When it comes to the South China Sea, the year 2014 was a rollercoaster. With Manila’s arbitration efforts against Beijing gaining momentum, 2015 will present new challenges not only to Philippine-China bilateral relations, but also to the very credibility of international arbitration bodies under the aegis of the United Nations Convention on the Law of the Sea (UNCLOS).

China kicked off 2014 by introducing new fisheries regulations, placing additional restrictions on the freedom of movement of foreign vessels within Chinese-claimed waters off the coast of Hainan. Over the succeeding months, China upped the ante by challenging the Philippines’ claim to the Second Thomas Shoal. Chinese paramilitary forces effectively placed a siege on the Filipino marine detachment, which has tenuously guarded the contested shoal for more than a decade. The South China Sea disputes took a turn for the worst, when China brazenly dispatched a giant oil rig into Vietnamese-claimed waters, sparking the greatest political crisis between the two Communist neighbors.

Towards the end of the year, however, China dialed down territorial tensions, with President Xi Jinping, during the APEC Summit in Beijing, reaching out to his estranged neighbors, especially Japan, Vietnam, and the Philippines. During the ASEAN Summit, China dangled $20 billion in economic incentives and proposed a hotline as well as a high-level defense dialogue between Beijing and its Southeast Asian counterpart.

Towards the end of the year, however, Philippines’ legal arbitration efforts against China gained momentum, with Washington and Hanoi explicitly criticizing Beijing’s expansive nine-dash line claims and directly and indirectly supporting Manila’s pending case at the Arbitral Tribunal at The Hague. As expected, China missed the December 15 deadline to submit its Counter-Memorial to the arbitration body. Crucially, the Chinese Foreign Ministry, however, released what in many ways constituted an informal Counter-Memorial, publishing a position paper, which detailed Beijing’s rationale for boycotting the arbitration procedures.

From the perspective of the Filipino leadership, a favorable arbitration outcome will produce sufficient diplomatic pressure to dissuade China from further territorial adventurism within the Philippines’ 200 nautical mile Exclusive Economic Zone (EEZ). Yet, there is little guarantee that the Philippines’ strategy will pay off. Many in the Philippines are concerned about the opportunity costs of and additional risks presented by the its decision to initiate compulsory arbitration under Article 287 and Annex VII of UNCLOS against China. China, a signatory to the UNCLOS, has exercised its right under Article 298 to absolve itself of any compulsory arbitration over issues concerning maritime delimitation and territorial sovereignty.

The Arbitral Tribunal doesn’t have the mandate to ascertain sovereignty-related issues. Yet, the Philippines’ memorial primarily focuses on the determination of the nature of disputed features under Article 121 in question; specifically, whether they can be appropriated by any sovereign nation and/or generate their own territorial waters. More importantly, in its case the Philippines is directly questioning the validity of China’s nine-dash line using UNCLOS as the primary reference point for maritime delimitation issues. China, as some observers argue, may in fact have a right to non-exclusionary, joint exploitation of fisheries resources across the South China Sea. But China has not yet clarified the precise coordinates and legal implications of its expansive territorial claims. The Philippines’ arbitration efforts could, at best, force China to further clarify its nine-dash line doctrine.

The Arbitral Tribunal has the mandate to determine whether the Philippines’ case falls under its jurisdiction, despite China’s refusal to subject itself to compulsory arbitration. But it faces a “damned if you do, damned if you don’t” conundrum. Without any compliance-enforcement mechanism, the arbitration body, if it chooses to push ahead with the proceedings, could end up being entirely ignored by the losing party, particularly if that party is China. An estranged China, intent on appeasing its domestic nationalist constituency, could also opt for withdrawing from the UNCLOS altogether.

On the other hand, if the Arbitral Tribunal projects coyness on the issue, refusing to decisively push ahead with the arbitral proceedings, the very credibility of the UNCLOS will be called into question. Over the coming months, the Philippines is expected to submit additional arguments to the arbitral body, which will have to decide whether the proceedings can move ahead in absence of China’s participation.

The bigger issue, however, is the state of bilateral relations between the Philippines and China. Arguably, the Philippines’ unprecedented decision to take China to the court over the ongoing territorial disputes has had a negative impact on bilateral trade and investment relations, with Beijing seemingly withholding large-scale investments from the Southeast Asian country.

While China stands as a leading source of capital and affordable technology to developing countries around the world, the Philippines, quite astonishingly, has had more direct investments in China, than the other way around. By some accounts, the Philippines is deliberately excluded from China’s ambitious Maritime Silk Road initiative. With the exception of the Philippines, China is also the top trading partner of almost all East Asian economies.

More importantly, there is hardly any sustained, formal high-level dialogue between the two countries, especially above the ambassadorial level. Since Xi Jinping’s ascent to power, the Philippines is yet to host the Chinese president, premiere, or even foreign minister. While China, has worked on confidence building measures with Vietnam and Japan, the Philippines is yet to negotiate a single hotline with its Chinese counterparts. In short, diplomatic ties have been frozen amid the arbitration showdown.

As the host of the 2015 APEC Summit, the Philippines has the unique opportunity to welcome the Chinese leadership, paving the way for reviving top-level diplomatic channels. With President Aquino expected to step down in 2016, China is also looking forward to a ‘diplomatic reset’ with the succeeding Philippine administration. It remains to be seen, however, how both parties could transcend their bitter and dramatic disagreements over the arbitration proceedings.

About Richard Javad Heydarian

Richard Javad Heydarian is an Asia-based academic, currently a Research Fellow at National Chengchi University (Taiwan), and author of, among other works, The Rise of Duterte: A Populist Revolt against Elite Democracy and The Indo-Pacific: Trump, China, and the New Struggle for Global Mastery.