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C O N F I D E N T I A L SECTION 01 OF 03 MANILA 001838 
 
SIPDIS 
 
E.O. 12958: DECL: 07/31/2018 
TAGS: PBTS PGOV PREL RP TW VM CH PG
SUBJECT: CONTROVERSY OVER SPRATLY ISLANDS TERRITORIAL 
DISPUTE CONTINUES TO SIMMER 
 
REF: A. MANILA 998 
     ¶B. MANILA 404 
     ¶C. MANILA 317 
     ¶D. 2007 MANILA 1991 AND PREVIOUS 
 
Classified By: Ambassador Kristie A. Kenney, Reasons 1.4 (b) and (d) 
 
¶1. (C)  SUMMARY:  Recent steep increases in the cost of 
petroleum and pending deadlines associated with the UN 
Convention on the Law of the Sea (UNCLOS) have kept the 
six-nation territorial dispute over the Spratly Islands in 
the eye of public debate in the Philippines.  The underlying 
controversy over the Spratlys strikes a chord in Philippine 
national pride, both because of the awareness that the 
Philippine armed forces cannot defend the Philippines' claim 
to the islands, and because of concern over growing Chinese 
influence in the region.  In addition, there is widespread 
suspicion that corruption may influence Philippine policy. 
Competing views on how strongly the Philippines should press 
its claim to the islands are closely linked to political 
affiliations.  In a move at least partly intended to defuse 
further criticism of its cooperation with China and Vietnam 
in exploring the Spratlys' mineral resources, the Arroyo 
administration allowed its Joint Marine Seismic Undertaking 
(JMSU) agreement with those countries to lapse when its term 
expired June 30.  END SUMMARY. 
 
Background 
---------- 
 
¶2. (SBU)  The Spratly Islands of the South China Sea are the 
object of overlapping sovereignty claims by China, the 
Philippines, Vietnam, Taiwan, Malaysia, and Brunei to various 
islands believed to be rich in natural resources -- chiefly 
oil, natural gas, and seafoods.  The Spratlys consist of some 
100-230 islets, atolls, coral reefs, and seamounts spread 
over 250,000 square kilometers, although the island chain's 
total landmass equals less than five square kilometers.  In 
1988 and 1992, these sovereignty disputes led to naval 
clashes between China and Vietnam.  The 2002 ASEAN-China 
Declaration on the Conduct of Parties in the South China Sea 
lowered tensions in the region by calling for self-restraint, 
cooperation, and renunciation of the use of force among all 
parties. 
 
Growing Regional Tension Over Spratlys 
-------------------------------------- 
 
¶3. (C)  In September 2004, the Philippine and Chinese 
national oil companies agreed to conduct seismic soundings in 
the South China Sea.  In March 2005, the Joint Marine Seismic 
Undertaking (JMSU) agreement among China, Vietnam, and the 
Philippines coordinated "pre-exploration" of possible 
hydrocarbon reserves, and an exclusive contract was awarded 
to a state-owned Chinese company to conduct the surveys. 
However, the disputes have not ceased.  In April 2007, China 
accused Vietnam of violating its sovereignty by allowing a 
consortium of energy companies led by British Petroleum to 
develop gas fields off Vietnam's southeast coast, and in July 
2007, Chinese naval vessels fired on a Vietnamese fishing 
boat, killing one sailor. 
 
UN Law of the Sea 
----------------- 
 
¶4. (C)  The Philippines, along with Brunei, Malaysia, and 
Vietnam, have overlapping claims to some or all of the 
Spratlys based on the UN Convention on Law of the Sea 
(UNCLOS).  Under UNCLOS, the Philippines must meet a May 12, 
2009, deadline in defining the territorial baselines of the 
Philippine archipelago.  At issue for the Philippines has 
been whether to include the Spratlys within its UNCLOS 
baselines, or restrict the baselines to territorial limits 
outlined in the 1898 Treaty of Paris, whereby Spain ceded the 
Philippines to the United States following the 
Spanish-American War.  Even in the latter case, under UNCLOS, 
the Philippines still retains an Exclusive Economic Zone 
(EEZ) of 200 nm, and may claim an extended continental shelf 
of 350 nm; the latter would appear to encompass virtually all 
of the Spratlys.  Even the Philippines' 200 nm EEZ includes 
most of the islands, while the 200 nm EEZs of China, Taiwan, 
and Vietnam include few or none. 
 
The China Card 
-------------- 
 
¶5. (C)  Recent corruption scandals involving Chinese 
investments and development assistance have spilled over to 
affect the debate over the Spratlys.  In September 2007, 
 
MANILA 00001838  002 OF 003 
 
 
allegations arose that President Arroyo's husband Mike Arroyo 
had accepted multimillion-dollar kickbacks from the Chinese 
in return for facilitating a $349 million telecommunications 
deal between the Chinese ZTE Corporation and the Philippines' 
National Broadband Network (NBN); the deal was soon scrapped 
(reftel B).  This and other recent scandals involving the 
Chinese led to charges in Congress and media circles that the 
Arroyo administration had likewise assented to the Spratlys 
joint seismic exploration deal in exchange for bribe-tainted 
loans, and that the government's attempts to get Congress to 
back off on inclusion of the Spratlys in Philippine baselines 
was similarly motivated by illicit Chinese influence.  In 
mid-May, reports surfaced in the national media outlining new 
eyewitness accounts of secret 2006 meetings in Shenzhen, 
China, between President Arroyo and ZTE officials, serving to 
keep the Chinese angle of the controversy in the public eye. 
Controversy has similarly touched the primarily 
Chinese-financed and Chinese-contracted North Luzon Railways 
(Northrail) project, which entails the construction of an 
80-kilometer railway from metropolitan Manila to the Clark 
Freeport.  Chinese-Philippine disputes resulted in a March 
cessation of construction. 
 
Three Different Approaches 
-------------------------- 
 
¶6. (C)  In August 2007, Senator Antonio Trillanes filed 
Senate Bill 1467, which defined the Philippines' baselines as 
including the main archipelago described in the 1898 Treaty 
of Paris (the current Philippines), plus Scarborough Shoal, 
while classifying the Spratlys as a "regime of islands" 
outside the baselines.  However, under the December 2007 
House Bill 3216 submitted by Foreign Affairs Committee Chair 
Rep. Antonio Cuenco, the Philippines' baselines would include 
not only the main archipelago (Treaty of Paris), but also the 
Spratlys and Scarborough Shoal.  Cuenco said publicly that a 
December 2007 Chinese note verbale to the Philippine Embassy 
in Beijing expressed Chinese "shock and concern" that his 
bill had defined the Philippine baselines to include the 
Spratlys.  Fearing that the inclusion of the Spratlys in 
Philippine territorial baselines would provoke China, inflame 
tensions in the South China Sea, and upset the delicate 
status quo, the Arroyo administration pursued a third 
approach, pressing Congress to revisit the baselines issue 
and include only the main archipelago, leaving the Spratlys 
and Scarborough classed as "regimes of islands." 
Administration supporters argued that the Philippines would 
have no hope of winning a war against China. 
 
Free-for-all in the Congress 
---------------------------- 
 
¶7. (C)  The highly-publicized February 2 visit to the 
Spratlys by Taiwanese President Chen Shui-bian re-ignited 
debate over the islands (reftel C).  In March, then - 
Philippine Air Force Commander Lt. Gen. Pedrito Cadungog 
announced that the airstrip would be upgraded at Pagasa 
Island (also known as Thitu or Zhongye Dao), home to a 
Philippine military base and a civilian settlement of more 
than 300 Filipinos.  Then- Armed Forces Chief of Staff Gen. 
Hermogenes Esperon underscored that a beefed-up Philippine 
military presence in the islands stood ready to defend 
Philippine sovereignty.  Although Cuenco's House bill 
including the Spratlys and Scarborough Shoal was tabled April 
21 over the objections of its author, on April 22, Senate 
Minority Leader Aquilino Pimentel called the Arroyo 
administration's exclusion of the Spratlys from the baselines 
treasonous, and called for the adoption of the House bill in 
its entirety.  Dialogue perhaps reached its low point soon 
afterwards, when pro-administration Senator (and 
International Court of Justice candidate) Miriam 
Defensor-Santiago criticized House members for "shooting 
their mouths off," and characterized the Administration's 
legislative opponents in the Spratlys debate as "idiots." 
 
Embassy Reaction: Studied Neutrality 
------------------------------------ 
 
¶8. (C)  When questioned by the Philippine media about the 
U.S. position on the Spratlys, the Ambassador and other USG 
officials have consistently stressed that the U.S. is not a 
party to territorial disputes in the region, and that it is 
our hope that all such conflicts will be resolved peacefully 
among the relevant parties in accordance with applicable 
international law.  For example, at the May 26 opening 
ceremony in Puerto Princesa, Palawan Island for the 
U.S.-Philippine Cooperation Afloat and Readiness Training 
(CARAT) bilateral naval exercise, national media pressed Rear 
Admiral Nora Tyson and Embassy Press Officer over whether the 
 
MANILA 00001838  003 OF 003 
 
 
presence of such a robust American naval force (five vessels, 
including two guided-missile frigates) in the Spratlys area 
indicated a U.S. endorsement of Philippine claims, and an 
intention to assist in defense of those claims.  We carefully 
responded that the purpose of the bilateral naval exercise in 
question was to build capacity for interoperability and 
bilateral cooperation, that the exercise would not be carried 
out in the Spratlys area, and that the U.S. calls on all 
claimants to resolve the issue peacefully. 
 
Comment 
------- 
 
¶9. (C)  The Spratlys controversy represents something of a 
strategic conundrum to the Arroyo administration.  Filipino 
nationalism and widespread suspicion over China's intentions 
in the region militate in favor of the government taking a 
more aggressive stance in advocating for Philippine 
sovereignty over the islands, and the terms of the UNCLOS 
likewise tend to favor such a position.  For these reasons, 
the Arroyo administration had little choice but to allow the 
JMSU agreement to lapse when it expired on June 30, even 
though doing so posed a setback to its relations with China. 
On the other hand, the Philippines is the weaker party in an 
increasingly asymmetric relationship with China, and 
Philippine military forces are sufficiently occupied in 
addressing the nation's insurgent groups, without the added 
worry of projecting power in the South China Sea.  It is 
clearly not in the Philippines' best interests to allow 
tensions in the South China Sea to escalate to the level of 
armed confrontations.  Against a backdrop of rising oil 
prices and growing demand for offshore energy reserves, 
controversy over control of the Spratlys' resources seems 
likely to continue.  END COMMENT. 
KENNEY