Core Legal Answer & Context: Territorial waters (or territorial sea) constitute a belt of coastal waters extending up to 12 nautical miles from the baseline of a coastal state. Within this zone, the coastal state exercises full sovereignty, similar to its land territory, but with one significant limitation: the right of innocent passage for foreign vessels.

Relevant Statutes and Sections:

1. United Nations Convention on the Law of the Sea (UNCLOS), 1982: This is the primary international treaty governing the rights and duties of states in their maritime zones.
   • Part II (Territorial Sea and Contiguous Zone), Articles 2-32: Specifically defines the territorial sea and the rights of coastal states.

Rights of Coastal States over Territorial Waters:

1. Full Sovereignty: The coastal state exercises complete sovereignty over its territorial sea, including the airspace above and the seabed and subsoil below.
2. Resource Exploitation: Exclusive rights to explore and exploit living and non-living resources within this zone.
3. Regulation of Navigation: Power to regulate navigation, including prescribing sea lanes and traffic separation schemes.
4. Enforcement of Laws: Authority to enforce its customs, fiscal, immigration, and sanitary laws.
5. Security and Defense: Right to take necessary measures to protect its security, including suspending innocent passage temporarily in specified areas if essential for security.

Limitation:

1. Right of Innocent Passage: Foreign vessels (merchant ships and warships) have the right of innocent passage through the territorial sea. This passage must be continuous and expeditious, and not prejudicial to the peace, good order, or security of the coastal state.

Important Landmark Cases:

1. Corfu Channel Case (ICJ, 1949): Affirmed the right of innocent passage through international straits (which are often part of territorial waters) and the duty of coastal states not to impede it, while also recognizing the coastal state's right to protect its territory.

Clear Conclusion: Coastal states possess full sovereignty over their territorial waters, granting them extensive rights to regulate and exploit resources, enforce laws, and ensure security. This sovereignty is, however, subject to the internationally recognized right of innocent passage for foreign vessels, balancing state interests with freedom of navigation.