BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010: 101-125

Mohammad Jasim Uddin

FLEXIBILITY OF WHAT AND FOR WHOM? ======Abstract Flexibility is a theoretical concept that can stand for a range of things.1 Debate on flexibility has been gaining increasing attention over the years for employers and employees. Different literature demonstrate that practice of flexibility offers employers a chance to vary workers and working hours according to their needs, and provides employees with secure jobs, higher wages, fixed working hour and better working condition. Other studies that describe flexibility as a function of benefits neither for employers nor employees are least documented. Conversely, increasing evidence indicate that flexibility offers diverse opportunities for employers but for employees offers become less. This is also evidenced from various literature signifying that introduction of flexibility may not essentially have significant outcomes for workers’ benefits, particularly when innovations are experienced and executed by employers’ unilateral decision without considering workers’ collective voices. The transition deteriorates job quality and security for workers and increases inequalities between demands of employers and employees. Such debate is also experienced in the firms inclined to achieve flexibility through transferring Japanese management practices (JMPs). Taking the ambiguity into consideration, this paper attempts to explore: What does flexibility mean to employers and employees? What indicators may best capture flexibility for employers and employees? What factors may act to promote a win-win situation on flexibility for both employers and employees? I. Introduction: Since 1980s, many academias have defined flexibility in various respects. Allan Naes Gjerding 2 identifies flexibility as the ability of firms to take

Mr. Mohammad Jasim Uddin is Research Fellow at the Bangladesh Institute of International and Strategic Studies (BIISS), Dhaka, Bangladesh. His e-mail address is [email protected],

© Bangladesh Institute of International and Strategic Studies (BIISS), 2010

1 Anna Pollert, “The Orthodoxy of Flexibility”, in Anna Pollert (ed.), Farewell to flexibility?, Oxford: Basil Blackwell, 1991, pp. 3-31 2 Allan Naes Gjerding, “Work Organisation and the Innovation Design Dilemma”, in Bengt-Ake Lundvall (ed.), National Systems of Innovation, London: Pinter Publishers, 1992 102 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010 advantages of changes in industrial relations systems. Mark Beatson 3 labels flexibility as the capability of labour markets to counter to changing settings of labour economics. Michelle Riboud, Caroline Sanchez-Paramo and Carlos Silva- Jauregui4 denote the term as the confiscation of regulations and institutions for saving workers. Sumita Ketkar and P.K. Sett5 define the notion as the capacity of firms to react to varying competitive advantages over a period of time. Therefore, debate on flexibility has been gaining attention over the years not only for employers but for employees also. Flexibility for employers is concerned with varying volume of workers, readjusting working time according to needs, and increasing employees’ involvement to workplace. By contrast, flexibility for employees is concerned with securing labour demands. Laurie Graham 6 looks at an auto plant in the US. This study finds that practicing flexibility “reinforces unequal power relations between workers and management”7. Therefore, workers find them susceptible to intensified jobs. Bill Taylor, Tony Elger and Peter Fairbrother8 examine an electronic firm in Britain, and observe that “management relies on labour turnover as a form of numerical flexibility”9. Therefore, workers are insecure. Vagelis Dedoussis and Craig R. Litter10 look at eight manufacturing firms in Australia, and observe that “big firms disseminate information to employees to enable them to perform their duties effectively rather than to allow them to have significant involvement in

3 Mark Beatson, “Labour Market Flexibility”, Research Series No. 48, Employment Department, Sheffield, 1995 4 Michelle Riboud, Caroline Sanchez-Paramo and Carlos Silva-Jauregui, “Does Eurosclerosis Matter? Institutional Reform and Labour Market Performance in Central and Eastern European Countries in the 1990s”, Labour, Employment and Social Policies in the EU Enlargement Process Working Paper, Washington: The World Bank, 2002 5 Sumita Ketkar and P.K. Sett, “HR Flexibility and Farm Performance: Analysis of A Multi-level Causal Model”, The International Journal of Human Resource Management, Vol. 20, No. 5, 2009, pp. 1009-1038 6 Laurie Graham, “How Does the Japanese Model Transfer to the United States? A View from the Line”, in Tony Elger and Chris Smith (eds.), Global Japanization: The Transnational Transformation of the Labour Process, London: Routledge, 1994, pp. 123- 151 7 Ibid., p. 124 8 Bill Taylor, Tony Elger and Peter Fairbrother, “Transplants and Emulators: The Fate of the Japanese Model in British Electronics”, in Tony Elger and Chris Smith (eds.), Global Japanization: The Transnational Transformation of the Labour Process, London: Routledge, 1994, pp. 196-228 9 Ibid., p. 197 10 Vagelis Dedoussis and Craig R. Litter, “Understanding the Transfer of Japanese Management Practices: The Australian Case”, in Tony Elger and Chris Smith (eds.), Global Japanization: The Transnational Transformation of the Labour Process, London: Routledge, 1994, pp. 175-195 decision making”11. Therefore, benefits emerged from flexibility tend towards employers. This is also viewed from a study of James Rinehart, David Robertson, Christopher Huxley and Jeff Wareham12 in a unionized auto assembly plant in Canada, where workers have a voice but not a vote. On the other hand, Simon Gleave and Nick Oliver13 find some manufacturing firms in Britain and the US practicing flexibility and experiencing higher levels of productivity and providing employees with job security. The study of William Purcell, Stephen Nicholas, David Merrett and Greg Whitwell14 also finds some positive impact on flexibility for both employers and employees. This study finds some manufacturing subsidiaries, which recruit varied workers, and ensure considerable use of flexible work practices among workers, high levels of job security and persistent multi-tasking. Till to date, there is a point of debate amongst academia: whether flexibility offers positive-positive or positive-negative or negative-positive outcomes for both employers and employees. Even, factors responsible to the varied outcomes are also debated. Tony Elger and Chris Smith15 accentuate on positive social network ties, removal of institutional complexities, and integration of firm. William Purcell, Stephen Nicholas, David Merrett and Greg Whitwell16 stress on balancing power and ownership, participation and understanding between employers and employees. Scott B. Martin 17 emphasizes on increasing

11 Ibid., p. 177 12 James Rinehart, David Robertson, Christopher Huxley and Jeff Wareham, “Reunifying Conception and Execution of Work under Japanese Production Management? A Canadian Case Study”, in Tony Elger and Chris Smith (eds.), Global Japanization: The Transnational Transformation of the Labour Process, London: Routledge, 1994, pp. 152- 174 13 Simon Gleave and Nick Oliver, “Human Resource Management in Japanese Manufacturing Companies in the UK: 5 Case Studies”, Journal of General Management, Vol. 16, No. 1, 1990 14 William Purcell, Stephen Nicholas, David Merrett and Greg Whitwell, “The Transfer of Human Resource and Management Practice by Japanese Multinationals to Australia: Do Industry, Size and Experience Matter?”, The International Journal of Human Resource Management, Vol. 10, No. 1, 1999, pp. 72-88 15 Tony Elger and Chris Smith, “Global Japanization? Convergence and Competition in the Organization of the Labour Process”, in Tony Elger and Chris Smith (eds.), Global Japanization: The Transnational Transformation of the Labour Process, London: Routledge, 1994, pp. 31-59 16 William, op. cit. 17 Scott B. Martin, “Network Ties and Labour Flexibility in Brazil and Mexico: A Tale of Two Automobile Factories”, in Christopher Candland and Rudra Sil (eds.), The Politics of Labour in A Global Age: Continuity and Change in Late-Industrializing and Post- Socialist Economies, Oxford: Oxford University Press, 2001, pp. 95-131 104 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010 competence of firms and worker representations. Markus Pudelko 18 draws attention to the extent of labour laws and regulations, accords with unions, and partaking rights to the works councils. Therefore, debate on the factors that may make flexibility a positive thing for both employers and employees has mainly been focused on varied sizes and characteristics of firms placed in diverse local and national locations. In this backdrop, this paper attempts to explore the following questions: What does flexibility mean to employers and employees? Which indicators may best capture flexibility for employers and employees? What factors or conditions may act to promote a win-win situation on flexibility for both employers and employees? To address the questions, this paper relies on few-country comparisons (small-N case study method) and ‘analytical narratives’, a tool of analysing the few-country (such as Brazil, China, Malaysia and Turkey) cases from reviewing existing literature. Therefore, transferring Japanese management practices (JMPs) to various firms of the few developing countries selected has been a way of looking for the best capturing indicators of, and observing impacts on, flexibility for both employers and employees. The few-country comparisons may enable industrial policy makers, trans- or multi- national firms, development actors outside government such as employers and employees to explore: (a) how are JMPs exercised in transnational firms? (b) how do employers and employees respond to developments of flexibility? and (c) what factors may influence flexibility for employers and employees Such investigation may facilitate (i) setting up of policies to fabricate macro and micro level institutional restructuring, and (ii) both transnational companies (TNCs) and locally-owned firm level practices on flexibility. However, a major handicap in this paper is dearth of information. Therefore, consultation of existing literature has not been enough for analyzing the cases studies. Consequently, many findings of this paper may be tentative, and necessitate to be replicated rather in a broader context. It also requires a more comprehensive field based information in future. Barring introduction that constitutes Section I of the paper, the research questions aforesaid plus few relative ones would be studied in the following successive sections: Section II: Conceptual Framework that consists of two parts – Basics of JMPs, and Characteristics of Flexibility for Employers and Employees, Section III: Research Methodology, Section IV: Empirical Evidence that consists of two parts – Cases Studies on Various Firms and Studies from the Few Developing Countries Selected and A Comparative Look from the Cases Studies, Section V: Cross-country Observations to find out factors challenging to

18 Markus Pudelko, “Cross-national Learning from Best Practice and the Convergence- Divergence Debate in HRM”, The International Journal of Human Resource Management, Vol. 16, No. 11, 2005, pp. 2045-2074 flexibility and factors (both internal and external) that may act to promote a win- win situation on flexibility, and Section VI: Conclusion that summarises the paper.

II. Conceptual Framework II.I Basics of JMPs Since this paper is confined to the discussion of transferring JMPs by various TNCs in the world under the producer driven value chain (PDVC) 19 , it is important to mention rationales of undertaking the JMPs. Attention to the JMPs appears to be more than a passing trend and goes beyond a straightforward transplanting of some techniques. 20 During the 1970s, the US and Western Europe find their economy worsened, while Japanese economy rather maintains high growth rate.21 This extracts interest in Japan and also the JMPs because it can act as the mechanisms for coordination and control of transnational operations.22 Behind the interest, many Western observers also keep an important reason forefront i.e., mode of functioning Japanese firms. A large number of Japanese firms “function as organic communities in which a strong organizational culture seems to tie together interests of workers and management”23. In addition to the rationale, others view from various angles. While some emphasize on “Japanese innovations in production and employment have themselves been the evolving and varied products of the interaction between earlier dominant models”24, others weigh on “universal applicability”25 of the JMPs. Taking the motivations into considerations, JMPs are undertaken

19 The PDVC consists of large Transnational Companies (TNCs), and of basically capital and technology intensive industries such as automobiles, semiconductors, heavy machineries, etc. Whereas in case of autos, Toyota, for example, continues to command a PDVC, in case of semiconductors, INTEL, for instance, commands this type of chain. 20 Ulrich Jurgens, “The Transfer of Japanese Management Concepts in the International Automobile Industry”, in Stephen Wood (ed.), The Transformation of Work?, London: Unwin Hyman, 1989, pp. 204-218 21 E.H. Bax, “Globalization and the Flexibility of Labour: A New Challenge to Human Resource Management”, 1996, available at: http://som.eldoc.ub.rug.nl/FILES/reports/1995-1999/themeA/1996/96A41/96a41.pdf, last consulted on 08 March 2009 22 Adriana Prodan, Catalin Clipa and Anca Clipa, “The transfer of Romanian Human Resource Management practices in Multinational Companies”, MIBES Transactions, Vol. 3, Issue 1, 2009 23 Ibid., p. 3 24 Tony, op. cit., p. 55 25 Anne Caroline Posthuma, “Japanese Production Techniques in Brazilian Automobile Components Firms: A Best Practice Model or Basis for Adaptation”, in Tony Elger and Chris Smith (eds.), Global Japanization: The Transnational Transformation of the Labour Process, London: Routledge, 1994, p. 348 106 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010 because they are most often witnessed as role models since they offer “‘best practice’ ideas of management from which others can borrow and learn”26. There are wide varieties of JMPs. One of the important JMPs is just-in-time (JIT), “a method of inventory control in which company keeps parts stocked on line for only a few hours of work”27. The JIT is executed “through the techniques such as kanban, statistical process control (SPC), etc.”28. Kanban “is based on a system of cards used by production workers to signal to previous machining stage when new parts are required for production”29. Conversely, the SPC is “a technical tool for detecting quality problems”30. In addition to JIT, kanban and SPC, concept of kaizening and total quality management (TQM) are widely accepted as JMPs. Kaizening means continuous improvement and addresses team-based jobs with labours performing varied tasks. By contrast, the TQM built on some aspects such as change, communication, empowerment and improvement is seen as “generating significant productivity gains, achieving competitiveness and improving organisational performance”31. Within a wide variety of JMPs, quality circles (QCs), Toyota production system, quality control circles (QCCs), suggestion schemes, cellular production and mini-factories are also well-known. While the QCs “allow and institutionalize worker’s participation”32, Toyota production system is focused on waste-elimination and optimum utilization of human creativity. Whereas the QCCs are concerned with augmenting “worker’s involvement and participation and improving their satisfaction in work organisation”33, the idea of suggestion schemes is “to cultivate company loyalty and pride among employees and tap shop floor knowledge”34. On the other hand, the concept of cellular production within departments is “introduced with workers tending to more than one

26 Chris Smith and Peter Meiksins, “System, Society and Dominance Effects in Cross- national Organisation Analysis”, Work, Employment and Society, 9, 1995, p. 243 27 Laurie, op. cit., p. 140 28 John Humphrey, “Japanese Methods and the Changing Position of Direct Production Workers: Evidence from Brazil”, in Tony Elger and Chris Smith (eds.), Global Japanization: The Transnational Transformation of the Labour Process, London: Routledge, 1994, p. 344 29 Anne, op. cit., p. 368 30 Ibid., p. 354 31 Engin Yildirim, “Modern Management Techniques in the Developing World: The Case of TQM and Its Impact on Workers”, Work, Employment and Society, Vol. 13, No. 4, 1999, p. 704 32 Karel Williams, Itsutomo Mitsui and Colin Haslam, “How Far From Japan? A Case Study of Japanese Press Shop Practice and Management Calculation”, in Tony Elger and Chris Smith (eds.), Global Japanization: The Transnational Transformation of the Labour Process, London: Routledge, 1994, p. 79 33 Anne, op. cit., pp. 363-64 34 James, op. cit., p. 172 machine”35, while the idea of ‘mini-factories’ focuses on “particular product lines where workers have the opportunity to work in cells or teams”36. Whatever the purview of JMPs it is, vital point is: which aspects of JMPs have been attractive outside Japan37 to have impact on production and flexibility concept? One of the significant aspects is level of education combined with selection procedure. 38 A certain level of qualification with a tight selection procedure is required for workers to get tasks in production firms. Making decision on production problems, quality control, work-flow optimisation, and work safety is the second aspect. 39 Decision is made through sharing of knowledge and experience among management, supervisors and ‘shop-floor’ workers. This ensures ‘quality circle’40 in manufacturing scheme. Manufacturing scheme is based on the following rules: “flexibility in utilizing facilities, minimisation of quality problems and production-flow buffers (material- or manpower- or time- buffers)”41. In the scheme, production groups labour on the law of JIT: ‘zero-buffer process of production management’ that incorporates “staffing questions and aims at rationalising work process” 42 . Rationalising principle helps in easing of material buffers, manpower and working-time buffers. Production groups, thereafter, employ themselves in ensuring efficacy and developments of work organisation, accompanying with usual practices of supervisors, and increasing product quality. However, securing jobs and employers-employees relations in the overall manufacturing scheme takes prime concern. With a secured job, employment relations are observed as a vital aspect of greater allegiance to firms by employees. 43 By contrast, worker’s success is encouraged by firms through extra pay, promotion and work placement. This extends relations between employers and employees. The relations are smoothed by the concept of company union: a sign of compliance, conformity and interest of employee. 44 Within the basics of JMPs, many of the Japanese leading

35 John, op. cit., p. 332 36 Ibid. 37 Masaki Saruta, “Toyota Production Systems: The 'Toyota Way' and Labour– Management Relations”, Asian Business and Management, Vol. 5, No. 4, 2006, pp. 487- 506 38 Ulrich, op. cit. 39 Masaki, op. cit. 40 Ibid. 41 Ulrich, op. cit., p. 208 42 Ibid. 43Yonosuke Ogoshi, “Current Japanese Employment Practices and Industrial Relations: The Transformation of Permanent Employment and Seniority-Based Wage System”, Asian Business and Management, Vol. 5, No. 4, 2006, pp. 469–485 44 Ulrich, op. cit. 108 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010 manufacturing firms have been concentrated to how could employers be flexible to using labours for higher productivity and how could employees with their demands be flexible in work organisation? 45 Now, question is: what does flexibility mean for employers and employees? Which indicators may best capture flexibility for employers and employees? Following discussion attempts to address the two questions.

II.II Characteristics of Flexibility for Employers and Employees Flexibility for employers deals with fixing workforce.46 Fixing is attained through deploying peripheral or core workers. 47 Variation in labour inputs increases rate of labour turnover and poses worker’s job insecure. 48 Rate of labour turnover is measured by “employers’ ability to adjust on extensive margin through engagement and dismissal of employees” 49. Factually, the lower the costs linked “with productivity, the higher is the expected turnover” 50 . By contrast, whether employers “provide non-compulsory redundancies or written commitment to a goal of long-term employment security amongst permanent staff”51 may give an idea on job security. Therefore, observations on rate of labour turnover and job security may be important indicators of flexibility for employees. On the contrary, examining variation in labours employed might be a key indicator of flexibility for employers.

45 Kenichi Kuroda, “Japanese Personnel Management and Flexibility Today”, Asian Business and Management, Vol. 5, No. 4, 2006, pp. 453–468 46 Heejung Chung “Flexibility for Whom: A New Approach in Examining Labour Market Flexibility Focusing on European Companies”, paper for International Social Security Association, 5th International Research Conference on Social Security and the Labour Market: A Mismatch?, Warsaw, 5-7 March, 2007, pp. 1-36 47 “Peripheral workers are those who are semi-skilled or unskilled and numerically flexible, as a result of short-term contracts, agency hiring and being employed by sub- contractors and those who are part-time and job sharing”. See, Sylvia Walby, “Flexibility and the changing sexual division of labour”, in Stephen Wood (ed.), the transformation of work? London: Unwin Hyman, 1989, p. 130. By contrast “core workers are likely to be skilled and have secure contracts of employment and be employed by particular firms for a long time, unlike peripheral ones”. See, Ibid. 48 Laurie Hunter, Alan McGregor, John Maclnnes and Alan Sproull, “The ‘Flexible Firm’: Strategy and Segmentation”, British Journal of Industrial Relations, Vol. 31, No. 3, 1993, pp. 383-407 49 Jonathan Michie and Maura Sheehan-Quinn, “Labour Market Flexibility, Human Resource Management and Corporate Performance”, British Journal of Management, Vol. 12, 2001, p. 294 50 Ibid. 51 Ibid., p. 295 It is accredited that “commitment an employee feels to his organization reflects to varying combinations of desires, costs and obligations” 52 . Commitment is expressed “as employee’s emotional attachment and involvement to and identification with work organization”53. Secured work environment and conditions (e.g., observations on employee participation, effective process for dispute resolution, and security in employment) may only make committed workforce available. Therefore, observing involvement or commitment of workforce to workplace may be an indicator of flexibility for employers. Flexibility is attained “by adjusting working hours of workers” 54 . For employers “non-standard working hours offer increased staffing flexibility” 55. Therefore, “conflict is frequent for workers, whose work schedules are variable” 56 . Consequently workers demand ‘flexitime’ 57 to have a balance between work and private life. While opportunity of choosing working hours is free, “flexitime allows workers to decide on their starting and completion time for a given day, provided that they work for a certain number of hours in a given period”58. Therefore, observations on working hours have been an indicator of flexibility for both employers and employees. Flexibility is by now concerned with capability of firms to fix wages for workers. Flexibility on wages is measured by an arrangement of collective bargaining and worker’s conformity. 59 A debate on wage flexibility due to continuing diminution of labour costs is that conventional approach of fixing

52 Ian R. Gellatly, Karen H. Hunter, Luanne G. Currie and P. Gregory Irving, “HRM Practices and Organizational Commitment Profiles” The International Journal of Human Resource Management, Vol. 20, No. 4, 2009, p. 870 53 Ibid. 54 Heejung, op. cit., p. 3 55 Lei Delson, “Working Time Flexibility: Two Cheers for Regulation, One Cheer for the Market”, paper presented at the International Conference on Employment and Social Security in the Perspective of Life organised by European Commission, SISWO and Hans Bockler Stiftung, Berlin, 2004, p. 5 56 Ibid. 57 “Flexitime is a halfway house in terms of structure in that it permits variation in working hours, but within restrictions. Flexitime can provide flexibility where core hours are reduced”. See, Peter Reilly, “Types and Incidence of Flexibility”, Flexibility at Work: Balancing the Interests of Employer and Employee, England: Gower Publishing Limited, 2001, p. 35 58 Yoshio Yanadon and Takao Kato, “Work and Family Practices in Japanese Firms: Their Scope, Nature and Impact on Employee Turnover”, The International Journal of Human Resource Management, Vol. 20, No. 2, 2009, p. 443 59 Stathis Tikos, “Wage Flexibility: The Case of Greece”, 2009, available at: http://www.eurofound.europa.eu/eiro/studies/tn0803019s/gr0803019q.htm, last consulted on 03 August 2009 110 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010 wages through collective bargaining is observed as inflexible. Atkinson60 in his model articulates that “managers lower workers’ wages as business conditions warrant and wages are likely to be close to downward and opposed to managers’ efforts to lower them”61. Therefore, looking into the levels of wages (whether it is changing, low, high, fixed or flexible) with regards to changing labour market scenario is considered as a way of observing flexibility on wages for employees. Currently, few firms are being interested to communicate information to employees when daily workload or new arrangement is set up. By contrast, workers urge opportunity of communication to know about the new adjustment. As a result, communication is being associated with “information sharing, influence of consultation, meeting union or consultation about institutional change”62. It helps employees to negotiate with management and vice versa to uphold a harmonious work environment. Therefore, mode of communication (whether it is vertical or horizontal, brief, highly structured or efficient, extensive, efficiency oriented, open or relaxed, one-way or both-way) is “seen as bedrock upon which flexibility for employees rest”63. When flexibility for employees is discussed, it is important to note whether “employees are entitled to participate to value-added schemes or team-based work”64. Since, efficient labour participation, in turn, offers an opportunity to define mode of labour representation (top-down or bottom-up, uneven or weak, authoritative or participative) in a firm. 65 The opportunities of labour participation and representation entail formation and endorsement of dynamic capabilities for employees. By contrast, inadequate opportunities raises question on supervision in a firm. 66 While strict or authoritarian or quasi-managerial supervision detach relations between shop stewards and shop-floor, flexible supervision improves workers’ direct involvement and commitment to workplace. Therefore, observations on participation, representation and supervision may be imperative to examine flexibility for employees. Whether work environment is wage based or task oriented or characterized by regulations is crucial for employees.67 In the variation, workers “start feeling

60 John Atkinson, “Flexibility: Planning for an Uncertain Future”, Manpower Policy and Practice, Vol. 1, Summer, 1985, pp. 26-29 61 Arne L. Kalleberg, “Organizing Flexibility: The Flexible Firm in a New Century”, British Journal of International Relations, Vol. 39, No. 4, 2001, p. 498 62 Jonathan, op. cit., p. 295 63 Markus, op. cit., p. 2050; Peter Reilly, op. cit., p. 106 64 Jonathan, op. cit., p. 295 65 Markus, op. cit. 66 Ibid. 67 Ibid. physical and emotional pressure”68. Basically, pressures emerge from the level of work intensification generated from incorporating new work systems. Therefore, workers demand “development of work environment, especially ergonomic aspects of manual workplace to minimize stresses”69. Consequently, efforts are advocated “to make work system more adaptable to meeting diverse human needs”70 of workers. Where overt supervision, limited opportunity of labour participation and representation, sudden labour turnover and wage related conflict are observed, workers attempt to be unionized, whereas employers seek ways to circumvent unions. But it is accredited that unions’ involvement to planning and making decisions legitimizes labour interests 71 such as “promotion, task distribution, internal mobility, etc.” 72 . Whether there are opportunities of raising voices through unions may also be an indicator of observing flexibility for employees.73 Debate on examining flexibility and characterising indicators or determinants of flexibility for both employers and employees may be varied from firm to firm in a developed or developing country. However, based on existing literature aforesaid, employers’ strategies concerning flexibility, and their impacts on employees’ flexibility, indicators that may best capture flexibility not only for employers but employees also could be framed under the following framework:

68 Peter Knorringa and Lee Pegler “Globalisation, Firm Upgrading and Impacts on Labour”, Journal of Economic and Social Geography, Vol. 97, No. 5, 2006, p. 474 69 Gustavo Abel Carrillo Guzman, “New Production System in Transition: Implications for the Brazilian industry”, Brazilian Journal of Political Economy, Vol. 20, No. 4(80), 2000, p. 61 70 Ibid. 71 Ibid. 72 Enrique de la Garza Toledo, “The Crisis of the Maquiladora Model in Mexico”, Work and Occupation, Vol. 34, 2007, p. 412 73 Monir Tayeb, “Transfer of HRM Practices Across Cultures: An American Company in Scotland”, The International Journal of Human Resource Management, Vol. 9, No. 2, 1998, p. 354 112 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010

Chart 1: Best Capturing Indicators of Flexibility for Employers and Employees

Flexibility

By employers On employees

Variation in labour employed Job security

Variation in working Rate of turnover hours Level of wages Mode of employee involvement to workplace Working hour

Participation level

Way of communication

Representation level

Mode of supervision

Work environment

Working pressure

Mode of unionism

Source: Author’s self initiative

After providing a conceptual framework, immediate essence of this paper is to unveil a methodological discourse on strategy of cases selection, explanation of various firms, justification of undertaking few different developing countries and matrix of research findings used. Clarifying the issues is the burden of the following section. III. Research Methodology This paper is based on cases studies in consultation with secondary literature. It applies method of few-countries comparisons and uses ‘analytical narratives’, a tool of case study method. Few-countries comparisons attain “control through careful selection of cases analyzed using a middle-level of conceptual abstraction” 74 . This paper, therefore, has been thorough since it attempts to address more of the nuances explicit to each case. By contrast, this paper, within the purview of ‘analytical narratives’, takes efforts to employ the term ‘analytic’ that “conveys use of a theoretical framework or set of theoretical concepts”75, and the term ‘narratives’ that “conveys use of historical qualitative and quantitative evidence”76 for selecting and analysing cases on various firms exercising the JMPs from the different developing countries such as Brazil, China, Malaysia and Turkey. Finally, this paper compares observations on few-countries based on the following matrix: Indicators of flexibility Findings for By employers Indicators Brazil China Turkey Malaysia On employees

While explanation on different firms and studies observed from the few developing countries are included in Section IV, just a list of those firms and studies and their references is given below in a tabular form.

Table 1: List of Firms and Studies Observed Countries Firms and Studies References Observed Brazil Brastemp in Rio Claro producing Lee Pegler77 ‘White Goods’ Reliable/Sao Bernardo plant Scott B. Martin78 China A Japanese-owned electronic plant Bill Taylor79

74 Todd Landman, “Social Science Methods and Human Rights”, Studying Human Rights, Oxford: Routledge, 2006, p. 66 75 Lee J. Alston “The Case for Cases Studies in Political Economy”, The Political Economist, Vol. 12, Issue 4, Spring-Summer, 2005, p. 8 76 Ibid. 77 Lee Pegler, “Employer ‘Dependence’ and Worker ‘Allegiance’ within the Factory of the Future: Evidence from Brazil”, School for Social Sciences Working Paper No. 17, Cardiff: Cardiff University, 2001, pp. 2-19 78 Scott B. Martin, “The Social Embedding of Flexibility: Contrasting Patterns of Worker Integration in Automobile Plants of the Americas”, this paper is a minimally adapted version of the introduction to the author’s Ph.D. dissertation, Working in the Global Factory: The Social Embedding of Flexibility, which is presented to and accepted by the Department of Political Science, 2000, pp. 1-37 114 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010

A Chinese auto assembly plant Lu Zhang80 Turkey Brisa, a tyre manufacturer company Engin Yildirim81 “Turkish Managers and TQM” – a Power Ekonomy82 study Malaysia A Japan-based electronic transplant Jos Gamble, Jonathan Morris producing automated machinery and and Barry Wilkinson83 robots A electronic transplant Yamashita Shoichi84 Source: Author’s self initiative

After providing information on various firms and studies observed in this paper, immediate essence is to clarify rationale of undertaking four different developing countries. Since 1970s, Chinese auto firms have experienced steady growth. Auto production has increased from 0.7 million units in 1991 to 7.28 million in 2006. This makes China the third largest vehicle producer and the second largest automobile seller in the world. 85 On the other hand, Chinese and Japanese “suppliers have fairly complex divisions of labour and technologies, with lower- value-added production being transferred from Japan, higher-value-added production being retained in Japan and production technology in China being imported from Japan” 86 . Additionally, a resemblance is observed between Chinese and Japanese firms in terms of union’s role. These extract interests in China.

79 Bill Taylor, “Patterns of Control within Japanese Manufacturing Plants in China: Doubts about Japanisation in Asia”, Journal of Management Studies, Vol. 36, 1999, pp. 853–73; Bill Taylor, “The Management of Labour in Japanese Manufacturing Plants in China”, The International Journal of Human Resource Management, Vol. 12, 2001, pp. 601-620 80 Lu Zhang, “Lean Production and Labour Controls in the Chinese Automobile Industry in an Age of Globalisation”, International Labour and Working Class History, No. 73, Spring, 2008, pp. 24-44 81 Engin, op. cit., pp. 693-709 82 “Turkish Managers and Total Quality Management”, Power Ekonomy, Issue 8, 1996, pp. 69-71 83 Jos Gamble, Jonathan Morris and Barry Wilkinson, “Mass Production is Alive and Well: The Future of Work and Organization in East Asia”, The International Journal of Human Resource Management, Vol. 15, No. 2, 2004, pp. 397-409 84 Yamashita Shoichi, “Japanese Investment Strategy and Technology Transfer in East Asia”, in Harukiyo Hasegawa and Glenn D. Hook (eds.), Japanese Business Management: Restructuring for Low Growth and Globalisation, London: Routledge, 1998 85 Lu, op. cit., pp. 24-44 86 Jos, op. cit., p. 402 From Southeast Asian bloc, Malaysia adopts “a ‘follow-the-leader’ approach and attracts low-cost labour to market potential of manufacturing beyond its existing customers”87. This increases Japanese foreign direct investment and joint venture in Malaysia in industrial respect, and, in turn, helps the country to be an emerging developing nation. Additionally, both Malaysian and Japanese firms entail limited role of unions. From Eurasian bloc, Turkey with its large domestic market and strategic geographical position has been experiencing trade liberalization and industrialization and high economic growth rate.88 With these driving forces, the country has by now been a promising country and attracted as an important investment site by many Japanese multinationals. While there were only two Japanese companies in Turkey in 1982, the number has risen to 34 in 1997.89 On the other hand, culture of company union is being practiced by a good number of Japanese and Turkish firms. From Latin American bloc, Brazil maintains dynamic potency of a developed nation. However, it still contains enormous income disparity, high inflation and inadequate infrastructure. Therefore, it has already been accredited that no single model of management practices entirely suits local conditions of Brazil, except adaptation.90 Even after that, a good number of Brazilian auto industries have been practicing JMPs, for example, ‘lean model’. On the other hand, role of union is significant in many Brazilian auto firms, while unionism is rarely observed in few Japanese firms. These extract interests in Brazil. Therefore, consideration of diverse geographical representation, emerging developing phenomenon and role of union has been a basis of undertaking four sample developing countries – China, Malaysia, Turkey and Brazil. It could here be noted that unionism has been a factor since until now workers expect role of union as an important way of improving basic labour rights. By contrast, employers usually observe unionism as an unfavourable factor to achieve more flexibility. However, instant essence of this paper is to unearth empirical evidences from the selected developing countries, which have already transferred and have been practicing JMPs to their firms to observe impacts on flexibility for both employers and employees.

87 Ibid. 88 Engin, op. cit. 89 YASED Bulletin, Issue 2, 1997, pp. 7-8 90 Anne, op. cit. 116 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010

IV. Empirical Evidence IV.I Cases Studies on Developing Countries Selected IV.I.I Case of Brazil Looking into Reliable/Sao Bernardo plant demonstrates that the plant has been experiencing “breakthroughs toward higher levels of labour flexibility such as stemmed job loss, flattened job classification hierarchy, extensive multi- tasking, merit pay, flexible workweek, workers’ active participation in making decisions, and improving working conditions”91. These facilitate productivity and quality standards of the plant. Such scenario is also observed from Brastemp in Rio Claro producing ‘white goods’. Practicing just-in-time and kanban, the firm has been introducing diversified tasks, shorter workweek, higher wages, reduced supervision, and new participative mechanisms for workers, lower labour turnover, closer relations between employees and employers, and reduction in hierarchies.92 These accelerate workers’ commitment to workplace and smooth firm’s productivity. However, judging flexibility with these positive developments could mislead one. Observations on Brastemp reveal that workers have new tasks but there are still “fear of substitution, powerlessness, more onerous and highly monitored work conditions, and general employer abuse” 93 . Workers are also found devalued through hire and fire policies, and authoritarian management. These lead to withdrawal of workers’ cooperation to the firm. Such scenario is also found from Reliable/Sao Bernardo plant. Instead of being participative and democratic, the plant is still characterised by constraints of performance targets and penalization of workers, ever-increasing employment insecurity due to automation, wage differentials between core and periphery workers, inadequate opportunity of communication, participation and representation, extensive workload, overt supervision, and less autonomy over labour movements.94 Usually, employers in the two firms observed search issues such as annual performance, errors in production, strike, recession or hostile environment to penalise workers. The penalisation reduces work stability of labours. Therefore, employers though succeed in retaining profitability and quality circle, workers’ cooperation to the firms is limited, and they attempt to be associated with unions. But there is an ambiguity between workers and unions due to market-oriented reforms, inadequate labour laws and attractive offers given by employers. Even after that, workers still certify role of unions in collective bargaining and addressing unusual situations.95

91 Scott, op. cit., p. 9 92 Lee Pegler, op. cit., pp. 2-19 93 Ibid., p. 8 94 Scott, op. cit. 95 Lee Pegler, op. cit.; Scott, op. cit. IV.I.II Case of China Looking into a Japanese-owned electronic plant in China studied by Bill Taylor96 shows that the plant is employing local young workers and migrants, avoiding ex-state-owned enterprise workers, and recruiting workers directly from schools, through local government labour agencies, adverts or by word-of-mouth. Therefore, employment of workers with increasing labour turnover has relatively been insecure. Although seniority-based higher wages are observed, the opportunity is confined to only core workers. Though employee participation incorporates alleged quality circles, and some evidences of communications and suggestions schemes are found, decreasing worker allegiance to the plant is witnessed due to marginalised and often dysfunctional role of union tied by Chinese law. Therefore, the plant advances to be routinized and fragmented with considerable surveillance and control over both workers and production volumes and quality. However, such contradictory scenario can also be experienced from a Chinese auto assembly plant. Observations on a Chinese auto assembly plant studied by Lu Zhang 97 unearth a conflicting situation that emerges from ever-increasing division of labour. In the plant, while proportion of production workers in entire populace of formal employees ranges from 50 to 80 per cent, declining proportion of the formal production workers has been of typical setting due to increasing deployment of agency workers in production.98 Accepting dualism in workforce (adjusting agency workers usually at unskilled positions in regards to fluctuating domestic car market), the plant avoids laying off formal workers, and becomes able to lower labour costs and increase flexibility. 99 Although using of dual labour force benefits employers, the dualism results in uneven treatment between formal and agency workers, inequality in job security and vulnerability for employees. In fact, vulnerability consists of usual long working hours, mandatory overtime without advance notice, delay in paying for excessive overtime, intensified work, arbitrary exercise of managerial authority, declining real wages, unhealthy working conditions, military-style regimentation and in-human treatment, and limited opportunity for participation in the plant. 100 These mobilize labour forces to address potential workplace bargaining power and urge emergence of union actions. Although “factory union and party factory committees play important role in preventing and mediating conflict between

96 Bill Taylor, op. cit., pp. 853–73; Bill Taylor, op. cit., pp. 601-620 97 Lu, op. cit. 98 Workers are formal with regular labour contracts. Agency workers are hired by labour service agencies. They sign labour contracts with the agencies. According to needs, a plant employs or withdraws agency workers sent by the agencies. 99 Lu, op. cit. 100 Ibid. 118 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010 workers and managers”101 in the plant, their actions are debated. This is because of market reform initiatives of China, and uncertainties on whether union is actually in favour of improving labour rights or self-benefiting ones.

IV.I.III Case of Turkey Observations on Brisa102, a tyre manufacturing firm, reveal that the firm is implementing total quality management. It is valuing employees ‘classifying jobs’103, fixing working hours, providing ‘higher wages’104, paying for overtime, observing errors as a means of improving production, addressing promotion based on knowledge and length of deployment. It is also ensuring working condition, participation, trust, cooperation and communication between workforce and management. Additionally, the firm has accepted moderate role of union. These offer workers with more or less secure jobs105, accelerate workers’ commitment to workplace, invigorate relations between firm and employees, and strengthen union’s position and production capability. However, there is still debate on wages, rights, rules, policies and other issues.106 Such discrepancy is also observed from a literature.107 Observation from a study 108 demonstrates that employers still restrain workers’ participation up to a certain level, for example, in various low profile committees so that workers could not perceive more power and influence over management. Moreover, representation of workers is kept related to production, not in making decisions on intensified work, wage differentials or unhealthy working environment. These result in class struggle between employers and employees. Therefore, union claims written document of no lay-off policy and urge for reducing workload. But management refuses the proposal. By contrast, there is also a doubt about union’s role. Although union agrees on extending participation in making decision, it factually seems contented with its participation restricted just in various committees. Therefore, union’s role is in

101 Ibid., p. 37 102 Brisa is a joint venture of Sabanci Holding (second largest industrial group in Turkey) and Bridgestone (a leading Japanese tyre multinational). It has 1300 permanent employees, 250 temporary workers and about 500 people employed by conductors. It is unionized. See, Engin, op. cit., p. 694 103 Jobs are of two types: non-union jobs (managerial white collar jobs) and union jobs (blue collar jobs). See, Ibid., p. 699 104 Statutory minimum wage is about $120 per month. Average wage is about $1100. See, Ibid., p. 699 105 Labour turnover rate per annum has been reduced from nearly 8 per cent to below 2 per cent. Average service length has risen from 8.6 years to 11.9 years. Some temporary workers have been transferred to permanent status. See, Ibid., p. 700 106 Ibid. 107 “Turkish………”, op. cit., pp. 69-71 108 Ibid. doubt about whether union would escape from being no more than a conventional company union.

IV.I.IV Case of Malaysia Looking into an electronic transplant (characterized by automation and relatively high level of quality) studied by Yoshio Yamashita109 show that the transplant is providing workers with long-term employment, high wage, opportunity for participation and communication. Results of such arrangements facilitate simplifying and dividing work into small parts to make speedy preamble of unskilled employees, relations between employers and employees, and developing local productivity. By contrast, observations on a Japan-based electronic transplant (producing automated machinery and robots) studied by Jos Gamble, Jonathan Morris and Barry Wilkinson110 reveal that the plant is recruiting young, female, and rural workers and migrants; providing relatively low wage (about £75 per month); temporary jobs; and limited opportunity of participation for workers. In the plant, opportunity of employee representation is observed weak, while process of communication is found perfunctory basically through banners, newsletters, slogans, and monthly meetings. These along with high rate of labour turnover (around 6 to 13 per cent per month) result in low-commitment workplace culture, and demand role of union. With limited representation for the deprived workers, role of union is also found even more complex owing to union avoidance policies of government. Therefore, a clear ambiguity on flexibility for both employers and employees is observed. Since workers are becoming valuable asset to work organization, basic demands of labours are major concerns for employers. Therefore, employers’ attitude to workers is very essential so that workers can be secure. However, the previous cases studies give a chaotic situation on flexibility for both employers and employees. Following discussion attempts to provide a comparative look on the cases studies.

IV.II Impact on Flexibility: A Comparative Look Generalizing the fact that whether transferring JMPs increases changes on flexibility for both employers and employees is challenging. Therefore, this paper makes a comparison i.e. a comparative table (see Table 2) based on the cases studies and flexibility indicators for employers and employees derived from conceptual part.

109 Yamashita, op. cit. 110 Jos, op. cit. 120 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010

Table 2: Findings’ Matrix: Transferring JMPs and Its Impact on Flexibility Indicators Flexibility Brazil China Turkey Malaysia Indicators By Labour Growing use Rising use of Core labour Increasing use of Employers employed of secondary peripheral labour seems to be peripheral and labour from counties used foreign migrants increasingly Variation in Varied and Highly varied and Varied but fixed Increasingly working hour extended extended for each shift varied Mode of Not so much Involved just in Going to be Involvement employee involved few firms, others fairly involved seems to be involvement in not decreased workplace On Job security Seems to be Insecurity has Seems to be Seems to be Employees insecure been increased secure quite insecure Rate of labour Going to be Seems to be Turnover has Turnover has turnover high relatively high been reduced been very high Level of wages Increasing but Decreasing in Seems to be Minimal and still low terms of real relatively high low in many wages firms Working hour Seems to be Long with forced Seems to be Going to be unstructured overtime fixed unstructured Participation Implicitly Seems to be Open but still Appears to be level bargaining almost limited inadequate weak Way of One-way One-way and Almost both- Perfunctory communication hierarchical way Representation Uneven in Rather uneven in Tends to be Going to be level many firms most of the firms strong more weak and uneven Mode of Seems to be More or less Quasi- Still supervision new style but traditional and managerial authoritarian still overt strict Work Tedious Irksome Improved Monotonous environment Work pressure Have been Have been very Seems to be Highly Intensified intensified fairly intensified intensified Mode of Unions’ role Going to be less Union’s role has Role of union unionism have been functional in steadily been seems to be focused less on many firms increased vulnerable labour rights Source: Author’s self initiative. This is an average result having support from observations on firms and studies included in Table 1.

It is obvious from Table 2 and discussions given in cases studies that transfer of JMPs has not worked evenly. Sometimes, employers are gaining through using labours and working hours varied. At times, employers are facing problems with workers’ commitment to workplace. By contrast, employees in somewhere are enjoying their jobs with expected demands. But in most of the times, they are in trouble with securing jobs and establishing labour rights. This impedes trust and balance of power between employers and employees. Therefore, considering firms and studies from Brazil, China, Turkey and Malaysia express that transfer of JMPs offers changes on flexibility indicators: almost positive for employers, but negative and in some cases positive for employees. While objective of this paper is not to study causes of the variation, it is at least important to look for some causal explanations. Otherwise, addressing what factors or conditions may make flexibility a positive thing for both employers and employees would not be an easy task.

V. Factors Influencing Flexibility V.I Factors Challenging to Flexibility: A Cross-country Observation Observations on the Brazilian firms reveal some factors that are challenging to flexibility for both employers and employees: difference in management structure, ability to introduce new technique, partial or selective adaptation of new organisational technique, and form of competition prevailing in various sectors. Additionally, there are some practical causes for non-identical results on flexibility. These are: existing social relations or network ties in which changes take place; particular local and regional agglomerations (for example, sectors, clusters, chains, etc.) of firm; capability of firms; comprehensive understanding and evaluation of relevant management model; possible transferability of management practice and context of coordination; degree of labour laws and regulations; contractual agreements with unions; and workers’ participation rights.111 These lead to workers’ deprivation, and impede to go beyond zero-sum conflicts over flexibility for both employers and employees. The scenario aforesaid is not only observed in the Brazilian firms but also obvious in the Chinese and Malaysian firms. Bill Taylor112 and Lu Zhang113 in the Chinese firms find some factors that are challenging to flexibility for both employers and employees. The factors are: control mechanism (ill-suited to affiliates in China) of JMPs, lack of workers’ involvement to workplace, limited career opportunities, limited information flows, and lack of appraisal and performance assessment. By contrast, Jos Gamble, Jonathan Morris and Barry Wilkinson 114 and Yamashita Shoichi 115 in the Malaysian firms unearth few factors such as non-reciprocity, low-trust and low-commitment HRM policies and practices, and lack of ‘company ownership’. As a result, way of communication has been limited, top-down and one-way, and workplace has been insecure and fragmented for employees. Therefore, immediate essence of the following discussion is to unearth factors that may promote a win-win situation on flexibility for both employers and employees.

111 Lee Pegler, op. cit.; Scott, op. cit. 112 Bill Taylor, op. cit. 113 Lu, op. cit. 114 Jos, op. cit. 115 Yamashita, op. cit. 122 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010

V.II Factors that May Make Flexibility A Positive Thing It is accredited that transferring process of a management practice “does not end with adoption of formal rules describing the practice, but continues until the rules become internalized at subsidiary”116. In fact, an effective adoption relies on degree of institutionalization of the management practice at two levels: (i) implementation stage when employees just follow prescribed regulations, and (ii) internalization stage reached when employees have loyalty “to the new work practice, and acquire perceptions of ownership of the newer work arrangements”117. Although “macro contextual conditions (e.g., lack of a clear and stable industrial policy) may constrain pace of adoption rather than support implementation of the two prescriptions” 118 , they could make flexibility a positive thing for both employers and employees. This prescription could be undertaken if objective of achieving flexibility is through transferring of a specific management practice. But in a broad-spectrum, what factors or conditions may turn flexibility into an optimistic phenomenon for both employers and employees need to be categorised.

Factors (Internal and External) to Promote A Win-win Situation on Flexibility There are inadequate literature that clearly separate internal and external factors that can act to promote a win-win situation on flexibility. According to a set of literature, internal factors include changing perception of flexibility, making mutuality in work and developing trust between employers and employees, and introducing new labour laws. By contrast, external factors include developing role of trade unions and civil society organisations (CSOs), and bringing the drive of CSR (corporate social responsibility) to light. From the internal factors, it is initially important to change perception of flexibility that may facilitate “setting up of policies in which flexibility could only be traded off with security measures, and accommodate a mutual flexibility goal”119. This would possibly ensure that both employers and employees may not be at odds with each other. In making mutuality and developing trust, employers have to look for ways out to fix patterns of working and flex supply of labour.120 By contrast, employees and their representatives need to realize a change undertaken by employers. In dealing with the change effectively, employers in fact need to attain trust of workforce. The trust could be secured when both

116 Wolfgang Stehle and Ronel Erwee, “Transfer of Human Resources Practices from German Multinational Enterprises to Asian Subsidiaries”, Research and Practices in Human Resources Management, Vol. 15, No. 1, 2007, p. 67 117 Ibid. 118 Gustavo, op. cit., pp. 64-65 119 Heejung, op. cit., p. 25 120 Peter Reilly, op. cit. employers and employees anticipate that their demands would be valued and they would not be intentionally hurt.121 In addition to the factors aforesaid, introducing new labour laws may offer employers a directive to categorize essential practices on which they could focus on securing long-term employment relations not only with primary but secondary workers also. This could facilitate to respond to rising labour abuses and protect workers’ rights. As an instance, Chinese New Labour Contract Law 2008 that pledges employment security to workers could be undertaken. The Law favours long-term employment contract in lieu of short-term pact that could easily be terminated. It specifies the contract that “must be put in writing within a month of employment”122. It controls undue employ of periphery workers. Moreover, the Law makes unnecessary dismissal of workers harder. Therefore, employees get a bargaining opportunity for an open-end contract with employers, and attain employment guaranteed. The internal factors abovementioned would not be fruitful if pressures do not come from other stakeholders. From the external factors, unions, within the domain of CSOs, may reasonably put pressure on employers to ask improved work environment and partake in a bargaining united to secure workers’ jobs.123 Empirical studies also make evidence available supporting unions’ presence to lengthen and stabilize employment relations and reduce labour turnover.124 Since union’s representation and collective input is associated with both “employee turnover rates and productivity” 125 , it may increase performance of a firm. Therefore, reciprocal achievements to labours and their firms call for “a unique combination of recognized and representative unions and workers, showing allegiance to both firms and unions”126. Besides, a potential line of debate is developed by several scholars127 who emphasize potentially optimistic impact on workers throughout the drive of fair

121 Ibid. 122 Lu, op. cit., p. 44 123 Mark Anner, “Forging New Labour Activism in Global Commodity Chains in Latin America”, International Labour and Working Class History, Vol. 72, Fall, 2007, pp. 18- 41 124 Lee Pegler, op. cit. 125 Ibid., p. 17 126 Lee Pegler and Peter Knorringa, “Integrating Labour Issues in Global Value Chain Analysis: Exploring Implications for Labour Research and Unions”, in Verena Schmidt (ed.), Trade Union Responses: A Review by the Global Union Research Network, Geneva: International Labour Office, 2007, p. 43 127 Mick Blowfield, “Ethical Trade: A Review of Developments and Issues”, Third World Quarterly, Vol. 20, 1999, pp. 753-770; Stephanie Barrientos, Catherine Dolan and Anne Tallontire, “A Gendered Value Chain Approach to Codes of Conduct in African Horticulture”, World Development, Vol. 31, 2003, pp. 1511-1526; Deirdre Shaw, Terry Newholm and Roger Dickinson, “Consumption As Voting: An Exploration of Consumer 124 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010 trade, CSR, ethical sourcing, and the related initiatives. Better CSR might be promoted “to help bolster an argument that better labour rights are good business and to put forth the argument that unions should be a more significant stakeholder in the CSR” 128 . Perhaps Ethical Trading Initiative is a well- recognized instance of the CSR. In the initiative, “a group of well-known brand name firms work together with trade unions and NGOs to ensure that labour conditions meet or exceed international labour standards” 129 . There are few recent studies (such as the study of Stephanie Barrientos, Catherine Dolan and Anne Tallontire130) on ethical trade indicating “that such international labour standards are successfully met for core workers, but that the picture becomes more variegated for workers indirectly employed” 131 . Furthermore, whereas ethical trade can lead to developments in labour conditions, constructive codes of conduct on labour standards can push out well employers who offer irregular as well as lower wages to non-standard workers. However, prime task of CSR should be “to support ongoing struggle by workers in developing countries and their collective action representatives, whether unions or NGOs, in an effort to increasingly implement decent work agenda of International Labour Organisation”132 so that notion of flexibility could emerge as a positive thing for both employers and employees.

VI. Concluding remarks Based on characteristics of flexibility and observations on cases studies and matrix of findings, it has been obvious that flexibility for employers is concerned with three things: variation in labour employed, variation in working hours, and mode of employee involvement to workplace. In other words, these three things may be the best capturing indicators of flexibility for employers. On the other hand, flexibility for employees is concerned with a set of things: job security, rate of turnover, level of wages, working hour, participation level, way of communication, representation level, mode of supervision, work environment, working pressure, and mode of unionism. In any circumstance, these notions may otherwise be the best capturing indicators of flexibility for employees. On the basis of the indicators of flexibility for both employers and employees, the notion of flexibility for both parties in a transnational firm of a developing country behaves in a different way, sometimes positive for employers but negative for employees, and occasionally positive for both. In the variation, there

Empowerment”, Mimeograph, Glasgow: Glasgow Caledonian University, 2005; Peter Knorringa, op. cit. 128 Lee Pegler and Peter Knorringa, op. cit., p. 45 129 Peter Knorringa, op. cit., p. 476 130 Stephanie, op. cit. 131 Ibid., in Peter Knorringa, op. cit., p. 476 132 Peter Knorringa, op. cit., p. 477 could be some additional factors that may also have an impact on flexibility. For example, structure and role of government, and role of trade unions in Brazil are quite different than that in China, Malaysia and Turkey. By contrast, market reforms initiatives to increase level of productivity, flow of foreign direct investment, and particularly national labour laws are far different in the developing countries. Therefore, some specific factors that may make flexibility a positive thing for both employers and employees need to be focused. If objective of achieving flexibility is through transferring any management practice, adoption of formal rules describing the transfer process and practice, and then internalization of the rules at any firm need to be prioritized. On the other hand, within the list of internal factors, changing perception of flexibility, making mutuality in work and developing trust between employers and employees, and introducing new labour laws are very important. By contrast, from the external factors, developing role of trade unions and civil society organisations (CSOs), bringing the drive of CSR to light, forcing the initiative of fair trade, ethical sourcing, and the related drives, constructive codes of conduct on labour standards, and decent work agenda of the ILO are also very crucial. Only the effective execution of the internal and external factors aforesaid may act to promote a win-win situation on flexibility for both employers and employees. 126 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010

Nasreen Ghufran AFGHAN MIGRATION: THREAT OR OPPORTUNITY FOR PAKISTAN? ======

Abstract

Pakistan has been hosting Afghan refugees over three decades now. While around 3.5 million Afghans have repatriated to their country in recent years, around an estimated 1.7 million registered refugees, are still residing in Pakistan.133 There have been many studies about Afghan refugees burdening the economy of Pakistan and becoming a security threat for the host. However, one does not come across much research enquiring whether they have actually been a threat or an opportunity. Largely perceived as threat, one cannot overlook how refugees provide political or economic opportunity for a host state and how they contribute positively to the social structures. Most writings about refugees highlight the tribulations they create for the receiving state; however, the governments do not present the flip side of refugees, neither to their own people or the international community regarding the prospects they bring for the host. This paper analyzes the threat and opportunity dimensions of Afghan refugees in Pakistan. Why the refugee issue as a threat has been highlighted whereas its opportunity under narrated? Have the refugees been an economic burden or asset? Have refugees contributed to social ills of Pakistani society or have they impacted positively? Answering all these questions is expected to provide a balanced view of Afghan refugees in Pakistan in the paper.

1. Introduction Afghans and Pakistanis have been moving across the Durand Line (Pak- Afghan border) since time immemorial, and have never been considered as

Nasreen Ghufran is currently a professor in the Department of International Relations, Pashwar University, Pakistan. Her email no is : [email protected]

© Bangladesh Institute of International and Strategic Studies (BIISS), 2010.

133Nasreen Ghufran (2009), Afghans in Pakistan: Plight, Predicament and the Way Forward, Roundtable Conference, Institute of Policy Studies, Islamabad. refugees. They were termed as seasonal migrants who came with their family and stayed till the winters were over in Afghanistan. This movement was never controversial and was not seen in the refugee framework. It was the Soviet intervention in Afghanistan in December 1979 that led to massive influxes into Pakistan. This was forced migration as distinct from the earlier movements across the border. Pakistan is not a Contracting Party of the 1951 UN Convention Relating to the Status of Refugees, (hereafter referred to as the 1951 UN Convention), therefore, initially it had difficulties in housing large number of refugees without any legal protection. Politically, the country was receptive to Afghan refugees and welcomed them. It justified its action in providing shelter and refuge to these refugees on the basis of religion (Islam) and humanitarian grounds. The government opined that Islamic duty requires them to offer safe haven to fellow Muslims, facing persecution in their home countries. In comparison with many asylum countries, Pakistan has been liberal as it has allowed Afghan refugees freedom of movement within the country, where they can work and do small businesses to earn their livelihoods. This openness on the part of Pakistan government reflected that Afghan refugees were initially not considered a threat to either their security or economy. Pakistan’s Afghan policy played a major role in welcoming millions of Afghans on its soil and using these refugees for political and strategic purposes. Barring introduction and conclusion, the paper is divided into four sections. The second section discusses Pakistan’s Afghan policy toward refugees. The third second assesses the local perception of the Afghan refugees. The fourth section evaluates whether Afghans have been an economic burden or not and lastly how they have impacted on the society. An objective and balanced analysis of both the perspectives will enable the policy makers in both Pakistan and Afghanistan to chalk out a pragmatic policy to resolve the problem of refugees.

2. Afghan Refugees: Strategic Asset for Pakistan’s Afghan Policy Afghan refugees pouring into Pakistan through the long, permeable frontier provided an opportunity to policy makers to pursue their desired policy in Afghanistan with renewed vigor. The refugees came to be regarded a strategic asset and a foreign policy tool utilized in the larger interest of the host country. The humanitarian crisis turned into a political blessing as refugees came to attract large foreign assistance, leading to aid inflows which were used by Gen. Zia-ul- Haq to contain Soviets in Afghanistan and pursue his Islamist agenda by supporting the mujahideen resistance. Commonly perceived as a security concern, Afghan refugees were said to have placed an enormous financial burden on the limited resources of Pakistan, however, the country opened itself and welcomed massive numbers to settle in the adjoining provinces of NWFP (now known as Khyber Pukhtunkhwa) and Balochistan. Pakistan accepted the 128 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010 responsibility of providing these afflicted people with shelter and basic necessities of life as a humanitarian and Islamic duty. The generous help received from friendly countries and international humanitarian organizations, particularly the UNHCR and the International Red Cross(IRC) was deeply appreciated.

The military regime of General Zia-ul-Haq was politically fragile and lacked legitimacy to confront the situation alone and without any external support. Moreover, India’s friendship with Afghanistan further complicated the situation. The Soviets had supported both Afghanistan and India in their disputes with Pakistan. General Zia cashed the situation by playing the ‘frontline state’134 and

134 Rasul Bakhsh Rais (1997), War without Winners: Afghanistan’s Uncertain Transition after the Cold War. Oxford University Press, Karachi. 236-238 supporting the Afghan Islamic resistance forces against the socialist regime of Peoples Democratic Party of Afghanistan (PDPA). Mujahideens were seen as allies by the US in containing the Soviets in Afghanistan. The political and strategic interests of Pakistan, the US and the mujahideen converged― undoing the Soviet intervention of 1979 and installing a regime in Kabul, catering to the needs of all the parties involved. The partnership between the US and Pakistan was one of many instances of cooperation serving complementary interests. For the United States, it served the primary purpose of expanding the scope of the policy of containment; for Pakistan it served primarily the purpose of increasing its political, military and economic potential vis-à-vis its neighbor, i.e., India and the Soviet-backed Kabul government. General Zia, who was the architect of the new alignment, explained Pakistan’s motives in cooperating with the US in these words, “Our main and prime objectives are to keep out the Soviet Union and Afghanistan in the north and to safeguard the safety and security of Pakistan from Indians in the east.”135 The US Central Intelligence Agency (CIA) started supporting the resistance covertly through its ally― Pakistan. The Inter-Services Intelligence (ISI) agency became the main arbiter of Pakistan’s Afghan policy as funds were channelized through it. During the years 1982-1987, the United States had provided $7.4 billion economic and military assistance to Pakistan to fund a massive military build-up. The modernization program included improved warning and communication systems, anti-tank missiles, ground attack aircraft, tanks, and armored personnel carriers.136 Pakistan’s security was further enhanced by the emergence of a broad coalition of international forces supporting Islamabad’s effort to expel the Soviet forces from Afghanistan.137 Their goal according to the late Pakistani Prime Minister, Benezir Bhutto, was to “radicalize the influence of religious factions within Afghanistan.” 138 Furthermore, the international assistance which began to pour into Pakistan for the Afghan refugees and

135 A.Z. Hilal (2005)i, US-Pakistan Relationship: Soviet Invasion of Afghanistan (US Foreign Policy and Conflict in the Muslim World, Ashgate Publishing Limited, England. 193

136 Ibid.

137 War without Winners: Afghanistan’s Uncertain Transition after the Cold War. 38

138 Khushal Arsala & Stephen Zunes. “ The US and Afghan Tragedy” posted February 18, 2009 www. fpif.org retrieved August 20, 2010 130 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010 mujahideen helped General Zia to stabilize his military regime, neutralize his domestic opponents and assume a central position in regional power politics. Pakistan tried to organize political parties of Afghans139 on its soil and the assistance went to these parties through the ISI that further distributed the aid in the refugee camps. Political analysts criticized Pakistan’s grooming of Afghan resistance parties and perceived it as a negative policy on the part of the military regime. Before December 1979, the Pakistani based Afghan parties and refugee organizations had no public following to speak of. In order to have support from the refugees, these parties brought in a new law which required that all Afghan refugees should register with one Afghan political party or another. As a rule, a refugee had to be registered with one of the parties to get food rations. People who were unregistered did not get rations and thus could starve or have an extremely difficult time keeping themselves and their children fed.140 The refugee camps became "places where the Mujahideen (guerrillas) could return for rest and see their families", writes Brig Mohammad Yousaf in his book, The Bear Trap. He further declared that the camps were “a huge reservoir of potential recruits for jihad.”141

139 Mahaz-Milli-yi Islami-yi Afghanistan (National Islamic Front of Afghanistan, NIFA), headed by Pir Sayyid Ahmed Gilani;Jabha-yi Nijat –I- Milli-yi-Afghanistan (Afghanistan National Liberation Front, ANLF) led by Sibghatullah Mujaddidi; Harakat-I-Inqilab-I-Islami-yi-Afghanistan (Movement of the Islamic Revolution, HAR) led by Maulwi Muhammed Nabi Muhammedi;Hizb-I-Islami-yi-Afghanistan (Islamic Party of Afghanistan, Hikmatyar, HIH) led by Gulbadin Hikmatyar; Hizb-I-Islami-yi- Afghanistan (Islamic Party of Afghanistan, Khalis, HIK) led by Yunus Khalis; Jamiat-yi-Afghanistan (Islamic Society of Afghanistan, JIA) led by Burhanuddin Rabbani and the last of the seven parties was

Ittihad-I-Islami Bara-yi Azadi-yi-Afghanistan (Islamic Union for the Freedom of Afghanistan, ITT) led by Abdul Rasul Sayyaf.

140 Raja Anwar (1988), The Tragedy of Afghanistan: A First Hand Account. Verso London-New York. 238

141 Azhar Hassan. “Refugee Crisis: Revisiting Afghan Diaspora”, Pak Institute for Peace Studies, July 30, 2007 A considerable number of Afghan refugee orphans entered the network of madrassas of the NWFP, especially in tribal areas where they were supported as charity by Islamic organizations. The Jamiat Ulema Islam (JUI), a long established Pakistani political party led by Maulana Fazlur Rehman, established madrassas specifically for the orphans of the Afghan jihad. While on surface, it seemed a humanitarian act on the part of the JUI, but it used these very madrassas to serve and further the political interests of the party. The JUI had its stronghold in the frontier Pushtun and Baloch regions where it regularly secured a greater vote in elections than did the more prominent Jamat-I-Islami founded by Maulana Abu Ala Maudidi.142 At the same time, Pakistan propagated that the military presence of the Soviets in neighboring Afghanistan produced a threat and made it insecure vis-à- vis a super power, which was believed to pursue an expansionist policy in the region. 143 Intervention by a large powerful neighbor into a small and weak country was in violation of the norms of international law; secondly, the disappearance of a century old buffer state and the advance of a superpower to the Pakistan border made the Soviet threat more credible; thirdly, the ambivalent Indian response to the Soviet action increased Pakistan security concerns and fourthly, the influx of Afghan refugees into Pakistan and Iran made it prone to Soviet attacks. 144 This sense of insecurity was compounded by its own ethno- linguistic divisions (the Punjabis, Sindhis, Pushtuns and Balochis), which have left an indelible impact on its political and social structures. These divisions have exposed the country to several externally backed secessionist threats, particularly by Pushtuns and Balochis, who had been supported by Afghanistan in the context of the country’s border dispute with it.145

142Ralph H. Magnus and Eden Naby (1998), Afghanistan: Mullah, Marx and Mujahid. Westview Press-Pak Book Corporation, Pakistan. 179

143 Amin Saikal and William Maley eds. (1989), The Soviet Withdrawal from Afghanistan, Cambridge University Press, New York, 1989 p.53I

144 Agha Shahi (1987), “Pakistan’s Relations with United Sates.” in Soviet-American Relations with Pakistan, Iran and Afghanistan, edited by Hafeez Malik; Macmillan Press, London..370-375 145 Nasreen Ghufran (2009), ‘Pushtun Ethnonationalism and the Taliban Insurgency in the North West Frontier Province of Pakistan’ Asian Survey, Vol.XLIX, No.6 November/December, Berkley, University of California Press, 1095-1099 132 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010

Therefore, the spillover security effects of the Soviet war in Afghanistan were there due to the presence of refugees and guerrilla fighters. However, looked at from a different angle, the security threat was there even if refugees had not come to Pakistan. Given the historically “free” character of the tribal areas and the porous border, Pakistan was in no position either to stop the inflow of refugees or to effectively control the movement of guerrillas from and to Afghanistan. The active military involvement of a superpower in support of a narrow-based regime increasingly hostile to Pakistan presented difficult security problems.146 The threat factor was highlighted to receive political and economic support for mujahideens, who were then supported by refugees. Thus refugees came to be used in advancing its political goals of Afghan policy. The security risks and costs were conveniently ignored during this period. Neither the authorities nor the general public considered them a major security threat. Rather they perceived the refugees as ‘insecure and vulnerable’ populace who needed Pakistan’s and the international community’s protection. Although the termination in February 1989 of direct Soviet military involvement in Afghanistan removed the security threat to Pakistan, the unfinished war continued to occupy a central place on Islamabad’s diplomatic agenda. New streams of Afghan refugees trickled into Pakistan as the internal conflict intensified after the Soviet withdrawal. As long as the Najibullah regime remained in power, Pakistan continued to support its removal through the Afghan resistance, and continued to bear the burden of refugees. 147 Most of these refugees were politically connected to the various competing resistance parties and had direct access to arms. Taliban force, a creation of madrassas took over Kabul in 1996. Pakistan’s recognition of the Taliban regime led to its political isolation not only in the region but also internationally. Pakistan’s relations with Iran came under great strain, as the Sunni dominated Taliban were not liked by the Ayatollahs of Iran. Russia and Central Asian Republics (CARs) were concerned over the extreme religious views of Taliban. The possibility of Taliban’s rigid religious values spilling over into Pakistan increased. Pakistan recognized Taliban in the hope that peace would return to Afghanistan, and that others would follow suit. They further believed that the route to Central Asia would open and the Afghan refugees would start going back to their country. Unfortunately none of these assumptions came true. During this period, Pak-US relations nose-dived. Osama bin Ladin and his Al-Qaeda network operating in Afghanistan, became the target

146 War Without Winners. .237

147 Ibid. 239 of USA. Taliban were condemned for harboring Al-Qaeda. Pakistan’s connection with Afghanistan during Taliban’s rule earned her worldwide condemnation, which it could not afford politically.148 Pakistan continued to support the Taliban politically and militarily in an effort to establish a friendly, if not client, Pushtun-based regime in Afghanistan. Pakistan's long-standing policy of supporting Pushtun political forces in Afghanistan was generated from a belief that such a government could provide Pakistan with strategic depth vis-à-vis India and quell Pushtun nationalist forces at home. The concept of “strategic-depth” has been much debated and criticized but even the present army chief General Ashfaq Pervaz Kiani stated in February 2010 that, “we want strategic depth in Afghanistan.” 149 This reflects that the concept is still very much alive in the military circles, and that Afghanistan remains strategically important for Pakistan. Pakistan joined hands with the US in its war against terrorism after the 9/11 terrorists attacks, thereby changing its pro-Taliban policy. Talibans were soon ousted from power and a transitional government of Hamid Karzai supported both by the US and Pakistan was installed in December 2001 through the Bonn Agreement in Germany. Between mid 2000 and early 2001, the largest influx of Afghan refugees in several years, an estimated 170,000 new arrivals – crossed into Pakistan. As the influx developed, Pakistani officials feared that the ongoing conflict in Afghanistan and the effects of the worst drought to hit that country in 30 years might result in a much larger number of Afghans heading to Pakistan than actually arrived. That fear was exacerbated by Pakistan’s concerns about its faltering economy, resentment toward the international community for its diminished interest and assistance to Afghan refugees, changing attitude of locals towards refugees by and the appointment of Iftikhar Hussain Shah as governor of NWFP, who was dubbed to have anti–refugee sentiments. The combination of these factors resulted in what a UN refugee official called an ‘irreversible and qualitative’ change in Pakistani government attitudes, policies, and actions toward Afghan refugees.150

148 Derek Brown (2001), “What the Pakistan Papers Say,” http://media. guardian.co.uk/ press review/ September 21, retrieved January 6, 2005

149 Zahid Hussein, “Pakistan Spells Out Terms for Regional Stability.” Dawn, February 2, 2010

150 USCR interview with UNHCR representative Hasim Uktan, Islamabad, June 2001. See for details Pakistan: Afghan Refugees Shunned and Scorned. .5 134 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010

However, after the passage of 9 years, peace and tranquility has not returned to Afghanistan despite an elected president and parliament. The neo-Taliban insurgency continues, which has sympathizers among the residual Afghan population in Pakistan. Afghan refugees who are supportive of the insurgency are being exploited by various agencies (both Pakistanis and international) to pursue their anti-American agenda ― removal of international forces from Afghanistan and the puppet regime of Hamid Karzai. Pakistan started adopting strict measures against the refugees in the wake of these developments, and has been pursuing a steady policy of Afghan repatriation with UNHCR’s assistance since 2002, but there is no denying the fact that these refugees have been used as a foreign policy tool by Pakistan in making alliances and pursuing its objectives in Afghanistan. The strategic importance of refugees may have waned over the years, but it has not vanished and therefore is on and off used as a bargaining chip in negotiations with the international community and Afghan government.

3. Local Perception of Afghan Refugees― Threat or Opportunity? Most of the Afghan refugees fleeing from their country settled in two provinces of Pakistan ― NWFP and Balochistan. They settled in other parts too, but these two provinces housed majority of the refugee camps. Friction between the local and refugee population has been expected ever since the massive influx took place. However, the local population has demonstrated no major hostility so far. There was more tolerance of refugees in 1980s in comparison with the 1990s. They were not perceived as economic or social threat. They were treated as Muslim brethren who were in need of support and refuge, and the locals willingly provided these to the displaced population. In a nationally representative survey conducted in April 1980, 87 percent respondents said that the government of Pakistan must help the Afghan refugees. A follow up question in the same survey educated the respondents on the possible cost of supporting the Afghan refugees. This was an attempt to see if they would revise their views in that light. Only 3 percent became reluctant to support the Afghan refugees when they were told it could provoke Soviet hostility151 This public opinion survey was repeated in 1982, 1983 and 1984. There was a slight decline in public support for the Afghan refugees, but it remained overwhelming high. The survey in 1984 also showed the willingness to give private help to the refugees: only 13 percent disapproved that Pakistanis in their personal capacity should help the Afghan refugees. It is significant to note that this high level public support to the Afghans was maintained despite realizing

151 Ijaz. S. Gillani (1994). The Four R’s of Afghanistan, Pakistan Institute of Public Opinion, Islamabad. 9 that the refugees were an enormous burden, and the fear that they may be infiltrated by saboteurs. About two-thirds of the respondents believed that the refugees were an economic burden and about half feared the infiltration by saboteurs. The tranquil situation between the refugees and the local population seemed to rest on widespread public support on the refugee question, which was not naïve about the costs of supporting the refugees in terms of inviting Soviet hostility, economic cost and threat to the local law and order situation.152 Over the period of time, the attitude of local population changed.153 Initially, the refugees had been greeted with open arms, as Muslim brothers and sisters. But as their numbers swelled and the burden of their care began to weigh heavily on Pakistan, there were calls by locals residents for their control, if not forced repatriation. They had become weary of their prolonged stay and wanted them to return but some were realistic enough to observe that they may never opt for repatriation as they had better living here than in their war torn country. The mind-set of locals had begun to change with the policy of the government, which hardened its attitude towards Afghan refugees, a development that was summed up by Muhammed Harooon Shaukat, Director General of the Ministry of Foreign Affairs, as follows, “if donors have donor fatigue... then we have asylum fatigue… If donors’ patience with the Afghan situation has run out, then so has ours.”154 Government officials justified their changing policy and attitude due to a number of factors155:

152 Ibid

153 Pushtuns from South Waziristan and other tribal areas were among the first to complain about the privileges accorded to refugees, which they, claimed enabled the Afghans to live better than they did. Specifically, they criticized the wide array of services available in the camps as compared with far less access to education, housing services available to the border area people in Pakistan. Local people also believed that domestic expenditure on the refugees meant that assistance was at the expense of development programs for their impoverished areas. Gallup Reports 1984-1988 (Islamabad: Gallup Political Weather Report, 1985, 1986, and 1989

154 David Turton and Peter Maderson (2002), Taking Refugees for a Ride? The Politics of Refugee Return to Afghanistan, Issues Paper Series, Afghanistan Research Evaluation Unit. Kabul, December. .15

155 USCR (2001), Afghan Refugees in Pakistan at Risk. July 31 136 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010

1. Pakistan’s declining economy, which they say makes it impossible for the government to continue assisting refugees; 2. declining international financial support for the refugees; 3. the withdrawal of Soviet forces from Afghanistan in February 1989. Refugees noticed this change in approach and they did complain about the fading hospitality. They felt that in a way they were being asked to return to their homeland as soon as possible. They no longer felt welcome and faced difficulties which early refugees had not. Refugees faced police harassment as the government of NWFP started airing the idea that refugees need to return, because they considered Afghanistan was safe after the Taliban take-over. The government wanted their repatriation in safety and dignity, though conditions were still not conducive for return. However, as the Northern Alliance156 opposed the Taliban government, the conflict continued and instability prevailed. Therefore, refugees found it difficult to repatriate despite the strong signals from the government of NWFP. The demise of Taliban government, replaced by an internationally backed regime of Hamid Karzai, has altered the Pakistani perception that refugees are unduly prolonging their stay and they must return. There is, however, a consensus that repatriation should not be coerced.157 The local populace does not perceive them a threat but a burden that has to be shed off sooner than later. The Minister for States and Frontier Regions, Najmuddin Khan, said ‘although Pakistan has been hosting these Afghans for a long time but now the problems associated with their presence have aggravated more than ever before. The government never budged from its stance to cater to the needs of such a large and scattered number of refugees with the help of international community, but as the normalcy has been returning to Afghanistan, these refugees ought to be repatriated without any delay’, he added. 158 The refugees, however, have displayed displeasure over the discrimination they face in the country in general and continue to look up to the local and international community for support and stay till stability returns to their country. Pakistani government has extended the stay of registered Afghans who possess the Proof of Registration (PoR) cards till

156 An alliance of Afghan parties fighting against the Taliban.

157 Saba Gul Khattak, Nazish Brohi, Saleem Shah, Kiran Habib & Shahbaz Bokhari. “Afghan Refugees: Dilemmas and Policy Solutions”, SDPI Research & News Bulletin, Vol. 13. No 4 &5. July-October 2006. Islamabad.

158 Balochistan Times, Pakistan. January 31, 2010 2012.159 They were issued these cards in a registration drive during 2006- 2007. These cards were initially valid till December 2009, but due to the presence of an estimated 1.7 million registered refugees, the government decided to extend their stay till 2012. Many of the refugees say that Pakistanis officials and locals alike have made it clear that they are unwelcome, and have increasingly made life here difficult for them. "Everything is being done by the government to harass the Afghan refugees," says Dost Mohammad, an acknowledged leader of Afghans who used to live at the Shamshato refugee camp in Peshawar, near the Pakistani border with Afghanistan. "We are poor people and the international community should not leave us in a lurch." 160 The welcoming door is being shut by the locals but they have not openly demonstrated against the protracted stay of Afghans and allow them to continue their businesses and movement.

159 Pajhwok Afghan News. Kabul, Afghanistan January 11, 2010

160 Asfaque Yusufzai. “Pakistan: Afghans Find Their Welcome Running Out” Global Geopolitics & Global Economy. posted July 5, 2010. www.globalgeopolitics.net 138 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010 4. Afghan Refugees: Economic Burden or Asset? The economy of NWFP, where the largest concentration of Afghan refugees reside, is deficit with regards to food production and revenue resources. The Federal Government finances almost the entire developmental budget, because the revenue base of the province is small. In the beginning, the government in collaboration with international agencies and foreign governments provided relief assistance to the refugees. The support to refugees from the government of Pakistan and international agencies was not enough to sustain them. Some refugees moved with their movable property and invested in Pakistan. The refugees, therefore, in addition to self-employment entered into the full-fledged labor market.161 Afghan refugees who brought capital resources or took to self- employment have positively contributed to the local economy. Peshawar has seen the influx of more money looking for return. One key position in this regard is the involvement of refugees in various trades owning shops in the main trade centers of Peshawar. There was visible expansion in the transportation services due to the arrival of refugee transport in form of buses and trucks. A private survey conducted in 1992 reported that at least 75% of the city’s mini-buses as well as wagons belonged to the Afghans. According to the same report, they have a substantial stake in the freight haulage.162 As refugees themselves stimulated a number of local markets, international aid contributed to the regional infrastructure. It led to development projects including forestation, irrigation, and road construction. This employed not only refugee labor but locals too that directly benefited the economy of Pakistan. There are two viewpoints prevailing in the NWFP, regarding the economic implications of refugees for the province. Some view that many refugees have not become a part of the provincial economy, it has received most of the support from external sources, independent from the provincial economy. They have not ostensibly drained provincial resources nor directly altered the welfare of the local inhabitants of Peshawar. They inhabit land provided to them independently, they receive food independently; in essence their shelter, their livelihood their money come directly to them leaving them essentially tangential to the provincial economy.163

161 Ibid. p.17

162 Mariam A. Khan, “Welcome to Mini-Afghanistan” The News International. October 2000

163Ashraf, Asif & Arif Majid (1988). Economic Impact of Afghan Refugees in NWFP, Pakistan Academy for Rural Development. Peshawar, Pakistan. 4-5 140 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010

Others have shown their apprehensions that despite the outside help, the refugees are a drain on the provincial economy. They have entered into the cities and the hinterlands, got jobs and business to the resentment of the local inhabitants. In the villages, they have taken over natural pastures and pitched tents on them. The calm and equilibrium of the rural set up has been disturbed. Over grazing, cutting of foliage for fuel and pressure on water resources has polluted the rural environment. The refugees brought with them more than 2.5 million livestock, which had a detrimental effect on the environment because of grazing on the scarce pastures. Overgrazing extensively damaged the ecology of the green areas in the NWFP and Balochistan. 164

After food aid to most camp residents ended in 1995, 165 the number of refugees migrating to the cities increased (at about the same time, new refugees from Kabul–many of whom were urban professionals–entered Pakistan and settled in the cities). Employment became more scarce, local people’s wages were driven down by the abundance of cheap labor, and rents went up as competition for housing rose. Refugees were willing to work for lower wages than their Pakistani counterparts – on an average, 25 percent less. And even while incoming refugees – created a larger demand for goods and services in the frontier region, increasing the supply of goods by opening up new businesses and smuggling goods in from Afghanistan, the increasing flow of goods led to inflation in some markets and to lower prices in others. Similarly, relief food when adequate or in excess found its way to the market, where it contributed to price deflation and thus subverted local food production.166 Within local communities there were now signs of growing resentment to the prolonged presence of the refugees. Local Pakistani officials made intermittent statements about the need for repatriation of Afghan refugees. In September 1998, bureaucrats in North West Frontier Province reportedly met to devise a strategy

164 Ibid.

165 USCR (2001). Pakistan: Afghan Refugees Shunned and Scorned, September. 20

166 Frederic Grare (2003), “ The Geopolitics of Afghan Refugees in Pakistan in Refugee Manipulation: War, Politics, and the Abuse of Human Suffering, edited by Stephen John Stedmam and Fred Tanner, The Brookings Institution, Washington D.C..64 for repatriating the refugees. In February 1999, the provincial Chief Minister announced plans to restrict all refugees to the camps in response to complaints that Afghans were taking away jobs from local people. Although the plans could not be implemented, the Chief Minister made repeated calls to the international community to assist the refugees to return to their homes in Afghanistan.167 The government prohibits the refugees to buy property but refugees do not consider the law and get involved in such ventures due to weak governance. The local population interacts with them in such dealings and show them ways and means to bypass the law. Many refugees have bought houses or built houses on bought lands. It is said that the revenue staff themselves have been involved in such activities.This has resulted in refugees owning property.168 Sometimes, the refugees buy land by proxy, producing Pakistani identity cards or by providing forged back dated nikah-namas (marriage contracts) as another way of becoming a Pakistani citizen.169 Afghans avail any business opportunity that comes their way. There have been two reasons for it; firstly the increased population of NWFP due to the refugee influx needed additional service, to meet the rising demands. To this both the local population and refugees have responded by investment whenever feasible. Secondly, the Afghans brought with them resources that they have invested. The concentration of investment in NWFP and Balochistan was mainly due to their limitation to move out freely to other parts of Pakistan. Ethnicity and proximity played an important role in it. This does not mean that the Afghans have not invested in businesses in other parts of the Pakistan. Islamabad and Karachi are other urban centers where refugees have set up businesses and rented places. These activities boosted the economy of the country, with refugees being viewed to have benefitted Pakistan economically. However, this perception is not held up by all the people, as all refugees are not rich and have no resources to invest in the host country. Refugees are doing small businesses and charge competitive prices mainly to establish their business. Many local traders observed that refugee incomes are supplemented by the aid they get through outside agencies and the government of Pakistan. Since they do not have many social obligations like the local traders and do not pay the taxes, they can afford to work on smaller margins and still make profits. Thus the local traders are the main sufferers of this situation. They

167 Amnesty International Report (1999), Refugees from Afghanistan: The World’s Largest Single Refugee Group, November, http://www.amnestyusa.org/regions/asia/document 168 Ibid.

169 The Muslim August 27,1983 142 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010 are facing tough competition from the refugees. In many markets in Peshawar, local traders have switched their trades or moved out. 170 Thus, the Afghan wealthier class generated tension with the local business class, because rents were pushed beyond the reach of the small commercial class. The wealthy Afghan refugees also found a way to get around the law that restricted their right to purchase property by obtaining National Identity Cards, domiciles and even passports through agents who charged handsome fees for such procurements.171 Most of the refugees living in camps were the poor sections of population of Afghanistan and mostly unskilled agricultural workers. Since the farm sector in the NWFP did not have much absorption capacity and secondly these jobs were seasonal, majority of the refugee laborers subsequently entered into the urban job market, which consisted of mostly construction and other day-to-day casual work including service industry. This large number of refugees entering into the labor market increased the supply of labor. This led to the lowering of labor wages. “If we ask for Rs.100 a day, they settle for Rs.70 or Rs.80. They have ruined over livelihood,” said a laborer from Peshawar.172 The price of real estate and rents went up after the influx of refugees. In the NWFP, particularly in Peshawar where all the head offices of the foreign missions and administration of Afghan refugees reside has had a real upsurge in prices of real estate and rents. Surveys of trade, commerce and rents of shops were carried out but with limited success as neither the refugees nor the local population revealed the correct rates. According to a report a house worth of Rs.5000/-per month in 1980 was worth Rs.50,000/ in 1985 with two years of advance rent. Many property dealers confirmed this. For the refugees, the rent per capita was not high as multiple families would reside in one house. This was true for a large number of refugees residing around Peshawar. The local residents who moved into Peshawar for business or services faced tremendous difficulty in obtaining houses at affordable rents.173 The local owners of the house especially in University Town area where the majority of rich refugees and foreign missions were present moved out to less expensive areas renting out their own houses for handsome rents. The cantonment area did not witness this kind of situation. The refugees and foreign missions were discouraged to occupy houses in the cantonment for security reasons. The city

170 Economic Impact of Afghan Refugees in NWFP. 1988 p.10

171 US-Pakistan Relationship: Soviet Invasion of Afghanistan, p. 202

172 The News International. October 2000

173 Economic Impact of Afghan Refugees in NWFP. 17 area and centers for jobs and business faced a major housing problem. Peshawar fetched the same rents as Karachi and Islamabad, other two high rent cities though for different reasons.174 The situation in villages was, however, different. Villages did not have the tradition to let houses. In NWFP, a house was given to a tenant or any body else free of rent in return for certain free services to the landlord. Many refugees who were not residing in the camps and could not afford high rents in the cities took over residences in the villages where rents were comparatively low. The poor villagers benefited out of this as it added to their meager sources of income. Environmental damage caused by refugees is mostly irreversible. The impact of these refugees on renewable natural resources is of particular concern as it can have a drastic long-term effect. Trees are cut down to provide support for shelter while branches are collected for firewood and charcoal. Foliage is cut to feed livestock. Ground vegetation is cleared to make way for farming; even tree roots are dug up in extreme conditions and used as firewood. Eventually the land becomes unfit for even most basic forms of agriculture. The resulting rapid and uncontrolled deforestation since the 1980s has left the area with only about 12% of its original forest cover. According to a UNHCR research report, since the influx of Afghan refugees started in the 1980s, Turmeric Forest of Gird-e-Jungle in the Chaghai district (Balochistan) has been completely depleted and there has been no rehabilitation in the area at all.175 Pakistan is going through tough times currently. The on-going militancy and extremists acts by the Tehrik Taliban Pakistan (TTP) has made the country’s security fragile, natural disasters (flash floods) during July-August 2010 have led to massive displacement of its own people and brought the economy to a stand still. Internal displacement has compounded the position of Afghan refugees as some of them have been displaced due to military operations in the restive parts of NWFP as well as floods. The despair of refugees continue amidst official statements that presence of refugees population serve as safe havens for terrorists and extremists elements from Afghanistan, thereby adding to instability and insecurity. It is generally believed that some of these refugees indulge in illegal activities like drug peddling, arms smuggling and have also been found involved in incidents of terrorism in the country.176 These activities have had a

174 Ibid.32

175 Hania Aslam. “The Impact of Afghan Refugees on the Natural Resources of Pakistan.” http://www.takingitglobal.org retrieved December 12, 2002

176 Balochistan Times, Pakistan. January 31, 2010 144 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010 downward impact on the domestic economy. However, Afghan refugees cannot be exclusively held responsible for the financial woes of Pakistan.

5. Social Costs and Benefits of Hosting Afghans The Afghans brought with them their own style of dressing and eating. Some of it was adopted by the locals e.g., Afghan style baggy trousers and long shirts became popular with the youth of the NWFP and Balochistan provinces. Similarly restaurants run by Afghan have considerably attracted consumers. “People in Peshawar always love to eat and now with all these eating places, we have more choice,” said Rehman, a Pakistani.177 A survey conducted by The Frontier Post revealed that the local restaurants lagged behind in competition with Afghan restaurants. The factors responsible for the growing popularity of Afghan food among the consumers include cheaper cost, quick service, simple food and informal environment projecting their culture. Afghan refugees have abundance of restaurants and cuisine in other parts of the country as well. Their decoration of cars for weddings has become particularly popular with the locals. Intermarriages between the local Pushtuns and Afghans have become common. It is not only for the passport or for identity that the Afghans are entering the bond of marriage, it itself is another lucrative business. Those involved in it, earned large amounts of money, as an Afghan possessing a Pakistani Identity Card, gave him social and economic security. Many Afghans admit that it is easier to get the Identity Card. Who would mind paying a few thousand rupees for security?178 Their impact on Pushtun culture has been enormous. In NWFP and Balochistan the standard of Pushto music has improved, its journalism developed and its literature advanced. Dr. Fazal Rahim Marwat, Pakistan Study Centre, University of Peshawar, mentioned in an interview that 22 countries started broadcasting Pushto service. Pushto dailies like Sahar and Wahdat started with impressive circulation along with other Pushto newspapers, weeklies and monthly journals. Afghan singers have earned popularity amongst the locals and their folk music along with remixes of old and new Pushto songs are now a days highly admired by the youth of the two provinces. Negative impact of Afghan refugees on Pakistani society has also been observed. A large number of refugees are involved in drug trafficking and arms smuggling and a small number in prostitution. The government did not take notice of the so-called Bara markets in Pakistani towns, where smuggled goods

177 The News International. October 8, 2000

178 Ibid. are openly available. In these markets now, along with local tribal people, refugees are involved too. Many Afghan poppy growers shifted their production to Pakistan’s tribal areas due to the war. The growers set up laboratories in both Pakistan and Afghanistan, and, as a consequence of the smuggling, heroin consumption increased dramatically in Pakistan itself. Before the 1980s, drug addiction was relatively unknown to most Pakistanis. By 1982, Pakistan reportedly had 1.3 million addicts: 100,000 on heroin. By 1986 the number of heroin addicts had exceeded 450,000, and in 1987 the official count rose to 657,842. Although Afghan refugees are not solely responsible for this situation, however, their arrival in Pakistan correlates with it.179 It worsened the drug problem in Pakistan. While smuggling of drugs became a lucrative business for some refugees, it became a major menace to Pakistani youth. This massive drug trafficking has defamed Pakistan internationally because Pakistan was used as the main shipment point for heroin trafficking abroad. Klashankov culture has been introduced in the Pakistani society due to the presence of unlimited weapons in the refugee camps, though legally the refugees are not allowed to keep weapons in camps. During the early period of jihad, the US Congressmen alleged that corrupt officials and mujahideen siphoned off 40 percent of the total arms aid to Afghan freedom fighters. “The weapons which came to Pakistan from abroad for Afghan jihad, one thirds of the total weapons were taken by political figures and the Inter-Services Intelligence (ISI), one thirds by Afghan commanders and the remaining went to mujahideen.”180 Due to the possession of heavy weapons, many refugees became assassins and they regularly took part in local feuds on payment, using their own weapons. Not only were the arms and ammunition supplied by donor countries sold in the open market but also the once crude armament factories of Darra Adamkhel began producing sophisticated weapons. With the result that what was once an essential item for the Afridis, Mohmands, and Wazirs in the tribal areas, Klashankov became commonplace among the landlords, politicians, university students and private militias throughout Pakistan.181

179 Refugee Manipulation: War, Politics, and the Abuse of Human Suffering. .64

180 Pervaiz Iqbal Cheema (1988), “Impact of Afghan war on Pakistan”, Pakistan Horizon, Vol. XI. January, 27-31

181 Ibid 146 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010

The rapid growth of population of both the locals and the refugees182 is a contributing factor for the high crime rate. The rates of crime in different parts of the country have risen considerably and the law enforcing agencies have attributed it to the long presence of Afghan refugees. “90 percent of the accused arrested during the first 15 days of the year 1999 in various cases were Afghan refugees. After committing crimes, the criminals cross over to their country and stay there till the case subsides.183 The influx of Pushtun speaking Afghan refugees in Balochistan disturbed the delicate ethnic balance in the province by strengthening the ranks of the Pushtuns, thereby reducing the Balochis to a minority in their own province. The refugees not only increased the ratio of Pushtun population by 10% to 15%, but also were instrumental in rapidly reducing Balochi predominance. The Baloch had long resented the domination of Pushtun tribes in their area. Quetta is heavily Pushtun, and with the influx of mostly Pushtun refugees, the province appeared likely to develop a Pushtun majority. Thus, in contrast with the NWFP, the refugees provoked the Baloch leaders, but their presence also neutralized Baloch nationalists’ dream of creating a Greater Balochistan. 184 There were calls in Balochistan for the refugees to return to Afghanistan. Benazir Bhutto along with other members of the opposition also held the same view. These opponents of the government also claimed that the government was inflating reports of numbers of the refugees in order to increase aid received from abroad.185 Former Chief Minister of Balochistan, Sarder Akhtar Mengal held Afghan refugees responsible for increasing crime rate and introducing Klashankov culture and narcotics in Balochistan and argued that refugees have also created

182 The ratio of refugees to local population in NWFP and Balochistan is one to six/seven, except in some high density area, where it is one to one. See Hasan Askar Rizvi. “Afghan Refugees in Pakistan: Influx, Humanitarian Assistance and Implications” in Pakistan Horizon, Vol.XXXVII No.1 1984

183 Business Recorder. January 17,1999

184 A. Z. Hilali (2002), “Costs and Benefits of Afghan War for Pakistan,” Contemporary South Asia,) 11,(3) Routledge, UK pp.291-310

185 Afghan Refugees in Pakistan: Will They Go Home? p.8 law and order problems in the province, otherwise the overall law and order in the province was better as compared to other parts of the country.186 Conclusion Refugees have been an opportunity as well as threat for Pakistan. Refugees have benefited the host in several ways and the political costs and risks posed by them have been exaggerated. However, the security, economic, political and social threats arising out of the protracted stay of Afghans is because of the flawed Afghan policy rather than the refugees. This does not mean that the presence of over 1.7 million refugees do not pose any threat at all. They have their economic and political fall out given the present situation of Pakistan, but that can be reduced provided the government devises an effective strategy in managing these refugees and making their return possible in future. Had the government not used them for strategic purposes, refugees would not have become a major threat. Had the locals and government officials not been involved in illegal activities such as providing fake identity cards, buying property, smuggling etc. refugees would not have contributed to increasing crimes and social ills in the society. As the stay of refugees started taking its toll, and the implications became stark, it compelled Pakistani policy makers to revise their refugee policy, and start stressing on the need for safe repatriation of Afghans. They realized that repatriation of Afghans was the only solution to freeing the country from the political and economic costs of hosting them. Pakistan should evolve institutional mechanisms to manage the residual Afghan population in a manner that they benefit the hosts and reduce threats that have affected the country. Refugee businesses, accommodation outside camps and education need monitoring and vigilance on the part of authorities that will reduce the mounting resentment amongst refugees and locals alike. The business and educated Afghans should be allowed to engage in constructive activities that contribute positively and help both the refugees and locals. Those Afghans who are supporting the Taliban insurgency on both sides of the border are a security threat for both the countries. Therefore, the two governments―Pakistan and Afghanistan― should jointly take steps to curtail their movement and actions.

186 The News International. October 26, 1997 148 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010

Sharif M. Hossain SOUTH ASIAN FREE TRADE AREA: EXAMINING BANGLADESH’S TRADE POTENTIAL. ======Abstract The current paper has analysed the impact of South Asian Free Trade Area (SAFTA) on Bangladesh in terms of export generation within member countries. A standard gravity model has been used to analyse Bangladesh’s export potential using cross section data. From the estimated result, it is observed that Bangladesh has huge export potential to South Asia in general, and India in particular. If SAFTA agreement is properly implemented then Bangladesh’s exports within this region would be much higher than the estimated potential export. In terms of imports, Bangladesh has exceeded its potential level. Therefore, the expected increase in import by Bangladesh from SAFTA member countries might not be as large as the expected increase in export. But it should be mentioned that the expected results can only be achieved by free trade in real sense, i.e. goods and services can move freely across countries without any tariff and non-tariff barriers.

1. Introduction There is a growing evidence for the emergence of Regional Trading Arrangements (RTA) in different parts of the world over the last two decades. The establishment of such an arrangement in South Asia is no exception. The process of regional cooperation in South Asia was initiated by establishing the South Asian Association for Regional Cooperation (SAARC). In 1985, the seven South Asian countries – Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka formed SAARC to promote economic, social and cultural cooperation. The newest member of SAARC is Afghanistan which has been included in 2005. In 1993, the SAARC Preferential Trading Arrangement

Mr. Sharif M. Hossain is Research Fellow at the Bangladesh Institute of International and Strategic Studies (BIISS). His email address is [email protected]. This paper is a reduced form of author’s Dissertation in MA in International and Development Economics from the University of Applied Sciences, Berlin, Germany. The author is grateful to his supervisors, Professor Dr. Sebastain Dullien and Dr. Camille Logeay for their valuable comments and suggestions. © Bangladesh Institute of International and Strategic Studies (BIISS), 2010. (SAPTA) was initiated by the SAARC member countries as the first step towards achieving higher levels of trade and economic cooperation in the region.187 Some progress was achieved in the economic area under the framework of SAPTA.188 Subsequently, the member countries of SAARC launched the South Asian Free Trade Area (SAFTA) in 2004 which came into force on January 01, 2006. The key motivation behind the creation of SAFTA was to enhance intra-regional economic cooperation to maximize the potentiality of trade and development in the region.189 During the last decade, South Asia has experienced an increase in intra- regional trade. This increase is mainly generated from India’s export to its neighbours. However, India is not a fast growing destination for her neighbouring country’s export. The major export destinations of India’s neighbours are located in North. India’s high protectionist policy towards other South Asian neighbours is one of the reasons for this one way export flow. However, it is also argued that because of the similar production structure and lack of trade complementarities, smaller countries in South Asia have supply side constraint to fulfil India’s import demand. In such a scenario, some argue that a free trade area in South Asia might increase Indian exports to the smaller member countries without any reciprocal export growth for them to India.190 In contrast, there is a general belief among the policy makers and business people in South Asia about the potentiality of significant increase in intra-regional trade.191 It is also expected that the small member countries will generate significant intra- regional export because of the large market access to India. On the other hands, there is argument against low level of trade complementarities in this region. Evidence shows that, despite low level of trade complementarities, some trading bloc like ASEAN generated significant intra-regional trade.192 Hence, there are divergent views about the possible impact of SAFTA on small member countries in terms of intra-regional trade expansion.

187 “Agreement on SAARC Preferential Trading Arrangement (SAPTA)”, 1993, available at: http://www.worldtradelaw.net/fta/agreements/saptafta.pdf, accessed on January 04, 2010. 188 Kant K. Bhargava, “EU – SAARC: Comparisons and Prospects of Cooperation”, Discussion Paper No. C 15, Bonn: Center for European Integration Studies, 1998, p.8. 189 “Agreement on South Asian Free Trade Area (SAFTA)”, 2004, available at: http://www.saarc-sec.org/data/summit12/saftaagreement.pdf, accessed on December 28, 2009. 190 Rehman Sobhan, “The Twelfth SAARC Summit: Charting a Road Map for South Asian Cooperation”, South Asian Survey, Vol. 12, No. 1, 2005, p. 6. 191 Selim Raihan, “SAFTA and the Bangladesh Economy: Assessments of Potential Implications”, Discussion Paper No. 2, Dhaka: South Asian Network on Economic Modeling, 2008, p. 13. 192 Intra regional trade in ASEAN has been increased from 6 percent in mid-1970s to 23 percent in 1997 after the enforcement of FTA in that region (Than 2005, p. 23). 150 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010

The impact of RTA in South Asia has gained attention in different studies which expressed different views about the possible impact on member countries. Some studies193 expressed optimism about the impact of SAFTA, arguing that regional trade liberalisation in South Asia generates significant benefits for its member countries by increasing intra-regional trade. Alternatively, many scholars 194 are skeptical about the impact. Using gravity model, T. N. Srinivasan,195 and T. N. Srinivasan and G. Canonero196 argued that multilateral trade liberalisation on a global basis would yield higher return to the region compared to preferential trade liberalisation within the region. Jayatilleke and Wusheng197 addressed the question of desirability of SAFTA and showed that SAFTA would not be beneficial for this region. Therefore, the existing literatures reflect the lack of consensus regarding the outcomes of SAFTA. While most of these studies analysed the overall impact of SAFTA considering total trade, a very few studies considered the export potentiality of small member countries of SAFTA. Against this backdrop, for Bangladesh, one pertinent question may be raised: Is there any export potential for Bangladesh to other member countries of SAFTA? This paper aims to seek answer of this question using gravity model of international trade. The total trade and import potentiality of Bangladesh, within SAFTA region, are also analysed. A standard gravity model is used to analyse the world trade/export/import flows of Bangladesh. The estimated coefficients, obtained from standard gravity model, are then used to predict the trade/export/import potentiality of Bangladesh to all other SAFTA member countries. The study inferred that Bangladesh has untapped export potential to South Asia in general, especially to India, Maldives and Nepal.

193 Miria Pigato, Caroline Farah, Ken Itakura, Kwang Jun, Will Martin, Kim Murrell and T. G. Srinivasan , South Asia’s Integration into the World Economy, Washington D. C.: The World Bank, 1997; Selim Raihan, op. cit.; Selim Raihan and M. A. Razzaque, “Welfare Effects of South Asian Free Trade Area (SAFTA) Regional Trading Arrangements (RTAs) in South Asia: Implications for the Bangladesh Economy”, Paper prepared for the UNDP Regional Centre Colombo, 2007, available at: http://www.gtap.agecon.purdue.edu/resources/download/2956.pdf, accessed on April 10, 2009. 194 Jayatilleke S. Bandara and Wusheng Yu, “How Desirable is the South Asian Free Trade Area? A Quantitative Economic Assessment”, The World Economy, Vol. 26, No. 9, 2003, pp. 1293-1323; T. N. Srinivasan, “Regional Trading Arrangements and Beyond: Exploring Some Options for South Asia, Theory, Empirics and Policy.”, Report No. IDP- 142, 1994, Washington DC.: The World Bank; T. N. Srinivasan and G. Canonero, 1995. “Preferential Agreements in South Asia: Theory, Empirics and Policy.” Yale Growth Centre, Yale University (mimeographed). 195 T. N. Srinivasan, op. cit. 196 T. N. Srinivasan and G. Canonero, op. cit. 197 Jayatilleke S. Bandara and Wusheng Yu, op. cit. The structure of this paper is as follows. Following the introduction, Section 2 discusses the evolution of SAFTA. Section 3 provides intra-regional trade structure of Bangladesh within South Asia. In Section 4, impacts on trade flows, using the gravity model, are analysed. In this Section methodology and database, econometric issues and estimation results are presented and discussed. Section 5 provides a discussion on the results and offers some concluding remarks.

2. Evolution of SAFTA The first concrete initiative to establish a regional cooperation in South Asia was initiated by Bangladesh in May 1980. Although, India and Pakistan were suspicious about Bangladesh’s intention, other South Asian countries promptly accepted the idea. India thought that Bangladesh’s proposal to establish a regional organisation might create a group of other South Asian countries to add up all bilateral issues against India. On the other hand, Pakistan viewed it as an Indian strategy to corner Pakistan. For these reasons, the original Bangladesh working paper on SAARC indirectly laboured to tone down the divergent security and political perceptions of the South Asian countries and only included non-political and non-controversial issues. Many believed that such misgivings between India and Pakistan delayed the formation of the regional cooperation in this region. The first South Asian Foreign Ministers’ Conference officially launched a regional organisation known as South Asian Regional Cooperation (SARC) in 1983. Following the creation of SARC, the foreign ministers could meet on a regular interval. Subsequently, South Asian Regional Cooperation (SARC) transformed into South Asian Association for Regional Cooperation (SAARC) to promote and develop cooperation among the member countries. The SAARC charter was adopted in 1985 during its first summit of heads of state or government of the South Asian countries 198 . The first attempt, towards an economic integration in South Asia, was initiated by the establishment of the Committee of Economic Cooperation (CEC) in 1991. The CEC recommended a draft agreement of SAPTA in order to prevent the marginalisation of South Asia’s trade in global market by improving the productive capacity of the member countries particularly in manufacturing sectors.199 In April 1993, the agreement of SAPTA was signed which came into effect in December 1995. SAPTA was considered as a milestone for the member countries of SAARC. Although, SAPTA was a mildest form of integration, it provided the opportunity for greater forms of economic cooperation. Three rounds of tariff concession have been implemented following the formation of SAPTA. In addition, Special

198 Kishore C. Dash, “The Political Economy of Regional Cooperation in South Asia”, Pacific Affairs, Vol. 69, No. 2, 1996, pp. 187-188. 199 Mohan Lohani (2008), “SAARC Economic Cooperation: From SAPTA to SAFTA”, The Weekly Telegraph, August 06, 2008, online edition, available at: http://www.telegraphnepal.com/news_det.php?news_id=3859, accessed on April 25, 2009. 152 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010 and Differential Treatments (SDTs) are offered to Least Developed Countries (LDCs)200 in terms of coverage of commodities and depth of tariff cuts. Tariff concessions offered by different countries in different rounds of SAPTA are shown in Table 1.

Table 1: Tariff Concession Offered Under SAPTA Concession SAPTA No. of HS Lines offered offering Round For all countries For LDCs Total country Bangladesh I 11 (10) 1 (10) 12 II 215 (10) 11 (10) 226 III 338 (10) 143 (10 &15) 481 Bhutan I 4 (15) 7(10, 13 & 15) 11 II 37 (10) 10 (15) 47 III 23 (10) 101 (10, 18, 20) 124 India I 44 (10, 25, 30, 50 & 90) 62 (50 & 100) 106 II 390 (10, 15, 25 & 40) 514 (25 & 50) 904 III 43 (10 & 20) 1847 (50) 1917 Maldives I 17 (7.5) 17 (7.5) 34 II 5 (10) 2 (15) 7 III 390 (5 & 10) 368 (5 & 10) 758 Nepal I 10 (7.5 & 10) 4 (10) 14 II 166 (10) 67 (15) 233 III 52 (10) 137 (10 & 15) 189 Pakistan I 20 (10) 15 (15) 35 II 227 (10) 131 (15) 358 III 24 (20) 271 (30) 295 Sri Lanka I 20 (10 & 20) 11 (10 & 15) 31 II 72 (10) 23 (10, 50 & 60) 95 III 28 (10) 54 (10, 30, 50 & 75) 82 Total I 126 100 226 II 1109 759 1868 III 876 2580 3456 Note: Figures in parentheses represent percentage concessions in tariff rates. Source: S. K. Mohanty, “Regional Trade Liberalization under SAPTA and India’s Trade Linkages with South Asia: An Empirical Assessment”, Discussion Paper No. 48, 2003, New Delhi: Research and Information System for Non-Aligned and Other Developing Countries (RIS), p. 24. Table 1 represents that in SAPTA-I 226 products at 6-digit HS201 level were considered for tariff reduction among which 100 products are allocated for LDCs. Total product coverage for tariff concession under SAPTA-II and SAPTA-III are 1864 and 3456 respectively. The amount of tariff cut differs from country to country which is indicated by the figures in parentheses in Table 1.

200 Bangladesh, Bhutan, Nepal and Maldives are LDCs within SAARC. 201 The Harmonized Commodity Description and Coding System (HS) of tariff nomenclature is an internationally standardized system of names and numbers for classifying traded products developed and maintained by the World Customs Organization (WCO). However, the issue of non-tariff measures was considered only from SAPTA-II. The evaluations of intra regional trade under different round of SAFTA were examined in different studies.202 Some of these studies concluded in favor of SAPTA in case of potential intra-regional trade. In 1997, the regional approach to FTA in South Asia was firstly initiated by the member countries of SAARC. A year later, the member countries decided to establish SAFTA by 2001. But due to the political tension between two big countries in South Asia, India and Pakistan, the establishment of SAFTA was delayed. However in 2004, at SAARC summit at Islamabad, the framework agreement of SAFTA was signed. The member countries of SAARC also set up a vision to establish South Asian Custom Union (SACU) by 2015 and South Asian Economic Union by 2020 to drive to the final stage of economic union.203 When SAFTA agreement was signed in 2004, a number of issues like finalising the sensitive list, criteria for rules of origin, revenue compensation mechanism for LDCs, and areas for technical assistance for LDCs were left out. In order to finalise the agreement, a committee of expert was convened to discuss and take decisions about these issues before January 2006. Subsequently, SAFTA came into force on January 01, 2006, after taking decisions on above issues. However, because of the delay in ratification of the agreement by the member countries, trade liberalisation program came into force on July 01, 2006. In order to achieve the objective of SAFTA, the framework agreement has set the following instruments.204  Trade Liberalisation Program  Rules of Origin  Institutional Arrangements  Revenue Compensation Mechanism  Technical Assistance for LDCs  Safeguard Measures  Consultations and Dispute Settlement Procedures 3. Intra-regional Trade in South Asia The volume of intra-regional trade in South Asia is very low compared to other regional trading blocs in the world. The establishment of a free trade area with low volume intra-regional trade generates limited scope of gaining from

202 Charan D. Wadhva, “Assessing SAARC Preferential Trading Arrangement (SAPTA)”, South Asian Survey, Vol. 3, No. 1 & 2, 1996, pp. 173-195; Swapan K. Bhattacharya, “Regional Trading Arrangements among SAARC Countries and India’s Imports”, South Asia Economic Journal, Vol. 2, No. 2, 2001, pp. 281-312; S. K. Mohanty, op. cit. 203 Jayatilleke S. Bandara and Wusheng Yu, op. cit., p. 1300. 204 For details please see the “Agreement on South Asian Free Trade Area (SAFTA)”, op. cit. 154 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010 such free trade arrangement.205 This is one of the major criticisms against the success of SAFTA. Figure 1 compares the intra-regional export of South Asia with some other trading blocs in the world. The figure shows, South Asia has lowest intra-regional export share. Although South Asian intra-regional export share rose slightly from 3.2 percent in 1970 to 7.4 percent in 1999, still it is very low. However, in case of MERCOSUR, 206 it is observed that after implementation of regional trading arrangement in 1991, intra-regional export increased significantly from 8.9 percent to 20.3 percent in 1995.

Figure 1: Intra Regional Export as a Share of Total Export of South Asia

80 70 60 APEC 50 EU NAFTA 40 ASEAN 30 (Percentage) MERCOSUR 20 SAARC 10 0 1970 1990 1995 1999 Year

Source: Based on Nazneen Ahmed (2006), “Bangladesh Apparel Industry and its Workers in a Changing World Economy”, PhD. thesis, 2006, Wageningen University, The Netherlands, available at: http://library.wur.nl/wda/dissertations/dis3942.pdf, accessed on June 10, 2009, p. 85

Within this limited intra-regional export, India dominates the export market without any strong contender. Figure 2 and figure 3 show the share of individual South Asian country’s intra-regional export and intra-regional import as a percentage of total intra-regional export and import respectively. Figure 2 identifies India as the single largest exporter in this region comprising 62.2 percent of intra-regional export in 2005. Bangladesh’s share of intra-regional export is very low, 2.2 percent only. This figure reflects that at present South Asia is not a significant export destination for Bangladesh. However, Bangladesh is the largest import destination for neighbouring country’s export. Bangladesh’s share in intra-regional import is 28.2 percent which is the highest among member

205 Jayatilleke S. Bandara and Wusheng Yu, op. cit., p. 1296. 206 Common Market of the South (Spanish: Mercado Común del Sur) is the largest trading block in South America. MARCOSUR encompasses four countries: Argentina, Brazil, Paraguay and Uruguay. countries. India’s intra-regional import share is only 17.2 percent which is noticeably low compared to its export share.

Figure 2: Share of South Asian Countries Intra-regional Export in 2005

Source: Calculated from Direction of Trade Statistics Yearbook 2008, IMF.

Figure 3: Share of South Asian Countries Intra-regional Import in 2005

Source: Calculated from Direction of Trade Statistics Yearbook 2008, IMF. The different patterns of Bangladesh’s intra-regional export and import can be understood by huge trade deficit with India and Pakistan, two largest economies in this region. Figure 4 and figure 5 illustrate Bangladesh’s bilateral trade with India and Pakistan respectively. From figure 4 it is observed that for a 156 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010 long period Bangladesh continued to have a high trade deficit with India which is worsening over time. Bangladesh’s trade deficit with India was US dollar 895 million in the year 2000 which substantially increased to 1.8 billion in 2005. Apart from high non-tariff barriers, the reason behind this huge trade deficit is high concentration of Bangladesh’s export on Ready Made Garments (RMG) products on which India has been imposing relatively high specific tariff.207 On the other hand India’s export is highly diversified and its scale of production is high, probably, due to its huge domestic market. Furthermore, India faces relatively lower tariff for some of its exports to Bangladesh. The continuous and very high volume of bilateral trade deficit with India is a great concern in terms of balance of payment position for Bangladesh. Whether it matters or not is a debate, because Bangladesh is maintaining high trade surplus with United States and European Union. India’s main export items to Bangladesh comprise primary agricultural products, processed food, textile and capital-intensive manufacturing. A large share of imports from India is raw materials which mainly used in Bangladesh’s export oriented industries like textile and RMG sectors. According to Bangladesh’s import policy, any imports of raw materials for export oriented industry are duty free. Therefore, India already has a duty free access in Bangladeshi market for some of its commodities. Such import from India helps Bangladesh to achieve trade surplus with other countries. Similarly, Bangladesh has trade deficit with Pakistan amounting US dollar 92 million in 2005.

Figure 4: Bangladesh’s Trade with India

Source: Based on Direction of Trade Statistics Yearbook, Various Issues, IMF.

207 Selim Raihan, op. cit. Figure 5: Bangladesh’s Trade with Pakistan

Source: Based on Direction of Trade Statistics Yearbook, Various Issues, IMF.

Under SAARC Preferential Trading Arrangement (SAPTA), although tariff has been reduced on large number of products, there has hardly been any increase in Bangladesh’s intra-regional export. This is because firstly, the level of tariff cut under SAPTA was not enough. Second, most of the Bangladesh’s exportable items was excluded from tariff concession. Third, there was no agreement under SAPTA to reduce non-tariff and para-tariff measures. Furthermore, stringent rules of origin have shrinked Bangladesh’s export growth in this region. It is also argued that comparative advantage in similar products and absence of strong complementarities also generated low level of export growth for Bangladesh in this region. Analysis based on revealed comparative advantage ratio, A. R. Kemal208 found that South Asian countries have comparative advantage in a low range of products. Bangladesh has comparative advantage only in 7 groups out of 71 commodity groups. Similarly, bilateral trade complementarity between Bangladesh and other SAFTA member countries is not strong.209 This lack of trade complementarity also acted as a constraint to increase Bangladesh’s export

208 A. R. Kemal, “SAFTA and Economic Cooperation”, Paper Presented at SAFMA Regional Conference, August 20-21, 2004, Dhaka, available at: http://www.southasianmedia.net/conference/Regional_Cooperation/safta.htm, accessed on June 11, 2009. 209 Nihal Pitigala, “What Does Regional Trade in South Asia Reveal about Future Trade Integration: Some Empirical Evidence”, Policy Research Working Paper No. 3497, Washington D. C.: The World Bank, 2005, p. 39. 158 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010 under SAPTA. But, the counter argument against revealed comparative advantage ratio and trade complementarity index is that both of them have been calculated based on existing trade data. In such a case, if South Asian countries maintain a restrictive trade regime then future trade flows in the absence of trade barriers might not be understood by revealed comparative advantage and trade complementarity analysis.

4. Impact on Trade Flows 4.1 Theoretical Consideration Econometric analyses that try to evaluate trade flows of any free trade area are mainly based on gravity models. Jan Tinbergen, 210 Hans Linnemann211 and James E. Anderson212 initially used the gravity model in empirical analysis of international trade flows. Currently, the gravity model has widely been used in quantitative analysis of trade flows because of its strong explanatory power. 213 The gravity model of international trade is based on Newton’s gravitational law and used to explain the international trade flows. According to the model, the volume of bilateral trade between two countries is positively related to the product of their GDPs and inversely related to the distance between them. The standard gravity model in log linear form can be stated as follows:

Log(Tradeij )   0  1Log(GDPi *GDPj )   2 Log(DISTij ) U ij ...... (1)

Where,

Tradeij = Bilateral trade between country i and country j;

GDPi = Gross Domestic Product of country i;

GDPj = Gross Domestic Product of country j;

DISTij = Distance between country i and country j;

U ij = Error term; and

210 Jan Tinbergen, Shaping the World Economy: Suggestions for an International Economic Policy, New York: Twentieth Century Fund, 1962. 211 Hans Linnemann, An Econometric Study of International Trade Flows, Amsterdam: North-Holland, 1996. 212 James E. Anderson , “A Theoretical Foundation for the Gravity Equation”, The American Economic Review, Vol. 69, No. 1, 1979, pp. 106-116. 213 Suresh Moktan (2008), “Evaluating the Intra-regional Exports and Trade Creation and Trade Diversion Effects of Trade Agreements in SAARC Countries”, South Asian Economic Journal, Vol. 9, No. 2, 2008, p. 237.  0 ,1 , 2 = Coefficients to be estimated. This standard gravity model is frequently augmented by adding a number of dummy variables to capture the impact of contiguity and historical ties. Dummy variables that normally added are common border, common language, colonial links and common membership in a regional trading arrangement. Since Jan Tinbergen,214 a large number of empirical works on international trade efficaciously applied the gravity model to analyse various bilateral, regional and multilateral trading arrangements. When Tinbergen used the gravity model, there was no theoretical basis behind this model. Hans Linnemann 215 first analysed theoretical foundation of the model arguing that this model is a reduced form of a partial equilibrium model of export supply and import demand. According to Linnemann’s approach, there are three contributing factors that determine trade flows between two countries, for example home and foreign. The first two contributing factors determine the home country’s potential supply and foreign country’s potential demand on world market respectively. These two factors include the size of home and foreign countries GDP, population and per capita income. The third factor is denoted as “resistance” factor. Because it represents the “resistance” to trade flows between home and foreign. Resistance factor includes transportation cost and other barriers to trade like tariff, para-tariff and non-tariff measures. In order to get the equilibrium condition of the home country’s potential supply and the foreign country’s potential demand, a fixed exchange rate and a moderate price level are assumed in both countries. Now, the formula of trade flows from home country to foreign can be expressed by the following equation.

P 1 P  2 (S H ) *(DF ) ExHF   0 * ...... (2) RHF Where,

ExHF = Potential exports from home country to foreign country; P SH = Total potential supply of home country; P DF = Total potential demand of foreign country; and

RHF = Resistance. If in equation 2, three explanatory factors are replaced by their determining variables, then it will be similar to an extended form of a gravity equation.216 A

214 Jan Tinbergen, op. cit. 215 Hans Linnemann, op. cit. 216 Mohammad Mafizur Rahman, “A Panel Data Analysis of Bangladesh’s Trade: The Gravity Model Approach”, mimeograph, 2006, available at: 160 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010 number of theoretical works established the consistency of gravity equation with various trade flow models. Incorporating the product differentiation approach, James E. Anderson217 derived the gravity equation which explains the presence of income variables in the model. On the basis of empirical work on fourteen industrial countries, Elhanan Helpman 218 established a linkage between the gravity model and the monopolistic competition model. After that Alan V. Deardorff219 derived a gravity model from the Hecksher-Ohlin model both in the case of frictionless trade and with complete specialisation. Most recently, James E. Anderson and Eric Van Wincoop 220 developed a method to estimate a theoretical gravity model which can solve the “border puzzle”. The majority of the studies, which applied gravity models, predict trade potential between pairs of countries.221 The wider use of gravity model in trade related literatures is twofold. Firstly, econometric studies show that GDP and distance are highly significant in explaining trade flows which is consistent with the gravity model. Secondly, as discussed above, gravity equation is consistent with various theoretical models of trade flows.222

4.2 Methodology and Data 4.2.1 Model Specification Most of the empirical studies on international trade used bilateral total trade as dependent variable. However, it is not possible to analyse the potential export and potential import separately, using total trade as a dependent variable for a given pair of countries. To analyse Bangladesh’s potential trade, export and import separately, this study has estimated three gravity models for Bangladesh, using bilateral total trade, export and import as dependent variables respectively. http://www.etsg.org/ETSG2003/papers/rahman.pdf, accessed on May 39, 2009, pp. 4, 33- 34. 217 James E. Anderson , op. cit. 218 Elhanan Helpman (1987), “Imperfect competition and International Trade: Evidence from fourteen industrial countries”, Journal of the Japanese and International Economics, Vol. 1, No. 1, 1987, pp. 62-81. 219 Alan V. Deardorff (1998), “Determinants of Bilateral Trade: Does Gravity Work in a Classical World?”, in Jeffrey A. Frankel (ed.), The Regionalization of the World Economy, Chicago: University of Chicago Press, pp. 7-22. 220 James E. Anderson and Eric Van Wincoop (2003), “Gravity with Gravitas: A Solution to the Border Puzzle”, The American Economic Review, Vol. 93, No. 1, 2003, pp-170- 192. 221 Amit Batra, “India’s Global Trade Potential: The Gravity Model Approach”, Working Paper No. 151, New Delhi: Indian Council for Research on International Economic Relations, 2004, p. 5. 222 Michele Fratianni, “The Gravity Equation in International Trade”, in Alan M. Rugman (ed.) The Oxford Handbook of International Business, Oxford: Oxford University Press, 2008, pp. 87. A standard gravity model as stated in equation 1 is adopted by including a regional trading arrangement dummy for all these three models of Bangladesh’s trade. These three models are stated in equation 3, 4 and 5 as follows. Gravity model of Bangladesh’s trade:

Log(Tradeij )   0  1 Log(GDPi * GDPj )   2 Log(DISTij )   3 RTAij  U ij .....(3) Gravity model of Bangladesh’s export:

Log(Exportij )   0  1 Log(GDPi * GDPj )   2 Log(DISTij )   3 RTAij  U ij .....(4) Gravity model of Bangladesh’s import:

Log (Import ij )   0   1 Log (GDPi * GDP j )   2 Log (DISTij )   3 RTAij  U ij .....(5) Where,

Tradeij = Bilateral trade between country i (Bangladesh) and country j;

Exportij = Bilateral export from country i (Bangladesh) to country j;

Importij = Bilateral import by country i (Bangladesh) from country j;

GDPi = Gross Domestic Product of country i (Bangladesh);

GDPj = Gross Domestic Product of country j;

DISTij = Distance between country i (Bangladesh) and country j;

RTAij = Regional trading arrangement dummy;

U ij = Error term; and

 0 .... 3 = Coefficients to be estimated. 4.2.2 Hypotheses The first explanatory variable is the product of GDPs between Bangladesh and country j which measures the size of the economy as well as the income. The better-off countries usually can spend more on imports from other countries and also attract a large share of other countries’ expenditures. Hence, they tend to trade more than the poorer countries and thus the expected sign of the first coefficient is positive in all the three gravity models for Bangladesh. The second explanatory variable is distance which is a good proxy of transportation and information cost of trade. Therefore, a negative sign is expected for the coefficient of distance. The third explanatory variable is a RTA dummy variable for South Asia. When both Bangladesh and its trading partner belong to the same regional trading arrangements then the dummy variable equals to 1, otherwise 0. The estimated coefficient of RTA affirm how much of the trade can be created for establishing a regional arrangements. Very often RTA positively impacts on trade flows between countries, thus a positive sign is expected for this RTA 162 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010 dummy in Bangladesh’s gravity model. This RTA dummy is included to analyse the impact of SAPTA on Bangladesh. 4.2.3 Sample Size and Database For the purpose of estimating the gravity models for Bangladesh, data of 116 countries have been used in this study. These countries have been selected considering the major trading partners of Bangladesh, both in terms of exports and imports, and availability of data. Among the member countries of SAFTA, Afghanistan is excluded because of data constraint. The model is estimated based on cross-section data for the year 2003. Although the panel data approach has some advantages to capture the impact of changes in GDPs on changes in trade patterns, the cross-section data approach has popularly been used to estimate the classical gravity model.223 The present study has taken the classical approach to estimate three gravity models for Bangladesh’s trade, export and import. Annual data on bilateral trade, export and import have been obtained from Direction of Trade Statistics (DOTS) CD ROM database of International Monetary Fund. Data on GDP, at current US dollar, has been collected from World Development Indicators (WDI) CD ROM database of the World Bank. Data on distance in kilometer between capital of Bangladesh and capital of country j has been collected from a distance calculation website (http://www.timeanddate.com/worldclock/distance.html).

4.3 Evaluation of Trade Flows Using Gravity Model 4.3.1 Results from Gravity Models The results of the Ordinary Least Squares (OLS) estimates of gravity models for Bangladesh are presented in Table 2. The estimated coefficients also reflect the standard features of gravity model with expected sign and magnitude. The estimated results of standard gravity models (without RTA dummy) of Bangladesh’s trade, export and import, show that both gravity variables are statistically significant at 1 percent level of significance. In case of model for total trade, the coefficient of Log(GDPi*GDPj) is 1.1 means that if the product of Bangladesh’s GDP and country j’s GDP is increased by 1 percent bilateral trade between Bangladesh and country j will be increased by 1.1 percent, ceteris paribus. In case of SAFTA, this implies that if the member countries experience higher economic growth then trade flows between Bangladesh and other SAFTA member countries will be increased significantly. The coefficient of Log(DISTij), which reflects the transportation and information cost, shows a negative sign as expected. The estimated value of -1.6 reflects

223 Amit Batra, op. cit., p. 10. that the trade between Bangladesh and country j will be decreased by 1.6 percent as a result of 1 percent increase in bilateral distance between these two countries, ceteris paribus. The R2 in trade model is 0.68 which means that the model explains 68 percent of the variation of the log of Bangladesh’s bilateral trade. Similar to the gravity model of total trade, the estimated coefficients of Bangladesh’s export and import models are also statistically significant at the 1 percent level of significance and have the expected sign and magnitude. The estimated coefficients reflect that Bangladesh’s bilateral export and import are positively related to the product of Bangladesh’s GDP and country j’s GDP and negatively related to the distance between them. The goodness of fit, R2 of export and import models are 0.65 and 0.62 respectively, which are also quite nice, given the parsimonious specification. Table 2: Estimation Results of Gravity Models Coefficient without RTA Coefficient with RTA Trade Model Dependent Variable Constant -8.276251 (2.432453)* -8.513072 (2.852143)* Log(GDPi * GDPj) 1.108855 (0.076095)* 1.109944 (0.076725)* Log (DISTij) -1.566968 (0.229926)* -1.543314 (0.273751)* RTAij -- 0.134338 (0.834933) R-squared 0.678254 0.678329 Adjusted R-squared 0.672560 0.669713 Export Model Dependent Variable Constant -9.919784 (2.418910)* -10.51935 (2.877279)* Log(GDPi * GDPj) 0.967227 (0.072791)* 0.968975 (0.073222)* Log(DISTij) -1.151071 (0.221886)* -1.088686 (0.274595)* RTAij -- 0.333675 (0.858642) R-squared 0.647860 0.648365 Adjusted R-squared 0.641215 0.638319 Import Model Dependent Variable Constant -5.016117 (2.084003)* -3.623849 (2.556811) Log(GDPi * GDPj) 0.797116 (0.077065)* 0.785678 (0.078081)* Log (DISTij) -1.121134 (0.209066)* -1.247288 (0.248470)* RTAij -- -0.633045 (0.672389) R-squared 0.627156 0.632098 Adjusted R-squared 0.616027 0.615375 *Significant at 1% level, Figures in parentheses represents standard errors. The estimated coefficients of the gravity models with a RTA dummy reveal that GDPi*GDPj and DISTij are statistically significant in all three models but the RTA dummy is not. This implies that South Asian Preferential Trading Arrangements (SAPTA) which came into force in 164 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010

1995 was not a viable trading arrangement in terms of Bangladesh’s bilateral trade/export/import creation. The three rounds of tariff reduction under SAPTA as mentioned in Table 1 do not have any significant impact on existing trade/export/import flows of Bangladesh within this region. 4.3.2 Bangladesh’s Potential Trade under SAFTA In this section, Bangladesh’s bilateral trade potential with SAFTA member countries has been estimated using the coefficients arrived at by the standard gravity model. Bilateral export potential and import potential have also been estimated in order to predict the future flows of export and import separately under SAFTA. The estimated trade/export/import potential and actual trade/export/import are then used to calculate the ratio of potential and actual trade/export/import. If the calculated value of this ratio of Bangladesh’s trade/export/import is greater than 1 for any particular country then it indicates that, for Bangladesh, there is a scope of bilateral expansion of trade/export/import with that respective country. Similarly, values less than 1 indicate that Bangladesh has exceeded its trade/export/import potential with respective countries. It should be noted that the potential trade generated from gravity model is a long run equilibrium situation of bilateral trade/export/import flows. Thus, any type of interventionist policy that interrupts to reach the equilibrium situation, produces a gap between actual flows and long run equilibrium situation, the potential values.224 In fact, the estimated gravity models used in this study have excluded one important variable which represents barriers to bilateral trade/export/import. This variable includes all sorts of tariff and non-tariff barriers as well as domestic rules and regulations which are usually very difficult to quantify. The actual value of this variable is not similar across countries and heavily differs from country to country. That means different countries impose different level of tariff and non-tariff barriers on imported goods from other countries. These differences of bilateral trade barrier generate different values of the ratio of potential/actual trade. In case of a country’s export, if this ratio is greater than 1 (less than 1) for a particular country, then it means that the country’s exports face relatively higher (lower) trade barriers to enter into that particular country compared to the rest of the world. Similarly, if the ratio of the potential/actual import is greater than 1 (less than 1) for a particular country, this reflects that this country is imposing relatively higher (lower) barriers on import from that particular country compared to the rest of the world. Trade potential is nothing but the predicted trade flows estimated from gravity model. The gap between this predicted and actual trade flows can be interpreted as “untapped” trade potential. Now, if it is assumed that the

224 Chan-Hyun Sohn, “Does the Gravity Model Explain South Korea’s Trade Flows?”, The Japanese Economic Review, Vol. 56, No. 4, 2005, pp. 426. only excluded variable from the gravity models used in this study is trade barrier, then untapped trade potential is the result of this trade barrier. In such a case, bilateral trade may be raised by the amount of this gap as a result of removal of this trade barrier or maintaining similar trade barrier across the world. A country with a higher ratio is considered to be a desirable FTA partner. Lars Nilsonn225 and Matthieu Bussiers et. al.226 used the ratio of potential and actual trade to define the degree of trade integration. An RTA with a country having higher ratio of potential and actual trade can increase bilateral trade substantially, recovering the large untapped trade potential. This recovery is possible if the member countries of an RTA reduce all sorts of trade barriers to a similar level of the rest of the world. If member countries of an RTA completely remove the trade barriers among themselves but maintain existing trade barriers to the rest of the world then the expected increase of trade under that RTA will be much higher than that of the potential trade.

Table 3: Bangladesh’s Bilateral Trade, Export and Import Potential within SAFTA Partner Countries Actual Trade Potential Trade Potential/Actual (Million US$) (Million US$) Trade Model Bhutan 6.22 4.25 0.68 India 1549.56 1268.82 0.82 Maldives 0.40 0.26 0.64 Nepal 7.84 24.49 3.12 Pakistan 138.19 81.45 0.59 Sri Lanka 15.04 13.34 0.89 South Asia 1717.25 1392.61 0.81 Partner Countries Actual Export Potential Export Potential/Actual (Million US$) (Million US$) Export Model Bhutan 2.38 0.87 0.37 India 55.34 163.74 2.96 Maldives 0.01 0.11 11.27 Nepal 2.98 4.44 1.49 Pakistan 42.7 16.08 0.38 Sri Lanka 5.8 3.38 0.58 South Asia 109.21 188.63 1.73 Partner Countries Actual Import Potential Import Potential/Actual (Million US$) (Million US$) Import Model

225 Lars Nilsonn, “Trade Integration and the EU Economic Membership Criteria”, European Journal of political Economy, Vol. 16, No. 4, 2000, pp. 807-827. 226 Matthieu Bussiers, Jarko Fidrmuc and Bernd Schanatz, Trade Integration of Central and Eastern European Countries: Lessons for a Gravity Model, Working Paper No 545, Frankfurt: European Central Bank, 2005. 166 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010

Bhutan 3.84 7.43 1.94 India 1494.22 449.78 0.30 Maldives 0.40 1.00 2.49 Nepal 4.86 26.23 5.40 Pakistan 95.49 62.59 0.66 Sri Lanka 9.24 17.06 1.85 South Asia 1608.05 564.09 0.35 Source: Own calculation based on gravity model estimation Table 3 represents Bangladesh’s bilateral trade/export/import potential with SAFTA member countries. From Table 3 one can observe that Bangladesh has exceeded its trade potential in South Asia in general and with all the member countries except for Nepal in particular, as the value of Bangladesh’s potential/actual trade for all SAFTA member countries, except for Nepal, is less than 1. This implies that Bangladesh is trading more with SAFTA member countries than what is predicted by the model, and further scope to improve bilateral trade within this region is very little. Since, bilateral trade adds up both export and import, only analysing the trade potential, it is not possible to predict whether Bangladesh has export potential to SAFTA member countries or not. A careful observation of export potential figures obtained from gravity model of export reveals that Bangladesh has huge export potential to South Asian countries as the value of potential/actual export figure for South Asia is 1.73. The different phenomenon of trade potential and export potential can be realised if we consider Bangladesh’s import potential to SAFTA members. The value of potential/actual import is only 0.30 and 0.66 for India and Pakistan respectively, which represent that Bangladesh’s imports from these two countries are much higher than the potential imports, predicted by the model. Since, India is the largest economy in South Asia followed by Pakistan, exceeding potential import from these two countries is the main reason for this contradictory feature of Bangladesh’s potential trade and potential exports in South Asian region. Now, let us analyse the viability of SAFTA using this estimated trade potential in terms of Bangladesh’s export and import. The value of potential/actual export figure for South Asia is 1.73 which implies that Bangladesh’s export to SAFTA member countries will be increased by 73 percent, if trade barriers are reduced similar to the rest of the world under SAFTA. If all sorts of bilateral trade barriers are removed under SAFTA, as mentioned earlier, then the expected increase of Bangladesh’s export will be much higher than the estimated potential export. Some studies argue that complete removal of tariff and non-tariff barriers under an FTA could increase export to the potential level.227 But this interpretation will only be true if tariff and non-tariff barriers are also completely be removed for the rest of the world. However, if the member countries of an FTA maintain the existing tariff for the rest of the world then the outcome from an FTA will be much higher. The magnitude of Bangladesh’s export potential is the highest with India. Figure 6 shows the gap between potential and actual export from Bangladesh to SAFTA members. From this figure, it can be observed that Bangladesh has untapped export potential to India amounting US dollar 108.4 million which is almost double to actual export of US dollar 55.34 million. So under SAFTA, Bangladesh’s expected export to India will be more than that of untapped trade potential. Considering other members of SAFTA, Bangladesh exceeded its export potential to Pakistan which is around US dollar 26.62 million while the gap is not substantial with Bhutan, Maldives, Nepal and Sri Lanka. Now, the question is what will be the expected export to Pakistan from Bangladesh to whom Bangladesh has exceeded its potential level. A complete removal of tariff and non-tariff barriers can also boost Bangladesh export to Pakistan as there are still some barriers to export from Bangladesh to Pakistan. Obviously this increase in export to Pakistan will not be as high as that to India, since Bangladesh has untapped export potential to India but not to Pakistan.

Figure 6: Gap between Bangladesh’s Potential and Actual Export within SAFTA

227 Pratima Dayal, Abhijit Das, Rashmi Banga, Kavita Iyengar and Shahid Ahmed, Quantification of Benefits from Economic Cooperation in South Asia, New Delhi: Macmillan, 2008, p. 46. 168 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010

Source: Based on data from Table 3.

Accordingly, the gravity model analysis of this study shows that Bangladesh has exceeded its import potential from SAFTA members. However, from preceding analysis it can be argued that there is also scope to increase Bangladesh’s import from member countries as well by removing all sorts of trade barriers. This trade potential can only be realised by not only removing the tariff barriers but also non-tariff barriers. For example, in the presence of non-tariff barriers, although under SAPTA, bilateral import tariff had reduced (Table 1), the exports from Bangladesh to other South Asian countries had not improved. This might be the underlying reason why RTA variable is found insignificant in explaining Bangladesh’s trade/export/import flows within SAFTA region.

5. Conclusion This study has examined the gravity model to estimate the bilateral trade potential for Bangladesh in SAFTA region. Cross section approach has been performed using OLS estimation technique in EViews package. The analysis of this study is based on the majority of Bangladesh’s trade partners. Three gravity models of Bangladesh’s trade, export and import have been estimated which fit the data. Estimated coefficients, delivered by the model, found that gravity variables are statistically significant and have expected sign and magnitude. However, the RTA dummy, found by the model, is not a statistically significant variable to explain Bangladesh’s trade flows. From the estimated results, it is observed that Bangladesh has export potential to India, Maldives and Nepal. However, Bangladesh has exceeded export potential to Bhutan, Pakistan and Sri Lanka. The magnitude of export potential is very high with India compared to other South Asian countries which generated an overall export potential for Bangladesh in SAFTA region. On the other hands, Bangladesh has import potential from Bhutan, Maldives, Nepal and Sri Lanka while she exceeded import potential from India and Pakistan. The high magnitude of imports from India, compared to potential level, produced that for the region as a whole, Bangladesh exceeded import potential as well as trade potential. The fundamental objective of this paper has been to find out whether SAFTA will increase Bangladesh’s export to other member countries or not. The analysis has shown that Bangladesh has huge potential to increase intra-regional export in SAFTA member countries. According to results from gravity models, Bangladesh can increase its export three times of current exports to India. This new export from Bangladesh to India will be generated if India reduces its import tariff under SAFTA and other restrictions similar to the rest of the world. The expected export will be much higher if all barriers to trade are completely removed. Similar situation can be expected in case of Bangladesh’s export to Maldives and Nepal. In terms of export to countries like Bhutan, Pakistan and Sri Lanka, positive effect in terms of export generation might be achieved considering complete removal of trade barriers under SAFTA. Although, Bangladesh exceeded its potential import form SAFTA member countries, it might be increased under the same condition when trade barriers are completely removed under SAFTA. But, the overall increase in import from SAFTA member countries to Bangladesh might not be as large as the overall increase in export from Bangladesh to other SAFTA members. It is relevant to mention that the expected results can only be achieved by free trade in real sense, i.e. goods and services can move freely across countries without any tariff and non-tariff barriers. Unfortunately, the previous attempts of SAPTA have not generated any significant increase in Bangladesh’s export because of much tougher non-tariff barriers faced by Bangladeshi exports particularly in Indian market. Finally, the expected outcomes are fully dependent on successful implementation of SAFTA agreement which depends on political stability in this region particularly between India and Pakistan. The political tension between India and Pakistan delayed the progress of SAFTA several times. To increase intra-regional trade under SAFTA, some other important issues need to be resolved also. These include reducing the size of sensitive list, settling appropriate rules of origin, improvement of physical infrastructure and cracking the problem of illegal border trade. Until and unless such issues are properly identified and resolved, the expected benefits from SAFTA cannot be realised. With a view to realising fully the potential benefits of SAFTA, this study suggests the following measures, which the policy makers of Bangladesh as well as other member countries might take into consideration:  Emphasis should be given on the successful implementation of SAFTA agreement within its scheduled time. Although, SAFTA treaty came into force in 2006, there are some additional instruments which are supposed to be fully implemented by the year 2017.  Bangladesh should take initiatives to fully eliminate all types of trade barriers including non-tariff barriers, especially which are involved in case of export from Bangladesh, in order to enhance Bangladesh’s export as predicted by this study.  To get the full benefit of SAFTA, the size of the sensitive list should be shortened. This will also reduce the informal trade across SAFTA member countries. 170 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010

 SAFTA member countries should give transit facilities to each other to facilitate trade among them. If India gives transit facility to Bangladesh to export goods to Nepal and Bhutan, Bangladesh’s export to these two countries would increase considerably. Similarly, Bangladesh can easily get access to Pakistan and Afghanistan market. This brings the issue of connectivity in its broader perspective.  Since Bangladesh’s exports are heavily dependent on a very few commodities, It should diversify its export basket and maintain proper quality of its exports.  Finally, all member countries of SAFTA should jointly try to resolve the political conflicts within the region, thereby generating a common political will and commitment for cooperation in the region. Segufta Hossain Md. Saifuzzaman Mohd. Shamsul Alam

URBAN ENVIRONMENTAL CHANGE: A CASE STUDY ON EASTERN DHAKA CITY WETLANDS TRANS- FORMATION FROM 1963-2009 ======

Abstract

The present study aims at understanding the state, and process of wetlands transformation of the eastern part of Dhaka city. Multi date satellite images, maps and documents related to city wetlands have been used. Extensive field surveys were conducted to verify the spatial extent and condition of the wetlands. The study reveals that, the wetlands of the urban fringe areas are in the process of rapid transformation. The rate of permanent wetlands transformation appears to be drastic. The permanent and seasonal wetlands are converted to built-up areas. Factors like physical, socio-cultural and legal regime influence the processes of urban fringe wetlands transformation. The urban fringe wetlands transformation process is continuous, and non-cyclic. The study recommends that there should be a control on wetlands transformation without delay.

1. Introduction Environmental threats are emerging security threats for a number of countries. Unlike potential conventional military threats, these environmental threats are real and on-going.228 Wetlands are important part of the environment.

Segufta Hossain is a Research Fellow, Bangladesh Institute of International and Strategic Studies (BIISS), Dhaka. Her e-mail address is: [email protected]

Md. Saifuzzaman is a Lecturer, Department of Geography and Environment, Jahangirnagar University, Savar, Dhaka. His e-mail address is: [email protected]

Mohd. Shamsul Alam is a Professor, Department of Geography and Environment, Jahangirnagar University, Savar, Dhaka. His e-mail address is: [email protected] 172 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010

One of the most significant environmental problems the world is facing today is the pollution of the waterbodies. The preservation of the world’s wetlands can be described as a natural security issue as they have a significant role to play in maintaining the environment. Now-a-days, with increasing urbanization, urban environmental degradation issues are coming in the discussion as emerging threats. Transformation of waterbodies in and around the city for various development purposes is creating different types of environemntal problems in the urban areas. The urban fringe areas are also facing constant pressure for new development activities which is creating environmental hazards. The term urban fringe has different dimensions in terms of definition, characteristics and delimitations. The term was introduced by Smith to describe built up area just outside the corporate limit of the city and then later the concept of ‘rural-urban fringe’ was formulated by George Wehrwein as the area of transition between well recognized urban land uses and the area devoted to agriculture.229 Urban fringe areas are now in a process of increasing urbanization which includes changes in landownership patterns, activities of the people, socio- economic and environmental conditions of the fringe area. The problems of the urban fringe areas are similar in the developing countries and most of the developing countries experience spontaneous development pattern rather than planned growth.230

© Bangladesh Institute of International and Strategic Studies (BIISS), 2010. 228 Elizabeth L. Chalecki, Environmental Security: A Case Study of Climate Change, available at: http://www.pacinst.org/reports/environment_and_security/env_security_and_climate_ change.pdf, accessed on: May 15, 2010.

229 T. L. Smith and George S. Wehrwein cited in Fahria Masum, “Urban Fringe Management and Role of Good Governance: Integrating Stakeholders in Land Management Process”, paper presented in the 7th FIG Regional Conference on Spatial Data Serving People: Land Governance and the Environment – Building the Capacity, Hanoi, Vietnam, October 19-22, 2009, available at: http://www.fig.net/pub/vietnam/papers/ts01b/ts01b_masum_3648.pdf, accessed on: May 10, 2010.

230 Ibid. Urban wetlands are those wetlands that are located in or around the city. In Bangladesh, the urban wetlands in the capital Dhaka have different types of uses. The wetlands inside the city and on the fringe areas have immense importance in the environmental, socio-economic and cultural sectors. They are used as water sources for people, other wetlands, groundwater, agriculture and industry. These wetlands are used as the water reservoirs and drainage network and control erosion, recharge soil fertility and form new lands. The wetlands work as gene bank and provide shelter, feeding, breeding and necessary support to wildlife and plants that are used for biological purification. The urban wetlands of Dhaka city are used for different cycles like hydrological cycle, production cycle, etc. The urban wetlands have important contribution in the socio-economic and cultural sectors too. In spite of the immense importance of urban fringe wetlands, they are shrinking very rapidly due to rapid expansion of urban settlements, industrialization and development of new infrastructures on the wetlands. But, no specific study is done on this issue and literature on this issue is also inadequate. Barbier (1993) in his paper described that tropical wetlands are increasingly disappearing as a result of development decisions.231 According to him such development decisions are taken without considering the loss in wetlands benefits arising from damages and conversion. He also described the valuation approaches and methodology, economic appraisal methodology, partial valuation and total valuation of some wetlands. Adams (1993) in his article described about the indigenous use of wetlands and sustainable development in West Africa. He found a wide variety of wetlands environments in West Africa most of which support substantial communities of people who depend on their natural resources and ecology and hydrological patterns that maintain them.232 Mandal (1995) in his article highlighted the economic, cultural and ecological values of the wetlands in north-east India. This paper shows how marshy and waterlogged areas can be utilized in a better way in order to create a sound ecological balance and environmental adjustment within various parameters of economic

231 E. B. Barbier, “Sustainable Use of Wetlands Valuing Tropical Wetland Benefits: Economic Methodologies and Applications”, The Geographical Journal, Vol. 159, No. 1, 1993.

232 W.M. Adams, 1993. “Indigenous use of wetlands and sustainable development in West-Africa”, The Geographical Journal, Vol. 159, No. 2, 1993. 174 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010 development. There is also an attempt to examine current problems faced by the bigger wetlands in north-east India. Khan (2001) in his paper provided an overview of the wetlands of Bangladesh, its importance as a very productive ecosystem, other benefits and attributes and the need of a sustainable management strategy.233 Das (2000) in his paper exhibited the present status of freshwater wetlands of the country.234 He identified the importance of freshwater wetlands of the country, evaluated the environmental impact of various development activities on wetlands and prepared recommendations for future action programmes. National Environment Management Action Plan (NEMAP) (1995) in its report included water resources, wetlands issues and recommended actions, types of actions, actors or agencies and specific action related with these issues. Khan et. al. (1994) in their book described the definition, history, heritage and importance of wetlands for Bangladesh. The types, ecology and resources, socio-economic values and development activities and threats are also described here. This book also includes wetlands legislation, future actions and organizations involved in conservation of the wetlands. Nishat et.al. (1993) in their monograph discussed about the focus issues pertinent and relevant to conservation of freshwater wetlands in Bangladesh. 235 This monograph has brought under one cover an overview of concerns, issues, extent of data availability and possible freshwater wetlands management approaches perceived by professionals, academics and researchers. Japan International Cooperation Agency (JICA) (1991) in Flood Action Plan (FAP) 8A described the Master Plan for greater Dhaka protection project. This report has a Master Plan on flood mitigation and storm water drainage improvement measured for Dhaka metropolitan area. Reviewing all the available literature, it appears that most of literatures concern little on urban fringe wetlands transformation. These studies mainly include the definitional aspects, importance, types, etc. Particular rigorous study on wetlands use, transformation and conservation from local to national scale is missing. The present study is undertaken to explore the transformation

233 M. H. Khan, “The Wetland Ecosystem of Bangladesh”, in Chowdhury, Q. I. (ed.), Bangladesh State of Bio-diversity, Dhaka: Forum of Environmental Journalists of Bangladesh (FEJB), 2001.

234 Das, S. C., “Environmental Impact of Development Activities on Wetlands in Bangladesh”, The Jahangirnagar Review, Vol. XXIII – XXIV, No. II, 1999-2000.

235 A. Nishat et, al., Freshwater Wetlands in Bangladesh – Issues and Approaches for Management, Dhaka: IUCN – The World Conservation Union, 1993. nature of the urban fringe wetlands with emphasis on the spatial extent, nature and consequential effects. A large number of published and unpublished data have been used in the present study. Different satellite images and maps are also used to collect information about the urban fringe wetlands transformation. Satellite images are used to identify the wetlands, discriminate the boundaries of the wetlands, and gather information on the state and nature of the wetlands. Information about the types of wetlands, uses and problems of the fringe wetlands, drainage problems created due to the increase of paved area, consequential effects of wetlands transformation are collected from the field. The secondary information are gathered from different published books, articles of journals, population census report, district gazetteer, Dhaka Metropolitan Development Plan and different unpublished thesis, report, etc. Initially, the inhabitants of the study area were interviewed to know about the characteristics of the wetlands, drainage, flooding nature, etc. The administrative map of 1963 is used in the present study as the base map. The scale of the map is 1:31680. The area of the map is measured manually by graph method. The SPOT236 image of 1990, the Landsat TM237 image of 2000 and IRS238 P6 LISS3 image of 2009 are used in the present study

236 SPOT (Satellite Pour l'Observation de la Terre) is a high-resolution, optical imaging Earth observation satellite system operating from space. It is run by Spot Image based in Toulouse, France. It was initiated in the 1970s. The SPOT system includes a series of satellites and ground control resources for satellite control and programming, image production, and distribution.

237 The Landsat program is the longest running enterprise for acquisition of imagery of Earth from space. The first Landsat satellite was launched in 1972. Thematic Mapper (TM) is one of the Earth observing sensors introduced in the Landsat program. TM sensors feature seven bands of image data (three in visible wavelengths, four in infrared) most of which have 30 meter resolution.

238 Indian Remote Sensing satellites (IRS) are a series of Earth Observation satellites, built, launched and maintained by Indian Space Research Organization. India developed the indigenous Indian Remote Sensing (IRS) satellite program to support the national economy in the areas of 176 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010 to identify the spatial extent of transformation of the wetlands. The scale of these images is 1:100000. The satellite images are digitally interpreted and the area is also measured digitally. Then, these data are combined and presented by different statistical methods. Urban fringe wetlands are one of the most important parts of the vast waterbodies located in and around the city. But, at present, these fringe wetlands are in a very fragile condition and they are being transformed rapidly. In this context, the study aims to understand the nature and processes of transformation of the urban fringe wetlands. More specifically, the objectives of the present study are to identify the types of wetlands, to record the uses and problems of the fringe wetlands and to understand the spatial extent of the wetlands transformation and their consequences. The present paper is divided into six sections including the introduction and conclusion. The second section of the paper deals with the impacts of urban wetlands depletion in Dhaka, the description of the study area i.e. the eastern part of Dhaka city is provided in the third section, the Fourth section discusses the transformation of the eastern Dhaka city wetlands between 1963-2009, and the nature, process and impacts of eastern Dhaka city wetlands transformation is analyzed in the fifth section.

2. Impacts of Urban Wetlands Depletion in Dhaka Although wetlands are one of the most important features of nature, which can be considered as the ecological safety valves, they are being reduced in a very fast pace. In the initial days of formation of Dhaka city, there was a coexistence of human being and nature, which is now under threat. Until 1850, development of the city took place on the higher terrain and the encompassing rivers, networks of canals and wetlands were harmoniously used for transportation, defence, fishing or agricultural purpose. 239 The inter-connected canals of the city worked as the life lines of the city. Most of the vital wetlands of Dhaka are almost nonexistent now-a-days. It has been reported that a network of 22 canals, that used to form the natural drainage for the capital from the earlier days has disappeared or shrunk over the last four decades.240 agriculture, water resources, forestry and ecology, geology, water sheds, marine fisheries and coastal management.

239 Ishrat Islam, “Wetlands of Dhaka: Alarming depletion”, The Daily Star, May 19, 2006.

240 A K M Shamsuddin, “Saving Dhaka Wetlands – the city’s lifeline”, The Financial Express, April 19, 2007. Among the city canals241 the Dholai Khal, which once used as an important navigational route for country boats to and from destinations within the metropolis, has almost disappeared due to four decades of wrong policies of the city administration. The canals had their outlets to the Buriganga, the Sitalakya, the Balu and the Turag rivers, which were inter-connected. The blocking of the Khal has had far-reaching impact on the drainage system of the city. The Segunbagicha Khal that extended from Shahbagh to the Jirani Khal via the Manda Bridge used as the main drainage channel of central Dhaka. A major part of it is under illegal encroachment by influential people in the Segunbagicha, Purana Paltan and Naya Paltan areas. The Hatirjheel, which once ran from the backside of the present Sonargaon Hotel to Gulshan-1, is now being illegally occupied by different organizations and local land grabbers. Only 5 percent of the original Hatirjheel remains now. The Gulshan lake directly drained south- west into Hatirjheel and into east through the Rampura Khal to the Balu River. The Gulshan lake was connected to Dhanmondi lake via the Begunbari khal which then drained through the Katasur Khal into river Turag. In the west the Katasur khal also drained the water of Rayerbazar and Mohammadpur areas. Ramchandrapur and the Dholai Khal were used as the drainage channels of old Dhaka. The Motijheel and the Segunbagicha Khal drained all of south central Dhaka. The Jirani Khal, the Shajahanpur Khal and the Mohakhali Khal used to bear the load of eastern Dhaka’s storm water. Similarly the Kalyanpur, Ibrahimpur and Diabari Khals were the lifelines of north Dhaka. Other important canals of the city, such as the Begunbari Khal was extended from the Dhanmondi Lake to Trimuhani via Rampura before emptying into the Balu River, the Ibrahimpur canal, the Khathalbagan-Rajarbagh canal and the Gopibagh canal together with other minor canals of the city were disappeared due to either illegal encroachment or acquisition for construction of either roads, box culverts or underground drains. All these projects have changed the original purpose which the old networks of canals were meant to serve. Excepting a few, most water bodies in Dhaka are either lined by slums or small industries who use them for waste disposal. The disappearance of the canal networks has not only aggravated the city’s drainage problems, but also, apart from depriving the city of its natural beauty, has been causing loss of the annual recharge of ground water of the city, thereby leading to the fall of ground water table every year at an alarming rate. With the increasing of population, the, unplanned development activities started in the vast low lying areas around the city violating all rules and regulations. Low lying areas are being filled up to develop new settlements. Land filling activities in the eastern fringe of Dhaka

241 The information on Dhaka city canals are compiled from A K M Shamsuddin, Ibid. 178 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010 city is also continuing although it was mentioned in the study of JICA that even after completion of the Eastern Embankment, 12 percent of land should be kept as retention area for storm water storage.242 The land filling process involves the transfer of ownership from the local farmers to the private real estate developers who have encroached huge areas of lands to establish new settlements. In many cases these lands are encroached by aggression and exploitation. Filling of the wetlands by the real estate developers are not only creating an imminent environmental disaster but also increasing water logging and creating a mess in the sewer system. The established and renowned private developers are comparatively in favourable position to use political influence and personal contact to grab the lands of the fringe areas.243 Loss of urban wetlands has various impacts on the environment of the city. Wetlands around Dhaka city act as the natural retainer of storm water. The natural drainage system is damaged due to the unplanned destruction of the fringe wetlands. Water congestion and water logging is frequently observed for this. Wetlands have significant impact on the local ecology and biodiversity, which is constantly being deteriorate with the devastation of the wetlands. The wetlands play an important role of recharging the ground water. The decrease of wetlands would also decrease the ground water level of the urban areas which would further hamper the water supply system of the city. The laws related to water bodies in Bangladesh includes – the Bengal Canal Act 1864, the Bengal Irrigation Act 1876, East Bengal Embankment and Drainage Act 1952, Inland Water Transport Ordinance 1958, East Pakistan Irrigation (Imposition of Water Rate) Ordinance 1963, Ground Water Management Ordinance 1985, Water Supply and Sewerage Authority Act 1996, etc. which are mainly sectoral in nature. Bangladesh Environment Protection Act 1995 also focuses mainly on the pollution of water bodies by industries and transports. The grabbing of rivers or any other water bodies does not come under the jurisdiction of this Act and its rules. Bangladesh Government enacted Natural Water Bodies Protection Act 2000 to rationalize the use of water bodies for development work as well for human settlements. The Act prohibits any kind of development activities on the areas which are demarcated in the Master Plan as river, canal, depression areas, lake, stream, wetlands or places which are declared

242 JICA Study cited in Ishrat Islam, “Wetlands of Dhaka: Alarming depletion”, The Daily Star, May 19, 2006.

243 Fahria Masum, op.cit. as ‘flood flow zones’. Despite all the laws and policies, conversion of wetlands in Dhaka is still continuing.

3. Study Area- Eastern Dhaka City The eastern part of Dhaka city is selected as the study area for present study as the wetlands of this area are under severe threat of transformation. The study area lies between 23° 42' - 23° 54' N latitude and 90° 23' - 90° 29' E longitude. It is limited by the Tongi Khal on the north, the Buriganga River on the south, and the Balu River on the east and on the west the western part of the Dhaka city (Figure 1). The total area of study is 145 sq. km. Three types of landforms are observed in the study area. These are: . High terrace land . Low lying flood plain . Permanent water bodies Among these land types, the high terrace lands are flood free. The low-lying floodplains are shallowly inundated with occasional flooding. The deep valleys are deeply flooded mixed with permanent water bodies. The surface elevation of the study area ranges from 1.5 to 7.5 m AMSL244. The Dhaka city constitutes the southern part of the Madhupur Tract having Madhupur Clay Formation, the oldest exposed rock of the city. It is underlain by the Dupi Tila Formation and overlying by Alluvium Formation. The study area is characterized by humid sub- tropical climate where the mean annual rainfall ranges approximately from 1800 mm to 2200 mm. The Balu River is the tributary of the Lakhya river. Khals are one of the major geomorphic features in the study area. These khals are playing a major role in the drainage system of the study area. The average temperature is 25°C. In the eastern part of Dhaka city, the Balu river is very important as it drains local runoff and excess flood water to the river Lakhya.

244 Above Mean Sea Level. 180 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010

Figure 1: Map of the study area – eastern Dhaka city According to 1991 census report, the population of the study area is about 1.9 million.245 The population of this area is growing very fast. Most of the lands of the study area are used as settlements and agriculture. As the highlands inside the

245 BBS, Bangladesh Population Census, 1991. Analytical Report, Vol.1. Dhaka: Government of the People’s Republic of Bangladesh. 182 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010 city are limited and expensive, people are shifting to the low lying fringe areas. In this way, the low lying areas, back swamps, etc., which are acting as depression storages, are constantly being filled up. The important features of the study area are246: . Most of the eastern parts of the city are being filled up quickly, particularly along the city fringe areas and along the newly built up roads. . Flood free highlands in the eastern part are not abundant. Most of the lands are relatively flood prone and seasonally inundated for 5-6 months. . As the areas are close to the city, middle and lower middle class people have moved towards these areas to develop their own housing. For this, the process of transformation is going on very rapidly. . Inadequate provision of access to basic sanitation, utility and communication facilities are observed. . Frequency and severity of floods and localized water logging has increased.

4. Wetlands Transformation 1963-2009 Wetlands transformation may be considered as a change of form and utility of land which is supposed to have water at or near the surface. The wetlands transformation of the eastern part of Dhaka city from 1963 to 2009 is given in Table 1.

Table 1: Areal extent of built-up areas and open spaces of different years 1963 1990 (SPOT) 2000 (Landsat TM) 2009 (IRS P6 LISS) Features Area Area Area Area % % % % (hector) (hector) (hector) (hector) Built-up 765 12.80 6305 44.70 7506 53.14 8115 57.21 area Open 5210 87.20 7799 55.30 6620 46.86 6050 42.71 spaces

4.1. Wetlands in 1963 From the map of 1963 (Figure 2), it is observed that, in 1963, 7.65 sq. km. area was under built up category which is 12.80 percent of the total area. In the same period the area of open space was 52.10 sq. km. which is 87.20 percent of the total area (Figure 2 & Table 1). This open space is mainly the wetlands that include permanent and seasonal water bodies. The seasonal water bodies stay

246 Observations of the field visit. under water for five to six months in the wet season and used as agricultural lands in the dry season.

Figure 2: Eastern part of Dhaka city in 1963 184 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010

4.2. Wetlands in 1990 From the interpretation of SPOT image of 1990 (Figure 3), the area under seasonal water bodies is 27.51 sq. km. (19.51%). These seasonal water bodies are flooded under 10-12 feet of water during the wet season and used as agricultural lands in the dry season. The area of permanent water bodies is 26.58 sq. km. (18.85%). These permanent water bodies held water for all throughout the year. During this period, about 63.05 sq. km. (44.70%) of built up areas are observed. Agricultural land with other vegetation is observed in 22.45 sq. km. (15.76%) of area. The area of filled up land is 1.67 sq. km which is 1.18 percent of the total area (Figure 3 and Table 2). Digital interpretation of SPOT image 1990 and Landsat TM 2000 and IRS P6 LISS image 2009 reveals that the fringe wetlands transformation trend continues as appeared in the previous image. The areal extent of different features of the images is given in Table 2.

Table 2: Areal extent of different features of the images

2000 (Landsat 2009 (IRS P6 1990 (SPOT) TM) LISS) Features Area Area Area % % % (Hector) (Hector) (Hector)

Seasonal water bodies 2751 19.51 2308 16.33 789 3.46

Permanent water bodies 2658 18.85 1663 11.77 659 3.96

Built-up areas 6305 44.70 7506 53.13 9615 57.45

Agricultural lands with other 2245 15.76 2330 16.95 1778 vegetation 26.75

Filled-up areas 167 1.18 319 2.26 1285 8.39

14126 100 14126 100 14126 100

Figure 3: Features identified in the image of 1990 186 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010

4.3. Wetlands in 2000 and 2009 From the Landsat TM image of the year 2000 (Figure 4), it is observed that 23.08 sq. km. of areas are under seasonal water bodies which are 16.33 percent of the total area. The area of permanent water bodies is 16.63 sq. km. and it covers 11.77 percent of the total area. Built up area is observed on 75.06 sq. km. of area, which 18.53 percent of the total area. The area of agricultural lands with other vegetation is 23.30 sq. km. and it is 16.50 percent of the total area. Filled up lands cover 3.19 sq. km. (2.26 %) of area (Figure 4 & Table 2). Figure 4: Features identified in the image of 2000 188 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010

Table 2 indicates that the wetlands as well as other features of the study area are constantly transforming. The seasonal wetlands of these areas are reduced to 23.08 sq. km. (16.33%) in 2000 from 27.51 sq. km. (19.51%) in 1990 (Table 2). From this data, it can be said that, from 1990 to 2000, almost 4.43 sq .km. (3.17%) of seasonal wetlands are converted. The seasonal wetlands of these areas are converted to agricultural lands, built up areas and filled up lands. The transformation of the permanent water bodies is drastic. The area of permanent water bodies in 1990 was 26.58 sq. km. which was 18.85 percent of the total area. But, these areas are reduced to 16.63 sq. km. in 2000 which is 11.77 percent of the total area (Table 2). Almost 9.95 sq. km. (7.08%) of permanent wetlands are converted in 10 years. The built up areas are observed in almost all places of these areas. The built up areas are increasing very rapidly. In 1963, 7.65 sq. km. of area which is 12.80 percent of the total area was built up. The built up areas increased to 63.05 sq.km. which is 44.70 percent of the total area in 1990. In 2000, the built up areas of the study area increased to 75. 06 sq. km. which is 53.14 percent of the total area (Table 2). From this statistics, it is observed that, the built up areas are increased at a rate of almost 8.44 percent from 1990 to 2000. Between 1990 and 2000, the area under agriculture has increased only marginally (0.74%). Figure 5: Features identified in the image of 2009 190 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010

The visual comparison of the two images indicates a contrast between 1990 and 2009. A large number of white dots appear on the IRS P6 LISS image of 2009 (Figure 5) which are actually filled up lands. The filled up lands in 1990 were only 2.26 hector which increased to 8.39 hectares at 2009 (Figure 5 and Table 2). As a consequence to such wide spread land filling, the areas of open space are decreasing. In 1963, total area under open space was 5210 hectares which was 87.20 percent of the total area. The area of open space was 77.99 sq.km. in 1990 which was 55.30 percent of the total area. In 2000 and 2009, the area of open space is 66.20 and 60.50 sq. km. which is respectively 46.86 percent and 42.71 percent of the total area (Table 2). From this study, it is found that, the open spaces are decreased at a rate of 8.44 percent. These open spaces are being converted to built up areas, agricultural lands and filled up lands.

Figure 6: Changes of landuse pattern over the years in the eastern part of Dhaka city

5. Wetlands Transformation- Nature, Processes and Impacts From the images, it can be observed that, in 1990, 26.58 sq.km. (18.85%) area was under permanent wetlands. In 2009, only 5.59 sq.km. (3.96%) of permanent wetlands are observed. From this statistics, it can be said that, almost 20 sq.km. (15%) area of permanent wetlands is lost. These permanent wetlands are converted to seasonal wetlands, agricultural lands, built up areas and filled up lands. The area of seasonal wetlands in 1990 was 27.51 sq.km. (19.51%). In the year 2000, the area of the seasonal wetlands is reduced to 23.08 sq.km. (16.33%). The seasonal wetlands are mainly converted to built up areas and agricultural lands. Some factors like physical, socio-cultural and legal regime influence the processes of urban fringe wetlands transformation. The low lying urban fringe wetlands have some special physical characteristics. When people transform these wetlands rapidly, the limit of environmental sustainability is exceeded and they create problems like water logging, localized flooding, loss of biodiversity, etc. From this environmental perception, the legal authority has formulated some laws. The laws related with the wetlands can not control the transformation of the wetlands as they are not directly related with wetlands transformation. In this situation, people rapidly transform these wetlands as they are prospective from the economic point of view. Besides these, some factors like zoning, taxation, development incentives, natural hazard and environmental regulations also influence the transformation of the urban fringe wetlands. The urban fringe wetlands transformation process is a continuous process. They are evolving all the time. The urban fringe areas are mainly low lying wetlands which are flooded during the wet season under 10-12 ft. of water for six months. These low lying areas of the urban fringe are being primarily converted to agricultural lands. With the increasing of population, these low lying agricultural lands converted to small rural settlements which lack of different facilities like communication facilities, utility services and the living condition is also not well. As these areas are located very near to the city, these rural settlements are changing very rapidly with the increasing population in the main city. In this stage, the rural settlements have turned into peri-urban or fringe settlements with some urban facilities like electricity, communication facilities, etc. With over increasing population, these peri-urban or fringe settlements are being converted to fully urbanized settlements.247 All types of necessary utility services are available to the people of these areas. The development of built up areas in this stage is drastic. From the description of the process of urban fringe wetlands transformation, it can be observed that the urban fringe wetlands transformation process is a continuous non-cyclic process. For this, the wetlands which at first change to agricultural lands in the primary stage are found as fully urbanized settlements afterwards. These urban settlements cannot be restored to wetlands again. The result being that, transformation of wetlands is almost permanent and irreversible.

247 Summarized from the observations of field visit and interviews of local people. 192 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010

The urban fringe wetlands transformation has negative impacts on different sectors. The impacts of fringe wetlands transformation on different sectors are248- . The areas of fringe wetlands are decreasing very rapidly. For example- the permanent wetlands are reduced to 5.59 sq.km. (3.96%) in 2009 from 26.58 sq.km. (18.85%) in 1990 and the seasonal wetlands are reduced from 27.51 sq.km. (19.51%) in 1990 to 23.08 sq.km. (16.33%) in 2000. . As these low lying wetland areas are filling up constantly, the possibility of sudden flood has increased substantially. . As the built up areas are increasing from 7.65 sq.km. (12.80%) in 1963 to 81.15 sq.km. (57.21%) in 2009, the net area of open space is decreasing from 52.10 sq.km. (87.20%) in 1963 to 66.20 sq.km. (46.86%) in 2000. For this, water congestion, water-logging and localized flooding are observed. . As the areas of open spaces are decreasing, the area and rate of through flow is also decreasing and the amount of ground water recharge is decreasing. For this, ground water table is also depleting. . As the low lying wetlands which are used as agricultural lands are converted, for example- from 22.45 sq.km. (15.76%) in 1990 to 37.78 sq.km. (26.75%) in 2009, the cultivable lands are decreasing. These cultivable lands are converted to built up areas. . As the wetlands are converted, lots of fish and aquatic species that are used for biological purification are disappeared. Figure 7: Built-up area increases and open spaces in the Dhaka city decreases

248 The impacts of urban fringe wetlands transformation are summarized on the basis of field visit, interpretation of maps and satellite images and interviews. According to the Ramsar definition249, almost two-thirds of Bangladesh can be classified as seasonal or perpetual wetlands. There is a growing concern in the country to protect and preserve wetlands. But, there are no wetlands that can be termed as such in accordance with the laws of land. As per physical characteristics, there are many wetlands, but in the eye of law, there is no land that has been or being characterized as wetlands. They exist as mono-sectoral

249 According to the Ramsar Convention, wetlands include a wide variety of habitats such as marshes, peatlands, floodplains, rivers and lakes, and coastal areas such as saltmarshes, mangroves, and seagrass beds, but also coral reefs and other marine areas no deeper than six metres at low tide, as well as human made wetlands such as waste-water treatment ponds and reservoirs, National Wetland Policies: Developing and Implementing National Wetland Policies, Ramsar Handbooks for the wise use of wetlands, 3rd Edition, Vol. 2, available at: http://www.ramsar.org/pdf/lib/lib_handbooks2006_e02.pdf, accessed on: May 10, 2010. 194 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010 resource under relevant public agencies and private occupation.250 The existing laws in Bangladesh are not specific to the needs and problems of wetlands conservation and management particularly in the context of urban fringe wetlands. These laws are related with wetlands forests, wildlife, fisheries, etc. Laws related with wetlands transformation or urban fringe wetlands transformation is still missing. For this, the urban fringe wetlands are transforming into human settlement quite rapidly. As wetlands are important resources, concerns are raised in different countries to protect the wetlands and control the transformation of these resources. In India, the Gujarat High Court delivered a judgment in August 2002 outlining policy for protecting urban wetlands in India.251 The judgment requires Government authorities to notify all lakes in the state and protect them. Further, it directs the authorities to take urgent measures to regenerate the water bodies, to remove encroachments from it and to rehabilitate the affected slum dwellers. The judgment also precipitates critical state policy decisions on water management. It requires the Government to constitute Water Resources Council headed by the Chief Minister “to oversee the program for protection, preservation and improvement of water bodies.” The Government is also ordered to constitute a Water Resource Committee headed by the Chief Secretary to monitor the implementation of the Programme in a time bound manner. The High Court has again made clear that “The state as the trustee of all natural resources meant for public use, including lakes and ponds, is legally duty bound to protect them.” A study252 found that, in Ethiopia, wetlands play an important role in the lives of a large proportion of the population in one way or another. They are an important contributor to groundwater and hence to the maintenance of water supply. They also contribute a wide range of other products such as food, fodder, medicinal plants and in some cases fish. The study has shown that when wetlands

250 M Farooque, “Laws on Wetlands in Bangladesh: A Complex Legal Regime”, in Nishat, a. et.al. (eds.), Freshwater Wetlands in Bangladesh- Issues and Approaches for Management, Dhaka: IUCN -The World Conservation Union, 1993.

251 A K M Shamsuddin, op.cit.

252 See for details, Yilma D. Abebe and Kim Geheb (Eds.), Wetlands of Ethiopia, available at: http://wetlands.hud.ac.uk/pdf/gender.pdf, accessed on: June 10, 2010. are altered or transformed in some way, some of the benefits that they produce may be destroyed and this can be particularly damaging to the interests of the poor and women. The study recommended that the wetlands need to be managed in ways that recognize the full range of benefits that they can provide. A use regime needs to be developed that ensures that the fullest ranges of benefits are produced from wetlands for the local community in a sustainable way and within a framework that also maintains the wetlands’ ecological functions sustainably. Such a regime will require local experimentation for each type of wetlands and socio-economic setting, but will generally involve building local knowledge and recognizing the interests of the different stakeholders who are interested in the range of wetland produced benefits. The study also recommended that the management of wetlands needs to be developed to ensure equitable access to wetland produced benefits which requires agreement amongst all wetlands stakeholders. To achieve this, it is necessary to develop local institutions for wetlands management that can ensure equitable and democratic decision making and can build up a consensus about the management of the wetlands. Kristianstad wetlands are a semi-urban area of high biological and cultural- historical values in southeastern Sweden.253 Kristianstad wetlands are an example of a successful response to a perceived decline in ecosystem services. The ecosystems have been managed in an adaptive collaborative process since 1989, by the Ecomuseum Kristanstad Vattenrike (EKW) and local steward associations. The response consists of formulation and implementation of the ecosystem management approach, including involvement of many different stakeholder groups (local steward associations), linking scales, combining knowledge systems, and using ecosystem services while maintaining them. Bangladesh can also follow these examples of wetlands conservations to control the rapid transformation of her wetlands.

6. Conclusion and Recommendations Wetlands are very important resources of Bangladesh. Urban fringe wetlands have immense importance for the urban areas. They are important both from the physical and environmental point of view. But, these fringe wetlands are transforming constantly. The rate of transformation is increasing day by day. The present study found that the low lying wetlands of the eastern part of Dhaka city are transforming to built up areas very quickly. The land use practices of this area

253 See for details, Kristianstad Wetlands, Sweden, Millennium Ecosystem Assessment, available at: http://www.millenniumassessment.org/en/SGA.SwedenKristianstad.aspx, accessed on: June 10, 2010. 196 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010 are also changed. The urban fringe wetlands of eastern Dhaka city are also converted to agricultural lands as the agricultural lands near the city are converted to built up areas. The conversion of wetlands is creating drainage congestion and finally this drainage congestion is creating waterlogging and localized floods. The laws related with wetlands are not directly related with wetlands transformation. For this, these laws are not suitable to control the wetlands transformation whether it is in urban fringe areas or anywhere in the country. As the urban fringe wetlands are rapidly transforming, it is necessary to take proper steps to control the rapid urban fringe wetlands transformation. The area of water flow of these urban fringe wetlands must be identified and these areas should be declared as protected areas. The development activities on the wetlands should be done in a planned way and with proper design. Massive land filling activities in the fringe wetlands should be controlled for the free flowing of water. Proper land use pattern of the urban fringe wetlands should be set up. Proper steps should be taken to preserve the wetlands biodiversity. The laws related with wetlands are not adequate to solve the problem of wetlands transformation. Specific laws on urban fringe wetlands transformation should be formulated. Dhaka Metropolitan Development Plan (DMDP) was approved in 1997 but it has not yet been implemented properly. The Detailed Area Plan (DAP) which is the most important part of DMDP was scheduled to be completed within a year of the formulation of DMDP, but the city development authority has failed to do it until now. It is necessary to have coordination between Rajdhani Unnayan Kartripakkha (RAJUK), Dhaka City Corporation (DCC), Dhaka Water and Sewerage Authority (WASA) and Water Development Board to implement the DMDP and the DAP. People should make conscious about the adverse impacts of rapid urban fringe wetlands transformation. The city development authority in collaboration with experts, civil society, NGOs, media personnel must undertake appropriate role to protect the wetlands. Lack of proper governing system and implementation of the remaining policies has also deteriorated the situation. For this, it is necessary to ensure good governance. Bangladesh can adopt a collaborative approach in controlling the transformation of the wetlands involving all the stakeholder groups. For this, government and people should take combined effort to control the rapid urban fringe wetlands transformation.

References Akonda, A. W., “Wetlands of Bangladesh”, in Scott, D.A. (ed.), A Directory of Asian Wetlands, (Gland, Switzerland: IUCN-The World Conservation union, 1989) Bangladesh Bureau of Statistics, Bangladesh Population Census, 1991, Analytical Report, Vol.1. (Dhaka: Government of the People’s Republic of Bangladesh, 1994) Barbier, E. B., “Sustainable Use of Wetlands Valuing Tropical Wetland Benefits: Economic Methodologies and Applications”, The Geographical Journal, Vol. 159, No. 1, 1993, pp. 22-32. Das, S. C., “Environmental Impact of Development Activities on Wetlands in Bangladesh”, The Jahangirnagar Review, Vol. XXIII – XXIV, No. II, 1999-2000, pp.1- 21. Dewan, A. M. and Yamaguchi, Y., “Using remote sensing and GIS to detect and monitor land use and land cover change in Dhaka Metropolitan of Bangladesh during 1960– 2005”, Environmental Monitoring and Assessment, Vol. 150, No. 1-4, March, 2009, pp. 237-249, Dewan, A. M. and Yamaguchi, Y., “Land use and land cover change in Greater Dhaka, Bangladesh: Using remote sensing to promote sustainable urbanization”, Applied Geography, Vol. 29, Issue. 3, July 2009, pp. 390-401. FAO, Agro-ecological Regions of Bangladesh, (Rome: FAO. 1988) Farooque, M, “Laws on Wetlands in Bangladesh: A Complex Legal Regime”, in Nishat, A. et.al. (eds.), Freshwater Wetlands in Bangladesh - Issues and Approaches for Management, (Dhaka: IUCN -The World Conservation Union, 1993) Jahan, S., Islam, I., Takao, K., Kanegae, H. “Shrinkage of Wetland of Dhaka: A Study from Institutional Perspective”, Paper presented at the Conference of Japan Regional Science Association International, Chiba, Japan, October 8-10, 2006. JICA, Master Plan for Greater Dhaka Protection Project (Study Areas in Dhaka Metropolitan Area) of Bangladesh Flood Action Plan No. 8A. FAP 8A, Main Report, (Dhaka: Japan International Cooperation Agency, 1991) Khan, A. A., “Freshwater wetlands in Bangladesh: Opportunities and Options”, in Nishat, A. et.al. (eds.), Freshwater Wetlands in Bangladesh - Issues and Approaches for Management, (Dhaka: IUCN-The World Conservation Union. 1993) Khan, M. H., “The Wetland Ecosystem of Bangladesh”, in Chowdhury, Q. I. (ed.), Bangladesh State of Bio-diversity, (Dhaka: Forum of Environmental Journalists of Bangladesh (FEJB), 2001) Khan, MS. et.al. (eds.), Wetlands in Bangladesh, (Dhaka: BCAS and Nature Conservation Movement, 1994) Ministry of Environment and Forest, National Environment Management Action Plan (NEMAP), Volume - Ia: Summary, (Dhaka: Government of the People’s Republic of Bangladesh, 1995) Nishat, A. et, al., Freshwater Wetlands in Bangladesh – Issues and Approaches for Management, (Dhaka: IUCN – The World Conservation Union, 1993) Talukder, B., Nobukazu N. and Rashid M. S., “State and management of wetlands in Bangladesh”, Landscape and Ecological Engineering, Springer Japan, Vol. 5, No. 1, February, 2009, pp.1860-1871. 198 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010

Md Abu Raihan RURAL POVERTY IN BANGLADESH: TRENDS, DETERMINANTS AND POLICY ISSUES ======Abstract

This paper reveals the scenario of rural poverty in Bangladesh and explores its underlying causes. It also analyses the ongoing government strategies to combat rural poverty and suggests several measures to produce much more success in the field. Needless to mention, Bangladesh has been experiencing large scale absolute poverty since her independence. The incidence of poverty is more acute in the rural area than in the urban area. More than 75 percent population lives in the rural area. Still now 43.8 percent rural people are absolute poor and 29.3 percent are hard-core poor. Rapid population growth, defective land ownership, overdependence on agriculture and inequality in income distribution are the main causes of rural poverty. The government of Bangladesh has been striving to eradicate poverty through a number of strategies including strengthening economic growth and human development, expanding credit facilities to targeted groups and building up of social safety nets. As an outcome of these strategies, rural poverty has registered a declining trend. However, the impact of these strategies on the reduction of rural poverty has, so far, not been strongly felt. Therefore, along with the ongoing poverty reduction strategies, the paper suggests certain measures to reform land tenure system and develop non-crop agriculture, informal sector and handloom sector in order to accelerate the pace of rural poverty reduction. 1. Introduction Bangladesh has been experiencing large-scale absolute poverty since her independence in 1971. At the national level, 40.0 percent of the population are absolute poor (per capita daily calorie intake is less than 2122 kilocalorie) and 25.5 percent are ultra-poor or hard-core poor (per capita daily calorie intake is less than 1805 kilocalorie). The rural people are more poverty stricken than the urban people. In the rural area, 43.8 percent people are absolute poor and 29.3 percent are hard-core poor254. Agriculture is the main source of employment for the rural people. Out of 47.4 million employed labor force (15+age), 22.8 million255 (48.1 percent) are employed in broad agricultural sector which has low income per worker and per unit of land. Being poor, they can not use improved methods of cultivation. Since too many people are engaged in agriculture there is disguised unemployment. Moreover, agriculture is a seasonal occupation because irrigation facilities are not available throughout the year. So, many people also suffer from seasonal unemployment in this sector. The majority of them have no land and other productive assets to be gainfully employed throughout the year. Due to rapid rise in population and low absorption capacity of the economy, unemployment problem has taken acute form. Presently, 2.1 million people (15+ age) are unemployed of which 1.6 (76.20 percent) million live in the rural area256. The living condition of the hard-core poor begs description. The hard-core poor need to spend more than 80 percent of their income on food. Very often, 100 percent of their income is not enough to get two square meals a day257. The vulnerability of the ultra poor of this country is aggravated by repeated floods, droughts, cyclones and other natural calamities. A large number of the hardcore poor are widowed, divorced or abandoned women. They rarely own land or have any male earning member in their families. With no bread earner, asset and source of income they have no choice but to work in other people's houses for

Md Abu Raihan is an Associate Professor, Department of Economics, Islamic University, Kushtia. His email no is : [email protected]

© Bangladesh Institute of International and Strategic Studies (BIISS), 2010.

254 Government of Bangladesh (GOB) 2009: Bangladesh Economic Review, 2008, Ministry of Finance

255 Bangladesh Bureau of Statistics (BBS) 2008: Labor Force Survey 2005-06, Ministry of Planning, Government of Bangladesh 256 Ibid

257 Khan, Z.A., 2007.“Ultra Poor Programme of PKSF: A milestone in Microcredit Lending”, The Financial Express, April 16, 2007; Muhammad Sayeedul Haque and Masahiro Yamao, Can Micro credit Alleviate Rural Poverty? A Case Study of Bangladesh, World Academy of Science, Engineering and Technology 46 2008, pp. 648-656 200 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010 very nominate wage or resort to begging for their survival258. The country has so far implemented five Five-year plans and one One-year plan. The goals of those plans were to reduce poverty by accelerating development process. The non- governmental organizations (NGOs) have also been trying to eradicate poverty through micro credit program. As an outcome of government development program and NGOs’ micro credit program, the country has made commendable progress in reducing income poverty. But still now 41.2 million rural people live in absolute poverty and 18.7 million live in hardcore poverty. Since more than 75 percent of the country’s total population live in the rural area, the development of the whole country depends to a great extent, on the rural development and the key to rural development is poverty reduction. Therefore, poverty reduction strategy of the government should be accelerated to achieve the poverty reduction target set in the Millennium Development Goals (MDGs). The objectives of the present paper are: i) to review the rural poverty in Bangladesh and explore its underlying causes ii) to review the government strategies to combat rural poverty and iii) to suggest measures to accelerate the progress of rural poverty reduction. Barring introduction and conclusion, the stated objectives will be studied in four successive sections. The study is based on mainly secondary data sources available from Bangladesh Bureau of Statistics (BBS), Bangladesh Economic Review, Asian Development Bank (ADB), ESCAP, World Bank, Books, Journal Articles and Seminar Papers.

2. Scenario of Rural Poverty in Bangladesh In order to measure the incidence of poverty, Bangladesh Bureau of Statistics (BBS) has conducted several Household Expenditure Surveys (HES). HES conducted up to FY 1991-92 used Food Energy Intake (FEI) and Direct Calorie Intake (DCI) to measure the incidence of poverty. FEI method computes poverty lines by finding the value of per capita consumption in which household can be expected to fulfill its calorie requirement. DCI method is used to calculate the incidence of absolute poverty where population or household fall below a threshold calorie intake (2122 kilocalories per person on a daily basis). Similarly, a person having daily calorie intake less than 1805 kilocalories is considered as hard-core poor. In Household Expenditure Survey (HES) conducted in FY 1995- 96, Bangladesh government for the first time adopted the Cost of Basic Needs (CBN) method for constructing poverty lines. The CBN method for measuring poverty is more appropriate than the other methods. Similarly in the Household Income and Expenditure Surveys 2000 and 2005 respectively, CBN method was

258 Haque, Muhammad Sayeedul and Yamao, Masahiro 2008. Can Micro credit Alleviate Rural Poverty? A Case Study of Bangladesh, World Academy of Science, Engineering and Technology 46, 2008, pp. 648-656. used. With this method, an absolute poverty line is defined as the value of consumption needed to satisfy minimum subsistence needs (food, as well as non- food consumption). Table-1 shows the incidence of poverty during the period 1973-74 to 2005 by Head-Count Ratio (HCR) and Direct Calorie Intake (DCI) method. During this period, the percentage of absolute rural poor declined from 82.9 to 39.5 while the percentage of hardcore rural poor declined from 44.3 to 17.9. Although there is considerable success in the reduction of poverty, still now 41.2 million rural people are poor and 18.7 million are hardcore poor. According to Head Count Ratio and Cost of Basic Needs Approach, 40.0 percent of the country’s population live below the upper poverty line and 25.5 percent people live below the lower poverty line. The rural people are more poverty stricken than the urban people. The percentage of urban people living below the upper poverty line and lower poverty line are 28.4 and 13.7 respectively. On the other hand, the figures for the rural people are respectively 43.8 percent and 37.4 percent (Table-2). Based on CBN method the incidence of poverty also registered a declining trend in 2005 as compared to 1991-92. The incidence of poverty at the national level declined from 58.8 percent in 1991-92 to 48.9 percent in 2000 based on the upper poverty line (Table-3). During this period, the compound poverty reduction rate per year is recorded at 1.8 percent. In the rural area, the incidence of poverty declined from 61.2 percent to 52.3 percent during 1991-92 to 2000. But the rate of reduction of poverty is lower for the rural area (yearly compound rate 1.6 percent) than for the urban area (yearly compound rate 2.2 percent). On the other hand, during 2000-2005, income poverty at the national level also declined from 48.9 percent to 40.0 percent and the compound reduction rate is 3.9 percent. In the rural area, the incidence of poverty declined from 52.3 percent to 43.8 percent during this period. The reduction rate during this period is also lower for the rural area (yearly 3.5 percent) than for the urban area (yearly 4.2 percent). Both the depth (measured by poverty gap) and severity (measured by squared poverty gap) of poverty are higher in the rural area than in the urban area. In 1991-92, the depth of poverty in the rural area was 18.1 percent which decreased to 9.8 percent in 2005. But it is still higher than the depth of poverty in the urban area (6.5 percent). Similarly, the severity of poverty in the rural area declined from 7.2 percent in 1991-92 to 3.1 percent in 2005 which is still higher than the severity of poverty in the urban area (2.1 percent).

3. Causes of Rural Poverty in Bangladesh 3.1. Rapid Population Growth: 202 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010

Bangladesh has been experiencing a population explosion since 1971. During the period 1974-81 population increased at a rate of 2.33 percent annually. During 1981-91 and 1991-2001 population increased at a rate of 2.15 percent and 1.54 percent respectively259. Although the population growth rate is declining, the present figure of population has stood at 144.5 million (2005) which is growing at a rate of 1.48 percent annually260. Apart from large population, a tremendous growth potential lies in the age structure, since more than 39.0 percent of the total population is aged below 15 years, while women within the reproductive age group (15-49 years) represent about 48.0 per cent of the total population261. Due to high rate of population growth, a large number of workable persons are being added to the labor force every year. The economically active population of age 15+ years (labor force) increased from 36.1 million in 1995-96 to 49.5 million in 2005-06, out of which 37.8 million live in the rural area262. Since there is limited scope for this huge labor force to be absorbed in non-agricultural sector, they remain unemployed or underemployed. The unemployed labor force was 1.3 million in 1995-96, which increased to 2.1 million in 2005-06263.

3.2. Defective Land Ownership: In an agrarian economy like Bangladesh, land is the main resource or productive asset. But land ownership in Bangladesh is much skewed (Table-4). About 6.4 percent rural households own absolutely no land and about 49 percent are functionally landless, each household owning less than half an acre of land. About 31 percent are marginal (0.50-1.49 acre) to small (1.50-2.49 acre) farmers, about 12 percent are medium (2.50-7.49 acre) and just over 2 percent are large (7.50 + acre) farmers264. During the last four decades the process of concentration of land in the hands of few large landowners has intensified. The share of landless households has increased from 19 percent in 1960 to 56 percent in 1996. In 1960, 1 percent large

259 Bangladesh Bureau of Statistics (BBS) 2003: National Report (provisional) of Population Census-2001, Ministry of Planning, Government of Bangladesh 260 GOB 2009, op. cit.

261 BBS 2003, op. cit.

262 BBS 2008, op. cit.

263 BBS 2008, op. cit.

264 Government of Bangladesh (GOB) 1999. Bangladesh Economic Review, 1999; Ahmed Q.K and Barkat A. 2004, ‘Bangladesh in the World Economy: Development Strategy and External Assistance’ keynote presented at the International Conference on Emerging Global Economic Order and Developing Countries, Dhaka, 30 June 2004. landowning households had command over 4.7 percent of land but in 1996 it has gone up to 8.2 percent265. This tendency of concentration of land in few large landlords has cast serious impacts on the rural economy of Bangladesh. Because 40 percent of the total population of the country is poor (using upper poverty line), 46.3 percent of them are totally landless and 56.4 percent have less than 0.05 acre of land. In the rural area, 43.8 percent population are living below the upper poverty line, 66.6 percent of whom have no land and 65.7 percent have less than 0.05 acre of land (see Table 5). It is also evident from the Table-4 that the incidence of poverty decreases with the increase in the size of land holding.

3.3. Over Dependence on Agriculture: More than 75 percent of the total population live in the rural area and they are directly or indirectly engaged in agriculture. It is the single largest contributor to income and employment generation. The sector is marked with disguised unemployment because it has already absorbed excess labor force than needed. Again, agriculture is a seasonal business. Therefore, there is seasonal unemployment in this sector. According to labor force survey 2005-06, out of 47.4 million employed labor force, 11.6 million (24.53 percent) were underemployed (work less than 35 hours per week). The incidence of underemployment was higher in the rural areas than in the urban areas. The share of the employed labor force who worked less than 35 hours per week was 27.82 percent in the rural areas compared with 13.92 percent in the urban areas266. Consequently, widespread unemployment and underemployment are seen among the population living in the rural areas. In addition, agricultural sector works under several constraints. Firstly, agriculture is dependent on the vagaries of nature and is risky. Bangladesh is a disaster prone country because of its geographical location. The country is vulnerable to several natural disasters including flood, cyclone and storm surge, flash flood, drought, over-rainfall, tornado, river-bank erosion and landslide. These natural disasters often affect agricultural production and hit the rural economy seriously. Secondly, availability of cultivable land is decreasing because arable land is being destroyed to meet the residential and other needs of the growing population. The cultivable land is also being destroyed due to river erosion. The average size of the cultivable land has decreased by 0.31 percent

265 Barkat, A 2004: “Agrarian and Land Reforms in Bangladesh: An Inescapable Hurdle”, Keynote Presented at the National Seminar on the Occasion of Land Rights Day, Dhaka, 09 June 2004.

266 BBS 2008, op. cit. 204 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010 during the last two decades267. The land holding will diminish further with the rise in population which is currently growing at a rate of 1.48 percent, and gradual conversion of agricultural land for other uses. Thirdly, widespread poverty among the population engaged in agriculture acts as a barrier to increasing agricultural production. Being poor, they can not use improved seeds and techniques of production which leaves them again poor. Fourthly, as discussed earlier, land distribution in Bangladesh is much skewed which is not congenial to increasing agricultural production. The share of landless households has increased from 19 percent in 1960 to 56 percent in 1996. In 1960, 1 percent large landowning households had command over 4.7 percent of land but in 1996 it has gone up to 8.2 percent 268.

3.4. Inequality in Income Distribution Inequality in income both widens and deepens poverty. The share of the poorest section of the population in national income shows a downward trend. It is evident from Table-6 that in 2000, income shares accruing to household belonging to Decile-1 to Decile-5 were 2.41 percent, 3.76 percent, 4.57 percent, 5.22 percent and 6.10 percent respectively at the national level. All these declined in 2005 where the figures were 2.00 percent, 3.26 percent, 4.10 percent, 5.00 percent and 5.96 percent respectively. These five deciles jointly share only 20.32 percent of total income, although they comprise 50 percent of the total population. The percentage share of income of the lowest 5 percent households decreased from 0.93 percent in 2000 to 0.77 percent in 2005. On the other hand, the income share of the households belonging to Decile-6 to Decile-9 increased from 39.93 percent in 2000 to 42.03 percent in 2005. In the rural area, income share of the households belonging to Decile-1 to Decile- 6 declined from 33.03 percent in 2000 to 29.90 percent in 2005. The percentage share of income of the lowest 5 percent households of rural area also declined from 1.07 percent in 2000 to 0.88 percent in 2005. On the other hand, the share of income accruing to the household belonging to Decile-7 to Decile-10 shows an increasing trend. The joint share of these four deciles to national income was 66.96 percent in 2000 which increased to 70.11 percent in 2005. Therefore, it is clear that the poorest section of the people, both at the national and rural level, continues to receive relatively the smaller part of the national income which is one of the major reason of rural poverty.

267 Hossain, Mahbub 2008: keynote paper on "Two Decades of Change in Rural Economy: Trends in Landownership" presented at a seminar jointly organized by the BRAC Development Institute and the Research and Evaluation Division of BRAC, Dhaka, 14 July, 2008. 268 Abul Barkat 2004, op.cit. 4. Current Strategies for Poverty Reduction This section studies four major strategies for poverty alleviation as followed by Bangladesh government. They are:

(i) Higher Growth; (ii) Higher Investment in Social Sectors; (iii) Targeted Programs of Income Generation and Employment Creation; (iv) Building up of Social Safety Nets.

4.1. Strategy of Higher Growth The strategy of higher growth is implemented by stimulating investment, GDP and employment. This strategy is based on the trickle-down theory which states that benefits of economic growth virtually flow from the rich to the poor. High economic growth is likely to benefit the poor through increasing demand for labor or employment opportunities in course of economic functioning, which, in turn, may lead to an increase in wage rates in the absence of unemployment at all levels and hence create a rise in income. The growth performance of Bangladesh economy had been relatively strong during the 1990s showing considerable improvement over the last two decades. During the 1990s, growth performance had been around 5.3 percent per year with an impressive 3.3 percent growth rate of per capita GDP269. The growth rate of GDP was further accelerated and reached to 5.7 percent per year over the period 2001/02-2005/06 with 4.2 percent growth of per capita GDP270. The GDP growth over the period 2003/04-2007/08 consistently remained above 6 percent271. It can be said that the economy of Bangladesh has reached a sustained growth trajectory with strong macroeconomic fundamentals. Stable macroeconomic management, reforms of government, expansion of export oriented manufacturing industries and virtually no impact of quota phase-out in the RMG sector are the major causes of robust growth of GDP. However, an equitable distribution of income, opportunities and choice should be ensured by the government to reduce poverty at the grass root level. This can be done by increasing the productive capacity of the rural people through education and training and ensuring their access to land, credit, infrastructure and technology. Otherwise the rural poor will not benefit from the growth of GDP. 4.2. Strategy of Higher Investment in Social Sectors: Investment in social sector generates productive assets, both financial and physical and this in turn

269 Farid, S.M 1997. Rural Poverty Alleviation under Changing Economic Conditions: Bangladesh Perspective, Paper presented at the regional expert group meeting on capability-building to alleviate rural poverty, Beijing, March 25-28, 1997. 270Government of Bangladesh (GOB) 2007: Bangladesh Economic Review, 2006, Ministry of Planning, Government of Bangladesh, Dhaka. 271 GOB 2009, op.cit. 206 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010 helps the poor to get out of the vicious circle of poverty. Consistent with the declaration of the World Summit on Social Development (WSSD) held in 1995 in Copenhagen, Bangladesh government has been allocating over 20 percent of its total public outlay against the social sector for the last consecutive years272. Education is regarded as one of the effective instruments for human development, poverty reduction, reduction of gender disparity and attaining socio-economic enhancement. The government launched compulsory primary education all over the country in 1993. For the last several years education sector has been receiving the highest budgetary allocation as the government attaches top most priority to this area. The government is committed to ensure universal primary education in the country by 2015. To achieve the targets set in the MDGs, the Government of Bangladesh has undertaken special programs, such as the Stipend Program, the Second Primary Education Development Program (PEDP-II) and the Reaching Out - of - School Children (ROSC) project. Hence, the primary education sector has been receiving increased resources to realize its objective. In the FY 2007-08, a total allocation of Tk. 5274.89 crore has been made for the primary education sector273. The net enrolment rate has increased from 80 percent in 2003 to 87.24 percent in 2005. Gender parity in enrolment has already been achieved. Net enrolment of girl students is higher (98.41 percent) than the boy students (89.34 percent)274. Literacy rate (7 years+) has reached to 63 percent. However, quality of education and high drop out rate are challenges to achieve the goal of ensuring universal primary education. Likewise, adequate provision has also been made for the health. The government with the active support and assistance from NGOs, private sector and voluntary organizations has made remarkable achievements in terms of reducing Infant Mortality Rate (IMR), Maternal Mortality Rate (MMR), 275 preventing

272 GOB 2007, op.cit.

273 GOB 2009, op.cit.

274 GOB 2007, op.cit.

275 It should be mentioned that Prime Minister Sheikh Hasina of Bangladesh was awarded the MDG award for the country’s success in reducing infant mortality, one of the sectors of development as envisaged by the UN MDG 2000. The award was given during the 65th General Assembly session of the UN in September 2010. communicable diseases, raising nutritional status and life expectancy at birth and also reducing the population growth rate. The Ministry of Health and Family Welfare (MOHFW) along with the NGOs, international communities, development partners has strived to face the health hazards due to various natural calamities like floods, cyclone etc. that devastated Bangladesh in 2007. The government has been attempting to have a healthy and able population with a view to involving them in the mainstream development activities and generating momentum in poverty reduction programs. Table-7 shows the total allocation in development and non-development budget in the social sectors during FY 1998-99 through FY2007-08. It is evident from the statistics that the total allocation for the social sectors in development and non-development budget shows an increasing trend over the past decade.

4.3. Targeted Programs for Income Generation and Employment Creation: Now both the government and NGOs are running direct interventions/target group oriented programs for the poor extensively all over Bangladesh to increase their productivity through skill development and greater access to credit facilities. The most significant aspect of this strategy is credit which is now provided by the government for the targeted groups at relatively easy condition. The government established Karmasangsthan Bank in 1998 to provide collateral free credit to youths, in particular the unemployed youths of the country to engage them in production-oriented and income generating activities. The bank provides credit financing for 33 income generating activities. The potential youths can undertake any income generating project within the selected fields of economic activities and receive financial support from the bank to run the approved projects. Since its inception, the bank disbursed Tk 4.6764 billion (TK 467.64 crore) among the 1,22467 borrowers for setting up poultry, fishery, dairy farms, small trading, engineering workshop, tailoring, batik shop, handloom, nursery and agro-based projects and created jobs for approximately 3,97,925 persons. Besides, Department of Youth Development trained 30, 09,709 youths up to June 2008. Out of the trained youths, 16,93,225 youths engaged themselves in self-employment activities and 7,23805 beneficiaries have been sanctioned with an amount of Tk. 807.69 lakh as loan up to June 2008276. As part of poverty alleviation programs, the government has been providing credit to poultry, livestock and fishery sector for several years. The amount of credit disbursed to the poultry and livestock sector was Tk. 79.77 crore in FY 2000-2001 and it rose to Tk. 347.8 crore in FY 2005-06. In the fishery sector, the government disbursed Tk. 57.61 crore as micro credit through 7 development

276 GOB 2009, op.cit. 208 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010 projects for poverty alleviation among 390,000 beneficiaries during the period 2000-2005277. The government has taken up few micro credit programs under both revenue and development budgets for creation of employment for the poor. Up to June 2006, micro credit amounting Tk. 8128.42 crore has been distributed through different ministries/divisions/departments. The non-government organizations (NGOs) are also engaged in micro credit programs and they are providing collateral free credit to the rural poor on the basis of group liability which proved very successful. Up to 2001, total disbursement of micro credit (cumulative) by NGOs was Tk. 13640.78 crore and the amount rose to Tk. 69183.77 crore in 2008278.

4.4. Social Safety Nets: The objective of the safety net program is to reach the poorest section of the society and mainstreaming them in the development process. The key social safety-net programs in Bangladesh are: (a) Cash Transfer Programs (b) Food Transfer Programs; (c) Special Poverty Alleviation Programs; and (d) Micro credit Programs for Self-employment. The cash transfer program includes i) Old-Age allowance program ii) Allowances program for widowed, deserted and destitute women iii) Honorarium program for insolvent freedom fighters iv) Training and self-employment program for insolvent freedom fighters and their dependants v) Fund for rehabilitation of the acid-burnt and the physically handicapped vi) Allowance for the fully retarded vii) Allowance for poor lactating mothers viii) Food for works program (cash), ix) Rural maintenance program, x) Primary education stipend project and xi) Female secondary school assistance program. Food transfer program includes i) Food for works program ii) ii) vulnerable group development (VGD) Program iii) vulnerable group feeding (VGF) Program iv) Test relief (TR) program and gratuitous relief (GR) program. Finally, Special poverty alleviation program includes i) Program under Livestock sector to alleviate poverty ii) Fund for housing the homeless iii) Abashan (Poverty Reduction and Rehabilitation) Project iv) Fund for mitigating risks due to natural disasters especially v) Program for mitigating economic shocks and vi) Program for reducing poverty and generating employment under the Ministry of Women and Children Affairs. The government allocated Tk. 16,932 crore for the social safety program in FY 2007-08, which was 13.32 percent of the total budget outlay and 2.14 percent of GDP. It can be mentioned here that 113.76 lakh man and 240.54 lakh man were

277 GOB 2007, op.cit.

278 GOB 2009, op.cit. engaged in social security and social empowerment activities respectively in the last financial year279.

5. Measures to Accelerate the Progress of Poverty Reduction As a result of government strategies rural poverty has shown declining trend but the impact of these strategies on the reduction of rural poverty has, so far, not been strongly felt. The overall GDP growth rate has been, on average, 6 percent, enabling a per capita GDP growth rate of 4.5 percent which is commendable but not so high to make any strong impact on poverty. Moreover, rural poverty is being tackled without changing land tenure where the bottom 10 percent of landowners own 2 percent of the land, compared with the top 10 percent who own 49 percent of the land. Rural non-farm activities have important poverty alleviation linkages which are not properly addressed by the government. Small and cottage industries has remained a neglected sector. Non-crop agriculture like poultry, livestock and fishery has enormous potential for rural poverty reduction. Except fishery, potentials of poultry and livestock have not been explored properly. This is why only modest improvement in rural poverty has occurred, despite the government efforts to reduce rural poverty. Therefore, the ongoing poverty reduction strategies of the government should be accompanied by the following measures in order to produce much wider outcome in the reduction of rural poverty.

5.1. Developing Informal Sector: Like other developing countries, informal sector plays an important role in the economy of Bangladesh. The contribution of the informal sector to GDP is roughly 64 percent which outweighs the contribution of the formal sector (roughly 36 percent). Out of 47.4 million employed labor force, 41.54 million (87.71 percent) are employed in the informal sector and only 5.82 million (12.29 percent) are employed in the formal sector280. Workers with informal employment are mostly in the agriculture, hunting and forestry (52 percent) and they live in the rural area. Therefore, the government should emphasize on the development of the informal sector to combat the rural poverty. The informal sector is easily manageable, unsophisticated, less capital demanding and uses indigenous technology. Therefore, it is easier for the government to create employment opportunities in the informal sector spending less money and time. However, the informal sectors work under many constraints which limit its growth and productivity.The sector has been facing diverse and numerous problems for long. The major problems include lack of access to

279 GOB 2009, op.cit

280 ADB 2009: Informal Employment in Bangladesh, ADB Economics Working Paper Series, No 155, ADB, Manila 210 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010 institutional credit, lack of infrastructural facilities, lack of education and skill, excessive government regulation, lack of awareness about government regulation, lack of organization and lack of social protection. The government should remove these obstacles as far as possible to create work opportunities for millions of poor, illiterate and unskilled people in this sector. Otherwise, it would be difficult for the government to combat the severe poverty in the rural area.

5.2. Developing Handloom Industry: The small and cottage industry has a significant role in the economy of Bangladesh. Handloom is the main cottage industry of Bangladesh. The handloom industry can fight rural poverty by providing employment to a substantial part of the rural unemployed people. More than 75 percent people live in the rural area and their demand for fabrics can be fulfilled by the handloom sector. In addition, the demand for fabrics in the foreign exchange earning garment sector is increasing rapidly which is also a good market for handloom products. The foreign market for certain handloom products including Zamdani sari, Mirpur Banarasi sari, Tangail Musline/ Silk sari, Bedsheet, Bed cover, Tapestry, Lungi is very bright. The demand-supply gap of fabrics in the country during the period 2001/02 - 2004/05 will help us realize the prospects of this industry (see Table-8 and Figure-1). The demand- production gap was 1996 million meters in 2000-01 that increased to 2740 million meters only after four years in 2004-05. The sharp rise in demand production gap of fabrics indicates that the handloom sector has vast scope to broaden its contribution to the country’s total fabrics production. But it is a matter of regret that this promising sector has not been given due importance by the government since after liberation. According to World Bank report of 1991, the production capacity of handloom is 105.50 core meters but due to various reasons actual production ranges between 50-60 crore meters per annum 281 . Therefore, the government should undertake immediate action plan to develop this promising sector for reducing rural poverty and hereby developing the whole economy.

5.3. Reforming Land Tenure System: In a country like Bangladesh land is the main resource or productive asset. Skewed land distribution is one of the main reasons for rural poverty in Bangladesh. One of the main objectives of the land reforms so far undertaken in Bangladesh was to identify and release the total government land and distribute it to the rural poor to improve their economic condition. There is no accurate estimate regarding the total amount of government land. According to a recent research, the estimated amount of total

281 Center for Policy Dialogue (CPD) 2007: An Analysis of the National Budget for FY 2007-08, paper prepared for IRBD, 14 June, 2007. identified government land in Bangladesh is 3.3 million acres with 0.8 million acres of agricultural government land, 1.7 million acres of non-agricultural government land and 0.8 million acres of government water bodies. But it is matter of regret that only 12 percent of the agricultural government land has been effectively owned by the landless and the poor and 88 percent is illegally occupied by the powerful land grabbers. About 20 percent of the direct beneficiaries of the distributed government land comprise of those who are not entitled to receive the same. There is another inhuman device frequently practiced by the rich and powerful section of the society against the poor. The landless people receive the deed of government land but in practice they can not possess the government land to utilize it under the barriers made by the land grabbers. Local influentials, ruling party leaders and government officials are all more or less involved in the whole process of depriving the poor from access to government land 282 . Therefore, the government should undertake stringent measures to release the total amount of government land (agricultural and water bodies) and distribute it to the rural people with a view to enhancing their economic condition.

5.4. Developing Non-Crop Agriculture: The per capita agricultural land is shrinking in Bangladesh. Therefore, attention should be diverted to developing non-crop agriculture. Non-crop agriculture like poultry, fishery and livestock has a significant role in poverty reduction since land requirement is small and potential return is high. But poultry and livestock sub-sectors work under several constraints including disease, poor genetic stock, shortage of land for pasture, and inadequate feed supplies which bar the growth of this sector. In addition, the production is dominated by small-holder farmers who are relatively unfamiliar with basic animal nutrition, feed value of different sources, disease control and breed selection283. Therefore, commercial production of poultry, beef and dairy should be strengthened. Poultry and Livestock have enormous potential because demand-supply gap of poultry, livestock and dairy output in our country is very high. This sector can be flourished by introducing modern methods of production, improving technical skills of the farmers, and building supportive policy framework and infrastructure.

6. Concluding Remarks

282 Barkat A, Zaman S and Raihan S (2001): Political Economy of Khas Land in Bangladesh, University Press Limited, Dhaka. 283 ADB 2001: Rural Development Priorities for Poverty Reduction in Bangladesh, ADB Economics Working Paper, ADB, Manila. 212 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010

Addressing poverty remains a great challenge for the government mainly due to huge population and resource constraint. The government of Bangladesh has been striving to eradicate poverty through a number of strategies including strengthening economic growth and human development, expanding credit facilities to targeted groups and building up of social safety nets. As an outcome of these strategies, the country has made commendable progress in terms of reduction of income and human poverty. However, the impact of the development programs on poverty reduction has, so far, not been strongly felt for the rural people. More than 75 percent people of our country live in the rural area. If we can not reduce rural poverty more rapidly it will not have remarkable impact on the poverty scenario at the national level. Besides agriculture, there are some other sectors including informal sector, handloom sector and non-crop agriculture which can give productive employment to the rural people and hence reduce rural poverty. Therefore, if the ongoing government strategies for poverty reduction are accompanied by the above-mentioned measures, it will strengthen and accelerate the progress of rural poverty reduction.

Table-1: Trends and Incidence of Income Poverty based on Head Count Ratio and DCI Method. Year Upper poverty line Lower poverty line (daily less than 2122 (daily less than 1805 kilocalorie food intake) kilocalorie food intake) Rural Urban Rural Urban Number % Number % Number % Number % Of Of Of people Of people people (million) people (million) (million) (million) 1973/7 57.5 82. 5.6 81.4 30.7 44. 2.0 28.6 4 9 3 1981/8 60.6 73. 6.4 66.0 43.1 52. 3.0 30.7 2 8 2 1988/8 40.5 10.8 24.9 5.0 9 1991/9 44.8 47. 6.8 46.7 26.6 28. 3.8 26.3 2 6 3 1995/9 45.7 47. 9.6 49.7 23.9 24. 5.2 27.3 6 1 6 2000 42.6 42. 13.2 52.5 18.8 18. 6.0 25.0 3 7 2005 41.2 39. 15.8 43.2 18.7 17. 8.3 24.4 5 9 Source: BBS: Statistical Year Book of Bangladesh, various years Table-2: Incidence of Poverty based on Head Count Rate and CBN Method Residence Upper Poverty Line Lower Poverty Line 2005 2000 2005 2000 National 40.0 48.9 25.5 33.7 Rural 43.8 52.3 29.3 37.4 Urban 28.4 35.2 13.7 19.4 Source: GOB, 2007, P.172.

Table-3: Poverty Reduction Rate during 1991/92-2005. 2005(%) 2000(%) Annual 1991-92 Annual Change (%) Change (%) (%) (2000- (1991/92- 2005) 2000) Head Count Index National 40 48.9 -3.9 58.8 -1.8 Urban 28.4 35.2 -4.2 44.9 -2.2 Rural 43.8 52.3 -3.5 61.2 -1.6 Poverty Gap National 9 12.8 -6.8 17.2 -2.9 Urban 6.5 9.1 -6.51 12 -2.5 Rural 9.8 13.7 -6.48 18.1 -2.8 Squared Poverty Gap National 2.9 4.6 -8.81 6.8 -3.8 Urban 2.1 3.3 -8.64 4.4 -2.7 Rural 3.1 4.9 -8.75 7.2 -3.8 Source: GOB, 2009, P.178

Table-4: Land-ownership distribution of households, 1995-96 (%) Size of Land Holding (acre) National Rural Urban 214 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010

Total 100.00 100.00 100.00 Landless 9.97 6.43 28.02 0.01-0.04 14.05 12.34 22.78 0.05-0.49 35.19 36.46 28.71 0.50-1.49 19.03 20.80 10.04 1.50-2.49 8.89 9.84 4.04 2.50-7.49 10.88 11.92 5.36 7.5+ 1.98 2.16 1.08

Source: GOB, 1999, P.94

Table-5: Incidence of poverty (CBN) by ownership of land-2005. Size of land Upper Poverty Line (%) Lower Poverty Line (%) Holding (acres) Total Rural Urban Total Rural Urban All size 40.0 43.8 28.4 25.1 28.6 14.6 No land 46.3 66.6 40.1 25.2 49.3 17.8 <0.05 56.4 65.7 39.7 39.2 47.8 23.7 0.05-0.49 44.9 50.7 25.7 28.2 33.3 11.4 0.50-1.49 34.3 37.1 17.4 20.8 22.8 9.1 1.50-2.49 22.9 25.6 8.8 11.2 12.8 2.7 2.50-7.49 15.4 17.4 4.2 7.0 7.7 3.0 7.50+ 3.1 3.6 0.0 1.7 2.0 0.0

Source: GOB, 2009, P.181.

Table-6: Percentage distribution of income accruing to households in Groups (Deciles) and Gini Coefficient. Household 2005 2000 Income Group Total Rural Urban Total Rural Urban National 100.00 100.00 100.00 100.00 100.00 100.00 Lower 5% 0.77 0.88 0.67 0.93 1.07 0.79 Decile-1 2.00 2.25 1.80 2.41 2.80 2.02 Decile-2 3.26 3.63 3.02 3.76 4.31 3.07 Decile-3 4.10 4.54 3.87 4.57 5.25 3.84 Decile-4 5.00 5.42 4.61 5.22 5.95 4.68 Decile-5 5.96 6.43 5.66 6.10 6.84 5.60 Decile-6 7.17 7.63 6.78 7.09 7.88 6.74 Decile-7 8.73 9.27 8.53 8.45 9.09 8.24 Decile-8 11.06 11.49 10.18 10.39 10.97 10.46 Decile-9 15.07 15.43 14.48 14.00 14.09 14.04 Decile-10 37.64 33.92 41.08 38.01 32.81 41.32 Top 5% 26.93 23.03 30.37 28.34 23.52 31.32 Income Gini 0.467 0.428 0.497 0.451 0.393 0.497 Co-efficient Source: GOB 2009, P. 183.

Table-7: Allocation (Dev & Non-Dev) in the Social Sectors of Selected Ministries by Year 1998/99-2007/08 (TK in Crore). Sector 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 Education, 4850 5430 7079 6063 6736 4878 7381 9373 11057 11654 Science & Technology Health & 2080 2363 2627 2649 2797 3445 3175 4112 4957 5261 Family Welfare Labor & 38 46 54 133 70 56 90 106 96 119 Manpower Social 255 294 322 354 484 713 1152 1353 1468 2028 Welfare, Women’s Affairs & Liberation War Affairs Total 7223 8133 10082 9199 10087 9092 11798 14944 17578 19062 Allocation Source: GOB 2009, P. 157. Table-8: Demand-Production Gap of Fabrics: 2000/01-2004/05 (in million meters) Financial Demand for Fabrics Total Domestic Demand- year Domestic Export Demand production Production 216 BIISS JOURNAL, VOL. 31, NO. 2, APRIL 2010

Oriented Gap RMG 2000-01 1595 2246 3841 1845 1996 2001-02 1618 2568 4186 2050 2136 2002-03 1754 2779 4533 2200 2333 2003-04 1865 3323 5188 2750 2438 2004-05 1960 3880 5840 3100 2740 Source: Hassan 2007 Figure-1: Demand-Production Gap of Fabrics: 2000/01-2004/05 Fabrics (million meters) 7000 6000 5000 Total Demand 4000 3000 Domestic 2000 production 1000 0 2000- 2001- 2002- 2003- 2004- 01 02 03 04 05 Year