Cabotage Law: Promoting inefficiency
A year ago, President Benigno Aquino III (PNoy), in his fourth State of the Nation Address, stressed the need to review certain laws. Despite criticisms for its length and substance, inarguably, PNoy pressed the right button when he urged congress to review and amend the Cabotage Law.
Aptly, he said, “Let us amend the Cabotage Law in order to foster greater competition and to lower the cost of transportation for our agricultural sector and other industries”. Today, as PNoy delivers his fifth SONA, nothing has progressed so far. True, a bill was filed by Rep. Rufus Rodriguez last year. However, Congress has, thus far, kept the bill in the freezer. Likewise, Senator Bam Aquino had his own proposals. Similarly too, it remained just that, a proposal.
As a jargon, cabotage means “navigation or trade along the coast”. Used legally, as in the Cabotage Law, it shall mean the domestic shipping routes shall be served solely by domestic shipping lines. Historically, the Cabotage Law, also known as the Jones Act of 1920 was passed by the Congress of the United States of America when our country was still its colony. Today, 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. Still, with the primordial objective of pampering or over protecting the domestic shipping industry.
Consequently, like many other industries that are controlled by a few, the industry remains inefficient. With some century-old vessels on their fleet, their maintenance and operating costs are high. Consequently, they passed it on to the manufacturers, fishermen, farmers and traders by way of charging exorbitant fares on their cargoes. Accordingly, businessmen as they are, they passed it on to us, the ultimate consumers to recover their costs.
Truth to tell, an international shipping line that carries one twenty-foot equivalent unit from Hong Kong to Cebu charges only US$100.00 (or P4,300.00). However, a domestic shipping line charges P15,000.00 from Cebu to Cagayan de Oro for one TEU. Clearly, at face amount, that’s usuriously more than three times higher than what international shipping lines charges at a distance that is preposterously shorter. Moreover, an international shipping line charges just below US$300.00 (or P12,900.00) for one TEU from Cebu to Kaohsiung, Taiwan while a domestic shipping line collects P25,000.00 for one TEU from Cebu to Manila. Ironically, the international shipping line passes through Manila before reaching Taiwan.
Moreover, exporters that are using our own locally produced raw materials are in a tight fix. To illustrate, our dried mango processors/exporters are competing against other exporters all over the globe. Most of our dried mango exporters are based in Cebu. Undeniably, we don’t have ample supply of this fruit in the island. Most of these mangoes are coming from Guimaras in Iloilo. Due to the very high cost of inter-island transport, the landed cost in Cebu is relatively high. Therefore, our dried mangoes had to be priced higher than necessary to recover the raw material costs (which include freight). Consequently, our exporters have become less competitive in the international market. As a result, demands for our own dried mangoes dwindle. As it goes down, so is the demand for raw mangoes. Thus, our mango growers suffer as well. On the contrary, however, if our price is competitive in the international market, the demand rises.
On the other hand, local farmers (other than mango growers) have been burdened as well. It is a fact that farm produce depend largely on the provinces’ dominant weather. Thus, provinces have varying outputs. So that, due to an oversupply on one end and the lack of it in the other, exchanges of farm produce between provinces are necessary. Separated by seas and oceans, shipping industry’s role becomes indispensable.
Similarly too, the review of this law and the call for foreign-owned vessels to ply domestic routes are, likewise, indispensable. Curiously though, in dissecting the law, there are only two issues that could be of concern. These are taxes and efficiency. First and foremost, by law, for domestic shipping lines, a 12% Value Added Tax on top of the freight cost is passed on to the consignors/consignees for their shipments made. On the other hand, foreign vessels are only slapped with a 3% common carriers tax and a 2.5% tax on gross billings. Though the variance does not justify the local shipping companies’ exorbitant charges, at least, this is a disparity that we have to change. Thus, charging a 12% VAT on foreign vessels’ revenue from one domestic port to another does not only make it fair but levels the playing field as well.
Hence, setting aside tax issues, efficiency is brought to fore. Honestly, this (plus desires for profit) is the main issue. With some century-old fleets, inefficiency is a foregone conclusion.
Thus, it is now up to our legislature to act on this concern swiftly. Should they decide not to amend the Cabotage provisions in the Tariff and Customs Code of the Philippines, then, it’s a no-brainer. Absolutely, they are helping local ship-owners continue to make profit despite their inefficiencies and asking the rest of us to pay for it.
- Latest
