Christian del Rosario
CDRP Law, Taguig
christian.delrosario@cdrp-law.com

For a long time, domestic or inter-island shipping in the Philippines was limited to Filipino shipowners or operators. This was embodied in the Domestic Shipping Act of 2004 and the old Public Service Act. Later, the policy on cabotage was loosened with the enactment of the Republic Act 10668 or Co-Loading Act. This allowed foreign vessels to transport and co-load foreign cargo for domestic transshipment. While still restrictive, this was seen as a positive step forward for the local maritime industry.

In a most welcome move, the old Public Service Act was amended in July 2021 by the administration of then President Rodrigo R Duterte. This law defined a public utility, which has long been a grey area of sorts in Philippine law. As per the law, a public utility refers to a public service that operates, manages or controls any of the following for public use:^[1]

1. distribution of electricity;
2. transmission of electricity;
3. petroleum and petroleum product pipeline transmission systems;
4. water pipeline distribution systems and wastewater pipeline systems, including sewerage pipeline systems;
5. seaports; and
6. public utility vehicles (PUV).

Public utilities are required to be owned by Filipino citizens and corporations by a mandate of the Philippine Constitution. With the definition of public utility, public services with a foreign investment limitation have been clarified. Based on the definition, domestic shipping is a public service, but not a public utility. As such, there is no foreign investment restriction for domestic shipping. In practical terms, this means that the major shipping lines of the world can engage in inter-island transport in the Philippines.

With this development, stakeholders, and of course, the legal community, waited for the implementing rules and regulations (IRRs) of the said Amended Public Service Act. These IRRs, in local parlance, would serve to guide the execution of the mandate of the said act. These were finally released in March 2023. These are now in full force and effect. The Philippine Maritime Industry Authority (MARINA) will be the primary agency to regulate and oversee the potential entry of foreign participation in the shipping industry.

What do these developments mean for maritime law in the Philippines?

First, these signal that the Philippine domestic or inter-island shipping market is now open to foreign shipowners, operators and their investors. They may carry on the business of carrying persons and goods from one point to another in the Philippines. It gives the Philippines much needed investment in the maritime transport industry. At present, vessels owned or operated by local Filipino companies are aging and may pose various safety issues to persons and cargo being transported. With the possible entry of foreign participation, the vessels and equipment used can be improved and modernised. Increased competition between local and foreign operators or their joint ventures can only serve to benefit the public relying on their services. This investment will bring with it job creation for work related to the vessels and equipment, such as maintenance and crewing/manning.

Second, foreign shipping companies currently doing business in the Philippines can take advantage of the industry gates opening. Because they already have their operations in the Philippines, they can easily set up and diversify or extend their business activities to inter-island shipping and transport. This will naturally mean a bigger operational footprint in the Philippines to accompany a wider revenue base.

Third, with domestic shipping activities, other ancillary services are expected to bloom as well. Closely related to the transport of goods are the businesses of warehousing, cold storage, packing centres and freight forwarding (among others). Per the amended Public Service Act, it is submitted that these are business activities that may be open to foreign ownership as well. With the effects of the Covid-19 pandemic, these activities continue to be crucial in delivering goods, especially to local businesses.

Other developments that may relate and support the opening of the shipping industry are the recent opinion of the Department of Justice (DOJ) that renewable energy interests can be opened to foreign ownership.^[2] Previously, energy interests had limitations on the participation of foreign ownership. Now there is a growing number of German companies looking at investing in renewable energy interests in the country.^[3]

Another leg to support the local shipping industry is the implementation of special rules of procedure for admiralty cases^[4] adapted by the Philippine Supreme Court. These rules were enacted to expedite the resolution of maritime disputes and to develop expertise of the judiciary in handling industry cases to fulfil their supporting role in uplifting the country as a premier place to do business. While far from perfect, these rules appear to have been well received.

With the amended Public Service Act opening up the shipping industry, shipping business opportunities are very much alive and deserve a second look from foreign investors looking to have a foothold in the archipelago. While the Philippine MARINA will have its hands full, it will be a good problem to have. As the saying goes, the kite rises not with the wind but against it. Hopefully, it is all progress from this point on.

Author's note

The views expressed in this article are for general information purposes only and not intended to be legal advice. Any legal matter has facts and circumstances specific to it and, as such, can affect the application of information from the article. No attorney–client privilege is created due to this article. If you need legal or expert advice, please ask a duly licensed professional.