Legally, the Panatag Shoal is within the Philippines' territorial boundaries. China's claim is based on historical account dating back to 1279.
Panatag Shoal is within the Philippines' Exclusive Economic Zone which extends to 200 nautical miles from the territorial baseline. With the shoal 137 nautical mile from the baseline of Palauig, Zambales means that the Philippines have legal rights.
The Philippine government already recommended that the matter be elevated to the International Tribunal for the Laws of the Seas as provided in Article XV of the United Nations Convention of the Laws of the Sea but the Chinese government rejected this in favor of bilateral discussions---where China can bully the Philippines. The rejection of the Philippines' banana export to China claiming quality control issues is one such power play.
The Philippines has no real navy to provoke a military confrontation but if push comes to shove they can always invoke the mutual protection treaty with the United States. Just like calling your big brother to put the bully in place.
I don't like this deal either but with the lack of Philippine military resources to protect against foreign aggression the Philippine government can only swallow their pride and hide behind an ally's protection.