PIDS downplays fears of competition from cabotage law reform

THE GOVERNMENT think tank downplayed local shipping firms’ worries on proposed cabotage rule reforms, saying that firms will have enough time to adjust and become more competitive. The Philippine Institute for Development Studies (PIDS) countered industry suspicions in a study dated February 2014, where the research firm restated its support for cabotage law reform. "[W]e argue that fears ... may be unfounded because market limitations such as market size, lack of familiarity with the domestic markets, and institutional barriers may not allow foreign shipping companies to do business in all sectors of coastwise trade," PIDS said in its study. Authors Gilberto M. Llanto, PIDS president, and Adoracion M. Navarro, PIDS senior research fellow, argued that a well-planned lifting of cabotage would drive local firms to improve service and materials. "The perennial inefficiencies in the maritime industry are linked to lack of competition due to barriers to entry, arising from the law’s provision that allows only domestic shipping lines to serve domestic routes," the authors said. They added that, as a "blanket removal of cabotage restrictions could be disruptive," the Maritime Industry Authority (MARINA) should probe its effects and factors -- such as tonnage, passenger volume, and whether cabotage lifting should be phased. The study also noted that local shipping firms inefficiently use smaller, older vessels with a usual capacity of 200-300 twenty-foot equivalent units, versus the 5,000 TEUs of foreign ships. Philippine regulation of cabotage, also called coastwise trade, stems from the Tariff and Customs Code of the Philippines (Republic Act 1937) and the Domestic Shipping Development Act of 2004 (RA 9295). RA 1937 is patterned after the American-era Jones Act of 1920 and covers basic elements of coastwise trade such as franchising and discretionary powers of overseeing officials. RA 9295, meanwhile, explicitly bars non-domestic firms from transporting cargo between domestic ports unless MARINA grants them a special permit.-- Mr. Llanto and Ms. Navarro added that reform is meant to align the Philippines with the international trend towards more liberal cabotage policy and that the focus is reciprocity with other states. "This is not truly an argument against cabotage liberalization but can be viewed as an opportunity to move the debate away from protectionism and toward the demand for reciprocity in opening markets," they said. For comparison, the study cited cabotage policy models in other countries, ranging from restrictive Japan to more relaxed Australia, and the oft-used case of Indonesia’s cabotage lifting experiment. It added that past discussions on the looming Association of Southeast Asian Nations integration in 2015 included cabotage among the challenges to erecting a regional shipping market. The bills proposing to amend cabotage law include House Bill No. 1789, HB 2563, and Senate Bill No. 1359.