A Pacific Forum CSIS Special Report

Prepared by Ralph A. Cossa

Honolulu, Hawaii

March 1998

Executive Summary

INTRODUCTION When one is asked to identify Southeast Asia's potential hot spots, the South China Sea invariably ranks at or near the top of the list. The lingering territorial dispute among Brunei, China, Malaysia, the Philippines, Taiwan, and Vietnam over parts or all of the Spratly Islands in the South China Sea does not appear ripe for any near-term solution. And, while all claimants have expressed a desire to settle the dispute peacefully, military force has been used before both to enforce and expand national claims and could be employed again, possibly with far-reaching disastrous consequences.

While the core problem is a regional one,  global issues and concerns are raised that could have far-reaching consequences. Today, all parties have a vested interest in a peaceful resolution of the dispute. As a result, the prospects for conflict seem low in the near term. However, the potential for conflict remains and could grow, especially if potential triggers of conflict are not clearly understood and avoided.

This report attempts to more adequately understand the potential triggers of conflict in order to further reduce the prospects of hostility. It also briefly reviews several potential conflict scenarios in order to better understand the consequences of conflict in this politically-sensitive area. Finally, it identifies potential regional confidence building measures and makes other recommendations aimed at building trust and confidence while further reducing the prospects for conflict.

IMPLICATIONS OF CONFLICT

A failure to peacefully resolve the dispute, especially if it leads to renewed military actions by any one or more of the claimants, would have much broader regional, if not global economic as well as political/security consequences. Regardless of how conflict starts or who the combatants are, the consequences could be far-reaching. The region's economy, already hard-hit by the on-going Asian financial crisis, would be sure to suffer another, perhaps fatal, blow. Should the sea lanes be threatened,

the conflict would rapidly become internationalized.

The use of force by the PRC in the contested territories would have a particularly far-reaching destabilizing affect. The impact would be greatest on the prospects for cordial relations between China and its Southeast Asian neighbors. The steadily-improving relationship between the PRC and both the United States and Japan would also be severely disrupted.

Economic Consequences.

Given the integrated nature of the world's economy, and the increasingly important position the economies of Asia play in the overall global picture, a disruption of the currently stable Asian security environment could have serious impact on the economic interests of nations far removed from the actual scene of conflict. Countries like Japan, which rely heavily on seaborne trade and the import of natural resources—and which have significant direct financial investment in China and in Southeast Asian economies--would be most severely affected.

China would suffer most if it initiated hostilities, especially if one assumes that an aggressive PRC military action would, at a minimum, result in punitive economic sanctions. China's economic development would be set back and the credibility of its leadership would likely suffer as a consequence.

Freedom of Navigation.

The proximity of the Spratlys to South China Sea shipping lanes adds an important strategic element to the dispute. A threat to freedom of passage through the South China Seas would severely disrupt regional economies. If, during any military action in the Spratlys--or, for that matter, in the course of defining its claim over the currently occupied or coveted territory--any nation threatened to inhibit the free flow of maritime traffic along these critical SLOCs, the U.S. would almost certainly become involved since America's economic growth and security depend upon continued freedom of navigation for both merchant and military shipping. Other nations heavily dependent on maritime commerce could be expected to at least endorse, if not actively participate in, any U.S.-led enforcement of freedom of navigation along the South China Sea's heavily-traveled sea lanes.

POTENTIAL TRIGGERS OF CONFLICT

While the prospects of military confrontation over the Spratlys remains low, it would be naive to completely rule out the possibility of the use of force. This is especially so if major oil discoveries are made or if energy shortages add to the perceived (even if unproven) importance of the Spratlys. A broad range of potential triggers of conflict can be identified. For the sake of discussion, they are divided here into several broad categories. These categories include exploration or exploitation activity in disputed areas, creeping occupation, armed displacement, armed enforcement, accidents or miscalculations, and other acts of provocation (real or imagined) by any of the claimants.

It is also possible that external factors such as broader regional conflicts or escalating tensions could spill over into the South China Sea and also trigger conflict, as would threats by any of the claimants to freedom of navigation. The impact of the current Asian financial crisis on the prospects for conflict in the South China Sea is also examined.

Exploration or Exploitation Activity

Oil exploration, especially if it results in major finds or progresses to active exploitation, is the most likely catalyst for conflict today. It is important to note, however, that even if no major oil deposits are confirmed, the mere act of exploration could trigger conflict, since such activity could be seen as a direct challenge to another claimant's sovereignty.

While not demeaning the importance of potential oil deposits as both incentive and catalyst, it is important to note that exploration for buried treasure or exploitation of other seabed resources would likely have much the same consequences since the core issue is sovereignty, not oil. If it were positively determined tomorrow that there was no exploitable oil in the Spratlys, the dispute would not go away; no claimant would, as a result of such news, abandon its claim—the bottom line issue is still sovereignty.

On the other hand, discovery of major oil deposits would increase the incentive for claimants to more zealously guard and enforce their respective claims. More  dangerously, it might increase the willingness of some parties to risk triggering conflict by attempting unilaterally to drill for or extract oil in disputed territories.

Creeping Occupation

The PRC expansion into Mischief Reef in early 1995 is the most egregious example of creeping occupation. Beijing's unilateral action, accomplished and enforced by PLA naval forces, stands in sharp contrast to decisions by the ASEAN states and Taiwan to avoid unilateral provocative actions that affect the status quo. Not surprisingly, concerns about creeping occupation remains high on most ASEAN states' lists of potential triggers. Refraining from further attempts to alter the status quo is a minimum position among the ASEAN claimants. It is also a position that Beijing now claims to respect. What is really desired by ASEAN however, and especially by Manila, is a return to the status quo ante Mischief Reef; i.e., a removal of the PRC "fishermen's structures" and markers.

Armed Displacement

The use of force in settling disputed claims is not unprecedented, witness Taiwan's removal of Philippine settlers from Itu Aba in the late 1950's and the violent clashes between the PRC and Vietnam over both the Spratlys and Paracel Islands since then. The use of PLA naval forces to protect its markers and structures at Mischief Reef borders on armed displacement, depending on how strictly one defines the term. The fact that some spokesmen have implied that the Mischief Reef action may have been a unilateral action on the part of the PLA Navy also raises the specter of additional, perhaps more aggressive actions to further assert claims and test the limits of ASEAN's (and America's) tolerance.

Armed Enforcement

Other actions that could trigger broader conflict include the seizure of fishing boats or other commercial vessels within claimed boundaries. Showdowns between military ships patrolling in disputed areas or accompanying commercial ships could easily evolve into gunfire exchanges, which could further escalate into naval engagements. Some nations may find it difficult to back down gracefully from such standoffs in claimed sovereign territory. The lack of dispute settlement mechanisms and the absence of high-level communications add to the problem and also increase the prospects of accidents or miscalculation.

Accidents or Miscalculations

Growing out of the above trigger is the ever-present possibility of accidents or miscalculations on the part of any of the parties, especially when military forces come in close contact with one another in disputed territory. Active patrolling by naval gunboats of several claimants adds to the prospects of inadvertent (as well as deliberate) naval confrontations.

Other Acts of Provocation

There are many other real or perceived acts of provocation that could very easily draw a military response including:

- attempts by claimants to extend jurisdiction under the pretext of taking action to ensure safety at sea, anti-piracy and anti-pollution measures, SLOC access, or conducting marine scientific research;

- the use of official vessels and personnel inpiracy operations;

- independent actions by "nationalist forces" to include visits by politicians and media to  disputed territories;

- building new military facilities or increasing force levels/capabilities on already-held

territory;

- establishment of new exclusion zones or attempts to interfere with innocent passage which would challenge freedom of navigation. Ironically, even acts that on the surface appear to be confidence building measures on the part of one set of claimants can be interpreted as provocative by others.

For example, the PRC has protested peaceful bilateral discussions between the Philippines and Vietnam over their contested claims, arguing that each should be talking to Beijing--which they are--but not to one another.

External/Broader Regional Tensions

External events such as broader regional conflicts or escalating tensions could also spill over into the South China Sea and thus trigger conflict in this region. This could include the spill-over of a conflict between mainland China and Taiwan or renewed border tensions between Vietnam and the PRC. The Spratlys could also become the venue of choice should China desire to send a strong signal or otherwise "teach a lesson" to states that appear to be persecuting their ethnic Chinese communities. Threats to the SLOCs As noted earlier, the proximity of the Spratlys to South China Sea shipping lanes adds an important strategic element to the dispute. If any Spratly claimant threatens to inhibit freedom of navigation along adjacent international sea lines of communications (SLOCs), the U.S. would almost certainly become involved, as might other nations in or near the region.

Asian Financial Crisis

The effect of the current Asian financial crisis on the quest for energy resources in the South China Sea is not yet clear. The rapid cooling off of Asian economies will no doubt force a reassessment of regional energy requirements. Projected consumption rates based on anticipated rapid growth in the respective Asian economies must now be adjusted downward as growth rates plunge for the 6-9% range to the 0-3% (or less) range.

On the other hand, for many countries in the region, the price of oil has more than doubled, since oil is bartered in dollars and local currencies have depreciated considerably--in some cases by more than half--in recent months. Even with cuts in consumption, overall energy costs are rising. So too is the value of a barrel of oil in local currency to both consumer and potential producer.

 However, the cost of searching for and extracting oil has also risen for many Southeast Asian claimants. The Asian financial crisis has also seen popular frustrations being vented against indigenous Chinese populations which make up a significant portion of the merchant class in many Southeast Asian countries. Were China to believe that governments were sponsoring or turning a blind eye toward these attacks, it may see the need to send a signal of its displeasure. This could take the form of increased sabre-rattling (or worse) in the South China Sea. The biggest impact of the financial crisis is likely to be on the defense modernization plans of the various claimants. It appears likely that all but China will be scaling back their modernization efforts significantly. China may yet be compelled to slow its military spending as well. With this comes a reduced capability to patrol, detect violations of, and enforce national claims in the disputed territories.

CONFIDENCE BUILDING MEASURES

Preventing conflict in the region is the responsibility, first and foremost, of the claimants themselves. In addition to avoiding possible triggering actions, claimants should take maximum advantage of existing mechanisms and should seek additional opportunities to resolve their differences through governmental and non-governmental means. Timely communication is a must and this requires active, open channels of communication among the claimants that currently do not exist.

Enhanced Openness and Transparency

The need for enhanced confidence building measures aimed at clarifying intentions, reducing miscalculations, and increasing military transparency is broadly acknowledged. Such measures might include banning military buildups, reducing the number of troops stationed on the islands, and agreeing not to deploy long-range weapons. An agreement to forego any further expansion of the existing military

presence in the Spratlys also seems fundamental to the peaceful settlement of the dispute.

Other possible measures would include the establishment of maritime information data bases, cooperative approaches to sea lane security, mechanisms to mobilize disaster relief, and the establishment of zones of cooperation. Measures tried elsewhere that could also apply in the South China Sea include prior notification of military exercises and movements, exchanges of personnel for training, cross-visits to naval bases, joint exercises, and the sharing of non-sensitive information on programs and force structure.

Joint Development

Joint development has been offered as a way to develop confidence among the claimants and even as an interim solution to the Spratly dispute. But as one senior ASEAN official has noted, "everyone supports joint development in principle, but not in practice." The prevailing mood seems to be "what's mine is mine and what's yours we can jointly develop."

Other Initiatives

Other  recommendations  include demilitarization of the Spratlys; or the placement of each of the disputed islands under the stewardship of the claimant closest to it geographically. Other suggestions include a South China Sea "code of conduct" or some type of generally recognized rules  of engagement or common behavior norms; the establishment of an "eminent persons group," possibly comprised of representatives from non-claimant ASEAN states, to provide fresh ideas; Additional third party negotiations; and joint or third party exploration to determine how much, if any, oil actually lies beneath the Spratlys.

A willingness of all parties to submit their respective claims to the International Court of Justice (and then abide by the results) could also defuse tensions. So too would a willingness to place the disputed territories under United Nations trusteeship, which would then allow joint development under UN auspices. These and other well-intentioned suggestions merit serious consideration by the claimants.

Identifying Respective "Lines in the Sand"

Despite the above efforts to better define the potential triggers, many remain ambiguous. While all parties no doubt have in mind certain "lines in the sand" which should not be crossed, most lines are not clearly defined. While some strategic ambiguity as to possible responses to hostile acts may be useful, tactical ambiguity regarding what constitutes sufficient provocation could prove fatal. More candid dialogue is required in order to achieve a better understanding of what actions would be seen as clear violations of other claimants' sovereignty or vital interests. The mere willingness to sit and discuss this issue in more specific terms would be a major confidence building step.

Support Indonesia-hosted Workshops

All claimants should continue to participate in a constructive manner in the Indonesian-hosted "Workshops on Managing Potential Conflict in the South China Sea." The Workshop series holds particular promise as the only forum in which all six claimants regularly participate. In support of the Workshop effort, all claimants should more clearly define the extent and basis of their respective claims. If such clarifications could be made, then the process of building greater confidence in settling the disputes would be greatly improved.

Demonstrated U.S. Commitment

Washington must unambiguously declare and demonstrate its commitment to a peaceful resolution of all South China Sea and East Asia territorial disputes. While U.S. neutrality over competing claims remains appropriate, a more "active neutrality" is required; one which underscores the U.S. strategic interest in Southeast Asia in general and in assuring a peaceful settlement of any South China Sea dispute in particular. The U.S. should also be more proactive in promoting direct dialogue among the claimants. A continued U.S. military presence puts the "active" in any policy of active neutrality in the South China Sea.

CONCLUSION

An equitable solution to the dispute over South China Sea territorial claims can only come from the claimants themselves, acting in good faith, in a spirit of cooperation and compromise. All claimants must recognize that military conflict, while perhaps unlikely, is neither impossible nor unprecedented and would have far-reaching international consequences. Armed conflict over the Spratlys serves no nation's long-term security interests. All nations would suffer from an outbreak of hostilities in the South China Sea and China would suffer most of all were the conflict to be PRC-initiated. Hopefully, a greater understanding of the economic, political, and overall security implications of conflict in the South China Sea will increase the resolve of claimants and non-claimants alike to seek a peaceful resolution of this lingering territorial dispute.

More dialogue is needed among the claimants in order to better understand, and develop the means of avoiding or defusing, a potential conflict. Merely desiring a peaceful outcome is not enough. More pro-active confidence building measures are needed, along with support for on-going initiatives aimed at reducing the prospects for conflict in this potentially volatile region through a greater understanding of the potential triggers of conflict in the South China Sea.

Security Implications of Conflict in the South China Sea: Exploring Potential Triggers of Conflict

INTRODUCTION

When one is asked to identify Southeast Asia's potential hot spots, the South China Sea invariably ranks at or near the top of the list. The lingering territorial dispute among Brunei, China, Malaysia, the Philippines, Taiwan, and Vietnam over parts or all of the Spratly Islands in the South China Sea does not appear ripe for any near-term solution. And, while all claimants have expressed a desire to settle the dispute peacefully, military force has been used before both to enforce and expand national claims and could be employed again, possibly with far-reaching disastrous consequences. Claimant concerns center around issues of sovereignty and economic benefits to be derived from the exploitation of the disputed region's real and potential

natural resources. Non-claimants most immediate concerns evolve around freedom of navigation through this important sea lane linking Middle East, South Pacific, Southeast and Northeast Asian, and North American markets and resources. There is also a general concern for the process of asserting and resolving maritime claims and the international precedents that could be set.

While the core problem is a regional one, global issues and concerns are raised that could have far-reaching consequences. Today, all parties have a vested interest in a peaceful resolution of the dispute. As a result, the prospects for conflict seem low in the near term. However, the potential for conflict remains and could grow, especially if potential triggers of conflict are not clearly understood and avoided.

This report attempts to more adequately understand the potential triggers of conflict in order to further reduce the prospects of hostility. It also briefly reviews several potential conflict scenarios in order to better understand the consequences of conflict in this politically-sensitive area. Finally, it identifies potential regional confidence building measures and makes other recommendations aimed at building trust and confidence while further reducing the prospects for conflict.  Conflicting claims and motivations are also briefly reviewed to put the subsequent discussions in their proper context. However, we leave to others the task of attempting to resolve the conflicting claims. Our intention is to help ensure that conflict does not occur prior to such resolution. This report draws heavily upon conversations and papers presented at two conferences on "Security Implications of Conflict in the South China Sea" held in

Manila under the sponsorship of the Philippine Institute for Strategic and Development Studies (ISDS) and the Pacific Forum CSIS.1 This report updates and supersedes the Pacific Forum's June 1996 Special Report on this subject.2

Supplementing the conference data are conversations with leading regional academicians, security specialists, and government officials from all claimants and other affected parties.3 These discussions have been supplemented, as necessary and appropriate, by official government statements and by cited research efforts by South China Sea scholars. Most security specialists (as well as concerned governments) agree that the peaceful settlement of territorial disputes in the South China Sea remains the responsibility, first and foremost, of the involved claimants. Outside actors can help stimulate discussions or provide venues for discussion or negotiation and can offer legal or technical assistance or serve as honest brokers when warranted and desired. But, in the final analysis, the various claimants must resolve the problem among themselves.

This in no way implies, however, that a continuing failure to solve the problem does not have international implications. Clearly, a failure to peacefully resolve the dispute, especially if it leads to renewed military actions by any one or more of the claimants,

would have much broader regional, if not global economic as well as political/security consequences. One way of avoiding such conflict is to achieve a better understanding of the type actions that could potentially trigger conflict. Identifying these triggers and

the ways to avoid them was a primary focus of the second Security Implications conference and is a central theme in this report.

BACKGROUND

The Spratlys constitute at least 190 barren islets and partially submerged reefs and rocks covering an approximately 150,000 square mile area. They are geologically separated from the continental shelves of China and Taiwan by a 3,000-meter trench to the north, and from the Philippines, Brunei, and Malaysia by the East Palawan Trough. The area is poorly surveyed and marked as "Dangerous Ground" on navigation charts.

Overlapping Claims

The PRC, Taiwan, and Vietnam claim the entire area; the Philippines, Malaysia, and Brunei claim some parts. All except Brunei occupy islets to support their sovereignty claims.

A brief review of the respective claims follows, with a more detailed accounting contained in appendix B.

Brunei.

Brunei's claim is based upon an extension of its coastline along its continental shelf. It also overlaps those of China, Malaysia, Taiwan and Vietnam. People's Republic of China. Beijing asserts that China's claim originates with the Han Dynasty (206 B.C.

to 220 A.D.) and the use of the South China Sea by Chinese fishermen since then. The first official claim by China dates from an 1887 treaty with France dividing the Gulf of Tonkin, which Beijing interprets as extending to include all the islands of the South China Sea, although China has yet to clearly delineate its claim.

Malaysia.

Malaysia's claim is based on a continental shelf that projects out from its coast and includes islands and atolls south and east of Spratly Island. This claim overlaps claims by China, Taiwan, and Vietnam, and overlaps reefs and cays in the Philippine's claim.

Philippines. Manila bases its claims to what it calls the Kalayaan Islands on their proximity to Philippine territory and on the occupation and economic development of

these previously "unattached and unused" islands by Filipino civilian settlers. The Philippines' claim overlaps those of China, Malaysia, Taiwan, and Vietnam.

Taiwan.

Taipei's claims in the South China Sea mirror those of mainland China's. As a result, Taiwan claims sovereignty over all the Spratly Islands.

Vietnam.

Vietnam also claims all the Spratlys, asserting that it gained sovereignty over the Spratlys and Paracels when it gained independence from France. Claimant Motivations and Concerns The basic issue is sovereignty. As a general rule, states traditionally are hesitant to yield on issues of sovereignty. Sovereignty is a politically sensitive, emotion-laden issue driven largely but not exclusively by domestic political reasons. In addition, some claimants (the PRC in particular) express concern that yielding on the issue of sovereignty in the South China Sea could set a dangerous precedent or unleash forces or movements in other areas.

Other underlying claimant motivations vary but economics is clearly another common driving factor. The potential for profit in the form of oil, gas, fish, and mineral resources seems to be behind many claims, although (especially in the case of oil) this is based more on expectations of future discoveries than on proof of existing reserves. The desire to use claimed territories to extend one's exclusive economic zones (EEZs) and continental shelf zones--within which a country may control exploration, exploitation, and preservation of natural resources--provides additional motivation.  National pride and other manifestations of nationalism remain a key driving factor, particularly (but not only) in democracies. National security is another. For example, the Philippines has asserted that the islands are necessary for strategic defense and to help protect the borders of their Philippine archipelago.

More importantly, the proximity of the Spratlys to South China Sea shipping lanes adds an important strategic element to the dispute. Simply put, the region's economic growth and security depend upon continued freedom of navigation for both merchant and military traffic.

A desire to obtain a foothold along this strategic waterway--or the perceived need to prevent others from doing so--provides additional incentive to stake or reinforce claims in this area. Concerns about freedom of navigation provide all nations, the U.S. very specifically included, who rely on free passage through the sea lanes of the South China Sea with a vested interest in how the dispute plays itself out.

IMPLICATIONS OF CONFLICT

A failure to peacefully resolve the dispute, especially if it leads to renewed military actions by any one or more of the claimants, would have much broader regional, if not global economic as well as political/security consequences. As Philippine President Fidel Ramos noted in his keynote address to the first Security Implications conference:

In East Asia, security matters have become connected inextricably with economic issues--because, in this era of economic interdependence, any political instability anywhere in the region will affect every single country's growth rate.4

In order to better understand and illustrate the political, economic, and security implications of conflict in the South China Sea, this section briefly reviews

several potential conflict scenarios and discusses the possible consequences. This analysis looks both at a possible PRC-ASEAN conflict as well as a conflict involving other different combinations of claimants. For a more detailed look, also see appendix C (PRC-ASEAN) and D (Other Scenarios), which are drawn from the Pacific Forum's Special Report on the first Security Implications conference.

A PRC-ASEAN Confrontation

Particular attention is paid to a PRC-initiated conflict, given China's military capabilities and past history and the demonstrated ability of the ASEAN claimants to handle territorial and other disputes peacefully. This does not imply that China is any less desirous of a peaceful solution than its neighbors. It merely recognizes that China is the most capable of using force and, unlike the other claimants, has not foresworn

its use in settling territorial disputes with its neighbors. In fact, in 1992, the Chinese legislature enacted a "Law on the Territorial Waters and their Contiguous Areas" which specifically authorized the use of force in defending and enforcing China's broad sweeping claim over all the island territories in the South China Sea.5

Implications for China.

The use of force by the PRC in the contested territories would have a far-reaching destabilizing affect. The impact would be greatest on the prospects for cordial relations between China and its Southeast Asian neighbors. The steadily-improving relationship between the PRC and both the United States and Japan would also be severely disrupted.

During the first Security Implications conference, New Zealand Professor You Ji identified a number of negative outcomes that could result from PRC-initiated hostilities in the Spratlys, including: ASEAN terminating its "constructive engagement" policy toward China; a move, inside ASEAN and beyond, to institute a China containment policy; and the internationalization of the Spratly dispute--all outcomes Beijing wants to avoid.6 Most importantly, according to You Ji, "a major Spratlys conflict will adversely affect China's economic development which is increasingly dependent on global trade and which lends a degree of legitimacy to the Chinese ruling party."7

The extent to which a Spratly conflict would affect the growing trading ties between China and ASEAN countries likely depends on the nature of the conflict. In a fairly minor dispute, such as the Mischief Reef incident, history indicates that both sides may still be able to separate territorial squabbles from normal economic exchanges. In the event of a major military confrontation, however, bilateral trade seems sure to

suffer.

In addition, it should be noted that Chinese seizure of additional islands today most likely would seriously overtax People's Liberation Army (PLA) power projection and logistical capabilities. The PLA's ability to effectively defend newly-captured territory far removed from its mainland bases is also suspect. As a result, Beijing should prefer to avoid any situation that could lead to military embarrassment. Obviously, as Chinese force capabilities improve, such concerns may recede, especially given the priority China seems to have attached to the development of a "blue water" navy and other power projection forces.

For these and other reasons, most security analysts agree that China's self-interest argues against aggressive or overt PRC military action to resolve conflicting claims. This is especially true since China's neighbors continue to view PRC actions in the South China Sea as a "litmus test" for determining China's true long-term intentions.

Implications for ASEAN.

There was some speculation at the "Security Implications" conferences that cracks might occur in the ranks of the ASEAN states in the event of a major Spratly conflict between China and ASEAN, since different ASEAN members have different stakes in a Spratly conflict. However, ASEAN members strongly dispute this, pointing to the overwhelming sense of unity demonstrated by ASEAN members in response to the 1995 Mischief Reef incident. Some ASEAN security specialists even talk openly about taking a hard line approach toward Beijing, to include being prepared to meet force with force.

It has been further speculated that the ASEAN state most likely to come to blows with China--Vietnam--is also the one least likely to have the other ASEAN states coming to its support (giving Hanoi's political orientation and its newcomer status, having only joined ASEAN in 1995). While others may debate this point, ASEAN specialists reject this proposition in the name of ASEAN unity. In my own view, a threatening action from an outside source, on balance, would most likely further consolidate and strengthen the resolve of all ASEAN members to deal collectively with the problem.

Implications for Sino-U.S. Relations.
A use of force by the PRC in the South China Sea would have a particularly devastating affect on U.S.-PRC relations. Despite recent improvements brought about by Chinese President Jiang Zemin's successful visit to the U.S. last fall, these relations remain fragile, with debates continuing in both capitals as to how much one side can or should trust and cooperate with the other. A Chinese act of aggression in the Spratlys would likely tilt the debate in the U.S., perhaps irreparably. Were a major showdown to occur between the U.S. and China in the South China Sea, it would be difficult for Japan and for many of China's other

neighbors (and primary investors) to remain neutral.

Open conflict between the U.S. and PRC would also likely signal an end to U.S. adherence to a "one China" policy. Implications for U.S. Credibility. The U.S. has generally maintained a policy of neutrality when it comes to conflicting territorial claims, be they in the Spratlys or elsewhere. Washington has also pointed out that the

U.S.-Philippine Mutual Defense Treaty does not automatically cover the Spratlys since they are disputed territory which were not even claimed by Manila until after the Treaty was signed. For this reason, the PRC's encroachment into uninhabited Mischief Reef in 1995 did not automatically invoke the Treaty--although it did launch endless speculation and complaints from the Manila press that the U.S. was a "faithless" ally. A PRC military action against a Philippine-occupied reef or islet is a different matter, however, as would be a PRC hostile act against Philippine naval vessels within recognized territorial waters or the high seas--perhaps even within contested waters in close proximity to the Philippines as well. In all probability, either the Treaty would be invoked under such circumstances or some other means would be found to provide U.S. support to its Philippine ally. Treaty considerations aside, in my view--and in the opinion of several senior U.S. diplomats and military officers interviewed on a not-for-attribution basis—a serious military action by the PRC in the Spratlys, particularly (although not necessarily only) if it wereagainst Philippine-occupied territory, would most likely necessitate a strong U.S. response.

If the U.S. is serious about continuing its leadership role in Asia, it could not ignore a blatant PRC act of provocation any more than it could have ignored the threatening PRC missile tests and military exercises opposite Taiwan in March 1996. A failure to respond would undermine U.S. credibility and call into question the value of America's bilateral alliances in Asia.

Implications for U.S.-ASEAN Relations.

There is one very important caveat for the ASEAN states to ponder as regards U.S. military involvement: Were the U.S. to use counterforce to return the situation to the status quo in the wake of a PRC military action against one of the ASEAN claimants, it would likely expect at least token operational and logistical military support from the other ASEAN members (whether or not their specific claims were involved). Those equally affected should not expect a free ride.

Even if the U.S. did not react militarily, at a minimum we should expect to see stiff U.S. economic sanctions. Washington would also pressure its regional friends and allies to endorse and imitate these punitive measures.  A failure of the ASEAN states to enthusiastically support U.S. sanctions--or, preferably, to lead the charge themselves--would call ASEAN's credibility into doubt. A less than unified response could mark the beginning of the end for ASEAN solidarity. Of note, at least one ASEAN leader, Singapore Senior Minister Lee Kuan Yew has said that the U.S. would be fully supported by ASEAN should the PRC initiate hostilities against one of its neighbors.

Other Scenarios

For the sake of argument and analysis (and fairness), several other potential conflict scenarios are reviewed below, again with the recognition that the probability of military action of any sort remains low, and is even lower if the scenario involves fellow ASEAN members pitted against one another.

ASEAN versus ASEAN.

A conflict between two or more ASEAN claimants could tear at the fabric of this important sub-regional grouping of nations and undermine the positive economic and political leadership role it plays both sub-regionally and, through the ASEAN Regional Forum (ARF) and Post-Ministerial Conferences (PMC), region-wide. Armed conflict over the Spratlys by two members of ASEAN would be a clear violation of the 1992 ASEAN Declaration on the South China Sea which emphasizes "the necessity to resolve all sovereignty and jurisdictional issues pertaining to the South China Sea by peaceful means, without resort to force."8

The Declaration further urges all parties to "exercise restraint" and otherwise to avoid provocative actions. ASEAN has placed a great deal of emphasis on (and faith in) this Declaration and would find it difficult not to take strong measures if it were to be violated by one of its signatories. For this and other reasons, a military confrontation between two ASEAN members would put serious strains on ASEAN. The aggressor—if clearly determined--runs the risk of being expelled from the organization.

Taiwan versus ASEAN.

Taiwan was the first to use force in exerting its claims in the Spratlys, using its military to expel Philippine settlers from Itu Aba in the 1950s. Today, however, Taipei's policy is to seek the peaceful resolution of territorial disputes in the South China Sea, particularly in the Spratly Islands. To this end, Taiwan has endorsed the principles contained in the 1992 ASEAN Declaration on the South China Sea.  

One could argue that Taiwan has the least to lose in using force in the Spratlys since it is already treated in many respects as an international outcast, including being excluded from most political and security-oriented forums in Asia and globally.9 However, Taiwan would still lose considerably more than it could hope to gain. Taipei's attempts at gaining diplomatic respectability would surely suffer and its "informal diplomacy" efforts would also be set back. Taiwan would also likely lose its place at the table at the Indonesia-hosted "Workshop on Managing Potential Conflicts in the South China Sea" series of meetings. It might even jeopardize its membership in regional economic organizations such as the Asia Pacific Economic Cooperation (APEC) forum.

There are those in ASEAN and Taiwan who have suggested that Taipei more closely align itself with the other claimants to counterbalance the PRC.  However, any collaboration between Taiwan and the Southeast Asian countries would be regarded by Beijing at a minimum as a betrayal of Chinese national interests and perhaps as the final article of proof that Taiwan is irretrievably independence-bound. This would create more problems that it solves.

In addition, the lack of diplomatic ties would make it impossible for Taiwan to establish a military alliance with other claimants to counter the PRC's military presence. Nonetheless, as Lin Cheng-yi pointed out at the first Security Implications conference, "if the PRC continues to isolate Taiwan in the international arena and Taiwan continues to improve its relations with Southeast Asia, one can be sure that Taiwan will adopt a less ambiguous and more neutral stance between the PRC and the ASEAN claimants."

Taiwan versus PRC.

The prospects of a Taiwanese-initiated attack against PRC-occupied islets in the Spratlys appear remote. The last thing that Taipei wants is to provide Beijing with an excuse to conduct military operations or  otherwise engage in acts of intimidation against Taiwan. It is doubtful that anyone would come to Taiwan's aid if it initiated the hostilities.

Likewise, Beijing has little to gain and much to lose by attacking territory already in Chinese hands, absent a serious deterioration in cross-Strait relations or a formal declaration of independence and the institution of a "one China, one Taiwan" policy by Taipei. In the latter case, defending Itu Aba will be the least of Taiwan's concerns.

Broader Consequences of Conflict

Regardless of how conflict starts or who the combatants are, the consequences could be far-reaching.

The region's economy, already hard-hit by the on-going Asian financial crisis, would be sure to suffer another, perhaps fatal, blow. Should the sea lanes be threatened,

the conflict would rapidly become internationalized.

Economic Consequences.

Given the integrated nature of the world's economy, and the increasingly important position the economies of Asia play in the overall global picture, a disruption of the currently stable Asian security environment could have serious impact on the economic interests of nations far removed from the actual scene of conflict. Countries like Japan, which rely heavily on seaborne trade and the import of natural resources—and which have significant direct financial investment in China and in Southeast Asian economies--would be most severely affected.

As noted earlier, China would suffer most, especially if one assumes that an aggressive PRC military action would, at a minimum, result in punitive economic sanctions. China's economic development would be set back and the credibility of its leadership would likely suffer as a consequence. Of course, those with significant investments in China would also see these investments placed at potential risk. Many nations would face difficult "lose-lose" political decisions under such circumstances.

Freedom of Navigation.

As stressed earlier, the proximity of the Spratlys to South China Sea shipping lanes adds an important strategic element to the dispute. A threat to freedom of passage through the South China Seas would severely disrupt regional economies. If, during any military action in the Spratlys--or, for that matter, in the course of defining its claim over the currently occupied or coveted territory--any nation threatened to inhibit the free flow of maritime traffic along these critical SLOCs, the U.S. would almost certainly become involved since America's economic growth and security depend upon continued freedom of navigation for both merchant and military shipping.  Other nations heavily dependent on maritime commerce could be expected to at least endorse, if not actively participate in, any U.S.-led enforcement of freedom of navigation along the South China Sea's heavily-travelled sea lanes.

POTENTIAL TRIGGERS OF CONFLICT

Despite the high stakes involved, the prospects of military confrontation over the Spratlys today appear low, especially among the various ASEAN claimants, who have a proven history of resolving disputes peacefully. However, it would be naive to completely rule out the possibility of the use of force in the South China Sea. This is especially so if major oil discoveries are made or if energy shortages add to the perceived (even if unproven) importance of the Spratlys.

During the course of the second "Security Implications" conference, participants identified a broad range of potential triggers of conflict, along with potential confidence building measures aimed at dealing with or defusing these triggers. Individual lists are contained in appendix F. For the sake of discussion, they will be divided here into several broad categories, although many of the specific potential triggering actions can arguably be placed in more than one category. These categories include exploration or exploitation activity in disputed areas, creeping occupation, armed displacement, armed enforcement, accidents or miscalculations, and other acts of provocation (real or imagined) by any of the claimants. It is also possible that external factors such as broader regional conflicts or escalating tensions could spill over into the South China Sea and also trigger conflict. In addition, threats by any of the claimants to freedom of navigation could not only cause other claimants to react but would also immediately draw other major powers--most assuredly including the United States--into the conflict. The review of potential triggers will end with some speculation on the impact of the current Asian financial crisis on the prospects for conflict in the South China Sea.

Exploration or Exploitation Activity

Oil exploration, especially if it results in major finds or progresses to active exploitation, is the most likely catalyst for conflict today. It is important to note, however, that even if no major oil deposits are confirmed, the mere act of exploration could trigger conflict, since such activity could be seen as a direct challenge to another claimant's sovereignty. The PRC in particular would likely see unilateral drilling operations as a direct challenge and as a rejection of Beijing's offer to jointly exploit South China Sea resources.

While not demeaning the importance of potential oil deposits as both incentive and catalyst, it is important to note that exploration for buried treasure or exploitation of other seabed resources would likely have much the same consequences since the core issue is sovereignty, not oil. If it were positively determined tomorrow that there was no exploitable oil in the Spratlys, the dispute would not go away; no claimant would, as a result of such news, abandon its claim—the bottom line issue is still sovereignty.

On the other hand, discovery of major oil deposits would increase the incentive for claimants to more zealously guard and enforce their respective claims.

More dangerously, it might increase the willingness of some parties to risk triggering conflict by attempting unilaterally to drill for or extract oil in disputed territories. Nonetheless, even if there was a major oil find, the costs of extraction and the risks associated with extraction in disputed territory would make oil recovery operations less likely here than elsewhere.

The controversial granting of oil and natural gas concessions in disputed ocean areas represents a potential near-term trigger. In addition to being an attempt to find exploitable resources, granting concessions also represents a common means for claimants to exercise their jurisdiction. Concessions have already been let in several areas in and adjacent to the Spratlys, although the potential for conflict is sometimes diffused by contractual requirements that concessionaires suspend active work pending resolution of conflicting claims.

The Vietnamese are particularly sensitive to oil exploration and exploitation activities serving as a trigger to conflict, having received numerous warnings from Beijing in this regard. As summarized in Appendix F, one Vietnamese participant at the second

Security Implications conference specifically identified "competition of resources, especially oil and gas" as one potential trigger and "unilateral actions by a claimant" in this regard as another. Nonetheless, Vietnam has been among the most active of the Spratly claimants in granting concessions and exploring for oil in this area.

Instructively, the Vietnamese paper also identified "domestic needs for energy that may lead to unilateral off-shore exploration" as another potential trigger. This underscores how the domestic need for energy resources can serve as a motivating factor. As the need increases, so too could the willingness to take risks. As will be discussed in more detail later, even if domestic need holds constant or drops as a result of the current Asian financial crisis, the value of the potential oil deposits could increase--especially as depreciating currencies make a dollar's worth of oil significantly more expensive. This is part of the mixed blessing (or curse) of the current Asian financial crisis.

Creeping Occupation

The PRC expansion into Mischief Reef in early 1995 is the most egregious example of creeping occupation. Beijing's unilateral action, accomplished and enforced by PLA naval forces, stands in sharp contrast to decisions by the ASEAN states and Taiwan to avoid unilateral provocative actions that affect the status quo. Instead, it appears that changing the status quo may have actually been a Chinese motive in this instance. As Professor You Ji notes:

The most urgent need for China to have a foothold [in the southeastern Spratlys] stemmed from its concern that, without a presence, it would be either excluded from, or marginalized among the resolution parties. Thus, China calculated that it had to obtain a presence in some "no men's reefs" at whatever price. In a sense the Mischief Reef move was similar to tactics in the chess game Play Go: laying a piece in the area to be contested later. The Mischief structure serves as a symbol in the southeastern Spratlys where there had not been a Chinese presence before. This presence may or may not be removed in the future depending on China's perception of its usefulness, but it has also given China a bargaining position in the negotiations, although at a high cost. 10

Again, the underlying motivation here is a sovereignty one. The old adage that "possession is 9/10th's of the law" seems to be very much in play. Not surprisingly, concerns about creeping occupation were high on most ASEAN states' lists of potential triggers and were featured prominently in discussions at both Security Implications conferences and virtually all interviews and discussions with ASEAN officials. The Philippines in particular, having felt the brunt of Mischief Reef, placed as number one on its list of triggers "the occupation and setting up of structures on previously unoccupied features in disputed areas."11

Many others, including non-claimants such as Thailand, also echoed concern about any "unilateral move to gain more control in the disputed area."

Refraining from further attempts to alter the status quo is a minimum position among the ASEAN claimants. It is also a position that Beijing now claims to respect. What is really desired by ASEAN however, and especially by Manila, is a return to the status quo ante Mischief Reef; i.e., a removal of the PRC "fishermen's structures" and markers. As Philippine National Security Advisor Jose Almonte has noted:

We cannot reconcile Beijing's avowals of neighborliness and friendship with its presence on Panganiban [Mischief] Reef because, as people in our Ilocos region say, wisely: Dagiti balikas ti anninawan ti gapuanan--Words are only the shadow of deeds.12

The shadow cast by the PRC structures on Mischief Reef stands in sharp contrast to the words expressed by China's leaders about avoiding provocative actions and honoring the 1992 ASEAN Declaration on the South China Sea. As Almonte and other Filipinos frequently stress, removing these structures would speak loudly about future PRC intentions while helping to defuse this potential trigger. As it stands now, China's unilateral action in Mischief Reef remains a potentially dangerous precedent which others, and perhaps Beijing again, might emulate.

Armed Displacement

The use of force in settling disputed claims is not unprecedented, witness Taiwan's removal of Philippine settlers from Itu Aba in the late 1950's and the violent clashes between the PRC and Vietnam over both the Spratlys and Paracel Islands since then. The use of PLA naval forces to protect its markers and structures at Mischief Reef borders on armed displacement, depending on how strictly one defines the term. The fact that some spokesmen have implied that the Mischief Reef action may have been a unilateral action on the part of