On Tuesday 12 July 2016, the Permanent Court of Arbitration (PCA) in The Hague issued a landmark arbitral award in favour of the Philippines against China, striking a heavy blow to China’s attempt to legitimise its efforts at dominance in the South China Sea.

In 2013, the Philippines initiated proceedings against China to resolve various disputes arising out of the hotly contested South China Sea (see our previous alert: Mischief in the fiery Pacific). China’s position has always been that the arbitral tribunal did not have jurisdiction to entertain the claim. Initial hearings were held to determine the jurisdiction of the tribunal. Both China and the Philippines were invited to participate in these proceedings, but China refused to do so. Its refusal was based on a seemingly contradictory argument that the issues in dispute constitute matters of sovereignty and as such, the tribunal lacked jurisdiction to entertain the claim.

Instead, China lobbied for support for its stance both domestically and internationally. Notwithstanding its refusal to participate in the proceedings, certain “position papers” and communications issued by China, were duly considered by the tribunal during the hearings both on jurisdiction, and the main claim. Ultimately the tribunal found that it had jurisdiction to hear the claim which then led to the award being issued against China.

China’s rejection of the award has received much public attention, especially in light of the lack of enforcement measures available to the PCA to give effect to the award. While this is a serious issue for the parties concerned (and the international community) there is a greater underlying problem with the manner in which China has refused to participate in the proceedings.

It is widely accepted that the foundational principle of international arbitration is the competence of the tribunal to determine its own jurisdiction, also known as the Kompetenz–kompetenz principle. Without this legal construct, a tribunal, for example, would not have the power to rule that it lacks jurisdiction to entertain a particular dispute.

And therein lies the real problem. China has reiterated its view that the tribunal lacked jurisdiction to entertain the dispute. It has regarded the final award as “null and void” as a result of this view. However, it refused to participate even in the hearings on jurisdiction.

In so doing, China has effectively voiced its rejection of the tribunal’s authority and ability to rule on its own jurisdiction. Unless China concedes that an international arbitral tribunal possesses the inherent authority to determine the limits of its own jurisdiction, the institution of international arbitration, may very well cease to play a further role in Chinese jurisprudence.

China is now facing an almost impossible dilemma: Does it “stick to its guns” and continue with its expansion into, land reclamation from and militarisation of the South China Sea, or does it succumb to the pressure exerted by the international community, confirm its acceptance of the arbitral award and try its best to negotiate with the parties concerned in a manner which reduces the potential repercussions?

While the latter suggestion is undoubtedly the most beneficial for international law and the international community as a whole, it may be the hardest pill to swallow for China.

Insofar as China ultimately conducts itself in a manner which does not support and promote international arbitration, it is uncertain whether private individuals and entities registered in China will adopt a similar attitude to the resolution of disputes by arbitration. This is an important consideration in light of recent developments in the field, such as the establishment of the China Africa Joint Arbitration Centre (CAJAC) based in Johannesburg and Shanghai.