TCR Volume 2 Issue No 16 by The CenSEI Report

Strategic Analysis and Research by the

cenSEI

CENTER FOR STRATEGY, ENTERPRISE & INTELLIGENCE

T H E

This [SWS survey] is before the Defense has finished presenting their evidence … They should stop trying to influence senator-judges through these surveys ~ Impeachment Defense spokesperson Atty. Karen Jimeno on Social Weather Stations survey on impeachment conducted March 10-13

Report

Volume 2 - Number 16 • April 23-29, 2012

SWS is not trying to influence or condition public opinion … neither is SWS trying to influence the senators in particular ~ SWS President Mahar Mangahas responding to survey criticism

4 Are We Running Out of Water?

NATION

With much less water per capita than most countries, the Philippines must implement its water sector plan now, not make a new one. Millions of thirsty Filipinos are waiting • Council, board or office?: Regulating what we can pump, pipe and pour • Making it last: Ten tenets of sustainable water resource development • Vision 2025: The Philippine Water Supply Sector Roadmap framework

14 The Philippines’ Heart-Stopping Problem

Heart disease, hypertension, diabetes and other so-called lifestyle diseases are now the main ailments ending lives in 60% of deaths in the country. What should we do?

BUSINESS

30 The Richest Filipino’s Empire

TECHNOLOGY

44 Waging War with Bits and Bytes

From selling shoes, Henry Sy and his brood built SM into the biggest conglomerate in the country, with the top bank and retailer, plus property, resorts and China ventures • All in the family: The Sys running the sprawling system of SM • When kin are kings: The art and science of family enterprise • Ancestral home: SM goes to China and wins big • Tree bugger: The Baguio mall vs. the green brigade on Session Road

WORLD

The global arms race has gone online: cyberweapons that can destroy, degrade or otherwise disrupt electronic systems, are the next wave of military development • Evolution of cyberspace: A target-rich environment for e-attacks • Report card: Is your country ready for cyberwar? • Back to school: Boot camp and lab time for online battles • Do's and don'ts: The ethics of conflict on the Internet

POINT & CLICK

56 Why China Is Playing Hardball at

Scarborough Shoal

From a national leadership transition and a crunching economic slowdown, to its rise as an Asian and global power and its age-old struggle with foreign dominance, here are eight challenges Beijing faces now — and fuels its hardline stance in the South China Sea. Plus: three things Manila should do to deal with the dragon • Appendix: A Coast Guard commodore analyzes how solid the Philippine claim is

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You can access online research via the Internet by clicking phrases in blue

WORLD

Center for Strategy, Enterprise & Intelligence provides expertise in strategy and management, enterprise development, intelligence, Internet and media. For subscriptions, research, and advisory services, please e-mail report@censeisolutions.com or call/fax +63-2-5311182. Links to online material on public websites are current as of the week prior to the publication date, but might be removed without warning. Publishers of linked content should e-mail us or contact us by fax if they do not wish their websites to be linked to our material in the future.

Sometimes, It Takes a Little More Time to Find Timeless Insights The CenSEI Report is not constrained by the limitations of printed publications, with their number of pages dictated by printing and delivery costs, not to mention the absence of online links. But like all media, we too face the challenge of immovable deadlines to ensure that every issue out on Monday week after week. That means analyzing, researching and writing fast without sacrificing insight and accuracy, especially with rapidly changing and hugely complex conundrums like the Scarborough Shoal standoff. For that reason, on rare occasions, the Report divides a story over two issues, as we did with the mining policy articles in February and March, and the Scarborough articles last week and this week. The two- or three-part writing affords additional time for more thorough and thoughtful appreciation, analysis and research into the not-so-obvious intricacies and imperatives driving key players in the problem at hand. Normally, the earlier story wraps up the news and recent developments that gave immediate impetus for the headline events. Thus, the first installment of the South China Sea story focused on actions over the past month or so which we believe may have triggered China’s recent moves in Scarborough Shoal: the Philippines’ push for a common Asean position on the South China Sea at the Association of Southeast Asian Nations Summit early this month, and the ongoing Balikatan military exercises between the Philippines and the United States just off disputed waters west of Palawan. However, nations and their leaders and governments do not take major initiatives with potentially serious implications and highly unpredictable consequences just on the spur of a passing moment or even the past month or so. That had long been plain to former Cabinet Secretary and Asiaweek editor Ricardo Saludo, managing director of the Center for Strategy, Enterprise and Intelligence, which publishes The CenSEI Report. “After covering Asian affairs for two decades in Manila and Hong Kong, then helping craft state policies and actions at the highest level for nearly a decade, it was clear to me that the Chinese, like the Filipinos, had weightier and most enduring considerations on their minds when they acted as they did in Scarborough Shoal,” says Saludo, who wrote the two-part strategic analysis and research on the factors behind China’s actuations at the contentious shoal. The Oxford strategy and innovation graduate counts eight underlying factors hardening Beijing’s position in the highseas confrontation, from domestic political and economic strains to big-power rivalry and long-term resource needs. That formulation took a week longer than usual for a CenSEI story. We hope its value lasts far longer.

NATION

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rom the 2005 fiscal reforms and the 2007 conditional cash transfers to the 2008 rice production program aiming for self-sufficiency by next year, major initiatives of the Arroyo administration have been continued and enhanced by the government of President Benigno Aquino III. Now set for rollout under his rule: water reforms.

Are We Running Out of Water?

We will if we don’t manage this precious resource better By Marishka Noelle M. Cabrera

STRATEGY POINTS The Philippine Water Sector Roadmap gives a detailed plan until 2025. After some finetuning, it should be rolled out pronto Top ills: uneven distribution, waste and inefficient use, lack of sewerage, supplydemand mismatch, and degraded watersheds Key to successful implementation is addressing institutional fragmentation which leads to poor water resources management

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Released in 2010, the Philippine Water Supply Sector Roadmap was crafted over three years by the National Water Resources Board (NWRB) and the National Economic and Development Authority (NEDA) with assistance from the German Agency for Technical Cooperation (GTZ). The plan for providing water to all communities by 2025, harnessed the same collaboration with concerned sectors and international experts that went into another key framework adopted in 2010, the action plan and legislation on disaster reduction and response management. Now, President Benigno Aquino III is putting his own touch on the water effort. He may soon replace the NWRB with a “superbody” under the Office of the President to be called National Water Resources Management Office (NWRMO), through an executive order now being drafted. Plus: there may be a new water resources plan. In his February speech at the Water Loss Conference, the President lamented the number of state agencies in the sector delivering limited results. “The problems in the water sector were evident, but everyone was trying to describe the situation from the narrow perspective of their own small rooms in the bureaucracy,” he said.

TECHNOLOGY

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Are we running out of water?

Aquino’s solution, as quoted in a Business Mirror report: an EO designating the NWRMO as “mainly responsible for the management and protection of the country’s water resources for domestic water supply, sanitation, irrigation, hydropower, fisheries, aquaculture, flood control, navigation and recreation, including the enhancement and maintenance of water quality, conservation of watershed, control of water pollution and environmental restoration, without compromising the natural ecosystems’ functions and services.” If issued, the order would decree the third incarnation and name change of the water body (see boxed note). Besides a new water office, Aquino wants a new plan. Last October his EO 62 created an inter-agency committee led by Secretary Rogelio Singson of the Department of Public Works and Highways (DPWH), whom the President appointed “water czar” last year. The order also put the Local Water Utilities Administration under administrative supervision by DPWH. The LWUA was an attached agency of the Department of Health. Drafting a master plan addressing all water sector issues was the committee’s task. Aquino reminded Secretary Singson to submit the plan by the end of Lent two weeks ago. No news yet about it. Nor has there been any reported instruction regarding the NWRB-NEDA Roadmap and whether it would be adopted, modified or shelved. Why change the Roadmap? Given the years of workshops and wide-ranging consultations that went into the 2010 Roadmap, it would be a huge waste to

The

From council to board, then office As recounted on the National Water Resources Board site, the NWRB started life in 1974 as the National Water Resources Council (NWRC), created by Presidential Decree 424. Two years later in 1976, the Council empowered under The Water Code of the Philippines (Presidential Decree 1067), which had the force of law under then President Ferdinand Marcos’s legislative powers under martial law. PD 1067 stipulated: “The utilization, exploitation, development, conservation and protection of water resources shall be subject to the control and regulation of the government through the National Water Resources Council. The Council was given its current name under EO 124-A, issued in 1987 by President Corazon Aquino. It was reconstituted a decade ago by then President Gloria Arroyo’s EO 123. Under the 2002 order, the Board was chaired by the Secretary of Environment and Natural Resources, with the NEDA Director-General as vice-chair, and the Secretaries of Justice, Finance and Health, the NWRB Executive Director, and the Director of the National Hydraulics Research Center at the University of the Philippines as members. Now, President Benigno Aquino III may recast the Board again into the National Resources Management Office (NWRMO) under the Office of the President. And more than just regulating and coordinating government efforts, the NWRMO is to be “responsible for the protection and management of the country’s water resources.” Good luck with a tough job.

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6 junk it. In fact, its 2015 goal of 86.6% of households with access to water is what President Aquino wants to achieve by 2016. The technical working groups that crafted the NWRB-NEDA plan included 11 national agencies. Besides those already on the NWRB, the TWG tapped the Budget and Local Government Departments (DBM, DILG), LWUA, Metropolitan Waterworks and Sewerage System (MWSS), National Anti-Poverty Commission (NAPC), and Cooperative Development Authority (CDA). Also represented in the TWGs were the Senate and House public works committees, the leagues of provincial, city and municipal governments, the association of local water districts, and seven non-government organizations, including the Institute for Popular Democracy of current NAPC Lead Convenor Joel Rocamora. As explained on page xvii of its executive summary, “the Roadmap envisions that: By 2010, 432 waterless municipalities shall have graduated to more than 50% access coverage and sustaining utility operations; that existing formal/legal utilities are expanding coverage to unserved areas, and; that 60% of water service providers shall have been regulated from the current 40% level.” The plan also addressed the United Nations’ Millennium Development Goals: “By 2015, the water supply sector shall have achieved the MDG target of halving the proportion of the population without sustainable access to safe drinking water and basic sanitation.” And looking to the next decade, the Roadmap aspired: “By 2025, universal access coverage and sustained utility

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operations have been attained; that existing formal/legal utilities continue to expand coverage at par with population growth, and; that all water service providers shall have been regulated.” Water to the waterless. The plan builds upon the President’s Priority Program for Water (P3W) of the past administration, to provide services to 212 waterless areas in Metro Manila plus 432 municipalities elsewhere in the country, in which less than half the residents have access. In 2007, based on the Annual Poverty Indicators Survey (APIS) of the NEDAaffiliated National Statistical Coordination Board (NSCB), 82.9% of households had access to water, up from about 80% three years before. The Roadmap aimed to add 2.7% over the next eight years to hit the MDG target of 86.6% by 2015. “Treading Troubled Waters,” a 2011 paper by Dr. Buenaventura B. Dargantes, Mary Ann B. Manahan and Cheryl C. Batistel of Focus on the Global South-Philippines, an NGO based in U.P. Village, cited “mixed results” for P3W, with 84% of households with access to water in 2008, by NSCB’s count. That’s seems low, with 87% access already achieved in the 1990s. But given rapid population growth and urbanization, just staying above 80% was already a formidable challenge.

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Water Quality Sanitation

EMB DO BRL EOH

Watershed Managemen

DOF/CDA MWSS LWUA / WD DILG-PMO-WS LGUs DAR

Are we running out of water?

A complicated patchwork of agencies. Dargantes, Manahan and Batistel highlight major problems. One is lack of sanitation, with toilets in 70% of homes in 2008, down from 74.2% in 2000, and only 4% of households connected to sewerage systems. Other problems include overpricing, corruption, pollution, wastage, among others. And lording it over the mess is the complicated and often disjoint patchwork of entities in the sector, as shown in the graphic below from the 2010 Roadmap.

The paper adds on page 5: “The Joint Monitoring Programme of [World Health Organization] and UNICEF reported higher figures for 2008 — 93 percent for urban areas, 60 percent with piped connections, 87 percent for rural areas, 25 percent with piped connections and an average of 91 percent of the population have access to improved water sources, 48 percent of whom have piped connections. This means that 29.7 million people have gained access to improved sources of drinking water from 1990-2008. (UNICEF and WHO, 2010)”

WHO’S IN CHARGE HERE? Functional Chart of Water-Related Agencies in the Philippines Policy Making NEDA

Coordination/ Regulatory NWRB

ty n

Watershed Management

Integrated Area Development

H O

FMB BSWM NIA NPC

LLDA RBCO

d nt

Watershed Management

Hydro-Power

Flood Management

Ports & Navigation

NIA DA BSWM DAR

NPC DOE NEA

DPWH-PMO-MFCP OCD-NDCC PAGASA

PPAB

s SSP

RDC PEZA

Data Collection

Research

Cloud Seeding

NRW BRS NAMRIA MGB LWUA NIA PAGASA MWSS

PCAFNRRD PCAMRD

OCD PAF BSWM

Fisheries & Recreation FAR

PTA

Source: Chart from Philippine Water Supply Sector Roadmap, NWRB and NEDA, 2010, page 26

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8 Senate experts agree. A 2011 policy brief from the Senate Economic Planning Office entitled “Turning the Tide: Improving Water Management in the Philippines” tackles water management issues and blames the complexity of water governance on four “multis”: the multiplicity of government institutions involved which are multi-level, multi-thematic and multisectoral. The paper “Local Service Delivery of Potable Water in the Philippines: National

Review and Case Analysis” agrees. “The water supply sector is highly fragmented due to institutions having unclear duties, overlapping functions, and poor coordination in planning and monitoring,” author Danilo C. Israel writes. The Senate policy brief also laments to the government’s inability “to prevent resource degradation and ensure the provision of safe and adequate water supplies.” With 421 river basins, 72 lakes, countless streams and creeks, not to mention extensive

GOVERNMENT INSTITUTIONS ON WATER Department

Line Agency

Fuction

National Economic and Development Authority (NEDA)

Coordinates the preaparation of national/ regional/sectoral development policies and investment programs

Department of Environment and Natural Resources (DENR)

National Water Resources Board (NWRB)

Administers/enforces the Water Code and serves as the lead coordinator for water resources managemnt programs

Forest Management Bureau (FMB)

Formulates/implements policies and programs for the protection, development, and management of forest lands and watershed areas

Environmental Management Bureau (EMB)

Sets and enforces water quality and effluent standards, criteria, and guidelines for all aspects of water quality management

Environmental Health Service (EHS)

Responsible for water supply and sanitation programs and strategies to forestall the spread of water-borne disease

Department of Health (DOH)

National Power Corporation (NPC)

Develops and manages electric generation facilities including but not limited to hydroelectric dams and undertakes other activities realated to watershed management

Metropolitan Waterworks and Sewerage Systems (MWSS)

Regulates water concessionaires' rates and service standards in Metro Manila and maintains existing assets and infrastructure

Local Water Utilities Administartion (LWUA)

Promotes/finances/regulates the construction and operation of local water utilities outside Metro Manila Source: Senate Economic Planning Office Policy Brief

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Are we running out of water?

groundwater reserves, the country’s water potential cannot be questioned. In fact, the report notes, the country’s water use is only 55% of available supply. However, because of the country’s archipelagic nature, water resources are unevenly distributed. Other issues hamper effective water resource management: lack of waste management and sewerage treatment facilities in most provinces and municipalities, which degrades the quality and availability of ground and surface

water; inadequate infrastructure for efficient distribution; massive degradation of watersheds and river basins needed to replenish and sustain ground and surface water; and deforestation, pollution, and climate change. Addressing water scarcity. According to the 2010 NWRB-NEDA Roadmap, trends point to declining overall access to water supply and sanitation facilities, as well as in the ability of local providers to expand their services. Hence, the plan

WATER RESOURCE POTENTIAL IN THE PHILIPPINES Region

Surface Water Potential (MCM)

Groundwater Potential (MCM)

Total

3,250

1,248

4,498

8,510

2,825

11,335

III

7,890

1,721

9,611

6,370

1,410

7,780

3,060

1,085

4,145

14,200

1,144

15,344

VII

2,060

879

2,939

VIII

9,350

2,557

11,907

12,100

1,082

13,182

29,000

2,116

31,116

11,300

2,375

13,675

XII

18,700

1,758

20,458

Total

125,790

20,200

145,990

86.16

13.84

100.00

% Share

* For purposes of planning, the country is divided into 12 water resource regions (WRRs) based on existing hydrological boundaries. The country's 17 administrative regions should not be confused with the WRRs, which respectively cover the followin areas: Ilocos Region; Cagayan Valley; Central Luzon; Southern tagalog; Bicol; Western Visayas; Central Visayas; Eastern Visayas; Southwestern Mindanao; Northern Mindanao; outheastern Mindanao; and Southern Mindanao. Source: Senate Economic Planning Office Policy Brief

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10 adopted ten principles that would help better manage water scarcity and minimize misuse and waste (see graphic). The plan also outlines specific measures to address major issues: institutional

fragmentation, weak and fragmented regulatory framework, inadequate support for rural water supplies, low tariff and cost recovery, poor performance of water utilities, low investment and financing, and lack of water supply and sanitation data.

WATER FOR ALL AND FOREVER

Ten Principles of Philippine Water Sector Roadmap addressing the threat to development and the environment posed by water scarcity and misuse 1. Water is a human right and the government has an obligation to respect, protect and fulfill the enjoyment of the right to water. 2. Water is a finite and vulnerable resource, essential to sustain life, development and the environment. It should be managed for the common good. 3. Access to water should be equitable and sensitive to gender issues and the needs of the disadvantaged. 4. The development of the water supply sector should contribute to the promotion of gender equality. 5. The governance of water resources should be transparent and socially accountable and its management should be decentralized at the lowest possible level. 6. Water supply services should be financially sustainable and socially acceptable. 7. Water supply services should be demand-responsive. This includes appropriateness and viability of technology and management options at various levels. 8. Water supply projects should have capacity development components at all levels inclusive of knowledge management that promotes a learning environment for all stakeholders. 9. Water supply provision should be a priority component in poverty reduction programs. This means giving priority to public allocation for water supply services. 10. Sanitation is directly linked to water supply.

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Are we running out of water?

The scarcity challenge makes proper resource management even more critical. Data from the Japan International Cooperation Agency (JICA) Master Plan on Water Resource Management in the Philippines cited in a 2007 report from environmental activist group Greenpeace reveals “only 1,907 cubic meters of fresh water would be available to each person each year, making the Philippines second to the lowest among Southeast Asian countries with fresh water availability.” The Greenpeace report also identifies key dimensions in water scarcity, such as: disparities between water supply and demand, lack of a water allocation formula in the face of limited supply, corporations competing with individuals for the use and control of available freshwater resources, weak water use regulation and enforcement, and inefficient water use, among others. The Global South paper also worries about supply. Citing a 1998 study by the Japan International Cooperation Agency (JICA)

on page 10, the authors warn that demand will nearly triple from 30 billion cubic meters in 1996 to 86.5 BCM by 2015. That’s just a dozen years from now. Home and farm demand would triple, while industrial consumption would be 2.4-4.48 times the 1995 level, depending on economic growth. The paper cautions further: “The projected national water balance (the total water potential minus projected water demand) by 2025 is overall positive, but Regions 2 (Cagayan Valley), 3 (Central Luzon), 4 (Southern Tagalog including NCR), and 7 (Western Visayas) are projected to have potential water shortages in a high-growth scenario” of 8% annual increase in gross domestic product. Meanwhile, the surface and ground water available per person was estimated at 1,900 cubic meters, far below averages of 7,000 cu. meters for the world and 3,700 for Asia. We must stop wasting water. With the limited water resources we have, it is doubly imperative to conserve and never waste the commodity. The Business Mirror

SUCKING THE EARTH DRY

Groundwater Availability in Major Cities, 1995 and 2025 Forecast Key Cities

Metro Manila Metro Cebu Davao Baguio Bacolod Cagayan de Oro Zamboanga

Groundwater Availability 191 60 84 15 103 34 54

Year 1995 1,068 59 50 12 37 29 28

2025 2,883 342 153 87 111 98 203

Surplus/ (Deficit) 1995 (82%) 2% 69% 21% 179% 18% 92%

2025 (93%) (82%) (45%) (83%) (7%) (65%) (73%)

Source: JICA Master Plan on Water Resources Management in the Philippines, 1998, cited in Penaranda, Isidra D. OIC Policy and Program Division, National Water Resources Board Water Resources Management in the Philippines, 2009 [Powerpoint presentation], and “Treading Troubled Waters,” by Dr. Buenaventura B. Dargantes, Mary Ann B. Manahan and Cheryl C. Batistel, 2011, pages 10-11

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Angara is the author of the Water Sector Reform Bill, which provides the “framework for the restructuring and reformation of the water industry” in order to introduce higher efficiency, enhanced private sector participation, consumer protection, and competitive pricing, among others. But really, before coming up with more plans and laws, the government should fully digest and accelerate implementation of the 2010 Roadmap, which already distilled the knowledge and interests of experts and stakeholders here and abroad. There is no time to waste on redoing three years of extensive consultation and intensive data gathering, deliberations and drafting of solutions. The country’s water plan is done, all 130 pages of it, with dozens of pages of detailed matrices for logical framework analyses and specific programs and policies addressing key issues, plus an entire Chapter 6 about

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The Institutional Fragmentation

Inadequate Support to Rural Water Supplies

Weak, fragmented institutional framework and policies on universal access to WATSAN services and cost recovery

Inadequate support to water utilities in technical design criteria, project financing, management, operation and maintainance

Uncoordinated sector planning and lack of monitoring

Limited sector capacity and mandate (e.g. LWUA, DILG-WSSPMO) to provide support services to WSPs

Outcome 1: STRENGTHENED INSTITUTIONS Harmonized and mainstreamed institutional and regulatory framework for a decentralized and enabling policy environment

Medium Term

Senator Edgardo Angara, chairman of the Senate Sub-committee on Water, adds in the news report, “A lot of this [drain] is also the rainwater that just flows back into the sea, instead of being preserved for irrigation, industrial purposes, or even everyday use.” He says the country lacks the proper catchments and other infrastructure, but the problem lies in “how disjointed water policy in the country is.”

results-based monitoring and evaluation on pages 117-123. Even President Aquino’s concern over agency overlap is covered: Chapter 5

Outcome 2: DEVELOPED CAPACITIES Developed capacities of key LGUs, WSPs and NGAs for the sustainable management of the water supply and wastewater management sector

Outcome 3: BUILT STRATEGIC ALLIANCES Broad community support in the development of the water supply and wastewater management sector is effectively mobilized

2025

reports more than 112 billion cubic meters, or 70% of the country’s total water flowthrough every year, are lost yearly due to, among other factors, leaks and illegal connections, citing a study by Vicente Tuddao, executive director of the Department of Environment and Natural Resources (DENR) River Basin Control Office.

ISSUES

Report

STRATEGY

T H E

Outcome 1 : STRENGTHENED INSTITUTIONS A coherent institutional and regulatory framework nurtured in a decentralized and enabling policy environment

Institutional Strengthening

Priority Program Proposals

cenSEI

IS. Establishing Sector Baseline for Planning and Policy Making IS. Strengthening Water Economic Regulator IS. Water Resources Assesment of Critical Areas

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IS. Integrate Framework a

SAB. Alliance Exeutive-Leg Public-Pri Multi-Stake

SAB. Developme Assessment Rep Report C

Are we running out of water?

on Implementation Arrangements outlines domestic institutional responsibilities as well as collaboration with foreign partners.

We can tweak the Roadmap as we go along, but like water, let’s not waste time and implement the plan pronto.

THE PLAN IS READY

Philippine Water Sector Roadmap: Vision and Major Program Components Low Tariff and Cost-Recovery Level Water utilities are not able to sustain operations and expand coverage

Water service providers do not perform satisfactorily

Tariff levels, tariff structures and tariff methodologies differ across individual service providers

Output 1.1: Jointly formulated policies and legislation clarifying agency mandates advocated and promulgated by concerned agencies and institutions

Output 2.1: LGUs are capacitated on local policy formulation, water services planning, monitoring and evaluation

Output 3.1: Organized and eprating broad community support focused on the development of the water supply and wastewater management sector

Sector Investment and Financing

Lack of WSS Sector Information

Lack of transparency as to sector performance and benchmarking information for individual providers make it difficult to hold service providers accountable for service improvement

Limited access to financing for service expansion of small utilities

Lack of reliable data and the absence of a systematic and regular monitoring of sector activities in the municipalities by the local government units

The lack of sector information at the service provider level impedes effective regulation

Low public and private sector investment in the water supply sector

General lack of sector information and continuous updating of existing information base

Weak and Fragmented Regulatory Framework

Low Performance of Water Utilities

Output 1.2: Strengthening sector coordination mechanism for effective management (planning, implementation, monitoring evaluation) and regulation

Output 2.3: Output 2.2: NGAs’ capacity needs to ESPs capacity needs on effective and efficient service improve support services to LGUs and WSPs identified, delivery identified, and and appropriate intervenappropriate interventions tions designed and delivered designed and delivered

Output 3.2: Identified and sectorinformed champions in the national and local legislative and executive bodies

Outcome 2 : DEVELOPED CAPACITIES Capable LGUs, WSPs and NGAs sustainably managing the Philippine water supply and wastewater sector

Outcome 4: ADEQUATE INFRASTRUCTURE PROVISION Infrastructure provided (from source development to water supply distribution) is sustanable developed in identified priority areas

Output 1.3: Established financing support mechanisms

Output 3.3: Established effective collaboration mechanisms

Output 2.4: Established NGA support services and mechanisms promoting management and technological innovations accessible by LGUs and WSPs

Output 3.4: Active participation of water and wastewater management sector stakeholders in collective localized action for IWRM

Outcome 3 : STRATEGIC ALLIANCES Institutionalized multi-stakeholder participation, legislative-executive interface and public-private partnership in water supply and wastewater management

Outcome 4.1: Installed water systems in priority areas (preferably Level 3 water systems or Level 2 water systems ungradable to Level3 Outcome 4.2: Bulk water supply from developed water sources delivered to priority areas Outcome 4.3: Sanitation facilities installed with constructed water supply systems

Outcome 4 : ADEQUATE INFRASTRUCTURE PROVISION

Infrastructure provided (from source development to water supply distribution) is adequately and sustanably supplying the required water demand of the population

Capacity Development Adequate Infrastructure Provision Strategic Alliance Building

ted Planning k and Process

IS. LGU Institutional Framework & Advocacy

e -Building egislative Private keholder

IS. Rationalization of sector investment and financing

ment of Social eporting (i.e. Card)

IS. Review of LWUA’s Financing Framework and Structure

CD. NGA Capacity Development CD. Extension of LWUA Support to all WSPs

CD. LGU Capacity Development for planning, monitoring and regulation CD. WSP Support Program for Capacity Development (e.g. technology innovators)

Comprehensive and Integrated Infrastructure Program (CIIP) for water

Government’s Priority Program for Waterless Areas

Source: The Philippine Water Sector Roadmap, pages 54-55. National Water Resources Board, National Economic and Development Authority, and German Technical Cooperation Agency (GTZ), 2010

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Is Your Lifestyle Killing You?

The rise in non-communicable diseases might be cause for some alarm By Victoria Fritz

STRATEGY POINTS Over 60% of deaths in the country are now caused by non-communicable diseases, in contrast to 30 years ago, when the primary causes of death was pneumonia The Filipino lifestyle has undergone tremendous changes, with the onset of globalization and the information highway, as shown in dramatic data from local health and nutrition authorities Relevant government agencies such as DOH and DOST are calling on the citizens to make a great effort to reverse this trend through more balanced meals and greater physical exertion

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ver 60% of deaths in the Philippines today are attributable to noncommunicable diseases, such as heart attack, stroke, cancer, diabetes, and chronic obstructive pulmonary diseases, collectively known as “lifestyle diseases.” As reported in The Philippine Star in February, the Philippine College of Physicians cited that statistic in urging doctors to “stand up and take action” on the rising cases of “lifestyle diseases in the country.” PCP president Dr. Norbert Uy also called for the redesign of health-care systems to deliver chronic care through primary health-care facilities and closer

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Is your lifestyle killing you?

involvement with government and different social sectors. The PCP intends to embark on various interventions to address the major risk factors coming from “tobacco use, unhealthy diet and physical inactivity.” Lifestyle diseases now major source of local morbidity and mortality. As the Nutritionist-Dieticians’ Association of the Philippines observed, with relative prosperity and a shift to a more Western way of life, non-communicable diseases (NCDs) have become more common. In fact, lifestyle diseases have taken over from infectious diseases as the major source of local morbidity (incidence of disease) and mortality (death).

The dieticians attributed the spread of lifestyle diseases to the following: unhealthy diet, physical inactivity, use of tobacco (modifiable behavior), raised blood pressure, raised blood glucose, abnormal blood lipids, overweight/obesity (intermediate risk factors), as well as age and heredity (non-modifiable factors). According to the Department of Health (DOH) “Leading Causes of Mortality” page, “diseases of the heart” led the top 10 causes of death in 2006 (the latest year for which data is available on the site), accounting for 95.5 deaths per 100,000 population (see table below). The page also charts the top 10 causes of death from 2006 going

THE ROAD TO NON-COMMUNICABLE DISEASES

Source: National Nutrition Survey 2008, Food and Nutrition Research Institute

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16 back to 1982, while comparing each year's compilation against the average of the previous five years. From 1977-1981, the average number of deaths from diseases of the heart was 62.4.

declining incidence of infectious diseases and the rise of non-communicable diseases.

Looking back over the years, 1990 was the first year that diseases of the heart, a non-communicable disease class, overtook pneumonia as the leading cause of death in the country, with 74.4 deaths per 100,000 people to pneumonia's 66.5 rate.

Per the chart right , in 1970, infectious diseases killed almost 300 in every 100,000 people. By the year 2000, infectious diseases claimed only about 75 people per 100,000, while diseases of the heart, vascular system, cancer and other lifestyle diseases had increased significantly.

The Department of Science and Technology’s (DOST) Food and Nutrition Research Institute derived information from DOH yearly statistics to come up with similar trends that clearly show the

Globally, non-communicable diseases are being recognized collectively as a major threat to public health. In September, the United Nations held a two-day high-level General Assembly

MORTALITY: TEN (10) LEADING CAUSES Number and rate/100,000 population Philippines 5-Year Average (2001-2005) & 2006 5-Year Average CAUSES (2001-2005)

1. Diseases of the Heart 2. Diseases of the Vascular System 3. Malignant Neoplasms 4. Accidents** 5. Pneumonia 6. Tuberculosis, all forms 7. Chronic lower respiratory diseases 8. Diabetes Mellitus 9.Certain conditions originating in the perinatal period 10. Nephritis, nephrotic syndrome and nephrosis

2006*

Number 69,741 52,106 39,634 33,650 33,764 27,017 19,024 15,123 13,931

Rate 85.5 64.0 48.6 41.4 41.5 33.2 23.3 18.5 17.2

Number 83,081 55,466 43,043 36,162 34,958 25,860 21,216 20,239 12,334

Rate 95.5 63.8 49.5 41.6 40.2 29.7 24.4 23.3 14.2

9,785

12.0

11,981

13.8

Note: Excludes ill-defined and unknown causes of mortality * reference year ** External causes of Mortality Source: “Leading Causes of Mortality,” Department of Health compilation of Philippine Health Statistics, 1960-2006, last updated Sept. 29, 2011

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MAJOR CAUSES OF MORTALITY IN THE PHILIPPINES, 1970-2000

Source: “Dietary Changes and Health Double Implications: An Emerging Double Burden of Under and Over Nutrition,” Food and Agriculture Organization (United Nations) and Food and Nutrition Research Institute (Philippines), 2005, page 37

meeting to launch an all-out campaign against non-communicable diseases – cardiovascular diseases, cancers, chronic respiratory diseases and diabetes, said to be responsible for 63% of deaths around the world. The meeting produced a declaration calling for a multi-pronged campaign by governments, industry and civil society to set up by 2013 the plans needed to curb the risk factors behind NCDs. According to a DOH press release on the growing global concern over noncommunicable diseases, the World Health Organization reported that NCDs cause an estimated 35 million deaths a year worldwide. More than half of this figure is due to four main NCDs: cardiovascular diseases, diabetes mellitus, chronic respiratory diseases, and cancers. Eighty percent of these deaths occur in lowto middle-income countries like the

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Philippines. In the country, seven out of 10 deaths are caused by NCDs. NCDs not confined to older generation anymore. The studies also show that people having NCDs are not confined to the older generation as they used to be, but include people in their 20s and 30s. DOH likewise attributes NCDs to tobacco use, excessive alcohol drinking, unhealthy diet and physical inactivity. Significant change in food intake. There has been a significant change in the food intake of Filipinos. In 2005, the Food and Agriculture Organization of the United Nations and the Food and Nutrition Research Institute of the DOST undertook the joint study mentioned above, “Dietary Changes and Health Double Implications: An Emerging Double Burden of Under and Over Nutrition” to determine if there is a

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18 link between the rise in NCDs and changing food patterns. With the growing incidence of NCDs in both developed and developing countries, and the associated rise in public health and social expenditures, FAO was assigned to study the links between changing food consumption patterns and the rise of non-communicable diseases, among other things. Its end goal was to provide government with policy advice on nutrition and healthy diet in order to prevent NCDs. This particular study focused on examining the changes in food consumption patterns among Filipinos, and the possible health implications of such changes. Urban growth and migration influence dietary patterns. Two important

demographic trends that have potentially strong influence on dietary patterns are urban growth and migration. In the 30-year period spanning 1970 to the turn of the century, there was rapid urbanization in the Philippines. In 1970, only 32% of the population lived in urban areas. By 1995, this figure had jumped to 54%, and subsequently 59% in 2001. The percentage of Filipinos living in urban areas is expected to increase to 68% in 2015. In general, the rural population has been moving out and moving to more urbanized regions like NCR (Metro Manila), Regions IV (CALABARZON), X (Northern Mindanao) and XI (Davao). Women are more likely to migrate to urban areas than men, and this has implications for food production and care-giving.

GROWTH IN FOOD IMPORTS, 1961-2003, BY TYPE OF COMMODITY

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Growing preference for processed and Western-style foods. Globalization has led to improved access to communication. Communication between migrants and their home communities has become faster through the Internet and phones. The resulting globalization of mass communication, including TV, film, and video, has reinforced preferences for processed foods and Western foods, even among rural dwellers in remote villages. Per the chart below left, over the years, we have seen more imported food items: cheese and tomato paste on our pizzas and pasta, chocolates and confections, butter, and other processed food. Imported food items are displacing fruits and vegetables. Under-nourished children and overweight adults. At the same time,

according to the study, the double burden of under-nourished children and overweight/ obese adults may be emerging from the change in lifestyle from rural to urban and in consumption patterns from fruits and vegetables to processed foods. The following chart shows the rate of under-nutrition (CED, Constant Energy Deficient, with Body Mass Index under 18.5) and being overweight/obese (Body Mass Index greater than 25). While still above the WHO cutoff of 3-5% rate for undernutrition, the Philippines has shown some improvement in reducing the number of people whose BMI is below 18.5. However, the rate of overweight/obesity has dramatically increased over the years. There has been a 20% increase every five years, starting in 1993, of people with a BMI > 25.

MALNUTRITION AND OVERWEIGHT/OBESITY AMONG FILIPINO ADULTS, 1993-2003

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In 2003, 24% of adults were overweight, with more females (27.2%) than males (20.9%) who are affected (Overweight: BMI 25 < 30; Obese: BMI > 30). Consumption of starchy roots, tubers down. The table below left shows that cereals such as rice and rice products have enjoyed uniformly high popularity over the years.

At the same time, there has been a significant increase in the intake of fats and sugars, including soft drinks. The intake of sugars and syrups – including consumption of soft drinks – increased from 19 grams a day in 1978 to 24 g/day in 2003. Consumption of fats and oils was almost 50% higher, from 13 g/day in 1978 to 18 g/day in 2003.

However, consumption of starchy roots and tubers (such as potatoes, cassava, and taro), which are a good source of dietary fiber, was halved from 1978 to 2003 (from 37 grams a day to 19 g).

Pork, beef, and processed meat product consumption up. Per the chart below middle, the consumption of meat and meat products (pork and beef), including processed meat, also

FOOD CONSUMPTION TRENDS, 1978-2003, CEREALS, STARCHES, SUGAR, AND FATS

FOOD CONSUMPTION, IN MEAT, POULTRY, AN

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Source: “Dietary Changes and Health Doub of Under and Over Nutrition,” Food and A Food and Nutrition Re

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increased significantly, from 23 grams a day in 1978 to 61 g/day in 2003, together with poultry (from 7 g/d in 1978 to 20 g/d in 2003). Fish consumption remained steady and high, averaging 105.8 from 1978 to 2003, and consumption of milk/milk products increased from 42 g/d in 1978 to 49 g/d in 2003. With regard to meat and meat products in 2003, there was more intake of pork and processed meats (e.g., hotdogs, meatloaf, sausages). The intake of processed meat products in 2003 represented nearly 30% of meat intake.

TRENDS, 1978-2003, D DAIRY PRODUCTS

On the other hand, the chart below right indicates that the daily intake of fruits and certain vegetables has declined considerably from 1978 levels. The intake of fruits hit a low of 54 grams in 2003, a decrease of 50 grams per day since 1978, with the significant drop starting after 1987. In the category of vegetables, the intake of green leafy and yellow vegetables dropped after 1982 but has stayed at about 30 grams a day since 1987. The consumption of other vegetables has dropped since its high of 111 grams per day in 1978, to 80 grams in 2003.

FOOD CONSUMPTION TRENDS, 1978-2003, FRUITS, VEGETABLES, AND BEANS/LEGUMES/PULSES

ble Implications: An Emerging Double Burden Agriculture Organization (United Nations) and esearch Institute (Philippines), 2005, page 15

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22 As shown in a previous chart (Malnutrition among Filipino adults), the number of overweight or obese adults has increased dramatically. But while that is startling, even more alarming is the increasing incidence of overweight or obese children, as seen in the chart below. There was slow but measurable achievement in reducing under-nutrition among preschool- and school-age children. In the first table, the yellow and red bars show the decrease in underweight and stunted children (for example, there were 10% less children aged 0-5 who were underweight). However, in terms of being overweight/ obese, there was a 250% increase among the 0-to-5-year-old children, and a 117%

increase among 6-to-10-year-old children. Among adults, the increase was 45% and 46%, for males and females respectively. As shown in a previous chart (Malnutrition among Filipino adults), the number of overweight or obese adults has increased dramatically. But while that is startling, even more alarming is the increasing incidence of overweight or obese children, as seen in the chart below. There was slow but measurable achievement in reducing under-nutrition among preschool- and school-age children. In the first table, the yellow and red bars show the decrease in underweight and stunted children (for example, there were 10% less children aged 0-5 who were underweight).

UNDERWEIGHT AND OVERWEIGHT/OBESE TRENDS, 1993-2003 FILIPINO CHILDREN AND ADULTS

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However, in terms of being overweight/ obese, there was a 250% increase among the 0-to-5-year-old children, and a 117% increase among 6-to-10-year-old children. Among adults, the increase was 45% and 46%, for males and females respectively. Overweight and obesity among Filipino adults. The following chart from the same FAO-FNRI study depicts the percentage of the population with a higher than normal waist-hip ratio and waist circumference, pointing to being overweight. Waist circumference (WC) reflects intra-abdominal fat mass, while waist-hip ratio (WHR) is an index of abdominal fat distribution. The data reflect a problem of over-nutrition that seems more acute among adult females

compared to males. Based on waist-hip ratio, android obesity affected more than half of all women (54.8%) over 20 years old in 2003, up from 39.5% five years earlier. These are much higher than the corresponding numbers of 12.1% and 7.9% for men. The male/female differentials remain, based on waist circumference, although the incidence of obesity was lower: increasing from 10.7% to 18.3% for women, and from only 2.7% to 3.1% for men. While the earlier-cited FAO-FNRI joint study covers Department of Health data up to 2003, FNRI released the results In December 2010, the FNRI released the results of its own national survey from May to December 2008 (with a follow-up survey in northernmost Batanes province

ADULT OBESITY BASED ON HIGH WAIST-HIP RATIO AND HIGH WAIST CIRCUMFERENCE

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24 in March-April 2009). It was the most comprehensive done so far, covering the country’s 17 regions and 80 provinces, sampling 6,634 households with a total of 191,316 individuals. According to this study, while the percentage of under-nourished individuals declined slightly from 1993 (13.9%) to 2008 (11.6%), the percentage of overweight and obese Filipino individuals continued to increase at a significant rate, from 16.6% in 1993 to 26.6% in 2008 (see chart below).

As before, however, the incidence of obesity based on waist-hip ratio was much higher among females, jumping from one in every two (54.8% in 2003) to two in every three (65.5% by 2008). In fact, the incidence of obesity among males even declined slightly over the same period, from 12.1% to 11.1%. Smoking drops slightly overall despite increases among women. Per the chart below, from 2003 to 2008, the incidence of smoking increased among

UNDER-NOURISHED AND OVERWEIGHT INDIVIDUALS, 1993-2008

Source: Philippine Nutrition Facts and Figures 2008, Food and Nutrition Research Institute, p. 72..

OBESITY BASED ON WAIST-HIP RATIO, 1998-2008

Source: Philippine Nutrition Facts and Figures 2008, Food and Nutrition Research Institute, p. 129.

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adult females (from 10.9% to 12.5%), while going down among adult males (from 35.2% to 31%). It is significant to note that 2003 was the year the Philippines first imposed a restriction on smoking. Known as the Tobacco Regulation Act of 2003, it banned smoking in specified public places, such as schools and youth centers, hospitals, kitchens, airports and public transport stations (except for designated smoking rooms), for the first time on a national level. Likewise, it started regulating

with the aim to subsequently ban all tobacco advertising. Alcohol consumption back down. Alcohol usage significantly dropped in 2008, after rising dramatically between 1998 and 2003, as shown below. No study was found to explain the decline in alcohol intake for that period. There is a partial restriction on advertising alcoholic beverages, but according to the World Health Organization overview of policies regarding substance abuse, the restriction is rarely enforced in the Philippines.

SMOKING AMONG FILIPINO ADULTS, 1998-2008

ALCOHOL INTAKE AMONG FILIPINO ADULTS OVER 20, 1998-2003

Source: Philippine Nutrition Facts and Figures 2008, Food and Nutrition Research Institute, p. 132 and p. 134

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26 Physical inactivity enters the picture. The latest FNRI study also introduced a new item on the survey – physical inactivity. Across the spectrum of endeavors – work, travel, leisure – the FNRI survey found a high rate of physical inactivity. About 93% of Filipinos failed to participate in regular leisure-time physical activity. Likewise, low physical activity at work and non-work environment was found in 76.3% and 75.4% of Filipinos, respectively. The findings of the different studies above show that as NCDs increased, food intake leaned toward meat, processed food (meat and sugar), and fats. However, in the latest studies, alcohol intake and smoking actually decreased, even as NCDs continued to increase. At the same time, a high incidence of physical inactivity was recorded. Although most people are aware of the increase in lifestyle diseases among

their relatives and friends, its ties to our changing lifestyle was mere speculation. For the first time in numerical terms, the findings above clearly show that while NCDs have taken over infectious diseases in mortality rates, the Filipino diet and lifestyle went through tremendous changes concurrently. As heart diseases took over as the number-one killer since 1990, the intake of fruits, certain vegetables and starchy roots decreased significantly in the 1980s. Meantime, physical inactivity is currently at a very high level. While smoking and alcohol intake appear to have decreased somewhat, they remain at high levels that the DOH wants very much to reduce (see right). Actions and recommendations. The DOH now has the National Program on Prevention and Control of Lifestyle-Related Diseases. It aims to reduce the number of

LEVEL OF PHYSICAL ACTIVITY IN AND OUTSIDE OF WORK , 2008

Source: Philippine Nutrition Facts and Figures 2008, Food and Nutrition Research Institute, p. 134

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deaths due to NCDs through an integrated and comprehensive program that brings together the National Center for Disease Prevention and Control and the National Center for Health Promotion within the DOH, along with the National Nutrition Council as well as LGUs, among others. It lays out key performance indicators from 2011 to 2016:

1. Reduction in prevalence of current smoking among adult males from 56.3 to 40.0 2. Reduction in prevalence of current smoking among adolescent female from 8.80 to 7.2 3. Reduction in prevalence of adults with high physical inactivity from 60.5 to 50.8 4. Increase in per capita total vegetables from 111.0 g/day to 133.0 g/day

DAILY NUTRITIONAL GUIDE PYRAMID FOR FILIPINO ADULTS (20-39 YEARS)

Source: Food and Nutrition Research Institute

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The intermediate goals include: 1. Reduction in prevalence of hypertension among adult males from 24.2 to 19.6 2. Reduction in prevalence of adults with high fasting blood sugar from 3.4 3. Reduction in the prevalence of central obesity (high waist circumference) among adult females from 18.3 to 12.81 4. Reduction in prevalence of high total serum cholesterol among adults from 8.5 The listed steps touch on reducing smoking, increasing physical activity and vegetable intake. Though it mentioned the use of alcohol as one cause of NCDs, it did not specifically make the reduction of alcohol use a key performance indicator. The food pyramid on p.27 has been promoted time and again as a guide to planning daily balanced meals. It might be good to refer to it now and then.

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From its past studies, the FNRI recommends the following: 1. Promote positive changes in dietary patterns (eg. increasing milk intake, consumption of fortified foods) 2. Reverse the negative changes in dietary patterns (eg. declining fruit intake, tubers and other traditional staples, increasing consumption of sugars) 3. Promote physical activity The Institute calls for intensive advocacy in nutritional intervention in the country to counteract lifestyle-related diseases, and improve the quality of life. All this might seems intuitive to us, even bordering on the obvious, as individuals, but the collective evidence would seem to indicate that we haven't actually done enough to help ourselves.

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NEWS ON THE NET Pacquiao transfers allegiance to PDPLaban Sarangani Representative Manny Pacquiao has officially transferred to Vice President Jejomar Binay's party Partido ng Demokratikong Pilipino-Laban (PDP-Laban) leaving President Benigno S. Aquino III's Liberal Party. He will be the party's vice president in Mindanao, and is expected to be fielded as the party's candidate for governor in the 2013 elections. Incidentally, a recent Pulse Asia survey revealed that Vice President Binay is the top endorser of aspiring senatorial candidates for the 2013 elections. The boxing champion said that his move was a political decision and has nothing to do with his case with the Bureau of Internal Revenue as he believes in his new party's ideology and platforms. Before joining the Liberal Party in 2010, Pacquiao was first a member of Senator Manuel Villar’s Nationalista Party.

Pulse Asia: Pinoys more concerned about inflation than Corona trial The recent Pulse Asia survey showed that Filipinos are more concerned about coping with high cost of living than with the prosecution of officials connected with the past administrations. According to the survey, inflation and low wages for workers are the leading national concerns among Filipinos that should be immediately addressed by the present administration. The impeachment of Chief Justice

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Renato Corona and running after government officials accused of graft and corruption are the least of all concerns, the survey further revealed. Also, the survey showed that the Filipinos’ appreciation for the Aquino administration’s efforts in controlling inflation went down to 28 points from 32 points in November last year; whereas, the people expressed an improved approval of 60 points for the government’s efforts in fighting graft and corruption. The survey conducted from February 26 to March 9 this year yielded these results for the National Administration’s Performance Ratings on Selected Issues and Filipinos’ Urgent National Concerns.

Plastics industry laments inaction on ecology center The Philippine Plastics Industry Association Inc. (PPIA) lamented that the National Ecology Center, mandated to be established under the Ecological Solid Waste Management Act of 2000 (Republic Act No. 9003), has yet to be organized. Under the law, the said agency is supposed to guide the government on steps needed to enforce waste segregation, recovery and recycling. PPIA's grievance is in relation to the continuing plastic ban implemented by some local government units. PPIA president Peter Quintana said in a press statement that this plastic ban has no scientific backing, and is merely based on the misimpression that plastic

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bags cause floods. PPIA further noted that the importation of polyethylene used in making plastic bags decreased by 5% last year because of the ban on plastic bags in the country. This amount translated to about ₧300 million less in taxes on imports.

PCGG presses forfeiture case vs Lucio Tan

In its memorandum filed before the Sandiganbayan Fifth Division, the Presidential Commission on Good Government (PCGG) prayed for an order against taipan Lucio Tan for the latter to reconvey to the State or pay the corresponding value of his assets. The PCGG, through the Office of the Solicitor General, averred that it has presented enough evidence to prove that Tan's assets form part of the ill-gotten wealth of the late President Ferdinand Marcos. Tan earlier denied the government's allegations, saying that there was no proof that the assets were owned by the State. Tan then filed his memorandum seeking the dismissal of the forfeiture case against him with a ₧300-million counter-claim for damages. Filed in 1987 and docketed as Sandiganbayan Civil Case No. 0005, the State sought recourse for the reconveyance of Tan's assets believed to be part of the Marcos ill-gotten wealth. The complaint against Marcos, Tan and 24 other individuals alleged that defendants engaged in a systematic plan to accumulate wealth through Tan’s corporations and use Marcos’ support to cover up their illegal transactions.

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From Shoe Store to Conglomerate: Now, They’ve Got It All By Mary Grace V. Pulido

STRATEGY POINTS From one downtown shoe store in 1958, Shoe Mart has metamorphosed into the SM Group, a corporate giant that dominates food and grocery retailing, banking, and before long, real estate The SM Group's success can be attributed to a combination of foresight, aggressive business strategy, and conservative family values

hen one says “SM,” what comes to the minds of many Filipinos, are giant malls all over the country, landmarks in their own right because local places become easier to locate or identify in relation to their proximity to the local “SM.” To think, it all started with Shoe Mart, a shoe store in Manila that opened in October 1958. The shoe store became a department store in 1972 – Shoe Mart became just “SM” – and SM department stores opened in different areas around the metropolis. In 1985, an SM department store became the anchor of an SM mall in Quezon City, and there are now 16 SM malls all over Metro Manila, 26 around the country, and even five SM malls in China. That first mall in 1985 sparked the growth of a conglomerate that now includes: SM Retail (department stores and groceries), SM Prime Holdings (shopping mall development), banks (Banco de Oro and China Bank), and, of late, SM Land (real estate development), along with SM Hotels and Convention (hotels and conventions). The companies that comprise the conglomerate, known unofficially as the SM Group, come under the umbrella of SM

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The SM group: From a shoe store to the conglomerate that has it all

THE SM GROUP AT A GLANCE SM Investments Corporation

Shopping Mall Development

Retail 100%

SM Retail, Inc.

41%

51%

SM Prime Holdings, Inc.

BDO

China Bank 44%

SM Department

100%

SM Supermarkets

67%

85%

Hotels and Convention

Real Estate Development and Tourism

Banking

DEVELOPMENT

100%

SM Hotels and Convention

SM Land, Inc. 67%

Commercial Properties Group

94%

Costa del Hamilo

31%

Highlands Prime

100%

SM Hypermarkets Makro

100%

Listed on the Philipine Stock Exchange

Note: All percentages represent effective ownership by SM Investments Corporation 1. Includes SM Mart 2. Effective interest of SM Group in SMDC is 65% Source: SM Development Corp. Company Presentation, April 2011, slide 8

Investments Corporation (SMIC), one of the largest holding companies listed on the Philippine Stock Exchange. The following chart shows how the companies fit in the conglomerate's scheme of things.

In its disclosure in compliance with Securities Regulation Code Rules, SMIC reported a 15% growth in net income for 2011 of ₧21.2 billion from ₧18.4 billion in 2010, as shown in the table below.

SM INVESTMENTS CORPORATION, YEAR-END 2011 AND 2010 Calendar Year Ended December 31, 2011 and 2010 (amounts in billion pesos) Accounts 12/31/2011 12/31/2010 % Charge Revenue ₧200.3 ₧177.2 13% Cost and Expenses 162.9 145 12.30% Income from Operations Other Income (Charges) Provision for Income Tax Minority Interest Net Income Attributable to Equity Holders of the Parent

₧37.4 -1.7 5.5 9 ₧21.2

₧32.2 -1.9 5.4 6.4 ₧18.4

16.20% -10.90% 1.70% 39.40% 15.10%

Source: SEC FORM 20-IS, INFORMATION STATEMENT, p. 21

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The chart below indicate that the major contributors to the conglomerate's net income in the past two years have been its banking and shopping-mall development operations.

of the biggest growth were SM Development Corp., who posted a 38.41% growth in net income in 2011, Banco de Oro, who posted a 20.45% increase, and SM Prime, whose net income grew by 15.19% (see table below).

Looking at the group's net income in terms of changes from 2010 to 2011, the sources

Shopping mall development. SM Prime Holdings, Inc. handles the development

SM GROUP NET INCOME DISTRIBUTION FOR 2010 AND 2011 Income 2010

Income 2011

₧12,000,000,000 ₧10,000,000,000 ₧8,000,000,000 ₧6,000,000,000 ₧4,000,000,000

ta il B Ho . S ld M P in gs rim C. In e BI c. an co de O ro D. Ch in a Ba nk E E. . SM 1. S La Co M nd rp De . ( ve SM lo E. DC pme 2. Hi )In nt gh c. Ia nd s Pr F. im SM e* Co Ho nv tel en s a tio nd n* *

₧2,000,000,000

*₧8.2 million for 2010, no data for 2011 ** no data

SM GROUP NET INCOME DISTRIBUTION FOR 2011 AND 2010 (in billions of pesos) Subsidiary A. SM Retail B. SM Prime C. Banco De Oro D. China Bank E. SM Land E1. SMDC E2. Highlands Prime, Inc. F. SM Hotels and Convention - - not available; NA - not apllicable

2011 5.800 9.100 10.600 5.009 NA 4.180 ---

2010 5.600 7.900 8.800 5.004 NA 3.020 8.200 --

Pct. Change 3.57% 15.19% 20.45% 0.10% NA 38.41% NA NA

Source: TCR compilation of figures from various publicly available sources, including SMIC'S SEC Form 17-C Press Release, Highlands Prime Annual Report 2010, Banco de Oro's SEC Form 17-C Press Release, and China Bank March 07, 2012 statement on company's website

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of SM shopping malls for the SM Group, and is the largest mall operator in the country. SM Prime's revenues come from mall and food-court rentals, along with cinema ticket sales and amusement income from the malls' bowling and ice-skating operations. The opening of SM Olongapo this year

increased SM Prime’s total gross floor area to 5.0 million square meters. In its yearend report, SM Prime's consolidated net income rose from ₧7.9 billion in 2010 to ₧9.1 billion by the end of 2011, with its total revenues increasing to ₧26.9 billion or by 13% from 2010.

It’s a family affair “We got it all for you.” This is the famous line in a department store chain’s theme song played from the store’s opening up to its closing. The conglomerate of businessman Henry Sy has become a big part of the Filipino economy and society. Henry Sy might have the vision and foresight, but he does not do things alone. He has his entire family running his continuously growing business empire, making it possible for him to focus on the horizon. According to Wilson Lee Flores' Philippine Star column of May 2007 on the secrets of Henry Sy’s success, his not-so-secret “secret weapons” in building up and running the SM Group are his wife Felicidad Tan-Sy and his workaholic children Tessie, Betty, Henry Jr., Hans, Herbert, and Harley. Eldest child Teresita Sy-Coson is currently the vice chairman of SM Investments Corporation and is also the chairman of Banco de Oro Unibank. In fact, it was her idea to buy Equitable Bank in 2004, a decision she says is the most challenging in her life. Her efforts paid off after an agreement was negotiated between BDO and Equitable in 2007 forming Banco de Oro Unibank. In response to common impression that she is the mall magnate's heir apparent to this vast empire, Teresita says, “I was not meant to lead the group. Even now I am not leading—I just maintain the core.” Crediting the success of the entire SM Group to her father’s efforts, she recalls, “My father always told us to observe a lot. Whether we are here or abroad, we use our eyes. We dissect it and look at what the opportunities are.” Henry Jr., the first son, founded SM Development Corporation (SMDC) in 2004 and is currently its chief executive officer, building high-rise condominiums all over Metro Manila. Also known as "Big Boy" in business circles, Henry Jr. proudly says, “Our father has always inculcated in us the value of hard work. He also taught us to be fair and to always be good to people.” His vision as president of SMDC is “To fulfill a dream that will allow all Filipinos to own homes.” The other children have their respective roles in the business empire. Another son, Hans, is president of SM Prime and chairman of China Banking Corporation. Second daughter Elizabeth is president of SM Hotels and Conventions Corporation, in charge of the SM Group’s operations in the tourism and hospitality industries. Herbert is the Group’s leader in its supermarket operations. The youngest son, Harley, is the current president and chief executive officer of SM Investments Corporation.

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34 Factors that led to this growth include the expanded capacity of malls that opened in 2010 and 2011. Another factor included rentals for full year 2011 wherein SM Prime’s consolidated rental revenues contributed 85% to the total, and grew by 14% to ₧22.8 billion. Per SM Prime's SEC Form 20-IS Information Statement, in terms of gross revenues, the four existing malls in China -- Chengdu, Jinjiang, Suzhou, and Xiamen -- contributed ₧2.0 billion in 2011 and ₧1.41 billion in 2010. This constituted 8% and 6% of total consolidated revenues, respectively. In terms of rental revenues, the malls contributed 9% and 7% to SM Prime’s consolidated rental revenues in 2011 and 2010, respectively. Gross revenues of the four malls in China increased 45% in 2011 from their levels in 2010 largely due to improvements in the average occupancy rate and the opening of SM Suzhou and the expansion of SM Xiamen, which collectively added 182,000 square meters of gross floor area. Average occupancy rate for the four malls is now at 95%. The malling mentality. A March 2005 PIDS study on “Competition in the Wholesale and Retail Sector” credits the SM group with “planting a malling mentality among Filipinos,” referring to the “one-stop shopping concept” that combined the functions of a department store and a supermarket, and turned shopping centers into destination centers complete with dining and entertainment options. When shopping for basic necessities for personal use or for that of the entire family,

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housewives can go to the nearest SM mall, and head for an SM Department Store, which it claims to be the country's leading “one-stop lifestyle and fashion chain.” Teresita Sy, a former president of the SM Department Stores unit, revealed in a Feb. 2012 interview in Forbes magazine that “We became partly a discount store but in the department store format. We became mass market because we had to survive.” (Without actually departing from the mass market, SM Group partnered with Singaporean company Keppel Land, Inc. to form an up-market store within the Ortigas Center called The Podium. It is quite different from the other SM retail units in that it caters to higher-income bracket shoppers, providing upscale retail shopping just right beside SM Megamall.) From the mall's SM department store, families can head to the SM supermarket for their grocery needs. SM Supermarket, for its part, is the largest supermarket chain in the country, offering a variety of produce and food products directly obtained from local and foreign growers and processors. Henry Sy opened his first Supermarket at the Ayala Center in Makati in 1985, and now has 28 such supermarkets nationwide. Related to the SM Supermarket chain is its tinier version aptly called the Savemore Market. First introduced in 1998, it is described as a “neighborhood grocery store” because of its smaller, more compact building structure (located outside the SM malls), designed to make it easier for shoppers to buy fresh food products. Its most noticeable feature is the wet market section, where shoppers can purchase fresh meat, fish and poultry, all in one clean, air-conditioned store.

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The SM group: From a shoe store to the conglomerate that has it all

Not contented with just having the Supermarket and Savemore outlets, the SM group decided to create a bigger and wider chain of stores. The SM Hypermarket was born out of this idea of a store with

combined features of the first two food retail formats. SM Group’s principal aim in creating the Hypermarket is “to provide consumers with a one-stop-shop where most shopping needs will be satisfied all

The culture of family-run or family-owned businesses The family is known as the smallest and the basic unit of society. But in entrepreneurial undertakings, it has become the breeding ground for business managers in family-owned businesses. In 1998, Murray Weidenbaum of Booz&Co. took note of economic change led by overseas Chinese business families in Southeast Asia, each of whom led what he called a “bamboo network.” “The successful ethnic Chinese business family controls dozens and dozens -- sometimes hundreds -- of interlocking, medium-sized businesses in four, five or more countries,” he elaborated. These businessmentraders of Chinese-background commonly began with very little capital, starting from scratch and then eventually earning and investing big to finally form huge enterprises. Weidenbaum added, “The Confucian ethic is alive and well in the bamboo network.” The Credit Suisse study “Asian Family Businesses Report 2011: Key Trends, Economic Contribution and Performance” recognizes that “family businesses have been a crucial source of private-wealth creation in Asia and are an important pillar of the region's economies.” Among the findings from its survey of 3,568 publicly listed Asian family businesses: • From 2000 to 2010, total market capitalization of Asian family businesses has increased roughly six-fold, growing at a compounded annual rate of 21.3% • With 38% of the companies in the survey going public after 2000, Asian family businesses can be said to be in the first-generation stage of their life (as compared with many family businesses in Europe and the U.S. who are in their fourth or fifth generation) • Asian family businesses comprise half of the total number of listed companies, 32% of total market capitalization, and 57% of hirings by listed companies in South Asia (32% of hirings by listed companies in North Asia) According to a study by Jeffrey S. Royer of the University of Nebraska-Lincoln (The Comparative Advantages of Family-Owned Businesses), one of the advantages in the combined ownership and control of family-run/owned businesses is that, “the owners of family corporations may identify strongly with the firms and consider their performance as very important.” He adds, “These owners are apt to act as stewards of the firms, especially if they have family members to whom they want to pass their businesses when they retire or die.” Royer also points out in the same study the possible disadvantages of a family-owned business. He wrote, “In addition, when ownership and control are combined, the owners can sometimes act to benefit themselves at the expense of the firm. They may divert resources from investments that would increase future cash flows in order to enjoy greater current profits or non-pecuniary perquisites.”

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in one go.” The newest addition to SM Group’s food retail chain is Makro, which sells goods in bulk to member-shoppers. For the year 2011, SM Retail reported a net income of ₧5.8 billion, with total sales growing by 9% to ₧148.2 billion. SM Retail opened 34 new stores in 2011, for a total number of 169 stores by the end of the year composed of 41 department stores, 33 supermarkets, 65 SaveMore branches, and 30 hypermarkets. In 2012, more stores will be opened in provinces

with Savemore expanding by 30 to 40 stores all over the country. Store expansion in 2012 will continue to focus on the provinces for the anchor stores located in the malls, while Savemore will see its number of stores growing by 30 to 40 stores nationwide. Real estate development. The SM Group’s realty business is divided into two, with the residential sector addressed by SM Development Corporation, while the commercial sector is handled by SM Land.

Back to China Not only did Henry Sy conquer the Philippine retail market. He ventured out to his native land and put up several SM malls in mainland China. These include shopping centers in Xiamen (the first one, which was put up in 2001), Jinjiang, Chengdu, Suzhou, Chongqing, Zibo ,Tianjing and Xinxiang cities. This growth reflects SM Group’s goal to build “new centers of urban life.”

Moving in from the east coast, SM Prime is putting up four new malls, in Chongqing, Tianjin, Xinxiang, and Zibo Source: SM Prime SEC Form 20-IS Information Statement

Sy’s daughter Teresita said that the plan to expand to China was basically for the reason that doing so may help open opportunities for the family’s other businesses. She adds that, “the malls will lead the way for the group’s expansion to China.”

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The SM group: From a shoe store to the conglomerate that has it all

SMDC KEY MILESTONES AND ACHIEVEMENTS Lists on the Philippine Stock Exchange ("PSE") in March 1975 Incorporated in July 1974 initially as Ayala Fund Inc.

SMDC launches maiden development project, Chateau Elysee, a low-rise complex under the SM Residences brand, with 2,836 unites and a total GFA of 116,571 sqm upon completion

SM Group of Companies acquires majority ownership of Ayala Fund Inc. (renamed as SM Fund)

SMDC launches new brand, M Place, to target upwardly mobile young professionals

SMDC delivers SMDC launches first hih-rise condo SMDC delivers units first batch of units project, Mezza Residences, a for Towers 1 and 2 in of Chateau Elysee 4-tower complex steps away from Mezza Residences to buyers Sta. Mesa shopping mall

Chateau Elysee

Lindenwood

Grass

Sea

Achieves > 10,000 pre-sold units within he year; More than doubles reservation sales for two consecutive years

Sun

Blue

Field Berkeley

Mezza

Jazz Princeton Light Wind

M Place South Triangle

Lorem ipsum dolor sit amet --- source/ table from

Listings at the Philippine Stock exchange reveal that SM Development Corporation (SMDC) was originally incorporated on July 12, 1974 as Ayala Fund, Inc., a closedend investment company. The SM Group was able to acquire majority ownership of the company in 1986, renaming it the SM Fund. In 1996, the SM Fund decided to pursue opportunities in real estate, and renamed itself SM Development Corporation (SMDC), SMDC targets middle-class professionals, providing affordable but quality housing facilities. It is further subdivided into SM Residences, which offers condominiums to the middle-income market and the M Place, which focuses on providing housing needs to young professionals.

The

These SM condominium buildings are noticeably strategically located near train stations and public transportation bays, or even just beside the SM shopping malls themselves, all of which can be selling points for prospective condominium unit buyers or lessees. In February, Business Mirror reported that, according to property consultant Colliers International Philippines, SM ranked first in condominium sales during the second semester of 2011, taking up about 24% of the almost 25,000 units sold in Metro Manila. SM Development Corporation (SMDC) posted a consolidated net income of ₧4.18 billion in 2011, a 38% increase from ₧3.02

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38 billion in 2010. Real estate operations posted consolidated revenues amounting to ₧16.92 billion. In a press release, SMDC announced that for the rest of 2012, five more new residential condominium projects will be launched in Metro Manila adding to the current 15 residential projects of SM Residences and two M Place projects. Another branch of SM Group’s realty development business is the SM Land Commercial Properties Group or simply SM Land, which is mainly into property management, building, and leasing of commercial and office spaces. It is focused on creating workplaces also situated in prime locations accessible to transportation hubs, making it friendly to employees of client industries or companies. Commercial properties developed by SM Land include the famous Mall of Asia Complex, SM Cyberbuildings and E-Com Centers. The last two properties provide for office and business spaces for business process outsourcing industries (BPOs). Senior Vice President and head of the Commercial Properties Group at SM Land David Rafael says that the idea behind these commercial structures of SM Land is to give the BPO industry and other companies office space that they can boast about, space that will be conducive for their businesses. Aside from providing residential and commercial structures, SM Group has its own leisure facility. Hamilo Coast, is SM Land's premier, sustainable leisure destination in Nasugbu, Batangas, developed by Costa del Hamilo, Inc. The Hamilo Coast’s pride is the Pico de

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Loro Cove with residential condominium buildings and beach clubs in its vast land area. For its part, SM Land's Highlands Prime, Inc., (formerly Highlands Prime Leisure Properties, Inc.) has several house and condominium projects inside the Tagaytay Highlands mountain resort and residential complex. Banco de Oro and China Bank. The SM Group owns Banco de Oro and China Bank, the country's largest and 10th largest bank, respectively, in terms of assets as of the end of 2011 (see table right). Banco de Oro or BDO Unibank Inc. (BDO), originally known as Acme Savings Bank, was founded in 1968 and was later acquired by the SM Group in 1976 and renamed Banco de Oro. In 1996, Banco de Oro became a universal bank, offering various products and services in lending, deposit-taking, foreign exchange, brokering, trust and investments, credit cards, corporate cash management, remittance, bancassurance, insurance brokerage, and stock brokerage services. Banco de Oro grew bigger and bigger as it engaged in acquisitions of other banks and financial institutions. It merged with Dao Heng Bank Philippines in 2001 then subsequently acquired 1st e-Bank, Banco Santander Philippines, Universal Overseas Bank, GE Money Bank, and American Express Savings Bank Philippines. It also merged with Equitable PCI Bank in 2007. These series of mergers and acquisitions boosted the growth of BDO Unibank

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making it number one in terms of assets, deposits, trust accounts and loans. It was Teresita Sy-Coson’s idea to adapt a mass-

market strategy through longer banking hours, opening of several branches on weekends, and putting up more branches in malls.

TOP TEN 10 BANKS, 4Q 2011

BY ASSETS, DEPOSITS, LOANS AND RECEIVABLES Name of Bank

2011/4Q Assets in ₧ Billions

BDO METROBANK BPI LAND BANK RCBC DBP PNB UNION BANK CITIBANK CHINA BANK

1,102 959 836 640 350 341 317 269 267 263

Rank Name of Bank

1 2 3 4 5 6 7 8 9 10

BDO BPI METROBANK LANDBANK RCBC PNB CHINA BANK UNION BANK UCPB DBP

2011/4Q Name of Bank Deposits in ₧ Billions 857 682 682 507 257 237 216 207 165 159

Loans and Receivables (net) in ₧ Billions 653 486 457 301 178 142 141 140 134 115

BDO BPI METROBANK LANDBANK RCBC CHINA BANK CITIBANK PNB DBP NION BANK

HISTORY OF BDO’S GROWTH

Acquired GE Money Bank Acquired UOB Philippines’ branch banking business Acquired 1st e-Bank business incl. 60 branches Acquired by SM Group Est. as Acne Savings Bank

₧149 BN

Merge with Dao Heng Bank Philippines

KB license

₧234 BN

₧36 BN

₧121 BN Acquired Banco ₧77 BN Santander Philippines U/KB license

Assets ₧13 BN 1968 1976 1994

₧617 BN

1996

2001

2002

2003

2005

2007

₧1.0 TN

₧862 BN Merge with Equitable PCI Bank Acquired Amex Savings Bank Philippines

2009

2010

Commercial Bank Expansion

Source: TCR compilation from “Philippine Commercial Banking System Highlights as of 4Q11,” Banco de Oro presentation

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40 China Banking Corporation is the first by 2014. The bank posted an audited privately owned local commercial bank consolidated net income of ₧5.009 billion in the Philippines, with Don Albino Sycip for full year 2011. as its first chairman and Dee C. Chuan as its first president. It was incorporated on July 20, 1920 and opened for business in August of Missing the trees for the forest? the same year. Henry Sy A controversy involving the mall giant filled the local and revealed in a June 2006 national news scenes just recently. Subscribers of social interview with Wilson Lee networking sites were actually among the first to spread Flores that it was in 1949 the news that SM was cutting down 182 trees as part of when China Bank extended the expansion of its SM City mall in Baguio. him a million-peso credit line, his first. In early April, protesters in Baguio City went to the Baguio In 2005, Henry Sy gained control of China Bank and is currently the Board of Directors’ Honorary Chairman. Nonetheless, he left the management of the bank to the descendants of its original founders. In the afore-mentioned interview, he explained, “We are not that greedy, it’s not good. I don’t believe in wanting both power and financial gain. Even those executives who have been with China Bank for many years, they are still there. If a venerable institution like China Bank is doing so well, why make changes?” The broadsheet Malaya reported that China Bank opened seven new branches in January this year. SM Investments Corporation also reported that China Bank’s goal is to grow its network to 400 branches

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Regional Trial Court to seek an urgent remedy against the mall giant, which was immediately granted by Judge Cleto Villacorta, who issued a Temporary Environmental Protection Order on April 10. The Department of Environment and Natural Resources through Secretary Ramon Paje immediately ordered the DENR-Cordillera Administrative Region to serve a directive enjoining SM management to comply with the court order.

Protesters claim that SM management secretly earthballed trees at night, which they viewed as an act of deception. The nighttime earth-balling got the attention of lawmakers, particularly Senate Committee on Environment and Natural Resources chairman Senator Francis Escudero, who expressed his own concern over the activity. However, in its own press statement, SM said that the activity was monitored by UP Los Banos professor on Forestry Dr. Jose Sargento, who confirmed that no tree was cut and that the earth balling of the trees at nighttime is normally allowed because the cool temperature maintains moisture and gives the trees better chances of survival. SM also presented information that it intends to replant the affected trees within the Baguio property. SM intended to reball 182 trees inside the mall's property as part of its mall redevelopment plan, which includes transferring the trees to another location. SM said that this project is in partnership with the US Green Building Council (USGBC), with the intention of achieving the

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Hotels and conventions. The SM Hotels and Conventions Corp. was incorporated in March 2008 and is engaged in developing

and managing the various hotel and convention properties of the SM group. Its projects include Taal Vista, SMX

status of being the first Leadership in Energy and Environmental Design (LEED), the internationally recognized standard for green building design and construction developed by the USGBC. Business Mirror reported that this plan was endorsed by the local government, and was accordingly allowed by the Department of Environment and Natural Resources, which issued the corresponding earthballing permits. It was revealed by DENR-CAR Director Clarence Baguilat that the DENR has previously issued eight earth-balling permits in the city for 673 trees for the period of 2002 to 2011 to give way to development projects, with 503 trees earth balled in 2008. Earth-balling, according to an article of Luntian Corner, is simply transplanting trees. The article describes the operation wherein the tree is dug out of the ground, the soil kept intact and wrapped to prevent breakage. The branches are cut off to balance with the cut roots and facilitate transport. The tree is then transplanted immediately or allowed some time to recover from shock. In 2009, the DENR developed guidelines and criteria for successful earth-balling, transporting and transplanting of trees. The 2009 Annual Report of the Ecosystems Research and Development Bureau reported that the goal of the guidelines is to save trees affected by commercial expansion, roadways construction, and other urban or industrial developments as well as to correct the improper earthballing procedures that were usually practiced. In the year after, ERDS-CAR also developed guidelines and criteria for successful earthballing, transporting, and transplanting of Benguet pine trees.

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With all questions and objections surrounding SM’s earth-balling activities, including the diocese of Baguio's suspension of the holding of masses in the mall, SM executives made known the reasons for the mall’s redevelopment of SM City Baguio. The statement released by the SM Investor Relations department said that, “the mall expansion is a spin off from the top soil erosion concern of the mall for many years now that might eventually affect the structural integrity of the existing building.” The company further said that ripraps and compactions were first built but the structural problem still exists. The same statement explained that, “in order to permanently solve this, a retaining wall structure needs to be constructed to protect the building. This will entail excavation that will affect the trees in the area. SM IS taking all measures to relocate them.” In its statement after a multi-sectoral meeting with Baguio City officials, representatives of DENR and the Department of Interior and Local Government, SM executives, and representatives of the complainants, SM reiterated that it has complied with the conditions in the permit issued to them. SM Prime Holdings, Inc. president Hans Sy also said that the company contributed to the local government’s tax collections for the year 2011. Manila Standard Today reported that SM Prime Holdings, Inc. was recognized as the city’s top taxpayer, it having remitted ₧4.9876 million in business taxes.

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The SM group: From a shoe store to the conglomerate that has it all

Convention Center, the 400room Radisson Blu Hotel in Cebu, and the Pico Sands Hotel at the Pico De Loro Cove in Nasugbu, Batangas.

affordable residences to the population.

Prospects for 2012 and beyond. Also included in SM’s disclosures are its expansion plans for 2012 and the future. For 2012, SM Prime plans to open malls in Davao City, South Cotabato, Cebu, Zambales, San Fernando, Pampanga, and in Chongqing, China. Further retail expansion plans for 2012 include the opening of five department stores, six supermarkets, 21 SaveMore branches and five hypermarkets. SMDC is targeting to launch five more projects within Metro Manila. To this end, the company will continue looking for possible locations in key cities in Metro Manila to further its commitment to provide

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Highlands Prime, Inc. will developnew leisure lots at The Highlands, designed to have modern log homes. Costa Del Hamilo’s two clusters The Miranda and Carola are set to be completed by the first quarter of 2012. SM Hotels is also currently developing the 204-room Park Inn by Radisson in Davao City, which will be the very first “Park Inn by Radisson” in the Asia Pacific region. The Park Inn brand is one of the hotel brands under Carlson and is the largest mid-market brand for hotels under development in Europe. SMIC says that the prospective projects will be funded through internally generated sources and other capital raising initiatives such as bond issuances and loans.

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NEWS ON THE NET

Business

Dutch-Filipino group plans solar power farms in PH

Energy, which will soon enter its second phase.

SC hears PLDT arguments for reversal of foreign ownership ruling

The Department of Agrarian Reform (DAR) has announced that a Dutch-Filipino solar power company is interested in renting non-agricultural lands in rural areas of the Philippines to establish solar farms, which could then be plugged into the national grid. Specifically, DAR says that beneficiaries of the Comprehensive Agrarian Reform Program can opt to lease out part of their land to Sunconnex Solar Powered Agri-Rural Communities (SC-Sparc). The power firm signed a memorandum of agreement with the agency last Tuesday, and is targeting the completion of 50 solar farms, which could potentially produce 5-10 megawatts each. According to SC-Sparc, it aims to provide 250-500 mw of power to the national grid, which could mean that Filipino households may soon benefit from electricity harvested from solar farms. This is a positive development for the country, in light of the power crisis already being experienced in Mindanao and threatening to spread to Luzon. Other ways by which the government is seeking to alleviate the crisis includes the $2.1-billion natural gas pipeline project of the Department of

The

Last Tuesday the Supreme Court (SC) began hearing arguments of the Philippine Long Distance Telephone Company (PLDT) in the telecom company's bid to reverse a previous ruling on a case alleging that the firm had exceeded the law's limits on foreign ownership. The original June 2011 ruling had the Securities and Exchange Commission probe PLDT ownership via assessing its capital stock using only common voting shares; maintaining the SC definition of the term "capital." The resulting data, according to the SC's definition, showed that 64% of PLDT is owned by foreigners, which is in violation of the 40-percent limit set by the Foreign Investments Act of 1991. In July 2011, PLDT filed a motion asking the high court to hear their arguments and reconsider the decision. Other entities seeking the reversal of the SC ruling are Smart Communications, the SEC, the Philippine Stock Exchange (PSE), the Department of Finance (DOF), and the Presidential Commission on Good Government. PSE president Hans B. Sicat has said that he would rather that the

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Philippines' definition of "capital" be aligned with global finance terminology should the Supreme Court change its previous ruling on foreign ownership limits in the PLDT case, adding that “it is quite dangerous for the Court, with the stroke of a pen, to define the word ‘capital’."

Megaworld nets ₧8B in 2011 Consolidated total revenues for Megaworld Corp. went up by 39.35% to ₧28.63 billion and net profit rose by 60 percent to ₧8.03 billion in 2011, due to a nonrecurring gain from a share sale, large increases in real estate sales, and rental and hotel revenues. The bulk of consolidated revenues came from the sale of condominium units and residential properties, amounting to ₧15.89 billion. Likely due to the company's positive performance in 2011, Megaworld Corp. has announced that it is allocating ₧25 billion for its 2012 projects, roughly the same budget it had for capital expenditure last year. In related news, Megaworld chair and CEO Andrew Tan was recently hailed by the Bureau of Internal Revenue as a model taxpayer, with BIR Deputy Commissioner Nelson Aspe thanking the taipan "for expressing support for the BIR’s continuing tax campaign to shore up much-needed revenue for the government.”

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The Code Wars

With cyber-attacks on the rise and governments now getting involved in developing defensive and offensive capabilities, is cyberspace the next battleground? By Tanya L. Mariano

STRATEGY POINTS

Cyber-weapons can range from generic, low-potential to specific, high-potential, according to a U.K. think tank The U.S. is among a number of countries boosting their cyber-arsenals in response to, or to initiate, threats in cyberspace Some say there will never be a cyber-war; others think cyberspace will figure greatly in the future of warfare

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The code war

The computer, tablet or smartphone on which you are now reading The CenSEI Report is set to become a major weapon of war. Maybe not your device specifically, but others like it, especially those in the hands of the U.S. military.

University of the Philippines, the country’s premier state university, was hacked last Friday, April 20, most likely by Chinese activists protesting Philippine presence at the Scarborough Shoal, as reported inthe Philippine Daily Inquirer.

The Pentagon is planning to accelerate the development of cyber-weapons to enable it to respond more quickly to cyber-threats, according to a 16-page report it submitted to the U.S. Congress, a copy of which was obtained by The Washington Post.

Cyber-crime and cyber-attacks are an attractive option for aggressors because they are profitable, carry low risk, and attribution is hard to the point that attacks can be virtually anonymous, says anti-virus expert Costin Raiu of security company Kaspersky Lab, as quoted in the report, “Cyber-security: The vexed question of global rules.” The paper was prepared by the Security Defense Agenda, with assistance from computer security company McAfee.

According to the news report, the document, which was not made public, “builds on the 2011 defense strategy for cyberspace, [and] puts the Pentagon’s two-year-old Cyber Command in charge of a new registry of weapons that would catalogue their capabilities and where they are stored.” The new framework lets the U.S. “take advantage of existing or nearly completed hardware and software developed by industry and government laboratories” to design weapons in a span of several months to just a few days, and create higher-risk weapons for projects that could take longer than nine months. U.S. joined by other nations in cyberweapon development. The U.S. is not the only one boosting its cyber arsenal in response to the rise in cyber attacks of recent years. China, North Korea, the U.K., and Japan have all been reported to be developing offensive and defensive cybercapabilities. The Philippines may also do well to follow suit, especially after the website of the

The

In the information age, it seems that countries all over the world face novel threats from a new domain quite distinct from land, air, and water: cyberspace. ‘Cyber-weapons’ defined. While there seems to be no international consensus on the definition of “cyber-weapons,” a 2012 paper by Thomas Rid and Peter McBurney of King’s College in London proposes this definition: “computer code that is used, or designed to be used, with the aim of threatening or causing physical, functional, or mental harm to structures, systems, or living beings.” The paper was published in The RUSI Journal, the flagship publication of U.K.-based defense and security think tank Royal United Services Institute. The authors categorize cyber-weapons along a spectrum: on one end would be generic, low-potential tools such as malicious software, or “malware,” that

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The cyberspace landscape In this chart from “Cyber Warfare: A Perspective on Cyber Threats and Technology in the Network-Centric Warfare Battlespace,” Chris Scott of the Information and Systems Technology Group of MIT Lincoln Laboratory illustrates what cyberspace looked like in the past, what systems make up its current landscape, and what it will look like in the future.

Cyberspace: Past, Present and Future Legacy Cyberspace

Banking networks (eg SWIFT, CHIPS, Fedwire) Travel reservation networks (eg SABRE) Process control networks (SCADA systems)

Current Cyberspace

Future Cyberspace

Internet/Enterprise/Web

Tactical networks (NCW)

Cellular networks

IPv6 Internet

Digital TV networks Current GIG Tactical Comms (eg Link16, EPLRS)

Semantic Web Vehicular Networks (VANETs) Embedded Device Networks GIG Increments 1, 2, and 3 Our focus in this briefing

Presented at the 2008 U.S. Army Cyber Symposium, the report focuses on cyber attacks and how tactical networks present new cyber-warfare challenges and opportunities.

can affect a system from the outside but is incapable of penetrating and directly harming it, and on the other end are specific, high-potential malware that can penetrate even “protected and physically isolated systems” and cause direct harm by autonomously influencing output processes. In between these two extremes are weapons that enable unauthorized intrusions, which

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can range from generic to specific. These include “generic system penetrations incapable of identifying and influencing a targeted process, but also targeted and specific intrusions capable of creating functional and even physical damage.” Below is a matrix of known cyber-threats and their corresponding threat levels prepared by Spy Ops, The Technolytics

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Threat

Threat Color Code

Software Malfunction

3.9

This refers to software behavior that is in conflict with intended function or operation that pose a security risk.

Computer Virus

3.8

Malicious software that attaches itself to other software. For example, a patched software application in which the patch’s algorithm is designed to implement the same patch on other applications, thereby replicating itself.

Logic Bomb

3.7

A logic bomb is a piece of code intentionally inserted into a software system that will set off a malicious function when specified conditions are met. For example, a programmer may hide a piece of code that starts deleting files (such as salary database), should they ever leave the company.

Insider Threat

3.7

An insider threat is an individual with malicious intent. Typically it is someone who is an employee or officer of a business, institution, or agency. The term can also apply to an outside person who poses as an employee or officer by obtaining false cedentials.

Trojan Horse

3.7

A Trojan horse, also known as a trojan, is malware that appears to perform a desirable function but in fact performs undisclosed malicious functions. Therefore, a computer worm or virus may be a Trojan horse.

Counterfeit Equipment

3.6

Counterfeit hardware refers to an imitation that is made usually with the intent to deceptively represent its content or origins and with unknown integrity.

Counterfeit Software

3.6

Counterfeit software refers to an imitation that is made usually with the intent to deceptively represent its content or origins and with unknown integrity.

Sequential Scanning

3.5

In the sequential scan, worms in an infected host will select randomly an IP address in an effort to identify system vulnerabilities.

Tunneling

3.5

This refers to any digital attack that attempts to get “under” a security system by accessing very low level system functions (e.g., device drivers, OS kernels).

Trap door/ Back door

3.5

Software left available after code delivery for the purpose of future access.

Dictionary Scanning

3.4

This type of attack exploits a buffer overflow vulnerability in targeted client software through injection of malicious content from a custom-built hostile service.

Digital Snooping

3.3

This is the electronic monitoring of digital networks to uncover passwords or other data. It has grown with the rapid adoption of wireless lans.

Scavenging

3.3

This is associated with automated scanning of large quantities of unprotected data (discarded media or online “finger” type commands) to obtain clues as to how to achieve access.

TEDs/EPFCs/EMP (non-Nuclear)

3.0

These devices generate electromagnetic radiation from an explosion or an intensely fluctuating magnetic field caused by Compton-recoil electrons and photoelectrons from photons scattered in the materials of the electronic or explosive device or in a surrounding medium.

BotNets

3.0

BotNet is a collection of software robots, or bots, that run autonomously and automatically. The term is often associated with malicious software, but it can also refer to the network of computers using distributed computing software.

Spoofing

3.0

In the context of network security, a spoofing attack is a situation in which one person or program successfully masquerades as another by falsifying data and thereby gaining an illegitimate advantage.

Bacterium

3.0

A form of computer virus designed to attach itself to the OS in particular (rather than any application in general) and exhaust computer resources, especially CPU cycles.

Spamming (DoS, DDoS)

2.9

This is the intentional overloading a system with incoming messages or other traffic to cause system crashes.

Rabbit

2.8

This is a form of computer virus or worm that replicates without bound, thus exhausting available computing resources, but it does not spread to other systems.

Working Definition

“Cyber Weapons Threat Matrix,” from Spy Ops, Technolytics Institute, and Intelomics

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48 Incidents of cyber-weapons usage. In their afore-mentioned RUSI Journal paper, Rid and McBurney cite instances of cyberattacks that used weapons that fall under their definition.

attacks enlist the help of many computers and many Internet connections, making it more destructive, according to Security FAQs.

An example of a cyber-weapon in the generic, low-potential end of the spectrum is the distributed denial of service (DDoS) attacks in Estonia, part of protests sparked by the Estonian government’s removal of a Red Army war memorial from the capital, Tallinn, to a military cemetery in the city’s outskirts. The attacks began on April 27 and reached a peak on May 9, with 58 Estonian websites down at the same time.

A cyber-weapon in the middle of the spectrum is the ILOVEYOU virus, the worm created by 24-year-old Filipino undergraduate student Onel De Guzman that infected 45 million Windows personal computers around the world in May 2000 and caused damages exceeding $10 billion. The worm spread by disguising itself as an e-mail love letter from a contact listed in the receiver’s address book.

Attackers initially used unsophisticated methods such as ping floods and crude denial of service (DoS) attacks, but in April 30 started using botnets to increase the volume of DDoS attacks. DoS attacks use only one computer and one Internet connection to cripple a server by overloading it with packets, while DDoS

A more specific and targeted intrusion, but still in mid-spectrum, is the breach in April 2000 of the Supervisory Control and Data Acquisition (SCADA) system of a wastewater plant in Maroochy Shire, Queensland, Australia, by 49-yearold Vitek Boden. Because the Maroochy Shire Council rejected his job application,

The open source risk: “The most important question may not be who designed it [Stuxnet], but who will redesign it.”

At the 2011 TEDTalks, security consultant Ralph Langner reveals how his team helped crack the code of Stuxnet.

Video uploaded to Vimeo by video director Patrick Clair

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“Cracking Stuxnet, a 21st-century cyber weapon,” Ralph Langner, TEDTalks 2011

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Boden sought revenge by performing 46 repeated wireless intrusions over a period of three months and eventually succeeded in “spilling more than a million litres of raw sewage into local parks, rivers and even the grounds of a Hyatt Regency hotel.” Boden was sentenced to two years in prison, as reported in the Australian edition of ZDNet in Oct. 2001. SCADA systems are industrial-control systems and are “used to monitor and control processes in industrial facilities and public utilities, such as chemical plants, electric power plants, refineries, oil and gas pipelines, wastewater treatment and other installations,” according to Rid and McBurney. Because of the critical nature of their functions, securing them against cyber-threats is urgent. In contrast to these examples, weapons at the specific, high-potential end of the spectrum have highly specific targets

and do more than just influence active processes. For instance, the 1982 explosion of the Trans-Siberian Gas Pipeline was caused by “deliberately creating overpressure in the pipeline by manipulating pressure-control valves in an active control process.” (In his book, “At the Abyss: An Insider’s History of the Cold War,” Thomas C. Reed, a former Air Force secretary who served in the National Security Council during Ronald Reagan’s administration, implicates the Central Intelligence Agency in the incident, saying it deliberately supplied faulty software to the Soviets to cause the explosion, according to ZDNet, but a KGB veteran told The Moscow Times that this claim is “off the mark.”) In another example, the Israeli government in September 2007 blinded the Syrian air defense system by tricking it to display no approaching aircrafts to its operators for a certain period of time.

CYBER-SECURITY SCORE CARD

Which countries would repel and respond to cyber attacks well?

Finland Israel Sweden

Denmark

Australia

China

Estonia France Germany

Austria

Italy

The Netherlands

Canada

Poland

U.K.

Japan

Russia

Spain U.S.

Brazil India

Mexico

Romania

(Chart by TCR based on data from “Cyber-security: The vexed question of global rules” by the Security and Defense Agenda with the support of McAfee, 2012)

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50 Their last (and most famous, write the authors) example of a specific, highpotential cyber weapon is the Stuxnet worm that damaged Iran’s nuclear program in 2010. According to the paper, “Before Stuxnet started sabotaging ongoing processes, it intercepted input values from sensors, for instance the state of a valve or operating temperatures, recorded these data, and then provided the legitimate controller code with pre-recorded fake input signals, while the actual processes in the hidden background were manipulated.” Stuxnet, a whole new level of cyberattack. A December 2010 Congressional Research Service report warns that Stuxnet brings cyber-attacks to an all-new level, and that the emergence of this type of malware could pave the way for further attacks that could “cause harm to many activities deemed critical to the basic functioning of modern society.” A senior Iranian intelligence official revealed that Stuxnet infected approximately 16,000 computers, according to this Associated Press report that appears in The Washington Times. More recently, web-based news site Industrial Safety and Security Source this month reported that

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an Iranian double agent loaded the virus onto machines at the Natanz nuclear facility by using a corrupt memory stick (the same source had previously reported that Stuxnet was a “comprehensive U.S.-Israeli program designed to disrupt Iran’s nuclear technology”). This video produced for Australian TV program HungryBeast analyzes Stuxnet – how it works, the events surrounding its discovery, and who are rumored to be behind it – and explores the ramifications of the use of such a sophisticated cyberweapon. In the following video of his 2011 talk at TED, German control system security consultant Ralph Langner explains how his team helped crack Stuxnet, and sheds some light on the cyber-weapon’s origins and final target. For a more detailed technical report on Stuxnet, consult security software provider Symantec’s “W32.Stuxnet Dossier.” U.S. defense in cyberspace. The current U.S. government initiative reflects the Obama administration’s commitment to securing

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cyberspace, first revealed in U.S. President Barack Obama’s May 29, 2009 speech in which he remarked, “America’s economic prosperity in the 21st century will depend on cybersecurity.” The afore-mentioned July 2011 report, “Department of Defense Strategy for Operating in Cyberspace,” officially recognizes cyberspace as an operational domain just like air, land, and water, and also lays out the following strategic initiatives: “employ new defense operating concepts to protect DoD networks and systems; partner with other U.S. government departments and agencies and the private sector to enable a whole-of-government cyber-security strategy; build robust relationships with U.S. allies and international partners to strengthen collective cyber-security; and leverage the nation’s ingenuity through an exceptional cyber workforce and rapid technological innovation.” In the January 2012 report, “Sustaining U.S. Global Leadership: Priorities for 21st Century Defense,” the Department of Defense also outlines its intention to “continue to work with domestic and international allies and partners and invest in advanced capabilities to defend its networks, operational capability, and resiliency” in cyberspace. A cyber arms race? But the U.S. is not alone. Other countries have been enhancing their cyber capabilities. China’s has in fact reached a point where it could pose a “genuine risk to U.S. military operations in the event of a conflict,” according to

The

Sharing the art of cyber-war by building schools, beefing up research Currently, efforts to enrich the pool of cyber-research are underway, and a number of countries are establishing “cyber-war schools.” In June 2011, The Straits Times reported that the South Korean Army has partnered with Korea University to open a new cyber-defense school in 2012. Pakistan is also expected to open a cyber-warfare school this year in order to fend off cyber-attacks from India, reports Cyber Warzone. In the U.S., the Naval Postgraduate School’s Department of Electrical and Computer Engineering offers a graduate certificate program in cyber-warfare, which includes classes in Information Operations Systems, Conflict and Cyberspace, Cyber Warfare, and Covert Communications. Research groups such as the Cyber Conflict Studies Association are also contributing to the growing body of work in cyber research, and West Point has announced that it is prioritizing research in this field by rechristening its Information Technology and Operations Center as the Cyber Research Center.

the report, “Occupying the Information High Ground: Chinese Capabilities for Computing Network Operations and Cyber Espionage,” by aerospace and defense technology company Northrop Grumman for the U.S.-China Economic and Security Review Commission. The study is an update of their 2009 report, “Capability of the People’s Republic of China to Conduct

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52 Cyber Warfare and Computer Network Exploitation.” North Korea employs an elite team of computer hackers that can launch cyberattacks and infiltration against the U.S. and South Korea, says Army General James Thurman, U.S. Forces Korea commander, in a presentation to the House Armed Services Committee, reports Bloomberg. In last year’s presentation, however, Thurman’s predecessor, Army General Walter Sharp, did not cite cyber-attacks as part of North Korea’s military arsenal. In August, it was reported in The Washington Post that North Korea was responsible for a cyber-attack on

South Korean agricultural bank Nonghyup, crashing its ATMs and online services and destroying key data. The attack affected 30 million of the bank’s customers. The U.K. is also developing a cyber-weapons program that will bolster its defensive capabilities and create new offensive skills to keep up with the “growing threats to national security from cyberspace,” according to the Guardian. In February 2011, the Guardian also reported that British Foreign Secretary William Hague, in a speech at a security conference in Munich, said they were able to repel a cyber-attack from “a hostile state intelligence agency.”

The ethics of cyber-warfare Traditionally, wars are viewed under the lens of the just war theory, which, according to the Stanford Encyclopedia of Philosophy, has three main components, known by their Latin names: 1) “jus ad bellum,” which outlines the conditions under which war is justified; 2) “jus in bello,” which prescribes the right conduct during war; and 3) “jus post bellum,” which is concerned with the termination of war and the return to peace. In “Computing Ethics – War 2.0: Cyberweapons and Ethics,” authors Patrick Lin, Fritz Allhoff, and Neil C. Rowe put forth a few basic ethical concerns that must be resolved for national cyberpolicies to be effective. Among them: in as far as aggression is “usually understood to mean that human lives are directly in jeopardy,” it is difficult to justify counterattacks against acts of aggression in cyberspace. This view of aggression can be seen in the Article 2, Section 4 of the United Nations Charter: “All Members shall refrain in their international relations from the threat or use of force against the territorial integrity or political independence of any state, or

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in any other manner inconsistent with the Purposes of the United Nations.” When cyber-attacks do not compromise the territorial integrity of any state, do they then warrant retaliation? And if so, in what form, and to what extent? The debate now is: do traditional ethics and conduct of war apply in cyberspace? In his 2012 paper, “The Ethics of Cyberwarfare,” Randall Dipert of the State University of New York at Buffalo argues that the very nature of cyber-weapons and cyber-attacks warrants a novel way of looking at things, that traditional ethical and political theories “cast so little light on this new, and difficult domain.” Speaking to the Naval Academy Class of 2014, George R. Lucas, Jr., on the other hand, cautions against dismissing the relevance of the just war tradition and international law to cyber-conflict, saying what we know about conventional war doctrine constitutes the only information we have that would lead us to asking the right questions on cyber-ethics.

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The foreign secretary did not identify the country responsible for the attack, but sources privy to the incidents “made it clear he was referring to China.” In January, the Japanese newspaper Daily Yomiuri reported that Japan is also developing a defensive cyber-weapon that can trace and disable the source of an attack, also disabling middlemen computers along the way, as part of a threeyear project launched in 2008. The use of cyber-weapons to counter external threats, however, may be illegal in the country, as cyber-attacks “were not included in a 2005 cabinet decision outlining the type

of attacks against which the right to selfdefense can be exercised,” reports the newspaper. Will the future of warfare be cyber? Recognizing cyberspace as an operational domain will definitely change the way governments will manage conflicts, defend national security, and, in some cases, mount acts of aggression. Even today, experts agree that there is a “large difference between the security challenges in Cyberspace and conventional aspects of national defense,” as revealed by discussions at the Munich Security Conference in February this year. Cyber-

Dipert, in his afore-mentioned paper, proposes a few conditions under which a nation (“nation B”) may morally counterattack another (“nation C”) with a conventional or cyber-attack, following a cyberattack by nation C: 1. The attack of C on B was unjust and substantial. 2. The source of the attack by C was, with overwhelming likelihood, ordered or permitted at the highest levels of a government. 3. Reasonable measures had been taken by nation B to defeat or minimize the cyberharm that a hostile nation or other non-state cyberattacker (black or gray hat hackers) might cause. 4. The expected damage to the enemy (C) is likely to be commensurate to the damage B has suffered, or is the minimum necessary to stop continuing cyberattacks.” Says Lucas in another paper, “Permissible Preventive Cyberwar: Restricting Cyber Conflict to Justified Military Targets,” this proposition by Dipert is strikingly similar to those made more

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than ten years ago by John Arquilla in “Ethics and Information Warfare.” While discussions on ethics rage on, currently underway are efforts to establish protocols on the use of cyber-weapons and, perhaps, cyber-arms control. One such effort is encapsulated in this paper by Kenneth Geers of the Cooperative Cyber Defence Centre of Exellence. In it, Geers proposes that cyber-conflict mitigation be patterned against the 1997 Chemical Weapons Convention. This document from The George C. Marshall Institute gathers expert opinions on conflict mitigation shared during a panel discussion. The panelists are Dr. John B. Sheldon of the School of Advanced Air and Space Studies, Maxwell AFB, Alabama; Mr. David E. Hoffman, contributing editor to Foreign Policy and The Washington Post; Dr. Christopher A. Ford of the Hudson Institute; Dr. James A. Mulvenon of the Defense Group Inc.; and Professor Martha Finnemore of George Washington University.

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threats also extend to commercial environments, and are not only limited to military issues, according to the 2006 paper, “Cyber-warfare threatens corporations: Expansion into commercial environments.” But while cyberweapons development is a clear and present occurrence, Thomas Rid, in a paper published in February this year in The Journal of Strategic Studies, maintains that there has never been an instance in the past that can be classified as an act of cyber-war, nor is there a present or future threat of cyber-

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war. Even retired CIA director Michael V. Hayden, in this interview conducted at the 2012 Munich Security Conference, thinks the term “cyber-war” can be problematic and prefers “cyber attacks” instead. Still, Hayden argues that there has been enough activity to predict that “cyber” will be a big part of warfare in the future. As the number of countries equipped with both defensive and offensive cybercapabilities increases, the threat of cyber-attacks also grows. The ability to defend carries with it the ability to launch an assault, and this is something the international community should keep an eye on.

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NEWS ON THE NET

Technology

EU advised to reject AntiCounterfeiting Trade Agreement

agreement; in addition to Japan, the U.S., Canada, Australia, New Zealand, Singapore and South Korea. The final vote on its ratification is due to happen in Brussels later this year.

David Martin, Member of the European Parliament and current rapporteur responsible for monitoring the AntiCounterfeiting Trade Agreement through the European Union, has strongly advised against the ratification of the treaty. In a written recommendation to the European Parliament, Martin said that "the intended benefits of this international agreement are far outweighed by the potential threats to civil liberties." His rejection of ACTA comes less than 3 months after the previous rapporteur, Kader Arif, resigned from his post in protest. Kader Arif said, of ACTA, "I have faced never-before-seen manoeuvres from the right wing of this Parliament to impose a rushed calendar before public opinion could be alerted, thus depriving the Parliament of its right to expression and of the tools at its disposal to convey citizens' legitimate demands." ACTA, originally created as an international agreement to protect intellectual property rights, has caused much controversy and inspired thousands to act against it. However, there is already widespread support for it – in fact, 22 countries in the EU have already signed up to the

The

U.S. gov't hacking into gaming consoles to obtain user data The U.S. government has awarded California-based firm Obscure Technologies a $177,000 contract on behalf of the Department of Homeland Security, to develop ways to extract sensitive data from gaming consoles such as Microsoft's Xbox and Sony's Playstation. The purpose of this is to watch criminals and collect evidence against them. The government claims that in addition to the likelihood that terrorists use gaming consoles as a form of communication, child predators are using the platforms to download and distribute child pornography, as well to seek out victims. There are obvious privacy issues and concerns relating to this development, but the Department of Homeland Security seems to be honoring the U.S. Privacy Act – at least for U.S. citizens. “This project requires the purchasing of used video game systems outside the U.S. in a manner that is likely to result in their containing

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significant and sensitive information from previous users. We do not wish to work with data regarding U.S. persons due to Privacy Act considerations. If we find data on U.S. citizens in consoles purchased overseas, we remove the data from our corpus,” states the contract.

Facebook supports Cispa cybersecurity bill Facebook is backing a new cyber-security bill called the Cyber Intelligence Sharing and Protection Act (Cispa), which is due before U.S. Congress by the end of April. However, Facebook's vice-president of US public policy, Joel Kaplan, has promised that Facebook will continue to keep the personal information of its users safe and secure. The HR 3523 Act would allow the government to access web users' private data on suspicion of a cyber-threat, and would also facilitate easier information-sharing between security agencies and private web firms. Initially introduced in November last year, the bill was criticized heavily; and although revisions were made and publicized, many still claim that Cispa is a salvo against file sharers rather than hackers. Ensuing protests have come from many different sectors, including Internet advocacy groups and hacktivist group Anonymous.

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Beijing’s Agenda On the High Seas Eight reasons why it’s playing tough in Scarborough Shoal By Ricardo Saludo

Chinese embassy protest: Backing off is one thing China won’t do NTDTV video

Are China and the Philippines on course

STRATEGY POINTS With its leadership succession and economic slowdown, Beijing can ill-afford to back down against Manila As a rising global power, China can’t be cowed by a small nation, but neither can it be a bully before the world Manila must carefully assess whether confronting China with U.S. help is good for the Philippines long-term

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toward more confrontations? What about Beijing and Washington? And what are the geopolitical interests driving the Chinese juggernaut in the South China Sea? Those are the key questions in this second part of The CenSEI Report strategic analysis of the South China Sea tensions. Relief turned into renewed anxiety over Scarborough Shoal last week when the erstwhile agreed withdrawal of Chinese and Philippine vessels from the disputed reef 230 km west of Luzon in the South China Sea, turned into a continued stalemate. As United Press International reported, after some ships from both sides left the area, China told remaining Philippine vessels to depart while sending more marine patrol boats to the area: Huangyan Island to the Chinese, Panatag Shoal to the Filipinos.

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Philippine leftist groups protested both China’s moves in the tense reef and Philippine-U.S. military exercises in disputed waters off Palawan on April 16-27. Manila accused Beijing of escalating their confrontation on the high seas by sending a third ship to the shoal, the 2,580-ton Yuzheng-310, the most advanced Chinese marine patrol vessel, according to the China Bystander website. Meanwhile, hackers defaced the University of the Philippines site with messages and a map declaring China’s claim over the reef.

stepping down this year, both he and his successor, Vice-President Xi Jinping, cannot allow any diminution of China’s stature, power and territory during the transition. Hu will not want his legacy tarnished by a shameful retreat from a high-profile confrontation with a minor country like the Philippines. Nor would incoming leader Xi countenance any such thing in his first year in office. The same goes for Premier Wen Jiabao, who will give way to Executive Vice-Premier Li Keqiang of the State Council, China’s Cabinet.

Crucial to containing and resolving present and future tensions and confrontations in the South China Sea is a clear and profound understanding of the issues and objectives driving the countries involved. Given space limitations, this report will focus on China’s concerns and motivations, some of which the Philippines may share to a limited extent. So here are eight drivers of Beijing’s South China Sea moves.

The imperative to impress is heightened even more by a recent internal struggle at the very top of the Communist Party of China (CPC). The ouster of Bo Xilai, 62, from the ruling 25-member Politburo, followed by investigations into scandals involving him, his wife and his aide, point to serious rifts and strains in the governing monolith that is the CPC. The son of a famous communist hero and seen by experts as a savvy politician in the Western mold, Bo once ran the coast city of Dalian, served as commerce minister, and was

Hail to the Chief. With Chinese President and Communist Party Secretary Hu Jintao

President Hu Jintao, Premier Wen Jiabao and seven other Politburo members retire by the end of 2012: The transition to new leaders will harden China’s stance RTHK video

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58 Chongqing party chief before his debacle. The BBC’s cast of characters linked to Bo’s rise and demise, including Public Security Minister and Politburo Standing Committee stalwart Zhou Yongkang, shows how much clout the fallen star enjoyed. Despite his ouster, many of Bo’s backers and friends remain in place, even sparking coup rumors linked to Bo and top cop Zhou. Hence, those at the very top who took Bo out cannot give that his bloc, not to mention other critics and opponents in China, any reason or excuse to question, criticize or challenge the country’s present rulers. And that means avoiding any humiliating mishandling of South China Sea incidents. Power to the Party. If the party chief must not falter in handling territorial disputes, neither must the Party, Apart from tension at the top, the ruling communists face other challenges to political and public support. Principal among them is the current economic slowdown with pockets of credit squeeze, enterprise troubles, and inflationary spurts all over the country. These problems could erode the foundation of CPC legitimacy for decades: the rising prosperity which has made authoritarian rule and the adoption of Western systems acceptable to ordinary Chinese and the conservative military. Also affecting support for the party is the power struggle between reformists led by President Hu, Premier Wen, and

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their successors Xi and Li, who have been intimating more political and economic reform, and the Bo-Zhou bloc said to favor greater government power and state enterprise expansion, as explained in a Radio-TV Hong Kong report. Many in the bureaucracy and the military, as well as local governments under credit pressure, may find much to support in Bo’s statist views and proposals. In this time of economic strain, the CPC can ill afford a humiliating backdown abroad, especially with millions of Chinese expecting the government to protect the country’s interests and territory. Indeed, confrontations with countries portrayed as intruding into Chinese lands and waters would serve to rally the people and the military behind the national leadership. It would also silence critics not wanting to appear unpatriotic and unnecessarily troublesome at a time of national conflict. Hanging tough in Scarborough firms up support for the ruling Communist Party. This land is ours. Beyond domestic politics, there is of course China’s assertion of territorial rights, which the Philippines and every other nation is entitled to. The Chinese claim is historical, citing centuriesold references to Scarborough Shoal and other islands and surface features in the South China Sea. Beijing also questions Manila’s claim, noting the absence of any reference to Scarborough Shoal in the major historic documents demarcating Philippine territory, such as the Treaty of Paris between Spain and the United States ceding the country to America. Manila’s retort calls for both sides to bring their territorial claims and legal arguments to the International Tribunal for the Law

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of the Sea (ITLOS) arbitrates disputes involving the United Nations Convention on the Law of the Sea (UNCLOS) agreement. Beijing’s constant position, however, has been to insist on bilateral negotiations to settle differences, even though China, like

the Philippines, signed UNCLOS. Notably, Vietnam agreed to negotiate with China over their competing claims in the Paracels. The result so far isn’t encouraging for those considering bilateral talks with Beijing. As Hong Kong’s South China

ZONAL VALUES

Global and Philippine Maps of Exclusive Economic Zones

Maps from Our Ocean Planet by Robert Stewart and Sea Around Us

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60 Morning Post reported last December, “China stands firm on Paracels in negotiations with Vietnam.” One Vietnam Foreign Ministry official reportedly said of the talks: “China made its position very clear at the outset; China occupies the Paracels, they belong to China and there is nothing to negotiate.” The article also quoted Peng Guangqian, a retired Chinese general and a military strategy specialist at the People’s Liberation Army Academy of Military Science. He saw “zero chance” of giving up sovereignty over the Spratlys and Paracels: “China has never changed its position on defending our sovereignty on the sea. It is Vietnam and other countries occupying most of the islets of our Spratly Islands.” And while Beijing and Hanoi haggle, the Chinese have been bringing tourists to the Paracels and detaining Vietnamese fishermen, including 21 in two boats released last week after a month.

What about going to ITLOS? Apart from not wanting to give up the advantage of negotiating from a position of military strength in bilateral talks, submitting to a world court in one territorial issue would open the door for rival claimants in other border disputes to demand international arbitration. Besides most of the South China Sea and all the lands in its nine-dash map line, Beijing has active border disputes with New Delhi along the Indian border and with Tokyo in the East China Sea over the Diaoyutai Islands (Senkakus to the Japanese). A thirst for resources. Besides national sovereignty and territory, Beijing’s South China Sea claims are also about resources, including rich fishing areas, potential tourist destinations, and oil and gas reserves believed to be beneath the seabed in the disputed waters. Surface features are particularly important

THE QUEST FOR ENERGY

Global GDP and Energy Demand Data and Projections, 1990-2040

Charts from 2012 Outlook for Energy: A View to 2040, ExxonMobil

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for energy exploration, since the sea around them is shallow enough for petroleum rigs. UNCLOS grants countries exclusive economic zones (EEZs) extending 200 nautical miles (370 km) from their territorial baselines, where they have exclusive rights to resources, from marine life to undersea minerals and tourism sites (see EEZ maps). By claiming vast areas of the South China Sea, the Chinese can demand to partake in wealth extracted from disputed areas well beyond their own EEZ. In 2005, Manila and Beijing agreed to joint seismic survey near the Spratlys; they were later joined by Hanoi, after the latter had protested the deal. Critics of then-President Gloria Arroyo attacked the project as violating Philippine sovereignty, even though the pact clearly stated that it does not have any effect on territorial claims. And when the opposition came to power, they too were willing to explore offshore energy ventures with Beijing. In his visit last August, the delegation of President Benigno Aquino 3rd discussed a joint exploration deal with the Chinese. And China can certainly use any resources it can get from the South China Sea, especially oil and gas. Its burgeoning energy, food and mineral needs have its state corporations doing deals across the globe for oil, gas, metals and crops. Based on ExxonMobil’s 2012 Outlook for Energy: A View to 2040, the value of world energy consumption will nearly double from 2010 to about $90 billion at 2005 prices. And the bulk of developing nations’ demand will come from China (see charts). The new world power. Looking globally, China is keen to take its rightful

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place among the world’s leading powers, as it had been for millennia until Western imperialism and its own domestic backwardness brought down its stature and power in the 19th and 20th centuries. But with its rapid economic rise in the 1980s and 1990s, and particularly since the Beijing Olympics in 2008, China has become the world's second-largest economy with the biggest hoard of foreign exhange, the third most powerful armed forces, and major roles to play in many global issues and initiatives, from arresting climate change to reining in North Korea and raising capital for eurozone rescues. With its new preeminent stature on the world stage, China will likely follow two rules. First, it will not be pushed around by any country, big or small. In the case of the Philippines, it happens to be both: a small country with minimal external defense, but also in the eyes of many in China, a proxy for the most powerful nation of all, the United States. The Chinese are also smarting from Western and Japanese imperialism of centuries past, and would be loathe to see that happen all over again. Hence, Beijing and its leaders would not back down to the West, not on human rights or trade issues, and certainly not on territory. It got back Hong Kong and Macau. It won’t lose Huangyan. At the same time, China is sensitive to world opinion, and would not want to come across as an unfair bully. There is even talk of “soft power” winning good will and admiration through achievements and friendship, rather than naked might and intimidation. Hence, while asserting its interests and rights, Beijing will be careful not to stir too much animosity, which could unite countries in fear of it.

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62 Dominating Asia. That is certainly its tack in the Association of Southeast Asian Nations: it does not want to give Asean members reason to band together in fear of China. It has largely succeeded, in part because of allies among the 10 member nations like Cambodia, Myanmar and, to a lesser extent, Singapore and Thailand. But in the last Asean summit in Phnom Penh, the Philippines won support for its urging that Asean forge a common position on the Code of Conduct (COC) in the South China Sea before it talks with China — the very outcome Beijing is wary of. Over the weekend, Manila called on Asean to take a stand in the Scarborough standoff in support of one of its own.

the CPC-linked Global Times newspaper advocated last September.

Hence, if China is playing tough with the Philippines, it may be partly to signal its displeasure at the latter’s attempt to get Asean behind a unified stance toward Beijing. Moreover, there are quarters in China who also want to deter more assertiveness in Southeast Asia by punishing one country, a strategy not unlike a tenet of the Chinese military classic, Six Secret Military Lessons. And that’s exactly what a pseudonymed lead article in

More than defending tiny outcrops on the high seas, however, China’s greater goal asserting itself in the South China Sea is to establish itself as the unchallenged power in East Asia, just as America rules the Western hemisphere, though in an incremental way, as Princeton scholar Aaron Freidberg argues in his 2007 paper “China’s Strategic Ambitions in Asia.” And in that struggle for regional clout, if not supremacy, if Beijing cannot even defend its claimed territory

“The Time to Use Force in the South China Sea Has Arrived; Let’s Wage War on the Philippines and Vietnam to Prevent More Wars” envisioned a “sea of fire” as oil rigs in the disputed waters burn. “The wars should be focused on striking the Philippines and Vietnam, the two noisiest troublemakers,” the article said, “to achieve the effect of killing one chicken to scare the monkeys.” The writer also believed that the U.S., which has conducted military exercises with the Philippines and Vietnam, won’t go to war against China because America is focused on its anti-terror battle in the Middle East.

Top Philippine and Chinese warships, Hamilton-class cutter from the U.S. and Ukraine-built Varyag-class carrier: ‘Kill the chicken to scare the monkeys’ DFA/Xinhuanet photos

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against a militarily dwarfed country like the Philippines, then it can hardly pressure more powerful nations like Japan, South Korea, Indonesia or even Vietnam.

including the COC for the South China Sea. Explained U.S. Secretary of State Hillary Clinton in a 2010 speech: “Regional institutions have already played a significant part in Asia’s evolution. Yet looking forward, we know that they can — and I would argue must — work better.”

‘Neutralizing the Philippines appears to be a critical part of China’s strategy’

Dealing with America. China’s quest for regional and global power cannot Manila has also allowed but run up against the Washington to deploy United States. Even more forces in the country — CSBA before the dragon under their Visiting Forces think tank matches up with the Agreement. And America is eagle on the world helping build the Philippines’ stage, they must deal dismal external defenses, with each other in Asia. In the recently transferring an old Hamilton-class cutter, published U.S. global security strategy, now the Philippines’ largest warship, Washington has refocused on Asia, with a pledge to provide another by June. where it sees the fulcrum of world economic Plus: Manila wants a squadron of F-16 and geopolitical power shifting in the fighters, which could greatly enhance its coming decades. ability to assert its territorial claims in the South China Sea. And its moves to strengthen alliances with Australia, Japan, South Korea, the Thus, in confronting the Philippines at Philippines, Vietnam, India, Pakistan, and Scarborough Shoal, China is testing how far Central Asia cannot but seem to the Chinese the U.S. would support its ally. Beijing may a grand plan to encircle their land and curb also feel that it has significant leverage with their influence. “China might become the Washington at this time. The Americans target of containment through a U.S.-led want the Chinese to keep investing in U.S. security alignment,” says scholar Yong Treasury bills (China’s $1.1-trillion hoard Deng in his Academy of Political Science is the largest outside the U.S.). Washington article, “Hegemon on the Offensive: Chinese also needs Beijing to help restrain Perspectives on U.S. Global Strategy.” Pyongyang’s nuclear and ballistic ambitions. That angle on Washington’s alliances in Will America risk these and a host of other Asia elevates the current Scarborough spat strategic interests for the Philippines? But if from a tiff over a half-submerged reef to a it doesn’t, will the Filipinos and their allies superpower test of wills in proxy. America remain confident of its backing? has deputized the Philippines as Asean advocate in the U.S. campaign to build The Philippine linchpin. Plainly, the what it envision as an “East Asian regional Scarborough spat pushes many important architecture” of relations, agreements and buttons for China, from its future leadership institutions to deal with international issues, and its resource needs to its position in Asia

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and its dealings with America. Moreover, who care to look more than a decade further cannot but ponder the security implications of a Philippines hosting air and naval forces, both its own and its allies’, which can interdict shipping through the South China Sea and support military action in and around Taiwan. That strategic importance has been known by the Philippines’ colonizers for centuries, and explicitly stated back in 1926 in The

west. This key position, athwart all Oriental trade routes, gives to the Philippines a strategic and commercial importance potentially greater than that possessed by Japan, forming the northern half of the island chain.” This month, strategists Jim Thomas and Harry Foster, writing for Washingtonbased Center for Strategic and Budgetary Assessments, reiterated that 85-year-old view in “The Geostrategic Return of the

No to military exercises: How solid is U.S. backing? Euronews video

CQ Researcher, an American journal: “A radius of 1,700 miles drawn with Manila, as a center includes all of the Chinese coastline and its thickly populated hinterland; all of the Dutch East Indies, French Indo-China, Siam, Burma, and the Malay Peninsula; takes in most of Korea and the industrialized western half of Japan; touches the coast of Australia to the south and the great Indian port of Calcutta to the

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Philippines.” The CSBA advisory adds: “Neutralizing the Philippines appears to be a critical element of China’s strategic design.” Indeed, any Chinese leader and defense strategist cannot but see how much less worrisome the future can be if the Philippines is a friend rather than an enemy. That won’t happen while Manila can count on Washington in confronting Beijing. But if the Filipinos somehow feel

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Beijing’s agenda on the high seas

that America has failed to give them full support, then voices in the Philippines calling for closer ties with China may gain ground. Why fight the Chinese, their argument might go, when the Philippines can enjoy their protection, trade, investment, and international backing of what will become the world’s largest economy in less than a generation? On China’s part, its neighbor offers not just a strategically located country in the midst of major sea lanes, but also vast agricultural, marine, mineral and tourism resources to address the Chinese economy’s fast-growing needs. Thus, Scarborough Shoal could well be the first skirmish in the geopolitical battle for the Philippines, perhaps the most strategic country for China. Options for Manila. So what should the Philippines do? Three things are of immediate importance. First, the President must call a full National Security Council meeting to deliberate and formulate the country’s longterm geopolitical policy, especially vis-a-vis China and America. The past administration sought to maintain good relations with both, but the current regime has clearly tilted toward the U.S. Is this in the Philippines’ long-term interests, given that China will become the world’s leading economy, and its military in time could very well outmatch the U.S., at least in Asia? Second, Manila must invest in strengthening the documentary, legal,

The

geological and other aspects of its territorial claims. The following paper by Commodore Joel Garcia, “The Maritime Zones Dilemma in the South China Sea: How Prepared Is the Philippines to Assert Her Maritime Claims?”, underscores the need for Filipinos to do their homework, as the Chinese have been doing for at least two decades (see Appendix, page 67). And assuming the Philippines does win legal affirmation for its claims, should it spend billions of pesos asserting it or earn that sum by jointly exploiting resources with other claimants, including China? Lastly, if the Philippines would really go head to head with China on the South China Sea claims, then Manila needs Washington’s iron-clad assurance of defense support. That should include, says the CSBA paper, assistance “to help the Philippines develop its own set of ‘anti-access/area denial’ capabilities to counter China’s growing power projection capabilities ... maritime surveillance aircraft, coastal anti-ship defenses, and air defense systems.” Moreover, Filipinos worldwide must be harnessed in a planet-wide campaign to tell the world the nation’s side of the confrontation and call for international arbitration to resolve it. As a leading global power, Beijing must take account of world opinion, even if it has often disregarded it. Influencing that opinion by media and Internet may be the only leverage the Philippines itself can wield in its test of wills with a civilization that has played the geopolitical game for centuries.

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NEWS ON THE NET Technology

India says longrange missile test was a success

India would stand no chance in an overall arms race with China."

India has called its maiden test flight of its longest-range nuclearcapable missile a success. The missile was said to have possessed a range of around 3,100 miles – hypothetically putting Chinese cities within striking distance. India maintains that its missile development efforts are not an aggressive initiative, and that it is based on attaining a credible minimum deterrent, along with a "no-first-use" policy. This is an understandable strategy, as India borders two nuclear-armed states: its arch-rival Pakistan, and China, with which it fought a bitter war in 1962. Defense analyst Rahul Bedi opines the world's muted response to the missile test's success has a lot to do with the acceptance of India as a responsible nuclear power, owing to the country's transparency, saying, in comparison to the global reaction to North Korea's rocket failure, that "it's not the spear, but who holds the spear that matters." China has downplayed the success of India's missile launch, saying that the two countries are not rivals but cooperating partners; however, its state-backed Global Times newspaper published an editorial stating that "India should be clear that China's nuclear power is stronger and more reliable," and that "for the foreseeable future,

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Filipino priest wins int’l environmental award Father Edu Gariguez, a Filipino Catholic priest from Mindoro, is one of six recipients of this year's international Goldman Environmental Prize. The foundation has been around for more than 20 years, and the yearly recognition is given to influential grassroots environmentalists worldwide. Father Gariguez is only the second Filipino to receive such an award; the first being Von Hernandez, whose activism against waste incineration was highlighted in 2003. The Filipino priest and his five co-winners received their award last April 16 in San Francisco, in the United States. Father Gariguez is the executive secretary of the National Secretariat for Social Action, Justice and Peace of the Philippine Catholic Church; as well as co-founder of a grassroots movement and coalition called the Alliance Against Mining (ALAMIN). He played an instrumental part in uniting thousands of farmers, indigenous peoples, farmers and political leaders in numerous protests against nickel mining on the island of Mindoro.

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World Bank picks health expert Kim as president Last week, Korean-born American physician and anthropologist Jim Yong Kim was chosen by the World Bank to be its new president. The U.S. nominee won the presidency over Nigeria's widely respected finance minister, Ngozi Okonjo-Iweala. This is the first time in the World Bank's history that the United States' hold on the top position was challenged. The World Bank's board decision was not unanimous; Brazil and South Africa backed Okonjo-Iweala, while three sources said China and India supported Kim. Kim's leadership of the World Bank will likely signal changes, especially in light of the fact that unlike his predecessors, Kim is not a politician, a banker or a career diplomat. As a health expert, he has instead worked showed a lifelong dedication to further international health and social justice concerns. It is said that Kim's first challenge as World Bank president is to keep the bank relevant to large and emerging economies – such as Brazil or China – that have access to private investors, so that the World Bank may continue to foster good relations with them even though they may no longer need the bank to finance much of their development.

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THE MARITIME ZONES DILEMMA IN THE SOUTH CHINA SEA: HOW PREPARED IS THE PHILIPPINES TO ASSERT HER MARITIME CLAIMS? By COMMO JOEL S GARCIA PCG, H.D, Al-Haj

(This academic article is the author’s personal and sole opinion only and does not reflect his organization’s policy and its leadership’s view or position on the subject matter)

30 June 2011 A. Introduction The Philippines has played a pivotal role in crafting some major provisions of the United Nations Convention on the Law of the Sea (UNCLOS) before its birth in 1982. The illustrious former Senator Arturo Tolentino, the then country’s representative to the deliberation in the U.N., had vigorously pushed for the inclusion of a novel idea that would characterize the unique geographical configuration of the Philippines with the end-view of asserting the country’s position in its maritime dominium once the Law of the Sea (LOSC) is passed by the U.N. Assembly. This is globally known today as the “Archipelagic Doctrine”, a principle in the LOSC that provides an equitable maritime delimitation formula to littoral or riparian States, such as the Philippines, to avail of the opportunities its maritime zones can offer in the exploration and exploitation of natural resources, both living and non-living. Although the Philippines has ratified UNCLOS in 1984, the country is now facing a dilemma of maritime boundary disputes with its neighbors, particularly, in the South China Sea (SCS) area. The SCS is an area of competing claims involving China, Vietnam, Malaysia, the Philippines, and Indonesia in which the determination of sovereignty has become important for the ability to exploit oil, gas, and fishing resources. Among the claimants, China appears to be the most aggressive. It should be noted that between 1987 to 1998 China’s intentions was very clear when it framed its external policy in the SCS in terms of the recovery of “lost territories” and exclusive sovereignty over the area.1 In fact, to bolster their claims, China’s National People’s Congress passed on 25 February 1992 the controversial territorial law converting the SCS area into China’s internal waters. This is widely known today as the “9 dotted line” or the so-called U-shape line territory. According to China, the law was in consonance with the provisions of the UNCLOS. The passage of the Chinese law had stimulated strong alarm within the ASEAN and has confirmed the impressions of China’s aggressive intentions.2 In 1995, China has occupied the Mischief or Panganiban Reef in the Philippine-claimed area and in 1999, it has completed the construction of its support facilities as staging points for oil exploration, and to serve as a base support for its fishing activities, as well.3 1

Leszek Buszynsk, ASEAN,the Declaration on Conduct, and the South China Sea, Professor, Graduate School of International Relations, International University of Japan, Niigata, Japan (www/http:/findarticles.com/p/articles/mi_hb6479/is_3_25/ai_n29056620/pg_6/?tag=mantle_skin;content)

Ibid

This year, the world has witnessed the surged in China’s assertiveness that no less than the U.S. and Australia have openly cautioned China in its aggressive stand. The Philippines on its part has recently publicly decried on several occasions this assertiveness as intrusion to its maritime zones, which was however denied publicly by the Chinese Ambassador in Manila.4 Accordingly, China has not violated any international law and is just asserting its rights under LOSC. If we are to dissect the move of China in the SCS, it may appear that they are politically motivated to challenge the Philippines’ claim to the area, exploiting the obvious fact that the Philippines is militarily the weakest among the ASEAN claimants. Again, among the claimant-nations, it will also appear that China, aside from being a military heavyweight, she is also the most prepared in terms of the essential requisites of the LOSC in so far as SCS is concerned (e.g. marine scientific data, legal and technical studies, infrastructure development in the SCS, hydrographic survey, and many other statistical information). In fact, in order to show how serious they are in their assertions, some universities in China have even developed educational programs in masteral and doctoral degrees specializing in South China Sea studies. Hence, the assertiveness of China today is borne out of its political vision to regain back its so-called “lost territories” by investing in the academic and scientific research, infrastructure development, technical support facilities, and the assertiveness of its civilian maritime agencies. In addition, in order to avoid international criticisms for militarizing the area, it resorted to the use of its “CIVILIAN LAW SHIPS” under the so-called “Five (5) Dragon Agencies”, namely, the Chinese Coast Guard (maritime patrol), China’s Maritime Safety Agency, Fishery Fleet Command, China’s Custom Agency, and China Communication and Surveillance Agency.5 Analyzing China’s preparation and geopolitical maneuvers, it appears that China is likewise cautious in using its military or naval fleet to assert its claim. Most of the reported alleged intrusions were done by the ships coming from these Five (5) Dragon Agencies. In its politically clever moves, we have yet to establish today some “constructive evidences” that China indeed had used its military ships and planes in the Philippines’ Exclusive Economic Zone (EEZ). China, too, in its quest for maritime dominium, appears to be observant of the Posse Comitatus principle – the separation of the military or naval enforcement versus civilian law enforcement operation, particularly, in the implementation of the provisions of the UNCLOS. They have recognized the LEGAL difference between a WARSHIP and a LAWSHIP in pursuing their political objectives in asserting their claims. In short, China has done some good “strategic homework” before coming out openly in the international arena with its calibrated geopolitical maneuvers in the SCS. The geo-strategic move of China is emboldened by the following groundwork: a) academic, scientific, technical and LEGAL researches, b) capacity build-up and subsequent infrastructure

Roy C. Mabasa, “Rumors Fly Spratlys Brouhaha”, Manila Bulletin, 10 June 2011

Lyle J. Goldstein, “Chinese Coast Guard Development: Challenge and Opportunity”, China Brief, Vol. IX, Issue 23, The Jamestown Foundation, Washington D.C., 19 November 2009

development, c) the use of civilian law ships to prevent from being charged of militarizing the SCS, d) political-economic projection, and e) political will to assert its vision. Conversely, this short writing will attempt to review the preparedness of the Philippines with respect to defending or asserting its maritime claims in the SCS, in both legal and physical dimensions. Since the law of the sea convention is a very complex subject, our discussion will only focus on issues pertaining to Philippines’ archipelagic waters, territorial sea, contiguous zone, the exclusive economic zone, and the implications of the innocent and transit passage thereof. B. UNCLOS’ Maritime Zones: A Basic Review For simple explanation and applicability, we will attempt to dissect the maritime zones provisions of UNCLOS in the light of Philippines’ geographical configuration as an Archipelagic State. We will focus our attention on the Western Philippine Seaboard (WPS) where most of the conflicts had stemmed from. For the purpose of review, the Philippines is required under the Law of the Sea Convention (LOSC) to establish an archipelagic baselines.6 Subsequently, the measurement of the breadth of the territorial sea, the contiguous zone, the exclusive economic zone (EEZ) and the continental shelf is measured from the archipelagic baseline, as shown in the Figure 1:7

Figure 1 6

Article 47

Article 48

Archipelagic Waters (Internal) The waters enclosed by the archipelagic baselines are described as archipelagic waters (domestically known as internal waters, but legally speaking, it is not under the LOSC), regardless of their depth or distance from the coast;8 and the Philippines as an archipelagic State has sovereignty over them, except on the rights of the foreign ships for “innocent passage” and “archipelagic sea lanes passage” (ASL).9 Please see Figure 2.

Figure 2 (As proposed)

Article 49 (1)

Article 52 (1) and 53

Archipelagic Sea Lanes (ASL), Territorial Sea (TS), Contiguous Zone (CZ), Continental Shelf (CS) and the Exclusive Economic Zone a. Archipelagic Sea Lane (ASL) Ships of all States enjoy the right of innocent passage through the archipelagic waters as long as it is not prejudicial to the peace, good order or security of the coastal State.10 This is essentially important if the Philippines would use the archipelagic doctrine concept under the LOSC as a basis to register its maritime boundary. The country cannot prevent foreign ships from entering the archipelagic waters, especially if the sea-lanes therein are internationally recognized as customary routes of commercial ships, except on cases when such entry is inimical to good order, peace and security. In addition, innocent passage shall be subject to the designation of the coastal State of an archipelagic sea lanes (ASL) without prejudice to the rights of the State to draw closing lines for the delimitation of its internal waters in relation to its bays, mouths of rivers, and ports.11 On the other hand, the coastal State may suspend temporarily in specified areas of its archipelagic waters the innocent passage of foreign ships if such suspension is essential for the protection of its security, only after due publication has been undertaken by the said State.12 b. Territorial Sea (TS), Contiguous Zone (CZ), Continental Shelf (CS), and the Exclusive Economic Zone (EEZ) In relation to this, it shall be noted that foreign ships are entitled to innocent passage and/or “transit passage” in the territorial sea (TS), while they are entitled to “FREEDOM OF NAVIGATION” in the contiguous zone (CZ) and the exclusive economic zone (EEZ) under the LOSC. Transit passage under the context of the LOSC pertains to navigation through the territorial sea for the purpose of traversing that sea without entering the internal waters (entering archipelagic sea lane is of a different regime) or calling at a roadstead or port facility outside internal waters; or proceeding to or from internal waters or a call at such roadstead or port facility.13 Furthermore, the passage shall be “continuous and expeditious” which may include stopping and anchoring, but only in so far as the same are incidental to ordinary navigation or are rendered necessary by force majeure or distress or for the purpose of rendering assistance to persons, ships or aircraft in danger or distress.14 For the purpose of this paper, it shall be noted that the Philippines’ territorial sea is so located from the surrounding archipelagic baseline as shown in figure 2 and is measured twelve (12) miles going seaward from the baseline. Entering inside the Philippine so-called “internal waters” is actually entering the Philippine archipelagic waters, by which, is governed by a separate regime which was earlier explained 10

Article 19 (1)

Article 50 in relation to Article 9, 10 and 11

Article 52 (2)

Article 18 (1)

Article 18 (2)

concerning the principle of the rights of foreign ships entering an archipelagic sea lanes (ASL) and its right of innocent and transit passage therein. The rules for transit passage are applied â&#x20AC;&#x153;Mutatis Mutandisâ&#x20AC;? to the rules of innocent passage when entering the ASL. However, passage of a foreign ship may not be considered innocent at all, if in the territorial sea (including the Archipelagic waters), it engages in any of the following activities:15 1. Any threat or use of force against the sovereignty, territorial integrity or political independence of the coastal State; 2. Any exercise or practice of weapons of any kind; 3. Any act aimed at collecting information to the prejudice of the defense or security of the coastal State; 4. Any act of propaganda aimed at affecting the defense or security of the coastal State; 5. The launching, landing or taking onboard of any aircraft; 6. The launching, landing or taking onboard of any military device; 7. The loading or unloading of any commodity, currency or person contrary to the customs, fiscal, immigration or sanitary laws and regulations of the coastal State; 8. Any act of willful and serious pollution contrary to the provisions of UNCLOS; 9. Any fishing activities; 10. The carrying out of research or survey activities; 11. Any act aimed at interfering with any systems of communication or any other facilities or installations of the coastal State; 12. Any other activity not having a direct bearing on passage. In the case of the Philippines, where it adopted the archipelagic doctrine legal concept in asserting its claims to its maritime zones, the LOSC requires the government to establish an archipelagic sea lane passage suitable for the continuous, expeditious and unobstructed passage of foreign ships and aircraft through or over its archipelagic waters and the adjacent territorial sea, which is actually situated inside the surrounding archipelagic baseline. The law also mentions that when a foreign ship traverses the ASL, it shall be in its normal mode of transiting between one part of the high seas or EEZ and another part of the high seas or an EEZ, using the normal passage routes for traditional or customary international navigation.

Article 19 (2)

Along this line, the LOSC requires the archipelagic State to define the ASL’s entry and exit points using an axis line as navigational routes of foreign ships, and shall likewise prescribe traffic separation schemes (TSS) therein for the safe passage of ships through narrow channels in such sea lanes, provided, that such ASL “proposal” shall be referred to competent international organization (in this case, the International Maritime Organization) with a view to their adoption.16 Incidentally, the LOSC is categorical in its requirement that ASL proposal of a coastal State shall be referred to the IMO for deliberation and approval of the assembly. Right now, there is a bill filed in the Philippine Congress proposing the establishment of the country’s ASL. In the light of this requirement, it is suggested that the Executive Branch of government should be the one proactive in preparing the Philippine ASL proposal, and subsequently submit the same to the IMO for approval, with the end-view of providing notice to the whole world of our nautical routes. Otherwise, even if legislation of Philippines’ so-called ASL is made, this will still not have a legal and binding effect to the international shipping community since the same has not been coursed through the proper international legal process, or even if this will be coursed through the IMO, there is no assurance that this will be approved or even recognized by the assembly. In short, aside from being a tedious process, locally legislating an ASL is perceived to be a political exercise in vain unless the process is completely consummated upto the IMO. Article 53 section 9 of UNCLOS is very clear on this. Although it is desirable and ideal to legislate laws relevant to the LOSC, the country’s experience when it comes to its track record in legislating laws, taking ages to happen, would indicate to us that legislative bills filed in the Philippine Congress could take a number of years to be enacted into laws. Moreso, with maritime related bills, which normally are not given special preference by the country’s legislators. As an example, the Philippines as a maritime country and Archipelagic State needs a “Merchant Shipping Act” or a Maritime Code yet when the bill was filed in Congress to address this pressing need, this bill was never enacted into law - to the grave loss of a maritime nation such as ours. In fact, the proposed Merchant Shipping Act was part of the maritime agenda of the defunct Presidential Task Force on Maritime Development in 1997.17 Incidentally, it could have been legislated into law had President Fidel V. Ramos have enough time left on his term as President. The bill was certified urgent but was overtaken by events wrought by the forthcoming national election then in 1998. In addition, the formulation of the Philippines archipelagic baseline, TS, ASL, CS, CZ and EEZ was also part of the afore-cited Task Force agenda. These, too, suffered for lack of material time to prepare. That was thirteen (13) years ago, yet, we are still grappling up to this present day to have these maritime zones duly established. The excerpts from “The Law of the Sea”, Third Edition, by R.R. Churchill and A.V. Lowe, published in 1999, exemplifies the “sloth” pace of our compliance to the LOSC, to wit:

Article 53

Incidentally, the author was the head of the secretariat of the said Task Force in 1997. He pushed for the inclusion of the proposed Merchant Shipping Act and the compliance of the Philippines with the UNCLOS essential requirements as Archipelagic State in the Task Force agenda.

When ratifying the law of the sea convention, the Philippines made a declaration that the ‘provisions of the Convention on archipelagic passage through sea lanes do not nullify or impaired the sovereignty of the Philippines as an archipelagic State over the sea lanes and ….. that the concept of archipelagic waters is similar to the concept of internal waters under the Constitution of the Philippines, and removes straits connecting these waters with the economic zone or high seas from the rights of foreign vessels to transit passage for internal navigation’. This declaration was objected to by Australia, Belarus, Bulgaria, Czechoslovakia, Russia, Ukraine and the U.S.A. on the grounds that it exceeded the permissible scope of the declarations given by Article 310 of the Convention and was in reality an impermissible reservation and that it indicated an intention by the Philippines to contravene the Convention. In response the Philippines said that it intended to harmonize its domestic legislation with the provisions of the Convention and that ‘the necessary steps are being undertaken to enact legislation dealing with archipelagic sea lanes passage and the exercise of the Philippines sovereign rights over archipelagic waters, in accordance with the Convention’. As far as we are aware, such legislation has not yet been enacted.(Underline supplied)

Moreover, it shall be noted that in case the archipelagic State does not designate sealanes or air routes in its archipelagic waters, the right of ASL passage may still be exercised through the routes normally used for international navigation.18 In short, the Philippines MAY DECIDE NOT TO ESTABLISH the ASL for reason of protecting its marine environment within its archipelagic waters, however, this does not mean that without the ASL, foreign ships are not allowed to pass through this “internal route”. The LOSC is explicit in saying that they can, provided they have to pass through the traditional sea routes normally used for international navigation. It pays to bear in mind that the Philippine situation vis-à-vis the LOSC is so unique that special provisions under the law of the sea has been accorded to those countries similarly situated which opted to choose the “archipelagic doctrine regime” as their basis for their respective claim for maritime zones. Attached Annex will show us the summary of the rights and duties of the coastal State vis-à-vis foreign ships in its maritime zones. C. Reviewing Philippines Initiatives vis-à-vis UNCLOS Essentials This paper is not aimed to review the basis of the conflicts arising from the maritime disputes in the Philippines EEZ or in the country’s claimed territory in the SCS. Instead, it is the objective of this paper to dissect the political and technical moves of the Philippines vis-à-vis China’s assertion in the past months concerning the alleged Chinese intrusions in our “territory”, and to provide some useful insight in order for the country to formulate sustainable and peaceful political solutions in resolving the looming maritime boundary conflict, and to prepare for the subsequent follow up in asserting our rights and sovereignty over our claims. At any rate, given the aforementioned encapsulation of the rights of the archipelagic State under the LOSC, it might be prudent to probe if there were indeed Chinese intrusions into our maritime boundaries? If there is any, which part of our maritime domain or zones? Is it within our territorial sea, contiguous zone or exclusive economic zone? Does the Philippines have the “constructive evidence” (legal, scientific, technical) to prove the allegations? Before answering these questions, a legal premise is ought to be adopted that the Philippines, as a member-State of the United Nations, has all the rights to invoke its sovereignty over its maritime dominium under the Law of the Sea Convention, specifically, its territorial sea, contiguous zone, continental shelf and the exclusive economic zone. This is the general indivisible rule. Invoking 18

Article 53 (12)

such rights, of course, should be within the legal bounds and framework of the LOSC and other international laws. However, it must be remembered that before a coastal State can invoke its rights over its claims, there is a litany of legal, technical, scientific and physical parameters that the LOSC has laid down prior the consumption and safeguarding of the said rights. These are conditions sine qua non, which a coastal State must comply. What are these? As an Archipelagic State 

As an archipelagic State, and before asserting maritime claims, has there been an archipelagic baseline drawn on nautical charts of a scale or scales adequate for ascertaining their positions, inclusive of lists of geographical coordinates of points, specifying the geodetic datum?19 Has there been a publication of this in nautical charts, inclusive of the list of geographical coordinates and deposited the same to the Secretary General of the United Nations?20 Which government agency has the mandate to do this?



Has there been a measurement of the breadth of Philippines’ territorial sea, the contiguous zone, the exclusive economic zone and the continental shelf, in relation to its baseline, and have drawn the same on nautical charts of a scale or scales adequate for ascertaining their positions, inclusive of lists of geographical coordinates of points, specifying the geodetic datum?21 Has there been a publication of this in nautical charts and deposited to the U.N.? If this requirement has not yet been complied with, how will foreign ships, or other States for that matter, recognize legally and technically the Philippines’ maritime boundaries?



Has there been closing lines drawn in our archipelagic waters for the delimitation of internal waters in relation to ports, mouth of rivers and bays?22 Has there been a publication of this in nautical charts and deposited to the U.N.? If this requirement has not yet been complied with, how will foreign ships observe the rules when entering Philippines’ bays, mouths of rivers and ports?



Has there been an identification of existing agreements with other States and traditional fishing rights and other legitimate activities of the immediately adjacent neighboring States in certain areas falling within Philippines’ archipelagic waters?23



Has there been an adoption or formulation of laws and regulations relating to transit passage on the following navigational aspects: a) safety of navigation and the regulations of maritime traffic, b) the prevention, reduction and control of pollution regarding the discharge of oil, oily wastes and other noxious substances, c) with respect to fishing vessels, the prevention of fishing, including the stowage of fishing gear, d) the loading or unloading of any commodity,

Article 47 (8)

Article 47 (9)

Article 48

Article 50

Article 51 (1)

currency or person in contravention of the customs, fiscal, immigration or sanitary laws and regulations.24 Has there been a publication of this for the consumption of international shipping? Does the Philippines have the capability to enforce in full the aforementioned laws and regulations within the vast boundary of our archipelagic waters while hundreds of foreign ships are transiting therein? Which particular agencies of government are responsible in formulating the regulations on the afore-mentioned? 

In the case of the regime of passage through straits used for international navigation, in particular, the Strait of Balabac (Southern Palawan and Sabah, Malaysia border), has there been an establishment of the maritime regime passage in consonance with Part III of LOSC? Has this been done the same to other Straits within Philippines’ maritime borders?



Has there been an initiative to come up with a “treaty of delimitation” with Philippines’ neighboring countries (Indonesia and Malaysia) in compliance with Article 15 and Article 74 of LOSC, whichever is applicable?



Are there enough civilian law enforcement ships to enforce the laws and regulations relating to transit passage within the vast waters of our archipelagic waters? How can the Philippines assert its claims and enforce its rights if it does not have any? How can the Philippines ensure the promotion of maritime safety and security and the protection of its marine environment if it does not have any?

Archipelagic Sea Lane Passage, Territorial Sea, Contiguous Zone and Continental Shelf 

As an archipelagic State, has there been a designation of an archipelagic sea lanes and air routes suitable for the continuous and expeditious passage of foreign ships and aircrafts through or over our archipelagic waters and the adjacent territorial sea?25 Has there been a submission of a proposed ASL to the competent international organization (International Maritime Organization) with a view to their adoption?26 If none, how will the international shipping community recognize the Philippines’ rights if this has not yet been done?



Has there been a prescription of traffic separation schemes (TSS) for the safe passage of ships through narrow channels in such lanes?27 Has there been an establishment of aids to navigation facilities, buoyage and communications infrastructure, and vessel traffic management system in the projected ASL and TSS in order to promote safety and security and to protect the country’s precious marine environment?28 Which particular agency of government is responsible in formulating the regulations for these schemes and systems? In case of marine accident or marine pollution, does the Philippines have the capability to conduct marine casualty investigation with reference to the IMO rules and standards?

Article 54, Article 42

Article 53 (1)

Article 53 (9)

Article 53 (6)

Article 43



Has there been identification and designation of the “Particularly Sensitive Sea Areas” (PSSA), domestically called as marine protected areas, within the Philippines’ ASL, TS, CZ and EEZ?29 Has there been a submission of the list of Philippines’ PSSA to the IMO for recognition of the assembly? Before submitting such proposal to the IMO, has there been a conduct of necessary marine scientific study to back-up said claims? Which particular agency is responsible for this?



Has there been an adoption of a compulsory pilotage system in special areas within our ASL, TS and CZ? Has there been an enactment of such law on pilotage?



Has there been a formulation of regulations on speed restrictions within the country’s ASL, TS and CZ?30 Which particular agency is responsible for this?



Has there been an identification of known navigational hazards and issuance of notice on the same to the IMO? Which particular agency is responsible for this?31



Has there been a measurement to establish the Philippines continental shelf in reference to its seabed and subsoil of the submarine areas that extend beyond the territorial sea throughout the prolongation of its land territory to the outer edge of the continental margin, or to a distance of 200 nautical miles from the baselines from which the breadth of the territorial sea is measured where the outer edge of the continental margin does not extend up to that distance?32 Has there been a submission of the information on the limits of the continental shelf to the “Commission on the Limits of the Continental Shelf” set up under Annex II of the LOSC?33



Has there been conditions established for laying down of cables or pipelines entering Philippine territory or territorial sea, or its jurisdiction over cables and pipelines constructed or used in connection with the exploration of its continental shelf or exploitation of its resources or the operations of artificial islands, installations and structures under its jurisdiction?34



Has there been regulation established to authorize and regulate drilling on the continental shelf for all purposes under the LOSC?35



Has there been regulation established to authorize and regulate the construction, operation and use of artificial islands, installations and structures in relation to Article 56 of the LOSC?36

IMO Resolution A. 720 (17)

Article 21

Ibid

Article 76 (1)

Article 76 (8)

Article 79 (4)

Article 81

Article 80, mutatis mutandis with Article 60



Does the Philippines have enough civilian law enforcement ships to enforce its laws in relation to guarding its ASL, TS and CZ while hundred of foreign ships are traversing thereto? How can the Philippines assert its claims and enforce its rights if it does not have any? How can the Philippines ensure the promotion of maritime safety and security and the protection of its marine environment if it does not have any?

Exclusive Economic Zone 

Has there been a legislation of enforcement activities to deal with the dumping of waste, other forms of pollution from ships, and pollution from sea-bed activities in the country’s EEZ?37 If none, how will the Philippines enforce its rights to prevent marine pollution in its EEZ if it does not have the necessary laws or regulations? How will the Philippines notify the international shipping community and the other States of its EEZ regulations based on its maritime rights if it does not have any?



Has there been an establishment through scientific means of the allowable catch (often referred to as total allowable catch) for the country’s “fish stock” within its EEZ?38 This data is important if the Philippines is to prevent other States from fishing in its EEZ, otherwise, in the absence of such data, the Philippines may be compelled to allow them to fish in its EEZ. Article 62 (2) provides that where the fishermen of the coastal State are not capable of taking the whole of the allowable catch, the coastal State is to permit the fishermen of other States to fish for the balance between what its fishermen take and the allowable catch. What is the country’s scientific proof that the fish within its EEZ is within its allowable catch? What would prevent other States from fishing within the Philippines’ EEZ if it does not have such data to show? Has there been an establishment of fishing regulations within the Philippines’ EEZ? If indeed the Philippines has any, has there been a notification of the other States through the Secretary General of the United Nations of the country’s fishery regulations?



Has there been a conduct of scientific study on the Philippines straddling stocks, migratory species, and catadromous species within its EEZ?39



Has there been a designation of PSSA in the Philippines’ EEZ?40 communication of the same to the IMO for its recognition?



Has there been a provision of the Philippines conditions for the laying of submarine cables and pipelines in its EEZ?41 Has there been a communication of the same to the competent authority? What agency in government is in charge in laying such conditions?

Articles 208, 210 (5), 211, 214, 216, 220, and 234

Article 61

Articles 63, 64, and 67

IMO Resolution A.720 (17)

Article 58 (3)

Has there been a



Has there been a provision of the rules and regulations pertaining to the prevention of marine pollution, dumping of wastes, speed restrictions and pilotage rules and communicated the same to the IMO?42



Does the Philippines have civilian law enforcement ships capable to reach the boundary of its 200-mile EEZ to enforce its laws relating to the law of the sea? How can the Philippines assert its claims and enforce its rights if it does not have any? How can the Philippines ensure the promotion of maritime safety and security and the protection of its marine environment if it does not have any?

If the answers to most of these questions are in the negative, the Philippines is really facing a serious problem. The above technical, scientific and legal requirements are the Philippines only tools to show to the world the legitimacy of its assertions, crucial to its maritime claims. In simple language, how can someone assert the exact area of his property when in fact, he does not have an established metes and bounds of his property? How can someone prevent trespassers from entering his property when he has not put up fences to fend them off? How can someone put up fences in his property when in the first place, he has not established, in technical details, the metes and bounds of the said property? By analogy, in land disputes, the land title of the property is very important because said land title is a declaration in rem “against the whole world” that someone owns such property. But even before the issuance of the title, authorities normally asked for technical descriptions as represented in geographical coordinates to measure the exact boundaries of such claim. This is to ensure avoidance of possible disputes from other prospective claimant in case there is any. On the other hand, if somebody has encroached on one’s property, the authority can easily resolve the possible dispute because of the technical descriptions spelled on said property. In the absence of such technical descriptions, how can the authority resolve the dispute and use the applicable rules when there is no technical basis to solve it? In other words, when one goes to court and file a complaint, such as in the case of land dispute, one should be prepared in obtaining first from the proper authority (in this case the DENR or NAMRIA) the technical documents that would support one’s claim. In the world of ocean and maritime affairs, under the UNCLOS regime, a coastal State should first go to the competent authority, that is, the International Maritime Organization (IMO) or the Secretary General of the United Nations, whichever is appropriate, to get the imprimatur of the technical documents for the maritime claims presented. These shall include, among others, establishments of maritime infrastructures (traffic separation system, vessel traffic management system, aids to navigation such as lighted buoys and lighthouses, identification of a particularly sensitive sea area, etc), imposition of maritime safety, security and pollution regulations, pilotage system, marine scientific study, fishery law, and the like. Once the proposal is granted by the international competent authority, this is considered as Erga Omnes, or valid against the whole world, regardless of consent on the part of those affected.

Article 56 (1) (b)

Ergo, the Philippines should diligently do its homework first, for only then it can really be prepared and equipped to bring its stake in the international arena with a much better chance of succeeding for the acknowledgement by the community of nations. D. Moving Towards the Future As can be gleaned from the foregoing, it may seem that the Philippines may have a lot of catching up to do with respect to complying with its duties under the LOSC. Yes, the Philippines may have its rights under the law of the sea, but these rights have corresponding prerequisite duties and obligations. The Philippines better not doze off and complacently dawdle, to say the least, in as much as the stakes are high and the ante are being waged by some, if not many . The Philippines’ territorial insecurity today has stemmed from its lack of appreciation of its geo-property rights under the LOSC. This is evident by the country’s lack of maritime domain awareness of the exclusivity of its maritime claims, which has been exacerbated by the fact that the government may have inadvertently not given primordial importance in securing its rights under the law of nations. The Philippines may seem to have failed to analyze the importance of the oceans and the seas in its existence as a sovereign archipelagic nation in relation to geostrategic perspective vis-à-vis the demographic inflation and the corresponding decline in living space, resources and standards. As a result, the importance of the ocean and the sea does not register any clear direction in policy decisions. The Philippines, although endowed with the abundance and vastness of its seas and ocean (part of the PACIFIC! – which could hardly be imagined by anybody BUT TRULY IS SO!), owing to its natural archipelagic configuration, has ironically adopted policies that are primarily landcentered, to the detriment of its maritime potential WEALTH and its SECURITY. Sadly, ocean and sea use management have just been relegated as “incident related” and, more often than not, only acts on maritime complex issues on post incident basis, thus, the difficult struggle. The UNCLOS was ratified by the Philippine government twenty-seven (27) years ago, but a credible ocean and sea operational philosophy has yet to be seen, albeit a legal national maritime strategic policy. The crux of the matter is, the Philippines have left its ocean and seas in the backburner, devoured by the geopolitical threats arising from the shift in the balance of geopolitical gravity in the global competition for economic and military supremacy. The strategic balance of power has now shifted from the Atlantic to the Pacific, of which, the South China Sea plays a crucial strategic role, since it is vital to the strategic interests of the superpowers, in addition to its abundance in natural resources. For numerous occasions, the Philippines, along with the smaller claimant States in the SCS, have been asking the world for assistance in asserting its claims in the contested sea, especially when a heavyweight claimant starts to flex its muscle through power projection. The Philippines can only “howl” and “growl” in preventive stance. And the question lingers, has the Philippines done its homework wrought by the lessons of its experiences? Has it answered and worked on its assignments – the essentials of the law of the sea? With the prevailing power asymmetry in the South China Sea, the threat matrix cube combining all the claimant States would give us a tale-telling story of ending up on “zero-sum” conclusion. The 14

Philippines dare not even think of it since in the first place, its political strategy should focus on how to win the battle unscathed, if ever possible, without drawing its “puny wooden sword”. First, the Philippines’ geostrategic approach should hinge on its capacity to pool its legal and technical resources together and review whether the country is in the position to assert its rights with respect to its inherent duties as a coastal State under the UNCLOS regime as earlier mentioned. Second, the Philippines has to have faith in the ASEAN system, whereby multilateralism has its characterized premium in socio-political and economic undertakings. It is therefore wise for the Philippines to politically engage its fellow ASEAN co-claimants in this unfolding scenario in the region. Lastly, the Philippines has to be politically engaged with China with the end-in-view of stimulating a “regional maritime cooperative governance”.43 The Philippines should take a cue from China’s employed scheme by duplicating China’s operational culture and propensity of optimizing its assertion through the use of its so-called five (5) dragons, namely: a) Chinese Coast Guard (maritime patrol police), b) China Maritime Safety Agency, c) China Customs Authority, d) China Fishery Fleet Command, e) China Maritime Communication and Surveillance Agency.44 It is worthy to note that all these agencies are civilian agencies enforcing civilian international laws and conventions in the SCS, cleverly skirting the use of its military and naval forces to avoid being accused of militarizing the area, a wise application indeed of the “Posse Comitatus” principle. Although bereft with “floating assets” (ships and sea crafts), the Philippines can still do an ‘ala China-dragon “trick” by pooling together its available civilian law enforcement ships owned by the government (Coast Guard, BFAR, NAMRIA, DA, etc.), with the Philippine Navy ships at the homefront, ready to back-up Philippine LAW enforcement ships in the forefront (SCS), when maritime complexities so require. The Philippine should have a singular “maritime force”, inspired by a unified maritime strategy, through the fusion of all the country’s potent force at sea aimed at attaining a “collective maritime security perspective” in protecting our treasured maritime archipelagic domain. Maritime strategy is more than naval strategy. It involves all government bodies with responsibilities in the oceanic domain.45 In sum, the Philippines approach should be geared towards capacity building and institutional enhancement, multilateralism through regional maritime cooperative governance, and direct 43

Ambassador Alberto Encomienda, former director of CMOA, advocates the concept of regional maritime cooperative governance. He is a retired Department of Foreign Affairs (DFA) official and is regarded an expert in the LOSC.

Lyle J. Goldstein, “Chinese Coast Guard Development: Challenge and Opportunity”, China Brief, Vol IX, Issue 23, The Jamestown Foundation, Washington D.C., U.S., 09 November 2009, 45

James R. Homes, “China’s Maritime Strategy Is More than Naval Strategy”, China Brief, Vol XI, Issues 6, The Jamestown Foundation, Washington D.C., U.S., 08 April 2011

political cum diplomatic engagement with each of the claimant States. Below is the outline of the proposed diplomatic policy engagement: a. Capacity Building and Institutional Enhancement Ocean and sea based policy and legislative formulation is a different dimension from the traditional land-centered legislation, all together – distinct and separate from each other.46 The former is more complex than the latter as it has an international character where various international laws, conventions and agreements have to be taken into account with considerable degree of sensitivity and caution. Deeper insights on ocean and sea use management and knowledge on international maritime issues, specifically on the promotion of maritime safety, marine pollution prevention, maritime security, maritime law, and maritime economics, among others, are considered major requisites in coming up with the much sought comprehensive national maritime strategic policy. When these vital components of this maritime stratagem shall have been in place, the government authority can already proceed to embark on capacity building and institutional enhancement measures to strengthen the Philippines’ maritime niche in this part of the world. For clarity purposes, the ensuing discussion will only focus on the “backlogs” earlier mentioned and proposals on certain policy directions to address the prevailing issues. In so doing, we are actually trying to build up our capacity and enhance pertinent institutions in order to comply with the “essentials” of the UNCLOS. The Philippines’ success of being able to legislate its archipelagic baseline before the deadline set by the United Nations for UNCLOS compliance is certainly laudable. Indeed, the baseline is crucial in setting-up the pace to mathematically measure the breadth of the Philippines’ TS, CZ, CS, EEZ and even the continental shelf. Unfortunately, the law (RA 9522) which promulgates the Philippine baseline is, at present, under legal review by the Supreme Court on question of unconstitutionality. It is on this context that the Supreme Court ought to consider the expeditious resolution in order for the Philippines to move into the next phase of determining its TS, CZ, EEZ and continental shelf. Nevertheless, this should not stop the concerned authorities from measuring the TS, CZ, CS and the EEZ based on the archipelagic baseline. Surprisingly, while the Philippines has a Cabinet Committee on Maritime and Ocean Affairs (CMOA), this collegial body is composed of various government agencies, most of which are mandated with land-based functions. Hence, reviewing the legal mandates of its members, it goes to show that the following agencies have the corresponding further responsibility vis-a-vis the technical, legal and scientific essential requisites of the LOSC, as earlier mentioned: NAMRIA 

Measurement and identification of the TS, CZ, CS, EEZ and geodetic datum



Drawing of closing lines in the archipelagic waters for the delimitation of internal waters in relation to ports, mouth of rivers, and bays.

Dr. Prabhakaran Paleri, “Coast Guards of the World and Emerging Maritime Threats”, Ocean Policy Studies, Special Edition, Ocean Research Policy Foundation of Japan, 2009

BFAR 

Fishery regulations including the stowage of fishing gears for submission to international competent authority



In cooperation with U.P. Marine Science Institute, DA, and other agencies specializing in marine sciences, conduct of marine scientific studies in determining the “allowable fish catch” in the Philippines’ EEZ, and other related studies with respect to highly migratory species, marine mammals, anadromous stocks, catadromous species, sedentary species, and the like in the said area.

CUSTOMS, IMMIGRATION, and QUARANTINE SERVICES 

Publication of pertinent regulations pertaining to the loading or unloading of any commodity, currency or person in contravention of the customs, fiscal, immigration and sanitation laws of the country.

PPA 

Initiation of a bill pertaining to the “Pilotage System” for submission to Congress with a view for its enactment into law

PCG Formulation of regulations pertaining to transit passage on the following navigational aspects in accordance with LOSC and the IMO Conventions (SOLAS, MARPOL, COLREGS, ISPS Code), specifically on the following: 

Safety of navigation and the regulations of maritime traffic in accordance with the International Convention on the Prevention of Collision at Sea (COLREGS)



Identification of Archipelagic Sea Lane (ASL) passages in consonance with the LOSC and COLREGS. It is prudent for the Philippines to first submit the proposed ASL to IMO for final recognition and adoption. Local legislation of the same has no bearing to the international shipping community unless recognized by the IMO member States.



Identification and establishment of Traffic Separation Scheme (TSS) for the safe passage of ships through narrow channels in the ASL in accordance with LOSC and COLREGS.



Formulation of rules and regulations pertaining to “speed restrictions” for ships in special areas within the AW, ASL, TS and CZ in accordance with IMO Conventions and its Resolutions.



Identification of known navigational hazards within the AW, ASL, TS, CZ and EEZ and submission of same to IMO for notification of international shipping



Establishment of Vessel Traffic Management System (VTMS) with Automatic Identification System (AIS) capability in accordance with the SOLAS Convention with special reference to the 17

ISPS Code in the following areas: Balabac Strait, Zamboanga peninsula, Romblon, Batanes, Northern Palawan, Sulu, Tawi-Tawi, Cebu. This is for maritime security and marine accident prevention requirement of LOSC and IMO Conventions and its Resolutions. 

Establishment of maritime communications infrastructure compliant with the requirements of the “Global Maritime Distress Signal System” (GMDSS) and the ISPS Code in accordance with SOLAS Convention



Prevention, reduction and control of pollution regarding the discharge of oil, oily wastes, and other noxious substance in accordance with the Marine Pollution Convention (MARPOL)



Promotion of safety of life and property at sea in accordance with SOLAS convention



Capability enhancement for the conduct of marine casualty accident and marine pollution investigation cases with reference to the IMO rules and standards



Enforcement of the International Safety and Security for Ports and Ships Code (ISPS Code)



Identification of the “Particularly Sensitive Sea Area” (PSSA), domestically known as marine protected area, within the archipelagic waters in accordance with the LOSC, IMO Conventions and its Resolutions, and other related international laws.



Formulation of regulations for conditions of laying-out submarine cables and pipelines in AW, TS, CS, and EEZ



Enforcement of laws in fishery, customs, immigration, anti-drug, anti-terrorism, environmental protection, among others in the “absence at SEA” of concerned agencies.



Conduct of maritime civilian law enforcement of all the aforementioned regulations within the 679,800 square kilometer of the Philippine archipelagic waters (not included the Philippine waters in the CZ and the EEZ)

While it is interesting to note that most of the essential requisites of the LOSC can be done through administrative undertakings (technical, scientific and legal), the hardest part in the implementation is the “physical enforcement requirements” of all the laws, rules and regulations espoused under the law of the sea, requiring physical archipelagic infrastructures and the actual physical law enforcement activity. Anent thereto, the Philippines has first to put-up the LOSC infrastructures, such as, the VTMS, TSS, Communications system, Buoyage system, and the like, to guide foreign ships to their safe passage within the Philippines’ AW, ASL, TS, CZ and EEZ. Otherwise, how will the transiting vessels observe the Philippine rules within the ASL, TS, CZ and EEZ if there are no such systems in place earlier mentioned? Conversely, how will the Philippines also enforce its Archipelagic laws if the systems required by the laws are not present? By parallelism, in roads, it is like driving a car in the middle of the street without any traffic lights, road markers, and safety signage for directions. One could just imagine the lurking dangers that 18

can happen any moment without warning. So are the perils in the sea, which are even more unforgiving. In this light, can the Philippines afford to have accidents at sea? There are scores of foreign big oil tanker ships that traverse our archipelagic waters, notwithstanding the transiting hundreds of other type of commercial ships of various flags of registry in a given day, compounded by the thousands of our own domestic commercial and fishing fleet. Can the Philippines afford a duplication of marine pollution disaster in a catastrophic proportion as that of the Exxon Valdez accident in Alaska in 1990 in our own archipelagic waters? The cost of the clean-up operation of that Alaskan marine pollution accident runs into $30 billions, thus far, and still counting as of this date. For us to imagine the grave consequences of an oil spill disaster that can bring to us, we can just refer to our sad experience in Guimaras and Iloilo provinces in the MV Solar 1 oil spill accident, wherein it became a sensational issue and had caused serious national concern. And to think that MV Solar 1 incident pale in comparison to that of the Exxon Valdez accident in terms of magnitude and coverage. The essential requirement is the physical guarding of the Philippines’ AW, ASL, TS, and EEZ to prevent all forms of possible transgressions to all the Archipelagic laws and regulations in consonance with the LOSC and the IMO Conventions. For the purpose of mathematical computation, the Philippine archipelagic baseline is estimated at 2,640 miles or 4,248 kilometers, while the six (6) proposed Archipelagic Sea Lanes (ASL) entering and exiting on seven (7) points within the AW is approximately 2,572 miles or 4,139 kilometers. In addition, the Philippine maritime waters, inclusive with the EEZ, is estimated at 2.8 million square kilometers, while the country’s oceanic waters is reported at 1.93 million square kilometers.47 Given this geometrics, in order for the Philippines to “modestly guard” physically its vast ASL, TS, CZ and EEZ and physically conduct civilian law enforcement operation is for the country to have at least ten (10) Off-shore patrol vessels (100 meters), four (4) ocean patrol vessels (140 meters) and twenty (20) multi-purpose patrol vessels (60 meters), working round the clock to enforce LOSC, IMO Conventions and the corresponding Archipelagic laws and regulations, to say the least. This is notwithstanding the fact that the country still needs scores of 25 to 35 meter boats to guard the 822 coastal municipalities which has a total coastal population of 64.7 million people spread across the 36,289 kilometer coastlines.48 Without these floating CIVILIAN law enforcement assets, our laws, rules and regulations could easily just be disregarded to our country’s detriment, if not outright risk. These thousands of commercial ships, both foreign and domestic plying our archipelagic waters everyday requires the enforcement of the LOSC and the various civilian mercantile marine IMO conventions. In fact, all ships in the international trade are required to COMPLY with the “Automatic Identification System” (AIS) requirement of the SOLAS Convention (ISPS Code) in order for the coastal State to easily identify in its VTMS/AIS radar system the name of the vessel, port of origin and destination, and cargo on board, without calling hundreds of them by mere radio, which 47

Philippine Coastal & Marine Resources: An Introduction, taken last 30 June 2011 from www/http://siteresources.worldbank.org/INTPHILIPPINES/Resources/PEMOS-ch 48

Ibid

is rendered in obsolescence by today’s shipping technological IMO requirement standards. Otherwise, if the authority sees them on the radar and their ship’s data are not registered, automatically these ships are considered suspects, and their passage can be impeded for boarding/checking purposes. This system can also be employed by our coast guard in all our domestic merchant fleet for maritime safety and security purposes in its civilian LAW enforcement mandate. These investments on maritime resources for the Philippines is considerably just a drop in the bucket when compared to the country’s economic losses due to smuggling, poaching, destruction of our corals and reefs, dwindling fish supply because of illegal fishing, marine pollution, maritime accidents, among many others. Per estimated by competent authorities, the government is poise to lose at least P50 billion a year due to mismanagement and wanton neglect of the country’s marine resources. The SCS alleged intrusion incidents are just the “tip of the dagger”, so to speak. Yet, the Philippines’ remain oblivious of the dangers posed by its tendency to neglect its ocean and seas - it must be a dreaded thought to even think about waking up one dull morning and find-out that the Philippines’ ocean and seas are no longer hers due to default (by act of omission). But then again, it is not impossible, in fact, it is even plausible reckoned from the indicators that are starting to set in if nothing is done about it. b. Multilateralism with the End-View of Regional Maritime Cooperative Governance There are several relevant UNCLOS provisions that can open the floodgates for maritime cooperation among the claimant States, namely: a) Part IX of the LOSC pertains to governance of enclosed and semi-enclosed seas, b) Part XII of the LOSC pertains to the protection and preservation of the marine environment, c) Part XIII of the LOSC pertains to the conduct of marine scientific research, d) Part IV of the LOSC pertains to the transfer of marine technology, and, e) Annex 6 of the LOSC pertains to resolution on the development of national marine science technology and ocean service infrastructure.49 In as much as the law of the sea is anchored on the underpinning principle of “common heritage of mankind”, the Philippines (which straddles between one of the world’s great ocean and the present day world most important sea-lane of communications), should take the initiative in championing the cause of this time-honored dictum in behalf of mankind. In addition, the Philippine seas – West Philippine and the Sulu seas – are so situated in the center of the world’s marine biodiversity, which require protection and preservation that can be made through regional maritime cooperative governance. This goes without saying that the Philippines, along with its claimant States, have “intergenerational responsibility” to take care of the ocean and the seas in behalf of the future generation of mankind. Aside from the UNCLOS regime, there are numerous IMO Conventions which the Philippines could utilize to induce claimant States to participate in regional maritime cooperation. In addition, China

Ambassador Alberto Encomienda, former director of CMOA advocates the concept of regional maritime cooperative governance. He is a retired Department of Foreign Affairs (DFA) official and is regarded an expert in the LOSC.

and a unified ASEAN front can treasure the opportunity to form some kind of development anchored by strong political will, long-term peace and security in the SCS.50 The international undertakings of the Philippine Coast Guard (PCG) proved to be good examples of this regional maritime cooperation. History would show that for more than thirty (30) years now, the PCG has forged a bilateral agreement with the Indonesian Sea Communications (Coast Guard) and the Japanese Coast Guard (JCG) to assist each other in case of major oil pollution occurrence. Every year, the three (3) countries conduct marine pollution exercise using their coast guard ships, making the Indonesian and Philippine waters as their venue, alternately. The MARPOL exercise has made the relationship of the three (3) coast guards as close as ever, with the promising prospect of bringing along the Malaysian Maritime Enforcement Agency (Coast Guard) and the Vietnamese Coast Guard to join this noble environmental protection undertaking in the immediate future. Last year, H.E. President Benigno C. Aquino Jr. had signed a bilateral agreement with his Vietnamese counterpart calling for a regional cooperation on “Search and Rescue Cooperation” in the South China Sea through the use of the coast guards of both countries. Last April 2011, through the initiative of Admiral Liwag, PCG Commandant, being the Chairman of the “Regional Cooperation on Anti-Piracy in Asia-Pacific (RECAAP) based in Singapore, he invited the Commandant of the Indian Coast Guard to send Indian Coast Guard ships to visit the port of Manila. His invitation was cordially accepted and last June 2011, one Indian Coast Guard ship arrived in Manila, sending a fraternal message for the start of a closer coast guard relationship between the two. The event was highlighted by no less than the Indian Ambassador to the Philippines, promising to invite PCG officers for cross-training in the Indian Coast Guard. The social, political, operational and cooperative dimensions of Coast Guards do not only extend within the bounds of Asia but has extended across the Pacific. Last 2009, the world has witnessed the visit of U.S. Coast Guard ships to China and extended its cooperation with its Chinese counterpart through a joint “search and rescue” exercise, while during the same period a team of Chinese scientists embarked briefly on a USCG icebreaker off Alaska to retrieve scientific data.51 In addition, the U.S. has accommodated Chinese coast guard cadets to study in the prestigious U.S. Coast Guard Academy (USCGA).52 Not to be outdone, the Philippines, too, has sent two (2) PCG cadets, studying at the Philippine Merchant Marine Academy (PMMA), to study in the USCGA through the generosity of the U.S. government. Joining the spree of benevolence, the Japanese Coast Guard has provided several grants to the PCG by way of human resource development projects. In the last five (5) years, the PCG had sent more than fifty (50) officers to Japan to take up various training courses, all under the auspices of the Japanese Coast Guard.

Professor Zou Keyuan, Harris Professor of International Law, University of Central Lancashire, United Kingdom, “The South China Sea: Towards a Cooperative Management Regime”, a Conference Report, S. Rajaratnam School of International Studies, Nanyang Technological University, Singapore, 16-17 May 2007

Lyle J. Goldstein, “Chinese Coast Guard Development: Challenge and Opportunity”, Volume IX, Issue 23, The Jamestown Foundation, Washington D.C. U.S., 19 November 2009 52

Ibid

The Philippines on its part may even initiate to host an ASEAN Coast Guard Institute to cater to harmonizing the training of ASEAN coast guards, and probably, induce Japan, China and South Korea to provide the infrastructures and equipment. The explicit display of cooperation among coast guards is a phenomenon that cannot be found in the navies of the world. Regional order and security in Asia-Pacific is changing in the light of the common maritime threats Asia-Pacific nations are facing today.53 Global warming, transnational crimes, marine environmental degradation, piracy, drug trafficking, among many others, are the common problems coast guards are faced with today. In examining the role of the coast guards, it will show that the world’s coast guard are designed for enforcement of national and international legislations, likewise providing service to humanity, especially the maritime community. These are some of the performed-roles of the coast guard according to their functions: maritime security and law enforcement, promotion of maritime safety, marine environmental protection, search and rescue at sea, maritime disaster management, ocean peace keeping and conflict resolution, ensuring supply chain movement at sea, humanitarian services, pre-empting threats at sea, ensuring sovereignty and territorial integrity of maritime entity, supporting confidence building measures, developing ocean awareness in the community, ocean research for bettering the conditions of life, and many more. Most of the aforementioned peculiar maritime functions are under the purview of the IMO, the U.N. body that specializes in international maritime governance, and the beckoning point of the world’s coast guard for maritime cooperation. c. Direct Social, Political and Economic Diplomatic Engagement Given the diplomatic cooperative approaches in the preceding examples, the government through the PCG can take the proactive stance in engaging our neighboring countries in this so-called “coast guard” diplomacy. Like the U.S., it engages its global rival in direct diplomacy by way of providing human resource development for its personnel, in addition to the search and rescue exercise and the marine scientific research. The Philippines has a very good maritime cooperation with Indonesia for many years, and the maritime conflicts centering on our borders were easily resolved through our friendship with our counterparts in the other territory. There are instances that conflicts are resolved not through exaction of “rules” but through the subjectivity of human element superimposed on the rules. When executives interact, they focus mainly on the content of the discussion at hand, hoping to get consensus on decisions or findresolutions. But the most astute among the negotiators understand that lots of useful information can also be derived from what occurs outside the pages of the agenda – not what people are saying, but how they are interacting.54 This principle and examples can be applied to the present day conflict in the SCS.

Commodore Sam Bateman, “Coast Guards: New Forces for Regional Order and Security”,Analysis from the East-West Center No.65, U.S. Congress, January 2003

Richard A. Davis, Ph.D, “The intangibles of leadership”, RHR Canada, 2010

By the sheer economic and muscular brawn of our neighbor, the Philippines can never match its hegemon in the theater of conflict. The country’s fighting infrastructures can be considered to be in their functional obsolescence. Reliance on the referent might of the neighbor’s rival across the ocean in the opposite side may provide the Philippines some comforting effect. But this is no guarantee. In the same vein that this may provide the Philippines some “discomforting” effects, on the other hand. This presumption is a “globalized complex risk” the country must avoid. The Philippines must stand on its own and utilize some other forms of engagement by way of pressing several identified “meridian points” withour neighbors. The Philippines may be a tiny Liliputian compared to an armed Gulliver, but Gulliver, too, has his own share of susceptibility and infirmity in one way or another. The “Joint Marine Seismic Undertaking” (JMSU) may have been a good start. But it was stopped due to some domestic political issue. So is the “Joint Oceanographic Marine Scientific Research Expedition (JOMSRE) between the Philippines and Vietnam, this cooperative attempt, too, was stopped for unknown reasons. For the sake of reviewing things and seeking solutions, it might be worthwhile for the government to consider evaluating the earlier wisdom why the Philippines had forged such agreement, and set aside the political issues in one corner for a while. Let us put the two examples in a “maritime theater threat matrix” and determine if indeed the two failed cooperative activities were highly disadvantageous to the country, or is it still viable for a second look. There are some sectors in the Philippine society that profess the principle that “what is contested cannot be negotiated”. This principle is somewhat debatable in the light of the present geopolitical reality, because our neighbors, too, may have the same line of thinking. In the end, the Philippines may have to end-up with one choice, and that is, to promote homogeny by squarely facing our coclaimants in a peaceful fashion promoting the ideals of one common heritage of the South China Sea. After all, we still have “our ocean” in the Pacific, at its virginal prime, uncontested and unmolested, waiting to be explored and exploited. The SCS dilemma should be a catalyst for the government’s ocean and sea use management agenda, and prevent the same lessons from happening in the Eastern seaboard of our territory. The Philippines must put the necessary mojon (landmark) and establish perimeter fence while nobody is trespassing yet in our OCEANIC property. Meanwhile, let us look West! E. C’est-a-dire! All these are necessary to sustain and enforce a long-term maritime strategic policy. Let us move forward and learn from the lessons of the past, especially those that have caused us to stumble. For scores of years, it is our Armed Forces that had kept on awakening our country of the looming maritime threats within our maritime domain and horizon. The perennial response of our civilian authority is through their voice of sympathy and diplomatic protest abroad. This is understandable, since our country is facing equally debilitating political problems in the domestic front. But meanwhile, our problem in our maritime domain is piling-up waiting for another day to crumble and fall over our heads. The Philippines may be “growling” and “howling” today due to the intrusion alarm, however, once the sound of the “gongs” and the “tambuli” has piped-down, the country would again return to its usual ordinary way of nonchalance and “what23

me-worry?” attitude, as if nothing has happened. The country has been used to this political roller coaster, dating way back in the 70’s taking a toll to our progress as we plummet near the bottom in terms of socio-political and economic index. The discourse could go on and on and on but it only points to one simple fact, now that there is a CLEAR AND PRESENT (sic) DANGER, it would be folly of us not to ACT NOW – assert our rights, we must! And we should put our money where our mouth is – c’est-a-dire! (that goes without saying!)

Note: COMMO JOEL S GARCIA PCG, H.D, Al-Haj, is the Commander of the Coast Guard Education and Training Command (CGETC). Prior to his present assignment, he was the Commander of the Coast Guard Western region based in Puerto Princesa, Palawan. He has earned his Masters degree in Shipping Management from the Philippine Merchant Marine Academy (PMMA) and in Maritime Safety Administration from the prestigious World Maritime University (WMU) in Malmo, Sweden. He was conferred a Doctors degree (Honoris Causa) by the Sulu State College for his humanitarian services. Likewise, he is a candidate of Doctors degree in Public Administration of a joint program by the Hong Kong Life University and the EARIST. He served as the Head of the Secretariat of the Presidential Task Force on Maritime Development in 1996 during the presidency of President Fidel V. Ramos. He earned his license as Master Mariner in 1992.

References The South China Sea : Towards A Cooperative Management Regime, A Conference Report, Maritime Security Program, S. Rajaratnam School of International Studies, Nanyang Technological University, Singapore, 16 May 2007 Ian Storey, “China and the Philippines: Implications of the Reed Bank Incident”, China Brief, Vol XI, Issue 8, The Jamestown Foundation, Washington D.C., 06 May 2011 James R. Holmes, “China’s Maritime Strategy is more than Naval Strategy”, China Brief, Vol XI, Issue 6, The Jamestown Foundation, Washington D.C., 8 April 2011 Philip C. Saunders, “Will China’s Dream Turn into America’s Nightmare?”, Vol X, Issue 7, The Jamestown Foundation, Washington D.C., 01 April 2010 Andrew S. Erickson, “Chinese Defense Expenditures: Implications for Naval Modernization”, China Brief, Vol. X, Issue 8, The Jamestown Foundation, Washington D.C., 16 April 2010 Dennis J. Blasko, “Chinese Strategic Thinking: People’s War in the 21 st Century”, China Brief, Vol. X, Issue 6, The Jamestown Foundation, Washington D.C., 18 March 2010 L.C. Russel Hsiao, “The Modernization of China’s Border and Coastal Defense Infrastructure”, China Brief, Vol. 10, Issue 3, The Jamestown Foundation, Washington D.C., 04 February 2010 Willy Lam, “Beijing Seeks Paradigm Shift in Geopolitics”, China Brief, Vol X, Issue 5, The Jamestown Foundation, Washington D.C., 05 March 2010 Lyle J. Goldstein, “Chinese Coast Guard Development: Challenge and Opportunity”, China Brief, Vol IX, Issue 23, The Jamestown Foundation, Washington D.C., 19 November 2009 24

L.C. Russel Hsiao, “Military Delegates Call for National Maritime Strategy to Protect Expanding Interests”, China Brief, Vol XI, Issue 4, The Jamestown Foundation, Washington, D.C., 10 March 2011 L.C. Russel Hsiao, “China’s New Submarines and Deployment Patterns: Aimed at South China Sea?, China Brief, Vol. 10, Issue 21, The Jamestown Foundation, Washington D.C., 22 October 2010 R.R. Churchill and A.V. Lowe, “The Law of the Sea”, The Melland Schill Studies in International Law, Third Edition, Manchester University Press, 1999 Leszek Buszynski, “ASEAN, the Declaration on Conduct, and the South China Sea”, The CBS Interactive Network, December 2003 Dr. Prabhakaran Paleri, “Coast Guards of the World and Emerging Maritime Threats”, Ocean Policy Studies, Ocean Research Policy Foundation of Japan, Special Edition, 2009 Commodore Sam Bateman, “Coast Guards: New Forces For Regional Order and Security”, AsiaPacific Issues, Analysis from the East-West Center No. 65, U.S. Congress, 2003 Richard A. Davis Ph.D, “The Intangibles of Leadership”, RHR Canada Ltd., 2010 Roger Connors and Tom Smith, “Change the Culture, Change the Game”, The Penguin Group, New York, 2011 Lee G. Bolman and Terrence E. Deal, “Reframing Organizations (Artistry, Choice and Leadership)”, Fourth Edition, Jossey-Bass, San Francisco, C.A., 2008 United Nations Convention on the Law of the Sea (UNCLOS), 1982

UNCLOS: Salient Points on Maritime Zones of Archipelagic States COASTAL STATE A. ARCHIPELAGIC WATERS



Full sovereignty of the coastal state



Shall not hamper transit passage



Shall give appropriate publicity to any danger to navigation or overflight which they have knowledge.

(INTERNAL WATERS) 



Comprises all the maritime waters within archipelagic baselines. (Churchill, R.R. and Lowe, A.V. The Law of the Sea (3rded.) Juris Publishing, Manchester), pg. 125) Sovereignty extends to the ff: - Waters within or enclosed by the archipelagic straight baselines regardless of their depth or distance from the coast. - air space - bed and subsoil; and - its resources (Art. 49, (1&2) LOSC )



Designate sea lanes and air routes (Art. 53 (1) LOSC )

 

FOREIGN SHIPS (Civilian) 

Right of “innocent passage”



There shall be no suspension of transit and innocent passage except: - For security reasons; - After due notice; - Without discrimination (Art. 52, (2), Art. 44 LOSC )



Enjoy the right of archipelagic sea lanes (ASL) passage (Art. 53 (1) LOSC )

Prescribe traffic separation schemes (Art. 53 (6) LOSC )



Respect ASL and traffic separation schemes (Art. 53 (11) LOSC )

Lanes and routes must be designated in consultation with the IMO (Art. 53 (9), LOSC )



In the exercise of transit and innocent passage:, shall: - Proceed without delay; - Refrain from any threat or use of force against the sovereignty of States: - Refrain from any activities other than those incident to their normal modes of continuous and expeditious transit unless rendered necessary by force majeure or by distress; - Comply with the International Regulations for Preventing Collisions at Sea; - Comply MARPOL Convention and other policies relating to pollution control;

The regime of archipelagic sea lanes (ASL) passage shall not in other respects affect the status of the: - archipelagic waters; - the sea lanes; or - the exercise by the archipelagic State of its sovereignty as discussed above. (Art. 49, (4) LOSC, )



Delimitation of internal waters by drawing closing lines within archipelagic waters. (Art. 50, LOSC )



Aircraft in transit and innocent passage shall:

- Observe the Rules of the Air - Monitor the radio distress frequency (Art. 54, Art. 39 (3), LOSC) 

If no sea lanes is designated: - Passage can be made through routes normally used for international navigation - Submarines can transit

submerged (Art. 53 (12) LOSC). 

Must respect rights enjoyed by third States deriving from: -



Existing agreements; Traditional fishing rights; Existing submarine cables; and Other legitimate activities (Art. 51, Art. 47 (6) LOSC )

Adopt laws and regulations on the ff: - Safety of navigation and the regulation of maritime traffic; - Prevention, reduction and control of pollution to include discharge of oil, oily wastes and other noxious substances - With respect to fishing vessels, the prevention of fishing, including the stowage of fishing gear; - Loading or unloading of any commodity, currency or person in contravention of the customs, fiscal, immigration or sanitary laws and regulations(Art. 54, Art. 42 (1), LOSC)



Should not carry out any research or survey activities without the prior authorization, during transit and innocent passage. (Article 40, LOSC)



Shall comply with all laws and regulations. (Art. 54, Art. 42 (4), LOSC)



State of a ship or the State of registry of an aircraft shall bear international responsibility for any loss or damage(Art. 54, Art. 42 (5), LOSC)

Shall published all laws and regulations (Art. 54, Art. 42 (3), LOSC)

COASTAL STATE B. TERRITORIAL SEA (TS)  



12 nautical miles, measured from baselines (Art. 3, LOSC) Sovereignty extends to the air space over the territorial sea as well as to its bed and

subsoil. (Art. 2, LOSC)

 

FOREIGN SHIPS (Civilian)

Full sovereignty



Allowed transit and innocent passage.

- explore resources - enforce domestic laws



Passage must be continuous and expeditious (LOSC, Art. 18 (2) )

Prevent passage which is not innocent ( Art. 25 (1), LOSC)



Not allowed to “hover” or cross around the TS (LOSC, Art. 18 (2)).



Stopping and anchoring is allowed in the ff cases: - Incidental to ordinary navigation; - Force majeure or distress; - Seek to assist another ship, person or aircraft in danger or distress (LOSC, Art. 18 (2) )

It has the right to suspend such passage when the passage would prejudice the following : - peace; - good order; and - security



Adopt laws and regulations relating to innocent passage in respect of the following: - Safety of navigation; - Regulation of maritime traffic; - Protection of navigational aids and facilities; - Protection of cables and pipelines; - Conservation of the living resources of the sea; - Prevention of infringement of the fisheries laws and regulations; - Preservation of the environment; - Prevention, reduction and control of pollution; - Marine scientific research and hydrographic surveys; - Prevention of infringement of the customs, fiscal, immigration or sanitary laws and regulations - Other laws in conformity with other rules of international law, relating to the aforementioned (Art. 21 (1) , LOSC)



Shall give due publication to all such laws and regulations (Art. 21 (3) , LOSC)



Shall not impose requirements having practical effect of denying or impairing the right of innocent passage; (Art. 24 , LOSC)



Shall not discriminate any State or against ships carrying cargoes to, from or on behalf of any State (Art. 21 (3) , LOSC)



Shall comply with all such laws and regulations on the prevention of collisions at sea (Art. 21 (4) , LOSC)



During transit and innocent passage should not: - Threat or use force against the sovereignty, territorial integrity or political independence of the coastal State; - Exercise or practice with weapons of any kind; - Collect information to the prejudice of the defence or security; - Provide propaganda aimed at affecting the defence or security of the coastal State; - Launch, land or take on board any aircraft or any military device; - Load or unload any commodity, currency or person contrary to the customs, fiscal, immigration or sanitary laws and regulations; - Conduct any fishing activities; - Carry out of research or survey activities; - Interfere with any systems of communication or any other facilities or installations of the coastal State; - Conduct any activity not having a direct bearing on passage. (Art. 19 , LOSC)



Submarines and other underwater vehicles must: - Navigate on the surface ; and - Show their flag Passage (Art. 20 , LOSC)



MARITIME POLLUTION- adopt laws and regulations for: - Prevention; - Reduction; and - Control (Art. 211 (4) , LOSC)



Has the right to permit, regulate and control dumping (Art. 210 (5) , LOSC)



Should not violate any maritime pollution control regulations



Require foreign ships in transit and passage to:



- Use designated sea lanes; and - Prescribed traffic separation schemes (Art. 22 (1) , LOSC)

Nuclear-powered ships and ships carrying nuclear or other inherently dangerous or noxious substances or materials may be required to: - Confine their passage to



- IMO recommendation; - Any channels customarily used for international navigation; - Special characteristics of particular ships and channels; and - Density of traffic. (Art. 22 (3) , LOSC) 

Shall clearly indicate such sea lanes and traffic separation schemes on charts and publish the same (Art. 22 (4) , LOSC)



Must give notice of known navigational hazards(Art. 24 (2) , LOSC)



Regulate, authorize and conduct marine scientific research (Art. 245, LOSC)



Should not stop or divert a foreign ship passing in exercising civil jurisdiction in relation to a person on board the ship.



designated sea lanes (tankers included) (Art. 22 (2) , LOSC); - Shall carry documents; and - Observe special precautionary measures established for such ships by international agreements (Art. 23, LOSC).

In designating sea lanes and traffic separation scheme, the ff must be taken into account:



No charge by reason of passage except for specific services rendered (Art. 26, LOSC).



Not subject to the jurisdiction of the coastal state except: - When peace or tranquility is disturbed; - When ship Captain or consul request for intervention; - When non-crew member is involved (Art. 27, LOSC).

May levy execution against or arrest the ship: - For obligations; or liabilities assumed or incurred in the course or for the purpose of its voyage. (Art. 28, LOSC).



Require warship to leave TS immediately for: - Not complying with the laws

and regulations; or - Disregarding any request for compliance therewith (Art. 30, LOSC)



Flag State shall bear responsibility for any loss or damage from the non- compliance by a warship or other government ship operated for non-commercial purposes. (Art. 31, LOSC).



Must provide navigational services such as lighthouses and rescue facilities

COASTAL STATE C. Contiguous Zone: 

24 NM from Baseline



(TS+12 NM) (Art. 33 (2) , LOSC)



Fiscal Authority(Art. 33, LOSC) - Anti-illegal drugs - Anti-human trafficking - Taxation



Custom (Art. 33, LOSC)

FOREIGN SHIPS (Civilian) 

Transit and Innocent Passage - Not allowed to explore resources - Should not violate the laws pertaining those mentioned in the opposite

- Anti-smuggling 

Immigration (Art. 33, LOSC)



Sanitation (Health)(Art. 33, LOSC)



Marine Environmental Protection



Punish infringement of the above laws and regulations (Art. 33, LOSC)



Authority over removal of archaeological and historical objects from the seabed in the contiguous zone (LOSC ‘82, Art. 303(2))

COASTAL STATE D. Continental Shelf (Art. 76, LOSC) 

Comprises the sea bed; and



Subsoil of the submarine areas;



Extend beyond its territorial sea



Throughout the natural prolongation of its land territory to the outer edge of the continental margin, or



Exercises sovereign rights for exploring and exploiting its natural resources (Art. 77, LOSC)



The establishment of offshore installations (artificial islands, structures, and installations) is expressly permitted (Arts. 60 and 80 LOSC)



Adopt laws, regulations and other measures to:

FOREIGN SHIPS (Civilian)

- Prevent, reduce and control pollution ;

- Arising from seabed activities

to a distance of 200 nautical miles from the baselines

from artificial islands, installations and structures (Art. 208, LOSC)



Must permit, other states to lay

down and maintain submarine cables and pipelines subject to measures necessary to protect rights of exploration and other conditions (e.g. pollution prevention),. (Art. 79;CSC, Art. 4 LOSC) - Shall deposit with the Secretary-General of the United Nations charts and relevant information, including geodetic data, permanently describing the outer limits of its continental shelf. (Art. 76 (9), LOSC) 

Charts and lists of geographical coordinates shall be deposited to Sec Gen U.N. (Art 84, LOSC)



Shall have the exclusive right over: - Artificial islands; - Installations and structures for economic purposes; - Installations and structures which may interfere with the exercise of the rights of the coastal State in the zone. (Art. 60 (1) LOSC) - Establish reasonable safety zones not to exceed 500 meters around such artificial islands, installations and structures (Art. 60 (4&5) LOSC)



Take appropriate measures to ensure the safety both of navigation and of the artificial islands, installations and structures. (Arts. 80 & 60 (4) LOSC



Have exclusive right to authorize and regulate drilling (Art. 81, LOSC)



Have right toexploit the subsoil by means of tunneling (Art. 85, LOSC)



Has the right to permit, regulate and control dumping (Art. 210 (5) , LOSC) Shall deposit with Sec Gen U.N. relevant info describing outer limit Art 76 (9)



COASTAL STATE E. Exclusive Economic Zone (EEZ): 200 NM from baselines 

Exploration of resources



The specific or sui generis(Art. 55, LOSC)



Sovereign rights for the purpose of:



Art 58 in relation to Art 87 Freedom of Navigation

- Exploring and exploiting; - Conserving and managing the natural resources, whether living or non living - Other activities for the economic exploitation and exploration such as the production of energy from the water, currents and winds (Art. 56 (1) (a), LOSC)



Unhampered navigation guaranteed



Freedom of over flight (aircraft)



Laying f submarine cable and pipelines

Jurisdiction with regard to:



Can be affected by the presence of artificial islands and installations



All ships must respect these safety zones



Shall comply with generally accepted international standards regarding navigation in the vicinity of artificial islands, installations, structures and safety zones.



Not allowed to explore resources nor conduct scientific research unless allowed by coastal state



Must respect safety zones; and

- the establishment and use of artificial islands, installations and structures; - right to establish safety zones (not to exceed 500m in breath), around them - the protection and preservation of the marine environment; (Art. 56 (1) (b), LOSC) 

May board, inspect, arrest and conduct judicial proceedings to ensure compliance with the laws (Art. 73 (1) LOSC)



Release arrested vessels and crews upon the posting of reasonable bond or other security (Art. 73 (2) LOSC)



FOREIGN SHIPS (Civilian)

Notify the flag State of the action taken and of any penalties subsequently imposed in cases of arrest or detention of foreign vessels. (Art. 73 (2) LOSC) Shall have the exclusive right over: - Artificial islands; - Installations and structures for economic purposes; - Installations and structures which may interfere with the exercise of the rights of the coastal State in the zone. (Art. 60 (1) LOSC) - Establish reasonable safety



Shall comply with generally accepted international standards regarding navigation in the vicinity of artificial islands, installations, structures and safety zones. (Art. 60 (6) LOSC) - Conduct fisheries research

programmes (under the authorization and control of the coastal state), including the sampling of catches, disposition of samples and reporting of associated scientific data ; ( Art. 62 (4f)) - Transfer of fisheries technology, including enhancement of the coastal State's capability of undertaking fisheries research; (Art. 62 (4j), LOSC)

zones not to exceed 500 meters around such artificial islands, installations and structures (Art. 60 (4&5) LOSC) 

Take appropriate measures to ensure the safety both of navigation and of the artificial islands, installations and structures. - (Art. 60 (4) LOSC)



MARINE SCIENTIFIC RESEARCH - Right to regulate, authorize, and conduct scientific research by other states - But withhold its consent to resource oriented research ( Art. 246 (3)(5))



MARINE POLLUTION CONTROL :



Subject to the coastal State’s powers of pollution control



Compliance with the conservation

- Dumping of waste; ( Arts. 210 (5), 216) - Other forms of pollution from vessels ( Arts. 211, 220,234); and - Pollution from sea-bed activities. ( Arts. 208, 214) 

After consulting the IMO , shall designate special areas and identify Particularly Sensitive Sea Areas (PPSA) (IMO Res A. 720 (17)



Measures to be taken in designating special areas and PPSA: - Designation as a special area under MARPOL; - The adoption of routing measures including designation as an area to be avoided; - Compulsory pilotage; - The adoption of a traffic management system; - Special construction requirements; and - Speed restrictions - (IMO Res A. 720 (17), Article 2116, LOSC)



CONSERVATION OF LIVING

RESOURCES: (LOSC ART 62)

measures and other terms and conditions relating to:

- Determine the allowable catch; - Ensure that no overexploitation; - Design measures to production on the maximum sustainable yield; - Maintaining or restoring that their reproduction may not seriously threatened. - Exchange information through IMO and other states concerned on the following:  Available scientific information;  Catch and fishing statistics; and  Other data - Promote optimum utilization; - Determine its capacity to harvest, otherwise it shall give other States access to the surplus of the allowable catch through an agreement or other allowable arrangements; 

Shall give due notice of conservation and management laws and regulations (LOSC Art 62 (5))



STRADDLING STOCKS , MIGRATORY SPECIES , CATADROMOUS SPECIES ( Arts. 63, 64, 67)

- Licensing of fishermen, fishing vessels and equipment; - Payment of fees and other forms of remuneration; - Adequate compensation in the field of financing, equipment and technology relating to the fishing industry; - Determining the species which may be caught; - Fixing quotas of catch (particular stocks or groups, stocks or catch per vessel over a period of time or to the catch by nationals of any State during a specified period); - Regulating seasons; - Areas of fishing, the types, sizes and amount of gear, and the types, sizes and number of fishing vessels that may be used; - Fixing the age and size of fish and other species that may be caught; - Specifying information required of fishing vessels, including catch and effort statistics and vessel position reports; - Placing of observers or trainees on board by the coastal State; - Landing of catch in the ports of the coastal State; - Subject to terms and conditions relating to joint ventures or other cooperative arrangements; - Requirements for the training of personnel; (Art. 62 (4), LOSC) 

They are allowed to fish in case of overlapping on boundary e.g. EEZ when no overlapping boundary, they are allowed to fish subject to rules and regulations established by the coastal state (LOSC 62 (2)) subject to Art 62 (4)



Freedom of laying submarine cables and pipelines (LOSC Art 58)

- Shall coordinate, cooperate and ensure theconservation and development of such stocks /species 

Lay down conditions and establish jurisdiction over submarine cables and pipelines