THE Philippines has been liberalizing its economy, but many of the protectionist laws that remain are holding back development. One is cabotage, which not only causes bottlenecks to economic progress but may also be stunting growth in our shipping industry.
Traditionally, cabotage refers to transporting goods or people from port to port within the same country. Here, it also refers to laws that protect domestic shipping firms from foreign competition.
In 2014, the Philippine Institute for Development Studies (PIDS) reported that inefficiencies in the maritime sector were attributed to the cabotage law. That law allows only Filipino firms to serve local routes by putting up entry barriers to foreign competitors. “This has resulted in the high cost of transporting raw materials to manufacturing sites, finished products and agricultural goods to various destinations, and imported products to distribution areas, thereby increasing operational costs that are passed on to consumers as higher prices,” according to the study by Gilberto Llanto and Adoracion Navarro, both senior PIDS fellows.
PIDS also mentions that cabotage hurts exports, because higher local shipping costs make Philippine goods less competitive in the international markets. Imagine, shipping cargo directly from Manila to Cagayan de Oro is more expensive than coursing it through Hong Kong or Taiwan, according to an advocacy paper by the Joint Foreign Chambers of Commerce in the Philippines, which was also cited by PIDS. Another paper, this one by the Joint United States Government and Government of the Philippines Technical Team, shows that the cost of the local shipping service is 250 percent higher on a per nautical mile basis compared with that in Indonesia.
Moreover, the protectionist policies offer little incentive to domestic shipping firms to modernize their fleets. To us, that raises a safety issue, a concern buttressed by the fact that the Philippines holds the worst maritime safety record in the world today.
PIDS cites another study dated 2007 that said domestic cargo ships were “generally 20 years old.” The situation improved in 2013, when the Maritime Industry Authority (MARINA) reported that Philippine cargo ships were 11 years old on average, but passenger vessels were between 18 and 20 years old.
Time to compete
Cabotage, too, is an old practice, dating back to the American colonial period. The time has come for us to compete.
In fairness to our policymakers, the maritime sector has been opening up, albeit slowly. Republic Act 9295 introduced reforms in 2004 that included incentives to modernize fleets. But the law kept restrictions on foreign shipping firms from operating domestically.
Meanwhile, reforms are taking shape in Asean, which has crafted a vision for a single shipping market for the bloc. The bad news is that cabotage restrictions may remain.
In the last year of his term, President Aquino should push for greater liberalization in the shipping industry. We hope that his government will accelerate and widen the scope of programs designed to modernize ports and related facilities, as well as improve the capabilities of our coast guard. The port congestion mess not long ago reminds us that the country has a long way to go. But to its credit, the Aquino government has improved the weather forecasting capabilities that have also benefited sea transport.
If the state of the air transport industry is any indication, the Philippines should not be afraid of liberalization in the maritime sector. In 1995, then President Fidel Ramos introduced an open skies policy. That was followed by similar directives by President Gloria Arroyo and President Benigno S. Aquino 3rd himself. Instead of buckling, local airlines seem healthier today despite foreign competition. Airline fleets are newer, if not safer.
Also, open skies may be attributed to the growing number of tourists over the years. That number is approaching 5 million. President Aquino’s target is 6 million a year, but other countries, such as Thailand, are way ahead with 20 million tourist arrivals annually.
An open seas policy will not only boost tourism, but will also be a boon to the general economy. It will benefit producers in the regions, including Mindanao, the country’s undeveloped bread basket. Consumers in urban areas, such as Metro Manila, will enjoy lower commodity prices. Cutting shipping costs will make Philippine exports more competitive. And naturally, competition will drive domestic shipping firms to ensure safe and more efficient service to the riding public.