The South China Sea, Australia, and a tiny half island-nation
International maritime law has seen a resurgence of interest in recent years as a result of the various hotbeds of contested maritime boundaries in East Asia. Though those are often considered as threats to the framework of international law, the heavily securitized disputes allow for opportunities to strengthen and improve it. This is aptly illustrated by the revival of the Permanent Court of Arbitration (PCA), founded in 1899 and one of the oldest institutes for international dispute resolution.
The PCA had largely disappeared from the radar when the Filipino government in 2013 initiated arbitration proceedings against China in its dispute over the South China Sea, with the Court acting as a Registry for the UN Convention on the Law of the Sea (UNCLOS).
The Award held little political weight because of the new Beijing-friendly Duterte government but did reinvigorate the importance of international maritime law and its institutions to East Asian states. With China outright challenging the rule of law in the Asia-Pacific region, governments feel more than ever the need to draw upon the legal framework and fortify it.
The South China Sea arbitration case had in particular great influence on the long-running maritime dispute between Australia and East Timor, forcing Canberra to come to terms with a questionable past.
East Timor, officially known under its Portuguese name Timor-Leste, is located on the eastern half of the island of Timor between the Indonesian archipelago and the northwestern side of Australia. A former Portuguese colony, the tiny half island-nation was invaded by Indonesia following Portugal’s carnation revolution and brutally occupied from 1975–1999.
The illegal annexation and subsequent violent oppression spurred little to no protest from neighbor Australia or the leader of the ‘free’ world, as Cold War concerns and economic motives prevailed over grave humanitarian and international law violations. After an overwhelming majority of the population voted in favor of independence in a United Nations-sponsored referendum in August 1999, the administration of the country was taken over by the UN. The country officially achieved its independence in 2002 when the transitional arrangement ended and the Constitution of the Democratic Republic of East Timor came into force.
As one of the newest nation-states in the world, counting barely 1.3 million citizens, Timor-Leste has been struggling to make ends meet. Decades of brutal oppression significantly stalled economic development in the country and economic liberalization policies since its independence have failed in scope and ambition.
Timor-Leste scores low in various economic indicators and remains one of the poorest countries in Asia. In 2017 it ranked 140th in the world for its GDP per capita figure of $2,236. It currently holds the 172nd spot in the global Index of Economic Freedom as a consequence of “structural and institutional deficiencies” which “constrain economic freedom.”
A reason for its poor economic performance since independence is an abundance of natural resources. The country is the quintessential example of an oil rentier state, with oil and gas profits accounting for about 90 percent of the national income. Most of the black gold fueling its resource curse originates from the Timor Sea.
Since 2002, the resource-rich waters and the profits obtained from it have been shared between Timor-Leste and Australia. Though Canberra has evolved as an important protector of its small neighbor, its diplomatic oil dealings before and after Dili attained self-governance have soured the relationship.
The resource potential of the Timor Sea was recognized early-on by Canberra. In 1972 it established a maritime boundary with Indonesia which placed most of the oil and gas reserves on Australian territory.
The Australian government showed its gratitude to the favorable deal by abstaining from UN resolutions against the Indonesian government after the illegal annexation of Timor-Leste. It even became the only state in the world to offer dejure recognition of the annexation, when in 1978 Australia voted against UN resolutions condemning Indonesia’s actions. Its change in position was generally seen as a gift to be traded in new negotiations for seabed rights and oil exploration.
These were officially commenced by Indonesia on Valentine’s Day 1979. Because Portugal had been left out in the original treaty, the agreement did not include the so-called Timor Gap, a stroke of a few hundred km long which includes part of the petroleum-rich Greater Sunrise field.
The re-negotiations culminated in 1989 with the Timor Gap Treaty which established three zones of cooperation in a coffin shape deal (see Fig. 1), each offering different rates of revenue-splitting and totaling a 50–50 split.
When the deal came into force in 1991, Portugal immediately instituted proceedings against Australia at the International Court of Justice, disputing the lawfulness of Australia’s negotiations as a party on behalf of the people of East Timor.
At the time, Portugal was still recognized by the UN as the lawful administering power of East Timor. The ICJ ruled four years later it could not adjudicate the dispute, as a ruling was first needed on the legitimacy of the annexation by Indonesia. Since Indonesia withheld its consent to the court, which “can only exercise jurisdiction over a State with its consent,” the hands of the ICJ were tied.
Timor-Leste vs. Australia: Round I
Some faith in the international system by the Timor-Leste population was, nevertheless, provided by a slowly changing political tide in the mid-1990s. UN-brokered dialogues were initiated in 1997 and culminated in the independence referendum of 1999. The outcome of the vote was an important and clear victory but got overshadowed by the violence instigated by anti-independence militants. In the ensuing chaos, a total of about 1,400 citizens are believed to have been killed.
A multinational peacemaking force, organized and led by Australia in accordance with UN resolutions, was deployed to address the humanitarian and security crisis in the country. INTERFET stayed from September 20, 1999 till February 28, 2000, after which it handed military command over to the new UN-led transitional government and peacekeeping mission.
About a month before this change of command, a delegation of high-level Australian officials flew to war-torn Dili with the infeasible objective of convincing the Timorese leadership to accept in full the Timor Gap Treaty, simply replacing “Indonesia” in the treaty text with “Timor-Leste”.
Infeasible not only because of how unfavorable the treaty was for East Timor as compared to what it was entitled to under international law, but more importantly because of its devastating economic implications for the new country, bereft of other major sources of revenue. With oil prices hovering at $US20 a barrel, Dili would have annually received $US50 per capita from its small slice of the pie.
Yet Australia stuck to its guns in the negotiations the next 18 months, while the Timorese diplomats were demanding a 90 percent share. The much weaker and desperate party caved in at the end, as the Timorese agreed to a counteroffer in which the demanded share of distribution would cover just one of the three areas of the original treaty.
The Timor Sea Treaty, signed on the day Timor-Leste formally attained its independence (May 20, 2002), excluded the resource-rich areas to the east and west of the treaty area, which was now called Joint Petroleum Development Area. The treaty was meant as an interim arrangement, valid for a period of thirty years till the moment a permanent maritime boundary had been agreed upon.
The Greater Sunrise fields were dealt with in a separate agreement at the beginning of 2003, which deemed 20.1% of the resources of the Greater Sunrise field as lying within the JPDA, attributing 20.1% of production from it to the JPDA and 79.9% to Australia. With East Timor getting 90% of the revenue of the JPDA, it effectively was only going to receive 18.1% of the revenue from the field.
Timor-Leste vs. Australia: Round II
The public outcry in both Australia and East Timor over the unequal distribution of revenue forced Canberra to agree to an amendment of the share ratio of the Greater Sunrise fields, putting it at 50–50 with the signing of the Treaty on Certain Maritime Arrangements in the Timor Sea (CMATS) in January 2006. But while the treaty amended the share ratio for Timor-Leste, the deal still favored Australia in several ways. As stated in article 4 of the treaty:
“Neither Australia nor Timor-Leste shall assert, pursue or further by any means in relation to the other Party its claims to sovereign rights and jurisdiction and maritime boundaries for the period of this Treaty.”
The former Timor Sea Treaty, intended as an interim arrangement until a maritime boundary had been established, could have been upheld for a period of 30 years. CMATS extended the interim arrangement on the parties’ claims of the Timor Sea till 2057, by which point all the oil would most likely have been sold for some time already, and put on hold the right of both parties to discuss any such maritime boundary for the duration of the treaty.
Furthermore, the deal allowed Australia to continue its petroleum exploitation activities in accordance with any domestic legislation in place on May 19, 2002. As Timor-Leste had no such legislation yet on that date, the day before it attained independence, it surrendered its claims to waters which Australia still claimed ownership of based on its 44-year old (and supposedly long-defunct) arrangement with Indonesia.
Timor-Leste vs. Australia: Round III
After its finalization in 2006, Timor-Leste had not officially expressed any discontent with the treaty (though on an nongovernmental level, the treaty had been less victoriously hailed). But the oil bout between Dili and Canberra was reignited in late 2012 when a source from the Australian intelligence agency ASIS informed Dili that his organisation had bugged their cabinet’s quarters back in 2004 on behalf of the Australian government, in an apparent attempt to gain commercial advantage in the negotiations for CMATS.
Most strikingly, the spying allegedly occurred under the guise of an aid program in Dili.
Upon learning of these facts, the Timorese government first quietly sought a response from Canberra. But the Gillard government denied all allegations and infuriated its counterparts by sending a representative to Dili who was known to have been involved in the bugging. The Timorese responded in April 2013 by initiating United Nations Compulsory Conciliation (UNCC) proceedings at the PCA to scrap the oil treaty, claiming Australia’s spying contravened the Treaty of Vienna requirement that treaties be negotiated in “good faith” and gave Australia an unfair advantage in the negotiations.
In late 2013, under orders of the new Abbott government, raids targeted the office of an Australian lawyer representing Timor-Leste at the PCA and the home of the alleged whistleblower, nicknamed Witness K. Documents and other data were seized, and Witness K was detained, questioned, and his passport cancelled to prevent his testimony in The Hague.
Prime Minister Abbott argued the moves were made to protect the national interest and denied claims of intimidation or obstruction with the arbitration case. The Timorese side responded by lodging a case at the ICJ, demanding Australia return all material. The case was dropped one-and-a-half years later, following Canberra’s compliance with Dili’s demands.
Around that time, however, the arbitration proceedings at the PCA were swinging in full motion. Or rather, under the auspices of the PCA, as the court was functioning as as Registry in the United Nations Compulsory Conciliation (UNCC) proceedings, which were held under the United Nations Convention on the Law of the Sea (UNCLOS).
It is the stage where Timor-Leste’s pursuit for a ‘fair’ settlement becomes increasingly intertwined with larger geopolitical developments, namely the larger South China Sea dispute, and the overall institute of international law.
For Australia, the case had gotten a lot more complex at this point due to these geopolitical developments. Back at the beginning of the oil fight with Dili, Canberra needn’t worry yet about other maritime disputes. And so, though it ratified UNCLOS in 1994, it invoked a provision in Article 298 in the Convention on March 22, 2002 which allowed it to opt out from arbitration or adjudication procedures with respect to sea boundary delimitations disputes.
Officially, because it was the government’s view “maritime boundary disputes are best resolved through negotiation, not litigation,” though the timing of the decision makes it more likely Australia did not want any international third-party arbitration meddling in its maritime negotiations with Timor-Leste. (The latter ratified the Convention on January 8, 2013, shortly after having learned of the spy incident.)
The Article 298 declaration came back to haunt Australia when the South China Sea dispute between China and several other neighboring countries became increasingly securitized. Though a somewhat reluctant actor on the anti-China side of the conflict, with legislators publicly expressing worries about provoking China and hurting economic interests, Australia’s 2016 Defence White Paper describes China in shrouded words as the belligerent actor in the dispute and makes continued reference to the importance of adhering to the global rule-based order.
One paragraph in the document strikes out, however, by highlighting Australia’s flawed position on the topic of maritime disputes.
“Australia does not take sides on competing territorial claims in the South China Sea but we are concerned that land reclamation and construction activity by claimants raises tensions in the region. Australia opposes the use of artificial structures in the South China Sea for military purposes. Australia also opposes the assertion of associated territorial claims and maritime rights which are not in accordance with international law, including the United Nations Convention on the Law of the Sea (UNCLOS).”
Its flawed position on maritime rights was clear to observers, making it difficult for Australia to act as an impartial, norms-adhering actor and an advocate for the international legal system and arbitration disputes. Though that is exactly what it pretended to be. Especially in the case of the South China Sea dispute, Australia has become a vocal supporter of UNCLOS. In an interview with an Australian radio station, a day after the PCA’s South China Sea ruling, then foreign minister Julie Bishop says the following:
“This treaty [referring to UNCLOS], the law of the sea, codifies pre-existing international custom. It’s a foundation to maritime trade and commerce globally, and so to ignore it would be a serious international transgression. There would be strong reputational costs. China seeks to be a regional and global leader and requires friendly relations with its neighbours. That’s crucial to its rise.”
It is important to note that China’s main legal defense (in government papers and statements, as it did not officially participate in the Tribunal’s hearings) was its own invoking of Article 298 back in 2006. However, with concern to the Article’s consideration of sea boundaries delimitations (the historic entitlement China claimed with its nine dash line was dealt with in a separate argument), the PCA argued as follows:
“In brief, a dispute over the source and existence of maritime entitlements does not “concern” sea boundary delimitation merely because the existence of overlapping entitlements is a necessary condition for delimitation. While all sea boundary delimitations will concern entitlements, the converse is not the case: all disputes over entitlements do not concern delimitation.” [source: page 85 of the Award]
Although Australia may be ‘right’ in calling upon China to abide by the ruling, it is still a stretch to present itself as a staunch supporter of maritime rights and international dispute resolutions. Its own circumvention of UNCLOS with regard to third-party dispute arbitration on maritime boundaries was driven by self-interests and showcased a fear for, or at best lack of confidence in, impartial umpires to rule on its legal positions.
Thus, acting like a advocate for the international legal system not only hurts its own image in the global theater, but also takes away from the very institution it claims to uphold.
Timor-Leste, on the contrary, did not concern itself much with the larger geopolitical and juridical system, but rather campaigned its cause on a ‘sovereignty narrative’.
Drawing from its historical grievances and a pursuit towards becoming a full-fledged member of the international community, Dili developed a public diplomacy strategy which puts as the government’s key goal the final delimitation of maritime boundaries.
Rather than focusing on the issue of resource distribution, Dili argued a permanent maritime boundary would allow for “sovereign ownership and control of the maritime areas within those boundaries” by the people of Timor-Leste.
Dili tried to frame the fight in the public’s eye as one of David vs. Goliath, making it a symbolic and ethical fight rather than one fought for material reasons. A mission to right historic wrongs. As Prime Minister Rui Maria de Araújo said on the day it launched UNCLOS proceedings with Australia, “establishing permanent maritime boundaries is a matter of national priority for Timor Leste as the final step in realising our sovereignty as an independent state.”
Of course, any such permanent boundary agreement would in the eyes of the Timorese have to include the Greater Sunrise fields. To achieve such a “fair” settlement, the current eastern lateral line would have to be expanded to encompass Greater Sunrise. In the words of one commentator, “this is ambitious and unrealistic.” Australia would either need to be convinced to relinquish its claims or be persuaded to submit itself to international third-party arbitration, despite its UNCLOS Article 298 declaration.
This leaves one other option, settlement by negotiation. Negotiation talks would inevitably lead to some form of compromise on the Greater Sunrise fields. But compromise might not be acceptable to the Timorese public, which had been rallied by the government on the promise of full control over the lucrative oil fields. Any other outcome would be received as defeat and possibly lead to political instability in a country which was still recovering from the violence of the 2006 political crisis.
In other words, the Timor-Leste government possibly orchestrated a severe domestic crisis by pursuing an infeasible strategy. Regardless of the question of right or wrong, out here in the real world David loses nine out of ten times.
Timor-Leste vs. Australia: Final Round?
The bell gong was struck again on April 11, 2016 when Timor-Leste officially initiated compulsory non-binding conciliation proceedings against Australia under Annex V of UNCLOS (a separate case from the arbitration proceedings it had already initiated in 2013).
Australia formally protested the competence of the Conciliation Commission on June 27, 2016, arguing that the CMATS treaty’s moratorium on dispute settlement procedures precluded compulsory conciliation, and claiming Timor-Leste had not met the preconditions of UNCLOS to submit a dispute to compulsory conciliation. (Note the date of the protest, barely two weeks after Australia called on China to abide by the Decision on the South China Sea.)
Canberra’s protests were dismissed in the Decision on Competence, in which the Commission held itself competent to continue with the conciliation process.
The decision was hailed as a major win for Timor-Leste, as most observers expected the Conciliation Commission to act in favor of the half island-nation. Canberra’s legal standpoint dated back from the time when the 1972 agreement with Indonesia was drawn, arguing its seabed territory extends to the edge of the continental shelves. Dili, in contrast, supported the median line as a maritime boundary between two countries, in line with UNCLOS and the post-Convention’s jurisprudence.
Invoked for the first time under Annex V of UNCLOS, the Commission expressly exists to conciliate, incapable of arbitrating in the matter and order the parties to abide by the outcome of the process. In its role as mediator, it seemed successful in bringing both parties together.
A few months after the negotiation talks had started at the PCA, Timor-Leste formally announced in a joint statement with the Australian government that it had terminated CMATS. The development signaled a shift in position on the part of Canberra, which up until then had always stressed the treaty was valid and should stay.
The talks, which had to take place within a period of 12–18 months, culminated on August 30 in a ‘breakthrough’. The two parties announced they had reached an agreement which constituted a package addressing all major issues of their dispute and included a “pathway to the development of the resource [of the Greater Sunrise field], and the sharing of the resulting revenue.”
The news of the ‘landmark’ deal was joyously spread by both governments.
No specific details were provided in the breakthrough announcement, though the phrase “sharing of the resulting revenue” raised eyebrows among some. Damien Kingsbury, a prominent expert, commented:
“Timor-Leste has always claimed that the Greater Sunrise field lay entirely within what should be its sovereign waters. It begs the question, then, of why there is a ‘sharing of the resultant revenue’. Practical, perhaps, but a long way from Timor-Leste’s original claim, and not markedly different from the existing revenue sharing 50–50 agreement.”
While surprising, the sketched outline of the deal did make sense when looking at the background of Timorese politics. Timor’s lead negotiator in The Hague, Xanana Gusmao, national hero and former President and Prime Minister, had always argued all of Greater Sunrise was Timor’s to claim.
Gusmao’s party CNRT lost the elections in July, however, and the new Prime Minister Mari Alkatiri of former governing partner Fretilin favored a more conciliatory approach. Alkatiri had occupied the same office in the period 2002–2006, during that time signing both the Timor Sea Treaty and CMATS with Australia.
Following the change in power in July 2017, a murky political situation developed in which the country’s two main parties CNRT and Fretilin increasingly challenged each other because of broken promises and a precarious balance of seats in the parliament. The ruling parties held 30 out of 65 seats and faced a majority opposition coalition led by CNRT. The situation got so bad that the parliament was not allowed to convene as PM Alkatari feared a vote of no confidence and even denounced a ‘coup’.
During this political chaos, negotiations with Australia under the guidance of the PCA continued, and parties “commenced engagement with private stakeholders in the Timor Sea.” The talks with these ‘private stakeholders,’ which included oil companies Woodside and ConocoPhillips, proved to be difficult. Timor wanted to process the gas extracted from Greater Sunrise itself, a position spearheaded by powerbroker Gusmao, but the oil companies preferred using existing facilities located in Darwin, Australia.
While Dili officially reinforced its demand for a gas pipeline from the Greater Sunrise fields to Timorese soil in early November, PM Alkatiri also highlighted his conciliatory approach by stating “everything is on the table” in an interview with The Australian.
The Timorese and Australian governments finally reached an agreement on 6 March 2018, concluding their negotiations within the allotted eighteen months by signing the Treaty between Timor-Leste and Australia Establishing their Maritime Boundaries in the Timor Sea.
Although hailed as a landmark treaty, marking the maritime border around the median line between the two countries, the conciliation was still far from complete.
Despite the treaty stating Timor would receive 70 percent of the royalty revenues from the Greater Sunrise field if the gas would be piped to its shores, or 80 percent if piped to Australia, the parties including the oil companies were unable to come to an agreement on how to develop the oil and gas reserves.
Timor’s publicly stated goal of developing an onshore LNG complex at Beaco (see figure 2) was repeatedly deemed economically infeasible and therefore unacceptable to the oil companies.
Dili’s response to this repeated refusal was straightforward following ratification of the treaty; in October 2018 it announced reaching a deal with ConocoPhillips to take over the oil company’s 30 percent stake in the Greater Sunrise Fields for the sum of 350 million US dollars. While announcing the deal, ConocoPhillips still repeated its disagreement with the Timor-Leste government, stating:
“Although we differ with the government on its proposed development plan for Sunrise, we recognize the importance of the field to the nation of Timor-Leste.”
Such recommendations did not find a willing ear at the Timorese government, which announced a month later it had also reached an agreement with stakeholder Royal Dutch Shell to sell its share in Greater Sunrise, 26.56 percent, to the country.
The two deals would give East Timor a majority ownership of the field, with Australian Woodside Petroleum (33.4 percent) and Japan’s Osaka Gas (10 percent) being the remaining stakeholders in the field.
With Dili having attained the final puzzle piece of its long strife towards complete sovereignty, permanent maritime boundaries, its achievement could well turn out a Pyrrhic victory.
Timor-Leste blazed a trail for maritime dispute resolution through the many years spent on diplomacy and inside courthouses, but those also put the country on a path of stalled economic development and potential civil unrest.
The government’s ambition to process the LNG onshore continues to be seen as a risky and expensive endeavor and remains a strongly debated topic domestically. And with the government budget depending on the Bayu-Undan reserves, that are set to run out by 2022, not much time might be left to see the country’s oil and gas infrastructure-focused development policy pay off.
Moreover, despite buying out two partners in the Sunrise joint venture, a major legal hurdle remains. The country’s Petroleum Activities Law restricts the state to a maximum of 20 percent equity in the project, which might force Timor-Leste to sell some of its stake to a new partner, like China.
Although Australia has finally rectified and come to terms with a questionable past, “avoiding the appearance of hypocrisy in regards to future commentary on China’s actions in the South China sea,” the time it took to get there may have been too long for Timor’s population.
This is an updated version of an article previously published on my blog afrasianobserver.wordpress.com.
