IS Democratic Action Party (DAP) making a U-Turn on the Cabotage Policy which was introduced on January 1, 2008.

Listening to DAP Sarawak chief Chong Chieng Jen statement broadcast Live on the party Facebook page yesterday, they are. At least Chong had contradicted Sabah DAP vehement stance against the policy in 2012.

Pix: Facebook/Chong Chieng Jen

Chong said at least half of the 3,000 people in the shipping industry will lose jobs once the policy will be abolished next month.

“This is the reality that Datuk Amar Abang Johari, Sarawak Chief Minister is ignorance of when he called for the abolishment of cabotage,” said Chong in a press statement broadcast Live on DAP Sarawak Facebook page yesterday (see embedded video below).

Chong believed abolishing the cabotage policy will not reduce the price of goods in Sarawak and he even predicted that shipping cost rise, become more expensive.

He reiterated that shipping cost does not add much to the cost of goods sold in the state as most of the imported goods already go directly to Sarawak, citing import from China as an example, instead of via Port Klang as before.

Chong blamed the increasing price of goods in the country to depreciating Malaysia currency and urging the Federal Government to retain the policy instead.

“Review the abolishment of cabotage as it will kill local shipping industry,” he said.

DAP MADE U-TURN ON CABOTAGE POLICY

Dr Hiew King Cheu

However, Sarawak DAP and Chong current position on cabotage policy are clearly a U-turn from DAP in particularly Sabah DAP position on the matter several years ago.

In 2012, while still under its former chief Dr Hiew King Cheu, Sabah DAP were a strong proponent of abolishing the cabotage policy.

It was DAP Sabah stance that cabotage constitutes a major component, one of the reason causing the high cost of goods sold in Sabah in particular, East Malaysia in general.

Dr. Hiew specifically said: “the Cabotage policy has directly created the high cost of goods from West Malaysia to East Malaysia, thus directly resulting in the high cost of living in Sabah.”

“It has caused an increase in the manufacturing cost in Sabah, which resulted in similar products in Sabah becoming as much as four times more expensive than the similar goods produced in West Malaysia.”

“The increase in manufacturing cost is not directly related to land prices, labor costs, or utility rates.”

Certain Dr. Hiew assertations on cabotage is in-line with view held by a scholar Firdausi Suffian in two publications – International Journal of Social Science and Humanity, 2013 and in Proceedings of the Colloquium on Administrative Science and Technology, 2015.

Firdausi said cabotage policy as non-tariff barriers, it may have helped to shield foreign competition but it has also harmed domestic economic growth particularly in East Malaysia.

“The implications of the cabotage policy causes limited market access and natural monopoly in the shipping industry,” he said.

“Protectionism is supposed to allow a government to mobilise resources for infant industry to grow.

“Resources invested in infant industry should improve domestic firms’ learning curve, making them more competitive.

However the policy has adversely impacted the domestic shipping industry, slowing down the East Malaysia export-oriented growth according to Firdausi.

Chong said the situation in Sabah is different from Sarawak as foreign direct shipment to the state is prohibited.

That is not entirely true either, as Sepanggar port is one of the few ports in East Malaysia other than Bintulu and Kuching where direct shipment of imported goods are allowed under the partial liberalization in 2009.

Firdausi Suffian

PROTECTING THE SHIPPING INDUSTRY

The owners of Malaysian registered ships under this policy have always objected to the proposal to abolish the policy because they been benefiting from this policy and in the process earned a lot more according Hiew.

“The prices of goods in Sabah are expensive not only because of the dealers make a double profit, but also because of the high shipping costs!”

Firdausi said the Cabotage policy may aim to facilitate the local shipping industry – Malaysia International Shipping Corporation (MISC) and member of Malaysia Shipowner Association (MASA) to grow and become self-sufficient.

He caution that after 32 years this policy seems to be anachronistic because it does not really serve the purpose of making the Malaysia Shipping Industry more competitive rather it has harmed domestic growth and distorted competition in the local maritime industry.

On June 3, 2009 Government opened up Kuching, Bintulu and Kota Kinabalu ports to foreign ship for transhipment of containers from port Klang and Tanjung Pelepas – under the partial liberalisation of cabotage policy. (Pix: Flickr/Kshauf )

“The policy serves as trade barriers cause industry unable to mobilise their capital according to their comparative advantage and creates inefficiency in resource allocation.

Thus, industry unlikely to achieve its economies of scales and does not increase welfare gain.

The cabotage policy, as applicable in Malaysia, according to a report (pdf) in 2005, limits participation of firm in the shipping industry, which then allow Malaysia shipping company to be ‘selective’ in positioning indigenous carriers.

For instance Malaysia International Shipping Corporation (MISC) that Petronas holds its shares 65%. So the focus is on tanker fleet to cater largely crude oil to be shipped abroad.

The report authored by PDP Australia Pty Ltd/Meyrick and Associates said the presence of the Cabotage policy that limit carriers participation in the shipping industry, MISC has no option but to operate in space-sharing alliances placing MISC in a weak position in bringing about change or to support national objectives.

This scenario shows that limited participation causes inefficiency and monopoly in the industry.

FURTHER LIBERALIZATION NOT ABOLISHMENT OF CABOTAGE

However, the announcement made by Prime Minister is stopped short of what demanded by Sarawak and Sabah leadership.

The Prime Minister said it was not a total abolishment of cabotage as the policy will still being enforced in Sarawak, Labuan, and Sabah.

Sarawak Chief Abang Johari stance was seeking a total abolishment of the cabotage policy rather than another liberalization.

Abang Johari, somehow hope the liberalization of cabotage will lead to decrease in the price of goods in the State.