The brewing feud in South China Sea

The number one and number two global economic powers, USA and China respectively, appear to be venting their frustrations with each other not only in the economic and political front, but also in recent days in the geo-political or more specifically geographical arena. A few days ago, a US guided missile destroyer sailed within 12 nautical miles of Subi Reef in the disputed Spratly Archipelago in South China Sea. China has previously laid claim to this area, and has been building up this and neighbouring reefs in an attempt to push its territorial reach south both for economic and strategic reasons. The upshot of these recent events is that both USA and China have warned each other to stay out of trouble and the world is now waiting with bated breath in the hope that tensions between these superpowers will not escalate even as they vie for economic and political influence in the Pacific Rim and beyond.

As is well-known, the USA pushed for a rapid conclusion of the Trans-Pacific Partnership (TPP) treaty to contain China's economic influence in the Pacific littoral countries. The TPP member countries are the US, Japan, Brunei, Malaysia, Vietnam, Singapore, Australia, New Zealand, Canada, Mexico, Chile and Peru. President Obama was very open about US intentions when he declared, "When more than 95 percent of our potential customers live outside our borders, we can't let countries like China write the rules of the global economy." But, it is now becoming clear that USA is also seeking to rein in China's geographical ambitions and economic clout by creating an alignment with its other TPP partners that might reach beyond trade relations. For many years, China has been building up the coral reefs and creating islands with air-strips in the South China Sea. USA does not recognise the push by China to expand its territorial waters, even if USA concedes that the latter has vital commercial interests in the sea lanes located in South China Sea or that run through the Strait of Malacca to the Indian Ocean. To reinforce the point, last week, USS Lassen, a guided missile destroyer sailed within 12 nautical miles of these disputed "islands". It is not a coincidence that the area in contention also overlaps territorial claims long-held by Vietnam, Brunei, Malaysia, the Philippines, Indonesia, and Taiwan, all of which except Taiwan are now in the TPP fold, i.e., allies of the USA. Thus, it is evident that the recent skirmish represents but the opening salvo in the effort by both countries to maintain or extend their respective global influence.

One can speculate whether USA decided to send in the warship at this point emboldened by the conclusion of the TPP deal. Undoubtedly, USA has legitimate economic interests in this region, and will use its muscle to keep these busiest sea lanes clear of any interference. According to some estimates over $5 trillion or almost 30 percent of the world's export and import trade navigates through this area. China, on the other hand, claims a 12 nautical mile territorial limit around the artificial islands. To counter China's moves, USA and its allies hold the position that UN Convention on the Law of the Sea does not recognise these limits around man-made islands "built on previously submerged reefs" which the Subi and the Fiery Cross Reefs are. China is undoubtedly positioning itself to exert more influence should tensions mount, but also to break out of any "economic" encirclement if all-out trade wars break out. It has already built a three-kilometre air strip on Fiery Cross Reef. Incidentally, the disputed Spratly Islands is only 700 km from Vietnam and 1027 km from the Philippines, but 1187 km from China's most southern island, Hainan.

The timing of the US military action on October 27 appears to have been well-planned. It followed hard on the heels of the visit by Indonesia's President Joko Widodo who has openly declared his country's intent to join TPP.  USA also did not want to jeopardise its ongoing dialogue with China on multilateral issues and wisely decided to hold back these naval maneuvers until the conclusion of Chinese President Xi Jinping's trip to Washington in September. Undoubtedly, it is premature to draw any firm conclusions about the new economic and geo-political map that might emerge even before the ink dries on the paper TPP treaty is written on. If we look back, at the end of WWII, following the emergence of two communist powers in Europe and Asia, USA created SEATO and CENTO to contain China and the Soviet Union, respectively. Nowadays, the new emerging countries in the Pacific region do not see the value of a military alliance against China. Hence the creation of TPP provides USA and its allies a less overt mechanism to keep China's influence in check. USA has already indicated its displeasure with China's espionage and hacking activities, some of which are carried out under the very nose, if not patronage, of Chinese government officials.

As the TPP moves forward and the signatories proceed to ratify the deal, the next moves by China will be important. China might witness a substantial reduction in its exports to the TPP countries due to trade diversion brought about by the "rules of origin" protocol adopted by TPP. According to Jose Manuel Quijano, the former head of Mercosur, the South American trade alliance, "The main victim is China… because in order to sell to other TPP members, the country needs to have created goods with its raw material or input." One possible strategy for China to counter TPP is by boosting it BRICS participation. The BRICS countries, Brazil, Russia, India, China and South Africa,"comprise about 30 percent of world's GDP at the moment in PPP terms and are projected to increase to as much as 45 percent by 2030. BRICS already accounts for 17 percent of world trade." Another political analyst, Valery Mironov of Russia, speculates that Russian and China might work on a joint strategy and team up with BRICS, Shanghai Cooperation Organisation (SCO) and the Eurasian Economic Union (EEU).

From the US perspective, TPP has already started to pay dividends in its long-standing territorial dispute with China. After the recent incident in South China Sea, Australian Defence Minister, Marise Payne,declared, "It is important to recognise that all states have a right under international law to freedom of navigation and freedom of overflight, including in the South China Sea. Australia strongly supports these rights." It was announced at the end of the recently concluded ASEAN Defence Ministers' Meeting that US Secretary of Defence Ash Carter will be joined by his Malaysian counterpart on board the USS Theodore Roosevelt as they cruise the South China Sea. Another show of solidarity between USA and a TPP nation! What are trade agreements for after all if not to gain support for our geo-political goals?

The writer is an economist who writes on public policy issues.