Cabotage Policy in Malaysia : Facebook and Google Skips Malaysia in its Subsea Cable Investment

LEGAL INSIGHTS

 

Zuhair Hamedi

Maritime & Admiralty

Practice

E : nycosk.legal@gmail.com

30 AUGUST 2021

What is cabotage policy?

Malaysia is a coastal State with a coastline stretching to 8,840km.1 In exercising its right for exploration and exploitation of natural resources and freedom of navigation within its own exclusive economic zone, there are legislations to adhere to for the purpose of protecting its sovereignty. Malaysia is a State Member of United Nations Conference on Law of the Seas thereby guaranteeing such rights on State Member to regulate the enjoyment of benefits as a Coastal State.

Cabotage referred to shipping along coastal routes, port to port and is intended to protect domestic shipping from foreign competition. The main legislation governing the affairs of the Malaysian waters is embedded in the Merchant Shipping Ordinance 1952 (“MSO”). Cabotage policy was introduced in Malaysia on 1 January 1980 which reserved domestic shipping to Malaysian registered vessels. Section 65A of the MSO defines domestic shipping as use of ship to provide services, other than in the Federation waters or the exclusive economic zone. Section 65KA of MSO prohibits non-Malaysian vessels from engaging in domestic shipping.

The cabotage policy is a policy that 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, practiced by many nations worldwide including developed nations. For some of these nations, it is so strictly implemented that no foreign-owned vessels are even allowed to operate within their domestic waters. Inclusion of Part IIB and the establishment of Domestic Shipping Licensing Board originates from MSO to regulate the licensing of vessels operating within Malaysian waters.

This approach started in 1980 with the reason of creating Malaysian proprietorship and nearby shipping in common while at the same time limiting Malaysia’s reliance on foreign vessels whilst catering the surge of remote trade. This approach acts a stage for domestic or local shipping companies to steadily grow and reach out to foreign waters. The cabotage policy allows vessels from foreign ports to call directly to/from any Malaysian port including ports in Sabah and Sarawak. For illustration, a vessel from Singapore or Hong Kong is free to call directly to or from any Malaysian harbour such as Sepanggar, Bintulu etc. Foreign vessels are permitted to operate within the domestic sector through the granting of an exemption issued by the Domestic Shipping Licencing Board.

Powers to regulate

The Minister under section 65U of Merchant Shipping Ordinance 1952 may have the powers to exempt foreign vessels to operate in Malaysian waters as had been done by the previous Transport Minister on 28th March 2019 to allow vessels capable of carrying out subsea cable installation.

Nonetheless, the exemption was reversed by his successor vide Merchant Shipping Ordinance 1952 Exemption Under Section 65U (Revocation) on 12th November 2020.2

Facebook and Google’s investment announcement

Circa March 2021, two new undersea cables to connect to Singapore, Indonesia and North America. Current submarine cable projects announced by Facebook and Google; Echo and Biforst.3

Echo; Echo will be the first-ever cable to directly connect the U.S. to Singapore with direct fiber pairs over an express route. It will decrease latency for users connecting to applications running the Google Cloud Platform (GCP) regions in the area, home to some of the world’s most vibrant financial and technology centers. It connects Singapore, Indonesia and North America to boost internet connection capacity between the regions.

Impacts of Google and Facebook subsea cable investment

This article may not extensively discuss the impact of subsea cable to the Malaysian economics but rather putting out significant impacts from independent reports. According to RTI international report, 3.6% employment in the services sector and an increase of 6.9% in GDP per capita by 2015. In its entirety, Google’s network investment created 1.1 million additional jobs as at 2019 and provided an extra USD 430 billion in aggregate for GDP for the APAC region between 2010 to 2019.4

Google’s network investment led to 1.1 million additional jobs as at 2019 and an extra USD 430 billion in aggregate for GDP for the APAC region between 2010 to 2019. Estimates suggest that each 10% increase in Malaysia’s IBWPU leads to a 0.24% increase in GDP per capita.5

Issues gallivanting subsea cable installation and exemption of foreign vessels

In handling subsea cable installation, there are type of vessels needed to meet the requirement set forth by the project owner. In adherence with the requirements set forth by some tech giants, vessels with dynamic positioning (“DP”) capability is prerequisite before subsea cable installation works can be carried out. Nonetheless, cabotage policy in Malaysia disallow foreign vessels to operate in Malaysia unless if it is registered in Malaysia or flying the Malaysian flag on its fleet. Tech giants do have reasonable concerns as it involves sensitive multi-million subsea cable installation.

Generally, Malaysian vessels or flying the Malaysian flagged mostly acquire DP1 capability vessel whereby the owners require vessels with DP2 capability.6

With the revocation of exemption for foreign vessels, foreign vessels shall adhere to procedures set forth by the Domestic Shipping Licencing Board and may be time-consuming and as such the issue may be gallivanting unresolved. As time passes by, Malaysia as a coastal State may lose the opportunity to

2 P.U (B) 591

3 Potkin, Fanny, and Aradhana Aravindan. “Facebook, Google Plan New Undersea Cables to Connect Southeast Asia and America.” Reuters, 29 Mar. 2021, www.reuters.com/article/facebook-internet-southeastasia-idINKBN2BL0CF.

4 Lawrence, Sara, et al. “Economic Impacts of Submarine Fiber Optic Cables and Broadband.” RTI International, Sept. 2020, www.rti.org/publication/economic-impacts-submarine-fiber-optic-cables-and-broadband-connectivity-malaysia.

5 Ibid

6 Barrock, Jose, and Jenny Ong. “Wee Ka Siong’s Fight for Cabotage Policy.” The Edge Markets, 9 Feb. 2021, www.theedgemarkets.com/article/wee-ka-siongs-fight-cabotage-policy.

benefit from the laying of subsea cables therefore superseding Malaysia in the planned subsea cable investment by Google and Facebook.

 

NAZRI YAHYA & CO.

Advocates & Solicitors

Suite 12-21, Level 12, Wisma Zelan, No. 1, Jalan Tasik Permaisuri 2, Bandar Tun Razak, 56000 Kuala Lumpur

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