On November 20, Presidents Xi Jinping and Rodrigo Duterte witnessed the exchange of a “memorandum of understanding on oil and gas development” in the West Philippine Sea/South China Sea between their respective foreign ministers in Manila. The highly anticipated agreement was expected to seal the radical change in relations between the two disputing parties in the South China Sea. But apart from the announcement of its title, details remain very sketchy. Neither side has officially revealed or openly referred to any of the agreement’s content.
One of the administration’s staunchest critics, Senator Antonio Trillanes IV, released a purported copy of the draft “framework agreement” as submitted by China to the Philippines. The Duterte administration has not denied the veracity of the document, and defended its acceptance of the draft “for review” by appropriate authorities. Examination of the draft as a Chinese proposition would be a useful exercise even if the actual agreement turns out to be significantly different: at the very least, differences between the purported Chinese draft and the actual agreement would indicate whether the Philippine side has been a mere passive receiver or an active negotiator.
Only two pages long and containing 10 paragraphs, the framework agreement describes a simple structure for cooperative petroleum exploration and outlines general principles to govern the parties’ activities under the agreement. After referencing three China-Philippines joint statements issued in 2016 and 2017, the draft would have the parties invoke “mutual respect, fairness and mutual benefit, flexibility and pragmatism and consensus, through equal and friendly consultations” to conduct joint oil and gas exploration in “relevant sea areas” in the South China Sea. Precisely what areas are considered “relevant” is not defined, but they presumably include sites previously targeted for joint development, such as Reed Bank. They could include any other areas identified by both parties, even undisputed areas that China does not claim since there are no parameters or restrictions.
The draft calls for an Inter-Governmental Joint Steering Committee comprised of “relevant agencies” including the two sides’ energy ministries and led by the foreign ministries. That committee would implement the agreement by working through an Inter-Entrepreneurial Working Group composed of the parties’ petroleum companies. But while China has nominated the China National Offshore Oil Corporation in the draft framework, its Philippine counterpart has not been identified yet. The Philippine National Oil Company should be the logical choice as it is the country’s longstanding national oil company, but the draft seems to open the door for any company to be designated. This might be helpful in allowing the Philippines to nominate a corporation with the necessary experience and technology, but it could also open the door for previously unknown, untested, under-capitalized or inexperienced entities.
The agreement commits both parties to share the “outcomes” of joint exploration, which is an awkward and ambiguous term. It is not clear whether this refers to data, information, contract areas, resources produced, or possible future petroleum projects. Coupled with a subsequent paragraph that requires the parties “to make relevant arrangements for bilateral cooperation including joint exploitation” based on the outcome of this exploration, it appears that the idea is to delay actual decisions on resource development until a much later date. This agreement is not the basis of actual petroleum development projects; rather it is the foundation for their future negotiation.
In fact, the agreement does not even necessarily pave the way for exploration, as evident from a provision which leaves the negotiation, signing, and implementation of exploration contracts to the working group (the companies), subject to ratification by the joint steering committee (the ministries). This could raise a legal problem for the Philippines because petroleum exploration contracts are required by law and the 1987 Constitution to be signed by the president and reported to Congress, and do not need to be “ratified” by a third party. The negotiation of a contract through the working group might be accommodated by the Philippines’ recent revival of unsolicited proposals and negotiated concessions as a petroleum contracting procedure (until 2016 it had relied on a process similar to an open public auction), but there is no room in the Philippines current petroleum contracting process for the rest of the joint steering committee and working group mechanisms in the draft framework.
A requirement that all documents, data, and information remain confidential for an unrestricted period unless the parties decide otherwise could likewise run counter to current Philippine petroleum policy, which makes data and information acquired in the course of petroleum operations available to any third parties after five to seven years. Data and information in areas subjected to joint exploration could be made permanently confidential by the refusal of one party to consent to its release, leading to areas being permanently off-limits to petroleum exploration and development activities by other parties. The broad coverage of confidentiality may also prevent other third parties such as scholars, researchers, analysts, and the public from properly monitoring implementation.
Finally, the draft agreement specifies that direct negotiations between the parties would be the only mode of settling disputes; no third party dispute settlement mechanism is allowed. Any other matters can be settled by the joint steering committee, the working group, or diplomatic channels. Settlement solely by negotiation is not in itself unusual; contracting parties may validly provide for such a restrictive dispute settlement mechanism, and it is indeed China’s preferred means.
Overall, the draft “framework agreement,” if it is indeed signed, is bit of an anti-climax as it postpones the negotiation and implementation of joint petroleum contracts to some future date to be decided by the working group. It does not address all legal obstacles presented by the Philippine Constitution and legislation, meaning those obstacles will still need to be tackled if and when an actual contract for exploration is signed by the two sides’ oil companies.
Given the lack of substance in the framework and whether it actually reflects the agreement signed in front of President Xi and Duterte, key questions remain. Will the signing finally enable the Philippines to resume its own exploration of the West Philippine Sea? Since 2017, all petroleum exploration contracts have been subject to a moratorium partly due to the maritime disputes. If, despite the agreement, the service contracts are still under moratorium, it would mean that the country has indeed given up its ability to solely and exclusively decide on resource exploration activities within the Philippine exclusive economic zone and continental shelf.
Another question is whether the agreement will limit Philippine partners to only Chinese companies. Such a limitation would mean a diminution of the country’s autonomy and sovereignty within its own jurisdictional areas. While the agreement is silent, subsequent Philippine actions and policies will decide whether it has indeed diminished its powers over its own waters.
It is also not clear how the arrangements interface with existing Philippine laws like the Oil and Gas Development Act of 1972, as such laws never contemplated petroleum activities carried out jointly with another state. Although the creation of the joint steering committee and the working group mechanisms seem plausible, it might be argued to be a diminution of the Philippines “sole control and supervision” over natural resource exploration and exploitation, and hence run afoul of constitutional restrictions.