RESEARCH PLAN
Cross-border Trading and Smuggling in Mindanao: Its Links to
Local Informal Economies and Violence
By Starjoan D. Villanueva
1.0 Background and Rationale
This study on cross-border trading and smuggling is part of a major research project
embarked by the International Alert (Alert) to establish the connections between local
informal economies and violent conflict in Mindanao. In 2009, Alert published a paper
entitled Inclusive peace in Mindanao: revisiting the dynamics of exclusion and conflict
which explained in part the links between the informal economy and protracted conflict
in the region. Taking off from this initiative, the current research project aims to further
deepen the discourse on the political-economy foundations of violence in the area.
Through generation of robust and useful information, the study will identify the
necessary actions that can effectively sever the deadly links between local economies and
conflict, and forward institutional and practical reforms that can facilitate sub-national
state building in the island region.
The practice of smuggling through import or export of goods or commodities without
payment of legal duty or in violation of state laws side by side with formal economic
activities is a reality. The existence of this “second economy” as described by Janet
MacGaffey1 suggests that these activities are carried out quite openly and intersect with
official and recorded economic transactions. Every year, the Philippine government is
losing an estimated US4 billion in revenues from smuggling activities. 2 Technical
smuggling is accomplished through undervaluation, misclassification, misdeclaration and
abuse of tax incentives. Smuggled products are shipped as ordinary goods and unloaded
in broad daylight for trading in local markets.
Rice smuggling in Mindanao, for example, is a common phenomenon that reaches a
conservative estimate of at least 10 percent of the total annual rice imports.3 Smuggled
rice from Vietnam, China and Indonesia reportedly gets in through various ports and
backdoor entry points in connivance with customs police and local authorities. These
goods and commodities are not only limited to rice but also include farm inputs such as
fertilizers and pesticides that are banned and regulated in the Philippines. These
chemicals are generally sourced from Indonesia and China where pesticide regulations
are less stringent.
Despite its economic and political relevance, the phenomenon of smuggling in the
1
MacGaffey, Janet. 1991. The Real Economy of Zaire: The Contribution of smuggling and other
unofficial activities to national wealth. Philadelphia: University of Pennsylvania Press.
2
Alano, Bienvenido P., Jr. “Import Smuggling in the Philippines: An Economic Analysis.” Journal of
Philippine Development, Number Twenty, Vol. XI, No. 2, 1984.
3
Dano, Elenita C. 2007. State of the Rice Industry in Mindanao. Rice Watch and Action Network and
Food Sovereignty Watch-Mindanao.
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country is not widely researched considering its political sensitivity and statistical
elusiveness. According to Alano, studies conducted in the past were limited to
establishing the existence of illegal trade, and any attempt to quantify these unrecorded
transactions is both difficult and dangerous.
This study is an attempt to shed light on the scope and depth of cross-border trading and
smuggling within the context of existing “war economies” in Mindanao. It will describe
the actors, system, structure, processes and issues related to illicit trading, and analyse its
historical roots and links to local informal economies and political forces that shape and
perpetuate violence. Results of the study will inform development policy and political
reforms necessary in addressing urgent governance issues that can spur sustainable
development of local economies towards enduring peace.
2.0 Conceptual Framework
This study will frame its analysis on three tracks: a) economic dimension of smuggling
through valuation of illegal exchanges of goods in established cross-border trading
networks, and its contribution to local informal economies; b) political dynamics of
illegal trading activities and existence of “shadow economies” that are controlled and
monopolized by ruling political clans and interest groups through violent means; and c)
socio-cultural context with specific reference to gender dimensions and women’s
participation in cross-border trading, their vulnerabilities and coping mechanisms in
dealing with conflict dynamics.
In describing the contribution of unofficial trade to local informal economies, this study
will adopt MacGaffey’s definition of the second economy as “economic activities that are
unmeasured and unrecorded.” These consist of legal and illegal transport of goods and
commodities concealed to avoid taxes, hidden non-monetary income and profit from
barter trading, and other income opportunities that are illegal or have deprived
government of revenues. In a study conducted by MacGaffey on smuggling and
unofficial trade in Zaire, Africa, economic factors like availability of natural resources,
geographical location, scarcity of goods and services, and transportation conditions can
drive second economies to expand far beyond official economic figures. This necessitates
valuation of unrecorded incomes and revenues that are lost to smuggling and other
unofficial activities.
In analyzing the links between informal economies and conflict, Paul Collier postulates
that economic agenda or greed (rather than grievance) as a main driver of conflict, can
motivate certain groups to exploit economic opportunities and cause them to initiate and
sustain conflict.4 This political factor helps explain why some state officials and armed
groups that benefit from smuggling through predatory taxes can sometimes create
favorable conditions for violence, thus, derail efforts to build peace and institute
4
Collier, Paul. “Doing Well out of War: An Economic Perspective”. In P. Collier and A. Hoeffler (eds.)
Greed and grievance in civil war. Oxford: Oxford Economic Papers 46 (4).
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economic reforms.
In looking at the socio-cultural dimension of smuggling and its links to conflict and
violence, gender roles and women’s participation is a critical aspect of the study as
revealed by MacGaffey’s extensive research on the role and contribution of women to the
local economies of Zaire through smuggling and related unofficial activities. The study
described how women struggled and exploited the opportunities offered by an expanding
second economy, and how some of these women gained greater degree of economic
independence and autonomy amidst the risks involved. However, these gender dynamics
and perceived threats to male dominance led to excessive demands from husbands to
undermine the economic power that some women have achieved.
Historical accounts also suggest that cross-border trading, smuggling and piracy
particularly in Southeast Asia is an ancient phenomenon that dates back to the height of
the Sulu sultanate in the fifteenth century. Steam navigation and colonial expansion in the
latter half of the 1800s caused illicit trading activities to decline. However, after the
Philippines gained independence in 1946, smuggling and piracy became a viable
occupation for Sulu outlaws, with the proliferation of modern firearms and motorized
boats due to available inexpensive military surplus engines brought in by the war.
While the Philippine government looks at cross-border trading and smuggling as
problematic due to traders’ attempts to evade licensing and foreign exchange restrictions,
the practice is perfectly legal from the point of view of the Malaysian government. As
barter trading continues between Malaysia and the Philippines through various ports
mainly in Tawi-tawi, Sulu and Zamboanga City, both traders and government officials
have to deal with two conflicting yet valid interests: earning a decent living on the part of
the traders, and ensuring that legal measures of trading are observed on the side of
customs officials.
3.0 Research Questions and Methodology
This study will mainly utilize highly descriptive and qualitative methods using a variety
of tools and data sources to generate robust data and information that would guide the
analysis, findings and conclusions on the political economy connections of smuggling
and violence. The table below outlines the specific research questions and corresponding
data/information requirements, methodology and sources of data/information.
Research Questions
A. Economic dimension
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Data/information
Requirements
Methodology and Sources
of
Data/information
1. How does cross-border
trading and smuggling
operate?
 What are the major
goods and
commodities for
exchange through
illicit trading?
 What are the volume
and value of each
major
goods/commodity?
 How are these goods
being transported?
 Who are the primary
actors involved?
 Description and quantity
of primary goods and
commodities (legal and
illegal);
 Detailed description on
the structure, system,
mechanism and processes
of cross-border trading
and smuggling;
 Identify and describe the
roles of principal actors
involved in trading
activities;
 Official records, reports
and relevant documents
from the Bureau of
Customs and port
officials;
 Key informant interviews
with customs police
officers and port officials;
 Key informant interviews
with traders and
smugglers;
 Researcher’s direct
observations
2. How does illegal trade
contribute to informal
local economies?
 How much income is
derived from
smuggling and other
related unofficial
activities?
 Approximation of
household income from
various sources vis-à-vis
expenses of men and
women traders/key
informants
 Social accounting matrix
for women local trader
respondents
 Key informant interviews
with traders;
 Researcher’s direct
observation
3. Is ‘coping economy’ the
only force that drives local
men and women traders to
resort to smuggling?
 How do they exploit
economic
opportunities to gain
more profits through
illicit trade?
 Identify different factors
that motivate traders to
engage in smuggling
activities
 Key informant interviews
with customs police
officers and port officials;
 Key informant interview
and life stories of traders;
 Researcher’s direct
observation
 Desk review and analysis
of secondary data
B. Political dimension
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4. How does smuggling
contribute to conflict?
 Does it operate
independently or is it
part of a larger
‘shadow economy’
that may have direct or
indirect link(s) to
violence?
 Analysis on the links of
illegal trade to various
forms of conflicts and
violence based on
specific case studies
 Key informant interviews
with customs police
officers and port officials;
 Key informant interviews
and life stories of traders
and smugglers;
 Desk review and case
analysis
5. What are political forces
and dynamics that drive
and sustain illegal trading
and the existence of local
“war economies?”
 Analysis on the links of
illegal trade to various
forms of conflicts and
violence based on
specific case studies
 Desk review and case
analysis
6. What are the implications
of regulating cross-border
trading and smuggling in
relation to state-building
objectives?
 What are major
constraints that can
undermine efforts
toward effective
political reforms?
 Analysis on the effects of
state regulations and
reforms on the power
relations and competing
interests of traders and
state actors
 Identify major constraints
that can slow down
efforts for political
reforms
 Overall analysis of
findings and implications
generated by the study
C. Socio-cultural and
gender dimensions
7. Historically, how are
cross-border traders been
affected by eruptions of
conflict and violence?
• How do state
regulatory agencies
and local traders
perceive the degree of
illegal activities
associated with
cross-border trading in
the area?
• How do they draw the
line between
smuggling and official
trading activities?
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 Historical accounts of
conflict episodes that
affected cross-border
trading activities;
 Approximation of the
extent of illegal trading
vis-à-vis official and
recorded trading
 Oral histories and life
stories of key
informants;
 Desk review and
analysis of historical
accounts related to
cross-border trading and
conflict;
 Key informant
interviews with customs
police officers and port
officials;
8. How are women involved
in smuggling activities?
 What drives them to
engage in illicit trade
despite the risks?
 How do they cope and
respond to conflict
dynamics?
 Identify different factors
that motivate women to
participate in
cross-border trading and
smuggling activities;
 Identify the risks and
vulnerabilities for women
traders;
 Describe women’s coping
mechanisms and
responses to conflict
dynamics
 Oral histories and life
stories of women local
traders;
 Desk review and case
analysis
In generating reliable data for Research Question No. 2, the concept of social accounting
matrix as introduced by Jean-Marie Cour and developed by MacGaffey will be adopted
to provide detailed and localized data on the economic activities of local traders’
households, women in particular. Relying on their skills and experience as the family’s
de facto budget officer and financial manager, these women will be asked to come up
with a breakdown of their family’s monthly income and household expenses from trading
and other sources of income. The social accounting matrix, as MacGaffey noted, is an
effective tool in measuring the extent and amount generated from illicit trading and other
unofficial activities that would otherwise remain hidden and unrecorded.
5.0 Scope and Limitations
The conduct of case studies will mainly focus on two areas: a) maritime border region
and traditional trade route between Sabah, Malaysia and the Sulu archipelago which
includes Tawi-tawi, Sulu and Zamboanga City; and b) Ozamis City and the notorious
Kuratong Baleleng Gang, a counter-insurgency and vigilante group that evolved into a
highly organized crime syndicate involved in smuggling, narcotics trading and other
highly illegal activities. Findings from the case studies will be supplemented with desk
research and analysis of official records and documents as provided by the Philippine
Ports Authority and the Bureau of Customs, as well as key informant interviews with
local authorities knowledgeable about smuggling operations and the existence of second
economies in their localities.
The highly sensitive nature of the study requires speed and discretion in data gathering,
and in assessing the local security situation prior to and during field work. Language
barrier is a major limitation on the part of the researcher since most local trader
respondents are Tausug or Sama-Bajao speaking inhabitants. Thus, a local guide and
interpreter will be engaged by the Researcher to assist her in data gathering and field
work.
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4.0 Schedule and Budget
The schedule of research activities is as follows:
Inclusive Dates
Milestones/Key Activities
Sept-October 2011
a. Desk research and review of related literature and studies
15 Oct-10 November 2011
b. Finalization of research plan and budget
07-12 November 2011
c. Preparation for primary data gathering and field work
 Establish contact with local guide and interpreter;
 Set schedule for key informant interviews (KII) with
local traders and customs police and port officials;
 Finalize questionnaires for KII, Social Accounting
Matrix (SAM) and other data requirements.
15-30 November 2011
d. First round of key informant interviews in Zamboanga City,
Sulu and Tawi-tawi
15-30 November 2011
e. Desk research and interview with key informants on
Kuratong Baleleng smuggling operations
01-07 December 2011
f. Data processing, analysis and writing of first draft (in
bullets)
08-09 December 2011
g. Presentation of initial findings and critiquing during the
Mid-term Research Conference
04-10 January 2012
h. Preparation for second round of primary data gathering and
field work
 Possible enhancements and gathering of additional
data/information based on the comments and
suggestions during the Mid-term Conference
15-30 January 2012
i. Second round of key informant interviews in Zamboanga,
Sulu and Tawi-tawi with local guide/interpreter
01-29 February 2012
j. Completion of desk research and data gathering activities
01-30 March 2012
k. Writing of second draft/full narrative report
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01 April-30 May 2012
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l. Preparation and submission of semi-final and final reports