” rule in the following

manner:

In the nature of things, who is “specially affected” will vary according to circumstances. There is no rule that major powers have to participate in a practice in order for it to become a rule of general customary law. Given the scope of their interests, both geographically and ratione materiae, they often will be “specially affected” by a practice; and to that extent and to that extent alone, their participation is necessary.170

165 London Conference, supra note 120, 23; citing Asylum, 1950 I.C.J. at 272.166 London Conference, supra note 120, p. 25167 Id., at p. 26.168 Id., at p. 26; citing North Sea Continental Shelf cases, 1969 I.C.J. Rep. at p.42, ¶ 73.169 London Conference, supra note 120, p.26.170 Id.

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Malcolm Shaw explained this “undemocratic rule” by stating that “heavier

footprints” were made by “influential [S]tates of the world.”171 Shaw states:

One particular analogy that has been used to illustrate the general nature of customary law was considered by de Visscher. He likened the growth of custom to the gradual formation of a road across vacant land. After an initial uncertainty as to direction, the majority of users begin to follow the same line which becomes a single path. Not long elapses before that path is transformed into a road accepted as the only regular way, even though it is not possible to state at which precise moment this latter change occurs. And so it is with the formation of a custom. De Visscher develops this idea by reflecting that just as some make heavier footprints than others due to their greater weight, the more influential states of the world mark the way with more vigour and tend to become the guarantors and defenders of the way forward.172 (Emphasis supplied)

Shaw posits that countries that made “heavier footprints” more likely led the

creation of a custom.173 United Kingdom, according to him, significantly contributed to

the Law of the Sea and the Prize law. Russia and United States, on the other hand,

contributed in the creation of a Space Law.174

iii. Duration

The last element of duration is still debatable. The ICJ in the North Sea

Continental Shelf cases, held that:

Although the passage of only a short period of time is not necessarily, or of itself, a bar to the formation of a new rule of customary international law on the basis of what was originally a purely conventional rule, an indispensable requirement would be that within the period in question, short though it might be, State practice, including that of States whose interests are specially affected, should have been both extensive and virtually uniform in the sense of the provision invoked . . . . 175

171 SHAW, supra note 89, p.79-80.172 Id.173 Id.174 Id.175 London Conference, supra note 120, p.20; citing North Sea Continental Shelf cases, I.C.J. Rep. 1969, at p. 43 ¶ 74.

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However, the Committee posits as its view that lapse of time is still necessary to

a certain extent.176 It used as an example how the rule on continental shelf became

binding, from being a unilateral practice of the United States to becoming a bilateral

practice.177 In the later years, it was codified in the UN Convention on the Law of the

Sea, to which majority of the States are members.178

3. The Element of Opinio Juris

According to Shaw, opinio juris is “the belief that a [S]tate activity is legally

obligatory.”179 The Committee also set out the rules in determining the existence of

opinio juris sive necessitates. This study will not discuss them in its entirety.

However, for purposes of basic understanding, the summary provided by the

Committee is reproduced below:

If it can be shown that States generally believe that a pattern of conduct fulfilling the conditions set out in Part II is permitted or (as the case may be) required by law, this is sufficient for it to be law; but it is not necessary to prove the existence of such a belief. Indeed, it is only in the case of a practice which has already achieved an appropriate level of generality that such a belief is likely to exist: those who initiate a new practice which is inconsistent with the previous law (e.g. the assertion of rights to an exclusive economic zone) cannot realistically be said to have a belief in its legality. See Section 16. This is not to say, however, that opinio juris has no part to play whatsoever. For even where there is a settled pattern of behaviour which at first sight satisfies the conditions set out in Part II, there may be circumstances which disqualify the practice concerned (or some parts of it) from counting towards the formation of a rule of customary law. This is because those concerned assume, assert or take the position that the conduct concerned does not count, has no precedential value. This is dealt with in Section 17. The reason why this conduct does not count is often expressed in terms of a lack of belief (a sort of opinio non juris), and it will be shown that most of the judicial assertions of the necessity of opinio juris in fact arose in that context. These are,

176 London Conference, supra note 120, pp.20-21.177 Id.178 Id; see generally UNCLOS, supra note 36, arts. 76-85.179 SHAW, supra note 89, p.84.

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however, exceptional cases, and most members of the Committee agreed that, where practice exists which satisfies the conditions set out in Part II and is not covered by one of the exceptions discussed in Section 17, it is not necessary to prove the existence of an opinio juris. It may often be present, or it may be possible to infer it; but it is not a requirement that its existence be demonstrated.180

Shaw also viewed the process of determining the existence of opinio juris as a

problem. “How can one tell when a particular line of action adopted by a [S]tate

reflects a legal rule or is merely prompted, by for example, courtesy?”181

According to the summary quoted above, the Committee posits the view that if

the existence of the elements of State practice is shown, proving opinio juris becomes a

matter of course.182 However, this is not to say that the latter element is of no

importance.183 Proof that the element of opinio juris exists becomes necessary if opinio

non juris is present.184

a. The Concept of Opinio Non Juris

This study will focus on the concept of opinio non juris, discussed by the

Committee in Section 17 of their report. In the later part of the study, it will be shown

that opinio non juris exists. Consequently, there can be no custom if there is no proof

of opinio juris.

The Committee believes that there are practices that contribute to the creation of

a custom and there are those that do not.185 Section 17, paragraphs (i) to (iv) enumerate

180 London Conference, supra note 120, pp.30-31.181 Shaw, supra note 89, p.73.182 London Conference, supra note 120, pp.30-31.183 Id.184 Id.185 Id., at p.34.

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the acts of the latter kind or those that do not contribute to the creation of a custom.

The following are the acts indicative of opinio non juris:

(1) Acts of comity;186

(2) Practice [which] would in theory be capable of giving rise to customary rules, but for an understanding on the part of the States as a whole that they do not in fact do so;187

(3) Practice [which] would be capable of giving rise to a customary rule, but for a disclaimer on the part of those performing them;188

(4) Ambiguous conduct.189

According to the Committee, acts of the fourth kind can be effectively

illustrated by the decision of the ICJ in the North Sea Continental Shelf cases.190 One

of the issues in the said case is whether a custom regarding the application of the

equidistance rule exists.191 In that case, Denmark and the Netherlands proposed that

“even if Article 6 of the Geneva Convention on the Continental Shelf 1958 did not

embody pre-existing customary law or crystallize an emerging equidistance rule for

delimitation, State practice had grown up since 1958 along the same lines, so that a new

rule of customary international law had come into being whose content was the same as

the conventional rule.”192 The ICJ denied the proposition of Denmark and the

Netherlands. “[N]o inference could justifiably be drawn that they believed themselves

to be applying a mandatory rule of customary international law.”193

186 Id., at p.35.187 London Conference, supra note 120, at p.35.188 Id., at p.36.189 Id., at pp.36-38.190 Id., at 37; 191 Id.; citing North Sea Continental Shelf cases, 1969 I.C.J. Rep. at p.23, ¶ 21.192 London Conference, supra note 120, at p.37.193 Id.; citing North Sea Continental Shelf cases, 1969 I.C.J. Rep. at pp.43-44, ¶ 76-77

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The Committee also believed that there is also no opinio juris in the proposed

practice.194 The Committee believes that the rest of the States who were not part of the

Convention during that time view that the equidistance rule or to equal apportionment

of the resources found in a disputed area is practical and commonsensical to adopt.195

Therefore, the ambiguity in the practice lies on the belief of the State in adopting the

equidistance rule – whether they adopted it out of practicality or out of a belief that

adopting the equidistance rule is legal obligation.

b. Clearing the Ambiguity by looking at the Treaties and

Resolutions

In clearing the ambiguity described above, the Committee posited the view that

the language of the treaties and resolutions and the circumstances during their creation

can be of great help.196

Both Onorato and Ong reviewed a number of treaties and resolutions. Ong,

however, is the one who had discussed a more comprehensive review of multilateral

treaties and resolutions.197 Onorato, on the other hand, primarily rested his arguments

on the bilateral treaties.198

The opinion of Onorato and Ong discusses whether the practice of entering into

a JDA is really out of a belief of a legal obligation or not. Onorato believes that the

practice is out of a belief that such is a legal obligation. Ong, on the other hand,

194 London Conference, supra note 120, at pp.37-38.195 Id.196 London Conference, supra note 120, p.43 and pp.57-59197 Ong, supra note 39, 780-785198 Onorato, supra note 38, 325.

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believes that entering into a JDA is considered to be an ambiguous conduct and in

reality, is not followed out of a belief that it is an obligation. Hence, States did not

believe that it is a legal obligation.

4. Onorato’s Opinion

Onorato is the legal adviser of the Energy and Mining for the World Bank for

16 years.199 His work, the “Apportionment of an International Common Petroleum

Deposit,” embodies his attempt to establish a legal system governing common

petroleum deposit. His purpose is to establish a legal system for the courts, like the

ICJ, to use in resolving cases wherein two or more States share jurisdiction over the

petroleum resources.200 He believes that this attempt would be successful because

States are beginning to view that transboundary resources are co-owned by the coastal

States.201 He said that:

[a]lmost all treaties delimiting offshore international boundaries have specifically contemplated the possibility of resultant incidental division of offshore petroleum deposits and have approached the question of ownership of such potential deposits by accepting them as being the joint property of the several States under which they might lie.202 (Emphasis supplied)

The treaties mentioned in the quote above also included a stipulation requiring

States involved to exert efforts in creating a sharing agreement.203 The same appears in

the Anglo-Norwegian Treaty.204 It states, in part, that:

199 Centre for Energy, Petroleum and Mineral Law, Dr. William T. Onorato, available at http://www.dundee.ac.uk/cepmlp/staff/wtonorato.php (last accessed 15 June 2012).200 Onorato, supra note 38, p.336201 Id., p.325.202 Id.203Id., p.324.204 Id., p.326; Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Kingdom of Norway relating to the Delimitation of the Continental

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[i]f any single geological petroleum structure or petroleum field . . . extends across the dividing line and part of such structure or field which is situated on one side of the dividing line is exploitable, wholly or in part, from the other side of the dividing line, the Contracting Parties in consultation with their licensees, if any, shall seek to reach agreement as to the manner in which the structure or field shall be most effectively exploited and the manner in which the proceeds deriving therefrom shall be apportioned.205 (Emphasis supplied)

Because of the above practice of States, Onorato opined that there is already an

existing customary international law requiring States to conclude a JDA.206 Onorato

posits that when the States parties to these delimitation agreements had entered into

sharing agreements, a custom was created, which may compel States to conclude a

sharing agreement with their neighboring States.207

He further added that the issue of the existence of such a custom, although new

during his time, “is not one which exists in a legal vacuum on the international

place.”208 His proposition finds basis in other laws – both domestic and international.209

The following are the principles that supports his theory on the existence of a custom

and a general principle requiring States with overlapping claims to enter into a joint

development agreement:

(i) that a State or States interested in an international common petroleum deposit may not unilaterally exploit such a deposit over the reasonable objection of another such State or States, but rather that-

(ii) the method of exploitation along with the underlying legal basis for apportionment of such a deposit must be the object of an agreement between such interested States, and that, in this regard-

Shelf between the two countries, June 25, 1965, U.K. Treaty Series No. 71 (1967) Cmnd. 2757.205 Onorato, supra note 38, p.326; citing Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Kingdom of Norway.206 Onorato, supra note 38, p.327207 Id., p.325-326.208 Id., p.327.209 Id.

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(iii) States so interested in an international common petroleum deposit are under an obligation to enter into negotiations with a view toward arriving at such an agreement on its apportionment between them[.]

(iv) that as regards the substance of such negotiations and the principles and rules of law applicable to any such agreement on apportionment of a given reserve, while it is recognized that there is no developed, crystallized rule of international law which prescribes express methods for apportionment of an international common petroleum deposit between interested States, there are, nonetheless, rules and institutions of international law and private law relevant either directly, by analogy or by synthesis to the question under consideration, . . . .210

He continued his argument by elaborating more on the first principle. He argues

that States must mutually agree to allow each other to exploit the resources in the

overlapping territorial claim.211 Without such agreement, the affected State’s right over

the resources is impaired and the acting State is presumed guilty of an “unconsented,

unilateral exploitation of ... a common petroleum deposit . . . .”212

Later in this study, it will be observed that the first two principles of Onorato are

embodied in Article 74, paragraph 3 of the UNCLOS. The third principle, however, is

the opposite of Article 74, paragraph 3.

Onorato further added that there is an existing General Principle of Law

recognized by civilized nations.213 According to him, both international and municipal

laws, provide rules for the sharing of petroleum resources. At best, if they cannot be

considered as general principles, they can be considered as supporting the opinio juris

of a crystallized custom.214

210 Id., p.327-328.211 Onorato, supra note 38, p.328212 Id.213 Onorato, supra note 38, p.327-328.214 Id.

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5. Ong’s Opinion

David Ong is considered an expert in the field of JDA. He was a consultant of

Guyana in the Guyana-Suriname Maritime Boundary Delimitation Arbitration in

2007.215 He is also the technical expert and the resource person on Joint Development

at the Second United Nations Development Programme.216 Moreover, his works has

been published in the American Journal of International Law, the European Journal of

International Law and the Irish Yearbook of International Law.217

Ong affirms that there are no multilateral treaties that provide for the obligation

to conclude JDAs.218 However, the opinio juris of the proposed custom requiring States

to conclude a JDA may still be gleaned from other sources of international law, namely

the United Nations General Assembly Resolutions (“UNGA Resolutions”) and

instruments, the analogous provisions of the UNCLOS and the opinions of most highly

qualified publicists (“MHQP”).219

a. UNGA Resolution: The 1974 Charter

The UNGA Resolution that governs the sharing of natural resources is the 1974

Charter of Economic Rights and Duties of States. (“1974 Charter”).220 Article 3 of the

215 Katholieke Universiteit Leuven. David M. Ong, available at http://www.law.kuleuven.be/meel/faculty/Ong (last accessed 15 June 2012).216 Id.217 Id.218 Ong, supra note 39, p.780.219 Id., 220 Id., at p.781; citing Declaration on Principles of International Law concerning Friendly Relations and Co-operation among States in accordance with the Charter of the United Nations, GA Res. 2625 (XXV), UN GAOR, 25th Sess., Supp. No. 28, at 121, UN Doc. A/8028 (1970) [hereinafter “1974 Charter”].

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1974 Charter provides that States have a duty to cooperate in the exploitation of shared

natural resources.221 Article 3 specifically provides:

[i]n the exploitation of natural resources shared by two or more countries, each State must co-operate on the basis of a system of information and prior consultations in order to achieve optimum use of such resources without causing damage to the legitimate interest of others.222 (Emphasis supplied)

He argues that it is inappropriate to imply a legal obligation out of the said

Resolution.223 He provides that the purpose of creating the resolution is to determine

the issue of “expropriation of foreign assets under the guise of nationalization.”224

Sharing of resources is only incidental to the main purpose.225 In other words, Ong

argues that the consent given by States in this GA Resolution is ambiguous and

indicative of opinio non juris because the circumstances that led to the creation of the

GA Resolution shows that States possessed a different motive when they signed the

treaty.

b. UNEP Guidelines

United Nations Environment Programme (“UNEP”) came up with the Draft

Principles of Conduct in the Field of the Environment for the Guidance of States in the

Conservation and Harmonious Utilization of Natural Resources Shared by Two or

More States (“UNEP Guidelines”), which provided more substantive provisions related

221 1974 Charter, Art. 3. 222 Id. 223 Ong, supra note 39, p.781.224 Id.; citing D. J. HARRIS: CASES AND MATERIALS ON INTERNATIONAL LAW 550 (5th ed. 1998). 225 Ong, supra note 39, p.781.

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to sharing of natural resources.226 Ong argues that the General Assembly (“GA”) did

not see the UNEP Guidelines as obligatory.227 According to Ong, the GA:

[r]equests to use the principles as guidelines and recommendations in the formulation of bilateral or multilateral conventions regarding natural resources shared by two or more States, on the basis of the principle of good faith and in the spirit of good neighbourliness.228 (Emphasis Supplied)

Since the GA only request States to adopt the principles in a subsequent

convention, it is not obligatory on the part of the States to cooperate when it comes to

shared resources.229 Again, the consent of the States-members to the UNEP Guidelines

is indicative of opinio non juris.

c. UN Convention on the Law of the Sea

Ong then went to discuss the provisions of the UNCLOS. The provisions of

the UNCLOS not only define the maritime boundaries but also govern the peaceful

resolution of overlapping territorial claims and promote cooperation among States.230

Article 123 provides for a rule on cooperation.231 It states that “States bordering an

enclosed or semi-enclosed sea should co-operate with each other in the exercise of

their rights and in the performance of their duties.”232

He further added that this rule had guided a number of concluded JDAs.233

However, he argued that just because the JDAs adopted the principle of cooperation

226 Id.227 Id.; citing GA Res. 34/186, UN GAOR, 34th Sess., Supp. No. 46, at 123, UN Doc. A/34/46 (1979). [“UNEP Guidelines”]228 Ong, supra note 39, p.781.229 Id.230 UNCLOS, supra note 36, pmbl.231 Id. art. 123. See UNCLOS, pmbl..232 Id.233 Ong, supra note 39, p.782.

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does not mean that these States already believe that cooperation among coastal States

is a legal obligation.234 Ong posits the view that Article 123 of the UNCLOS lacks

legal force to compel States to conclude JDAs.235 He said:

However, two factors cast doubt on the legal force of the duty to cooperate in this article. First, the language of the article does not incorporate a specific and legally enforceable obligation, being more exhortatory than obligatory. Second, the requirements for cooperative efforts specify such activities as the conservation of marine living resources, protection of the marine [environment] and coordination of marine scientific research, rather than the joint development of hydrocarbon and other nonliving resources.236 (Emphasis supplied)

Here, Ong asserts again the ambiguity of the acts of the States-members of the

UNCLOS. The language of Article 123 shows that States do not perceive a legal

obligation to conclude a JDA when they agreed to include Article 123 in the

UNCLOS.237 Nonetheless, it is expressly provided in the quote above that the words of

Article 123 provides that it is an obligation to enter into cooperation with regard to

marine scientific research but not with regard to “joint development of

hydrocarbon.”238 Therefore, Article 123 of the UNCLOS is indicative of opinio non

juris and not opinio juris.

d. Proving Opinio Juris

Following the approach suggested by the Committee, if there are acts indicative

of opinio non juris, proving opinio juris becomes necessary.239 How does one prove

the existence of opinio juris? There is no established standard for proving the

234 Id.235 Id.236 Id.237 Id.238 Ong, supra note 39, p.782.239 See Section III (A) (3); citing London Conference, supra note 120, p. 30-31.

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existence of opinio juris. However, Ong argues that most writers agree that a higher

burden of proof must be imposed.240 How is this higher burden of proof satisfied by a

State?

Bin Cheng discusses the definition of burden of proof in international law.241

Although no rules of procedure are found in existing international laws, parties must

still prove their claims because the State who claims has the burden of proving.242 This

burden is satisfied if the claimant is able to “produce evidence” and to “disclose the

facts of the case.”243

What is kind of evidence is required to prove opinio juris? The evidence may

be a showing of the State’s physical or verbal acts. These acts must essentially prove

that the States “consider these actions incumbent on them in conforming to the alleged

rule.”244 In other words, States must conform to the practice out of a belief that it is

obligatory on their part.245 Without any evidence that States believe that cooperation is

a legal obligation, opinio juris can only be inferred.246 However, the higher burden of

proof cannot be overcome by mere inference without proof.247

Finally, Ong posits that “State practice on joint development of common

deposits simply evinces no norm-creating behavior, despite its increasing frequency

240 Id.,at 794.241 BIN CHENG, supra note 123, p.327-328242 Id.243 Id.244 Ong, supra note 39, p.795.245 Id.246 Id., p.793-794.247 Id.

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and apparent consistency.”248 Consequently, opinio juris does not exist even though

there is State practice.

B. Possible Existence of a Regional Custom

Ong did not discount the possibility that a regional custom may exist in regions

where States have overlapping claims over an area rich in petroleum resources and

have attempted or have already entered into agreements with each other.249 These

regions, according to him, are the North Sea, Mediterranean Sea, the Persian Gulf, and

South China Sea.250 However, he cautioned the proponents of a regional custom that

ICJ jurisprudence still required that opinio juris must still be proved.251 This was part

of the decision of the ICJ in the cases of the Right of Passage over Indian Territory

and the Anglo-Norwegian Fisheries cases.252

In the Right of Passage over Indian Territory, Portugal and India are in dispute

as to whether India must grant Portugal a right of passage.253 This right is premised on

the alleged existence of a local custom, which India contests.254 “The Court sees no

reason why [the] long continued practice between [the] two States . . . should not form

the basis of mutual rights and obligations between the two States.”255 Because Portugal

248 Id. p.795.249 Id.; citing Right of Passage (Port. v. India), Judgment, p.39, available at http://www.icj-cij.org/docket/files/32/4521.pdf (last accessed 21 June 2012); citing Fisheries Case (U.K. v. Nor.), Judgment, p.131 (Dec. 18, 1951), available at http://www.icj-cij.org/docket/files/5/11019.pdf?PHPSESSID=fe8692d664a02d5cc0521b630ba2af6b (last accessed 19 June 2012).250 Ong, supra note 39, p.795.251 Id., p.793-795252 Id.253 Right of Passage, 1960 I.C.J. at p.39.254 Id.255 Id.

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was able to prove that it did exercise control over the disputed area, the ICJ decided that

India is obliged to grant Portugal a right of passage.256

On the other hand, in the Anglo-Norwegian Fisheries cases, the United

Kingdom is disputing the legality of the Norwegian Decree of 1935 establishing the

limits of Norwegian fisheries jurisdiction,257 which is contrary to the ten (10) mile limit

rule of the U.K. The U.K. seeks the application of the ten (10) mile limit not only to

bays but also to straights.258 However, the ICJ refused to grant an analogous application

of the 10-mile limit of baselines.259 “[T]he practice of states does not justify the

formulation of any general rule of law. The attempts that have been made to subject

groups of islands or coastal archipelagoes to conditions analogous to the limitations

concerning bays . . . have not got beyond the stage of proposals.”260

Nevertheless, the decision of the Court recognizes that a special rule or “an

exceptional system” may be made to apply only to a limited number of States.261

However, this cannot be applied in that case.

In both Right of Passage over the Indian Territory, and Anglo-Norwegian

Fisheries cases, the ICJ pronounced that in proving the existence of a regional custom,

same requirements of State practice and opinio juris must still be shown.

256 Id., p.45.257 Fisheries case, 1951 I.C.J. at p.133.258 Id., at p.131.259 Id.260 Id.261 Id.

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C. No International Obligation to Conclude a JDA

Contrary to the position of Onorato, there is no customary duty to conclude a

JDA. In contrast to the prevailing practice in the North Sea region, previously

concluded JDAs do not support the existence of opinio juris. In the absence such an

element, no State practice can be said to have crystallized into a custom. Last but not

the least, there is also no regional custom requiring the conclusion of JDA in the

Southeast Asian region.

1. There is State Practice

a. Physical and Verbal Acts

Entering into a JDA can be considered as both physical and verbal act. JDAs

are physical acts concluded by the Heads of States or their representatives. The

physical act involved is the signing of the agreement. The JDA itself is also a verbal

act. A JDA is a diplomatic statement that expresses the States’ position to maintain

good relations and the States’ recognition that unresolved issues between the States

shall be resolved by adopting the rules under international law.262

b. Acts performed by the State

Moreover, the Committee posits that the act must be done by qualified

representatives of the States,263 such as a Head of State. A Head of State is a person

exercising “elements of governmental authority” whose actions and inactions can bind

262 Treaty between the Federal Republic of Nigeria and the Democratic Republic of Sao Tome and Principe on the Joint Development of Petroleum and other Resources, in respect of Areas of the Exclusive Economic Zone of the Two States, Nig.-Sao Tome & Principe, pmbl., 21 February 2001 (entered into force 16 January 2003).263 London Conference, supra note 120, pp.16-19.

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the State.264 Therefore, when the Heads of States entered into a JDA, their act can

contribute to the establishment of a State practice.

c. Public and Undisclosed Act

A JDA is also a public act. JDAs are concluded between States.265 As posited

by the Committee, an act is considered public if another State became aware of the act.

The number of States that became aware of the act need not be large.266 The

requirement is that “[i]t must be communicated to at least one other State.”267 More

importantly, the source of information need not be the Government itself.268 Press

statements269 and, by analogy, writings may constitute as communication to other

States.

In JDA entered into by Nigeria and Sao tome & Principe, J. Tanga Biang, a

diplomat working under the Division of Legal Affairs and Treaties of the Republic of

Cameroon, reported the details of the JDA, which was publicized by the Division for

Ocean Affairs and the Law of the Sea (“DOALOS”).270 In the same work, other JDAs

were also revealed like the one entered into by Australian and Indonesia, Japan and

South Korea and others.271 His work, along with the other works of similar nature,

264 SHAW, supra note 89, p.134, 787.265 See J. TANGA BIANG, THE JOINT DEVELOPMENT ZONE BETWEEN NIGERIA AND SAO TOME AND PRINCIPE: A CASE OF PROVISIONAL ARRANGEMENT IN THE GULF OF GUINEA: INTERNATIONAL LAW, STATE PRACTICE AND PROSPECTS FOR REGIONAL INTEGRATION. ABSTRACT (2010) [hereinafter “NIGERIA JDA”].266 London Conference, supra note 120, p.15267 Id. 268 Id.269 Id.270 See generally NIGERIA JDA, supra note 265, xi-xii, appendices 1-19.271 Id.

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functions as an announcement to the world that a certain practice among disputing

States is beginning to mature into a custom. Therefore, this element of creating a State

practice is present.

d. Uniform, Extensive and Representative

Both internal and collective uniformity are present. To reiterate, internal

uniformity is explained in the Nicaragua case as “inconsistencies between what a State

says is the law and what it does.”272 Collective uniformity, on the other hand, looks into

the inconsistencies between the acts of the States.273

The practice of States parties to the North Sea Continental Shelf cases evinced

the consistency between the domestic and international laws. The international

obligation is “to reach [an] agreement on joint exploration.”274 The States-parties in

that case had enacted municipal laws “relating to apportionment of common petroleum

deposits.”275 Weems and Fallon observed that the domestic laws of U.K. and Norway

had incorporated provisions relating to “the unit(ization) or cooperative development of

adjoining licen[s]e tracts.”276 Such an observation proves the existence of internal

uniformity.

Collective uniformity is also present. In the area of North Sea alone, there are

already six States who have agreed to enter into a JDA with other neighboring States.277

272 Id.; citing Military and Paramilitary Activities In and Against Nicaragua, supra note 156.273 London Conference, supra note 120, p.22-23.274 Onorato, supra note 38, p. 326.275 Id., p.328. (1967). 276 See PHILIP WEEMS AND ARCHIE FALLON, STRATEGIES FOR DEVELOPMENT OF CROSS-BORDER PETROLEUM RESERVIORS FOOTNOTE 12; citing Joseph W. Morris, The North Sea Continental Shelf Oil and Gas Legal Problems, 2 INT’L LAW. 191, 206 277 Id., p.325-326.

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In the WPS area, there are three – Malaysia, Thailand and Vietnam.278 Other States

who have entered into similar arrangements are Bahrain, Saudi Arabia, Kuwait,

Norway, Iceland, France, Spain, Japan, South Korea, Argentina, Great Britain,

Colombia, Jamaica, Barbados, Guyana, Tunisia, Algeria, Nigeria and Sao Tome and

Principe.279

Moreover, the number of States who have entered into a JDA and the major

interests of these participating States evince that the practice is extensive and

representative. Indeed, major interested States in the oil producing industry, like Saudi

Arabia (World’s largest producing country), Nigeria (10th), Kuwait (11th), Norway

(15th), Algeria (16th), United Kingdom (21st), Colombia (26th), Argentina (27th),

Malaysia (28th), Thailand (33rd), and Denmark (39th) have adopted the same practice.280

e. Duration requirement

The Committee did not gave much importance to the period of time because of

the decision of the ICJ in the North Sea Continental Shelf cases, which held that a

custom may still exist even though the practice had not been in existence for a long

period of time.281 Nevertheless, the first JDA entered into was in 22 February 1958

between Saudi Arabia and Bahrain.282 Up to the present time, the practice still exists.283

Therefore, it can be said that the this element of State practice is present.

278 Nguyen Hong Thao, supra note 37, p.1.279 NIGERIA JDA, supra note 265, xi-xii.280 Id.; Central Intelligence Agency, Country Comparison: Oil Production, available at https://www.cia.gov/library/publications/the-world-factbook/rankorder/2173rank.html (last accessed 15 June 2012) (The ranks are arranged by the quantity of oil produced).281 London Conference, supra note 120, p.20.282 NIGERIA JDA, supra note 265, p.56.283 Id., p.93.

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2. There is No Opinio Juris for a General Custom

The differing views of Onorato and Ong had been discussed above. Onorato’s

primary basis is the practice of States. The method adopted by Onorato finds support in

the Final Report prepared by the Committee of most highly qualified publicists. To

reiterate, they are of the view that if the existence of the elements of State practice is

shown, proving opinio juris becomes a matter of course.284

However, the Committee, in the later part of their work, qualified their position.

They added that if the acts constitutive of opinio non juris exist, the necessity of

proving opinio juris arises. Without using the term opinio non juris, Ong follows the

same track and argued that the treaties and resolutions do not evince opinio juris. In

other words, what Ong is trying to prove is that the obligations embodied in these

treaties and resolutions evince opinio non juris and not opinio juris. Hence, the

presence of opinio juris still needs to be proved.

Ong cited Onorato in his work and in the course of his discussion on why there

can be no custom requiring States to conclude JDAs, he criticized Onorato’s position.

As can be seen in the previous sub-sections of this chapter, Ong primarily proposes that

there is no opinio juris to the custom by looking at the relevant conventions and other

international documents that may propose the existence of an opinio juris. This

approach of Ong is dual in purpose: first, to reject the proposition of Onorato that there

is a body of international law supporting the existence of both general principle of law

and custom; and second, to prove that there is no opinio juris.

284 London Conference, supra note 120, p.30-31.

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This study shares the same position as Ong and believes that there is really no

customary duty to conclude a JDA. There has been no decision yet by the ICJ or any

other international tribunals on this issue. Therefore, in the event that one is raised

before them, this study can serve its purpose. Therefore, to further strengthen Ong’s

opinion, this study seeks to add more to his work by applying the principles formulated

by the Committee. To reiterate, the members agreed that there could be a crystallized

custom as soon as a State practice is proven.285 However, this view was further

qualified that if there are indications that opinio non juris may exist, the existence of

opinio juris must be proven.286 To add on to the opinion of Ong, it will be shown that

opinio non juris exist and opinio juris was not proven.

a. Opinio non juris: Article 123 of the UNCLOS

There is a duty to cooperate under the UNCLOS and it is expressed in several

provisions: Article 118 (Cooperation of States in the conservation and management of

living resources), Article 123 (Cooperation of States bordering enclosed or semi-

enclosed areas), Article 129 (Cooperation in the construction and improvement of

means of transport), Article 197 (Cooperation in a global or regional basis), Article 242

(Promotion of international cooperation), Part XIV Section 2 (International

Cooperation), Article 278 (Cooperation among international organizations), and the

second paragraph of the Preamble.

285 Chapter III.286 Id.

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The closest provision to the sharing of petroleum resources is Article 123.287 A

careful reading reveals that the said Article does not touch upon the issue of sharing

non-living resources, such as oil and natural gas. Subsection (a) states that Article 123

only covers the cooperation in the management of living resources, such as fishes, and

in the protection and preservation of the marine environment.

Subsection (c) imposes a duty to cooperate in the conduct of a scientific

research. However, scientific research in this provision does not involve oil and natural

gas resource. Ejusdem generis, a principle in statutory construction, states that the

interpretation of an undefined term must be done in light of the words used with it. The

first two sub-provisions refer to the marine living resources. Following the rule on

construction, scientific research must be understood as the study of the living resources

and not the non-living resources.

Nonetheless, to coordinate a scientific research is not the same as sharing in the

287 UNCLOS, supra note 36, art. 123. Article 123 provides:

States bordering an enclosed or semi-enclosed sea should cooperate with each other in the exercise of their rights and in the performance of their duties under this Convention. To this end they shall endeavour, directly or through an appropriate regional organization:

(a) to coordinate the management, conservation, exploration and exploitation of the living resources of the sea;

(b) to coordinate the implementation of their rights and duties with respect to the protection and preservation of the marine environment;

(c) to coordinate their scientific research policies and undertake where appropriate joint programmes of scientific research in the area;

(d) to invite, as appropriate, other interested States or international organizations to cooperate with them in furtherance of the provisions of this article. (Emphasis supplied).

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exploration, exploitation and utilization of oil and natural gas. At best, it may be close

to the concept of exploration. However, exploration is but a phase in the process of

developing oil and natural gas reserves.288 In other words, assuming that there is an

obligation to cooperate in the exploration, the same does not mean that there is also an

obligation to cooperate in the exploitation and utilization. To accord such interpretation

would produce injustice.

Last but not the least, Article 123 used the term “endeavor” that does not

connote an obligation to conclude a cooperative agreement. The dictionary meaning of

endeavor is “to attempt (as the fulfillment of an obligation) by exertion of effort.” 289 In

interpreting the words of a Statute, the common and ordinary meaning of the word must

be used.290 To do otherwise would be a violation of the VCLT. Therefore, the language

and the circumstance considered by this Article do not contribute to the creation of a

custom.

b. Opinio non juris: Article 3 of the 1974 Charter

Aside from the UNCLOS, the 1974 Charter of Economic Rights and Duties of

States also provided some indications of opinio juris. However, David Ong refutes this

by arguing that the purpose of its creation is not cooperation.291 And if it is to promote

cooperation, the language employed in the said Charter does not support the existence

of a legal obligation to cooperate.

288 GOVERNMENT DU QUEBEC, supra note 58.289 Merriam-Webster. Endeavor, available at http://www.merriam-webster.com/dictionary/endeavor (last accessed 22 June 2012).290 VCLT, supra note 74, Article 31(1).291 Ong, supra note 39, p.781; citing UNEP Guidelines.

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Article 3 provides that States “must co-operate.” However, the requirement is

qualified by the phrase “system of information and prior consultations.”292 Information

and consultation refers to “exchange of information, notification of plans, consultations,

immediate information-sharing in emergency situations, mutual assistance,

responsibility and liability, international dispute settlement, equal access to

administrative and judicial proceedings, and equal treatment of persons affected in

other States.”293 Therefore, cooperation does not mean conclusion of a sharing

agreement. Rather, it means the obligation of States to maintain good relations. Hence,

the language used by the treaty indicates that the act of the States members in the said

Charter is ambiguous and not conclusive of opinio juris. In other words, the acts of the

States of creating the 1974 Charter of Economic Rights and Duties of States are

indicative of opinio non juris.

c. No Proof of Opinio Juris

Proving opinio juris is required when there are indications of opinio non juris.

However, Onorato failed to adduce qualified evidence to prove the existence of opinio

juris. Ong’s discussion of the 1974 Charter, UNEP Guidelines and the UNCLOS

reveals that there is no opinio juris. Even though these treaties have for their object the

establishment of cooperation over shared petroleum resources, the States that signed

them did not believe that cooperation is an obligation. Consequently, Ong disproved

Onorato’s proposition that there is an existing custom requiring the conclusion of a

292 Ong, supra note 39, p.781; citing GA Res. 3281 (XXIX), UN GAOR, 29th Sess., Supp. No. 30, at 50, UN Doc. A/9030 (1974) 293 NICO SCHRIJVER, DEVELOPMENT WITHOUT DESTRUCTION: THE UN AND GLOBAL RESOURCE MANAGEMENT 58.

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JDA. At best, the duty to conclude can only exist in the North sea region. Therefore,

States outside that region, including the Southeast Asian States, are not bound to

comply.

D. No Regional Custom in Southeast Asia Exists

David Ong mentioned the concept of regional custom. He even stated that the

WPS is a possible nest for the creation of a regional custom requiring the conclusion of

JDAs. However, he did not delve into the discussion and left the issue of whether it

exist.

Ten States belong to the Association of Southeast Asian Nations (“ASEAN”).

Out of the ten, two namely, Laos and Singapore, do not possess oil reserves.294

Therefore, they are do not have the capacity to enter into a JDA and their omission

cannot be considered in establishing State practice. Out of the remaining eight ASEAN

States, four States entered into JDAs. These states are Malaysia, Thailand, Vietnam,

and Indonesia.295 Brunei Darussalam are convening individually with Malaysia for a

possible joint development agreement296 while the Philippines and Myanmar (Burma)

do not have existing joint development agreements. Lastly, Cambodia does not have

any agreement with Thailand or Malaysia.297

294 Central Intelligence Agency, East & Southeast Asia: Laos, available at https://www.cia.gov/library/publications/the-world-factbook/geos/la.html (last accessed 21 June 2012); Central Intelligence Agency, East & Southeast Asia: Singapore, available at https://www.cia.gov/library/publications/the-world-factbook/geos/sn.html (last accessed 21 June 2012).295 See generally Nguyen Hong Thao, supra note 37; Anthony Heiser. East Timor and the Joint Petroleum Development Area. 17 AUSTL. & N.Z. MARITIME L.J. 1 (2003).296 JOVAN SARAVANAMUTTU. MALAYSIA’S LUCRATIVE APPROACH TO JOINT DEVELOPMENT IN TROUBLED SEAS 1, available at http://www.iseas.edu.sg/viewpoint/js16may10.pdf (last accessed 15 June 2012)297 U.S. ENERGY INFORMATION ADMINISTRATION. SOUTH CHINA SEA.

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Following the rulings in the Right of Passage over Indian Territory and the

Anglo-Norwegian Fisheries cases, little as it may seem, four out of ten States can still

evince State practice. However, opinio juris must still be proven. In the case of the

ASEAN States, there is none. The four ASEAN States that entered into their respective

JDAs are motivated by economic prosperity. Indeed, the preamble of the JDA between

Indonesia and Australia, otherwise known as the Timor Gap Treaty,298 provides that the

States are “‘desiring to enable the exploration for and exploitation of the petroleum

resources of the continental shelf’ and ‘encourage and promote development of the

petroleum resources of the area’ and ‘desiring that exploration and exploitation of these

resources proceed without delay.’”299 The same intention appears in the JDA entered

into between Malaysia and Thailand, and between Malaysia and Vietnam. Therefore,

without opinio juris, no regional custom can bind the ASEAN States to enter into a

JDA.

298 1989 Treaty between Australia and the Republic of Indonesia on the Zone of Cooperation in an Area between the Indonesian Province of East Timor and Northern Australia, Austl.-Indon., pmbl., Dec. 11, 1989.299 Margaret Hanlon, Australia-Indonesia Maritime Boundaries, at 7 (Ph.D. dissertation, University of Wollongong), available at http://arts.monash.edu.au/psi/news-and-events/apsa/refereed-papers/international-relations/hanlon.pdf (last accessed 19 June 2012).

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IV. INTERNATIONAL OBLIGATION TO NEGOTIATE A JDA

A. The Duty to Negotiate in Good Faith

Although there is no customary law requiring States to enter into a JDA,300 a

more express and definite duty exist in international law. Article 74, paragraph 3 of the

UNCLOS provides that:

[p]ending agreement as provided for in paragraph 1, the States concerned, in a spirit of understanding and cooperation, shall make every effort to enter into provisional arrangements of a practical nature and, during this transitional period, not to jeopardize or hamper the reaching of the final agreement. Such arrangements shall be without prejudice to the final delimitation.301 (Emphasis supplied)

The duty to “make every effort to enter into provisional arrangements of a

practical nature” or the duty to negotiation in good faith is too broad to imply a legal

duty. However, the two decisions of the ICJ in the Delimitation of the Maritime

Boundary in the Gulf of Maine Area and North Sea Continental Shelf cases

indoctrinates that this is a positive duty of States and not just a mere policy.

1. ICJ Decisions on Good Faith Negotiations

By express provision of the UNCLOS, States are duty-bound to “make every

effort to enter into provisional arrangements.”302 Dominic Roughton, a partner in a

Public International Law Group, Herbert Smith LLP, otherwise termed the abovestated

obligation as the duty to negotiate in good faith.303 This obligation has been affirmed in

a number of ICJ decisions namely, the Delimitation of the Maritime Boundary in the

300 See supra Chapter IV (C).301 UNCLOS, supra note 36, Article 73 ¶ 3302 Id.303 Roughton, supra note 34, p. 9.

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Gulf of Maine Area case,304 North Sea Continental Shelf cases,305 and in the Advisory

Opinion of the ICJ in the Railway Traffic between Lithuania and Poland. Roughton

used the first two of the three cases mentioned in his work, which will be discussed

briefly in this part of the study.

In the Delimitation of the Maritime Boundary in the Gulf of Maine Area case,

Canada and the United States of America (“US”) both submitted different proposals in

dividing the overlap of their continental shelves and EEZs.306 However, both States did

not give in to each other’s proposal.307 Since they mutually rejected each other’s

proposal, both States entered into negotiations until they later decided to raise the

matter to the ICJ.308 The ICJ held, in part, that:

No maritime delimitation between States with opposite or adjacent coasts may be effected unilaterally by one of those States. Such delimitation must be sought and effected by means of an agreement, following negotiations conducted in good faith and with the genuine intention of achieving a positive result. Where, however, such agreement cannot be achieved, delimitation should be effected by recourse to a third party possessing the necessary competence.309 (Emphasis supplied)

In this case, the Court held that both negotiating States must have the “genuine

intention of achieving a positive result” or the parties should not leave the negotiation

tables empty-handed. “Positive result” does not mean that every negotiation should end

up successful. Otherwise, the negotiation becomes an obligation to conclude. It means

304 See Roughton, supra note 34.305 Id.306 Delimitation of the Maritime Boundary in the Gulf of Maine Area, I.C.J. at ¶ 12; see generally, Roughton, supra note 34.307 Delimitation of the Maritime Boundary in the Gulf of Maine Area, Judgment, 1984 I.C.J. Rep. p.254. 308 Id. (“Neither Party shall introduce . . . the nature or content of proposals . . . in the course of negotiations or discussion between the Parties undertaken since 1969.”)309 Id., at ¶ 112.

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that if the negotiations fail, at least the parties carried with them the knowledge

necessary to make future negotiations become successful. On the other hand, if the

negotiation is a success, then they carry with them a binding agreement.

In the North Sea Continental Shelf cases, the ICJ held that States “are under an

obligation so to conduct themselves that the negotiations are meaningful, which will

not be the case when either of them insists upon its own positions without

contemplating any modification of it.”310 (Emphasis supplied)

Here, the ICJ held that the parties must be willing to adjust their original

position. However, the Court did not continue to provide any instructions as to what

kind of modifications is required and how significant must the modifications be.

The ICJ also reiterated in its Advisory Opinion in the case of Railway Traffic

between Lithuania and Poland that States must “not only to enter into negotiations but

also to pursue them as far as possible with a view to concluding agreements.”311 A

good faith negotiation in this case was described as negotiations with a goal as opposed

to a negotiation without, at the least, a purpose.

Despite the ICJ pronouncements explaining that the duty to negotiate is one of

good faith, the true meaning of good faith still presents itself as an issue. “[G]enuine

intention,”312 “without contemplating any modification”313 and “with a view to

concluding agreements,”314 are still too broad to require an obligation. More

310 North Sea Continental Shelf Cases, 1969 I.C.J. at p.46, ¶ 85 (a).311 Railway Traffic between Lithuania and Poland (Railway Sector Landwarów-Kaisiadorys), Advisory Opinion, 1931 P.C.I.J. (ser. A/B) No. 42 (Oct. 15), at p.12.312 Delimitation of the Maritime Boundary in the Gulf of Maine Area, Judgment, 1984 I.C.J. Rep. at ¶ 87.313 North Sea Continental Shelf Cases, 1969 I.C.J. at ¶ 85 (a).314 Railway Traffic between Lithuania and Poland, 1931 P.C.I.J. at p.12.

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importantly, the test in determining the instances when States negotiate in bad faith is

still absent.

2. Interpreting Negotiation in Good Faith under Articles 74.3 and

83.3

Although the ICJ did recognize the duty to negotiate in good faith, the

pronouncements in the Delimitation of the Maritime Boundary in the Gulf of Maine

Area case and North Sea Continental Shelf cases are still too general and will still

require a more specific rule in order to ensure that States did comply with it. Resort to

the provisions in the Vienna Convention on the Law of Treaties (“VCLT”) regarding

interpretation of treaties is warranted.

a. Vienna Convention on the Law of Treaties

In interpreting a treaty, Article 31 of the VCLT provides that “[a] treaty shall be

interpreted in good faith in accordance with the ordinary meaning to be given to the

terms of the treaty in their context and in the light of its object and purpose.”315 The

Commentary of the VCLT provided four standards.316 First, the interpretation must use

the ordinary meaning of the word.317 Second, it must be in accordance with the context

or how the word is used in the treaty.318 Third, the interpretation must be in accordance

with the object and purpose of the Treaty.319 Lastly, the interpretation must be done in

315 VCLT, supra note 74, Article 31(1).316 VIENNA CONVENTION ON THE LAW OF TREATIES: A COMMENTARY, 541-549 (Oliver Dorr and Kirsten Schmalenback, eds., 2012); citing Draft Articles on the Law of Treaties with Commentaries, ILC Report 18th Session [1966-II] YbILC 177–274, Commentary to Art 27, 221 ¶ 12 [hereinafter “VCLT Commentary”].317 Id., 541-543.318 Id., 543-545.319 Id., 545-548.

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good faith.320

The States are allowed to interpret the treaties it entered into.321 States can also

resort to the interpretation of the International Courts in instances when States agreed to

such arrangement in the treaty.322 According to the UNCLOS, the ICJ was among the

sources of interpretation.323 However, if the interpretation of the International Courts,

like the ICJ, is inadequate, interpretations of “person[s] reasonably informed on the

subject matter” is, therefore, proper.324

Indeed, under Article 38 paragraph 1 of the Statute of the ICJ, the ICJ can apply

“judicial decisions and the teachings of the most highly qualified publicists” in deciding

a case, which may involve the interpretation of a treaty.325 Therefore, judicial decisions

of the Philippine Supreme Court, the United States National Labor Relations Board and

works of the experts in negotiations can be used in interpreting the meaning of “good

faith negotiations.”

3. Domestic Courts Interpretation of Good Faith Negotiations

a. Philippine Supreme Court’s Interpretation

The duty to negotiate in good faith was intepreted in the Philippine Supreme

Court decision in Kiok Loy v. NLRC. In that case, the union gave the employer their

320 Id. 548-549.321 VCLT COMMENTARY., supra note 316, 530 ¶18 (“every person or organ concerned with a treaty is . . . competent to interpret it”).322 Id., 531 (“Those organs then regularly assume an authoritative role in determining the actual meaning of the treaty provisions, the more so when their decisions concerning the interpretation are given binding force in the treaty itself.”).323 UNCLOS, supra note 36, Article 287 ¶ 1.324 VCLT Commentary, supra note 316, at 542;325 Statute of the ICJ, supra note 120.

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proposed Collective Bargaining Agreement.326 The employer did not give any counter-

proposal or similar type of answer to the employees’ proposal.327 Consequently, the

National Labor Relations Commission (“NLRC”) and the Supreme Court held that the

employer, Kiok Loy, is guilty of unfair labor practice.328 The SC held that “[a]

Company's refusal to make counter proposal if considered in relation to the entire

bargaining process, may indicate bad faith and this is specially true where the Union's

request for a counter proposal is left unanswered.”329

b. United States NLRB Decision: Proposal and Counter-

proposal

The logic displayed in the Philippine SC decision above had long existed since

1930s in the United States Legal System. It was opined that the test of bad faith in

negotiation is the “employer’s state of mind.”330 In other words, “sincere effort . . . to

reach common ground” is the test of good faith.331 The Court cited the old National

Labor Relations Board’s opinion, which states that the employer is “to match [the

employees’] proposals, if unacceptable, with counter-proposals.”332

Two alternatives are therefore available to the negotiating parties. They may

either accept the proposal or reject it by reciprocating the proposal with a counter-

326 Kiok Loy vs. NLRC, 141 SCRA 179, 183 (1986).327 Id.328 Id., 184, 186.329 Id., 186; citing Teller, II Labor Disputes & Collective Bargaining 889; citing Glove Cotton Mills vs. NLRB, 103 F. (2nd) 91.330 Archibald Cox, To Bargain in Good Faith, 71 (8) HARV. L. REV. 1401, 1414; citing Houde Engineering Corp., I N.L.R.B. (old) 35 (I934). 331 Id.332 Id.

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proposal. Consequently, parties may not reject the proposal without a counter-proposal.

More importantly, there must first be a proposal by one or both of the parties.

4. Expert Opinion of Good Faith Negotiations

This study further argues that the proposals and counter-proposals must contain

provisions that are reasonable to the proponent and acceptable to the recipient. The test

in order to know that the proposal is reasonable and acceptable can be further gleaned

from the works of O’Neill and Sebenius whose expertise are in the field of negotiation.

a. The Game Theory

According to Barry O’Neill, “[t]he essence of game theory is rather that each

player considers the other’s view of the conflict as part of its own choice of strategy.”333

In other words, the offer must also consider not only one’s self-interest, but also that of

party offered. Another expert explains in detail what the game theory is. First, the

Game theory takes into consideration the fact that the parties are interdependent.334

This means that the parties may either benefit or suffer depending on what would be the

action of the other party.335 In the words of McMillan, “[t]he distinctive feature of a

game is the presence of interdependencies among the agents: on agent’s utility depends

not only on his own actions, but also on the actions of each of the other agents.”336

Next in point is that the Game theory recognizes two possible scenarios: one is a

zero-sum game and the other is a nonzero-sum game.337 Simply stated, the former

333 BARRY O’NEILL, A SURVEY OF GAME THEORY MODELS ON PEACE AND WAR (Prepared for R. Aumann and S. Hart, eds. Handbook of Game Theory) 4.334 JOHN MCMILLAN. GAME THEORY IN INTERNATIONAL ECONOMICS. 4.335 Id.336 Id.337 Id., p.5.

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results to a win-lose situation while the latter results to a win-win situation.338 Again,

McMillan explained this in a manner stated below:

In a zero-sum game, the sum of all agents’ utilities is always zero. A zero-sum game is a game of pure conflict: what one agent wins, some other agents must lose.. . . [On the other hand] “[n]onzero-sum games have elements of both conflict and cooperation. It is in the agents’ mutual interest to reach an outcome where the sum of utilities is relatively high; but the agents’ interests conflict over their shares in that sum.”339

As explained above, a nonzero-sum game model suggests a win-win situation

for both parties.340 This situation can only be achieved if both parties cooperate.341

However, this does not mean that the parties are no longer allowed to impose a greater

share.342 Assuming the cooperation between the parties is beneficial to both of them,

the conflict shifted to the determination of the terms of the agreement.343 In

determining the contents of the agreement, the Negotiation Analysis Approach

suggested by James Sebenius proves to be helpful.

b. Improved Game Theory: The Negotiation Analysis

Approach

James Sebenius acknowledges the usefulness of the Game theory in finding the

equilibria or the proposal where both parties equally achieve the optimal choice.344

338 Id.339 MCMILLAN, supra note 334.340 Id.341 Id.342 Id.343 Id.344 James K. Sebenius, Negotiation Analysis: A Characterization and Review, 38 (1) Management Science 18, 18-19 (1992).

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However, it only proves to be useful when the other party also chooses the best

option.345 Consequently, a pure game theory approach does not result generally to an

optimal choice because, in reality, the mindset and would-be behavior of the parties is

not known to each other.346 Obviously, there is no definite process of predicting the

choice of the other party.347

In a “nonequilibrium game theory with bounded rationality and without

common knowledge” approach, the parties must assume that the other has a

preconceived goal and the other party will direct its choice to that goal.348 In other

words, the mindset of the parties under this approach is “goal seeking”349 rather than

optimal-choice seeking.

Knowing that the negotiating parties may choose a goal-seeking choice is

important. There is a difference between choosing what is best and choosing what is in

accordance with the goal. Between two States that have entered into negotiations, one

may either aim to satisfy nationalistic sentiments of the citizens while the other aims to

alleviate the growing economic problem of shortage in resources. As will be explained

later, the difference in interests makes the result of the negotiation a possible win-win

situation for the parties.

Therefore, in knowing what is the most advantageous option, three steps must

be followed. First, the parties must evaluate their self-interests.350 Then, the parties

345 Id.346 Id.347 Id.348 Id., at 20-21.349 Sebenius, supra note 344, 20.350 Id., at 33.

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must look into possible alternatives to having an agreement with the opposing party.351

Lastly, the parties must determine the possible benefits of having an agreement.352 The

last step is a multi-step process of formulating a general agreement and filling up the

details to that agreement.

351 Sebenius, supra note 344, at 33.352 Id.

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V. APPLICATION OF THE NEGOTIATION ANALYSIS APPROACH TO

THE WPS DISPUTE

As discussed in the previous Chapter, the ICJ held, in two of its decisions, that

there is an obligation to negotiate in good faith. However, the interpretation of the ICJ

is insufficient. The lack of discussion as to the contents of the agreement did not clear

the cloud. In order to determine what the contents or at least the general theme of the

contents of a JDA should include, the opinion of experts were considered. In general,

they opined that the interests of the parties are interdependent. Depending on what

their actions would be, there may either be a win-lose or win-win situation. Finally, if

they agree to a win-win situation, the conflict shifts to the sharing aspect of the

agreement.

Three basic considerations must be kept in the mind of the negotiators. First,

the parties must consider what their interests are.353 Then, they must consider what is

the benefit of a status quo or the state of no agreement.354 Lastly, they must consider

the benefits of entering into an agreement, which will primarily be determined by the

provisions of the agreement.355

A. Self-interest of the Philippines and China

1. Interest of the Philippines to the WPS Dispute

The primary interest of the Philippines over the WPS is the resources locked

inside its depths. This conclusion can be found in the Philippine laws on mining. The

353 Sebenius, supra note 344, at 33.354 Id.355 Id.

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whereas clauses under the Oil Exploration and Development Act of 1972 in fact states

that “it was found necessary for the national interest . . . to provide meaningful

incentives to prospective service contractors.”356 On the same note, the declaration of

policy under the Philippine Mining Act of 1995 includes a proviso stating that “[i]t

shall be the responsibility of the State to promote their rational exploration,

development, utilization and conservation . . . in order to enhance national

growth . . . .”357

Based on the provisions of both laws, it can be derived that the drive to protect

its claim is greatly pushed by economic considerations. Indeed, the price of oil, which

is determined by its supply, has a direct effect to domestic prices of food and raw

materials. As the price of oil increases, the price for a good quality of living also

increases. Avowed to reduce poverty in the Philippines, the Philippine Government,

therefore, cannot surrender its claim over the resources in the WPS.

2. Interest of China to the WPS Dispute

Although China would need additional sources of oil and natural gas to satisfy

its growing demand for fuel,358 its primary objective in defending its claim over the

WPS is to satisfy “Chinese nationalism sentiments.”359 In fact, China sees its claim as a

356 An Act to Promote the Discovery and Production of Indigenous Petroleum, and Appropriating Funds Therefor [The Oil Exploration and Development Act of 1972] Presidential Decree No. 87, as Amended, whereas clause (1972); 357 An Act Instituting a New System of Mineral Resources Exploration, Development, Utilization, and Conservation [Philippine Mining Act of 1995], Republic Act No. 7942, § 2.358 Judy Hua, Jim Bai and Chen Aizhu. China fuel demand seen up 5.5 pct per yr to 2012 – MIIT, available at http://www.reuters.com/article/2012/02/03/china-oil-demand-idUSL4E8D331S20120203 (last accessed 10 June 2012)359 Nong Hong, supra note 8; To further understand what really is the “Chinese nationalism sentiment,” a paragraph in Nong Hong’s work is reproduced below:

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right that is long overdue.360 In support to this belief, authors posits that long before the

other Asian States’ claim, China had already put a claim over the disputed islands in the

WPS dispute.361 In short, it is both economically and politically right for China to have

the islands, along with the resources, of the WPS.

B. Cost and Benefit of a Status Quo

The benefit of a status quo is that States will be able to get the resources in the

WPS area in its entirety and without being compelled to share it with other claimants.

Being able to own such vast amount of resources would not only satisfy the domestic

demand for fuel. The reserves would also create a surplus of resources, which would

greatly fill the State coffers with “petrodollars.”

Those who interpret China’s claims in the SCS as a threat to the regional stability and the potential to use her increased military power to achieve her objectives in open conflict with its neighbours should read Chinese nationalism sentiment carefully before jumping to the conclusion. National humiliation is a common and recurring them in Chinese public culture. The discourse takes many forms: public histories, textbooks, museums, mass movements, romance novels, popular songs, prose poems, feature films, national holidays, and atlases. All these are part of a modernist narrative in the most basic sense of a linear progressive history that prescribes the unity and homogeneity of the nation-state. In the PRC, national-humiliation discourse is produced in the last refuge of one of the major institutions of modernity the Chinese Communist Party; but it is important to note that its Central propaganda Department is now concerned with promoting nationalist history. National humiliation seems to be a purely domestic discourse, but its notions of ‘the rightful place of China on the world stage’ continually inform Chinese foreign policy in both elite and popular discussions. Though national humiliation is considered in Western discussions of Chinese victimization that needs to be overcome for China to be a responsible member of international society, Chinese sources, on the other hand, stress how the outside world, particularly the prosperous West, needs to understand China’s particular suffering. (Citations omitted)

Id.360 Frank Langfitt, China, Philippines Face Off Over Remote Islands, available at http://www.npr.org/2012/05/29/153921020/china-philippines-faceoff-over-remote-islands (last accessed 10 June 2012).361 Nong Hong, supra note 8, 58.

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The cost of status quo, however, is they have to wait until the situation becomes

suitable for negotiations. When they start negotiating for a final delimitation

agreement, they will first need to discuss the verity of the claims of China and of the

Philippines – whether both States have a proper ground under International Law.362 The

Proponent believes that the proving of claims will not take a short period of time

considering that the claim of China has no basis under international law.363 After this

phase, exchanges of offers shall be done. Lastly, when the Heads are able to agree on

what the terms will be, the final agreement will further require ratification.364

The proponent believes that time is of the essence in the current situation

between the Philippines and China. Therefore, one or both of the States must take

advantage of the current peaceful relations before the situation becomes worse. In other

words, a provisional and possible solution must be forged to prevent the situation from

escalating. This study suggests that a JDA both embodies this provisional and possible

solution.

C. Cost and Benefit of a JDA

Having a JDA between China and the Philippines will result to a splitting of

benefits. However, even if there is a division in profits, having a domestic source of oil

is still highly beneficial, if the benefit is understood in light of the economic situations

of two major States in the world.

362 See generally Alciso, supra note 69.363 Id. Chapter V.364 PHIL. CONST. ART. VII, § 21.

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United States still has not fully recovered from the sub-prime mortgage crisis

that caused major US banks to close down.365 Also, the United Kingdom is

experiencing a number of economic problems like recession, budget deficits,

unemployment and a declining value of its currency.366

Asia, on the other hand, remained stable despite the world economic crisis.367

This implies that investments are more likely to succeed if invested in Asia.368 Indeed,

there has been a steady increase in foreign investments in the Philippines.369 And as

investment in Asia increases, energy consumption also increases.370 Without fuel that

can be utilized as energy, investments in the Philippines will be stalled.

Both China and the Philippines will benefit in having an additional supply of oil

and natural gas. However, they cannot tap into these supplies if there can be no

provisional agreement that will govern their joint activity. Doing otherwise will be a

flagrant violation of the UNCLOS, which mandates mutual restraint.371

365 BBC News, The downturn in facts and figures, available at http://news.bbc.co.uk/2/hi/business/7073131.stm (last accessed on 10 June 2012); see also Guillermo Calvo and Rudy Loo-Kung. US recovery: A new “Phoenix Miracle.” Vox, available at http://voxeu.org/index.php?q=node/4858 (last accessed on 10 June 2012).366 BBC News, The downturn in facts and figures, available at http://news.bbc.co.uk/2/hi/business/7734971.stm (last accessed on 10 June 2012).367 Lesley Wroughton and Glenn Somerville, Asia resilient, has room for stimulus – IMF’s Singh, available at http://in.reuters.com/article/2012/01/31/imf-asia-idINDEE80U04520120131 (last accessed on 10 June 2012).368 See Puneet Pal Singh, World attention shifts to East Asia amid global slowdown, available at http://www.bbc.co.uk/news/business-18248215 (last accessed 10 June 2012). 369 See Marianne T. Escanilla, A 2011 Philippine Real Estate Industry Perspective, available at http://businessmirror.com.ph/home/properties/22551-a-2011-philippine-real-estate-industry-perspective (last accessed 10 June 2012); see also Czeriza Valencia, Foreign investment pledges 249% to P3.2B in Feb, available at http://www.abs-cbnnews.com/business/03/18/12/foreign-investment-pledges-rise-249-p32-b-feb (last accessed 10 June 2012).370 BBC, In graphics: Rising Asia, available at http://www.bbc.co.uk/news/world-asia-pacific-13746908# (last accessed 10 June 2012).371 UNCLOS, supra note 36, Art. 74 ¶ 3

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Article 74, paragraph 3 of the UNCLOS provides that the States with

overlapping EEZs should, “during this transitional period, not to jeopardize or hamper

the reaching of the final agreement.”372 Generally, according to the Guyana/Suriname

Arbitration, if a State breaches this duty of mutual restraint, provisional measures under

the UNCLOS, specifically under Article 290, may be resorted to by the injured State. 373

However, in the dispute between China and the Philippines, both States may not resort

to these provisional measures because China does not accept the compulsory

jurisdiction of the ICJ.374 The exception to this unusual situation between China and the

Philippines is to resort to Section 1 of Part XV of the UNCLOS, wherein consent of

both disputing States is not necessary.375

Since the exercise of mutual restraint is mandated, no exploration and

exploitation of the resources within the overlapping area is allowed. Therefore, in order

for both States to utilize the resources within the overlapping area, both States must

first enter into a provisional agreement. An agreement, however, should be started by

an offer and replied by a counter-offer.

There is no agreement of this kind at the moment between the two countries.

There is also no reported violation of this duty to exercise mutual restraint. The

reported exploration of China is still outside the disputed area. And judging by the

372 Id.373 Guyana-Suriname Arbitration (Guyana/Suriname), Hague Ct. Rep. ¶ 446.374 United Nations Treaty Collection, State parties having accepted the jurisdiction of the Court, Endnote 1, available at http://treaties.un.org/pages/ViewDetails.aspx?src=IND&mtdsg_no=I-4&chapter=1&lang=en (last accessed 19 June 2012).375 Alciso, supra note 69, 125; citing NATALIE KLEIN, DISPUTE SETTLEMENT IN THE UN CONVENTION ON THE LAW OF THE SEA 53 (2005); citing UNCLOS, supra note 36, art. 286.

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current geo-political situation, the possibility of having a JDA is present if only none of

the two States refuses to negotiate. The proponent placed the brief discussion on the

duty to exercise mutual restraint in order to show that the possibility of non-negotiation

is low primarily because none of the States would want to be sanctioned.

D. Reasonable and Legal Offer

An offer can be generally defined as a document containing provisions, which

the offeror can compromise in order to arrive at a mutual agreement. One of the ways

of filling up the details of an offer is to “dovetail” differences.376 To dovetail means,

“to fit together into a whole.”377 Sebenius said that:

[T]hough many people instinctively seek "common ground" and believe that "differences divide us," it is often precisely the differences among negotiators that constitute the raw material for creating value. Each class of difference has a characteristic type of agreement that makes possible its conversion into mutual benefit.378 (Underscoring supplied)

He emphasized that by dovetailing the differences, cooperation becomes more

achievable.379 Indeed, the different interests of China and the Philippines, if dovetailed,

can produce a cooperative agreement where both States can benefit. However, both

States must still work within the confines of their own legal framework. This study

will explore on a possible common legal area where both States can legally operate.

376 Sebenius, supra note 344, at 29.377 Merriam-Webster. Dovetail, available at http://www.merriam-webster.com/dictionary/dovetailing (last accessed 15 June 2012).378 Sebenius, supra note 344, at 29.379 Id.

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1. Difference in the Mining Legal Framework

The Philippines and China follow two different mining regimes. The

Philippines follow the service contract regime while China follows the concession

regime.

a. Service Contract Regime

In the Philippine Service Contract Regime (“SCR”), the Contractor provides all

the services and the necessary equipment.380 In this regime, the Contractor assumes all

the risk of exploration.381 If no oil in commercial quantity is discovered, the Philippine

Government is not obliged to reimburse the Contractor of the expenses incurred during

exploration.382

The contract is awarded through bidding or, in limited circumstances, through

negotiation between the Philippine Government and the Contractor.383 Once the

contract is awarded, the Contractor is subject to a number of obligations, which are

enumerated in Section 8 of The Oil Exploration and Development Act of 1972.384

380 Tecson, supra note 65, 166-167; citing The Oil Exploration and Development Act of 1972, §§ 6, 8 ¶ (a). 381 Id., 167; The Oil Exploration and Development Act of 1972, § 8 ¶ (e).382 The Oil Exploration and Development Act of 1972, § 8 ¶ (e). 383 Tecson, supra note 65, 166; citing The Oil Exploration and Development Act of 1972, § 5; citing Gabriel L. Villareal & Barbara Anne C. Migallos, Oil Exploration Contracts under P.D. 87, 53 P.L.J. 367, 370 (1978).384 Id., 167; citing The Oil Exploration and Development Act of 1972, § 8. The contractor is obliged to:

(a) Provide all necessary services and technology;(b) Provide the requisite financing;(c) Perform the exploration work obligations and program prescribed in the agreement between the Government and the Contractor, which may be more but shall not be less than the obligations prescribed in this act;(d) Once petroleum in commercial quantity is discovered, operate the field on behalf of the Government in accordance with accepted good oil field practices using modern and scientific methods to enable maximum economic production of petroleum; avoiding hazards to life, health and

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Section 9(a) provides that the Contractor must meet the minimum expenditure

requirement, the amount of which ranges from three Pesos (P 3.00) to eighteen Pesos (P

18.00) per hectare per year.385

If oil in commercial quantity is discovered, the Philippine Government is

obliged to reimburse the contractor the amount it spent to make the extraction possible,

subject to the limitations provided for by law and by the Contract.386 Section 8 (1)

states that:

[T]he Petroleum Board [now the President or the Department of Energy] shall –

(1) On behalf of the Government, reimburse the Contractor for all operating expenses not exceeding seventy percent (70%) of the gross proceeds from production in any year, Provided, that if in any year, the operating expenses exceed seventy percent (70%) of gross proceeds from production, then the unrecovered expenses shall be recovered from the operations of the succeeding years.”387

property; avoiding pollution of air, land and waters; and pursuant to an efficient and economic program of operation;(e) Assume all exploration risks such that if no petroleum in commercial quantity is discovered and produced, it will not be entitled to reimbursement;(f) Furnish the Petroleum Board promptly with geological and other information, data and reports which it may require;(g) Maintain detailed technical records and accounts of its operations;(h) Conform to regulations regarding, among others, safety, demarcation of agreement acreage and work areas, non-interference with rights of other petroleum, mineral and natural resources operators;(i) Maintain all meters and measuring equipment in good order and allow access to these as well as to the exploration and production sites and operations to inspectors authorized by the Petroleum Board (j) Allow examiners of the Bureau of Internal Revenue and other representatives authorized by the Petroleum Board full access to their accounts, books and records, for tax and other fiscal purposes; and(k) Be subject to Philippine income tax.”

The Oil Exploration and Development Act of 1972, § 8. (Under the 1987 Philippine Constitution, the President or, under the doctrine of qualified political agency, the Department of Energy replaces the Petroleum Board.) See Tecson, supra note 65, p.177.385 The Oil Exploration and Development Act of 1972, § 9 ¶ (a).386 Tecson, supra note 65, 167; The Oil Exploration and Development Act of 1972, § 8 ¶ (1)387 Id.

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In addition to the reimbursement, the Philippine Government is also obliged to

pay the Service Fee.388 The amount of the Service Fee should not exceed “forty per

cent of the balance of the gross income after deducting the . . . all operating expenses

recovered pursuant to Section 8 (1) . . . .”389 Additional deductions are enumerated in

Sections 8 (1)(a), namely the amortization and depreciation of intangible exploration

costs.390

Once the exploration contractor discovers oil in commercial quantity exists in

the area licensed to it, it may “operate the field on behalf of the Government in

accordance with accepted good oil field practices using modern and scientific methods

to enable maximum economic production of petroleum.”391 No exact guidelines are

provided by The Oil Exploration and Development Act of 1972. The only standard for

the operator is that it complies with the “accepted good oil field practices using modern

and scientific methods.”392 Later in this study, it will be explained that this is the trend

today as opposed to strict control of the State.

After the oil is extracted from the oil field, the Contractor may “market either

domestically or for export all petroleum produced,” if authorized in the Contract.393

The permissive word “may” connotes that it is up to the Philippine Government to

determine who will sell the oil extracted. Consequently, it is the Philippine

388 Tecson, supra note 65, 166; The Oil Exploration and Development Act of 1972, § 8 ¶ (2).389 Id.390 The Oil Exploration and Development Act of 1972, § 8 ¶ (1) (a)391 Tecson, supra note 65, 167; The Oil Exploration and Development Act of 1972, § 8 ¶ (d).392 The Oil Exploration and Development Act of 1972, § 8 ¶ (d).393 Tecson, supra note 65, 167; citing The Oil Exploration and Development Act of 1972, § 8.

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Government that has the right of ownership over the oil extracted. Indeed, the

reimbursement of operating costs and the payment of service fee presupposes that the

ownership over the oil has never been with the Contractor. More importantly, the

language employed by Section 8 (d) is “on behalf of the Government.”394 This means

that the Philippine Government did not really divest itself of the ownership over the oil.

Therefore, in the SCR, the ownership of the oil remains with the Philippine

Government. This fact is a key factor in allowing the merge of SCR and the concession

regime (“CR”).

b. Concession Regime

In the Chinese Concession Regime, the license to explore is first procured by

the Contractor by submitting not only the formal requirements but also by paying the

exploration fees.395 The Chinese Government prescribes fees equivalent to 100 to 500

RMB yuan per square kilometer, which is to be paid annually.396 For every year spent,

the exploration fee increases, but in no case will the fee exceeds 500 RMB yuan per

square kilometer.397 The Contractor may also opt to reimburse the Chinese Government

the cost incurred by the latter in its exploration.398 Moreover, during the course of the

394 Tecson, supra note 65, 166; The Oil Exploration and Development Act of 1972, § 8 ¶ (d).395 Regulations for Registering to Explore Mineral Resources, Decree No. 240 of State Council of People's Republic of China, art. 12 (1998). An online reproduction of the said law is available at http://www.mlr.gov.cn/mlrenglish/laws/200710/t20071011_656306.htm (last accessed 19 June 2012).396 Id.397 Id. (“The standard for the exploration fee is applicable to all licenses and [read] as follows: 100 RMB yuan per square kilometer per year for the first three years; 100 RMB yean per square kilometer shall be added per year starting from the fourth year. However, the highest amount shall not exceed 500 [RMB] yuan per square kilometer per year.”)398 Decree No. 240 of State Council of People's Republic of China, art. 13; In stark contrast, in the Philippine SCR, it is the Government that is obliged to reimburse the Contractor of the latter’s operating costs. The Oil Exploration and Development Act of 1972, § 8 ¶ (1).

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exploration, the Contractor is required to meet the minimum exploration expenditure.399

Article 17 of the Regulations for Registering to Explore for Mineral Resources Using

the Block System (“Chinese Rules on Exploration”) stipulates the amount, which varies

for every year of exploration.400

If oil in commercial quantity is found in the area explored, the Contractor

acquires the priority right to mine the area.401 However, a mining license must be

secured.402 Before a mining license is granted, the formal requirements are first

submitted to the Chinese Government.403 Article 5 of the Regulations for Registering to

Mine Mineral Resources enumerates these requirements.404

After the oil is extracted, the Contractor can rightfully sell it to anyone.405

Unlike in the SCR, it is implied in CR that the ownership over the oil is transferred to

the Contractor from the moment the mining license is granted.406 The obvious reason is

no one may rightfully sell something that it does not own or it does not have authority

399 Id. art. 17; This regulatory measure is also applied in the Philippine SCR. The Oil Exploration and Development Act of 1972, § 9 ¶ (a).400 Id. (“The exploration licensee shall, from the date of issue of the exploration license, meet a minimum expenditure for exploration according to the following schedule: 1)[]2000 RMB yuan per square kilometer for the first year of exploration; 2)[]5000 RMB yuan per square kilometer for the second year of exploration; and 3)[]10000 RMB yuan per square kilometer each year thereafter, starting with the third year of exploration.”) Id.401 Rules for Implementation of the Mineral Resources Law of the People’s Republic of China, Decree of State Council of the People’s Republic of China No. 152, art. 16 (1994). An online reproduction of the said law is available at http://www.mlr.gov.cn/mlrenglish/laws/200710/t20071012_656322.htm (last accessed 19 June 2012).402 Regulations for Registering to Mine Mineral Resources, Decree of State Council of the People’s Republic of China No. 241 art. 5 (1998). An online reproduction of the said law is available at http://www.mlr.gov.cn/mlrenglish/laws/200710/t20071011_656307.htm (last accessed 19 June 2012). 403 Id.404 Id.405 Decree of State Council of the People’s Republic of China No. 152, art. 30 ¶ 2.406 KILUANGE TINY, THE JDZ MODEL PSC: A LEGAL ANALYSIS 4.

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to sell. Indeed, the Mineral Resources Law of the People’s Republic of China

(“Chinese MRL”) provisions on mining do not indicate that the State owns the oil

extracted.407 From a careful reading of the provisions, the Chinese MRL only limits the

manner of exercising the Contractor’s granted authority to mine.408 While the Oil

Exploration and Development Act of 1972 expressly stated that the Contractor is an

407 Mineral Resources Law of the People’s Republic of China, Order No. 74 of the President of People’s Republic of China, arts. 29-34 (1996). An online reproduction is available at http://www.mlr.gov.cn/mlrenglish/laws/200710/t20071011_656311.htm (last accessed 19 June 2012). Arts. 29 to 34 provide:

Article 29 In mining mineral resources, a mining enterprise must adopt rational mining sequence and methods and proper ore-dressing technique. The recovery rate and impoverishment rate in mining and recovery rate in ore-dressing of a mining enterprise shall meet the design requirements.

Article 30 While mining major minerals, its paragenetic and associated minerals of commercial value shall be comprehensively mined and utilized in accordance with a unified plan, so as to avoid waste. Effective protective measures shall be adopted to avoid loss and damage to ores that that cannot be mined in a comprehensive way or that must be mined simultaneously but cannot be comprehensively utilized for the time being, and to tailings containing useful components.

Article 31 In mining mineral resources, it is essential to abide by the state provisions for the issues regarding labour, safety and hygiene and have the necessary conditions to ensure safety in production.

Article 32 In mining mineral resources, it is essential to observe the legal provisions on environmental protection to prevent pollution of the environment. In mining mineral resources, attention shall be paid to using land economically. In case cultivated land, grassland or forest land is damaged owing to mining, the relevant mining enterprise shall take measures to utilize the lands affected, such as by reclamation, tree and grass planting, as appropriate to the local conditions. Anyone who, in mining mineral deposits, causes losses to the production and livelihood of other persons shall be liable to making compensation and adopt necessary remedial measures.

Article 33 Before the construction of railways, factories, reservoirs, oil pipelines, transmission lines and various large structures or architectural complexes, the units responsible for the construction must obtain information from departments in charge of geology and mineral resources under the people’s governments of provinces, autonomous regions, or municipalities directly under the central government where the units are

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agent of the Philippine Government,409 no similar provision appears in the Chinese

MRL.

Article 34 of the Chinese MRL, however, may be read as a provision supporting

Chinese Government’s ownership over the extracted oil because of how it was worded.

Article 34 is a provision limiting the rights of the Contractor to sell the mineral

resources.410 It is only a limitation but not a prohibition. It limits the persons who can

purchase the extracted oil411 but if no limitation is provided, the contractor can

rightfully sell the produced oil, subject to taxation and fees. Moreover, this does not

abrogate the ownership of the Contractor over the extracted oil. Indeed, the positive

language of Article 30 of the Chinese MRL-IR upholds the Contractor’s right to sell the

extracted oil, except in cases when the State Council limited this right.412

At the present, the only limitation to the power of the Contractor to sell the

mineral resources is with regard to gold.413 Therefore, in CR, the ownership of the

located, about the distribution and mining of mineral resources in the areas where the construction projects are to be built. Those projects shall not be constructed over important mineral deposits unless approved by relevant departments authorized by the State Council.

Article 34 As prescribed by the State Council, mineral products to be purchased exclusively by designated units may not be purchased by any other units or individuals; excavators of such minerals shall not sell their products to non-designated units.

Id.408 Id.409 The Oil Exploration and Development Act of 1972, § 8 ¶ (d).410 Order No. 74 of the President of People’s Republic of China, art. 34.411 Id.412 Decree of State Council of the People’s Republic of China No. 152, art. 30.413 Asian Legal Information Institute, Circular of the General Office of the State Council on Banning Unauthorized Gold Markets and Strengthening Administration of Gold Products, available at http://www.asianlii.org/cn/legis/cen/laws/cotgootscobugmasaogp1219/ (last accessed 17 June 2012).

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extracted oil belongs to the Contractor, and not with the Chinese Government. This is

also a key factor in merging SCR and CR.

2. Reconciling the Two Regimes

The proponent is of the position that the two different regimes can operate

simultaneously. As indicated in the previous subsection, the ownership of oil belongs

to the Philippine Government in the SCR. While in the CR, it is with the Contractor.

These facts facilitate the creation of JDA between China and the Philippines.

Attached in this study is a Flow Chart entitled “The Flow of Oil Rights in a

Mixed SCR-CR” wherein a simulated flow of oil rights is depicted (See Annex A.) The

discussion on how the flow chart can be understood is divided into three parts: first, in

the perspective of China; second, in the perspective of the Philippines; and third the

flow of oil.

In the perspective of China, the Contractor receives the exploration and mining

(“E&M”) rights,414 along with the oil rights,415 in exchange for the E&M fees,416

royalties,417 income tax418 and resource tax.419 (See Annex A.1)

In the perspective of the Philippines, the Contractor, after discovering oil in

commercial quantity and extracting it, returns the oil rights to the Philippines. (See

414 Decree No. 240 of State Council of People's Republic of China, arts. 12, 16; Decree of State Council of the People’s Republic of China No. 241 arts. 9, 13;415 Chapter V § (D)(1)(b).416 Decree No. 240 of State Council of People's Republic of China, arts. 12, 16; Decree of State Council of the People’s Republic of China No. 241 arts. 9, 13;417 ERNST & YOUNG, GLOBAL OIL AND GAS TAX GUIDE 87-96 (2011)418 Id.419 Id.; Order No. 74 of the President of People’s Republic of China, art. 5; Decree of State Council of the People’s Republic of China No. 152, art.31 ¶ (3).

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Annex A.2) It is the proponent’s belief that although no prior transfer of oil rights from

the Philippine Government to the Contractor occurred, the Contractor has the right to

hold the transfer of oil to the Philippine Government in the event that the latter fails to

pay the former its service fee and reimbursement cost.420 Therefore, it can be said that

the Contractor returns the oil rights to the Philippines after reimbursement and payment

of service fee.

If oil in commercial quantity is discovered and extracted, the Philippines shall

reimburse the Contractor of the operating costs, including the amortization and

depreciation of intangible assets.421 The Philippines shall also pay the Contractor the

agreed Service Fee.422 From the amount received by the Contractor, income tax and

excise tax shall be deducted.423

Last but not the least, the process of how the right to oil flows shall be

discussed. (See Annex A) On the face of the flowchart, it appears from the flowchart

that the right to oil originated from China and it was derivatively transferred to the

Philippines. The flowchart is inaccurate in this aspect. The flow of oil rights in the

flowchart is not a showing of from who did the oil rights originated. Technically

speaking, it is wrong to say that the right to oil came from China and it was transferred

420 See An Act to Ordain and Institute the Civil Code of the Philippines [CIVIL CODE], Republic Act. No. 386, art. 2085 (1950). It is the proponent’s position that, although there is no separate contract of pledge that is created between the Philippine Government and the Contractor, the provisions of the The Oil Exploration and Development Act of 1972 indicates that there can be an implied contract of pledge created by operation of law. Article 2121 of the Civil Code recognizes that a contract of pledge is created by operation of law in instances when the lawful owner of the movable object did not reimburse the possessor in good faith of the necessary and useful expenses incurred by the latter. Id., art. 2121.421 The Oil Exploration and Development Act of 1972, § 8 ¶ (1) (a).422 Id., § 8 ¶ (2).423 Tecson, supra note 65, 171; citing La Bugal B’laan Tribal Association, Inc. v. Ramos 445 SCRA 1, at 223

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to the Philippines. It is also wrong to say that the Philippines has it exclusively for

itself. The right to oil both belongs to China and the Philippines but the apportionment

of those rights until a final delimitation agreement is created.424

The purpose of showing the flow of oil rights is to show that in the end, if both

States agree to enter into a JDA, they are still going to enjoy what the normally get if

there is no cooperation. In the next subsection, the possible compromises in the “full

supervision and control” aspect shall be discussed. In the said aspect, States need to

compromise meaning, they must lose some control, but not all, in order to get a portion

of the oil in return.

3. Possible Compromises

In the proposed JDA, States will need to set compromises on their power to

supervise and control and not on the financial aspect. As shown in the flowchart, both

States will still receive the amount of revenues they ordinarily get if there is no existing

JDA. The reason is, in a merge SCR-CR, it is the Contractor who shoulders the burden

by facing two different taxation regimes.425 Since no significant financial compromise

on the part of the States is present, more focus will be given on reconciling the powers

of both States to supervise and control.

424 This can be implied from the correlated duty to exercise mutual restraint that prevents States from appropriating for themselves the resources inside a disputed territory. See UNCLOS, supra note 65, art. 74 ¶ 3.425 The issue on how to attract investors is not an issue of law but of business. However, the proponent posed some suggestions in the conclusion and in Annex 3 namely, to delegate the right to sell the oil to the contractor, to limit the number of contractors eligible to operate in the overlap in order to increase the revenues of the Contractor and, to create a tax treaty reducing the corporate income tax from both States.

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a. Compromises on the Power of Control and Supervision

“Full control and supervision” does not mean that the Philippine Government

must spend time and resources to actually supervise and control the specific acts of the

Contractor. Both the Philippine law and international law supports this. “Full control

and supervision” under the Philippine domestic law is to create a legal framework and

ensuring its proper implementation.426 The Philippine Supreme Court held that “[t]he

concept of control adopted in Section 2 of Article XII must be taken to mean less than

dictatorial, all-encompassing control; . . . . Control by the State may be on a macro

level, through the establishment of policies, guidelines, regulations, industry standards

and similar measures . . . .”427 (Emphasis omitted)

In international law, it means the degree of control where the industry is still

capable of regulating itself.428 Desiree Adams of the UN Development Programme

explains that due to the Exxon Valdez oil spill 1989, the incapacity of the State to fully

regulate the oil industry was revealed.429 After the disaster, the concept of industry self-

regulation became the popular choice, of the oil companies and the States.430 Indeed, in

the United States, the Government’s role is limited only to approval of licenses and

ensuring that proper implementation of the U.S. laws is done.431

426 Tecson, supra note 65, 171; citing La Bugal B’laan Tribal Association, Inc., 445 SCRA at 130-31.427 Tecson, supra note 65, 171; citing La Bugal B’laan Tribal Association, Inc., 445 SCRA at 130-31.428 DÉSIRÉE ABRAHAMS, REGULATING CORPORATIONS: A RESOURCE GUIDE, 6 (prov. ed. Dec. 2004). (“What emerged in practice centred heavily on industry self-regulation.”); cited in ATENEO DE MANILA SCHOOL OF LAW, MEMORIAL FOR RESPONDENT FOR 2010-11 STETSON MOOT COURT COMPETITION 20, available at http://www.law.stetson.edu/international/iemcc/media/finals-1131r.pdf (last accessed 19 June 2012) [hereinafter “Memorial for Respondent”].429 ABRAHAMS, supra note 428, 2.430 Id., at p.2-3.431 See generally, MEMORIAL FOR RESPONDENT, supra note 428, 20-21; citing CONGRESSIONAL RESEARCH SERVICE, DEEPWATER HORIZON OIL SPILL: SELECTED ISSUES FOR CONGRESS 14-16

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The Proponent is of the opinion that the same interpretation of “full control and

supervision” is being applied in China. A careful reading of the Chinese Mining Law

reveals that the Chinese Government’s power is limited only to the promulgation of

rules and ensuring through inspection that the Contractor complies with the rules.432

The power to promulgate rules is obviously manifested through the regulations.

Moreover, the power to ensure compliance is being exercised through general

supervision, inspection and imposition of fines and revocation of permits. Therefore, in

the Chinese oil upstream industry, the Government’s participation is broad and not

specific. Like the Philippines, China also conforms to industry self-regulation.

It can be understood from the discussions above that under the Philippine laws,

Chinese laws and International law, the control of the States rests mainly in the various

laws that it promulgates. That is, States allow the industry to regulate itself to some

extent.

b. Reconciling the Two Laws: The Assumptions

Since both States operate through their laws, it is possible that States find

themselves in conflict with each other when it comes to exercising their authority to

regulate the activities of the Contractor. To prevent this, a set of rules where both Sates

can operate simultaneously is necessary. To create a so-called Joint Rules otherwise

known as “Applicable Law” in typical JDAs, it is imperative to study the limitations in

the Philippine and Chinese laws.

432 See generally Order No. 74 of the President of People’s Republic of China.

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For example, both the Philippine and the Chinese laws provide for minimum

exploration expenditure.433 However, the Philippines requires a much lesser amount

than China. Since the Philippine Law provides that stricter stipulations may be

included in the Contract,434 this study suggests that the proposed JDA adopts the

amounts provided in the Chinese Law. Even though the Contractor could no longer

take advantage of the relatively low minimum exploration expenditure, the goal is to

make the two laws operate together.

To better understand what the Proponent is trying to achieve, a simple

explanation is provided. First, treat the individual legal frameworks as the individual

boundaries of States. Consequently, going beyond these individual boundaries will

make the act ineffective.

Second, assume that there is a common area where the two laws of the States

can operate simultaneously without going outside their boundaries. An example of this

is the provisions on the minimum exploration expenditure where in States will not

exceed in their boundaries if the minimum amounts are increased and equalized.

Third, assume also that there are independent acts of the States that do not affect

the other State’s right to control and supervise. An example of this would be the notice

requirement provided in both laws. In the Philippines, the President must notify the

Congress within thirty (30) days.435 In China, the licensing authority must notify the

433 The Oil Exploration and Development Act of 1972, § 9 ¶ (a); Decree No. 240 of State Council of People's Republic of China, art. 17.434 The Oil Exploration and Development Act of 1972, § 8 ¶ (c). 435 PHIL. CONST. ART. XII § 2.

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Department for Geology and Natural Resources.436 Although the two provisions are

different, the effects are independent.

Lastly, assume that there are possible conflicting provisions. Some of these

provisions can be resolved by adding “Conflict of Laws clause” in the JDA. A

“Conflict of Laws clause” is a stipulation in the JDA allowing domestic courts to apply

the provisions in the JDA even though no such law exists under the domestic law. In

other words, the Philippine courts are enforcing the stipulations in the JDA to which the

parties have consented.

Some conflicting provisions, however, cannot be reconciled by a “Conflict of

Laws clause.” Both the Philippine and Chinese laws are contradictory to each other.

An example of the second type would be the “Approval of Permits” provision where

both States cannot do away with the function of approving the permits because it would

constitute as an actionable nonfeasance. Consequently, the rejection of State party will

not make the act effective even though the other State party approved it. In this type of

cases, the modes of dispute resolution become very important in re-aligning the

decisions of both States.

c. Comparison of the Laws under SCR-CR

The comparison is made using a table of three columns. The first column

contains the general description of the provision. The second column contains the

Philippine legal provisions culled from The Oil Exploration and Development Act of

1972 and Article XII, Section 2 of the 1987 Constitution. The third column contains

436 Decree No. 240 of State Council of People's Republic of China, art. 4.

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the Chinese mining law provisions provided under the following Chinese laws: (1)

Mineral Resources Law, (2) Rules for Implementation of the Mineral Resources Law,

(3) Regulations for Registering to Explore for Mineral Resources using the Block

System, and (4) Regulations for Registering to Mine Mineral Resources.

Table 1 Comparison of Service Contract Regime (SCR) and Concession Regime (CR)

General Description Philippine Law (SCR) Chinese Law (CR)1 Capacity of the

Government to directly undertake the exploration and exploitation

The Government may directly undertake the exploration and mining of oil and natural gas437

The Government may directly undertake, through its State-owned mining enterprise, the exploration and mining of oil and natural gas.438

2 Capacity of the Contractor

The Contractor must be capable of providing the services and technology and the financing needed.439 However, the Contract may impose stricter stipulations.440

The Contractor must have the following: (1) “the necessary funds, equipment and technical personnel;”441 (2) “feasibility study report, mine design or mining proposal;”442 (3) a mine chief who is “equipped with basic knowledge regarding the mining production, safety control and environmental protection.”443

3 Notice Requirements The President must notify the Philippine Congress within 30 days from execution of the contract.444

Notice for application must be given to the Department for Geology and Mineral Resources445

Notice that the mining license is granted must be published.446

4 Bidding Public bidding using a weighted Public bidding448

437 The Oil Exploration and Development Act of 1972, § 4.438 Order No. 74 of the President of People’s Republic of China, art. 4.439 The Oil Exploration and Development Act of 1972, § 8 ¶ (a) and (b).440 Id., § 8 ¶ (c).441 Decree of State Council of the People’s Republic of China No. 152, art.13.442 Id.443 Id.444 PHIL CONST. ART. XII, § 2 445 Decree No. 240 of State Council of People's Republic of China, art. 4446 Decree of State Council of the People’s Republic of China No. 241 art. 31.448 Decree No. 240 of State Council of People's Republic of China, art. 16.

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Requirements for exploration and mining rights

system of evaluation or through negotiation in exceptional circumstances447

5 Minimum Capitalization Requirement

50 Million U.S. Dollars for every single mining unit449

None; only adequate financial capacity of the contractor is required to be shown.450

6 Number of Contracts allowed

More than one contract is allowed451 provided that the total area for every Contractor and its affiliates does not exceed the maximum area under Section 18(b).

None.

7 Exploration Fees None 100 RMB Yuan per sq.km/year for the first 3 years; 200 RMB Yuan for the 4th year; 300 RMB Yuan for the 5th year; 400 RMB Yuan for the 6th year; 500 RMB Yuan for the 7th year and the succeeding years. The fees may be reduced or condoned by the State, upon application.452

8 Carry-over of Amount in Excess of Minimum Exploration Expenditure

Yes453 Yes454

9 Minimum Exploration Expenditures

P 300 per square kilometer per year (“sq.km/year”) up to P 1,800 per sq.km/year.455

2,000 RMB Yuan per sq.km for the 1st year; 5,000 RMB Yuan for the 2nd year; 10,000 RMB RMB Yuan for the succeeding years.456

10 Maximum Exploration Area

800 sq.km to 15,000 sq. km. for every Contractor and its affiliates;457 Subject to liberals

Up to 4,050 sq.km for each exploration project;459 the area granted to Contractor may be

447 The Oil Exploration and Development Act of 1972, § 5.449 Office of the President, Authorizing the Secretary of Environment and Natural Resources to Negotiate and Conclude Joint Venture, Co-Production, or Production-Sharing Agreements for the Exploration, Development and Utilization of Mineral Resources, and Prescribing Guidelines for such Agreements and those Agreements involving Technical or Financial Assistance by Foreign-owned Corporations for Large-Scale Exploration, Development, and Utilization of Minerals, Executive Order No. 279 [E.O. No. 279], § 4 (July 25, 1987).450 Decree No. 240 of State Council of People's Republic of China, art. 5, 22.451 The Oil Exploration and Development Act of 1972, § 10.452 Decree No. 240 of State Council of People's Republic of China, art. 15.453 The Oil Exploration and Development Act of 1972, § 9 (a).454 Decree No. 240 of State Council of People's Republic of China, art. 17.455 The Oil Exploration and Development Act of 1972, § 9 (a)456 Decree No. 240 of State Council of People's Republic of China, art. 17; Decree of State Council of the People’s Republic of China No. 241 art. 13.457 The Oil Exploration and Development Act of 1972, § 18 ¶ (b).

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stipulations allowed by the President or the Department.458

modified provided the new area does not exceed the maximum.460

11 Change of exploration area

No provision under P.D. No. 87 but the Contract may impose stricter stipulations461 and require prior approval.

Approval is necessary462

12 Period for Exploration

7 years, extendible up to 10 years; but shall not exceed 10 years;463 extension shall only be granted if the Contractor drills a minimum footage of test wells during the validity period of the license;464 subject to the liberal terms allowed by the President or the Department.465

For oil and petroleum, 7 years; no limit as to the total number of years as long as every extension do not exceed years and application was made 30 days prior to expiration of original or extended period;466 if not made within 30 days, the Contractor must wait for 90 days before re-applying for a permit.467

13 Exclusivity of Exploration Area

Exclusive to Exploration Contractor468

Exclusive to Exploration Contractor469

14 Approval of Exploration and Mining Permits

The President himself/herself or the Department of Energy but with the final approval of the President;470 however, once the Contract is approved, the right to explore and mine are deemed granted with the Contract.471

Department in charge of Geology and Mineral Resources472

458 Id., § 10.459 Decree No. 240 of State Council of People's Republic of China, art. 3 (One (1) basic unit area is equal one (1) minute longitude by one (1) minute latitude); Philippine Mining Act of 1995, § 3 ¶ (b) (One (1) meridional block is ½ minute longitude by ½ minute latitude, which is also equal to 81 hectares).460 Decree No. 240 of State Council of People's Republic of China, art. 22461 The Oil Exploration and Development Act of 1972, § 8 ¶ (c).462 Decree No. 240 of State Council of People's Republic of China, art. 22.463 The Oil Exploration and Development Act of 1972, § 9 (e).464 Id., § 9 (a).465 Id., § 10.466 Decree No. 240 of State Council of People's Republic of China, art. 10467 Id., art. 24.468 The Oil Exploration and Development Act of 1972, § 8 ¶ (h).469 Decree No. 240 of State Council of People's Republic of China, art. 9.470 PHIL CONST. ART. XII, § 2.471 The Oil Exploration and Development Act of 1972, § 9 ¶ (f);472 Decree No. 240 of State Council of People's Republic of China, art. 4; Decree of State Council of the People’s Republic of China No. 241 art. 3.

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15 Penalty for not complying the Minimum Exploration Expenditure

“[I]t shall pay the Government the amount it should have spent but it did not . . . .”473

Self-correction within prescribed period; if still fails to meet the MEE, the Contractor must pay a fine not greater than 50,000 RMB Yuan; revocation of the permit shall be imposed if the Contractor repeatedly violates the MEE.474

16 Pro-rating of Minimum Exploration Expenditure

No provision under P.D. No. 87. However, the Civil Code adheres to the principle of unjust enrichment.475

MEE is prorated if delay or postponement was due to force majeure or fortuitous event provided, thea report is filed within 30 days from resumption of work.476

17 Compulsory Commencement of Exploration

By default, there is no CCE; but the Contract may impose stricter stipulations.477

Contractor must commence the work 30 days from issuance of permit.478

18 Experimental Mining during Exploration

Prior application is not required. The right to mine is given from the time the right to explore is granted under the Contract.479

Prior application is required480

19 Reservation of the right to explore once oil of commercial quantity is discovered

Limited only to the delineated area plus 12 ½ % of the initial area;481 provided that the Contractor pays an annual rental fee of not less than 20 Pesos per hectare/year.482

If the Contractor intends to reserve its existing right to explore the area, reservation will be valid for 2 years, extendible for another 2 years but the number of extensions is limited only to two extensions;483

It shall be reserved if public interest is served and technical support is not yet available.484

If the Contractor fails to reserve,

473 The Oil Exploration and Development Act of 1972, § 9 ¶ (a).474 Decree No. 240 of State Council of People's Republic of China, art. 29475 CIVIL CODE, supra note 420, Art. 22.476 Decree No. 240 of State Council of People's Republic of China, art. 17.477 The Oil Exploration and Development Act of 1972, § 8 ¶ (c). 478 Decree No. 240 of State Council of People's Republic of China, art. 17.479 See The Oil Exploration and Development Act of 1972, § 8 ¶ (d).480 Decree No. 240 of State Council of People's Republic of China, art. 20.481 The Oil Exploration and Development Act of 1972, § 9 ¶ (e)482 Id.483 Decree No. 240 of State Council of People's Republic of China, arts. 10, 21.484 Id., Art. 21

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it must wait for 90 days before applying for another exploration permit.485

20 Abandonment / Postponement of Exploration

Abandonment within the first two years shall make the Contractor liable to pay a fine equivalent to the 2 years worth of operating expenses.486

Unjustified postponement of work for six months of the Contractor make it liable to pay a fine or to surrender its permit.487

21 Compulsory Relinquishment of initial area for exploration

¼ of the initial area at the end of the fifth and seventh year;488 not applicable to delineated production area;489 subject to liberal terms allowed by the President or the Department.490

None.

22 Exclusive Right to Mine Explored Area

If the Contractor discovers oil in commercial quantity, it can delineate the area491 and start the mining.492

Upon discovery, the Contractor Contractor must apply for a permit to mine.493

23 Transfer of Exploration Right

The Contractor must first secure the approval of the President or the Department;494 if transfer is between affiliated companies, the transfer is automatic.495

The Contractor must first secure approval of the Department; approval is only granted after the substantive (e.g. not prohibited by law, qualifications of both transferor and transferee, and appraisal) and formal requirements are complied; once approved, the license may be modified.496

24 Period for Mining Balance of the exploration period plus additional period not exceeding 25 years, renewable for a period not exceeding 15 years is granted to the Contractor.497

Mining shall be for a term not exceeding 30 years depending on the scale of the mining; if large-scale, up to 30 years; if medium-scale, up to 20 years; if small-scale, up to 10 years.

485 Id., Art. 22.486 The Oil Exploration and Development Act of 1972, § 9 ¶ (b).487 Decree No. 240 of State Council of People's Republic of China, art. 28488 The Oil Exploration and Development Act of 1972, § 9 ¶ (c).489 Id.490 Id., § 10.491 Id., § 9 ¶ (d).492 Id., § 8 ¶ (d)493 Decree of State Council of the People’s Republic of China No. 241 art. 3; 494 The Oil Exploration and Development Act of 1972, § 11.495 Id.496 Decree No. 240 of State Council of People's Republic of China, art. 22.497 The Oil Exploration and Development Act of 1972, § 9 ¶ (f).

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Extensions are allowed upon application.498

25 Fee for Mining Rights

No provision under P.D. No. 87. 1,000 RMB Yuan per sq. km./year499 The fees may be reduced or condoned by the State, upon application.500

26 Standards for granting Mining Permit

No provision under P.D. No. 87. However, the Contractor is obliged to “operate the field on behalf of the Government in accordance with accepted good oil field practices using modern and scientific methods to enable maximum economic production of petroleum; avoiding hazards to life, health and property; avoiding pollution of air, land and waters; and pursuant to an efficient and economic program of operation.”501 Moreover, the Contract may also impose stricter stipulations.502

The Contractor must submit documentary proof of its capacity along with a development plan and other formal requirements required by the department.503

27 Change in the mining area

No provision under P.D. No. 87 but the Contract may impose stricter stipulations.504

The change must be approved and the application must be submitted within the validity period of the mining permit505

28 Applicable Taxes Excise Tax,506 Corporate Income Tax,507

Royalties,508

Mineral Resource tax,509

Mineral Resource Compensation,510 and Corporate Income Tax511

29 Exemption from On importation of machinery and Eligible to exemption but

498 Decree of State Council of the People’s Republic of China No. 241, art. 7.499 Id., art. 9.500 Id., art. 12501 The Oil Exploration and Development Act of 1972, § 8 ¶ (d).502 Id., § 8 ¶ (c).503 Decree of State Council of the People’s Republic of China No. 241 art. 5.504 The Oil Exploration and Development Act of 1972, § 8 ¶ (c).505 Decree of State Council of the People’s Republic of China No. 241 art. 15.506 Tecson, supra note 65, 244; National Internal Revenue Code [NIRC], Republic Act No. 8424, § 151 ¶ 4. (“15% of the fair international market price”).507 ERNST & YOUNG, supra note 417, 342.508 Id. 88-89.509 Order No. 74 of the President of People’s Republic of China, art. 4; ERNST & YOUNG, supra note 417, 89-90.510 Order No. 74 of the President of People’s Republic of China, art. 4.511 ERNST & YOUNG, supra note 417, 90-91.

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Tariff and Custom Duties

equipment and spare parts, provided: (1) machinery of same price and quality is not available in the Philippines, (2) directly, actually and exclusively used for the operation, (3) prior approval of the Department, (4) imported capital shall not be sold.512

subject to approval513

30 Reimbursement of Government’s Investment

No provision under P.D. No. 87. Equivalent to the State’s Actual Investment as appraised by the organizations designated.514 The fees may be reduced or condoned by the State, upon application.515

31 Reimbursement of Contractor’s operating expenses and Payment of Service Fee

Allowed; Reimbursement of operating costs is subject to cost recovery limitation provided in the Contract;516 but the Contract must conform with the cost recovery limit provided by law – a maximum of 70% of the gross proceeds shall be paid to the Contractor as reimbursement of operating expenses; the unrecovered amount shall be carried over to the succeeding years.517

Service fee is paid by the Government the amount of which is equivalent to gross income after deducting operating expenses.

None.

32 Exportation of Crude Oil

Allowed provided, a portion will remain to cater domestic needs518

Allowed; there is no prohibition on exporting oil extracted519

33 Sale and Disposal of Natural Gas and Casinghead Petroleum Spirit

Must conform with the rules prescribed for crude oil;520 however, the market price shall be the tax base;521 provided further, that that

The Contractor is allowed to export minerals it extracted,523 including the oil and natural gas produced.

512 The Oil Exploration and Development Act of 1972, § 12 ¶ (b).513 ERNST & YOUNG, supra note 417, 94.514 Decree No. 240 of State Council of People's Republic of China, art. 13.515 Id., Art. 15516 The Oil Exploration and Development Act of 1972, § 10-A ¶ (a).517 Id., § 8 ¶ (1).518 Id., § 12 ¶ (e)519 Decree of State Council of the People’s Republic of China No. 152, art. 30.520 The Oil Exploration and Development Act of 1972, § 5 (i).521 Id., § 9 (i) (1).523 Decree of State Council of the People’s Republic of China No. 152, art. 30.

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prospective demand in the Philippines are first satisfied.522

34 Closing down of a Mining Area

No specific provision but approval before closing may be considered as required under “accepted good oil field practices.”524

The Department must approve the closing down of the mine.525 The Contractor must submit a geological report and, after closing down the mine, submit another report about the closing down.526

35 Government Inspectionand Submission of Records & Accounts

Contractor must grant the inspectors access to equipment area and, exploration and production sites527 and allow “full access to their accounts, books and records”528

If the Department intends to inspect the work or verify issues with regard to capitalization, the Contractor must report to the Government and must submit to inspection529 Refusal shall warrant the application of a fine.530

36 Confidentiality of the results of investigation

Yes; access is only limited only “for tax and fiscal purposes”531

Results of the investigation shall be confidential532

37 Full Disclosure of Interest in the Contractor

Domestic mining and petroleum companies’ interest in the Contractor must be disclosed.533

None.

38 Effect of Fortuitous Event

None under PD 87 but under the New Civil Code, when the obligor is prevented by a fortuitous event in doing the act required of him, it shall be released from such obligation, in whole or in part.534

Justifies pro-rating of Minimum Exploration Expenditure,535 reduction of mining fee and reimbursement fee536

39 Insurance against No provision under P.D. No. 87 but Contractors are required to have

522 Id., § 9 (i) (2).524 The Oil Exploration and Development Act of 1972, § 8 ¶ (c). 525 Decree of State Council of the People’s Republic of China No. 152,, art. 32.526 Id.527 The Oil Exploration and Development Act of 1972, § 8 ¶ (i).528 Id., § 8 ¶ (j).529 Decree No. 240 of State Council of People's Republic of China, art. 25; Decree of State Council of the People’s Republic of China No. 241, art. 14.530 Decree of State Council of the People’s Republic of China No. 241, art. 18.531 The Oil Exploration and Development Act of 1972, § 8 ¶ (j).532 Decree No. 240 of State Council of People's Republic of China, art. 25.533 The Oil Exploration and Development Act of 1972, § 14.534 CIVIL CODE, supra note 420, Art. 1266.535 Decree No. 240 of State Council of People's Republic of China, art. 17.536 Decree of State Council of the People’s Republic of China No. 241 art. 12

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Fortuitous Event the Contract may impose stricter stipulations.537

an insurer for civil liabilities arising from pollution;538

40 Performance Bond Contractor “shall post a bond or guarantee of sufficient amount.”539

None.

41 Termination of Contract

Upon expiration of the period. Upon expiration of the period540

42 Rescission No provision under P.D. No. 87. upon rescission of the Contractor for any reason after submission of a completion or termination report541

43 Mode of Dispute Resolution

Generally accepted international arbitration practice542

Consultation by the parties involved; if not effective, adjudication543

44 Employment of Nationals of the State Parties

Filipinos are “given preference to positions for which they have adequate training; training program must be adopted;544 incentives are granted;545

No specific provision; only a general non-mandatory provision which States that “State shall give due consideration to [t]he interests of those areas and make arrangements favorable to the . . . livelihood of the local minority nationalities.”546

d. Classification of the Provisions

The Table in this subsection (Table 2) classifies the provisions provided in the

comparison above. Its purpose is to show the critical stipulations in the JDA. It has

four columns, each containing specific provisions found in the table of comparison

before this subsection.

537 The Oil Exploration and Development Act of 1972, § 8 ¶ (c).538 Regulations of the People’s Republic of China Concerning Environmental Protection in Offshore Oil Exploration and Exploitation, Decree No. 253 of the State Council of the People’s Republic of China, Art. 9 (1998).539 The Oil Exploration and Development Act of 1972, § 16.540 Decree No. 240 of State Council of People's Republic of China, art. 24. 541 Id. Rescission may only be done by one of the parties when the exploration and/or mining work is impossible due to causes that is not attributable to the parties. Otherwise, there would be unjustified termination that would fall under the category of abandonment. Tecson, supra note 65, p. 216. 542 The Oil Exploration and Development Act of 1972, § 15.543 Decree No. 240 of State Council of People's Republic of China, art. 9544 Id., § 12 ¶ (f), § 31.545 Id., § 28.546 Order No. 74 of the President of People’s Republic of China, art. 10.

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Those under the “Unrestrained Unified Application” are stipulations where both

the Philippine and Chinese laws can be fully applied. Stipulations under the

“Restrained Unified Application” require that one of the two laws be exercised not in

its full effect. For example, the Philippine law regarding the maximum exploration area

is 15,000 square Kilometers while under the Chinese law, it is only 4,050 square

kilometers.547 Since the stipulation as to the size of the exploration area is more liberal

under the Philippine law, a restrictive application is required to match the stipulations

under the Chinese law.

Furthermore, the stipulations under the “Reconcile under a Conflicts clause” are

basically provisions that do not find a counter-provision with other jurisdiction. In

order for these provisions to have a force and effect in the other jurisdiction, a “Conflict

of Laws clause” is required. Using this clause, the provision, although absent in one of

the laws, will be applied as a stipulation and not as a legal provision.

Lastly, the provisions under the Concurrent Application require that both States

must have the same decision in order for the provision to apply. This implies that when

the supposed action of the Joint Authority involves any of the provisions under the

fourth column, the consent of both States shall not be presumed, even if the State is

notified.548

547 The Oil Exploration and Development Act of 1972, § 18 ¶ (b); Decree No. 240 of State Council of People's Republic of China, art. 3 548 In all other instances, the power of the Heads of States to veto the decision or promulgation of the Authority preserves the power of the States to exercise “full control and supervision.” In case of disagreement between the two States, modes of dispute resolution must be resorted.

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Table 2 Analysis of the Provisions under SCR and CR

Unrestrained Unified Application

Restrained Unified Application

Reconcile under a “Conflicts clause”

Concurrent Application

2 Capacity of the Contractor

4 Bidding Requirements for exploration and mining rights

5 Minimum Capitalization Requirement

11 Change of exploration area

6 Number of Contracts allowed

10 Maximum Exploration Area

7 Exploration Fees 14 Approval of Exploration and Mining Permits

8 Carry-over of Amount in Excess of the Minimum Exploration Expenditure

9 Minimum Exploration Expenditures

20 Abandonment / Postponement of Exploration

15 Penalty for not complying the Minimum Exploration Expenditure

13 Exclusivity of Exploration Area

12 Period for Exploration

21 Compulsory Relinquishment of initial area for exploration

18 Experimental Mining during Exploration

16 Pro-rating of Minimum Exploration Expenditure

19 Reservation of the right to explore once oil of commercial quantity is discovered

22 Exclusive Right to Mine Explored Area

23 Transfer of Exploration Right

17 Compulsory Commencement of Exploration

24 Period for Mining

25 Fee for Mining Rights

27 Change in the mining area

26 Standards for granting Mining Permit

32 Exportation of Crude Oil

28 Applicable Taxes 29 Exemption from Tariff and Custom Duties

35 Government Inspectionand Submission of Records & Accounts

33 Sale and Disposal of Natural Gas and Casinghead Petroleum Spirit

30 Reimbursement of Government’s Investment

34 Closing down of a Mining Area

36 Confidentiality of the results of investigation

31 Reimbursement of Contractor’s operating expenses and Payment of Service Fee

38 Effect of Fortuitous Event

37 Full Disclosure of Interest in the Contractor

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39 Insurance against Fortuitous Event

40 Performance Bond

41 Termination of Contract

42 Rescission

44 Employment of Nationals of the State Parties

43 Mode of Dispute Resolution

The classification of provisions in Table 2 finds their relevance in the

recommended JDA attached in this study as Annex 3. Some provisions under the laws

of both the Philippines and China cannot be applied directly and without adjustments.

Adjustments are necessary to allow the concurrent or unified application of both laws

as if only one law-making authority promulgated them.

No adjustments are necessary for the provisions classified under “Unrestrained

Unified Application” since both laws allow their application. The adjustments

warranted by the provisions classified under the column of “Restrained Unified

Application” are already made. For example, the maximum exploration area is set to

4,050 square kilometers in the proposed JDA in order to satisfy the maximum area

requirements of both laws.

A “Conflicts of Laws” clause is also stipulated to grant the courts of both States

the jurisdiction to penalize acts which are not prohibited under their respective national

laws. As for the provisions classified as “Concurrent Application,” an additional

requirement stating that “[o]nly the Heads of States may approve the proposed closing

down of a mining area” was added in the relevant provisions of the proposed JDA.

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VI. CONCLUSION AND RECOMMENDATION

Although there is no duty to conclude a JDA under International Law, the duty

to negotiate in good faith, which is embodied in the UNCLOS, can compel States to

enter into a JDA if the States can operate without too much injury.

The duty to conclude a JDA when States have overlapping EEZs is not the same

as the duty to negotiate the same. The duty to conclude requires States to enter into a

provisional agreement like a JDA. This duty, although supported by William Onorato,

does not find support under international law.

Among the sources of international law that can bind a State, only the existence

of an international customary law (“Custom”) can possibly support the position of

Onorato. Existence of treaties and conventions can be verified through objective

search. The nearest existing convention that can support Onorato’s proposition is the

UNCLOS. However, the provisions of UNCLOS do not support the conclusion of

JDAs over petroleum resources.

As for the treaties, bilateral treaties between and among the North Sea States

(e.g. Germany, Denmark, the Netherlands), and related European States (e.g. United

Kingdom, Ireland, and Norway) were cited by Onorato to support his position.549

Although these treaties can evince State Practice, without opinio juris, they cannot bind

other States.

On the other hand, general principles of law (“GPL”) needs to satisfy the two-

pronged test proposed by Bin Cheng, before a rule can be considered as a GPL. For

549 See Chapter III (A) (5).

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obvious reasons, the rule, which is States must conclude a JDA, cannot be considered a

principle. Moreover, Onorato’s proposition that civilized nations adopted the rule does

not find support in international law.550 At best, they will remain to be part of the

domestic laws of some of the North Sea States.

There is also no custom requiring States to conclude a JDA when there is an

overlapping claim. The Committee on Formation of Customary (General) International

Law (“Committee”) believes that State practice is enough to evince a custom if there

are no indications that opinio non juris (literally means “non-belief”) exists.551

Otherwise, opinio juris must be proven.552 Ong refuted the proposition of Onorato that

there is a body of international law supporting the existence of opinio juris. Ong’s

approach served two purposes: first, to prove that opinio non juris exist; and second, to

disprove the existence of opinio juris. Hence, without opinio juris, there can be no

custom requiring States to conclude a JDA.

The examination of the possible sources of International Law supporting the

conclusion of a JDA is still debatable. In contrast, the duty to negotiate in good faith is

clearly expressed in Article 74, paragraph 3 and in Article 83, paragraph 3 of the

UNCLOS. Fortunately or unfortunately, there is a void in the law. Even though the

ICJ in two cases – the Gulf of Maine case and the North Sea Continental Shelf cases –

recognized that this is a duty of States, no standards were given to determine when is a

negotiation considered as done in good faith. An obligation without teeth is no

550 See Ong’s Opinion, Chapter III (A) (5).551 See Chapter III (A) (3) (a).552 See Chapter III (A) (3).

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obligation at all. In order to clear the void in the law, a proper interpretation of

negotiation in good faith must be done. The VCLT provides that generally, it is the

States that does the interpretation. However, other authorities, like the courts –

domestic and international – and experts may do the interpretations as well. Since the

ICJ did not provide clear standards on how negotiation in good faith is done, resort to

interpretations of the domestic courts and opinion of experts in the field of negotiation

is warranted.

The domestic courts of United States and the Philippines share the same view

as to how good faith is exercised in negotiation. Both held that to negotiate in good

faith means to make proposals and to answer these proposals with counter-proposals.

As for the contents of these proposals, opinions of experts – O’Neill and Sebenius –

opines that terms must be possible to the proponent and reasonable to accept by the

recipient. In sum, an evaluation of the benefits of status quo and cooperation must be

made. If the benefits of cooperation are greater than the benefits of status quo, the State

must choose cooperation. If States choose to cooperate with each other, the terms must

be possible and reasonable.

Therefore, the basic definition of negotiation in good faith is to take

compromises whenever there risk of harm or injury is nil or low. In the realm of States,

a compromise must be made within their legal framework. Otherwise, the act shall be

void. To determine the “zone” where States can compromise, an examination of the

legal framework of China and the Philippines was done. The two tables in Chapter V

shows this “zone” of possible compromise.

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In general, China follows the Concession Regime, if the Contractor is a Chinese

National. On the other hand, the Philippines follows the Service Contract Regime, if

the Contractor is a foreign-owned Corporation. These two regimes can work

simultaneously. The key to merging these regimes is the ownership of oil rights. In the

former, the right to the oil transfers from the State to the Contractor. In the latter, the

right stays with the State. Hence, in order for the merger to work, the Contractor must

agree that it shall not have any rights over the oil produced.

However, the States are not the only players in this oil upstream industry. The

Contractor must also agree to the stipulations offered by the States. Indeed, the set-up

transfers all burden to the Contractor. Not only will the Contractor pay two State taxes.

It will also lose the right to oil, which it normally acquires under the Concession

Regime. Therefore, to convince the Contractor to invest, future tax treaties and value-

added provisions (e.g. limitation on the number of Contractors) must be agreed to by

both States. More importantly, the Philippines must agree to a stipulation that the

Contractor can sell a portion of the oil produced.

The stipulation that the Contractor may sell the oil serves dual purpose. First, a

portion of the oil produced will go to China, and the other portion will go the

Philippines. Second, the revenues produced from selling the oil will go to the

Philippines, which can be revolved back to the funds needed to pay the Service fee of

the Contractor. In the end, the Philippines and China will get to extract oil from the

disputed area without losing the revenues they normally get in oil exploration. As for

the Contractor, it will be reimbursed from its investment and be paid a considerable

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profit. Additional profits may also be derived from the authority to sell the oil, which

can be granted by the Philippine Government.

Last but not the least, the specific provisions of two mining legal framework

shall be examined in order to determine the stipulations of a possible JDA. If the

individual laws of the States are the legal limits to their authorities, the JDA shall serve

as the secondary limits specifically designed for the overlapping area only. Meaning,

the JDA shall only apply within the confines of the Delta sea. Consequently, outside

the Delta sea, the individual laws of the States shall apply. In arriving at those

proposed, two steps were made by the proponent. First, the laws between China and

the Philippines were compared and classified.553 Second, the provisions and its

counterpart provision were basically further classified whether the provisions may be

applied as one provision or not. 554 The end product of the two-step process is the

proposed JDA found in Annex C.

As a way of conclusion, this study believes that the good faith aspect in the duty

to negotiate a JDA should not be taken lightly. Although there is no duty to conclude a

JDA and only a duty to negotiate a JDA is mandated under international law, the good

faith requirement of the duty to negotiate compels States to enter into a JDA if

cooperation between them is possible without great risk or injury. In the plane where

States operate, cooperation is possible when the legal frameworks of both States are fit

to operate simultaneously. In other words, if no substantial change in the legal

framework is necessary and the only thing required of them is to consent to

553 See Table 1.554 See Table 2.

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cooperation, the proponent believes that they must give their consent. The reason is it

cannot be gainsaid that States will be negotiating in bad faith if they do not enter into a

JDA, where cooperation between States is possible.

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