Republic Act No. 10668: Time for a healthy competition

For so many decades, our country has adopted a protectionist policy in order to promote the development of our domestic shipping industry. But this approach changed when President Aquino signed into law Republic Act No. 10668 or the “Foreign Ships Co-Loading Act,” allowing foreign ships or vessels to freely transport cargoes to its designated port of destination. However, Section 7 of RA 10668 clarified these foreign vessels are not common carriers.

Article 1732 of the New Civil Code of the Philippines defines common carriers as “persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public.” Since such foreign ships/vessels are not considered common carriers, the services rendered by such foreign vessels are not considered public. Hence, these foreign vessels are not required to obtain a Certificate of Public Convenience or Certificate of Public Convenience and Necessity before they could engage in transporting imported goods and Philippine-made exports within our country.

Cabotage is a maritime law principle which refers to “transit of a vessel along the coast of a nation for the purpose of trade from one port to another within the territorial limits of that nation.” Our old cabotage law is incorporated in the Tariff and Customs Code of the Philippines, particularly Sections 902 and 1009. As provided in Section 902 of the Code, only vessels with certificate of Philippine registry shall be allowed to engage in Philippine coastwise trade. On the other hand, Section 1009 provides that foreign vessels may only be allowed to enter Philippine coastwise ports if they have obtained clearance and authorization from the Customs commissioner. These limitations were echoed by Section 6 of Republic Act No. 9295 or the “Domestic Shipping Development Act of 2004” which provides “No foreign vessel shall be allowed to transport passengers or cargo between ports or place within the Philippine territorial waters, except upon the grant of Special Permit by the MARINA when no domestic vessel is available or suitable to provide the needed shipping service and public interest warrants the same.” However, all these restrictions have already been modified by Section 4 of RA 10668 wherein it provides that a foreign vessel:

a.         Arriving from a foreign port, shall be allowed to carry foreign cargo to its Philippine port of final destination, after being cleared at its port of entry.

b.         Arriving from a foreign port, shall be allowed to carry foreign cargo by another foreign vessel calling at the same port of entry to the Philippine port of final destination of such foreign cargo.

c.         Departing from a Philippine port of origin through another Philippine port to its foreign of final destination, shall be allowed to carry foreign cargo intended for export.

d.         Departing from a Philippine port of origin, shall be allowed to carry foreign cargo by another foreign vessel through a domestic transhipment port and transferred at such domestic transhipment port to its foreign port of final destination; and

e.         An empty foreign container van going to or coming from any Philippine port, or going to or coming from a foreign port, and being transhipped between two Philippine ports shall be allowed.

With the modification, foreign vessels are now allowed to transport cargoes between ports within the country even without a permit from MARINA. However, even though foreign vessels are already allowed to engage in coastwise transport, Section 8 of RA 10668 expressly prohibits foreign vessels from transporting domestic cargo or container van, whether loaded or empty, though it may contain foreign cargo. This restriction may be considered as a protection to our local shipping operators because the carriage of local or domestic cargoes is still exclusive to them.

Private and public stakeholders believe this new law will foster healthy competition in our domestic shipping industry. With the expected additional activities of foreign vessels in our country, it will be deemed necessary for our local shipping operators to improve their equipment and operations in order to cope with their foreign counterparts and be more competitive. Prior to RA 10668, goods coming in and out of the country have to be loaded or unloaded first in Manila before they could be transported to its respective port of destination. But this setup has been changed since importers and exporters now can directly ship their goods to its port of destination. In other words, carriage of these goods by a foreign vessel does not need the services of a local ship owner or operator thus they will not incur additional costs for transhipment anymore. In that way, it will make the shipping costs lower and also help decongest the port of Manila.

Thus, healthy competition would inevitably bring out the best in stakeholders of our domestic shipping industry whose development has stagnated in recent decades due to lack of competition. As former US President Herbert Hoover said, “Competition is not the only basis of protection to the customer, but is the incentive to progress.” Truly, RA 10668 is a welcome development as we are now ready to meet the present and future challenges in international trade, thus ensuring not only the continued progress of our economy, but also the development of our nation as a whole.

Carlo John Pascual is a supervisor from the tax group of KPMG R.G. Manabat & Co. (KPMG RGM&Co.), the Philippine member firm of KPMG International. KPMG RGM&Co. has been recognized as a Tier 1 tax practice, Tier 1 transfer pricing practice and Tier 1 leading tax transactional firm in the Philippines by the International Tax Review.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.

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