Xeneta: Will South China Sea Ruling Affect World Trade?

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Following the ruling in favor of the Philippines on the increasingly hostile Chinese – Philippine dispute on their claims to the Spratly Islands, Oslo-based Xeneta said that the ruling might have a wider effect on containerized ocean freight, as some 70% of world trade shipping passes through the South China Sea.

The ruling, issued by the Permanent Court of Arbitration in The Hague, benefits the Philippines, as well as other states like Indonesia, Malaysia and Vietnam.

However, depending on China’s response, the affect of the ruling could be felt in Europe, North America, Latin America, the Middle East, and Africa, as roughly USD 4.5tn of ship-borne trade passes through the waterway every year, Xeneta said, adding that “the ruling has a potentially chilling effect on world trade.”

American and ASEAN analysts are worried that China could announce the creation of an air defense identification zone over the entirety of South China Sea or even outright seize the disputed Scarborough Shoal, both of which would cause a crisis regarding freedom of navigation.

“Restricting or managing shipping in the South China Sea would be a huge setback to a world still struggling to recover economically,” Xeneta said.

The South China Sea Dispute dates back to 2013 when, after a series of confrontations with China about the disputed Scarborough Shoal off the Philippine coast, Manila took their complaint to the Permanent Court of Arbitration. Manila challenged China’s far-reaching claims to the South China Sea, contesting China’s claims that the many reefs, atolls, and rocks qualify as islands, and argued that Beijing’s tough tactics ignore the rule of law.

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