Braving the Waves: Gray-Market Trade and Maritime Security in the Sulu Sea

December 4, 2019

By Starjoan Villanueva

It’s business as usual for cross-border trade in the Sulu Archipelago, off the southern Philippine island of Mindanao, where enterprising men and women from Zamboanga City and the island provinces of Basilan, Sulu, and Tawi-Tawi brave the waves of the Sulu Sea to import goods from Sabah in North Borneo—goods such as rice, noodles, and other food products, as well as the cooking oil and gasoline that remote island communities of the southern Philippines depend on.

The Sulu Archipelago, extending between Malaysia and the southwest Philippines, is home to generations of gray-market barter traders who brave the waves of the Sulu Sea for a living.

Isolated from formal trade and markets, “barter trade” as the locals call it has been practiced here since time immemorial, and it continues despite a regulatory environment that is becoming more restrictive due to rising maritime insecurity in the region, including the growing presence of kidnap-for-ransom groups such as Abu Sayyaf and the rise in violent extremism in Southeast Asia.

A recent study by The Asia Foundation explores the challenges faced by barter traders in the southern Philippines and the strategies they adopt to navigate this complex political and security environment. Trade in the Sulu Archipelago: Informal Economies amidst Maritime Security Challenges finds that barter trade remains a risky business. While Malaysian authorities allow the duty-free transshipment of goods, barter traders are considered to be smugglers under Philippine law, and the goods that fill their wooden-hulled boats are contraband. Rather than being discouraged, however, these traders have found allies among some security and regulatory agents, who provide protection in exchange for a cut of the profit.

Wooden-hulled boats, invisible to radar, docked at Chinese Pier, a public port in Bongao, the capital of Tawi-Tawi (Photo: Gagandilan Mindanao Women, Inc.)

This “special arrangement” has benefited both traders and some state agents, along with formal and informal actors throughout the supply chain, including fixers, boat operators, port operators, wholesalers, laborers, and truck operators. It’s a system with no clear-cut distinction between formal and informal actors or transactions, consigning transborder trade to a legal gray zone in which formal and informal are conflated. Filipino state agents who facilitate border-crossing to Malaysia can shift their role from facilitators to regulators, preventing the entry of untaxed imported goods on their journey back to Philippine waters. In the same vein, formal traders can easily embark to Sabah on a registered wooden-hulled boat from a local public port, then dock illicitly, loaded with contraband, in one of the many private ports upon their return.

Private ports like this one, in the municipality of Hadji Panglima Tahil, Sulu Province, are a major part of the illicit maritime trade network in the Sulu archipelago. Operating in a grey zone of state regulation, so-called barter traders import large volumes of contraband products like rice, cigarettes, and gasoline. (Photo: Gagandilan Mindanao Women, Inc.)

Despite significant legal risks and growing maritime insecurity, barter traders have few livelihood alternatives. In interviews in January and February 2019, 36 barter traders gave a glimpse of their skill and persistence in moving goods across the maritime border, even in times of heightened scrutiny. When enforcement is more severe, most traders say they stop crossing the border to wait for the situation to normalize. Others change routes. Women traders importing clothing and other nonperishable goods, for example, have shifted to traveling either by plane or along the formal Zamboanga City–Sandakan route, plied regularly by the vessel MV Dona Antonia. Small traders with insufficient capital are forced to find other sources of income during crises. Larger traders smuggling cigarettes and other contraband have evaded state agents by hiding among nearby islands for hours, waiting for navy or coast guard vessels to finish their patrols.

Trade flows in the Sulu archipelago are probably as numerous as the hundreds  of islands and islets scattered around the Sulu Sea, where illicit traders can take refuge for hours while evading maritime patrols. (Photo: Gagandilan Mindanao Women, Inc.)

For those with the capital—at least 10 million Philippine pesos (PHP) in cash (approximately USD 200,000) for each journey to Sabah—cross-border trade can be a lucrative business, with a round trip generating around PHP 1 million (USD 20,000) in profit. State actors who accept “special payments” can earn similar profits from each shipment, without the risk faced by traders. The study illustrates how this mutually beneficial relationship between traders and state actors has created a parallel economy that overlaps and often supersedes the formal legal structures and practices in cross-border trade. In this parallel economy, fueled by large financial rewards, state regulatory and security agents interact with traders and fixers in both official and unofficial transactions. Among traders, the high demand for barter-trade products, their familiarity with trade routes, strong social networks, and clan-based support add to their resilience in braving the waves of adversity in cross-border trade.

The seaside community of Badjao, in the municipality of Hadji Panglima Tahil, Sulu Province (Photo: Gagandilan Mindanao Women, Inc.)

All this soon may change following the adoption by plebiscite in January and February 2019 of Republic Act No. 11054 establishing a new regional government in the Bangsamoro Autonomous Region in Muslim Mindanao (BARMM). The new BARMM government now has an opportunity to enact laws to protect barter traders from coercive rents and more equitably and transparently share the fruits of cross-border trade with the local economies of the Sulu Archipelago. Providing incentives for barter traders to formalize their operations could gradually eliminate the issue of rent payments and corruption. Executive Order 64, signed by Philippine president Duterte in late 2018, allows for the establishment of a Mindanao Barter Council (MBC) and the designation of ports in Sulu and Tawi-Tawi as legal areas for barter trade. The MBC will continue its function until the Bangsamoro government establishes its own barter trade office, at which point authority will devolve to the regional level.

How these legislative changes are managed, along with existing and emergent security challenges, will be key to the future development of the region and the stability of the newly created BARMM. Informal trade in the Sulu archipelago operates in a complex conflict environment shaped by extreme poverty, marginalization, and weak governance. These interlocking issues are deeply ingrained in what have been flawed government systems and policies. Efforts to formalize barter trade as a significant economic and cultural activity must incentivize barter traders and others directly involved in the practice to participate in a legal and transparent manner. Policymakers, regional agencies, and donors should focus on understanding how the country’s policies on barter trade, security, and maritime borders can be improved to maximize benefits for Filipino traders, the BARMM, and local economies in the Sulu archipelago.

The new report, Trade in the Sulu Archipelago: Informal Economies Amidst Maritime Security Challenges, was produced for the X-Border Local Research Network, a partnership between The Asia Foundation, the Carnegie Middle East Center, and the Rift Valley Institute, and supported by UK aid from the UK government.

Starjoan Villanueva is a consultant with The Asia Foundation. She can be reached at [email protected]. The views and opinions expressed here are those of the author, not those of The Asia Foundation or the UK government.

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