How
Australia Overplayed Its Hand in the Timor Sea
In
1976, the
Australian ambassador to Indonesia wrote that, in deciding whether to
support the right of the Timorese people to self-determination or to instead
accede to Indonesia’s annexation, Australia faced a choice between “Wilsonian
idealism” and “Kissengerian realism.” For reasons having a lot to do with
petroleum, Australia decided to go with what it saw as the latter option.
Today,
the Timor Sea dispute remains unresolved, and it is clear that Australia still
has not decided to go with the “Wilsonian idealism” option. But if Australia
thinks that its strategy has instead been one of “Kissengerian realism,” then
it is sadly flattering itself. Australia’s strategy isn’t “realist” – it’s
petty bullying motivated by a very narrow political economy concern.
The
short-term results for Australia have been somewhat favorable, if mixed, but
there is reason to doubt that this strategy will ultimately be in Australia’s
long-term interests. Thus far, Australia has now spent over forty years
pursuing a sovereignty claim that was long ago discarded by international law,
and, so far, its reach has continually exceeded its grasp.
I.
Australia Overplays its Hand with Indonesia
In
the early 1970s, Australia was fighting a losing battle under international
law. The law of the sea had begun to coalesce around the concept of the
Exclusive Economic Zone (EEZ), which would grant states a right to exploit the
natural resources that were within 200 nautical miles of its shores. Australia
— which happens to enjoy extremely long, sloping continental shelves off of its
coasts — was attempting to also obtain recognition for its claim to the
resources within the “natural prolongation” of its continental shelf, even
where this prolongation extended beyond its 200 mile EEZ.
In 1971 and 1972 however,
Australia was able to enter into seabed boundary treaties with Indonesia that
largely reflected Australia’s “natural prolongation” position. By general
consensus, Australia succeeding in taking “Indonesia to the cleaners” in reaching these
agreements, as the resulting treaties were drawn much closer to Indonesia’s
shores than to Australia’s, and adhered to a dying position under international
law. Indonesia’s acceptance of these borders can be explained by political
factors, more so than legal ones, as it was clear even in 1972 that the natural
prolongation principle was becoming rapidly becoming disfavored under
international law.
The
treaties with Indonesia did not establish the maritime boundary between
Australia and Portuguese Timor, however, which resulted in the infamous “Timor
gap.” Portugal insisted that any maritime boundary between Timor and Australia
be drawn along a more equitable division, on a median line that was equidistant
between the shores, as provided by not-yet customary international law. The
dispute became even more acute in 1974, Portuguese Timor leased out mining rights in the Timor Sea to a
U.S. corporation, for a portion of the seabed expanse lying on Timor’s side of
the equidistant line. Australia protested, as it had already leased
out that territory itself, to what was then Woodside-Burmah Oil. Although
Australia knew its claims to the seabed were disputed, Australia had
made assurances to Woodside-Burmah, and to other corporations with leases in
the Timor Sea, that the Australian government would defend its claims to that
territory should there ever be any international conflict as to Australia’s
title.
So
Australia made the deliberate choice not to enter into any conclusive
agreements with Portugal concerning its maritime boundaries with what is now
Timor-Leste. Rather than accept an equitable seabed division, Australia gambled
on a chance to acquire a much more extensive portion of the Timor Sea, by
standing by and awaiting a more amenable government to come into power in
Timor-Leste.
Describing
what Australia did as “standing by” is something of an understatement, in
truth. Australia’s involvement in the annexation was not entirely passive
acceptance. In the months prior to the invasion, Indonesia had not made East
Timor a priority, and, if anything, Indonesia indicated a great deal of
ambivalence towards its role in the island’s future. Afterwards, once the
invasion had taken place, Indonesia repeatedly expressed its belief that Australia “green
lighted” the takeover of Timor — a claim which Australia would describe
as simply a unfortunate misunderstanding on Indonesia’s part. It’s not
difficult to see where Indonesia got the impression from. There was an
undeniable “nudge nudge, wink wink” quality to the Australian Prime Minister’s
pre-invasion statements to Indonesia, such as his announcement that “an
independent Timor would be an unviable state and a potential threat to the
area.” (Two years later, the Indonesian Foreign Minister would deny
that Australia told Indonesia to go ahead with the invasion – instead,
Australia merely told Indonesia that it accepted the invasion was inevitable,
so Indonesia “should
do it as quickly as possible.”)
Australia
had imagined that, once Indonesia was in control, Australia would be able to
easily secure a boundary agreement that drew a straight boundary line across
the East Timor maritime area, between the very favorable Indonesian-Australian
maritime boundaries to the east and west of East Timor:
But
in the end, the Indonesian annexation of East Timor did not work out as
Australia had anticipated. As it turned out, although Indonesia had
previously so accommodating with its seabed boundaries, by 1977 it was no
longer quite so keen on accepting maritime treaties that disproportionately
favored Australia’s interests over its own. Indonesia resisted Australia’s
attempts to secure an inequitable seabed delimitation, and it was not until
1991, a full fifteen years after Indonesia’s invasion of East Timor, that the
Timor Gap Treaty came into effect between Indonesia and Australia.
And
then, a mere eight years later, Timor-Leste gained independence after all, and
all of Australia’s hard work in securing the Timor Gap Treaty was wiped away. The
treaty was so blatantly indefensible that Timor-Leste had little difficulty in
convincing the world that Timor-Leste, as the successor state, would not be
bound by its terms.
II. Australia
Overplays Its Hand with Timor-Leste
After
Timor-Leste came into existence, Australia was forced to renegotiate the
division of the Timor Sea, in order to secure its access to the seabed
resources on Timor-Leste’s side of the median line. Going into treaty
negotiations, Australia had every advantage over Timor-Leste in terms of size,
power, infrastructure, capital, and statecraft experience, but Timor-Leste had at
least one thing in its favor. While Timor-Leste was weaker than Australia on
every other conceivable measure, Timor-Leste had the stronger claim under
international law.
Australia
responded the same way every powerful nation does, when it finds itself on the
wrong side of international law in a dispute with a weaker nation: it did
everything it could to remove international law from the equation. After years
of negotiations – during which Australia’s negotiation strategies included
economic blackmail and espionage, and likely bribery as well – Australia
eventually succeeded in inducing Timor-Leste to enter into to a series of
treaties that eliminated any possible recourse to international law to resolve
the parties’ conflicting territorial claims. (*1)
And
this strategy made sense. States are encouraged to negotiate with one another
to resolve disputes regarding the delimitation of their respective EEZs or
continental shelves, and there’s nothing wrong with Australia’s hardline
position in negotiating over the Timor Sea’s petroleum. (Well, nothing wrong
with it aside from the whole espionage part, anyway.) UNCLOS provides that the
agreements over the division of the seabed boundaries should be reached “on the
basis of international law,” but that doesn’t mean that any resulting treaty
has to divide the territory in the manner that international law would dictate.
States are free to reach treaty terms that, while based on international law,
deviate extensively from how the ICJ might have accomplished the territorial
division, had the task been given to the ICJ instead.
But
in the case of the Timor Sea Treaty, and the International Unitisation
Agreement for Greater Sunrise, and the Certain Maritime Arrangements in the
Timor Sea Treaty, it looks as if Australia may have grossly overplayed its
hand. These treaties were not simply the result of Australia driving a hard
bargain over a disputed point of international law – they were the result of a
decades-long strategy of coercive bargaining aimed at securing sovereignty over
territory to which it had no defensible legal claim.
And
the end result? Australia’s great prize has been an expensive, unproductive,
and uncertain stalemate. It has been fifteen years since Australia first began
to negotiate with Timor-Leste’s emergent government over the division of the
Timor Sea, and the Greater Sunrise gas fields are no closer to completion today
than they were on the day that Timor-Leste voted for independence. The
corporations that hold mining rights in the disputed seabed territories do not
have any more legal certainty today than they had forty years ago, before
Indonesia’s annexation of East Timor.
Australia
is also now facing proceedings in both the International Court of Justice and
the Permanent Court of Arbitration, as a result of its dubious activities in
pursuing these strategies. There is also a non-zero risk that Australia’s
treaties with Timor-Leste will ultimately be annulled for its bad faith
negotiations, and Timor-Leste may eventually even succeed in kicking out the
existing consortiums and attracting investment from other corners of the world.
But
even if Australia ultimately succeeds in keeping control of the seabed
territory and manages to siphon off its percentage of the petroleum revenues,
it will have come at the cost of decades of uncertainty and wasted expense. If
Australia wins now, will its Timor Sea strategy still have provided a net
financial benefit to Australia, as compared with what Australia might have
obtained under a less extreme strategy? Possibly – only Australia has the
numbers to evaluate that. But if nothing else, its profit margin is getting
smaller with every year that passes.
III.
The Long-Term Interests Served by Australia’s Timor Sea Policy
The
Timor Sea maritime delimitation remains unresolved today because Australia has
insisted, at every opportunity, that any division of the Timor Sea must be
based too much on the relative strength of its political and economic power,
and too little on the relative weakness of its legal position.
But
the potential benefits to Australia in taking this position just aren’t grand
enough to justify the headache it has caused. This was never a situation where
Australia risked walking away empty-handed, and any deal that Australia struck
with Timor-Leste was always going to wind up with Australia getting a bigger
piece of the pie than it was strictly entitled to under international law. But,
by attempting to achieve a treaty arrangement that so disproportionately favors
Australia over Timor-Leste, and which goes so far beyond what might have been
expected based on the parties’ initial bargaining positions, Australia ensured
that any victory it did obtain would necessarily be inconclusive.
International
law obviously presents a big disadvantage to Australia in its claims to the
seabed on Timor-Leste’s side of the median line. But Australia has given
insufficient credit to the benefits that come with complying with an
international legal regime. Even when international law does not favor a
state’s interests in a particular dispute, it still provides one very
significant advantage to all parties: the stability and relative legal
certainty that comes from an agreement backed by international law. Legal
resolutions have their weaknesses, true, but they are much less subject to
future challenges on the basis of changes in political or economic
circumstances. This is in direct contrast to agreements and concessions that
are based on comparative force and economic machinations, which are not likely
to outlive any changes to the underlying conditions that gave rise to those
agreements or concessions in the first place. Australia’s policy in Timor
has always been based on the political conditions du jour, and so, despite
its far stronger political position, Australia has never been able to
enjoy any certainty in its position in the Timor Sea.
In
1974, if instead Australia had accepted Portugal’s offer to establish a seabed
boundary along the median line, then there is every reason to believe that
the dispute could well have been conclusively resolved then and there, never to
be revisited again. But that didn’t happen. Australia decided to take its
chances with Indonesia instead, and Australia lost that gamble.
And
then in 1999, if Australia had realized that claiming the lion’s share of the
petroleum in the Timor Sea was no longer a viable strategy, and had, for
example, been more willing to give up tax revenues in exchange for control of
the commercial infrastructure, then it is likely we’d already have production
from Greater Sunrise. But instead of trying something different when
Timor-Leste gained independence, Australia decided to try the exact same
strategy once again, and once again, it’s not working. Sure, this time around
Australia did give a slightly larger cut of the profits to Timor-Leste than it
had been willing to give to Indonesia, but that’s hardly a concession when the
legal field has completely turned against you in the intervening period.
Hindsight
suggests that Australia’s better course might have been to secure a treaty
that, while still disproportionately favorable to Australia, was not quite as
grossly disproportionate as the ones it ultimately obtained. If
Australia had taken a more moderate path, and if the Timor Sea Treaty had been
slightly more equitable the first time around, then perhaps it would have
become a settled part of the legal landscape, avoiding any need to later
negotiate the IUA or CMATS, or to engage in the present Hague arbitration and
ICJ case brought by Timor-Leste.
But
as it stands, the resulting treaties are so peculiarly at odds with customary
international law that Timor-Leste doesn’t have much to lose by continuing
its collateral attacks to the treaties’ validity. And whether or not
Timor-Leste ultimately succeeds, Australia can’t wind the clock back –
Australia has already caused the Greater Sunrise fields to remain untapped for
40 years since their discovery.
This
is not to say that Australia’s Timor Sea strategy has been wholly
self-defeating. There have been some significant advantages that Australia has
been able to secure for itself, and which it would have lost had it acquiesced
to international law at an earlier date. One major upshot for Australia has
been the chance to deplete the Laminaria-Corallina gas fields while the legal
dispute was unsettled, allowing Australia to retain 100% of the bureaucratic
control and tax revenues, while Timor-Leste got 0%. Australia also succeeded in
maintaining the lion’s share of the bureaucratic control over Bayu-Undan, along
with the rest of the petroleum in the JPDA. And, as a bonus, Australia even
gets to keep 10% of the profits from the JPDA, too — when international law
would have given it 0%.
But
Laminaria-Corallina was always a sideshow in terms of total energy resources in
the Timor Sea, and, while the JPDA arrangement is exceedingly favorable to
Australia, in comparison to its actual legal position, Australia still viewed
even that as a concession to Timor-Leste. But this deal was only a ‘concession’
if viewed in reference to the prior sovereignty claims that Australia
championed (but international law ultimately rejected) in 1975, and which are
no longer supportable under international law.
Perhaps
the most important prize for Australia, however, has been preserving Australian
corporations’ favored status as leaseholders for mining rights in the Timor
Sea. If Portugal’s median delimitation had prevailed in 1974, then the
Bayu-Undan gas fields (and all the rest of the resources in the JPDA) would
have gone to Oceanic, and other corporations that were granted leases to those
mining rights while Timor was still under Portuguese control. Through
Indonesia’s annexation of East Timor in 1975, however, all the leases issued by
Portugal were effectively annulled. Since then, those same core consortium of
companies have been able to maintain their rights to the seabed that Australia
originally granted in the 1960s and 1970s. Australia’s treaties with
Timor-Leste have all contained special provisions ensuring the continuity of
Woodside’s and ConocoPhillips’ existing leases, and, before that, Australia’s
treaties during the time of Indonesian Timor all came with
sweetheart deals for corporations that held pre-1975 mining rights
So
Australia has gained some important outcomes through its Timor Sea strategy. But,
has all of that been worth the costs?
Billions
of dollars in petroleum is a lot of petroleum, and the oil and gas fields in
the Timor Sea are a significant prize. But Timor-Leste is still only one very
small country, and the Timor Sea is only one very small sea. (And besides – if
it is truly is the tax revenues that Australia is most concerned about losing,
then surely it could try and make some of that up by shaving off some of the
tax concessions that it has granted to the petroleum consortiums?)
No
matter what Australia wins in the Timor Sea, Australia has another foreign
policy concern that is much bigger than Timor-Leste could ever be: China.
But
Australia’s claims in the Timor Sea are chump change, compared to China’s
claims in the Nine-Dashed
Line. That is a true example of a realist strategy; Australia’s
pandering to energy companies doesn’t hold a candle to China, when it comes to
“Kissengerian realism.”
And
while Australia’s dispute with Timor-Leste carries no risk of escalation,
China’s claims in the South and East China Seas pose a serious
security threat to everyone in the Pacific. Whatever financial benefit
Australia ends up obtaining from its claims in Timor-Leste’s half of the Timor
Sea, would it be enough to offset the cost of any disruption, should China
decides to back its own maritime claims up with force?
Given
those potential costs, is Australia correct in believing its Timor Sea strategy
to be a shrewdly realist foreign policy, which serves Australia’s long-term
national interests by providing a possible opportunity to increase its annual
tax revenue by .3%? (*2) Or is it a short-sighted economic policy that provides
a minimal financial benefit at the cost of harming Australia’s broader foreign
policy interests?
-Susan
FN1: Australia
has done it’s best to prevent Timor-Leste from having any recourse to
international law. The Certain Maritime Arrangements in the Timor Sea
(CMATS) agreement, which Timor-Leste is currently seeking to invalidate through
arbitration proceeding that it initiated last year, explicitly forbids
Timor-Leste from so much as asserting that Australia’s claims to the Timor Sea
or legally invalid:
1.
Neither Australia nor Timor-Leste shall assert, pursue or further by any means
in relation to the other Party its claims to sovereign rights and jurisdiction
and maritime boundaries for the period of this Treaty.
CMATS
also cleverly specifies that even though neither party can make claims to the
right to conduct activities in those areas, either party can continue any
previous activities in those territories, as well as authorize new activities
in those territories, just so long as it had pre-existing laws allowing those
activities:
2.
Paragraph 1 of this Article does not prevent a Party from continuing activities
(including the regulation and authorisation of existing and new activities) in
areas in which its domestic legislation on 19 May 2002 authorised the granting
of permission for conducting activities in relation to petroleum or other
resources of the seabed and subsoil. [see side letters]
As
it turns out, Australia had comprehensive laws concerning the exploitation of
resources in the Timor Sea as of the relevant cut-off date, but Timor-Leste did
not have any similar legislation in place. This is a result of the unfortunate
fact that Timor-Leste did not actually exist until May 20, 2002, and
therefore did not have any legislation as of the May 19, 2002 deadline that the
treaty provides for.
That’s
pretty convenient for Australia. It now has the right to utilize all the
disputed areas as if it did in fact have lawful authority to do so.
5.
Any court, tribunal or other dispute settlement body hearing proceedings
involving the Parties shall not consider, make comment on, nor make findings
that would raise or result in, either directly or indirectly, issues or
findings of relevance to maritime boundaries or delimitation in the Timor Sea. Any
such comment or finding shall be of no effect, and shall not be relied upon, or
cited, by the Parties at any time.
The
last sentence, in bold, is also singled out for extra importance by Article 12
of CMATS, concerning the treaty’s duration. There, it is provided that the
second sentence of paragraph 5 of Article 4, in bold above, “shall survive
termination of this Treaty, and the Parties shall continue to be bound by [it]
after termination[.]” In other words, if any judicial body — whether it is the
International Court of Justice, the International Tribunal for the Law of the
Sea, or any other court or arbitration panel — were to ever issue a ruling
finding Australia’s claims to the Timor Sea unlawful, and that Timor-Leste has
sovereignty over those waters, then Timor-Leste is prohibited from relying on
that ruling.
As
a result of these provisions, Timor-Leste is not currently raising a direct
challenge to CMATS itself, but is actually using an arbitration provision in
the prior Timor Sea Treaty to obtain to seek a declaration that CMATS is
invalid.
FN2: Note
that this a very rough estimate, as exact figures are hard to come
by, but it almost certainly exaggerates the total value to Australia. The
.3% figure is based on a back-of-the-envelope calculation that assumes lifetime
total tax revenues of $2.5b from Laminaria-Corallina, $26b from Greater
Sunrise, and $16b from Bayu-Undan, and assumes a 40-year span (based on a
scenario where Sunrise taps out in ~2039), and is then based on AU’s
total tax revenue for last year of $370b. This figure also assumes that
Australia receives all of the revenue from all of the disputed portion
of the Timor Sea, as opposed to the $17b share it would actually receive
under the current divisions of the TST (10% of Bayu-Undan, 100% of
Laminaria-Corallina) and CMATS (50% of Greater Sunris
Picture (map): The blue line shows the Indo-Australian maritime boundary, as
established in the parties’ 1971 and 1972 treaties. The green line shows the
median boundary line between Australia and the island of Timor.
