ALLOWING foreign vessels to ply their trade in Philippine coastal waters will “kill” domestic shipping lines and lead to foreign domination of the industry, while preempting the tax due the government from the domestic carriers.
These, according to Philippine Interisland Shipping Association president Primo Rivera, are just some of the possible scenarios if the country lifts the Cabotage Law.
Rivera said coastal shipping is a public utility and lifting of cabotage can only be done by amending the Constitution.
Article 12 Section 11 of the Constitution states that “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; nor shall such franchise, certificate, or authorization be exclusive in character for a longer period than fifty years.”
In a presentation at the annual conference on maritime law by the Maritime Law Association of the Philippines and PortCalls, Rivera said domestic shipping rates are not really costlier than foreign shipping rates.
He said warehousing, trucking, cargo handling and other processing fees are what add up to the cost of shipping.
Unlike foreign carriers, domestic shipping is also subject to numerous taxes, such as 12% value-added tax, corporate income tax of 12% and dry-docking tax of another 12%, while foreign shipping lines are only subject to common carriers tax of 3% and gross billing tax of 2½ %.
Rivera said if the cabotage policy is lifted, domestic shipping lines would just register their vessels in other jurisdictions like Hong Kong and Singapore to enjoy the same benefits as foreign carriers.
Vessel capacity also factors into the higher cost of shipping since larger ships can carry bigger volumes of cargo, thus, enabling them to reduce costs.
An average domestic vessel can carry 350-400 twenty-foot equivalent units (TEU) of containers while foreign vessels have a capacity of 1,500-2,000 TEUs.
For long-haul voyages, domestic carriers can handle 400-1,000 TEUs versus the 4,000-18,000 TEUs a foreign carrier can load, Rivera noted.
Ports in the country are also “underdeveloped” and lack proper equipment that results in slower vessel turnaround and, thus, added costs.
For example, Rivera said, a port in Davao lacks shore cranes, hence, shipowners have to buy vessels with cranes for faster turnaround.
He said PISA had recommended to the Philippine Ports Authority to develop ports for faster turnaround, adding that the agency would install five cranes in various ports in the Visayas and Mindanao.
Rivera also admitted that domestic shipping lines could not buy brand-new vessels and only procure second-hand ones due to financial constraints.
Rivera further said opening up Philippine coasts to foreign liners could put the country at risk because foreign ships, over which the country has no jurisdiction, could be used for smuggling and poaching in domestic waters.
Also, foreign lines could possibly dominate domestic coastwise trade.
Cabotage, Rivera explained, benefits the country as domestic vessels act as auxiliaries of the Philippine Coast Guard in times of national disasters. Besides, the country has economic and jurisdictional control over domestic vessels. In addition, they contribute more tax, he said.
President Benigno Aquino, in his State of the Nation address in July, asked legislators to amend the Cabotage Law “to foster greater competition and to lower the cost of transportation for our agricultural sector and other industries.”
PISA, in its position paper against cabotage, cited other countries that practice cabotage, such as the United States, Japan, China, European Union, Canada, Indonesia, Malaysia, Thailand, Vietnam, India, and Australia. Indonesia and Australia were known to have lifted their cabotage and are trying to revive their coastwise trade again.
“The intent of cabotage around the world is to ensure a developed and vibrant domestic shipping industry to provide a strategic service to ensure the continuity of trade, to support national maritime security, and a dependable resource during national disasters and emergencies,” PISA said.
Cagayan de Oro Rep. Rufus Rodriguez has filed House Bill 1789, known as the Coastwise Trade Act of 2013, to repeal and modify certain sections of the Tariff and Customs Code of the Philippines and the Domestic Shipping Development Act of 2004.
Rodriguez said cabotage “limits competition and encourages inefficiency among local vessel operators since foreign vessels are not allowed to pick up local cargo for delivery to another port within the Philippines. Local vessel operators are not forced to compete in terms of freight cost and service quality with international vessel operators”. ––Roumina M. Pablo
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