Port Klang, Penang Port and Tanjung Pelepas Port are amongst the major seaports in Malaysia.[1] What is the correlation between these ports with cabotage policy? The word ‘cabotage’ may seem unfamiliar to many people. One might think probably there is a typo error, misspelling or mispronunciation so that the correct word is actually ‘sabotage’. This is understandable as this word did not originate from the English language. Thus, there are not many people who are aware of its meaning or even its existence. ‘Cabotage’ was originally mentioned in French as ‘capotage’ and related to ‘caboter’, a verb which means to navigate from cape to cape or along the coast. ‘Caboter’ itself is derived from a Spanish word ‘cabo’ or ‘cape’. In Spanish, ‘cabotaje’ means navigation near the coast without losing sight of it.[2]
From the above definitions, one can presume that cabotage policy is relating to maritime law. Pursuant to the official website of the Ministry of International Trade and Industry, the cabotage policy governs the transport/shipping of goods or passengers between two places along coastal routes in the same country by a transport operator from another country.[3] This policy emphasises that only vessels registered in Malaysia are allowed to load and unload cargoes in the ports of Malaysia. According to the American Maritime Partnership, 80% of the world’s coastlines of United Nations maritime states have cabotage laws, including the United States, Russia, Canada, China, South Korea and Japan – to name a few.[4]
Cabotage policy is nothing new in Malaysia. It was implemented in Malaysia on 1 January 1980, following which the Domestic Shipping Licence Board (“DSLB”) was established to regulate and control the licensing of ship engaged in domestic shipping between any port in Malaysia. Like any other countries, the aim of Malaysian cabotage policy is to safeguard the domestic industry from foreign competition and to encourage local participation in the shipping industry. It gives privileges to the national-flagged commercial vessels to carry cargos or passengers between points within the territory of the flag state. The privileges include the right to limit or even prohibit the service of foreign-flagged vessels serving the aforesaid route.[5] This policy also acts as a platform for local shipping companies to gradually expand and reach out into international waters.
To allow this cabotage policy to happen, the Merchant Shipping Ordinance 1952[6] (“MSO”) was amended and a new clause – Part IIB – was introduced to pave way for the cabotage policy. Section 65A of the MSO defines ‘domestic shipping’ as the shipment of goods or carriage of passengers (i) from any port or place in Malaysia to another port or place in Malaysia or (ii) from any port or place in Malaysia to any place in the exclusive economic zone and vice versa.
Pursuant to Section 65KA(1) of the MSO, no ship other than a Malaysian ship may engage in domestic shipping. Thus, how to own a Malaysian ship? In order to own a Malaysian ship, the person(s) must be a Malaysian citizen(s) or corporation, which satisfy the requirement such as – (i) corporation is incorporated in Malaysia (ii) its principle office is in Malaysia (iii) its management is carried out mainly in Malaysia (iv) majority, or if the percentage is determined by the Minister, then the percentage so determined, of the shareholding, including the voting share, of the corporation is held by Malaysian citizen free from any trust or obligation in favour of non-Malaysian (v) majority, or if the percentage is determined by the Minister, then the percentage so determined, of the directors of the corporation are Malaysian citizen.[7]
Further, before engaging in domestic shipping a ship must possess a valid domestic shipping licence.[8] Since its establishment, DSLB has been issuing three types of licenses namely, (i) unconditional license; (ii) conditional license; and (iii) temporary license. The applicants are required to register with the electronic domestic shipping licence (“eDSL”) system and send in an application.[9] These licenses are valid for a specific duration, granted at the discretion of DSLB. Furthermore, there are other criteria for companies intending to apply for the unconditional license namely, (i) 30% Bumiputra participation in terms of equity, directorship and office staff; and (ii) it employs 75% Malaysian citizen as ratings on the vessels.[10]
Temporary licenses are generally issued to the foreign flagged ships. DLSB shall consider the application for license from foreign vessels in cases where Malaysian vessels are unable or not available to carry particular cargoes. In this instance, the application for license may be made by submitting evidence that all possible efforts have been taken to engage locally registered vessel to meet the transportation requirement. Additionally, the applicant must write to the Malaysian Shipowners Association (“MASA”) to obtain its endorsement with regards to availability or non-availability of appropriate Malaysian-flagged vessels. This has resulted in much back and forth and time wasted, which some companies find unacceptable.[11]
A key factor for investors looking to embark on a business venture in any country is the effectiveness of the service sector, particularly, in the context of transportations and logistics.[12] According to the former Transport Minister, Anthony Loke, the cabotage policy has added additional layers of operational considerations which could discourage foreign submarine cable investors due to potentially higher operating expenditure and loss of quality control in local territorial waters.[13] In light of the needs and demands of the telecommunications and local internet industry, the Government has, on 1 April 2019, decided to exempt foreign vessels performing submarine cable repairs in Malaysian waters from the cabotage policy (“Cabotage Exemption”)[14] as Malaysia only has one vessel carrying out such works. With one vessel, time spent to repair and conduct maintenance works on undersea cable has taken an average of 27 days.[15] According to a report published by the International Cable Protection Committee in 2016, Malaysia’s performance in repairing cables in its waters is extremely unsatisfying.[16]
This Cabotage Exemption aimed to speed up maintenance work as required and to make the nation a more attractive hub for telecommunication companies who had previously shied away due to red tape stemming from the cabotage policy.[17] Despite the Cabotage Exemption in place, the relevant foreign vessels are still require to apply for domestic shipping license but they will be exempted from other standard operating procedures that will lengthen the regulatory approval period by 4 to 14 days.[18]
However, Malaysia’s cabotage policy has received particular attention after our current Transport Minister, Datuk Seri Wee Ka Siong exercised his powers under Section 65U of the MSO to revoke the aforesaid Cabotage Exemption which took effect on 15 November 2020.[19] According to Datuk Seri Wee Ka Siong, the said revocation was not unilaterally decided. He further said that the move was taken to reduce outflow of foreign exchange in the form of freight or charter party payment and minimise the country’s dependence on foreign vessels by increasing the involvement of local shipping companies in the domestic service. Datuk Seri Wee Ka Siong is confident that the undersea cable repair works could potentially be shortened by up to 10 days using local companies as compared to 27 days previously.[20]
MASA is supportive of Datuk Seri Wee Ka Siong’s decision to revoke the Cabotage Exemption. They opined that the decision was done in the spirit of patriotism and “Malaysian First” agenda which is greatly appreciated for the development of the local shipping industry.[21] Nonetheless, technologies companies such as Google, Facebook and Microsoft opined that most of the world’s coastal countries do not treat submarine cable installation or repair as cabotage. Submarine cable installation and repair does not involve the transport of cargo or passengers, but the installation and repair of long-term infrastructure on the sea floor.
Malaysia is a trade dependent nation in which the service industry plays an important role towards sustaining the nation’s economic activities. The cabotage policy explicitly protects the domestic industry by limiting foreign market access in the local maritime industry. The policy may hold good however discriminating foreign competition may lead to unfair practices that may do more harm to the domestic market.[22] The recent decision by Datuk Seri Wee Ka Siong to revoke the Cabotage Exemption might scare foreign investors away from investing in telecommunications and internet infrastructure in Malaysia.[23] However, Datuk Seri Wee Ka Siong said that the revocation of the Cabotage Exemption does not mean the foreign vessels will not be allowed to carry out undersea cable repairs. They will be allowed to carry out the work if local vessels are unable to do so. He further added that should MASA confirm that no local vessels could perform the necessary task, the foreign companies could apply for the eDSL, a process which would take 5 working days.[24]
For enquiries please email to ridza@ridzalaw.com.my
[1] Malaysian Container Seaport-Hinterland Connectivity: Status, Challenges and Strategies. Retrieved from https://www.sciencedirect.com/science/article/pii/S2092521216300438#:~:text=The%20major%20seaports%20in%20Malaysia,seaports%20(MIMA%2C%202015).
[2] Connecting Indonesia’s Maritime Cabotage and the 1982 United Nations Convention on the Law of the Sea. Retrieved from https://media.neliti.com/media/publications/39048-EN-connecting-indonesias-maritime-cabotage-and-the-1982-united-nations-convention-o.pdf
[3] Official website of the Ministry of International Trade and Industry. Retrieved from https://www.miti.gov.my/index.php/glossary/term/184
[4] An Overview of Cabotage Laws – More Than Just the Jones Act. Retrieved from https://www.morethanshipping.com/an-overview-of-cabotage-laws-more-than-just-the-jones-act/
[5] Connecting Indonesia’s Maritime Cabotage and the 1982 United Nations Convention on the Law of the Sea. Retrieved from https://media.neliti.com/media/publications/39048-EN-connecting-indonesias-maritime-cabotage-and-the-1982-united-nations-convention-o.pdf
[6] Ord. 70/1952
[7] Policy Fiasco: The Sabotage of Cabotage Policy Malaysia. Retrieved from http://www.ijssh.org/papers/294-B00009.pdf
[8] Section 65L(1) of the Merchant Shipping Ordinance 1952
[9] The Government of Malaysia’s Official Gateway (MyGovernment). Retrieved from https://www.malaysia.gov.my/portal/content/30435
[10] Policy Fiasco: The Sabotage of Cabotage Policy Malaysia. Retrieved from http://www.ijssh.org/papers/294-B00009.pdf
[11] Wee Ka Siong’s fight for cabotage policy. Retrieved from https://www.theedgemarkets.com/article/wee-ka-siongs-fight-cabotage-policy
[12] Policy Fiasco: The Sabotage of Cabotage Policy Malaysia. Retrieved from http://www.ijssh.org/papers/294-B00009.pdf
[13] Explain cancellation of cabotage exemption for underwater cable repairs, govt told. Retrieved from https://www.thevibes.com/articles/news/6277/explain-cancellation-of-cabotage-exemption-for-underwater-cable-repairs-govt-told?
[14] Federal Government Gazette, P.U.(B) 166, 28 March 2019
[15] Govt exempts cabotage on foreign vessels for undersea cable maintenance. Retrieved from https://apps.theedgemarkets.com/article/govt-exempts-cabotage-foreign-vessels-undersea-cable-maintenance
[16] Explain cancellation of cabotage exemption for underwater cable repairs, govt told. Retrieved from https://www.thevibes.com/articles/news/6277/explain-cancellation-of-cabotage-exemption-for-underwater-cable-repairs-govt-told?
[17] Loke: No more restrictions on foreign vessels carrying out undersea cable repairs. Retrieved from https://www.thestar.com.my/news/nation/2019/04/11/loke-no-more-restrictions-on-foreign-vessels-carrying-out-undersea-cable-repairs/
[18] Govt exempts cabotage on foreign vessels for undersea cable maintenance. Retrieved from https://apps.theedgemarkets.com/article/govt-exempts-cabotage-foreign-vessels-undersea-cable-maintenance
[19] Federal Government Gazette, P.U.(B) 592, 12 November 2020
[20] Decision on cabotage exemption revocation not done unilaterally, says Wee. Retrieved from https://www.theedgemarkets.com/article/decision-cabotage-exemption-revocation-not-done-unilaterally-says-wee
[21] Malaysia govt’s latest decision may delay undersea cable repairs and maintenance. Retrieved from https://www.soyacincau.com/2020/11/18/undersea-cable-repair-maintenance-vessel-cabotage-exemption-revoked-malaysia/
[22] Policy Fiasco: The Sabotage of Cabotage Policy Malaysia. Retrieved from http://www.ijssh.org/papers/294-B00009.pdf
[23] Time to Revisit Cabotage Policy Liberalisation in Sabah. Retrieved from https://www.bernama.com/en/thoughts/news.php?id=1911129
[24] Cabotage exemption revocation doesn’t mean foreign vessels can’t work here, says Wee. Retrieved from https://www.freemalaysiatoday.com/category/nation/2020/11/25/cabotage-exemption-revocation-doesnt-mean-foreign-vessels-cant-work-here-says-wee
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