On November 13th 2020, Malaysia’s Transport Minister, Datuk Seri Wee Ka Siong made the decision to revoke the cabotage exemption of submarine cable repair vessels. This is concerning as it has a significant impact on the nation’s digital economy.
Why does this matter?
Today’s trade routes are digital, and digital infrastructure (such as undersea cables) form the highways and railway tracks of the 21st century. Many people believe that emails and mobile-phone messages are sent through satellites. However, satellites account for less than 5% of information transmission.
The remaining 95% of the world’s voice and data traffic rely on undersea cable networks.
There is no substitute for these underwater cables in the event of damage (usually due to offshore sand mining, anchoring, and deep-sea fishing). Undersea cables are the global backbone of the internet – connecting people, businesses, and economies around the world.
In April 2019, the Transport Minister had exempted foreign vessels from the Merchant Shipping Ordinance 1952, in respect of repair services of submarine cables which land at any submarine cable landing station in Malaysian waters. The exemption allowed submarine cable repair works to be conducted within a shortened timeframe (14 days) and did not prevent domestic vessels that have the right specifications to do the repair works. However, there are no Malaysian vessels which have the ability to conduct deep water cable repairs.
Since its introduction in January 1980, the Cabotage Law has not resulted in the development of Malaysian shipping vessels with suitable cable repair skills and equipment for deep-sea repair. Given the lack of suitable domestic vessels and the need to apply for a Domestic Shipping Licensing Exemption (DSLE) from the Ministry of Transport prior to each repair, Malaysia has had one of the longest delays for submarine cable repair works in Asia-Pacific. It takes an average of 27 days in Malaysia, compared to 20 days in the Philippines, 19 days in Singapore and 12 days in Vietnam. Ultimately, the cabotage law has had a negative impact on investment and repair times.
Malaysia’s Digital Economy depends on Undersea Cables
Available data provides compelling economic reasons to ensure quick and efficient repairs in the event of cable damage. Roughly $10 trillion in financial transactions are transmitted via deep-sea cables each day, and the International Cable Protection Committee estimates that interruptions of underwater fiber optics communications systems have a financial impact in excess of $1.5 million per hour.
As the economic output of many countries, including Malaysia, rely on traffic from these cables, there is a need to develop future-proof policies and sustain enabling environments to advance the nation and region’s economic competitiveness. Preventing foreign vessels with specialised repair capabilities will weaken the resilience of our digital infrastructure, and contribute to a less conducive environment for technology investment.
The decision to revoke the exemption does not bode well for Malaysia’s critical digital infrastructure and expanding digital economy. It is likely to deter investments from global technology companies, particularly those seeking to increase Malaysia’s competitiveness via the construction of undersea cables as well as data centers. Multinational technology organisations such as Facebook, Google, and Microsoft have expressed their concern to the Prime Minister, suggesting that this was a decision made unilaterally, without consulting experts and industry leaders.
Reinstating the exemption would:
- encourage more international submarine cable landings in Malaysia;
- allow for shorter repair times resulting in improved connectivity;
- attract more global data centers to reside in Malaysia; and
- bolster capabilities of domestic data center companies.
Opportunity for Talent Development
There is an opportunity to address the skills gap in relation to undersea cable repairs. Globally, there are only 60 vessels with the ability to repair deep-sea cables, and none are Malaysian. While the government has developed programs for upskilling and reskilling in various areas, there appears to be an opportunity to develop local talent for the repair of submarine cables, while allowing foreign vessels to continue conducting repairs.
The construction of undersea cables and data center investment also creates employment opportunities, increases the pool of skilled workers, and impacts local communities in Malaysia. According to the US Chamber of Commerce, the average data center adds $32.5 million in economic activity to its local community each year. Research conducted by RTI International focusing specifically on subsea cable landings since 2009, found that GDP per capita was 6.9% greater by 2015 than it otherwise would have been, and every 10% increase in broadband penetration led to a 0.19% increase in GDP per capita (2001-2016). It would certainly be unfortunate for Malaysia if we are no longer considered a destination for technology investments in the region.
The internet economy may be seemingly borderless but our participation in it is dependent on the health of our digital infrastructure. Protectionist measures will not serve us well. Given the multistakeholder nature of the digital economy, a collaborative approach would be more appropriate, especially with our lack of local specialised talent to address cable repairs quickly and effectively.
Malaysia’s Cabotage Policy is Inconsistent with International Best Practices
It is important to note that the main objective of Malaysia’s cabotage policy was to safeguard and promote the domestic shipping industry and for Port Klang to be the container hub port in Malaysia.
Therefore, its scope should not have included submarine cables.
The International Cable Protection Committee recommends that States “refrain from defining submarine cable installation and repair as cabotage, as they do not involve the transport of goods or passengers between domestic ports”.
The decision to revoke the exemption for foreign vessels contravenes the United Nations Convention on the Law of the Sea (UNCLOS), of which Malaysia is a signatory, specifically Articles 79 and 87 which provide for the freedom to install, maintain, and repair submarine cables in maritime zones.
Perhaps it is time for Malaysia to reconsider existing regulation in partnership with industry and civil society, to avoid laws and policies being force-fitted into scenarios which may not have been envisioned at the time of drafting.
With the global pandemic forcing educational, economic, and social interactions into digital spaces, there must be clear rationale and justification for this decision which does not appear to support or strengthen Malaysia’s Digital Economy. We call on the Transport Ministry to urgently review and reconsider the decision. Malaysian internet users deserve forward-looking, future-proof, and investment-friendly policies. It is not too late to reinstate the exemption.
Note: This report was first carried by Malaysiakini. Nabila Hussain is Tech Policy Fellow at the Social & Economic Research Institute (SERI). Views carried may not represent that of BizVantage Malaysia’s.