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Reinstate cabotage exemption to boost competition, govt told

By March 7, 2023November 1st, 2023No Comments

A cabotage exemption allows foreign vessels to carry out certain activities, such as undersea cable repairs, free from restrictions. (Bernama pic)

PETALING JAYA: Economists have urged the government to reinstate the cabotage exemption for foreign vessels to carry out undersea repairs and to encourage competition.

Cabotage refers to the right to operate vessels such as boats, planes and submarines in a particular territory. A cabotage exemption allows foreign vessels to carry out certain activities, such as undersea cable repairs, free from restrictions.

Cabotage laws are largely meant to protect domestic industries from foreign competition, ensure the safety of a country’s borders, and regulate activities in a country’s waters.

Juita Mohamad of the Institute for Democracy and Economic Affairs (IDEAS) said an exemption given to foreign ships and companies could improve the competitive neutrality of players within the sector and reduce bottlenecks in supply chains.

“Cabotage restrictions should be lifted in the logistics sector, especially for services that require special know-how that may be lacking in the country,” she told FMT.

She also pointed out that the Organisation for Economic Cooperation and Development (OECD) had highlighted that cabotage restrictions could lead to the accumulation of empty containers and inefficient allocation of resources.

“For the public, cabotage exemption would drive down costs as well as give households and end-users better value for the goods delivered,” she said.

Juita said if the government’s main agenda was to attract foreign direct investments, then investment-friendly policies should also encompass the liberalisation of the cabotage restrictions.

In 2019, then transport minister Loke Siew Fook announced that foreign vessels carrying out undersea cable repairs and maintenance work would be free from some of the usual cabotage requirements and fees, to speed up the approval process.

However, the exemption was revoked under Muhyiddin Yassin’s administration.

Shankaran Nambiar of the Malaysian Institute of Economic Research said a cabotage exemption was necessary, otherwise competition would be affected and the price difference between East and West Malaysia would continue to be high.

“We also don’t want investors to avoid Malaysia because of our inflexible cabotage policy,” he said.

“The US and Russia have huge domestic shipping industries but that’s not the case with us. Without an exemption, we run the risk of destroying investor confidence,” he said.

Geoffrey Williams of Malaysia University of Science and Technology said the cabotage exemption should be reconsidered as part of an overall review of taxes, charges and the implications for investment.

“So, looking at this issue again is timely. However, it may be too late to recover the losses from earlier policy failures,” he said.