CABOTAGE LAW

Republic Act No. 10668

July 21, 2015
S. No. 2486
H. No. 5610

Republic of the Philippines

Congress of the Philippines
Metro Manila
Sixteenth Congress
Second Regular Session
Begun and held in Metro Manila, on Monday, the twenty-eighth day of July, two
thousand fourteen.
[REPUBLIC ACT NO. 10668]
AN ACT ALLOWING FOREIGN VESSELS TO TRANSPORT AND CO-LOAD FOREIGN CARGOES
FOR DOMESTIC TRANSSHIPMENT AND FOR OTHER PURPOSES
Be it enacted by the Senate and House of Representatives of the Philippines in Congress
assembled:
SECTION 1. Declaration of Policy. – It is the policy of the State:
(a) To assist importers and exporters in enhancing their competitiveness in light of
intensifying international trade; and
(b) To lower the cost of shipping export cargoes from Philippine ports to international
ports and import cargoes from international ports for the benefit of the consumers.
SEC. 2. Definition of Terms. – As used in this Act:
(a) Co-loading refers to agreements between two (2) or more international or domestic
sea carriers whereby a sea carrier bound for a specified destination agrees to load,
transport, and unload the container van or cargo of another carrier bound for the same
destination;
(b) Container van refers to a standardized reusable steel box used for the safe, efficient
and secure storage and movement of materials and products within an intermodal freight
transport system where the cargo carried in the container van can be moved from one
(1) mode of transport to another without having to unload or reload the contents of such
container van;
(c) Domestic cargo refers to goods, articles, commodities or merchandise which are
intended to be shipped from one (1) Philippine port to another Philippine port, even if, in
the carriage of such cargo, there may be an intervening foreign port;
(d) Export cargo refers to goods, articles, commodities or merchandise carried in foreign
vessels and duly declared before the Bureau of Customs at the port of origin as cargoes
for shipment to a port outside the jurisdiction of the Philippines;
(e) Foreign cargo refers to import or export cargo carried by a foreign vessel;
(f) Foreign container van refers to a container van, whether empty or loaded with foreign
cargo, which belongs to a foreign vessel;
(g) Foreign port refers to any seaport outside the jurisdiction of the Philippines;
(h) Foreign ship operator refers to a citizen, partnership, or corporation, whether foreign
or local, owning or chartering a foreign vessel;
(i) Foreign vessel refers to a ship registered or documented in a flag registry other than
that of the Philippines;
(j) Import cargo refers to goods, articles, commodities or merchandise of foreign origin
carried in a foreign vessel which are intended to be cleared before the Bureau of Customs
for delivery to the port of final destination within the jurisdiction of the Philippines;
(k) Philippine port refers to any port within the Philippines authorized by a government
contract to handle domestic import or export cargo;
(l) Port Authorities refer to entities engaged in the development and operation of
seaports including, but not limited to, Philippine Ports Authority, Cebu Port Authority,
PHIVIDEC Industrial Authority, Cagayan Special Economic Zone Authority, Aurora Special
Economic Zone Authority, Bases Conversion and Development Authority, Authority of the
Free Port Area of Bataan and Subic Bay Metropolitan Authority; and
(m) Transshipment refers to the transfer of cargo from one (1) vessel or conveyance to
another vessel for further transit to complete the voyage and carry the cargo to its final
destination.
SEC. 3. Scope. – This Act shall apply exclusively to foreign vessels carrying foreign
container vans or foreign cargoes.
SEC. 4. Carriage of a Foreign Cargo by a Foreign Vessel. – A foreign vessel:
(a) Arriving from a foreign port, shall be allowed to carry a 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 a 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
port of final destination, shall be allowed to carry a foreign cargo intended for export; and
(d) Departing from a Philippine port of origin, shall be allowed to carry a foreign cargo by
another foreign vessel through a domestic transshipment port and transferred at such
domestic transshipment port to its foreign port of final destination.
For purposes of this Act, an empty foreign container van going to or coming from any
Philippine port, or going to or coming from a foreign port, and being transshipped
between two (2) Philippine ports shall be allowed.
SEC. 5. Authority of the Commissioner of Customs. – The Commissioner of Customs, upon
such reasonable conditions as may be imposed, may do the following acts:
(a) Authorize the conveyance of foreign cargo brought from abroad by a foreign vessel;
(b) Allow a foreign vessel to take cargo intended for export at any Philippine port and
convey the same upon such foreign vessel to a foreign port; and
(c) Authorize the transshipment of such foreign cargo intended for import or export
through another Philippine port1 by another foreign vessel to the cargo’s port of final
destination.
Provided, That such acts shall not diminish or impair any existing and valid government
contract covering the handling of import and export cargo: Provided, further, That the
Commissioner of Customs shall have the authority to impose penalties to foreign ship
operators found to have violated any provision of this Act and to take measures to address
illegal activities, including smuggling.
SEC. 6. Application of the Carriage of Goods by Sea Act. – Carriage conducted in
accordance with this Act shall be governed by Commonwealth Act No. 65, otherwise
known as the “Carriage of Goods by Sea Act” with respect to the liability of the carrier for
the loss of, or damage to, goods carried.
SEC. 7. Carriage by Foreign Vessels Not a Public Service, Foreign Vessels Not Common
Carriers. – Foreign vessels engaging in carriage conducted in accordance with this Act shall
not be considered common carriers as provided in Republic Act No. 386, otherwise known
as the “Civil Code of the Philippines”; neither shall such foreign vessels be considered as
offering a public service and thus shall fall outside the coverage of Republic Act No. 9295,
otherwise known as the “Domestic Shipping Development Act of 2004”.
SEC. 8. Prohibitions. – Foreign ship operators shall submit their cargo manifest to the Port
Authorities to ensure that no domestic cargoes are carried by the foreign ship. No foreign
vessel shall be allowed to carry any domestic cargo or domestic container van, whether
loaded or empty, even if such domestic container van may contain foreign cargo.
SEC. 9. Fines and Penalties. – The Bureau of Customs, upon due notice, hearing and
determination of the existence of any breach or violation of the provisions of this Act or
any rule and regulation issued pursuant thereto, shall impose a penalty or fine on any
erring foreign ship operator in accordance with applicable provisions of the Tariff and
Customs Code of the Philippines and other related laws.
SEC. 10. Implementing Rules and Regulations. – Within sixty (60) days from the approval
of this Act, the Department of Finance, the Bureau of Customs, the Department of Trade
and Industry, the Bureau of Immigration, and all Port Authorities, shall promulgate such
rules and regulations necessary for the effective implementation of this Act.
SEC. 11. Separability Clause. – If any provision of this Act is subsequently declared invalid
or unconstitutional, other provisions hereof which are not affected thereby shall remain
in full force and effect.
SEC. 12. Repealing Clause. – Section 1009 of Presidential Decree No. 1464, otherwise
known as the “Tariff and Customs Code of 1978” and all laws, decrees, orders, rules and
regulations, and other issuances, or parts thereof, inconsistent with the provisions of this
Act are hereby repealed or modified accordingly.
SEC. 13. Effectivity. – This Act shall take effect fifteen (15) days after its publication in
the Official Gazette or in a newspaper of general circulation.
Article I:

In his state of the Nation Address last Monday, President Aquino asked Congress to,
among others, amend the Cabotage Law to help maintain the growth momentum of the
country’s economy.
Cabotage is defined as “trade or navigation in coastal waters.”
The provision in our Tariff and Customs Code which states that maritime transportation
of goods and passengers within the country is reserved to Philippine registered marine
vessels is generally regarded as the Cabotage Law.
ADVERTISEMENT
Passengers or goods arriving from abroad on foreign vessels may be carried by the same
vessel to any port in the Philippines, and passengers departing from the Philippines or
articles intended for export may be carried in a foreign vessel through a Philippine port,
only with the approval of the Commissioner of Customs.
The right of domestic vessels to exclusively engage in coastwise transportation dates back
to the 1900s when the country was under American rule.
The authorities then believed the protectionist policy was necessary to promote the
development of the local shipping industry.
They also felt that, as against foreign sailors, the familiarity of Filipino ship operators with
maritime and weather conditions in the country contributes to safety in local sea travel.
Objections
There were several attempts in the past to either repeal the law or allow foreign-
registered vessels to engage in coastwise transportation, depending on their load capacity
or the point of origin of the goods or passengers they carry.
Strong opposition from local shipping operators and maritime workers, including arrastre
workers have, however, stymied these moves.
The oppositors contend that the foreign operators, with their modern facilities and strong
financial position, can slash their tariffs to kill the competition or bring local operators to
the ground.
This could result in the closure of shipping companies and, in the process, displace
thousands of Filipino workers.
Sometime ago, the Maritime Industry Authority (Marina), when asked to comment on the
proposal to repeal the law, expressed apprehension that the country may go the way of
Indonesia whose local shipping industry nearly collapsed after foreigners were allowed to
engage in coastwise transportation.
The Indonesian government averted the disaster by immediately restoring exclusivity to
Indonesian registered vessels in coastwise operation.
In its position paper, Marina stated that, although in theory, the lifting of the restriction
is an essential element of free market competition, “the Philippine situation still
embodies certain distortions that would prevent the free interplay of market forces
towards the objective of ideal competition.”
Advantages
Those in favor of repealing the law argue that the entry of foreign vessels in domestic
shipping would upgrade the quality of shipping facilities and, with the attendant
efficiency, bring down transportation costs.
According to the proponents, the country’s shipping magnates are hesitant to acquire
new bottoms because of their prohibitive costs, not to mention the accompanying high
operating expenses.
This has resulted in the stagnation of the industry.
The disinterest in investment is aggravated by the resurgence of budget airlines that offer
airfares below those charged by domestic ships, in addition to being able to get to
destinations in a matter of hours, not days, as is the case in sea travel.
Weighing on the issue, exporters and importers claim that the restriction on foreign
vessels in the movement of goods in Philippine ports increases their costs as cargoes have
to be loaded and unloaded to and from foreign and local vessels and vice versa.
And like all other businesses, the additional financial burden is invariably passed on to or
shouldered by the consumers.
Rounding up the arguments in support of the law’s repeal is the mantra of globalization
that multinational companies (and the countries where they are based) have been
pushing the developing countries to adopt and implement.
Balancing act
The arguments for and against the repeal of the law have their respective merits. They
represent legitimate concerns that cannot be ignored.
Assuming Congress takes a second look at the law as suggested by President Aquino, it
has to do a balancing act in weighing the interests of the local shipping industry and the
people who depend on it for their livelihood, the exporters and importers whose products
contribute to the national economy, and the consumers who will ultimately bear the costs
of coastwise transportation.
The objective and scope of the Cabotage Law may be likened to those of Republic Act
1180, or Retail Trade Nationalization Act, which gave to Filipino citizens the exclusive right
to engage in retail trade.
Enacted in 1954, this law sought to ensure that the sale and distribution of basic food
commodities remained in Filipino hands.
Four decades later, after realizing that the protectionist policy was no longer practical,
Congress repealed this law and replaced it with Republic Act 8762, or Retail Trade
Liberalization Act of 2000.
Under the new law, foreigners were allowed to engage in retail trade depending on their
companies’ paid-up capital in equivalent Philippine pesos: if foreign participation does
not exceed 60 percent of total equity, $2.5 million; if the capital is $7.5 million or more,
no foreign participation limit; and if engaged in high-end or luxury products, $250,000 per
store.
Outside of the cases mentioned above, retail trade remains exclusively in the hands of
Filipino citizens.
A similar approach may be taken by Congress in reviewing the Cabotage Law.
Certain tonnages or passenger load factors may be reserved to local vessels. Foreign ships
may be allowed coastwise travel if their cargoes are all imported or intended for export.
Restrictions may be imposed on the kinds of products that can be carried by foreign
vessels in our ports.
With the changes in the global economy, this law is clearly behind the times. It has to be
retooled or adjusted to meet present challenges.
Article II
MANILA, Philippines (UPDATED) – Ahead of his final State of the Nation Address,
President Benigno Aquino III signed into law two bills designed to advance the country’s
economic progress through improved market competition and a more efficient shipment
system.
In a ceremony in Malacañang on Tuesday, July 21, Aquino signed the landmark Philippine
Competition Act and the Foreign Ships Co-Loading Act which amends the 50-year-old
Cabotage law. Both laws are seen to improve the country's business climate.
"Patunay po ito na hindi tayo basta-basta makukuntento lang sa kung ano ang ating
nagawa na, bagkus, talagang sinasagad natin ang makukuhang benepisyo ng ating
mga boss. Sa pamamagitan ng dalawang panukalang batas na pinagtibay natin sa araw na
ito, tinatanggal natin ang mga baluktot na kalakarang dulot ng kawalan ng kumpetisyon,
na walang nadadalang pakinabang sa ating mamamayan," Aquino said in a speech on
Tuesday, July 21.
(This is a proof that we are not easily contented with what has been done. Instead, we
find possibilities to maximize the benefits for our bosses. Through these two laws, we are
changing the crooked ways of lack of competition in business which do not benefit the
people.)
Senate President Franklin Drilon said the new laws would help the country face the
challenges and seize the opportunities that would arise from the Association of Southeast
Asian Nations (ASEAN) market integration in December.
“A new anti-trust law and an amended Cabotage law is just what the doctor ordered, so
to speak, since our laws and policies need to be more than capable if we are to fully
capitalize all the prospects for economic growth that the AEC (ASEAN Economic
Community) will bring,” Drilon said in a statement.
“Both bills form part of President Aquino’s legacy as they create a more level playing field
on the competition side and offer cost reductions in domestic shipping," Henry
Schumacher, vice president for external affairs of the European Chamber of Commerce
of the Philippines, said in a text message.
Both measures, Schumacher added, will benefit the Filipino consumer who potentially
gets better goods and services at a better price.
New era of doing business
The Philippine Competition Act finally gives the country its own law guiding competition,
an area where the country has lagged behind most of the world and its ASEAN neighbors.
It is among the longest-running pending measures in Congress, taking 25 years before
hurdling the legislative mill. The end goal is to benefit consumers with more choices and
lower prices – products of market competition.
“The Philippine Competition Act will usher in a new era of doing business in the country,”
said Senator Paolo Benigno "Bam" Aquino IV, co-author and principal sponsor of the
measure.
Businesses, whether big or small, will now be on equal footing as the law penalizes anti-
competitive agreements and abuses of dominant players, he explained.
"Ngayon, sa wakas, maliit man o malaki ang negosyo, ang labanan ay nasa paglalabas ng
de-kalidad na produkto sa pinakamakatwirang presyo, imbes na under the table o ang
paramihan ng kuneksiyon," the President said.
(Now, finally, both small and big businesses, the competition will be on producing high-
quality products sold at reasonable prices, not [prices] based on under the table
transactions or connections.)
Cartels, exemplified by the unwarranted spike in garlic prices last year, will also be
eliminated under the law, he added.
Under the law, a Philippine Competition Commission (PCC) will be established within 60
days of the signing of the law. The President will appoint a chairperson, 4 commissioners,
and an executive director.
The independent quasi-judicial body is tasked to look into anti-competitive behaviors,
abuses in dominant positions, and anti-competitive mergers and acquisitions. The PCC
can impose administrative penalties of a maximum fine of P100 million ($2.2 million) on
the first offense, and P250 million ($5.5 million) for the second offense for anti-
competitive agreements and abuses of dominant position.
Moreover, courts can impose criminal penalties of imprisonment from two to 7 years and
a maximum penalty of P250 million ($5.5 million) for anti-competitive agreements done
between and among competitors.
No penalties will be meted out within the first two years of implementation, however, in
order to give firms found guilty time to restructure and reform.
The Department of Justice - Office for Competition (DOJ-OFC) will handle the prosecution
of the cases.
The full positive effects of the law are expected to be felt in the next administration, in
view of the time it will take to appoint the commission, constitute the implementing rules
and regulations, and the transition period of the law.
 TECHNOLOGICAL INSTITUTE OF THE PHILIPPINES
1338 ARLEGUI ST., QUIAPO, MANILA

COLLEGE OF ENGINEERING
CIVIL ENGINEERING DEPARTMENT

CE 408-CE42FA1
TRANSPORTATION ENGINEERING

RESEARCH-QUIZ

SUBMITTED BY:

1212579 BURCE, PAULO BRUCE L.

1212267 RAMOS, GOSPEL KAE S.
1412000 TUNACAO, BABYRUTH P.
ESTA, ALVIN
ARBOLEDA, LOUIE JAY

SUBMITTED TO:

ENGR. PORFIRIO ENTICE

DATE SUBMITTED
JANUARY 19, 2017