(Published in my column 'From My Viewpoint' in Viewliner Weekly News, Sept. 29 - Oct. 5 2014 Issue)
The Philippines considers the maritime industry as a vital component in economic progress. Since time immemorial, the maritime industry has been instrumental to political and economic expansion and progress.
For this reason, President Aquino since 2013 has been urging lawmakers to amend the “Cabotage Law” (embodied in Sections 902 and 1009 of the Tariff and Customs Code of the Philippines, which was incorporated in Republic Act 5173) in order to help maintain the growth and the momentum of the country’s economy and help to lower the cost of transportation for the agricultural sector and most industries. For many the word “cabotage” is a concept beyond the realm of ordinary understanding.
The word cabotage, taken from the Spanish cabotaje, is rooted from the word cabo meaning cape, peninsula, or headland. Cabotage in Spanish refers to sailing from “cape to cape.” It is a policy adopted by nations allowing the exclusivity of domestic coastwise navigation in rendering maritime transportation services.
In short, the Cabotage Law forbids foreign vessels to ply inter-island routes. Therefore, when a 20-foot cargo container enters our ports (like the Port of Manila or Port of Subic), this is transferred to a local ship if it needs to go to the Visayas, Mindanao or anywhere in the archipelago.
The cabotage principle traces its roots on the intention of each country to protect their local maritime industries. In the modern world, the United States Federal Government, for instance, tried their best to create legislation that would discourage foreign maritime industries to penetrate their domestic market. Thus, the Jones Act of 1920 was conceived, serving as the bulwark of cabotage regulations in the United States. Up to this time, the Jones Act keeps up to its purpose, preventing foreign maritime transport industries from engaging in Uncle Sam’s domestic coastwise shipping.
On the other hand the Aquino administration is very much convinced that by completely liberating the market to the free world, our local industries would develop a sense of competitiveness. Hence, the President is suggesting to his co-equal (the Congress of the Philippines) to amend the Philippine law on cabotage so as to open the industry to foreign trade.
In response to the call of the Chief Executive, legislation was proposed to the effect of lifting the cabotage law, two version of the bills are now pending in the Senate and authored by Senators Jinggoy Estrada and Antonio Trillanes III (The bills are currenlty under review by a committee whose chairperson is the cousin of the President, Senator. Bam Aquino).
The expectation for the lifting of the cabotage regime would allow, among others, for the implementation of lower trade costs due to the advent of participation of foreign-flagged vessels in the domestic coastwise navigation and the improvement of the marine industry to keep up with the international standard of maritime navigation. Authorities perceived it as liberalization and deregulation of the maritime transport industry heading into the direction of greater participation in ASEAN economic integration.
The said proposition was met by huge objections raised by domestic corporations and groups. Largely, the main objection was anchored on the untimeliness of the lifting of the cabotage; domestic corporations being unprepared to meet the challenges posed by the participation of foreign competitions, who are, in comparison with the domestic industry, in a better position as they are comparably more equipped with advanced technology.
The country’s ports lack the facilities like warehouses and silos to speed up the process of loading and unloading bulk cargo, thus causing delays. And we all know that delays cost fortune.
Our ports need more equipment like cranes, conveyor belts, bulldozers, and many other specialized gear and apparatus to speed up loading and discharging operations of bulk carriers. port (I have been told by a friend that only one out of three cranes in the Port of Manila is actually fully functional).
For example, to load 5,000 tons of corn in Mindanao will take 10 days; whereas if there were a silo, the same amount could be loaded in a day. Due to the absence of silos, ship owners are penalized for the remaining nine days. Conversely, if we had modern suctions or grabs, discharging could be done in a day or two.
The shipping costs for general cargoes, just like bulk carriers, whether foreign- or Philippine-flagged, is the same. The problem, however, also lies with ports. Our ports lack the modern facilities and equipment to load and discharge cargo effectively.
There is also the case of loaded containers being discharged at a local destination port, but because the containers go back to Manila without anything in them, an imbalance of trade happens. Hence, this becomes another reason why there is a higher cost in shipping.
Another case is that container vessels are beset by the problems of double-handling. When a foreign vessel unloads in Manila, and a domestic container vessel loads the cargo in Manila, and then unloads it in Davao, there is double handling, and consequently, higher cost.
All other reasons, therefore, illustrate that domestic shipping companies cannot be entirely blamed for the high cost of inter-island trade. Therefore, it is important that the government, in preparing to amend the existing Cabotage Law, should have a firm understanding of the transport economics.
To capriciously introduce reforms that will disregard the recent investments made by local shippers could lead to the death of the industry, and induce a situation just like what happened in Indonesia when the industry almost died when foreign vessels were allowed to enter smaller ports.
Indonesia subsequently went back to its old maritime arrangements to defend their local industry. In the Philippines, local ship owners are also concerned that the modern facilities and strong financial capabilities of foreign ship owners will induce a rate war that would kill them.
The Philippine Maritime Industry Authority (Marina) has been cautious about the move to change the Cabotage Law, citing the Indonesian experience. Aside from the massive investments by local shipping companies, thousands of local workers stand to lose employment.
Contrary to the proposition that it would engender a lower cost of coastwise trade and navigation, the lifting of the cabotage law and the grant of authority to foreign flagged vessels to participate in coastwise navigation would put the local industries to disadvantage.
The free access of foreign vessels may also serve as means to breach national security and the enjoyment of peace in our country. The openness of ports in receiving foreign vessels would cause difficulty in the regulation of entry and exit of passengers and cargos.
Smuggling of contraband, human trafficking, and illegal entry of aliens are some of the evils which are sought to be avoided by the cabotage law as there are only a handful of international ports which are more equipped to regulate the entry and exit of persons and goods. It is not that the evils sought to be avoided are far from reality, but the lifting of one of the nation’s safeguards would create an avenue for such situation to become malignant.
Though optimistic of the positive returns which the lifting of the cabotage law will provide, we are daunted by the reality that there are numerous threats at the moment, both political and economic. Lifting of the cabotage hastily will have the greater possibility of obliterating the domestic coastwise trade and navigation industry rather than shaping them into better competitors.
The price for globalization and liberation of such market, if done untimely and inappropriately would do more damage. True, that it is only through globalization that we would be able to increase our opportunities, but it is humbly submitted that the domestic shipping industry needs more rearing at the moment. Just the same, we cannot allow big players in little leagues for it would be an undue advantage. It is like putting a wolf among a flock of sheeps.
The Cabotage Law simply seeks to protect the young or fragile institution of maritime industry in the Philippines.
Assuming for the sake of argument that I am wrong in stating that now is not a good timing for the lifting of the cabotage law. Let us then focus our attention to the statutory and constitutional policies that bans foreigners to operate public utilities such as the shipping industry.
I cannot see how can the passage of a law that will take away the Philippine cabotage system be consistent to existing statutory policy and the Constitution, the highest law of the land.
Act No. 2761 of the Philippine Legislature required that local companies wholly owned by locals, shall be the only ones authorized to operate vessels in the Philippine domestic trade. This was similar to the pre-Jones Act provision of American law that required vessels in the domestic trade to be operated by US citizens or by companies wholly owned by citizens of the United States.
The provisions of Public Service Act of 1936, as well as the Tariff and Customs laws institutionalized by the Philippine Commonwealth, were drafted from the Jones Act of 1920, rendering exclusive to Filipinos the engagement in the trade within the archipelago.
To this date, the 1987 Philippine Constitution supports the cabotage principle through Article XII, Section 7, to wit:
“no franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens.”
Section 902 of Republic Act 1937, known as the Tariff and Customs Code of the Philippines, also provides for the cabotage principle, wherein it is explicitly provided that the right to engage in Philippine coastwise trade is limited to vessels carrying a certificate of Philippine registry.
Republic Act 9295, known as the Domestic Shipping Development Act of 2004, also serves as a vanguard in keeping with the protectionist tradition. It mainly encourages the participation to the domestic coastwise trade and transport by giving tax incentives, as well as excluding the foreign-flagged vessels in the engagement of coastwise navigation, with consideration to exceptional circumstances.
People of the Philippines, let me pose this question to all of you: will the passage of the law that will lift the cabotage principle uphold our duly instituted sacred Constitution?
Or will it be another chapter in the life of our Nation where once again the Rule of Law is taken aside (Remember how the Supreme Court ruled in 2004 that the mining industry can be operated by foreigners?).
Wag naman sana, kawawa naman ang Bayan.
Often recalcitrant, but always principled.