Actual Situations in the Philippines And

Their effects to the Philippine Business Environment.

1. AMMENDED CABOTAGE LAW

CABOTAGE comes from the French caboter, which means to sail along
the coast. This refers to the right to transport cargo or passengers via land, sea or
air between two places within the same country.

Under Republic Act (RA) No. 1937 (Tariff and Customs Code of the
Philippines) and RA 9295 (Domestic Shipping Development Act of 2004), the
privilege of engaging in domestic coastwise trade is reserved purely for Philippine
vessels. Effectively, foreign vessels are prohibited to ply domestic routes carrying
passengers and cargo, except under special granted discretionary circumstances.
After foreign goods are brought into a Philippine port of entry, domestic shippers are
to transship these to the final point of destination, thus entailing additional costs
which are eventually passed on to consumers.

The restriction resulted in the local shipping industry being dominated by very
few players namely Aboitiz Shipping Transport System Corporation, Cokaliong
Shipping Lines, Herma Shipping & Transport, El Greco Jet Ferries, Inc., Lorenzo
Shipping Corporation, Magsaysay Shipping Lines, MBRS Lines, Negros Navigation,

PNOC Shipping Corp Via Marine, Sulpicio Lines, Inc., Via Marine and Viva Shipping
Lines. And the lack of competition in the industry contributed to high consumer
prices and slow modernization. Another effect is that it hurts domestic producers,
especially the agricultural sector, since the mills would rather import from other
countries due to the cheaper cost of transporting the produce, than from within the
country.

Geared towards the primary objective of promoting competition in the

maritime cargo shipping industry, RA 10668 or the Cabotage Act was signed into
law by President Benigno S. C. Aquino III on July 21.

The law intends to lift the long-standing cabotage restrictions imposed upon
foreign vessels. Under the law, the activities of foreign vessels have been expanded
to include sea carriage of:

Foreign cargo arriving from a foreign port to its Philippine port of

destination, after being cleared at its port of entry;

Foreign cargo of another foreign vessel from its Philippine port of entry
to its Philippine port of destination;

Foreign cargo intended for export from a Philippine port of origin to

another Philippine port and eventually to its foreign port of destination;

Foreign cargo of another foreign vessel through a domestic

transshipment port to its foreign port of destination; and

Empty foreign containers going to or coming from any Philippine port,

or going to or coming from a foreign port and being transshipped
between two Philippine ports.

The amended laws effect is seen as a welcome initiative to stimulate

economic activity, to bring down shipping costs and to support the planned ASEAN
market integration. It also aims to improve voyage safety and address the port
congestion problem in Metro Manila.

With the amended law, entry of foreign shipping players will increase
domestic shipping competition, which in turn will yield lower shipping rate. Lower
shipping costs will allow consumers to enjoy commensurately lower end-user prices.

However, existing local players may end up folding up their operations if they
are unable to compete with competition prices. These local players may also end up
entering into joint venture agreements, mergers, to increase market power, or seek
foreign investments to infuse new capital to fund upgrades in shipping fleets and
operations in the face of real competitive threats.

With the entry of foreign firms, there will be pressure on the countrys ports
system and infrastructure, and may be unable to respond to the need for increased
supply. Ports in all classifications will be required to be able to handle increased

demand import calls, and install or upgrade cargo and passenger handling facilities.
Foreign firms will also bring their systems of practice that is assumed to have met
international standards thereby similarly putting pressure to upgrade the safety,
security, and service standards of the industry.

With more industry players, there will be more ships plying the countrys
maritime routes thus, putting pressure on the maritime security and safety resources
of government, in particular, with government agencies like the Coast Guard, Navy,
and Bureau of Fisheries & Aquatic Resources. Demand for their regulatory
resources will increase, commensurate to their legislated need to ensure the safety
and security of our maritime domain. Similarly, demand will increase for updated
Philippine marine and navigation maps, which are of international standards. If left
unmonitored, competition from foreign operators may decimate the local shipping
industry giving rise to economic national security.

Upgrading infrastructure in the countrys ports and improvements in related

industries will increase government spending in this regard through the acquisition of
domestic goods and services that go as inputs in these acquisitions. Support offices,
and the purchase of various equipment may be setup to support the business.
Employees hired may also increase purchases of residential investments thereby
increasing general investment numbers.

With increased domestic shipping operators, there will be more channels by

which passenger and agriculture produce can be facilitated in travel and trade.
Markets that once had no viable shipping routes may now be tapped thereby adding
new trade value with new trade points. At the same time, markets that once had
limited trade due to restrictions in shipping routes and schedules, or restrictions
imposed by shipping fees can now be improved thereby increasing trade values in
existing points. These will produce incentives to producers to increase production
given new/increased demand for their products. Alternative ways of travel will
become available increasing options for travelers and increasing the market
opportunities in the tourism sector.

With more goods throughput on the major ports, as well as more goods
because of new markets, there is higher likelihood of growth in export numbers.
Quicker trade transfer to international markets through these foreign firms may be
enabled, as they can facilitate for transnational shipment from any of the major parts
(for those that are international gateways). Consumers will also be provided with
increased variety of goods to choose from.

Increased demand for goods will lead to higher production of the goods,
increasing labor demand and employing more Filipinos to facilitate this growth.
Growth in labor demand is also seen in the entry of foreign shipping firms who will
be employing local workers for ground-based operations and shipping crew

requirements. Higher output decreases unemployment however puts pressure on

prices through increased wages. The rise of labor unions or port employee
associations may come about with this growth leading to wage setting negotiations.
Increases in income may fuel more consumption in the general market. However
commensurate increases in prices due to wage hikes may offset the income hike
leaving real wages to remain the same.

2. RENEWABLE ENERGY ACT OF 2008

Republic Act 9513, also called the Renewable Energy Act of 2008 pushed for
the wider use of renewable energy in the Philippines. In particular, the law called for
the state to:
(a) Accelerate the exploration and development of renewable energy (RE)
resources such as, but not limited to, biomass, solar, wind, hydro, geothermal
and ocean energy sources,
(b) Increase the utilization of renewable energy by institutionalizing the
development of national and local capabilities in the use of RE systems, and
promoting its efficient and cost-effective commercial application by providing
fiscal and non-fiscal incentives;
(c) Encourage RE resources as tools to effectively prevent or reduce harmful
emissions for the protection of health and the environment; and

(d) Establish the necessary infrastructure and mechanism to carry out the
mandates specified in this Act and other existing laws."

The Philippines is endowed with abundant renewable energy (RE) resources.

Being an agricultural country, major crops grown are rice, coconut and sugarcane
could generate substantial volumes of residues that could be utilized as energy fuel.
Moreover, the country is situated on the fringes of the Asia Pacific monsoonal belt
thus exhibits a good potential for wind energy. With its location just above the
equator, the Philippines likewise has a vast potential for various solar energy
applications. In the past years, initiatives have been geared towards increasing
generation from geothermal and hydro resources that has significantly reduced the
country's dependency on imported and polluting fuels. In addition, RE sources such
as solar, micro-hydro, wind and biomass resources are seeing wide-scale use in the
government's rural electrification efforts. With the current soaring of oil prices in the
world market, harnessing and utilization of RE is critical in the government's strategy
to provide energy supply for the country.

Republic Act 9531, or the Renewable Energy Act of 2008 encourages the
involvement of the private sector in renewable energy, given that there is an
increasing shift towards clean and sustainable energy. The Renewable Energy Act
of 2008 seeks to attract members of the private sector to contribute to the

development of renewable energy in the country by offering fiscal and non-fiscal

incentives.

Fiscal incentives include tax breaks, as well as funding assistance from both
the government and third parties. A number of international organizations have
expressed willingness to aid Philippine businesses in developing local renewable
energy infrastructure. Such organizations include: German Technical Cooperation
(GTZ), United States Agency for International Development (USAID), Asian
Development Bank (ADB), United Nations Development Programme (UNDP), and
Japan International Cooperation Agency (JICA).

Public-private partnerships are a kind of contractual agreement between a

government entity and private sector player, wherein the private sector player
provides a public asset or service with the government's support.[36] In publicprivate partnerships, the government benefits by tapping into the expertise of the
private actor, who can provide assets and services to the public more efficiently. The
government also benefits by offloading some investment cost onto the private
partner. In exchange for taking on the risk of providing a public asset or service, the
private partner gets to benefit economically from the public-private partnership.

As of June 2015, the Department of Energy (DOE) has awarded 646 service
contracts to private sector players under the Renewable Energy Law with installed
capacity of 2,760.52 MW.

References:
Taxwise or Otherwise, By Randolph A. Delos Santos, 27 August 2015

Abalos, Fidel O. Cabotage Law = Exclusive Growth for Local Ship - Owners.
The Freeman, July 29, 2013.

Arangkada Philippines. Seaports.

http://www.investphilippines.info/arangkada/seven-inners/infrastructure/seaports/.

Austria, Myrna S. Philippine Domestic Shipping Transport Industry: State of

Competition and Market Structure. Philippine Institute for Development Studies,
2003-02.

Board of Investments Philippines. Domestic Shipping (Passenger and Cargo).

http://www.investphilippines.gov.ph

Cabacungan, Gil C. Shipping Firms Oppose Repeal of Cabotage Law. Philippine

Daily Inquirer, August 31, 2000.

Dy, Rolando T. Does the Law Serve Development? Philippine Daily Inquirer, June
30, 2013.

German-Philippines Chamber of Commerce and Industry. Philippine Maritime

Industry: Prospects and Challenges.

Habito, Cielito. Bill Filed to Repeal Cabotage Law. Philippine Daily Inquirer, April
26, 2010.

Joint USG-GPH Technical Team. Partnership for Growth: Philippines.

Llanto, Gilberto M., Enrico L. Basilio, and Leilanie Q. Basilio. Competition Policy and
Regulation in Ports and Shipping. Philippine Institute for Development Studies,
2007-04.

https://en.wikipedia.org/wiki/Renewable_energy_in_the_Philippines

Jee Y. Geronimo May 26, 2016, http://www.rappler.com