I think this ruling will add significantly to Xi Jinping’s internal problems. It was a disastrous call to thumb China’s nose at United Nations Convention on the Law of the Sea (UNCLOS) even while claiming to respect it, and the outcome gives many dissatisfied members of Beijing’s elite more fuel for the fire they are lighting under him. See my Sept 23, 2015 op-ed in the Wash Post the day he arrived in DC.
As to the dispute itself, I expect the PRC’s current threatening gestures to persist for a while but there will also be quiet attempts to make a face-saving deal with Duterte through economic incentives and even under the table influences. This may stimulate serious negotiations with other neighbors too.
Vietnam must be very happy, Indonesia too and perhaps Malaysia less obviously. I think Vietnam and Indonesia can credibly threaten to launch their own arbitrations unless Beijing gives assurances of better behavior and shows a genuine willingness to compromise. For Vietnam the problem is that China refuses even to have a bilateral negotiation over the Paracels, which matter at least as much as the Spratly group to Hanoi.
The decision may hearten Japan’s enthusiasm for arbitration or International Court of Justice (ICJ) adjudication over the Senkaku, and Tokyo may repeat its November 2012 pre-Abe offer by former Foreign Minister Gemba, who dared China to settle the dispute before the ICJ.
The tribunal’s interpretation of Article 121.3 has the healthy effect of reducing the importance of all these islands by denying them exclusive economic zones (EEZs) and continental shelves, which will eventually make it easier to deal with these issues.
I hope the tribunal’s decision will encourage the US Senate finally to consent to UNCLOS ratification. The fuss over this arbitration leaves America with egg on its face!
Perhaps Taiwan is the most interesting place to watch as Tsai Ing-wen struggles to adjust to an uncomfortable situation. Today’s response openly rejecting the decision is a big mistake and different from what even Ma would have done. Tsai will be criticized at home for following Beijing’s lawless line at the same time that Beijing was responsible for excluding Taiwan from participation in the arbitration.