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The Philippine Shipping Sector: Besieged and Compromised

Filipinos concerned with how their country’s agriculture, trade and industry sectors are being compromised by government’s commitments to globalization should also look elsewhere – the shipping industry. In this strategic transport and trade sector, transnational corporations are beginning to establish their dominion as government starts to deregulate the industry and lift the so-called cabotage law. These are not much help to the already beleaguered local shipping industry and to the hundreds of thousands of Filipinos who continue to count on the country’s vessels for their transport needs.

By YNA SORIANO
Bulatlat.com

Being archipelagic with about 7,100 islands and isolated from the rest of Asia by the South China Sea, the Philippines is expected to develop a maritime industry that would connect it to the rest of the world. This is not the case, however, since it has a more developed air industry it having been the first Asian country to launch its air transport in the late 1940s.

Even the country’s inter-island shipping industry has been besieged by sea accidents caused by engine troubles, overloading of passengers and corruption in the Philippine Coast Guard. Such accidents have struck even major shipping lines with several hundreds and thousands of lives lost over the years.

A rescue to the ailing inter-island industry came with the recent introduction of a quicker passenger line by the Aboitiz company. But this is the exception rather than the rule and, besides, the transport fare is far from being affordable to the average Filipino.

Capt. Jovito G. Tamayo, a director of the Maritime Industry Authority (MARINA), believes that the only hope for the Philippine shipping industry lies in the hands of private investors especially big foreign companies.

Tamayo is convinced of the government policy that the Filipinos should continue to be the supplier of cheap but quality manpower for the industry. This, he insists, is the demand of the times.

MARINA is the government agency tasked to develop, promote and regulate all enterprises engaged in the business of constructing, operating and repairing shipping vessels including the management of shipping lines, shipyards, drydocks and marine railways.

Tamayo indeed, need not wish for the stars for what he believes should happen is already taking shape.

Transnationals

In 1993, only one transnational corporation (TNC) was engaged in the country’s water transport industry – the American President Lines, Ltd. The following year, another major company – the PNOC Shipping and Transport Corporation, invested in the shipping industry.

In 1998, five TNCs in the shipping industry landed in the top 5,000 corporations of the Securities and Exchange Commission (SEC). As of last year, there are already seven TNCs in the same list and are currently dominating the country’s shipping industry.

TNCs are business enterprises comprising a parent firm which controls assets of other business entities in countries other than their own. TNCs’ profits are repatriated to their parent firms’ home countries instead of being reinvested in their host countries.

Amang Labial of the migrants’ group MIGRANTE reveals that because of the cutthroat competition brought about by the increase in the number of TNCs in the shipping industry, many local shipping companies are offering their stocks to the public in order to generate additional income.

For instance, Negros Navigation Company, Inc., one of the country’s leading shipping firms, has sold its majority stocks (55 percent) to Metro Pacific, a subsidiary of Hong Kong’s Salem Group of Companies.

In the shipbuilding and ship repair sector, Labial says, only two companies dominate – TNCs at that. These are the Keppel Corporation, Ltd. of Singapore which owns three shipyard subsidiaries and the Tsuneishi Shipbuilding Company of Japan, which owns one. The TNCs’ four shipyards are the biggest in the country.

These shipyards do not only have technological support from their parent companies but also frequently avail of incentives from the country’s Board of Investments (BOI), Labial says. This means duty exemptions, tax credits, deductions from taxable income and other non-fiscal incentives.

“While TNCs enjoy both the support from their parent companies and the incentives from the Philippine government, the small Filipino-owned shipyards are neglected,” Labial contends.

Deregulation

The sorry state of the Filipino shipowners and the whole local shipping industry is further aggravated by government’s deregulation policy. Government authorities believe that deregulation would bring about greater competition among shipping companies and therefore encourage improvement of services.

In 1992, MARINA allowed the partial deregulation of shipping rates, except for third class passenger and cargo freights. Two years later, then President Fidel V. Ramos widened the partial deregulation through Executive Order 213.

Under the partially deregulated environment, users and providers of domestic shipping liner services can set the specific rate levels to be adopted. However, the MARINA still holds the final decision to approve any rate increase.

Under the regime of deregulation, shipping operators clamored for high rates. In April 1997, for instance, members of the Domestic Shipowners Association (DSA), an organization of top domestic shipping conglomerates, demanded a 13.4 percent increase in shipping rates. MARINE granted their demand, claiming that the increase was long overdue.

MIGRANTE predicts that judging from the deregulation of the country’s major industries, the full deregulation of the domestic shipping sector is a foregone conclusion.

“As in the case of other deregulated industries, instead of improving the service standards of shipping firms and increasing its accessibility to the poor majority, full deregulation would only make the industry more profit-driven,” the group of migrant workers and seamen argues.

Cabotage Law

Yet another threat to the shipping industry is the move to lift the Cabotage Law itself. Cabotage is the practice of reserving the privilege or right of navigating and trading along the coast between two ports within the national territory only to vessels duly registered to that country.

In the Philippines, the cabotage principle is reflected in specific provisions of the Tariff and Custom Code of the Philippines (TCCP). The TCCP provides only two requisites for vessels to be accorded the right to engage in the Philippine coastwise trade or trade by sea: a certificate of Philippine registry and a license to be renewed annually.

Industrialists, most of them belonging to the export sector, advocate the lifting of the country’s cabotage principle arguing that the high cost of shipping is a hindrance to the country’s trade and industry.

If the cabotage law is lifted, foreign vessels will be allowed to operate in the country’s domestic trade and engage in coastwise trade by merely securing special permits from MARINA without any need to be registered as a corporation. More specifically, foreign vessels would be allowed to transport not only cargoes but also passengers from island to island, or what is technically called transshipment, without any restrictions at all.

Apparently, the more compelling reason behind the call to lift the cabotage principle is that government is a signatory to numerous shipping and trade agreements. Such agreements aim to reduce trade barriers and eliminate protectionist policies.

One of these trade barriers is the cabotage law. To meet its international commitments, the government must lift the cabotage law and allow the entry of foreign vessels in the country’s domestic trade.

Consequently, the government issued the Port Tariff Policy declaring that ships trading in the Brunei Indonesia Malaysia Philippines – East Asian Growth Area (BIMP-EAGA) territory will be treated as domestic ships and will only need to pay the equivalent of a domestic fee usage when they call the country’s southern ports. Aside from this, Memorandum Order 237 was also issued exempting all passengers originating from the international ports of Mindanao from paying taxes.

Given such environment, the country’s cabotage law and the rest of the shipping industry’s protection mechanisms are compromised. Bulatlat.com

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