‘Lifting of Cabotage Law can kill local shipping industry’

By VG Cabuag, Business Mirror

Posted at Aug 31 2009 11:24 PM | Updated as of Sep 01 2009 07:24 AM

MANILA - Lifting the country’s Cabotage Law, which gives local shipping operators the exclusive rights to ply Philippine waters, could spell disaster to the already distressed shipping industry of the country, the government warns.

Thompson Lantion, undersecretary for maritime affairs of the Department of Transportation and Communications (DOTC), said the country may end up like Indonesia, an archipelagic country like the Philippines but which has a nearly dead shipping industry after it allowed the entry of foreign players.

He said that foreign shipping lines have been lobbying for the lifting of the Cabotage Law in the Philippines to allow them to compete head-on with the country’s top players, such as the Magsaysay and the Aboitiz families.

“We might end up like Indonesia if we allow that,” Lantion said. But he added: “If I were to be asked, it would be hard to kill a local shipping industry.”

Lantion added that while DOTC can only appeal, it will be up to Congress to decide if it will allow the lifting of the said restrictive clause of the law. “It is Congress who will be answerable to changes in the Cabotage Law since only another law can repeal it,” he said.

The Cabotage Law’s principle is embodied in Sections 902 and 1009 of the Tariff and Customs Code of the Philippines, which was incorporated in Republic Act 5173, with the main intent of protecting the domestic shipping industry.

According to a Maritime Industry Authority briefing paper on the “Pitfalls and Fallacies of Lifting Cabotage in the Philippines,” the private sector advocating the relaxation of the law should “seriously study” the experience of Indonesia.

When the country opened up its coastwise trade to foreign shipping investors, it only resulted in a period of stagnation of the Indonesian shipping industry that prompted its government to restore the law.

“Theoretically, the lifting of cabotage is one essential element towards free-market competition…. The real world, however, such as the Philippine situation, still embodies certain distortions that would prevent the free interplay of market forces towards the objective of ideal competition,” the paper said.

On the other hand, another school of thought is that allowing foreign shipping firms can actually bring down the cost of transport of goods in the Philippines by 30 percent, according to Sen. Edgardo Angara.

“This has been a long-standing issue. If we allow the foreign shipping firms to ship to different ports, it will bring down or lower shipping costs by 30 percent,” he said in a statement.

The country, at the moment, has a stagnant shipping industry as only a handful of players are buying new ships for local trade and the series of sea mishaps during the past few years, including the MV Princess of the Stars in 2008 of Sulpicio Lines Inc., is worsening the situation.