Juridical Analysis of the Impacts of the Entry into Force of ASEAN

Economic Community on the Transport of Goods through Sea

Transport Services

Aflah

, and Puspa Melati Hasibuan

Faculty of Law,Universitas Sumatera Utara, Jalan Universitas Nomor 4, Kampus USU, Medan, Indonesia

Keywords: Impact, ASEAN Economic Community, sea transport.

Abstract: This research aims to analyze the impacts of the entry into force of the ASEAN Economic Community

(AEC) on the national shipping industry, especially on the transport of goods through sea transport services.

There are two questions in this research, how is the mechanism for the implementation of AEC in transport

service sector and how are the impacts of the implementation of AEC on the transport of goods by sea by

national shipping companies. It is a normative legal research with a descriptive analytical nature. Data in

this research is a secondary data. The research findings show that mechanism for the implementation of

AEC in transport service sector is implemented based on the objective of the establishment of AEC,

ASEAN economic integration. One of its elements is free flow of sea transport services, which is included

in the ASEAN Framework Agreement on Services (AFAS). The entry into force of AEC, affects national

shipping business. One of its negative impacts is weak national shipping business. It, however, has some

positive impacts such as increase in exports and imports in the ASEAN region and the construction of

Indonesia’s sea toll road as an effort to improve national shipping business activity.

INTRODUCTION

Indonesia is a maritime country with the highest

number of islands in the world. With its more

than

17,000 islands, Indonesia becomes one of

the

biggest maritime countries in the world. It

has big

potential in sea transport. Sea transport

service is a

vital business element in good

distribution at

national and international levels

(Agusdianto, 2017).

Indonesia was affirmed as an archipelagic state

in the declaration of the United Nations Convention

on the Law of the Sea (UNCLOS) III. As an

archipelagic state, Indonesia is one of countries

which benefits from the UNCLOS. The country has

established sea lines of Indonesia’s islands which are

used as a guide for international shipping routes or

foreign ships which across Indonesian territorial

seas. As a maritime state or an archipelagic state,

Indonesia consists of about 17,508 islands, from

Sabang to Merauke, as long as about 5,000

kilometers, and lies across Miangas Island and

Marore Island to Rote Island, as long as about 2,000

kilometers. Indonesia has a total area of about 8

million square kilometers and its sea area is about

two third of the total area of Indonesia. The rest is

land area. This shows that Indonesia is the main

market place for other countries not only for trade

but also for shipping routes (Limbong, 2014).

Indonesia’s sea transport sector ever reached its

golden era in 1960s after the nationalization of a

Dutch shipping company, NV. KPM (Koninklijk

Paketvaart Maatschappij), through Government

Regulation Number 34 Year 1960 date 24

September 1960. Sadly, it slowly faded away after

the issuance of the Ministry Regulation Number 57

Year 1984 through which government bans the

operation of more than twenty-five-year-old ships.

Due to the lack of ships, businessmen are forced to

use foreign ships and this continues until 2005

(Rahmat, 2015).

In response to this situation, the Government of

Indonesia issued Presidential Instruction Number 5

Year 2005 on the Empowerment of the National

Shipping Industry. It regulates the implementation of

the cabotage principle in the Indonesian waters.

Then, the cabotage principle is regulated in Law

Number 17 Year 2008 on Shipping.

Aﬂah, . and Hasibuan, P.

Juridical Analysis of the Impacts of the Entry into Force of ASEAN Economic Community on the Transport of Goods through Sea Transport Services.

DOI: 10.5220/0010085615111517

In Proceedings of the International Conference of Science, Technology, Engineering, Environmental and Ramiﬁcation Researches (ICOSTEERR 2018) - Research in Industry 4.0, pages

1511-1517

ISBN: 978-989-758-449-7

1511

The implementation of the cabotage principle has

been proven to be able to stimulate and accelerate

the development of national shipping industry and

greatly affected the national economy. Data from the

Department of Transportation shows that there were

13,244 Indonesian-flagged ships in February 2014

while there were only 6,041 Indonesian-flagged

ships in May 2005. The data shows that the number

of Indonesian-flagged ships has significantly

increased by 7,203 units or about 119%. This has a

positive impact on the installed capacity of the

Indonesian-flagged ships which reaches 19.2 million

gross tonnage, or it increases 238% compared to the

capacity of the Indonesian-flagged ships in 2005

which was only 5.67 million gross tonnage (Rahmat,

2015).

The national shipping industry weakened again

following the entry into force of AEC in 2015. It

brings Indonesia into the concept of economic

globalization and the liberalization of free trade.

Free trade in sea transport services results in

weak national shipping industry because trade

transaction rules may slow down shipping industry.

Almost 90 percent of coal and crude palm oil (CPO)

exports use importer (foreign) ships. Consequently,

many cargo and logistic shipping companies lose

their shipping activities and ships which operate

suffer loss due to the lack of goods that they

transport. This happens because the foreign

importers use their own ships to transport the

imported coal and crude palm oil (Hidayat, 2016).

Logistics transportation by sea is an integral part

of export and import activities. The application of

AEC and liberalization of shipping services has had

an impact on national shipping businesses. National

shipping industry activities experienced a downturn

due to the entry of foreign ships carrying logistics

from and between ports in Indonesia.

Based on the background described in this

introduction, it is important to answer the research

questions, among others, how is the mechanism for

the implementation of AEC in transport service

sector and how are the impacts of the

implementation of AEC on the transport of goods by

sea.

RESEARCH METHODOLOGY

This type of research is a normative legal research.

Data in this reseach is secondary data consisting of:

Primary legal materials such as laws and regulations,

secondary legal materials such as books, journals

and articles containing comments and analysis

related to the subject matter, and tertiary legal

materials such as dictionaries.

The data was collected through library research.

Then, the collected data was processed through data

and document analysis by using a qualitative

approach based on a deductive logical thinking.

RESULT AND DISCUSSION

3.1

Mechanism for the Entry into

Force of AEC in Sea Transport

Services

The establishment of the ASEAN Economic

Community (AEC) started from the agreement of

ASEAN leaders at the ASEAN Summit held in

December 1997 in Kuala Lumpur, Malaysia. The

agreement aims to improve the competitiveness of

ASEAN so that it can compete with China and India

and attract foreign investment. Foreign capital is

needed to enhance job opportunity and the

prosperity of ASEAN community. Embryo of the

ASEAN Economic Community (AEC) started at the

Informal Meeting of Heads of State/Government of

the Member States of ASEAN in 1997 to formulate

the vision of ASEAN which will be achieved in

2020. In other words, the initial purpose of the

establishment of ASEAN Community is to ensure

durable peace, stability and shared prosperity in the

region (Balakrishnan, 2015).

At the subsequent ASEAN Summit held in Bali

in October 2003, ASEAN leaders declared the

establishment of AEC in 2015.

ASEAN Economic Community is one of pillars

of the ASEAN Community (AC). AC comprises of

three pillars, namely: political-security cooperation,

economic cooperation and socio-cultural

cooperation (The Directorate General of ASEAN,

2003).

Economic cooperation is the realization of the

end goal of economic integration underlined in the

ASEAN Vision 2020, to transform ASEAN into a

stable, prosperous and highly-competitive region

which is marked by the free flow of goods, services,

investments and economic development, poverty

reduction and socio-economic disparities by 2020.

The AEC is a form of ASEAN economic integration.

It means that there is a free trade system among

ASEAN countries. Indonesia and the other nine

ASEAN member countries have agreed AEC

agreement.

At Bali Summit in October 2003, ASEAN

ICOSTEERR 2018 - International Conference of Science, Technology, Engineering, Environmental and Ramiﬁcation Researches

1512

leaders declared that the AEC shall be the goal of

regional economic integration by 2020. The ASEAN

Security Community and the ASEAN Socio-Cultural

Community are the other two integral pillars of the

envisaged ASEAN Community. All the three pillars

are expected to work in tandem in establishing the

ASEAN Community in 2020 (Rachmat, 201)

Subsequently, the Meeting of the ASEAN

Economic Ministers (AEM) held in August 2006 in

Kuala Lumpur, Malaysia, agreed to advance the

AEC with clear targets and timelines for

implementation of various measures. At the 12

ASEAN Summit in January 2007, ASEAN leaders

affirmed their strong commitment to accelerate the

establishment of an ASEAN Community by 2015 as

envisioned in the ASEAN Vision 2020 and the

ASEAN Concord II, and signed the Cebu

Declaration on the Acceleration of the Establishment

of an ASEAN Community by 2015. In particular,

the Leaders agreed to hasten the establishment of the

ASEAN Economic Community by 2015 and to

transform ASEAN into a region with free movement

of goods, services, investment, skilled labour, and

freer ﬂow of capital

(ASEAN, 2018).

The AEC has four main pillars and envisages the

following key characteristics: a single market and

production base, a highly-competitive economic

region, a region of equitable economic development

and a region fully integrated into the global

economy (Kementerian Luar Negeri RI, 2015).

The realization of AEC as a single market and a

production base has five elements, namely: free flow

of goods, free flow of services, free flow of

investment, free flow of skilled labors and freer flow

of capital (Simanjuntak, 2015). In particulary, this

research elaborates the element of free flow of

services.

Service sector plays a strategic role in the

economy of ASEAN member countries as about

40%-50% of their Gross Domestic Product (GDP)

are contributed by this sector. In addition, service

sector is a sector with the fastest growth in the

ASEAN region (Kementerian Luar Negeri RI,

2018).

As an effort to improve economic cooperation

through the liberalization of trade in service sector,

the ASEAN member countries agreed the ASEAN

Framework Agreement on Services (AFAS) on 15

December 1995 in Bangkok, Thailand. To follow-up

the agreement, a Coordinating Committee on

Services (CCS) was established to develop

modalities to manage the negotiation of the

liberalization of services in the framework of AFAS

which includes eight sectors: air and sea transport

services, business services, construction services,

telecommunication services, tourism services,

financial services, health services and logistic

services (Kementerian Luar Negeri RI, 2015).

AFAS agreement includes the objectives of the

establishment of AFAS: to enhance cooperation

amongst member states in order to improve the

efficiency and competitiveness, diversify the

production capacity and supply and distribution of

services of their service suppliers within and outside

ASEAN; to eliminate substantially restriction to

trade in services amongst member states; and to

liberalize trade in services by expanding the depth

and scope of liberalization beyond those undertaken

by member states under the GATS with the aim to

realizing a free trade area in services.

AFAS serves as a basis for all ASEAN member

countries to agree on the realization of ASEAN

region as a free trade area in service sector,

including sea transportation service. As a sovereign

state, although the free trade era has been open,

Indonesia has to keep the sovereignty of its sea

territory. The sovereignty of Indonesian sea territory

has to be kept and protected. National shipping

companies get the top priority and are given the

biggest opportunity to transport goods or passangers

inter-harbor for national and international shipping.

To keep and protect the legal sovereignty of the

Indonesian waters, government issued the

Presidential Instruction Number 5 Year 2005 on the

Empowerment of the National Shipping Industry. It

regulates the implementation of the Cabotage

Principle in Indonesia so that the country is

recognized as one of maritime axis in the world.

The Cabotage Principle is one of legal principles

contained in sea transport law. The law regulates

that sea transport activity in Indonesia is

implemented by a national sea transport company by

using an Indonesia-flagged ship and manned by

Indonesian ship’s men crew (Article 8 from Law on

Shipping, 2008)

As a result of the implementation of the

principle, government requires national shipping

companies to own Indonesian-flagged ships/their

own ships and use services from a national ship’s

men crew. Government implements the cabotage

principle to ensure that Indonesian-flagged ships

become a king on their own sea area.

Then, the government issued the Decision of the

Transportation Minister Number 71 Year 2005 on

important commodities such as oil and gas, general

cargo, coal, logs, rice, crude palm oil, fertilizer,

cement, excavated materials, vegetables and fruits,

agricultural products, liquid and chemical substances

Juridical Analysis of the Impacts of the Entry into Force of ASEAN Economic Community on the Transport of Goods through Sea

Transport Services

1513

that must be transported by Indonesian-flagged

ships. The Cabotage Principle is regulated in Article

8 of Law Number 17 Year 2008 on Shipping. It

contains administrative and criminal sanctions for

the infringement of the cabotage principle.

Again, the government issued Decision of

Minister of Number 48 Year 2011 on the

Implementation of Cabotage Principle for Upstream

Oil and Gas. However, the government still gives a

dispensation to foreign ships for off-shore activities

and under water works until the end of this year. In

addition, dispensation for the use of foreign ships for

oil and gas survey activities also ends in December

2015.

Indonesia encourages the liberalization of service

sector through the Coordinator Team for Service

Sector (Tim Koordinator Bidang Jasa – TKBJ)

which works under the Ministry of Trade. It was

established through the Decision of the Minister of

Trade of the Republic of Indonesia Number 288/M-

DAG/KEP/3/2010 date 5 March 2010 (Kementerian

Luar Negeri RI, 2015).

According to Article 3 of Law Number 17 Year

2008 on Shipping, the objectives of the

implementation of the Indonesian shipping system

are, among others, to facilitate the flow of

movement of people and/or goods through the

waters by prioritizing and protecting transport in

water in order to facilitate the activities of the

national economy; foster marine life; uphold the

sovereignty of the country; create competitiveness

by developing national water transport industry;

support, mobilize, and encourage the achievement of

national development objectives; strengthen the

unity and integrity of the nation in order

embodiment Archipelago; and improve national

resilience.

To achieve these objectives, according to the

Eludication of the Regulation of the Government of

the Republic of Indonesia Number 20 Year 2010 on

Water Transportation, the implementation of water

transportation is done, among others, through the

following ways:

Implement the cabotage principle consequently

and consistently so that national water transport

companies can be host in their own country;

Develop transport in waters in disadvantaged

areas and/or isolated areas through pioneer shipping

and tasking;

Create a conducive business climate for the

empowerment and independency of national water

transport industry;

Develop relevant service industry to support

water transport activities;

Develop an integrated information system for

transport in water which involve all relevant parties

by utilizing the development of information and

communication technology.

3.2

The Impacts of the Entry into

Force of AEC on the Transport of

Goods by Sea

Economic globalization means a process through

which many countries are involved in the global

economic activities (Tambunan, 2004). In the global

economic, this is marked by public awareness of

their integral relation pattern as members of the

borderless world community (Limbong, 2014).

The establishment of AEC leads to the

realization of a free market in capital, good and

service as well as labor sectors. This also affects the

free flow of goods and services in ASEAN member

countries.

The free flow of service sector also affects sea

transport service (logistics), both the transport of

goods and the transport of passengers. It is a fact that

logistic system in Indonesia is weaker than that of its

neighboring countries such as Singapore and

Malaysia. Therefore, the Government of Indonesia

must anticipate this by strengthening its international

harbors (ports) to enable them to serve trade from

the Atlantic and the Pacific and implement the

Cabotage Principle for distribution to areas visited

by national ships. So far, business activities of

national shipping service are protected by the

cabotage principle so that national shipping

companies can survive until now.

Cabotage Principle means a principle stating that

shipping activities within the waters of a state are

only allowed for the vessels of the state concerned.

Cabotage principle has been recognized in the law

and practice of shipping worldwide and is the

manifestation of the sovereignty of a state in

controling its own seas. This principle serves as a

protection for domestic shipping companies against

unreasonable conditions due to unfair business

competition (Kusumaatmadja, 1994).

As a result of the implementation of the

principle, government requires national shipping

companies to own Indonesian-flagged ships (their

own ships) and use services from Indonesian ship’s

men crew. Government implements the cabotage

principle to ensure that Indonesian-flagged ships

become king on their own waters.

The United Nations Convention on the Law of

the Sea (UNCLOS) 1982 recognizes the rights of

states to claim for various types of maritime zones

ICOSTEERR 2018 - International Conference of Science, Technology, Engineering, Environmental and Ramiﬁcation Researches

1514

with different status which can be divided into the

following:

Under the full sovereignty of state covering deep

sea, territorial sea and straits which are used for

international shipping; state has a special and limited

jurisdiction i.e. additional zone; state has an

exclusive jurisdiction to utilize their natural

resources i.e. Exclusive Economic Zone and

continental shelf; under a special international rule

i.e. international sea-bed area; and not under the

sovereignty or jurisdiction of any state i.e. high seas

(Kusumaatmadja and Agoes, 2003).

Free flow of trade in goods and services for

ASEAN countries which is applied in AEC

agreement, including the effects of free flow of sea

transport service sector (logistic), has to respect the

cabotage principle although Indonesia is bound by

the AEC agreement and although free trade in AEC

agreement has no artificial obstacle (obstacle from

government) in trade among individuals and

companies in different countries (wikipedia

eksiklopedia, 2017).

An efficient and well-managed shipping system

is a very important factor in economic competition

and national integrity. National shipping business

activities, especially transport of goods by sea,

decrease after the entry into force of AEC.

Data from the Central Bureau of Statistics shows

that number of goods which were transported by

ship increased 1.62% only in 2017, lower than that

of in 2016 which was 8.37%. Based on data from the

Central Bureau of Statistics, there were a total of

262.43 million tons and 258.24 million tons which

were transported in 2017 and 2016 respectively. In

general, trend of cargo slowed down, from 8.91% in

2016 to 1.95% in 2017. Other harbor share reaches

83% of the total cargo (Maulana, 2018).

Similar to the business activities of national

shipping industry, business activities of offshore

shipping were also weak (Grizhaldo, 2015).

Offshore shipping is shipping on offshore.

Meanwhile, offshore building is a building or

structure built on the offshore to support exploration

and exploitation of mining products such as oil and

natural gas.

In addition to decline in oil and gas business

activities due to legal uncertainty which fails to give

protection to domestic shipping industry, this

situation has resulted in the cut of operational cost,

employment termination and decrease in the number

of offshore ships. Offshore shipping industry is one

of business which declines as a result of the effect of

the entry into force of AEC (Dewi, 2015).

Data from the Indonesian National Shipowners’

Association (INSA) shows that 4,900 ships or 35%

of the total number of national ships which is 14,000

units do not operate (Hidayat, 2016).

According to Carmelita Hartoto (General

Chairwoman of the Indonesian National

Shipowners Association), the condition of both

national and international shipping is about to enter

into a crisis because of weak global economy. Due

to the weak economy, many domestic companies are

forced to make efficiency. As a result, domestic

transport business is slow. According to her, about

60 percent of coal tug boats, 40 percent of general

cargo ships and 60 percent of upstream oil and gas

ships do not operate (Hidayat, 2016).

Water transport, as a part of the national

transport system, plays a vital role in supporting

national economy, realizing the embodiment of

Archipelago (Wawasan Nusantara), strengthening

the unity and integrity of the nation, improving

national resilience and strengthening international

relation. Water transport has strategic functions to

support trade and economic activities (ship follows

the trade) and stimulate economic and regional

growth (ship promotes the trade) so that it functions

as a strategic infrastructure for Indonesia as an

archipelagic state.

The negative effect of the entry into force of

AEC in sea transport service has resulted in weak

national shipping industry. The implementation of

the cabotage principle can increase the activities of

logistic shipping industry. The implementation of

the cabotage principle consequently and consistently

which is clearly regulated in the Government

Regulation Number 20 Year 2010 on Water

Transport makes provisions on free trade in sea

transport service sector contained in EAC irrelevant

because AEC alone has to comply with provisions

which are the rights and authorities of any sovereign

state.

The entry into force of AEC in logistic shipping

also has some positive impacts such as increase in

exports and imports in the ASEAN region, the use of

technology in shipping industry sector and the

construction of Indonesia’s sea toll road as an effort

to improve national shipping business activity.

AEC gives ASEAN member countries

opportunities to accelerate the movement of human

resources and capital which are two vital production

factors. Trade increases because AEC brings

investment flow from abroad into Indonesia which

will create a multiplier effect in various sectors,

especially in economic development sector. The

creation of a single market has made companies in

ASEAN region easier to establish a joint venture so

Juridical Analysis of the Impacts of the Entry into Force of ASEAN Economic Community on the Transport of Goods through Sea

Transport Services

1515

that they have a greater access to production

materials.

Especially for technology sector, the entry into

force of AEC leads to the transfer of technology

from developed countries to developing countries in

the Southeast Asia region. Indonesian shipping

industry tries to build ships with more innovative

design and equip them with modern technology

although it is still unable to compete with advanced

technology used by foreign ships.

The construction of sea toll road is government’s

priority program as a manifestation of Nawa Cita

(Nine Priority Agendas) aiming to build an effective

and efficient sea transport connectivity in order to

ensure the availability of goods and reduce price

disparity as well as to ensure the sustainability of

good transport services to disadvantaged, isolated,

outer and border areas (Achmadi, 2018).

The construction of sea toll road is an effort to

provide sea transport network consistently and

regularly through the organization of sea transport

service with a subsidiary pattern and is supported by

the improvement of harbor or port facilities. Sea toll

road can support connectivity and reduce logistic

cost to get greater economic benefits.

Government’s support for the sea toll road

program is realized through sea transport

infrastructure development such as sea transport,

harbors or ports as well as shipping safety and

security. According to the Presidential Regulation

Number 71 Year 2015, there are some types of cargo

that can be transported by using sea toll road ships

such as agricultural products (rice, soybean),

industrial products (sugar, oil, flour), farming

products (meat, eggs, fishes) and necessary materials

(fertilizers, seeds, cement).

CONCLUSION

Mechanism for the entry into force of AEC in sea

transport service is applied in accordance with the

signed ASEAN Framework Agreement on Services

(AFAS) date 15 December 1995 on the

Liberalization of Sea and Air Transport Services.

However, as a sovereign state, although the free

trade era has been open, Indonesia has to keep the

sovereignty of its territory. The interests and

prosperity of the nation must be prioritized. The

sovereignty of Indonesia’s waters has to be kept and

protected through the implementation of the

cabotage principle. National shipping companies get

the top priority and are given the biggest opportunity

to transport goods or passangers inter-harbor for

national and international shipping.

The negative effect of the entry into force of

AEC in sea transport service has resulted in weak

national shipping industry. The implementation of

the cabotage principle can increase the activities of

logistic shipping industry.

The entry into force of AEC in logistic shipping

also has some positive impacts such as increase in

exports and imports in the ASEAN region, the use of

technology in shipping industry sector and the

construction of Indonesia’s sea toll road as an effort

to improve national shipping business activity.

The implementation of AEC in the field of

shipping services must still respect the cabotage

principle of the sovereignty of each marine region of

ASEAN member countries, especially Indonesia as a

maritime country. The government should make

strict implementing regulations regarding the

implementation of the AEC in the field of shipping,

so that the opening of ASEAN free market can bring

benefits, the interests of the nation remain protected

and not interfere with national shipping business.

ACKNOWLEDGEMENTS

We would like to thank for the Research and Service

Society Institute of University of Sumatera Utara,

because this research was funded by University of

Sumatera Utara in accordance with TALENTA

University of Sumatera Utara Research Contract

Year of Fiscal 2018 Number: 2590/UN5.1.R/PPM/

2018 Date 16 March 2018.

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<http://id.wikipedia.org/wiki/Perdagangan_bebas>

Juridical Analysis of the Impacts of the Entry into Force of ASEAN Economic Community on the Transport of Goods through Sea

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