SENIOR Associate Justice Antonio Carpio is once again fearmongering, which results from his apocalyptic vision of the arbitration proceedings of the China International Economic and Trade Arbitration Commission (Cietac).
Carpio is warning the public about a specific provision in the Chico River Pump Irrigation Project loan agreement between the Export-Import Bank of China and the Department of Finance. He said this in connection with Article 8.1 of the agreement, where the Philippines waived its sovereign immunity to be subjected to arbitration.
One of the elements of this article states that “…the Borrower does not waive any immunity of its assets…(iii) located in the Philippines and dedicated to a public or governmental use (as distinguished from patrimonial assets and assets dedicated to commercial use).”
Carpio was peeved at that parenthetical phrase. He argued that “patrimonial assets” include the gas resources in Reed Bank and the West Philippine Sea (WPS). So, if the Philippines couldn’t pay its loan, Carpio said, China “could” just take over these resources. This is wrong, as I will discuss below.
In social media, netizens’ paranoia was heightened by their lack of understanding of what “waiving of state immunity” means. They think that the Philippines has waived its rights over its “patrimonial assets,” which to them, because of Carpio’s insinuation, is the entire WPS.
Sovereign immunity is a right every state has flowing from their sovereignty. Sovereignty means that the state is the highest and absolute authority within its territory and that states have equal sovereignty — no higher authority exists above them.
This foundational principle of international relations renders state consent sacrosanct. States cannot be sued, be part of a treaty, etc. without its consent.
Article 8.1 provision automatically waives our sovereign immunity in relation to that contract.
Waiving sovereign immunity doesn’t mean you are waiving territorial rights or even sovereign rights flowing from the United Nations Convention on the Law of the Sea (Unclos). International law was part of my undergraduate program at Leiden University, a leading university in that field. Sovereign immunity was actually the topic of my final paper in public international law and I’m pretty sure I would have failed that paper if I had argued that waiving of sovereign immunity entails ceding territory or giving up sovereign rights.
Article 8.1 is about allowing ourselves to be subjected to an arbitration proceeding in relation to that loan. So, in case there are any disputes regarding our rights and obligations, we can be subjected to an arbitration proceeding in Cietac.
Since its establishment in 1956, Cietac has become Mainland China’s premier arbitration institution on commercial and trade disputes. In its processes, Cietac combines mediation and arbitration.
The distinctiveness of this feature is succinctly explained by international lawyer Yang Ing Loong: “This innovative and flexible procedure allows the arbitrators to switch roles to mediators during or after the conclusion of an arbitration hearing (as parties wish) to settle the dispute. Should the mediation not be successful, the arbitrators will revert to their original roles and continue to hear the arbitration to its conclusion.”
Carpio is right, Cietac’s decision are final and binding. But he got a lot of things wrong.
First, he claimed that Reed Bank and WPS are our “patrimonial assets” while at the same time arguing that “patrimonial assets” would be defined according to “Chinese law, interpreted by a Chinese-majority tribunal in Beijing.”
China claims that it has indisputable sovereignty over almost the entire South China Sea, which includes our parcelized version of that body of water (i.e. WPS) and the Reed Bank. If China defines WPS and Reed Bank as part of our patrimonial assets, then it would entail first giving up their assertion that it was theirs. In other words, China would have first to admit that they are ours.
Second, Carpio claimed that the arbitration decision will be “enforced by the Chinese government in the Philippines.”
In their “A Simple Guide to Arbitration in Mainland China,” Deacons, Hong Kong’s oldest and largest independent law firm, explained that Cietac “has no power to enforce awards.” If the losing party and his/her property is in China, the winning party can enforce the award by applying to China’s Intermediate People’s Court.
Now, if the losing party is in another country, “a successful party can apply to the competent foreign court for enforcement of a Cietac award, pursuant to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, in the country where the foreign party is situated.”
This means that our government would enforce the decision after our courts decide on the application for enforcement of the decision.
And third, in case we can’t pay our loan, our patrimonial assets (such as natural resources that generate revenue for us) wouldn’t be handed over to the Export-Import Bank of China. The future revenues from that patrimonial asset would be our loan repayment and not the patrimonial asset itself.
Carpio has the resources to study the entire history of Cietac arbitration proceedings, which have a reputation for fairness and competence. It’s up to him to demonstrate that his apocalyptic vision isn’t only logical and legal, but has actual precedents in the history of Cietac arbitration proceedings.