The Madrid Protocol of 1885 was an agreement between the United Kingdom, German Empire and Spain to recognize the sovereignty of Spain over the Sulu Archipelago as well as the limit of Spanish influence in the region.^[1] Under the agreement, Spain relinquishes all claim to Borneo.

The Spanish Government renounces, as far as regards the British Government, all claims of sovereignty over the

territories of the continent of Borneo, which belong, or which have belonged in the past to the Sultan of Sulu (Jolo), and which comprise the neighbouring islands of Balambangan, Banguey, and Malawali, as well as all those comprised within

a zone of three maritime leagues from the coast, and which form part of the territories administered by the Company styled the "British North Borneo Company".

— Article III, Madrid Protocol of 1885

Another important point regarding the agreement relates to Article IV which guaranteed no restriction on trade to the parties of the protocol within the Archipelago and North Borneo.

North Borneo dispute

The North Borneo dispute is the territorial dispute between Malaysia and the Philippines over much of the eastern part of the state of Sabah, a territory known as North Borneo prior to the formation of the Malaysian federation. The Philippines, presenting itself as the successor state of the Sultanate of Sulu, retains a "dormant claim" on Sabah on the basis that the territory was only leased to the British North Borneo Company in 1878, with the sovereignty of the Sultanate (and subsequently the Republic) over the territory having never been relinquished.^[2] However, Malaysia considers this dispute as a "non-issue" as it interprets the 1878 agreement as that of cession^[3] and that it deems that the residents of Sabah had exercised their right to self-determination when they joined to form the Malaysian federation in 1963.^[4]