globalization and the state: challengesforeconom ic...
TRANSCRIPT
ST/ESA/PAD/SER.E/80
Departm entofEconom ic and SocialAffairsDivision forPublic Adm inistration andDevelopm entM anagem ent
G lobalization and the State:C hallenges for Econom ic G row thand H um an D evelopm ent
United NationsNew York,2004
II
NOTE
The designations employed and the presentationofthe materialinthispublicationdonotim plythe expression ofany opinion whatsoeveron the partofthe Secretariatofthe United Nations concerning the legalstatus ofany country,territory,cityorarea,orofitsauthorities,orconcerning the delimitationofitsfrontiersorboundaries.
The designations "developed" and "developing" economies areintended forstatisticalconvenience and do notnecessarilyim plyajudgem entaboutthe stage reached by aparticularcountryorareainthe developm entprocess.
The term "country" as used in the textofthispublication also refers,as appropriate,toterritories orareas.
The term "dollar"normallyreferstothe United States dollar($).
The views expressed are those of the individual authors and do not imply anyexpressionofopiniononthe partofthe United Nations.
Enquiries concerning thispublicationmay be directed to:
M r.GuidoBertucciDirectorDivisionforPublicAdministrationand Developm entM anagem entDepartmentofEconomicand SocialAffairsUnited Nations,New York,NY 10017,USAFax:(212)963-9681
III
The DepartmentofEconomicand SocialAffairsofthe United Nations Secretariatisavitalinterfacebetween globalpolicies in the economic,socialand environmentalspheres and nationalaction. The Departmentworks inthreemaininterlinked areas:(i) it com piles, generates and analyses a wide range of econom ic, social and
environmentaldata and information on which States M embersofthe UnitedNations draw toreview common problems and totake stock ofpolicy options;
(ii) itfacilitates negotiations ofM emberStates in many intergovernmentalbodieson jointcourses ofaction to address ongoing oremerging globalchallenges;and
(iii) itadvises interested Governmentsofthe ways and means oftranslating policyframeworks developed in United Nations conferences and summits intoprograms at the country level and, through technical assistance, helps buildnationalcapacities.
IV
Preface
Thisreportisaculm ination ofthreem ajorinitiatives ofUNDESA:
1. Findings ofsix country studies,Bangladesh,China,India,M ongolia,Philippines andVietnam , that exam ined the relationships between globalization, growth andinstitutionalcapacities.These country studies werefunded by the UNDP AsiaBureauwithUNDESA providing the adm inistrative and substantive backstopping.
2. Research outcom es ofUNDESA'sfollow-upofW SSD (Copenhagen)thatlooked attheeffectsofglobalization on growth and equity.
3. Findings of a UNDESA/ UNESCAP regional workshop, Follow-up of the W orldSum m it for Social Developm ent: State and Globalization and the Challenges forHum an Developm ent,Bangkok,Thailand,17-19Decem ber,2003.
Globalizationisproviding new opportunities tocountries aroundthe worldthrough econom icliberalization, foreign investm ents and capital flows, technological exchange as well asinform ation flows. M any countries have m ade significant upward m ovem ents in achievingeconom ic developm entand in reducing poverty.However,the benefitsofglobalization andliberalizationdidnotseem ed tohave been shared equitablyaroundthe world,bothacross thenations and withinthe nations.Forexam ple,nearly1.5billionpeoplelack adequateaccess toclean water. Inequalities between countries and am ong groups are increasing. People arefacing new threatstohum an security,such as the financialturm oilinEastand SoutheastAsiaduring 1997-99contributed toerosionofgains ofpovertyreductioninthe region;insecuritiesin jobs and reduction of state services deriving from public sector restructuring, spread ofHIV-AIDS, illicit trade in drugs and weapons, m oney laundering and environm entaldegradation.The poorpeopleand the poorcountries arebeing m arginalized withinthe rapidlyexpanding globaleconom y.
The role of the State is changing in m any ways, in part as a response to greater econom icintegration.In the pastyearsthere has been a shiftfrom control-oriented to "steering role";shift from direct production of goods and services to strategic planning and an "enabling"environm ent; shift from governm ent to governance with active participation of the civilsociety and the private sector; focus on the protection of public goods including theenvironm ent and hum an rights; increased focus on the issues of global governance; andm atching the capabilityofthe Stateto itsrole.
From resourceconstraintstogeographicallocations ofcountries,the reasons foran inequitabledistribution ofbenefitsofglobalization vary from region to region and from one country toanother.One factor,however,isconstant-statecapacityisanecessarycondition to m ake useofopportunities provided by globalization and to protectthe vulnerable groups and supportthe hum an resources developm ent in a society. W hile the State should continue to createenabling environm ent for investm ents and rely on m arket m echanism s to achieve theseobjectives,it'srolein alleviating poverty,protecting the environm ent,and prom oting hum anrightsshouldnotbe underm ined.Furtherm ore,itisessentialforeffectivelym anaging violentconflicts,com bating crim e and corruption and forensuring increasing genderequity and theadvancem entofwom en.
VI
The aforem entioned initiatives by UNDESA,nam elythe sixcountrystudies,aregionalstudyand the regionallevelconsultations held in UNESCAP in Bangkok during 17-19 Decem ber,2004 reinforcethe need foran enhanced statecapacity,highlighting anum berofareas:
l New fram eworks and toolsforpolitical,adm inistrative and financialtransparency and accountabilityincluding institutions and conventions againstcross-bordercorruption,and m easures to com batdom esticcorruption;
l Hum an resourcedevelopm entwith em phasison capacityand new skillsofpublicservantsinsuch areas as trade negotiations,regionaltreaties,policy analysistoassess im pactofglobalization on the vulnerablegroups and publicgoods;
l Legal,judicialand regulatoryfram eworks fortrade and investm entsincluding the protection ofpropertyrightsand access to justiceforthe poor;
l Capacityto assess the socialand econom icim pactsofliberalization oftrade and investm entpolicies;
l Statecapacitytonegotiatewiththe W TO,regionalorganizations and othertrade agreem entsas wellas capacityto assess theirim pacton hum an rightsand environm entalprotection;
l M echanism s and fram eworks forestablishing partnerships am ong the publicsector,the civilsocietyand the privatesector;and
l Access to and use ofinform ation technology in governm ent-e-governm entas atoolto achieve avarietyofends.
The report em phasizes the im portance of a two inter-twined aspects of state capacity andglobalization.Itfocuses on toolsand fram eworks ofaccountabilityand transparency,as wellas judicialreform s and regulatory fram eworks to cope with rapid globalization in am annerthatstim ulates investors'trustand prom otes trade,investm entand growthonthe one hand andon the other, initiate m easures that are vital for protecting the interests of the poor and thevulnerablegroups.M orespecifically,thisreportconcerns with:
l the relationship between the aforem entioned two aspectsofstatecapacityand the abilityofthe countries to prom otetrade,investm entand inform ation technology withoutanegative im pacton hum an developm ent;
l the experiences and good practices atthe countryand regionallevelswith regard tothe governm entresponses toglobalizationincluding trade,investm ent,and developing countries'positions in regionaland globalfora;
l the sharing ofknowledge and experience am ong selected institutions in the region;
l partnershipbuilding and twinning arrangem entsbetween the nationaland regionalinstitutions involved inthe program and one ofthe leading institutions inthe Northinvolved in research and policy advicein thisfield;
l sharing ofrelated globaland regionalknowledge and experience availableinthe United Nations Departm entofEconom icand SocialAffairsand the UESCAP respectively;and
l providing policy options to the country,sub-regionaland regionallevelhum an developm entinitiatives in globalizing conditions.
The report does not claim to provide answers to all the key questions associated withglobalization,growth and hum an developm entnordoes itpresentacom prehensive listofallthe relevant issues. Rather, it attem pts in a selective way, to highlight issues that are ofim m ediate im portance and presses hom e the m essage that im proved state capacities areneeded notonlytostim ulategrowth,butalso toensurethatthe growthisinclusive enough tobring econom icand socialdevelopm entto allin a m annerthatisequitable.UNDESA hopesthatthe reportwillcom e as an inputinto the policy deliberations ofthe governm ents.
UNDESA acknowledges the contributions m ade by Dr. Debapriya Bhattacharya, the UNDESA International Consultant and the Executive Director, Centre for Policy Dialogue,Bangladesh who synthesized the countrypapersand workshop discussions and prepared thisreport.The Departm entalso acknowledges the contributions m ade by the authorsofthe sixcountry papers;the inputsprovided by the workshop participantsatthe Bangkok W orkshopwho shared m any valuable insights; the UNESCAP, the partner institution of the BangkokRegionalW orkshop; and the contributions m ade by Dr. Alexei Tikhom irov of the Socio-econom ic Governance and M anagem ent Branch, of the Division for PublicAdm inistrationand Developm ent M anagem ent, UNDESA who provided the adm inistrative and technicalbackstopping tothe entireprocess.Butforhisuntiring supportthisreportwouldnothave seenthe lightofthe day.
M .AdilKhanChief,SocioEconom icGovernance andM anagem entBranch DPADM /UNDESA
VII
ACRO NYM SADB Asian Developm entBankADP AnnualDevelopm entPlanAFTA ASEAN-China FreeTrade AreaAHTN ASEAN Harm onized TariffNom enclatureAICEP ASEAN-IndiaCom prehensive Econom icPartnershipAJCEP ASEAN-Japan Com prehensive Econom icPartnershipALG Alternative Law GroupsASEAN AssociationofSoutheastAsian NationsATA AirTransportAgreem entBAC Bureau ofAnti-CorruptionBB Bangladesh BankBCDA Bases Conversion and Developm entAuthorityBCG Boston Consulting GroupBCS Bangladesh CivilServiceBESF BudgetofExpenditures and Sources ofFinancingBFAD Bureau ofFood and DrugsBFI Board ofForeign Investm entBI Bureau ofIm m igrationBIR Bureau ofInternalRevenueBM BE Barangay M icroBusiness EnterpriseBM RE Balancing,M odernisation,Rehabilitation and ExpansionBOC Bureau ofCustom sBOI Board ofInvestm entBOP Balance ofPaym entBOT Build-Operate-TransferBPS Bureau ofProductStandardsBPTTT Bureau ofPatents,Tradem arks and Technology TransferBSCIC Bangladesh Sm alland Cottage Industries CorporationBSM BD Bureau ofSm alland M edium Business Developm entBSP Bangko Sentralng PhilippinesBTRCP Bureau ofTrade Regulationand Consum erProtectionCAB CivilAeronautics BoardCBI CentralBureau ofInvestigationCCDI CentralCom m itteeforDiscipline InspectionCCI&E ChiefControllerofExportsand Im portsCCP Chinese Com m unistPartyCDC Clark Developm entCorporationCEP Close Econom icPartnershipCESO CareerExecutive ServiceOfficerCPC CivilProcedureCodeCrPC Code ofCrim inalProcedureCSC CivilServiceCom m ission
VIII
CSO CentralSupportOffice[NEDA]CVA Custom ValuationAgreem entCVC CentralVigilance Com m issionCVO ChiefVigilance OfficerDBCC Developm entBudgetCoordination Com m itteeDCCI Dhaka Cham berofCom m erceand IndustriesDEDD DutyExem ption and Drawback Departm entDepEd Departm entofEducationDOE Departm entofEducationDOF Departm entofFinanceDOLE Departm entofLaborand Em ploym entDOST Departm entofScience and TechnologyDOT Departm entofTourismDTDC Dom esticTrade Developm entCouncilDTI Departm entofTrade and IndustryEDC ExportDevelopm entCouncilEDI Foreign DirectInvestm entEO Executive OrderEPB ExportProm otion BureauEPS ElectronicProcurem entSystemEPZ ExportProcessing ZoneEPZA ExportProcessing Zone AuthorityFAP Foreign Assisted ProjectFBCCI Federation ofBangladesh Cham bersofCom m erceand IndustriesFCPA Foreign CorruptPractices ActFDI Foreign DirectInvestm entFIA Foreign Investm entsActFICCI Federation ofIndian Cham bersofCom m erceand IndustryFIE Foreign Invested EnterprisesFIFTA Foreign Investm entand Foreign Trade Agency ofM ongoliaFPB ExportProm otion BureauFTA FreeTrade AssociationFY FinancialYearGATT GeneralAgreem entonTrade and TariffsGDP Gross Dom esticProductGoB Governm entofBangladeshGOCC Governm ent-owned-and-controlled CorporationGSP Generalized System ofPreferenceGTEB Garm entsand TextileExportBoardHG Harm onized SystemHLURB Housing and Land Use RegulatoryBoardIACC InternationalAntiCounterfeiting CoalitionIC Insurance Com m issionICC Investm entCoordinationCom m ittee
IX
ICC-CC Investm entCoordination Com m itteeCabinetCom m itteeICC-TB Investm entCoordinationCom m itteeTechnicalBoardICID InternationalConvention ofSettling Investm entDisputesICT Inform ationand Com m unicationTechnologyIDC IndustrialDevelopm entCouncilIEC Im portEntitlem entCertificateIFC Inform ation and Facilitation CountersIFC InternationalFinance CorporationIPP Investm entPriorities PlanIT Inform ationTechnologyITECC Inform ationTechnology and E-Com m erceCouncilJATI JudicialAdm inistrationTraining InstituteJURIS JudicialReform Initiative SupportLEDAC Legislative Executive Developm entAdvisoryCouncilLFP LocallyFunded ProjectLTFRB Land Transportation Franchising and RegulatoryBoardM ARINA M aritim e IndustryAuthorityM CP M ajorCapitalProjectM FN M ost-favored NationM oC M inistryofCom m erceM oF M inistryofFinanceM OT M inistryofTradeM P M em berofParliam entM TPDP M edium Term Philippine Developm entPlanM TPIP M edium Term Philippine Investm entPlanM W SS M etropolitanW aterand Sewerage SystemNARA NationalAuthorityforRevenue Adm inistrationNBDB NationalBook Developm entBoardNBR NationalBoard ofRevenueNCC NationalCom puterCenterNCIEC NationalCom m itteeforInternationalEconom icCooperationNDO NationalDevelopm entOffice[NEDA]NEA NationalElectrificationAdm inistrationNEDA NationalEconom icand Developm entAuthorityNGA NationalGovernm entAgencyNPC NationalPowerCorporationNRO NEDA RegionalOfficeNTB Non-TariffBarriersNTC NationalTelecom m unications Com m issionODA OfficialDevelopm entAssistancePACC PresidentialAnti-Crim e Com m issionPCA Philippine CoconutAuthorityPEDP Philippine ExportDevelopm entPlanPER ProjectEvaluationReport
X
PEZA Philippine Econom icZone AuthorityPHILJA Philippine JudicialAcadem yPLDT Philippine Long Distance TelephonePNP Philippine NationalPolicePTA PhilippineTourism AuthorityRA RepublicActRDC RegionalDevelopm entCouncilRDO RegionalDevelopm entOffice[NEDA]SAARC SouthAsian AssociationforRegionalCooperationSBM A SubicBay M etropolitan AuthoritySEC Securities and Exchange Com m issionSM ED Sm alland M edium Enterprise Developm entSOE State-Owned EnterpriseSOM SeniorOfficialsM eetingSPCPD Southern Philippines CouncilforPeace and Developm entSRA SugarRegulatoryAdm inistrationTCC Tariffand Customs CodeTEL Tem poraryExclusionListTESDA TechnicalEducationand SkillsDevelopm entAuthorityTIDC Trade and IndustryDevelopm entCouncilTIFA Trade and Investm entFacilitationAgreem entTREATI Trans-Europe-AsiaTrade and Investm entInitiativeUNDP United Nations Developm entProgramUSA United StateofAm ericaVAT Value Added TaxW B W orldBankW EC W est-EastCorridorW EF W orldEconomicForumW IPO W orld IntellectualPropertyOrganizationW TO W orldTrade Organization
XI
ST/ESA/PAD/SER.E/80
Departm entofEconom ic and SocialAffairsDivision forPublic Adm inistration andDevelopm entM anagem ent
G lobalization and the State:C hallenges for Econom ic G row thand H um an D evelopm ent
United NationsNew York,2004
II
NOTE
The designations employed and the presentationofthe materialinthispublicationdonotim plythe expression ofany opinion whatsoeveron the partofthe Secretariatofthe United Nations concerning the legalstatus ofany country,territory,cityorarea,orofitsauthorities,orconcerning the delimitationofitsfrontiersorboundaries.
The designations "developed" and "developing" economies areintended forstatisticalconvenience and do notnecessarilyim plyajudgem entaboutthe stage reached by aparticularcountryorareainthe developm entprocess.
The term "country" as used in the textofthispublication also refers,as appropriate,toterritories orareas.
The term "dollar"normallyreferstothe United States dollar($).
The views expressed are those of the individual authors and do not imply anyexpressionofopiniononthe partofthe United Nations.
Enquiries concerning thispublicationmay be directed to:
M r.GuidoBertucciDirectorDivisionforPublicAdministrationand Developm entM anagem entDepartmentofEconomicand SocialAffairsUnited Nations,New York,NY 10017,USAFax:(212)963-9681
III
The DepartmentofEconomicand SocialAffairsofthe United Nations Secretariatisavitalinterfacebetween globalpolicies in the economic,socialand environmentalspheres and nationalaction. The Departmentworks inthreemaininterlinked areas:(i) it com piles, generates and analyses a wide range of econom ic, social and
environmentaldata and information on which States M embersofthe UnitedNations draw toreview common problems and totake stock ofpolicy options;
(ii) itfacilitates negotiations ofM emberStates in many intergovernmentalbodieson jointcourses ofaction to address ongoing oremerging globalchallenges;and
(iii) itadvises interested Governmentsofthe ways and means oftranslating policyframeworks developed in United Nations conferences and summits intoprograms at the country level and, through technical assistance, helps buildnationalcapacities.
IV
Preface
Thisreportisaculm ination ofthreem ajorinitiatives ofUNDESA:
1. Findings ofsix country studies,Bangladesh,China,India,M ongolia,Philippines andVietnam , that exam ined the relationships between globalization, growth andinstitutionalcapacities.These country studies werefunded by the UNDP AsiaBureauwithUNDESA providing the adm inistrative and substantive backstopping.
2. Research outcom es ofUNDESA'sfollow-upofW SSD (Copenhagen)thatlooked attheeffectsofglobalization on growth and equity.
3. Findings of a UNDESA/ UNESCAP regional workshop, Follow-up of the W orldSum m it for Social Developm ent: State and Globalization and the Challenges forHum an Developm ent,Bangkok,Thailand,17-19Decem ber,2003.
Globalizationisproviding new opportunities tocountries aroundthe worldthrough econom icliberalization, foreign investm ents and capital flows, technological exchange as well asinform ation flows. M any countries have m ade significant upward m ovem ents in achievingeconom ic developm entand in reducing poverty.However,the benefitsofglobalization andliberalizationdidnotseem ed tohave been shared equitablyaroundthe world,bothacross thenations and withinthe nations.Forexam ple,nearly1.5billionpeoplelack adequateaccess toclean water. Inequalities between countries and am ong groups are increasing. People arefacing new threatstohum an security,such as the financialturm oilinEastand SoutheastAsiaduring 1997-99contributed toerosionofgains ofpovertyreductioninthe region;insecuritiesin jobs and reduction of state services deriving from public sector restructuring, spread ofHIV-AIDS, illicit trade in drugs and weapons, m oney laundering and environm entaldegradation.The poorpeopleand the poorcountries arebeing m arginalized withinthe rapidlyexpanding globaleconom y.
The role of the State is changing in m any ways, in part as a response to greater econom icintegration.In the pastyearsthere has been a shiftfrom control-oriented to "steering role";shift from direct production of goods and services to strategic planning and an "enabling"environm ent; shift from governm ent to governance with active participation of the civilsociety and the private sector; focus on the protection of public goods including theenvironm ent and hum an rights; increased focus on the issues of global governance; andm atching the capabilityofthe Stateto itsrole.
From resourceconstraintstogeographicallocations ofcountries,the reasons foran inequitabledistribution ofbenefitsofglobalization vary from region to region and from one country toanother.One factor,however,isconstant-statecapacityisanecessarycondition to m ake useofopportunities provided by globalization and to protectthe vulnerable groups and supportthe hum an resources developm ent in a society. W hile the State should continue to createenabling environm ent for investm ents and rely on m arket m echanism s to achieve theseobjectives,it'srolein alleviating poverty,protecting the environm ent,and prom oting hum anrightsshouldnotbe underm ined.Furtherm ore,itisessentialforeffectivelym anaging violentconflicts,com bating crim e and corruption and forensuring increasing genderequity and theadvancem entofwom en.
VI
The aforem entioned initiatives by UNDESA,nam elythe sixcountrystudies,aregionalstudyand the regionallevelconsultations held in UNESCAP in Bangkok during 17-19 Decem ber,2004 reinforcethe need foran enhanced statecapacity,highlighting anum berofareas:
l New fram eworks and toolsforpolitical,adm inistrative and financialtransparency and accountabilityincluding institutions and conventions againstcross-bordercorruption,and m easures to com batdom esticcorruption;
l Hum an resourcedevelopm entwith em phasison capacityand new skillsofpublicservantsinsuch areas as trade negotiations,regionaltreaties,policy analysistoassess im pactofglobalization on the vulnerablegroups and publicgoods;
l Legal,judicialand regulatoryfram eworks fortrade and investm entsincluding the protection ofpropertyrightsand access to justiceforthe poor;
l Capacityto assess the socialand econom icim pactsofliberalization oftrade and investm entpolicies;
l Statecapacitytonegotiatewiththe W TO,regionalorganizations and othertrade agreem entsas wellas capacityto assess theirim pacton hum an rightsand environm entalprotection;
l M echanism s and fram eworks forestablishing partnerships am ong the publicsector,the civilsocietyand the privatesector;and
l Access to and use ofinform ation technology in governm ent-e-governm entas atoolto achieve avarietyofends.
The report em phasizes the im portance of a two inter-twined aspects of state capacity andglobalization.Itfocuses on toolsand fram eworks ofaccountabilityand transparency,as wellas judicialreform s and regulatory fram eworks to cope with rapid globalization in am annerthatstim ulates investors'trustand prom otes trade,investm entand growthonthe one hand andon the other, initiate m easures that are vital for protecting the interests of the poor and thevulnerablegroups.M orespecifically,thisreportconcerns with:
l the relationship between the aforem entioned two aspectsofstatecapacityand the abilityofthe countries to prom otetrade,investm entand inform ation technology withoutanegative im pacton hum an developm ent;
l the experiences and good practices atthe countryand regionallevelswith regard tothe governm entresponses toglobalizationincluding trade,investm ent,and developing countries'positions in regionaland globalfora;
l the sharing ofknowledge and experience am ong selected institutions in the region;
l partnershipbuilding and twinning arrangem entsbetween the nationaland regionalinstitutions involved inthe program and one ofthe leading institutions inthe Northinvolved in research and policy advicein thisfield;
l sharing ofrelated globaland regionalknowledge and experience availableinthe United Nations Departm entofEconom icand SocialAffairsand the UESCAP respectively;and
l providing policy options to the country,sub-regionaland regionallevelhum an developm entinitiatives in globalizing conditions.
The report does not claim to provide answers to all the key questions associated withglobalization,growth and hum an developm entnordoes itpresentacom prehensive listofallthe relevant issues. Rather, it attem pts in a selective way, to highlight issues that are ofim m ediate im portance and presses hom e the m essage that im proved state capacities areneeded notonlytostim ulategrowth,butalso toensurethatthe growthisinclusive enough tobring econom icand socialdevelopm entto allin a m annerthatisequitable.UNDESA hopesthatthe reportwillcom e as an inputinto the policy deliberations ofthe governm ents.
UNDESA acknowledges the contributions m ade by Dr. Debapriya Bhattacharya, the UNDESA International Consultant and the Executive Director, Centre for Policy Dialogue,Bangladesh who synthesized the countrypapersand workshop discussions and prepared thisreport.The Departm entalso acknowledges the contributions m ade by the authorsofthe sixcountry papers;the inputsprovided by the workshop participantsatthe Bangkok W orkshopwho shared m any valuable insights; the UNESCAP, the partner institution of the BangkokRegionalW orkshop; and the contributions m ade by Dr. Alexei Tikhom irov of the Socio-econom ic Governance and M anagem ent Branch, of the Division for PublicAdm inistrationand Developm ent M anagem ent, UNDESA who provided the adm inistrative and technicalbackstopping tothe entireprocess.Butforhisuntiring supportthisreportwouldnothave seenthe lightofthe day.
M .AdilKhanChief,SocioEconom icGovernance andM anagem entBranch DPADM /UNDESA
VII
ACRO NYM SADB Asian Developm entBankADP AnnualDevelopm entPlanAFTA ASEAN-China FreeTrade AreaAHTN ASEAN Harm onized TariffNom enclatureAICEP ASEAN-IndiaCom prehensive Econom icPartnershipAJCEP ASEAN-Japan Com prehensive Econom icPartnershipALG Alternative Law GroupsASEAN AssociationofSoutheastAsian NationsATA AirTransportAgreem entBAC Bureau ofAnti-CorruptionBB Bangladesh BankBCDA Bases Conversion and Developm entAuthorityBCG Boston Consulting GroupBCS Bangladesh CivilServiceBESF BudgetofExpenditures and Sources ofFinancingBFAD Bureau ofFood and DrugsBFI Board ofForeign Investm entBI Bureau ofIm m igrationBIR Bureau ofInternalRevenueBM BE Barangay M icroBusiness EnterpriseBM RE Balancing,M odernisation,Rehabilitation and ExpansionBOC Bureau ofCustom sBOI Board ofInvestm entBOP Balance ofPaym entBOT Build-Operate-TransferBPS Bureau ofProductStandardsBPTTT Bureau ofPatents,Tradem arks and Technology TransferBSCIC Bangladesh Sm alland Cottage Industries CorporationBSM BD Bureau ofSm alland M edium Business Developm entBSP Bangko Sentralng PhilippinesBTRCP Bureau ofTrade Regulationand Consum erProtectionCAB CivilAeronautics BoardCBI CentralBureau ofInvestigationCCDI CentralCom m itteeforDiscipline InspectionCCI&E ChiefControllerofExportsand Im portsCCP Chinese Com m unistPartyCDC Clark Developm entCorporationCEP Close Econom icPartnershipCESO CareerExecutive ServiceOfficerCPC CivilProcedureCodeCrPC Code ofCrim inalProcedureCSC CivilServiceCom m ission
VIII
CSO CentralSupportOffice[NEDA]CVA Custom ValuationAgreem entCVC CentralVigilance Com m issionCVO ChiefVigilance OfficerDBCC Developm entBudgetCoordination Com m itteeDCCI Dhaka Cham berofCom m erceand IndustriesDEDD DutyExem ption and Drawback Departm entDepEd Departm entofEducationDOE Departm entofEducationDOF Departm entofFinanceDOLE Departm entofLaborand Em ploym entDOST Departm entofScience and TechnologyDOT Departm entofTourismDTDC Dom esticTrade Developm entCouncilDTI Departm entofTrade and IndustryEDC ExportDevelopm entCouncilEDI Foreign DirectInvestm entEO Executive OrderEPB ExportProm otion BureauEPS ElectronicProcurem entSystemEPZ ExportProcessing ZoneEPZA ExportProcessing Zone AuthorityFAP Foreign Assisted ProjectFBCCI Federation ofBangladesh Cham bersofCom m erceand IndustriesFCPA Foreign CorruptPractices ActFDI Foreign DirectInvestm entFIA Foreign Investm entsActFICCI Federation ofIndian Cham bersofCom m erceand IndustryFIE Foreign Invested EnterprisesFIFTA Foreign Investm entand Foreign Trade Agency ofM ongoliaFPB ExportProm otion BureauFTA FreeTrade AssociationFY FinancialYearGATT GeneralAgreem entonTrade and TariffsGDP Gross Dom esticProductGoB Governm entofBangladeshGOCC Governm ent-owned-and-controlled CorporationGSP Generalized System ofPreferenceGTEB Garm entsand TextileExportBoardHG Harm onized SystemHLURB Housing and Land Use RegulatoryBoardIACC InternationalAntiCounterfeiting CoalitionIC Insurance Com m issionICC Investm entCoordinationCom m ittee
IX
ICC-CC Investm entCoordination Com m itteeCabinetCom m itteeICC-TB Investm entCoordinationCom m itteeTechnicalBoardICID InternationalConvention ofSettling Investm entDisputesICT Inform ationand Com m unicationTechnologyIDC IndustrialDevelopm entCouncilIEC Im portEntitlem entCertificateIFC Inform ation and Facilitation CountersIFC InternationalFinance CorporationIPP Investm entPriorities PlanIT Inform ationTechnologyITECC Inform ationTechnology and E-Com m erceCouncilJATI JudicialAdm inistrationTraining InstituteJURIS JudicialReform Initiative SupportLEDAC Legislative Executive Developm entAdvisoryCouncilLFP LocallyFunded ProjectLTFRB Land Transportation Franchising and RegulatoryBoardM ARINA M aritim e IndustryAuthorityM CP M ajorCapitalProjectM FN M ost-favored NationM oC M inistryofCom m erceM oF M inistryofFinanceM OT M inistryofTradeM P M em berofParliam entM TPDP M edium Term Philippine Developm entPlanM TPIP M edium Term Philippine Investm entPlanM W SS M etropolitanW aterand Sewerage SystemNARA NationalAuthorityforRevenue Adm inistrationNBDB NationalBook Developm entBoardNBR NationalBoard ofRevenueNCC NationalCom puterCenterNCIEC NationalCom m itteeforInternationalEconom icCooperationNDO NationalDevelopm entOffice[NEDA]NEA NationalElectrificationAdm inistrationNEDA NationalEconom icand Developm entAuthorityNGA NationalGovernm entAgencyNPC NationalPowerCorporationNRO NEDA RegionalOfficeNTB Non-TariffBarriersNTC NationalTelecom m unications Com m issionODA OfficialDevelopm entAssistancePACC PresidentialAnti-Crim e Com m issionPCA Philippine CoconutAuthorityPEDP Philippine ExportDevelopm entPlanPER ProjectEvaluationReport
X
PEZA Philippine Econom icZone AuthorityPHILJA Philippine JudicialAcadem yPLDT Philippine Long Distance TelephonePNP Philippine NationalPolicePTA PhilippineTourism AuthorityRA RepublicActRDC RegionalDevelopm entCouncilRDO RegionalDevelopm entOffice[NEDA]SAARC SouthAsian AssociationforRegionalCooperationSBM A SubicBay M etropolitan AuthoritySEC Securities and Exchange Com m issionSM ED Sm alland M edium Enterprise Developm entSOE State-Owned EnterpriseSOM SeniorOfficialsM eetingSPCPD Southern Philippines CouncilforPeace and Developm entSRA SugarRegulatoryAdm inistrationTCC Tariffand Customs CodeTEL Tem poraryExclusionListTESDA TechnicalEducationand SkillsDevelopm entAuthorityTIDC Trade and IndustryDevelopm entCouncilTIFA Trade and Investm entFacilitationAgreem entTREATI Trans-Europe-AsiaTrade and Investm entInitiativeUNDP United Nations Developm entProgramUSA United StateofAm ericaVAT Value Added TaxW B W orldBankW EC W est-EastCorridorW EF W orldEconomicForumW IPO W orld IntellectualPropertyOrganizationW TO W orldTrade Organization
XI
STATE CAPACITY IN PROM OTING TRADE AND INVESTM ENT:TH E CASE O F BANGLADESH
AbulBarkat*M ozammelHoque**
Zahid Hassan Chowdhury***
I.INTRO DUCTIO N
Globalization isnotnew to the civilizations thatlines in the world.However,whatisnew isthe pace ofitsgrowth.Fiftyyearsago,the world traded around abillion dollaraday;today,the sam e one-billion-dollar-trade is happening every 90 m inutes. Globalization is m ulti-dim ensional and that it can be broken down into num erous com plex processes that havedynam ism oftheirown,resulting in both varied and often interrelated unpredictableeffects.Hence, it has given rise to concerns in both developed and developing countries. M anydeveloped countries fear com petition from low-wage labor abundant countries, while localfirm s in developing countries find it difficult to com pete with foreign firm s with bettertechnology, stronger capital base, and superior productivity, and especially against M ulti-national Corporations (M NCs) based in and supported by powerful states. Although,theoreticallyithas been proved thatglobalizationand socialprogress arepositivelycorrelated,the answertothe questionisNOT straightforward"YES".Had itbeen yes,we wouldnothaveto go through thisexercise.In otherwords,differentcountries can reap differentam ountsofbenefitsfrom globalization,which isprim arilydeterm ined by each country'scapacityto dealwith unforeseen outcom es.
There is no denying that globalization is a m ulti-faceted and com plex process, and isincreasinglyintegrating thisworldeconom y.W hileglobalizationand econom icliberalizationarebringing econom icbenefitstodeveloping countries,these countries arealso being exposedto new types of risks. For exam ple, Shang-Jin-W ei noted, "the sudden reversal of capitalflows,such as arecallofloans by internationalbanks oram assive saleofem erging m arketstocks by internationalm utualfunds,can spark oratleastcontributeto currency crises suchas those inAsiaand LatinAm erica."1
Developed countries with good governance capacityarewellsuited to protectand safeguardits consum ers from the negative externalities of globalization. On the other hand, weakgovernance in developing countries notonly restrictsthem to reap m axim um benefitsoutofeconom ic liberalization, but also rem ains the country vulnerable from both anticipated andunexpected outcom es.
Following the introductory part, this paper is organized as follows. The second sectiondelineates adm inistrative capacity of the state in prom oting trade and investm ent, the thirdsectiondescribes corruptionlaws and itsenforcem entm echanism s,the fourthsectionexplainsthe legal and judicial fram ework to support property rights laws, and the final sectionidentifies key recom m endations that should be studied in-depth for further econom icdevelopm entofBangladesh.
*Professor,DepartmentofEconomics,Dhaka University,Dhaka,Bangladesh.**Freelance Consultant.***AssistantProfessor,DepartmentofPoliticalScience,Dhaka University,Dhaka,Bangladesh.1W ei,Shang-Jin,2001,Corruptionand Globalization,Policy Brief,No.79,April,The Brookings Institution,W ashingtonD.C.
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II. ADM INISTRATIVE CAPACITY OF THE STATE IN PRO M O TING TRADE AND INVESTM ENT
II.1 PoliticalLeadership and StrategicPlanning Capacities
II.1.1PoliticalLeadership
Bangladesh is governed by a parliam entary dem ocracy, where general elections areconstitutionallyrequired,atleastonce,ineveryfive years.Thereare300elected m em bersinthe Parliam entcalled the Jatiyo Sangsad.A candidatein the nationalparliam entaryelectionsm ay contesta m axim um offive seatsin any one election,butm ay only hold one seat.By-elections areheldinconstituencies thatarerelinquished by M Ps (m em bersofthe parliam ent)firsthaving been elected from m ultiple seats.The parliam entelectsthe country'sPresident,who isresponsibleforlargelycerem onialactivities,to afive-yearterm .
Political leaderships in Bangladesh have often been m arked by overwhelm ing short-livedpopularity, being followed by m ostly violent change of governm ents where the earliergovernm ent usually falls victim to the snare of allegations of corruption and violation ofdem ocraticnorm s.The countryhas established aparliam entarian form ofgovernm entin1991,afteralong spelloffrequentchange ofgovernm entsm ostlycharacterized by coup de tatandm ilitary dictatorships. There is little inform ation on whether the m ovem ent towardestablishm ent of a dem ocratic governm ent has contributed to prom otion of trade andinvestm entin Bangladesh.
The firstgovernm entofBangladesh during 1972-1975,atthe helm ofitslove form ass welfareand social equity, m issed the essence of professional im provem ent in its adm inistration ofvarious enterprises that were nationalized. The spirit of service dom inated that of profitm axim ization, and the loss of individual ownership of these large enterprises replaced bystate-owned m anagem entled to non-com petitive business and finallyloss ofm arketathom eto the newly em erging entrepreneurs and abroad. Since then, until the year 1982 there hadbeen severalchanges ofgovernm entsthatshowed littleim provem entsinalim ited num berofbusiness sectors,where the positions ofm inisterswere held by professionaland technocratincum bents.Thispositive contribution m ade by certain technocratadvisers-cum -m inistersinthe m ilitarily-led cabinet since 1976 was short-lived, especially due to the induction ofpoliticalleadersin these positions by way ofeffortsfordem ocratization ofthe governm entthathad entryintopowerby way ofaprocess ofcoup de tat.The adm inistrationduring 1976-1980 m oved toward privatization or disinvestm ent of a num ber of state-owned enterprisesapparentlytrying to engendercom petitive business in the countryforcom peting in am arketeconom y,following the term s and conditions determ ined by the donorsas well.
The longest-lived regim e in Bangladesh had been the 1982-1991 regim e that politicallyfollowed m ostofthe processes ofdem ocratization afteracoup de tatas itspredecessordid.Despite the serious efforts that it needed to stabilize itself in the seat of power, it has beenreported thattherehad been som e,though lim ited,im provem entsinthe scenariooftrade andinvestm entduring thatperiod.
Therefore,although therehad been such im provem entsintrade and investm ent,therehad alsobeen num erous reports of lack of transparency and accountability in the newly approvedinvestm ents m ade by the m em bers of that m ilitary regim e or people having access to that
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regim e. Several instances of lack of transparency and accountability that took place duringthat regim e m ay be at least apparently validated by indication of the fact that m any seniorm em bers of that regim e are being repeatedly convicted of such irregularities, even in therecentdays.
The above paragraphs provide an analytical portrait of the changes in governm ents andconcurrent policies and initiatives regarding countrywide trade and investm ent. The m ajorpolitical phenom ena that led the country to its present state m ay be sum m arized as shownbelow.
In Bangladesh,thereisno possibility ofhaving any m ajorbilateralorinternationalpoliticalissues affecting the country'sbusiness clim ate.Butfrequentstrikes (hartals)have long been adeeply em bedded culture as a crude and cruel instrum ent for negotiations in Bangladeshpolitics. Strikes have been called frequently until recently (up to the year 2001) by variouspoliticalparties as wellas trade unions and the associations ofworkersand businesspersonsin diverse sectorson petty issues,as a way to press hard theirdem ands,im peding businessoperations widely. Following a cam paign of long-stretch hartals, the Awam i League won am ajority in parliam entary elections in June 1996,forcing itspredecessorto step down.Thefirsttwo yearsofthatAwam iLeague Governm entwas characterized by relativelyfew hartalsorotherdisruptive agitation program s.There were 27 days ofnationwide generalstrikes in1999,and 13fullorpartdays ofgeneralstrikes in2000.Inthe firstsixm onths of2001,therewere 22 days of nationwide strikes during the build-up to parliam entary elections. The
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Bangladesh helditsfirstparliamentary elections inM arch 1973,followingitswar ofindependence in1971andtheestablishment of a new Constitution in 1972. These elections solidified the Awami League's ruling majority. Theelected government of Sheikh M ujibur Rahman, who was for long the most prominent leader in the nationalistmovement,was overthrown inAugust1975inthe firstofaseries ofmilitary coups followed by military rule.M ilitaryregimes plagued the country for the nextfifteen years.Inthe coup inAugust1975,Sheikh M ujibandmostofhisfamilywere murdered. Sheikh M ujib's daughter (Sheikh Hasina) was out of the country and survived. President ZiaurRahman,anarmy general(andfounder ofthe BNP)who came topower inthe turmoilfollowingthe deathofSheikhM ujib,was himselfassassinated in1981.Hiswife,Begum Khaleda Zia,then assumed the positionofChairperson ofBNP.In December 1982,GeneralH.M .Ershad,the then ChiefofArmy GeneralStaff,seized power and declaredhimselfPresident.In1981,Sheikh Hasinacame back toBangladesh andbecame the Chairperson ofAwamiLeague.GeneralErshad remained Presidentfor eightyears,forming the Jatiya Partyand attempting to legitimize hisrulethrough political manipulation. He was forced to resign in December 1990, following months of populardemonstrations. In February 1991, the BNP won a parliamentary plurality of 140 seats in general elections andformed the government,withBegum Khaleda ZiabecomingPrime M inister.The AwamiLeague,Jatiya PartyandtheJamaat-e-Islam formed the bulkofthe opposition.InM arch 1994,the oppositionparties walked outofParliamenttoprotestanalleged insultby aBNP minister.The walkoutbecame aboycottwhen the oppositionalleged thatthe BNPrigged a M arch 1994 by-election and demanded Khaleda Zia hand over power to a neutralcaretaker governmentbefore the nextnationalpolls.OppositionM Ps resigned en masse from ParliamentinDecember 1994.The politicalimpasse dragged onfor nearlytwo years,andthe oppositionparties boycotted generalelections heldby the BNP inFebruary 1996. The BNP government lost credibility with substantiated reports of vote rigging in the one-partyelection.Followingthiselection,increasingpopular pressure compelled the BNP topass aconstitutionalamendmenttopermitelectionunder acaretaker governmentanddissolvethe short-lived parliamentonM arch 30.New pollswerecontested by all the major parties in mid-June 1996, and were declared generally free and fair by domestic andinternationalobserver groups.A new governmentled by the AwamiLeague andPrime M inister Sheikh Hasinatookitsseatin lateJune 1996.In 2001,AwamiLeague handed over power to the second caretaker governmentunderwhich parliamentary pollswere heldandinwhich BNP came back topower by baggingmore than200seatsinafour-partyalliance composed ofBNP itself,IslamicOikkyo Jote,Jamaat-e-Islam and Jatiya Party(M anzur).
business houses inBangladesh have partiallyadjusted tothe hartalculture,butthe disruptionsinflictaseverecostonthe econom y and onindividualbusinesses.Parochialfocus onpartisanallegiance and politicalconfrontation by both the ruling and opposition parties contributetopoor governance, reducing the governm ent's ability and willingness to focus on econom icreform s and policy im plem entation.The Awam iLeague governm entstepped down onJuly13,2001,successfullycom pleting theirfive-yearterm .Bothpolitics and business conditions stillcontinue to be affected by prevailing lack of good governance and a relatively low-levelabilityofthe agencies involved in prom otion oftrade and investm ent.
The governm entduring 1996-2001 tried severaltim es to m inim ize the frequency and im pactofstrikes invarious ways-the m ostinnovative and significantam ong them being the attem ptfor application of the law preventing political parties from calling strikes. Awam i Leaguem entioned,as one oftheirm ottos during itsrulein 1996-2001,thatthey werecom m itted toforego calling strikes once they would be placed in the position ofthe oppositionists.AwamiLeague,since itsim m ediately departure from power(in 2001),has so farcom plied with itscom m itm enttom inim ize m eaningless strikes.Records onstrikes inthe pastpriorto2001hadbeen disappointing forthe businesspersons.The Bangladesh CountryCom m ercialGuide FY2002published by the US Trade CentreinJune 2002reads,"The [GoB]continued itsgradualim provem entoftax procedures and reductionofevasioninordertoincrease revenues insteadof adding new taxes, although it does attem pt to widen the value-added tax base. Thegovernm ent did not m ake reductions in overall tariff rates, as in past years, but did reduceim portduties on som e raw m aterialsin an attem ptto stim ulateindustrialactivity and boostsluggish exports. The m ain opposition party boycotted the session and staged a one-daygeneralstrike toprotestthe "anti-people" budget,even though socialsectorsaffecting the poorweretreated relativelyfavorablyin the budget."
Therefore,although hartalsarequitefrequentin Bangladesh,therehave been no incidentsofpolitically designed dam age to foreign business or installations over the past few years.Hartals (Strikes) or blockades called by political parties, in general, affect businesses bykeeping workers away with the threat of violence and blocking transport, resulting inproductivitylosses.Arson tovehicles and otherpropertyfrom vandalism and looting ofshopshas occurred during such program s. Strikes, besides causing productivity losses, havesignificantlyled to obstacles to dom esticinvestm entas well.
II.1.2StrategicPlanning Capacities
Bangladesh had been blessed withitsFirstPerspective Plan (1995-2010).Besides,therewereseveralfive-yearand bi-annualplans also.Atpresent,the planning process ism orem yopic,and thereisno perspective plan.
TABLE INationalPlans in Bangladesh:1973-2007
Plan PeriodFirstFive-YearPlan 1973-1978
Two-YearPlan 1979-1980
Second Five-YearPlan 1980-1985
ThirdFive-YearPlan 1985-1990
FourthFive-YearPlan 1990-1995
ParticipatoryPerspective Plan 1995-2010
FifthFive-YearPlan 1997-2002
SixthFive-YearPlan 2002-2007
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The planning process has m ostly been top-down,taking little note ofthe preferences ofthepeople at large. However, with regard to the preparation of the annual budget, there is theprovision forparticipation ofm em bersfrom various walks oflife(in Dhaka,the capitalcityonly)invited to discuss the draftannualbudget.In alm osteverysuch case,the usualpracticehas been nottom odifythe annualbudgetaftersuch open forum discussions.As inthe case ofthe large flock ofnationalized banks,the usualpracticefortheirbudgeting ispartiallybottom -up,butthatprocess islim ited withinthe bank m anagers.Atclose ofafinancialyear,they areasked by theirsupervisorsto chalk outthe budgetsfortheirrespective offices.Subsequently,these m angerschalk outtheirrespective annualbudgetsby them selves orby consulting theirveteran assistants,ifany.Thereisnoconceptorpracticeofsharing withthe localbeneficiarysaversand investors.Inaddition,the m anagem entinsuch banks seem s notawareofthe needforparticipatorybottom -upapproaches toplanning.The sam e holds true forotherdepartm entsof the Governm ent. But there has been som e progress toward participatory planningcountrywide.Donors'em phasisonparticipatoryplanning have often resulted inthe pursuitofsuch planning processes by the Governm ent.One such exam pleisthe policy form ulation forsm alland m icroenterprises as carried outby the Bangladesh Planning Com m issioninthe year1999 under its project titled FONAP-NEGIB (Form ation of NationalAction Plan for Non-Form alEm ploym entGeneration in Bangladesh).
II.2 H um an Resources M anagem ent
M ost of the public sector organizations, particularly the nationalized banks and variousm inistries have training institutes oftheirown.Butthese run on bureaucraticlines-atrainingschem e m anual includes the type and num ber of courses to be offered during the year, thetargetgroup,the resourcepersons,expected expenditure,etc.,aredrafted and putup by thejuniorlevelofficer,and thisgoes through the officialtierup to the Head ofthe Division forapproval.Afterapproval,the m anualand course routines arem eticulouslyfollowed.However,these courses have threedrawbacks:
(i) the courses offered in one institution areusually chalked outin line with whatothersim ilar institutions are offering, and thus the efficiency level and particular trainingneeds of thatorganization arehardlyconsidered;
(ii) nom ination ofparticipantsto the courses isdone in ahaphazard m anner,thereisnofixed selection criteria;and
(iii) the training cannotbe called ‘‘on-the-job-training’’because the courses offered havelittlerelevance to the participant'son-the-desk job.
Result.HRD training does notplay an effective rolein im proving the efficiency ofthe targetgroup.Transfers.Transfersare m ostly on the basisofseniority within a category.Itistreated as aroutine affairwhich has no relevance to organization'sneed fortransfers.Again,transferofwom en officers entails particular problem s, and this gives opportunity for discrim inationagainstwom en,because generallytransfersareassociated withprom otions,so notransfer(asin the case ofwom en),and no prom otion.
Post-training placement.Available inform ation suggest that under the m anagem ent cultureprevailing in these organizations, training and posting are generally uncorrelated. Forexam ple,an officerofthe M inistryofFinance issentforhigherstudies ineconom ics abroad.A few m onths orayearaftercom pleting hisdegree,he istransferred to,say,the M inistryof
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Com m unications orM inistryofScience and Technology.So the foreign training iscom pletelylostuponhim .
II.3 Negotiating SkillsRequired to Effectively Participatein M ultilateralAgreem entsand RegionalTreaties
One of the prerequisites of standing to gain from foreign direct investm ent (FDI) orm ultilateraltreaties foracountryishaving adequateskillsatthe negotiating table.Thism eanshaving proper knowledge of in what areas FDI is beneficial in term s of com parativeadvantage,whatarethe internationaland dom esticm arketconditions forthatproduct,whatare the safety m easures, etc. in the treaties, what is the position of com petitors, etc.Unfortunately,however,in m ostcases lack ofpropernegotiating skillspaves the way fortheforeign investorsto dictateterm s according to theiradvantage.However,oflate,Bangladeshisgaining som e expertise in thisrespect.
II.3.1Outcome ofLow LevelNegotiatioting SkillsThe outcom e ofarelativelylow levelofnegotiating skillshas given rise toterm s oftrade withparticipating countries orinvestorsunfavorableforBangladesh and severalperplexities inthebalalnce ofpaym entsofthiscountry.Bangladesh Bank sources m entioned thatthe balance ofpaym entofBangladesh during 2000-2001,2001-2002 and 2002-2003 isshown in TableII.
TABLE IIBalance ofPaym entsofBangladesh,2000/2001AND 2001/2002
CurrentAccount -1018 240
Trade Account(Net) -2011 -1768 243 -12.08
Exports* 6419 5929 -490 -7.63
Imports(FOB) -8430 -7697 733 -8.70
Services (Net) -914 -499 415 45.40
Income (Net) -264 -319 -55 20.83
CurrentTransfers(Net) 2171 2826 655 30.17
Capitaland FinancialAccount 839 481
CapitalAccount 432 410 -22 -5.09
FinancialAccount 407 71 -336 -82.56
DirectInvestments 174 65 -109 -62.64
PortfolioInvestments 0 -6 -6
OtherInvestments 233 12 -221 94.85
Errorsand Omissions -47 -356
* Excluding localsales by EPZ enterprises.Source:Bangladesh Bank.
II.3.1.1 Balance ofPaymentsofBangladesh,2002-2003Exportsfrom Bangladesh
The decade of 1990s saw a vital role played by the garm ents and knitwear sectors in therecovery ofthe m anufacturing sector.The system ofbilateralquotawith developed countrym arketswas agreatpanacea forphenom enalgrowthrateinthe exportofgarm entssince 1994.The quotaregim es ofthese countries lim itthe exportsofm any com peting Asian suppliers.Inaddition, a relatively light load of governm ent regulations, provision of custom s bondedwarehouses forim ported fabrics,back-to-back lettersofcreditthatenabled the foreign banks
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Items ItemsAbsolute Percentage
2000/2001July-June(InM illionUS$)
2001/2002July-June(InM illionUS$)
to finance raw m aterial inventories, all contributed generously to the growth in export ofgarm ents.Alltextilequotas in2001weregiven a10percentincrease overthe 2000lim itsanda13percentincrease for2002.Despitethese healthy interim perform ances inthissector,itisless clearas to whatwould be the situation herein the long-term ,as the quotasystem underthe Uruguay Round Agreem enton Textiles and Clothing phases out.In absence ofthe quotasystem under the W orld Trade Organization (W TO) in 2005 and subsequent yearsBangladesh'sgarm entexportsectorwillbe underincreasing pressureto correctdeficienciesand im prove its perform ance and quality. Retention of such a perform ance rating wouldnecessitate focus on the m ajor areas, such as finance, custom s, port, and transportationsystem s.
Exportsonthe firstseven m onths ofFY2003 am ounted toUS$3.7billion-an increase of5.4percent from the corresponding period in FY2002. The m ajor reason for this increase waslarge increases in frozen foods,agriculturalproducts,juteand jutegoods,and knitwearandhosieryproducts.Exportearnings from tea,readym ade garm ents,and leatherhave continuedto decline. The US econom y's sluggish nature, lack of growth in Japan and the EuropeanUnion, and a relatively higher value of the currency as com pared to Bangladesh's Asiancom petitorshave constrained exportgrowth.ExportsinFY2002 and FY2001 stoodatUS$5.9billionand US$6.4billion,respectively.Innovations atthe end ofthe entrepreneursoperatinginorassisting the exportbase wereless active,leading tofailuretodiversifythe exportbase,with garm entsand knitwearcontinuing to accountforaround 75 percentofthe totalexportearnings. In June 2003, the Governm ent introduced a system of lower rates of interests forloans to the garm entsand frozen food sectorsand offered cash incentives forsom e exports,and established am anaged floatofthe currency in June 2003.
The am ountofannualim portsby US from Bangladesh rem ained staticoverthe lastseveralyears, m ainly due to a generous quota regim e for the garm ent and knitwear sectors. InJanuary-Decem ber 2002, the US im ported nearly US$2.1 billion in m erchandise fromBangladesh,slightlylowerthan the US$2.4 billion im ported in 2001.In January-April2003,exportstothe US reached US$711 m illioncom pared toUS$693 m illionforthe sam e m onthsin 2002.Approxim ately,33 percentofBangladesh'sannualexportstravelto the US.
Exportsto Bangladesh
Exports to Bangladesh for the first six m onths of FY2003 at US$3.8 billion were nearlyidenticalto the sam e period in FY2002.Large increases in im portsofrice,edible oils,andpetroleum productshave offsetdeclining im portsofpetroleum ,textiles,and capitalgoods.InFY2002,Bangladesh'sim portstotaled US$7.7billion.
US exportstoBangladesh stoodatnearlyUS$307 m illionincalendaryear2001and US$269m illion in calendar year 2002, with raw cotton, edible oils, wheat, generators, and textile-related m achinery being the key exports. During the period January to April 2003, U.S.exportsreached US$67 m illioncom pared withUS$111 m illionforthe sam e m onths in2002.Im portsofUS cotton willincrease ifprices rem ain com petitive.
CurrentandCapitalAccounts
Rem ittances by Bangladeshiworkersabroad increased resulted inim provem entsinthe currentaccount.Therewas also adecline (to US$624 m illion)in the trade deficitduring the firstsixm onths of FY2003 from US$788 m illion during the corresponding period in FY2002. Thecurrentaccount(m inus aidgrants)had asurplus ofUS$523 m illionduring the firstsixm onthsofFY2003.Sharpdecreases indirectinvestm entand m edium-and long-term loans have beenoffsetby the im proved currentaccount.
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Reserves
As ofJune 2003,Bangladesh had totalforeign exchange reserves am ounting toapproxim atelyUS$2.0 billion, showing a gradual increase over the last few years m ainly from increasedworkerrem ittances.Thisisenough toprovide paym entforabouttwo m onths ofim ports.TheGovernm ent has taken a num ber of steps, such as establishing banks and exchange housesoverseas and stepping up enforcem ent of its M oney Laundering Prevention Act 2002, toincrease the volum e ofrem ittances through officialchannels.
The causalrelationships am ong the bleak situationofbalance ofpaym ents,the low-levelskillsofBangladesh counterpartsin negotiations with foreign countries,and the structuralorlong-term barriersin negotiations can be furthervalidated,as discussed below.
II.3.2Skillsin the GovernmentM achinery
The foregoing description on the balance of paym ents is the cum ulative reflection of thenegotiation skills of the Governm ent in prom otion of trade and investm ent. In reality,em phasisoninternationaleconom icrelations inthe m inistries offoreign affairsand finance isonly a relatively recent phenom enon. At hom e, both policy form ulation and execution ofpolicies have been dom inated by priority to vested interestsofthe ruling party m em bersorpoliticalinterests.Scrapping offofam illion-dollar-projectby aruling partyonthe groundthatitwas initiated orpatronized by anotherparty'sgovernm entin the pastisacom m on featureofm ajorinvestm entdecisions.Econom icbenefitsforthe m ass peopleornationaleconom icdevelopm entareless considered in such m ajordecisions.A highlydebatablestep like thisisthe cancellation ofthe perm ission to transm itofahighly popularprivateTV channelon thebasis of a verdict from the court. The alleged TV channel has been term ed as one that didbroadcastpoliticallybiased propaganda.Sharplycontrasting isthe reportthatsuch allegationsagainstthisTV channelduring the October2001 Elections werealso brushed aside as untrueby the M edia Unitofthe European Union Election Observersin a projectwith UNDP.TheHigh Courthas,again,asked the Governm entin June 2003 to explain why the TV channel'sbroadcasting has been stopped.
On another level, the lack of seriousness of negotiating governm ent personnel (low-paidbureaucrats)on the tables ofnegotiation with the foreign trade and investm entcounterpartshas been anothercom m on aspectofBangladesh'sweaknesses in negotiations.Reportsoftherelativelylargerportions oftim e abroad being given by the negotiating governm entpersonnelby reducing tim e given to officialm attershave appeared repeatedlyin the m edia.
Therearetwo otherelem entsthatlurkas an inherentcharacteristicofpersonnelm anagem entin the governm ental m echanism ham pering growth of professionalism for efficientnegotiations,such as:
(i) Thereisthe inform alsystem thatany governm entpersonnelhaving com pleted his/hertenureforatleastthreeyearsin aparticularposition rendershim /herusually liableorlikely to get transferred to another office or position. It has been observed that suchtransfersatthisgiven frequency arenotalways congenialforenhancing efficiency fortwo reasons:
l The saidincum bentdoes notgetenough opportunity(tim e)toattainskillsrequiredfor negotiations with the foreign counterparts, if any, in an efficient way; and
l Changes in approaches to negotiations on particular issues also take place frequentlywith frequenttransfersofincum bentshandling the particularissues in an office.
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(ii) Low-paid governm ent personnel com pete seriously for positions that are likely to belucrative by way ofallowing opportunities fortaking bribes orforotherirregularandhidden benefits. Cases of irregular transfers and prom otions within the Governm ent'srules for flexibility com m only create resentm ents am ong som e group or the others.Reportsofsuperseding ofone personnelby the otherarerifeinthe m edia.One orm oreofparticularfactorscom m onlyactin favorofsom e ofsuch cases ofsuperseding,suchas:
l Expressed orrealallegiance to the ruling party;l Expressed orrealallegiance to the im m ediatelypastruling party;l Paym entofbribes to the transferring orprom oting authorityforplacem entin the
coveted position.
Shortage ofparticipationofthe business class invarious negotiations has often weakened thenegotiating personnel.W ithexceptionofthe tim e ofthe preparationofnationalbudgets,thereareonly few occasions when various groups oftradersorinvestorsareinvited to participatein discussions with the foreign counterparts. Even secretary-level discussions have been adevelopm entofthe recentyears.
M oreover,therearealso reportsthatthe views and ideas ofthe business class expressed in afew policy form ulation sessions often rem ain unheeded to and notreflected in various policypapers. One recent exam ple of low profile and late consideration of businesspersons'preferences isgiven below.
A non-critical indication of the growing tendency against consideration of the views of thelarge lot of business class is the increasing num ber of supplications subm itted by variousgroups oftradersand investorstothe Prim e M inisterand published boldlyonthe frontpagesof the newspapers. In such supplications, the business class requests the Prim e M inister toreduce the weightofcertain regulations orto provide subsidies to them .These issues oftenem anate from lack of participation and full expression by the businesspersons in differenttables ofnegotiation,both athom e and abroad.
II.3.3Long-Term Issues in Negotiation
W hilethe negotiation skillsofthe governm entpersonnelarerelevantfactorsforcreation ofan efficientenvironm entforthe investorsto perform ,therearealso certain long-term factorsthatweaken the positionofBangladesh innegotiations oninternationaltrade and investm ent.
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A trade talkbetween Bangladesh andSouthKorea under the coverage ofaPreferentialTradeAgreement(PTA) among Bangladesh,China,India,Laos,South Korea and SriLanka tookplace in June 2003.An understanding was reached between the two countries (BangladeshandSouthKorea) indicatingitwas likelythatSeoulwouldconfirm itsdecisiontoallow duty-andquota-free access of132items from Bangladesh toKorea,inreturn ofDhaka'sallowanceof duty-free access to some items from other nations in this PTA. W hen a member of theBangladesh delegation to the trade talks was divulging these information to a journalist,thejournalistasked him ifthe viewpointswere earlier shared withthe business chambers inthiscountry.In reply,the delegatementioned thatthe issue wouldbe,thoughlate,shared withthechambers before finaldecision.
Source:The DailyStar,dated June19,2003.
A generally weakened econom y, coupled with long-term issues of interest to the strongereconom ies, leaves little scope to utilize the personal skills of negotiating personnel fromBangladesh.An analysisofthese long-term stum bling blocks isalso necessary.
(i) Preference ofCounterpartsfor adhoc AgreementsW hen a bilateral agreem ent on certain issues is not reachable by Bangladesh and aneighboring country, the neighboring counterpart has frequently resorted to ad hocarrangem entstokeep oncarrying outtrade transactions withBangladesh.Such steps erode thecapability of the country's entrepreneurs to build up sustainable relationships with theirforeign counterparts. Such preferences for ad hoc agreem ents on the part of India havefrequently stopped Bangladesh from trying to strike balance ofpaym entswith India,againstwhom Bangladesh'sposition has been unfavorableforalong tim e.
(ii) Demand for TransitandTransshipmentFacilitiesThe issue of whether Bangladesh will perm it transit and transshipm ent facilities to Indiathrough Bangladesh's land has been a long-standing issue of disputes between these twocountries. Reports indicate diplom atic pressures having been built up by India overBangladesh in various sectorsforleverage to m ake Bangladesh agreeto allowance oftransitand transshipm ent facilities to India for transportation of goods to its seven north-easternstates.As such,ithas been difficultforthe Bangladesh negotiatorsto negotiate wellon thetablewith theirIndian counterparts.
(iii) UnreliableListofExportable/BasicGoods Disclosed by Negotiating Foreign CounterpartsSom etim es aforeign counterpartwould com e up with along listofitem s,which Bangladeshm ay be allowed to exportduty-freeto thatcountry.A littleanalysisoften shows thatm ostofthose item s are not basic to Bangladesh or she can never produce such item s and ratherim portshuge quantities ofthose item s.In the firsthalfof2003,severaltalks forFTA (FreeTrade Agreem ent)took placebetween Indiaand Bangladesh.Atclose ofthe firstleg ofsuchtalks,Indiaputforwardm orethan one hundred item s which (as Indiam aintained)Bangladeshcouldhave libertytoexportduty-freetoIndia.Trade analystswerereported inthe press sayingthat only a little m ore than one dozen of those hundred item s were being produced byBangladesh as basicorexportabletoIndia.
(iv) Trade Gap HeavilyTilted toward Bangladesh againstthe USInsharpcontrasttothe trade balance withIndia,Bangladesh isinahighlyfavorablesituationas against US.As of June 2003, US had a total investm ent of US$1.2 billion in differentsectors.Atthe sam e m om ent,Bangladesh had arecordoftotalannualexportsofUS$2 billionagainsttotalannualim portofam ereUS$300 m illion.The issue ofthe necessityforbalancein trade transactions with the US surfaced heavilyin the talks between the SecretaryofStateofthe US with Bangladesh'sForeign M inisterin June 2003.
(v) DebatableIssue ofExportofGasThough a significant num ber of oil and gas exploring com panies are already working inBangladesh fordrilling,exploration and developm entofgas fields,the m ostdiscussed topicof international econom ic cooperation has been the issue of if Bangladesh should or willexportgas.The subsequentquestion has been ifand how exportofgas would becom e trulyprofitableforBangladesh.Indiaand US have been strong supportersofexportofnaturalgasfrom Bangladesh,especiallyviaagas pipeline which the US authorities eagerto constructassoon as possible.Various civicand professionalinstitutions have also been vocalontheirstand
50
on the issue ofexportofnaturalgas.Bangladesh Econom icAssociation (BEA),in one ofitsworkshops inearly2002,has firm lystoodagainstthe exportofgas.W hilethe decisionoftheexport of gas still rem ains un-voted by the com m on citizens in Bangladesh and theGovernm enthas notreached afirm decisiononthisissue,ithas been difficulttonegotiatewellwith anum berofforeign counterpartson issues oftrade and investm ent.
II.4 Policy AnalysisCapacity
The M inistryofCom m erce(M oC),BoardofInvestm ent(BOI),and ExportProm otionBureau(EPB)aredirectlyinvolved inprom oting trade and investm ent;Bangladesh Bank (BB)actsasa facilitator. The M oC and the BOI dissem inate inform ation for prospective investors andarrange sem inars,both athom e and abroad,to prom oteBangladeshiproductsabroad.Oftentrade delegations,including governm entofficialsas wellas localentrepreneursin the privatesector,areled abroad by the M inisterforCom m erceforprom otionofexportsand findm arketsabroad.Regarding FDI,itisnoteworthy thatBangladesh offersbetterfacilities and incentivesforinvestm entthan m any South Asian countries.However,the realityisthatdespiteallthis,itsneighborscontinue to be the m ajorrecipients-China tops the list,followed by India andPakistan.
W hatisDeterringFDI inBangladesh? Lack ofstability,frequentshiftinpolicy,high adm inistrationcost,corruptionand lack ofgoodgovernance,poorinfrastructure,narrow m arketsize,am ong others,gives the wrong signalstoprospective investors.
Bangladesh isasignatorytovarious internationaltreaties relating toinvestm ent.However,thepicture ends there. The people involved in channelising FDI m ore often do not know whatissues arecovered by these treaties,and as such the risks ofinvestm entrem ain.Forexam ple,Bangladesh isasignatorytoM ultilateralInvestm entGuaranteeAgency (M IGA),aofshootofthe InternationalFinance Corporation(IFC),which seeks toprom oteinvestm entindevelopingand third world countries by covering country investm entrisks.Butunless the coverage ofM IGA operations in Bangladesh is advertised to the prospective investors, rapid flow offoreign investm entwillbe afarcry.
The lopsided internationaltrade ofBangladesh isevidentfrom one glaring instance ofbilateraltrade: Trade with neighboring India. India exports Tk.1200 m illions worth of goods andservices to Bangladesh annually. Bangladesh's annual exports to that country, however,am ounttoam eagerTk.70m illion.Reasons contributing tothisscenarioarelack ofm arketingskills,insufficientdecentralized decision-m aking,etc.Forinstance,the "one-stop service" ofthe BOI,whereaprospective investorwas supposed togetallfacilities provided by the BOI-land purchase/rent, registration, electricity and gas connection from one desk at the BOIoffice,fizzled outdue tothisprocess.The representatives ofthe line M inistries werenotgivenauthoritytograntfacilities such as electricityconnection,etc.The proceduraldelay ingettingthe abovem entioned facilities to the investor naturally discouraged him , and in m ost cases,drove him away.
The Board ofInvestm entbrings outa com prehensive investm entguide nam ed "BangladeshInvestm entHandbook".Itprovides avarietyofusefulinform ationforwould-be investorssuchas investm entclim ateand incentives,aproposed listofsectorsforinvestm ent, business set-up roadm ap-the steps and procedures involved from ‘intention to invest’to ‘com m ercialoperation’-and what assistance the BOI can give in this regard; costs of doing business in
51
Bangladesh;com parison ofcostsbetween Dhaka and neighboring foreign cities like Bangkok,Hanoi,Jakartaand Karachiinrespectofsub-heads like worker,industrialland purchase/rent,electricityrateforbusiness use,etc.
Although the BOI handbook is quite exhaustive and full of propaganda about investing inBangladesh, but it falls short of attracting FDI to desirable levels due to certain vitalshortcom ings.
Firstly,itdoes notcontain sufficientsub-sector-specificorproduct-specificinform ation suchas size ofthe productm arket,whatextentofthe m arketBangladeshiexportsconstitute,whoarethe com petitors,whatisthe m inim um outlay,whatarethe sources ofraw m aterials,etc.,inform ation which isofprim e im portance to any would-be investorin aproduct.
Secondly, although the Handbook gives an indication of the supposedly costs of doingbusiness in Bangladesh as com pared to neighboring or com petitive countries, it does notaddress the situationsquarely.Investorsexploreopportunities inacountryfrom the viewpointofwherethey can getthe m ostcom petitive edge.Things such as the difference in tim e lagsacross countries between registering with the investm ent authorities and going intocom m ercialoperating,and the snags inbetween,areim portantfactorsfortheirconsideration.Itneeds nottobe expressed thatBangladesh isquitelagging behindothersinthisrespect.Thisisan offsetting factorform any prospective investors.
Anotherim portantreason forpoorFDIislack of‘‘the view from the otherside.’’From theinvestors' perspective, despite all the incentives and allurem ents laid out, a m ultinationalenterprise beforeinvesting in acountrywillalways tryto getfirsthand inform ation from hiscountry m ate who have already invested in that country, just like before tasting som ethingnew, a person will asks others who have tasted it, how it tastes. The signals a prospectiveinvestorgetfrom existing investorsabouttheirbusiness experience inBangladesh m oreoftenthan not discourages prospective investors from investing here. This im age and reputationproblem retards the positive decision m aking ofinvestors.
Rigid bureaucracy and official hierarchy prevent decision-m aking at lower levels, and is asignificantfactorinadding tothe costsofdoing business here.Thus,the representatives oftheconcerned M inistries and organizations involved inFDIinthe one-stopservicecouldnotgiveon-the spotdecisions to awould-be investors'roadm ap,such as sanctioning ofland,electricconnection,equity,etc.Such issues had to be relayed back to theirrespective Head Officesand decisions cam e there.The undue delay caused by thisprocess was asufficientdeterrentto the FDI.TableIIIshows FDItrends in Bangladesh in recentyears.
TABLE IIIInvestm entProjects(Localand Foreign)Registerd with BO I
1996/97 1247 1108 138 1054 1385 2167
1997/98 1448 1137 140 3440 1588 4577
1998/99 1535 1183 161 1926 1696 3109
1999/00 1428 1324 135 2119 1563 3443
2000/01 1788 1420 80 1271 1868 2691
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Year Total
No.ofUnits US$ (M illion)
LocalInvestmentRegistered
No.ofUnits US$ (M illion)
Foreign InvestmentRegistered
No.ofUnits US$ (M illion)
As the above tableshows,the num berofinvestm entunitshas increased significantly during1996/97-2000/01.Butthe contributionm ade by such investm entstothe totaleconom y ofthecountry has been erratic and not grown enough. However, the participation of foreigncountries inthe growing investm entsinBangladesh during 1981-1991to1991-2001has beenshared by foreign investors.Figure1 wellvalidates thisfact.
Figure1:BO I Registered Investm entProposals:Trends in Local-Foreign Share
Figure 2: FDI Inflow intoBangladesh-1991to2001:Distribution by Source Country (In M illion US$)
However, though the above data have been dissem inated by BOI on various occasions,inform ationrelated tohow m any ofthese registered investm entunitshave com e intooperationand how m any have been continuing their operations are not readily available with BOI.Knowledgeablequartersm aintainthataverynegligibleportionofsuch registered investm entunitsareintooperations atany given pointoftim e.Directives and initiatives forprom otionofforeign investm ent have usually taken the shape of sales-oriented as a result of lack oftendency to look critically on the ram ifications of the reasons for failures at the end of theoveralldom esticpolicy and practicescenario.
II.5 Perform ance Standards for M anagem entDevelopm ent
The prevailing standardforperform ance assessm entofofficersinstate-owned enterprises (SOEs)like the Central Bank, Nationalized com m ercial banks, sector corporations and other
53
12%
88%
42.5%
57.5%
1981-1991 1991-2001
Local Foreign
15861337
1078830 819 717 660
354 298
1706
USA
UK
Malaysia
Japan
Hong Kong
S.Arabia
Singapore
Norway
Germany
S.Korea
Others
governm ent/sem i-governm ententities isthe confidentialreports-usually in the form ofAnnualConfidentialReports(ACRs)ofofficers.The ACR ofan officeris,according tolaiddown practice,given by hisim m ediatesuperiorofficerand countersigned by the nexthigherauthority-orincaseswhere relevant-by the CEO of the Division/Departm ent. Various traits of an officer such ascapabilityto do assignm entssinglyand group-wise,overallhonestyand integrity,qualityofwork,etc., are graded qualitatively in m ost organizations, although there is m arking system in a feworganizations.ACRs areacrucialfactorin an officer'sprom otion to the nextgrade.
The chief drawback in such a system of perform ance assessm ent is that since it is based onqualitative judgm ent, it m ay vary in direct relation to the liberal/conservative attitude of thereporting official.Thus,whilean officerm ay getan ‘excellent’reportinhisACR,hiscolleague inanother Departm ent with sim ilar efficiency level m ay get a very ̀ g̀ood’’or just a 'good’reportbecause ofthe conservative attitude ofhisboss.Again,externalinfluence in writing ACR cannotbe ruled out. The general effect of such reporting system has been that the ̀ f̀avored’’personreceives prom otion,whilehisefficientand honestcolleague stay behind,and ultim atelythe m oraleand efficiency ofthe personnel,in general,deteriorate.
II.6 PublicServiceProfessionalism
Recruitm entin‘‘purelygovernm ent’’services -governm entofficersinvarious m inistries,teachersin governm ent colleges, doctors in governm ent hospitals - is through qualifying in a centralizedexam conducted by the Bangladesh Public Service Com m ission (BPSC). Recruitm ent inNationalized Com m ercialBanks (NCBs)isthrough qualifying in exam conducted by the Bankers'Recruitm ent Com m ittee (BRC). Recruitm ent in other state-owned enterprises such as sectorcorporation, nationalized industrial units, etc. is generally through direct advertisem ent andrecruitm entby the concerned organization.Focus on discipline ofstudy isuncom m on,and m ostlyrestricted to research organization and departm entslike research departm entsofthe centralbankand NCBs, BJRI, BARI, BRRI, Atom ic Energy Com m ission, etc. The general im pact of suchuneven focus isthatwhiletechnicaland research organizations arem anned by dedicated-and quiteoften honest-professionals,theirrespective controlling m inistries are run by people com ing fromdifferentdisciplines,who have abird'seye view ofthe subject.Thus,m ajordecisions regarding aresearch organization or institute are taken, not solely on the m erit of the case, but in the largerinterest of governm ent priorities, ADP sectoral allocation, etc. The trade-off that arises alm ostalways goes infavorofthe concerned M inistryunless the CEO isabletoswerve decisions hiswaybecause ofhispersonalstanding (seniorm ostofficer,etc.).
Professionalism in purelygovernm entserviceislim ited to as long an officerisposted to acertainM inistry ora certain desk.An officerwith M .A.in econom ics m ay be posted to the M inistry ofFinance (M OF)forsom e years,then tothe M inistryofTelecom m unications,and so on.A negativeeffect of this system is that officers trained abroad in one discipline, say Econom ics, lose theirknack topracticewhatthey have learntinthe foreign training when they aretransferred toanotherM inistryorDepartm ent,which has no relevance to the training.
Finally,professionalefficiency and sincerityisalso considerablyham pered by poorsalarystructureofthe governm entofficials.Although they do receive noteworthy realbenefits,the m eagertake-hom e salaryforced them to look forsupplem entarysources ofincom e.Thisway theirdevotion toworkisdivided.Forthose who cannotfindavenues tosupplem entearnings,the ensuing frustrationworks as afactorthateatsinto theirm oraleand work efficiency.
It was found by the principal author of this study, while carrying out an assignm ent for UNDP/UNOPS on Poverty M apping and Developm ent Possibilities of Sub-district level in 2003 atGaibandha District that the Deputy Com m issioner, his accom panying governm ent personnel aswellas those who cam e from the upazila(sub-district)levelwereless awareofwhatthe preferences
54
ofthe localbusinesspersons were.Nonetheless,these governm entpersonnelappeared to performin the leastforthe privateentrepreneurs.Excepting issuance oftrade licenses from pourashabhasorm unicipalauthorities and occasions ofm eetings forconcerted effortsto tacklenaturaldisasters(e.g.,floods,cyclones,etc.),the localleveladm inistration had alm ostno com m unication with theprivateentrepreneursregarding econom icdevelopm entofthe area,oreven,as tohow toutilize theADP allocation in the area.The necessity to com m unicatewith the localbusinesspersons did notsurface in the course of norm al discharge of duties by the governm ent personnel. One of theprom inent businesspersons said (others expressed full agreem ent) "people in the governm entadm inistration callus in m eetings when som e high officialsorm inisterscom e,and the purpose ofcalling us isto arrange finance to m eetthe costofvisit.‘‘Anotherbusinessperson said,’’You arethe firstgroup(ofresearchers)who has invited us totalkaboutourconcerted effortsindevelopm enthand-in-hand with the DeputyCom m issioner.’’Knowledgeableinform antshave also reported thattraining curriculum ofPATC (PublicAdm inistration Training Centre)do notcontain issues/topicsabout roles and functions of the local adm inistrators in accelerating local developm ent, resourcem obilization,and dealing with potentialinvestorsand associated stakeholders.
II.7Inform ation Technology in Governm entO perations
The Governm enthas alooselyfram ed policy ofencouraging use ofIT in governm entoffices.Thelarge-scale distribution of personal com puters (PCs) to various m inistries and departm ents isevidentenough,butthereislittleconcerted efforttouse IT inaway so as toim prove efficiency ofthe officersand the quality oftheirwork.Ofcourse,any M inistry orGovernm entbank can boastofthe num erous courses on hardware/softwareparticipated by itsofficials,butthatisall.Justlikethe fateoflocaland foreign trainings,officialsareneitherinvestigated upon to ascertain whetherthey have resorted to using com puterin theirdailywork atthe end oftheircom putertraining,norarethey given any extrarecognition orbenefitforusing PC.Itisafactthatin m ostgovernm entoffices PCs are used just as a substitute for typewriters-there is little venture to use PC foreconom etric analysis or graphical representation. The real users of PC-researchinstitutes/Departm ents like research departm ents of the central bank and the nationalizedbanks/BJRI, BARI, SPAARSO-also do not get adequate com puter facility on pretexts such aspaucityoffunds allocated to purchase ofPCs,conservative attitude ofofficials,etc.However,itistobe noted thatdespitethe overalldism alpicture,som e GOB organs like BOI,EPB,M OF,BB,etc.have m ade am ple use of IT and Internet. M ost of them have their own websites with detailedinform ationnotonlyabouttheirown organization,butalso aboutBangladesh as awhole.Thus,anywould-be investor living abroad can get access to inform ation about Bangladesh, its clim ate,infrastructure,possible avenues to invest,etc.,by accessing these websites.Forinstance,the BBwebsiteallows userstodownload the Bank'slatestAnnualReportas wellas otherstatistics such asexports,im ports,bank regulations,foreign exchange regulations and rem ittance facilities,etc.
In July 2003,the Governm entinitiated a projectto introduce certain fundam entalchanges to theadm inistrative system including e-policing and connecting the Prim e M inister'sOfficewiththe key
55
One elected representativeofFBCCI angrilysaid,"Do they (the DistrictCommissionersand the Sub-district Executive Officers) know anything about how many people areemployed intheirrespectivejurisdiction?Are they aware aboutthe resources availableintheir areas? Do they know anything about the number of industries by types and sizes,number ofirrigationpumps availableandproblems thereof,etc".He replied,"they donotknow, they do not need to know; they are not at all bothered about all these; they areconcerned abouttheirown fortune,which they very sincerelymake duringtheirtenure atthe locallevels’’.
m inistries,divisionalcom m issionersand policeadm inistration.Itwas stated inapress release thatthe projectwould also prepare guidelines and im plem entsforonline paym entofincom e tax andutility bills, registration of land, ownership change, birth, death, m arriage, vehicles, insurance,driving license and posting of agriculture and com m odity pricing inform ation and internationalstandardtraining.The governm entwillspend Tk.1831.70m illionforthe "SupporttoICT TaskforceProgram " aim ed atim proving the efficiency,transparency and accountability ofthe Governm entusing the inform ation com m unication technology (ICT). The Governm ent has already allocatedTk.13 m illion in the Revised AnnualDevelopm entBudgetforfiscalyear2002-2003 and Tk.250m illioninthe ADP (AnnualDevelopm entPlan)forfiscalyear2003-2004.As partofstrengtheninge-governance,an opticalfibrelocalareanetwork(LAN)willbe setupatthe Planning Com m issionconnecting 472 locations, including the Planning Division, the Planning Com m ission, theIm plem entation,M onitoring and EvaluationDivision,and the Econom icRelations Division.Underthe project,an alternatecom m unicationnetworkwillbe setup.Itwillprovide m axim um reliabilityand security ofcom m unication and enhance speed and efficiency in decision-m aking and follow-up of com pliance status. The e-policing system will be established at five police stations in thecapitalforcom m unication between citizens and policein allpossibleways including online filingofgeneraldairyand firstinform ation report.
II.8 Existence ofInvestm entCouncilsand theirLaws for Governance
BOIisthe topm ostgovernm entalagency looking afterforeign investm ent.Ithas laiddown severallegal provisions for investm ent protection and governance. BOI was established as per theInvestm ent Board Act of 1989 for prom otion of both dom estic and foreign investm ents in theprivate sector. The Prim e M inister is the head of BOI having m em bers drawn in from variousrelevant m inistries, the Governor of Bangladesh Bank, and Presidents of FBCCI (Federation ofBangladesh Cham bersofCom m erceand Industry)and BCI(Bangladesh Cham berofIndustries).The chiefexecutive officerofBOIisitsExecutive Chairm an.The m ajorfunctions ofBOIare:
(a)Providing necessaryfacilities and assistance in the establishm entofindustries;(b)Im plem enting investm ent-related governm entalpolicies;(c)Preparing investm entschedule;(d)Registering privatesectorindustrialprojects;and(e)Identifying com petitive investm ent sectors and facilitating investm ent by providing
inform ation and services.
AtBOI,the major facilities availableare:i)Pre-investm entInform ation and CounselingBOI provides all types of necessary inform ation for undertaking the initial m ove towardinvestm ent. Professionals having knowledge and expertise in investm ent behavior providecounseling to intending investors in person in BOI Office, over phone, via e-m ail and fax andexpress m ailing.
ii)SpecialW elcom e Serviceto Foreign InvestorsTo the benefit of the foreign investors, BOI m aintains a W elcom e Service Desk at the ZiaInternationalAirportoperating round-the-clock.Itassistsin obtaining necessary im m igration andVisa onArrivalorlanding perm it,hotelaccom m odation and counseling arrangem ents.iii)Investm entIm plem entation and Com m ercialOperations
Once the intending investor decides to invest and forms a company, BOI provides following specificfacilities and comprehensive services onconfirmationofregistrationofthe company withBOI:
56
l Obtaining industrialplot;l Obtaining utilityconnections;l Registration/approvalofforeign loan,suppliers'credit,PAYE (Pay as You Earn)Scheme,
etc.;l Im porting ofm achineryand raw m aterials;l Obtaning work perm it;l Rem ittance ofroyalty,technicalknow-how and technicalassistance fees.
II.8.1Terms and Conditions ofInvestmentsofDifferentSizes-W hether Domesticor Foreign
Underthe Foreign PrivateInvestm ent(Prom otion and Protection)Act,1980(i) The governm ent m ay sanction establishm ent with foreign capital of any industrial
undertaking which is likely to contribute to the developm ent of capital , technical andm anagerial resources of Bangladesh or strengthen to balance of paym ents of Bangladesh,increase em ploym entopportunities orthe econom icdevelopm entofthe countryin any otherm anner,
(ii) The Actalso lays down thatthe term s ofsanction ofany foreign privateinvestm entwillnotbe unilaterally changed so that it is accorded a less favorable treatm ent than sim ilar localprivateinvestm ent,
(iii) Foreign private investm ent shall not be expropriated or nationalized, except for publicpurpose againstadequatecom pensation,
(iv) The transferofcapitalin respectofforeign privateinvestm entisguaranteed.
II.8.2ExportPolicy
The ExportPolicy 1997-2002had been designed tooperateinthe im peratives and opportunities ofthe m arket econom y with a view to m axim izing export growth and narrowing down the gapbetween im portpaym entand exportearning.The principalobjectives ofthispolicy were:
l To achieve optim um national growth through increase of export in regional andinternationalm arket;
l To narrow down the gap between the country's export earning and im port paym entthrough achievem entofthe exporttargets;
l To undertake tim elysteps forproductionofexportablegoods atacom petitive pricewithaview to exporting and strengthening existing exportm arketsand m aking dentin newm arkets;
l To take the highest advantage of entering into the post Uruguay liberalized andglobalized internationalm arket;
l To m ake our exportable item s m ore attractive to the m arket through productdiversification and qualityim provem ent;
l To establish backward linkage industries and services with a view to using m oreindigenous raw m aterials,expand the productbase and identifyand exporthighervalueadded products;
l To sim plify export procedures and to rationalize and solidify export incentives;l To develop and expand infrastructure;l To develop trained hum an resources in the exportsector;l To raise the qualityand grading ofexportproductstointernationallyrecognized levels.
The following strategies wereplanned tobe undertaken toattainthe objectives ofthe exportpolicy1997-2002:
l Sim plifying exportprocedures and helping the privatesectorachieve efficiency;Buttendency ofthe governmentpersonneltohatch personalprofitfrom givingservicesto the entrepreneurs has stopped the policyshortofbenefitsto them.
57
l Enhancing technological strength and productivity, and facilitating reduction of costand attaining internationally accepted standard of quality of exportable products, andthereby consolidating theircom petitiveness;Though the government'sbureaucracy often delays production processes in numerousexport-oriented enterprises,the entrepreneurs themselves have totacklesuch situations by way oftheirstaff'sand workers'extended work hours and costacceleration.In such situations,the entrepreneurs make up for such costaccelerations by way ofobtainingcash creditfrom theirbanks,but,ofcourse,resulting to reduced profits.
l Ensuring m axim um use of local raw m aterials in the production of export goods andencouraging establishm entofbackward linkage industries;
l Participationinthe internationaltrade fairs,specialized fairs,singlecountryexhibitionsabroad and also sending outtrade m issions,withaview toconsolidating ourpositioninthe existing m arketand creating new m arkets;
l Encouraging export of new category high value-added readym ade garm ents and alsoencouraging the concerned trade associations forestablishm entofaFashion Institute;The Fashion Institute has been established by BGM EA. The rate of enrolment ofstudentshas notbeen satisfactory because ofthe factthatthe costofeducation/tuitionisquitehigh and unbearablefor the intending students.The Governmenthas notcomeforward to patronize or supportthe establishmentand/or operation ofthe Institute inany way.
l Forprom otion ofhigh value-added leatherand leathergoods export:Providing variousfacilities including bonded warehouse facilities for im port of m aterials such as rawhides,pickled,wetblue,crushed and finished leather,com ponentsand chem icalsetc.to100 percentexportoriented leatherindustries;
l For prom otion of export of shrim p extension and m odernization of traditional/sem i-intensive m ethodofshrim p cultivationand ensuring qualityas perbuyer'srequirem ents;
l Forprom otionofexportofjuteand juteproductsundertaking extensive publicityofjuteand juteproductsas environm ent-friendlynaturalfibreand diversificationofthe uses ofjuteproducts;However,AdamjeeJuteM illsthatused to consume 17 percentofthe totalraw juteofthe country has been closed on two grounds,thatis,(a) perpetuated financialloss and(b)donors'terms.
l For prom otion of export of tea undertaking program m es for establishing brand nam eand developing linkage with established blending and distributing agents;
l For prom otion of export of agro based products undertaking program m es for raisingqualitystandard and expansion ofm arket;
l Forprom otionofexportofelectricaland electronicgoods (including com putersoftwareand dataentry)building and ensuring conducive infrastructure;However,the lack ofconnectivitywiththe transoceanicfibre opticnetwork has retardedboth profitableinvestmentsand exportofsoftware,itsoverseas marketbeing capturedby more efficiententrepreneurs from countries likeIndia.
l For the prom otion of export of engineering consultancy and other services and sub-contracting involving,inabiggerway,Bangladesh m issions abroad obtaining contracts;
l Organizing regularly international trade fairs and product-specific fairs within thecountry;
l M aking appropriatedevelopm entand expansion ofinfrastructureconducive to export;
58
However, strikes/hartals, accompanied by unhealthy industrial relations practices,closure ofportsdue tostrikes by portworkers'trade unions,andunscientificflagrulesoften clogged the exportsector withsuspensionofactivities.In M ay-June 2003,severalforeign flag vessels refused to anchor and load and unload at the Chittagong Portbecause they were required to procure a waiver certificate from the M inistry ofShipping.In aJune 22,2003parliamentary session,the M inistry ofShippingtabled andgot approved a new ordinance that includes a waiver clause as the Bangladesh FlagVessels(Amendment)Bill2003.Under the new ordinance,major foreignoperators willbe allowed to load and unload cargoes at Bangladesh ports without taking waivercertificates for two years.
l Arranging fornecessarytechnicaland practicaltraining fordevelopm entofskilledm anpowerin the exportsector.There are certain institutes that grow now and then; but the level of tuition fees isusuallyvery high and unaffordableon the partofthe intending students.
l Ensuring m axim um utilizationoffinancialand otherassistance extended by the W orldBank.l Extending technicaland m arketing assistance fordevelopm entofnew productsand for
finding appropriatem arketing strategies;l Taking necessarysteps to assistprocurem entofraw m aterialsby the export-oriented
industries atworld price.
II.8.2.1 ExportPromotion Council/CommitteeA National com m ittee on export has been form ed. The highest-level com m ittee on exportprom otion is headed by the Prim e M inister and consists of the M inisters for Foreign Affairs,Finance, Com m erce and Industries, Planning, Jute and Textile as well as senior governm entofficials and representatives of im portant trade associations. The com m ittee reviews the exportsituation,provides necessarydirections and readilyresolves problem s.Forim m ediateattentionandaction on export-related problem s, a task force has been form ed under the chairm anship of theM inister for Com m erce. W ith a view to exchanging ideas with Cham bers of Com m erce andIndustries, Exporters' Associations and private sector organizations in form ulating export policyand strategies,and up lam enting policy decisions,an exportcouncilhas been form ed.A task forceshall also be form ed to recom m end practical m easures for export increase and m onitoring theim plem entation ofincentives and facilities ofthrustsectorand crash program item s.
II.8.3IndustrialPolicyII.8.3.1The VisionofIndustrialDevelopmentThe IndustrialPolicy envisages an industrialsectorwherem anufacturing willaccountforatleast25percentofthe GDP withinadecade.Italso envisions productionoflabor-intensive m anufactureswith skillupgradation,to catch itscom petitive edge,with,atthe sam e tim e,aniche ofhigh-techindustrialsub-sector.
II.8.3.2Objectives ofIndustrialPolicyThe m ain objectives of Industrial Policy, 1999, are to expand production base, prom ote privatesector and FDI, generate fem ale em ploym ent, diversify exports, develop indigenous technology,etc.The IndustrialPolicy also outlines arange ofbroad strategies which include m easures such asrem oval of all regulatory barriers to FDI, privatization of public SOEs as soon as possible,developm ent of the capital m arket, developm ent of the infrastructure including port facilities,transportand com m unication and hum an resourcedevelopm ent,give specialincentives todevelopsm all and cottage industries, encouraging ‘‘Build-Operate-Transfer’’(BOT) and ‘‘Build-Operate
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Own’’(BOO) in these sectors, rationalization of tariff, encourage research and developm ent andtransferofappropriatetechnology,availabilityoflong-term industrialcredit,etc.
II.8.4 Tax Holiday and Other Facilities
(a)Tax holiday.According to the investm entpolicy,tax holiday facilities are available foranexisting industry for 5 or 7 years depending on location of enterprise. If the enterprise islocated inDhaka orChittagong Division(excluding threeHillTractsDistrictsofChittagongDivision),tax holiday facilities are for5years,and ifitislocated inKhulna,Sylhet,Barisaland RajshahiDivisions orthe threeHillTractsDistricts,then tax holiday facilities areforseven years.NationalBoard ofRevenue (NBR)issues the certificate.
(b)Depreciation allowance. Accelerated depreciation allowance can be enjoyed by a newindustrial undertaking in lieu of tax holiday anywhere in Bangladesh @ 100 costs of them achinery,butforthe firstyearonly.From FY2002-03,initialdepreciation allowance hasbeen reintroduced to covercertain percentofthe costsofm achineryas also on the factory.
(c)Dutyexem ptions and concessions on m achinery.No im portdutyischarged for100 percentexportoriented industry.Forcapitalm achineryand spares,im portdutyisupto10percentoftheir value. For other industries, im port duty is charged at 5 percent advalorem on capitalm achineryand spares.VAT isnotpayableforim ported m achineryand spares.
(d)Avoidance ofdoubletaxation.Doubletaxation forforeign investorscan be avoided on thebasis of bilateral treaties to avoid double taxation. NBR arranges the tax avoidancefacilities.
(e)Rem ittance.Rem ittance ofroyalty,technicalknow-how,technicalassistance feeallowed forforeign investors.BB gives rem ittance approval.
(f) Repatriation.Fullrepatriation ofinvested capital,profitand dividend isallowed forforeigninvestors.BB gives the approval.
II.8.5EPZ Rules and Incentives
ExportProcessing Zones (EPZs)have been created inBangladesh toassistestablishm entofexport-oriented industries. Necessary infrastructural facilities, including com m unication and utilityconnection,have been provided tothe investorsby EPZ.The types ofinvestm entallowed inEPZsareofthreetypes,nam ely:fullyforeign-owned (Type A),jointventureprojectsby foreign investorsand Bangladeshiinvestorsliving inBangladesh (Type B),and fullylocally-owned,by Bangladeshiinvestorsliving in Bangladesh (Type C).
As Annex-III reflects, every governm ent in Bangladesh has been all-out to extend all possiblesupportto the EPZs toward gearing up exports.W hilethe firstEPZ was established in Chittagongin the year1983,furtherestablishm entand growth ofEPZs have taken placeatotherzones ofthecountry,such as Dhaka,Com illa,Ishwardi,M onglaand Nilpham ari.The totalinvestm entm ade by23countries inthese sixEPZs now stands atUS$550.73m illion.The totalgoods exported from theEPZs in FY2001-2002 wereworth US$1.2 billion,thatis,around 18 percentofthe country'stotalexportsduring the corresponding period.Inaddition,123,927workers(31percentofthem fem ale)areem ployed atthe EPZs.
In the presentcontext,Bangladesh isrequired to m ake huge structuraladjustm entsto adaptto thenew global trading pattern, following introduction of W TO m easures after 2004. Besides,Bangladesh enjoys large am ountsofGSP facilities with USA.Bangladesh exported goods worthUS$43 m illion, under GSP facilities, to USA in FY2001-2002. However, the Governm ent ofBangladesh isnow swinging between two likelypracticalchoices:
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(a)Bangladesh'schoiceto resum e trade unionism in EPZs following an com m itm entm ade bythe Governm ent to AFL-CIO (Am erican Federation of Labor and Congress of IndustrialOrganizations)in the earlypartof2001;and
(b)Threatspoised by the foreign investorsin EPZs saying thatin case ofresum ption oftradeunionism inthe EPZs,they wouldstoptheiroperations inthe EPZs and sue the governm ent,because Governm ent had com m itted to them earlier in writing that trade unionism had nospace in the EPZs.
Therefore,howeverwellthe EPZs m ay have operated and contributed to the country'sgrowth oftrade,investm entand em ploym ent,itisyettobe reckoned shortlyas tohow fareffective the EPZsrem ain in prom oting business in Bangladesh. The Governm ent has a lot to contribute in thisdirectionby way ofitseconom icdiplom acy.
II.8.6Incentives againstExports
EveryyearTk.6000m illiontoTk.7000m illionisgiven toexportersas cash incentives.The budgetforFY2002-2003provided Tk.6020m illionforthispurpose.The currentbudgetforFY 2003-2004contains Tk.14000 m illion in subsidy,alarge portion ofwhich willbe spentas incentives.
Earlier, the Governm ent had divided various exportable com m odities into a num ber of groupsfollowing the item -wise benefitstobe drawn by the countryfrom item -wise exports.On conclusionof export of a specific am ount of a specific item , the exporter had the right to apply to theBangladesh Bank,through exporter'sbank,forincentives in the form ofIECs (Im portEntitlem entCertificates)on the basisofwhich the exportercould im portvarious im portableitem s to the tuneofacertain percentage ofthe totalf.o.b value ofthe exportsm ade.During the lastfew years,theearlier rule has been out of practice. The rule up to the m iddle of June 2003 had been for theexporterstoreceive cash incentives againstexports(e.g.refundofVAT,etc.).Since the thirdweekofJune 2003,anew rulehas been introduced toprovide incentives tothe exporters.The change inthe type ofincentives has been changed reportedlybecause ofthe Governm ent'sfeltneed tocheckm isuse of export perks under the m odality followed up to the m iddle of June 2003. There areallegations thatexportperks werem isused toasignificantextentby certainexportersusing forgeddocum entsorraising unlawfulclaim s and giving bribes to concerned officials(Exam ple:SectionII.1- The Corruption Scenario). The newest order passed out in June 2003 states that from nowonwards,no exportincentives would be given in the form ofcash butbanking instrum ents,whichwould be used as apriorityto adjustloans ofthe exporters.
Underthe new rules,the EPB has been m ade responsibleform onitoring.A governm ent-appointedauditor at EPB will m onitor the system until EPB develops an oversight m echanism . Thecom m ercialbanks have been advised by the Bangladesh Bank tofollow atotalof14rules inregardtogiving ofexportincentives.The new rules enjoinonthe exportersofhigh-priced cloth(US$2 perm eter,and atleast10,000m etersofcloth)willhave toreceive certificates from the watchdog entity(EPB)beforeshipm ent.Otherwise,they willnotbe entitling to the incentives.
III. TRANSPARENCY AND ACCO UNTABILITY IN TRADE AND INVESTM ENTACTIVITIES
III.1 The Corruption ScenarioBureaucracy's infestation with corruption is all pervasive. This point is one of the m ost seriousconcerns m ade by the prospective foreign investorsin Bangladesh.According tothe W orld Bank'sestim ates,corruption reduces growth rateby 2-3 percenteach year.Transparency Internationalhaslisted Bangladesh as the nationwiththe highestlevelofcorruptionfortwo consecutive years.Bothdom estic and foreign investors frequently report their obligations to pay extra fees for obtaining
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such governm entservices as allotm entofpostofficeboxes,provision oftelephone lines,variouslicenses, custom s clearance, etc. Exam ples of higher-level corruption are those that take placefrequentlyinthe fairawarding ofpublicand privatetenders,as incase ofinsidertrading inthe stockm arket. In this regard, business people consider Bangladesh custom s to be am ong the worst, athoroughlycorruptorganizationinwhich officialsroutinelyexerttheirpowertoinfluence the tariffvalue ofim portsand to expediteordelay im portand exportprocessing atthe ports.A m andatorypre-shipm ent inspection system of im port valuation was introduced in 2001 to help reducediscretionary powerofcustom s officials,and lowercostsand im prove efficiency atBangladesh'strade entrypoints.Annoyed overthe introductionofthisnew system ,the custom s officialshave thefirstto say thatthe valuation system isweak.
The US Trade Centre in Dhaka, in its Country Com m ercial Guide 2003-2004, claim ed that anAm erican firm had tried unsuccessfullyto gain from Custom s Inspector'sapprovalforitsUS$225m illion containerprojectwhilethe US shareholderofaprivatetelevision station had to protesttheGovernm ent'srevoking ofitslicense.Thereisdelay in paym entofdues as well.As forinstance,aUS exporterwas waiting to be paid forwheatshipm entitm ade eightyearsago and internationaloil com panies were owed US$150 m illion in paym ent. The report also identified poorim plem entation of the country's liberal investm ent policy as the m ain drawback.A press reportpublished inThe DailyStar(June 30,2003)narrates the storyofcorruptioninthe DutyExem ptionand Drawback Departm ent(DEDD).In the reported incidentofcorruption,threecases werefiledagainst four officials of the DEDD.The Daily Star (June 30, 2003) narrates the story of thiscorruption case as follows.
III.2 Anti-Corruption LawsInBangladesh,the PreventionofCorruptionAct1947(ActNo.IIof1947)isthe basiclaw againstcorruption. The Crim inal Law Am endm ent Act 1958 (Act No. XI of 1958) was enacted in thePakistan period(onSeptem ber231958)withcertainobjectives and form orespeedy trialofpublicservants.
The Prevention of Corruption Act 1947 has been included in the Schedule to the Crim inal LawAm endm entAct1958.The Actof1958 empowers the Governmentto withdraw the case on anycharge againstallor any ofthe accused persons,withscope ofapplicationofthe principleof"pickandchose’’
Section 6(5)ofthe Crim inalLaw Am endm entAct1958 requires sanction by the Governm entforprosecution against a public servant. Som etim es sanctions are withheld or refused by the
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"The cases state that the SCBDFL (South China Bleaching and Dyeing Factory Ltd.) inSeptember lastyear applied thricetothe dutydrawback departmentrequestingarefundoftheVAT againstitsgas bill.The applications were filed on the same date,including three PRCs(Proceeds RealizationCertificates).The BAC investigators flipped through the PRCs andfoundthem fake. The SCBDFL drew a VAT refund of Tk.7 lakh (Tk.0.7 million) in the first PRC,Tk.14.30lakh inthe second andTk.16.75lakh inthe third.The BAC filed the cases onthe basisofa ledger itseized on M ay 21 from Customs Inspector Sohrab Hossain.The ledger exposednames ofrepresentatives of50 companies who gave kickbacks to the department.
Thisledger also revealed thatthese officialstook Tk.6.47lakh inbribes from the SCBDFL.TheBAC filed another case on June 1 against Sohrab Hossain for collecting kickbacksmethodicallyat10-12 percentfrom tax exemption ofvarious companies."
Governm entinitsdiscretion.Infact,the DirectorGeneralofthe Bureau ofAnti-Corruptioncannotstartacorruption case againstaCabinetM inisterwithoutpriorperm ission ofthe Prim e M inister.Hence,the W orld Bank(W B)and InternationalM onetary Fund (IM F)are ham m ering forsettingup ofan independentand neutralAnti-Corruption Com m ission in Bangladesh.
III.3 O m budsperson System
Article77ofthe Bangladesh Constitutionprovides forestablishm entofan Om budsperson who willbe an independent high level public official to receive com plaints against governm ent agencies,officials, etc. and to keep watch and control over persons under his/her jurisdiction. M oreover,Om budsm an ActNo.XV of1980had been enacted long ago,butalm osteverygovernm entofthiscountryhas so faravoided appointm entofan Om budsm an,so thatcorruptbig fishes ofthe rulingpartyarenotapprehended.
III.4 Conventions againstCross-Border CorruptionAs m entioned earlier,the PreventionofCorruptionAct1947(ActNo.IIof1947)enacted in1947,and the Crim inalLaw Am endm entAct1958(ActNo.XIof1958)enacted onSeptem ber23,1958together form the gam ut of prevalent anti-corruption enactm ents in Bangladesh. To date,Bangladesh has notbeen blessed with any legislation,specificallyagainstcross-bordercorruption.However,these anti-corruption enactm entscoverthe citizens in Bangladesh as wellas the cross-bordercitizens.Inabsence ofafull-fledged enactm entforpreventionofcross-bordercorruption(asinthe case ofthe Foreign CorruptPractices Actof1977inthe USA),the PreventionofCorruptionAct1947 and the Crim inalLaw Am endm entAct1958 areserving the interestsofthe countryto apossibleextent.
III.5 Agencies and Institutions InvolvedA Bureau of Anti-Corruption (BAC) exists to com bat higher-level corruption, but it rem ains alargely ineffective body due to reported corruption am ong itsofficialsand lack ofindependencefrom the politicalauthorities.Atthe M ay 2003 Developm entForum ,the Governm entpledged toreplacethe Bureau with an independentAnti-Corruption Com m ission.
III.6 Enforcem entM echanism sBAC is itself popularly believed to be a corrupt organization. Even if the popular belief is notconsidered acceptable,atleastitm ay be safelyconcluded thatthe BAC has notbeen abletocreateany im pactwhatsoeveron the country'seffortto curb corruption.Therehas notbeen any instanceofcrackdown oncorruptioninitiated by BAC.Unlike independentcom m issions againstcorruptionin the developed countries,BAC'sactivities areconfined to investigating allegations ofcorruptiononly.Ithas no m andateforpreventive orpubliceducative function.Itisagovernm entdepartm enthaving no independence of action, although BAC has been arm ed with enough powers to fightcorruptioninallspheres ofpubliclife.Therearealarge num berofacts,ordinances and rules underwhich BAC operates and these are quite adequate and powerful legal instrum ents for BAC tocom batcorruption.Butan anti-corruptionagency,tobe effective,m ustbe independentofexecutivecontrol.In Bangladesh,BAC iscontrolled by the Prim e M inister'sOffice.The officialsatBAC,from the top levelto the bottom ,aretransferablein the m annerthe officialsofothergovernm entdepartm ents are controlled and adm inistered. No Governm ent in Bangladesh has been seeninitiating cases against any m em ber of the ruling party. The agency does not have full power todecide on the basisofitsfindings as to ifthe case should be quashed orreferred to the alleged'sdepartm entfordepartm entalaction orbe sentto aCourtofLaw.Itisam andatoryrequirem entforBAC to seek perm ission from the Prim e M inisterbeforesending acase ofm iddleto seniorlevelofficerto aCourtofLaw.As ofnow,the quality and skillsofthe investigating officersisusually
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sub-standard,and the overallrecruitm entsystem in BAC requires transparency.Finally,politicalwill and com m itm ent is seriously lacking in BAC, for which this institution cannot workindependently.
IV. LEGAL AND JUDICIAL FRAM EW O RKThe rootsofthe developm entofthe legalsystem ofBangladesh go back to ancienttim es oftheIndian Sub-Continent.Itpassed through various stages and has graduallydeveloped as acontinuoushistoricalprocess.The process ofevolution has been partlyindigenous and partlyforeign,and thelegalsystem ofthe presentday em anates from a‘‘m ixed’’system thathas astructure,certain legalprinciples and specificconceptsm odeled on both Indo-M ughaland English Law.
Bangladesh tookitsbirthas an independentand sovereign stateonDecem ber16,1971.Inordertoensure continuity in all legal spheres in independent Bangladesh, the Laws Continuance Order1971,effective from M arch 26,1971,legalized and m ade effective allthe existing laws inheritedfrom Pakistan subjectto the Proclam ation ofIndependence,1971.Thereafter,the judiciary ofthecountry was setinto m otion with the appointm entofthe Judges ofthe High Courtofthe countryonJanuary11,1972by aPresidentialOrderNo.5of1972.Subsequently,by PresidentialOrderNo.91 of 1972, the Appellate Division was established before restoration of the original 1972Constitution of Bangladesh. The 1972 Constitution of Bangladesh has set up, at the apex of theJudiciary,the Suprem e CourtofBangladesh com prising the AppellateDivisionand the High CourtDivision.Itisthe solesuprem e courtofthe country.The ChiefJusticeofthe Suprem e Court,whoisappointed tothe AppellateDivision,isconstitutionallyknown as the ChiefJusticeofBangladesh.In the recentyears,som e developm enttook placein the legalsystem ofBangladesh.These aretheOm budsm an Act1980(ActXV of1980);the Adm inistrative TribunalsAct1980(ActVIIof1981);the Incom e Tax Ordinance 1984 (Ordinance XXV of 1984); the Land Reform s Ordinance 1984(Ordinance X of 1984); the Fam ily Courts Ordinance 1985 (Ordinance XVIII of 1985) and theCom panies Act1994.
The Law Reform Ordinance 1978 was prom ulgated am ending the Civiland Crim inalProceduralLaws,laws related to CourtFees and the Law ofArbitration-based on recom m endations ofaLawCom m ittee set up in 1976. At present, there is a perm anent Law Com m ission in Bangladesh tosuggest suitable changes of existing laws as necessary so that the changed laws can m eet thedem ands ofthe m odern tim e.
IV.1 Regulatory Fram ework for Trade and Investm entIV.1.1GeneralScenarioGovernm ental regulation of trade and investm ent since the early 1990s has been decreasing.Donors'advice,the wave ofgrowing globaltrend towardm arketeconom y and astrongerdom esticm ove towarddem ocraticfreedom m ade itpossibleforBangladesh tooptforliberalized policies forprom otion of trade and investm ent. Despite political com m itm ent to the policy of liberalization,various legislations failed to trigger significant trade and investm ent because of non-im plem entation ofanum berofregulatory changes.The stum bling blocks toward im plem entationofm any ofthe policy changes have been the following:
l Apparent com m itm ent of the bureaucracy and the political parties to reform s forderegulation of businesses has been ineffective in the face of opposition from m anygroups in the econom y, including influential m em bers of the business com m unityhaving broad access to trade and investm ent through ownership or otherwise.Proliferation ofenterprises has thus been stifled.
l M em bersofvarious cham bersofcom m erce orindustry are also the m anufacturersinprotected industries and well-connected com m ission agents pursuing governm ent
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contracts.They,therefore,callforagreatervoiceforthe privatesectorin governm entdecisions and for privatization, but at the sam e tim e m any support protectionism andsubsidies fortheirown industries.
l The vicious cultureofun-regulated politicalpartynom inations innationalelections andotherelections coupled with faultyelection rules and faultyapplication ofeven certaincorrectelection rules have opened the way forthe richerbusiness class peoplehavingvested business interests to find a way to power or affiliation with the ruling party.Finally,these classes ofpeopleinfluence policy form ulationforregulationofbusinessesfrom the viewpointoftheirown interests,often hindering open com petitionindom esticorforeign investm entin thiscountry.
Rules pertaining to trade and investm ent in Bangladesh are usually not well-publicized ortransparent.Thislack oftransparency ispracticed by bureaucrats,businesses,professionals,tradeunions and politicalparties having vested interestsin asystem by way ofusing confidentiality asan essential norm in policy form ulation. Businessm en have to seek support for action from thebureaucrats,butbureaucrats'supportisim possiblewithoutthe recom m endations orinterventionofthe higher political levels. The poorly paid civil servants have regarded business people asexploitative, and regard them selves as having a near m onopoly on econom ic acum en andpatriotism . Despite fear from risks to their careers from illegal activities, the incidences ofsolicitation of bribes from foreign investors are ram pant. Public adm inistration reform s inBangladesh has not yet been able to bring about optim um honesty and transparency in thebureaucracy,which iscentraltopolicy form ulationand practices towardim proved environm entfortrade and investm ent.
Generally speaking,the country'slaws and regulations and theirim plem entation areim pedim entsto investm ent.Unfriendly treatm entofbusinesses by som e ofthe governm entofficialsand othernegative elem entsinthe investm entscenarioalways add tothe start-upand operationalcosts,risks,and broadly reduces the effectiveness of governm ent's otherwise praiseworthy investm entincentives.Herefollows areporton how the governm entrules and theirapplication have provedineffective attim es,even forthe dom esticinvestors.
IV.1.2 Concerned Offices and RegulationsThough the sole responsibility of prom otion of trade and investm ent in Bangladesh rests on theM inistry of Industries, various activities in regard to trade and investm ent are regulated by the
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M edia reportsin 2002-2003 indicatethata large group ofcompany had once proposed tothe Government for establishment of a factory for producing alcoholic drinks. The long-term claimer ofthe owner ofthatgroup ofcompany pointed outthathispapers submittedto the Governmenthad crossed every hurdlenecessary for obtaining the approval.He wasalso on the verge ofsaying thata simpleapprovalfrom the M inistry ofHome Affairswaskeepingthe overallapprovalprocess pendingfor years together.Press statementsappearedsaying that the Home M inistry had also indicated in some meetings with the saidentrepreneur that approval was just imminent. As an excuse to the delay in the overallapprovalprocess,there were numerous reportsfrom various departmentsofthe governmentapparentlytrying to prove the reasons for delay in approval.Exchange ofheated remarksbetween the industrialist and the Government reached a stage of reported threats andcounter threats,finallythe StateM inister for Home Affairsfilinggeneraldiaries againsttheindustrialistata policestation in Dhaka City.
Governm ent through m ainly three m inistries, that is, M inistry of Industries, M inistry ofCom m erce,and M inistryofFinance.On anotherlevel,thereareanum berofdepartm entsanddirectorates that operate as autonom ous bodies perform ing specialized tasks toward bothprom oting and regulating trade and investm ent under the guidance of their respectivem inistries.The Parliam ent,with itsrelated sub-com m ittees and the lawm akersatlarge,standoutas the suprem e law-m aking body forany legislationrelated totrade and investm entoranyotherissue.The following flow diagram shows the required process forestablishm entofanenterprise inBangladesh by any expatriateand/orforestablishm entofaverylarge enterpriseby any Bangladeshinational.Thisdiagram indicates the regulatoryinstitutions assisting GoBforprom otion and regulation oftrade and investm entin thiscountry.
As oftoday,the following aresom e inexhaustive exam ples ofthe agencies involved in regulatory,facilitative and prom otionalactivities forengendering trade and investm ent.
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Arrivalin Bangladesh
Com pleteIm m igrationandCustoms Formality
Receiptionby the BOI,andW elcom e atZIA
SecureTrade Licence fromLocalGovernm entAuthority
Applyin prescribed form sto the Registertaion andIncentives W ing ofBOIforforeign borrowing,technology transferfees
and expatriates
RegisterwiththeChiefInspetorofFactories andEstablishmentwhich regulates
working conditionsand ensures
m easures forsafetyinthe factories
M eetBOIfornecessarycounselling,and applyfor
registration
ServiceCentreissuesRegistrationLetterwithin7days onreceiptoffullydocum ented application
Release consignm entatthecustom s pointata
concessionaryrateofim portduty
SET UP PLANT
Obtain environm entalclearance,infrastructureand utility facilities onprioratory basis with theassistance ofutilityService CellofBO I
Registercom pany withthe RegisterofJointStock Com panies and
Firm s
Registerforthe VAT
Im portm achinery andequipm entby openingLetterofCreditorasEquity Investm ent
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Therearevarious cham bersofcom m erceand industryatboth localized and centrallevels,form edwith aview to coordinatethe affairsofpolicy environm entand execution ofrules related to tradeand investm ent acting as m ediators between the entrepreneurs and the Governm ent. Centrallyplaced cham bersofcom m erceand industryarethe FBCCI(FederationofBangladesh Cham bersofCom m erce and Industries), DCCI (Dhaka Cham ber of Com m erce and Industry), M CCI(M etropolitan Cham berofCom m erceand Industry),and BCI(Bangladesh Cham berofIndustry).The otherlocalized cham bersofcom m erceand industry have theirrepresentatives in the FBCCI.Various product or service-based associations of traders and entrepreneurs in Dhaka have theirrepresentation in DCCI as well. Som e of such large product or service-based associations areBGM EA (Bangladesh Garm entsM anufacturersand ExportersAssociation),BFFEA (BangladeshFrozen Foods Exporters Association), BEM M A (Bangladesh Electrical M erchandiseM anufacturersAssociation),Bangladesh Road TransportOwnersAssociation(BRTOA)and others.
As in the case ofCBAs and Trade Unions,representations to various cham bersofcom m erceandindustry as well as product or service-specific associations of entrepreneurs are dom inated byinfluence from the politicalparties (as aresultofahigh-levelpoliticalorientationofthe citizens ofthiscountry).Ithas been observed thatm anipulations by the ruling politicalparties have often ledto top-levelm anagem entofsuch institutions by m em bershaving access to orbeing m em bersofthese ruling parties.As aresult,professionalleadershipinthe trade and investm entsectorby theseinstitutions has runshortofoptim um success.On the otherhand,whateverachievem entsthey havem ade in negotiations with the Governm ent on rules and practices in trade and investm ent, theseachievem entshave notbeen poised atm ass welfare,and have ratherfacilitated m axim ization ofprofitofalim ited few entrepreneurs.Though therearecertain NGOs (non-governm entvoluntaryorganizations)having the goalofprotecting consum errightsand laborrightsin Bangladesh,theiractivities have notspread beyond routine circulationofinform ationonannualchanges inprices ofessentials, relatively less work on real change in consum ers' incom e, savings and expenditurepatterns,costofliving,dissem inationofm essages onlaborrights-allforanum berofyears.CertainotherNGOs,operating in theirrespective operationalareas,have com e to gain som e strength ininfluencing rules and procedures fortrade and investm entinBangladesh.Exam ples ofsuch NGOsare:
l M SUK (CentreforDevelopm entofHum an Potentials).Operating,incollaborationwiththe M ichigan InternationalDevelopm ent(USA),apilotprojectforfinally designing alarger program aim ed at im proved health and fam ily welfare rights of the garm entfactoryworkers;
l BELA (Bangladesh Environm ent Lawyers’Association).W orking closely with theGovernm entforcreation ofalegalenvironm entconducive to m aintenance ofahealthynaturalenvironm entin Bangladesh.
l Nijera Kori. Having close networking activities with the London-based ISAN(IndustrialShrim p ActionNetwork).
l BAPA (Bangladesh Environm ent M ovem ent). Highly patronized and supported byexpatriateBangladeshisworldwide toward lobbying and advocacy form aintenance ofcountrywide ecologicalbalance.
Activities inthe trade and investm entsectorofBangladesh arecarried outunderthe purview ofthecountry'slegalenvironm entas wellas the ICC (InternationalCham berofCom m erce)Brochure,international m aritim e rules and various regional and international trade and tariff agreem entssigned by this country. Though Sections III and IV.2 - IV.8 dwell on various legal and judicial
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practices inBangladesh indicating the type ofgovernance inthiscountry,itm ay be m entioned thattherearecertain laws thatdirectlyaffectorinfluence trade and investm ent,such as:
l Em ergency Services Act,l Banking Ordinance,l NegotiableInstrum entsAct,l Dom esticFlag Rules,l FactoryLaw,l W orkm an'sCom pensationAct,l IndustrialRelations Ordinance.
IV.2 PropertyRightsLawsPrivateownershipand investm entisallowed inallsectorswithexceptioninthe case offive sectors,such as:
l Arm s,am m unition,defense equipm ent,and m achinery;l Production ofnuclearenergy;l Securityprinting and m inting;l Forestryin the reserved forestareas;andl Airtransportation (exceptaircargo and internationalairtransportation)and railways.
As the country's econom y has rem ained stifled by m any inefficient state-owned enterprises(SOEs) for long, efforts for privatization of the econom y as a whole have been watchedclosely by various international bodies as a barom eter of Bangladesh's attitude towards theprivatesector.The Privatization Board'sclaim er,in written reports,states thatithas sold off30com panies since the PrivatizationBoardwas created in1993,prim arilyinthe jute,textiles,sugar,and foodsector.Inreality,ithas retained controlofm any ofthe firm s reported tohavebeen privatized.The Board,starting from itsinception in 1993,has continued to slow downtoavirtualstandstilldespitethe Governm ent'sappointm entofaprom inentlocalbusinessm aninlate1997as the Board'sChairperson.During July2001-June 2002,nosinglecom pany wasprivatized,butpartialshares of11 com panies have been sold.Even following privatization,som e ofthe com panies areyetbeing heavilyregulated because ofanum berofreasons,suchas the m anagem ents'failuretoreduce em ploym entrolls.A totalof150com panies wereinthepipeline ofthe privatizationprocess atthe end ofJune 2002,buttherewas an anticipationthatany achievem ents in privatization would not occur until after the com ing national election,scheduled totake placeinOctober2001.The governm entisusuallyslow toprivatize the state-owned enterprises in orderto avoid the form ation ofunions,and subsequentdisputes,whicharean integrated com ponentofany privateorprivatized com pany.
Though not clearly set out in writing, m any sectors are reserved, at least, partially for theGovernm ent. In occasions of otherwise unm anageable situations of scarcity of certaincom m odities,the Governm enthas often allowed discreteoperation ofthe privateenterprisesto ensurequick and efficientsupplyofthe com m odities in scarcity.Such allowances,on theturn,have been dom inated by decisions to offeropportunities to the m em bersofthe rulingparty or their peerage to im port goods or to distribute goods. Distributorship for sale offertilizerfrom alarge fertilizerfactoryin the Jam alpurDistrictduring the 1991-1996 regim ewas awarded to am em berofthe fam ilyofaseniorm em berofthe then ruling party.Allegedreportsofnum erous irregularities com m itted by thatfertilizerdealerled todissensions am ongthe localfarm erswho led repeated dem onstrations protesting the said irregularities.The law
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enforcem entauthorities intervened toquellthe protestsand dem onstrations.Thisfinallyled tothe death ofm orethan halfadozen ofinnocentdem onstrating farm ers.
The occasionaldiscretedecisions,m ade by the Governm enttobring inprivateoperatorsinspecificm issions in trade and investm ent(e.g.forwheatand fertilizerim portsand fertilizerdistribution),have often been despised by the SOEs.Undersuch public-privatepartnerships,the governm entisusually responsibleforinfrastructuraland operationalsupportto the privatepartners.The privatepartners carry out sales, m arketing and general operations. This has resulted in the lack ofcooperationofthe state-owned authorities tothe privatepartnersas aresultofasense ofunhealthyand unethicalcom petitionfrom the governm entinordertounderm ine the im age ofthe capabilitiesof the private enterprises. As for instance, low-level care in provision of infrastructural andoperationalsupportfrom the governm entalcom ponentsofthe Bangladesh Railway to the privateoperators of a lim ited num ber of privatized railway trains has been m anifested as som e of thereasons behind apparentbutfalsified weaknesses ofthe privateoperators.A com bination ofsuchtacticalnon-cooperation from various governm entalinstitutions and the underm ining oflegalandpolicy reform s has virtuallystifled privatesectorinitiatives.
IV.3 M echanism s to ProtectProperty RightsThe m echanism ofprotection ofpropertyrightsisnottransparentand isapointofserious concernto the investorsand prospective investorsin thiscountry.Therearetwo particularreasons forthelack oftransparency ofthism echanism :
l The ingrained culture ofdelay in disposaloflegalcases (Section IV.7 ofthisreport),especiallythe ones underthe jurisdiction ofCPC (CivilProcedureCode);and
l Insufficiency ofenactm entsnecessaryforaddressing propertyrightsissues.
Bangladesh,being asignatorytothe Uruguay Round agreem entsand being am em berofthe W orldIntellectual Property Organization (W IPO) in Geneva since 1995, has also acceded to the ParisConventiononIntellectualPropertyin1991.Following these affiliations,Bangladesh isobliged tobring itslaws and enforcem enteffortsinto TRIPS (Trade Related IntellectualPropertyRights)byJanuary 1, 2006. Copyright conform ity with the W TO's TRIPS has been established by way oflegislation in Novem ber2000.However,absence oflaws to enforcethe new copyrightlegislationturned the billto be ineffective atthism om ent.Land forpurchase orlease has to be com m onlytransacted inby any investor;butthe obsoletelaws relating toland arecom plex and frequentlygiverise to chaos.Papersrelating to land registration records arealm ostcom m onlyspurious.Parties intransactions of land frequently avoid registering m ortgages, liens, and encum brances becauserelated stam p duties and charges have been setathigh levels.Instrum entstake effectfrom the dateofexecution,and notthe dateofregistration.As such,abona fide purchasercan neverbe certainoftitle.Inbrief,whateverprovisions have been inwriting,thereislittleenforcem entofIntellectualProperty Rights and other property rights laws in Bangladesh. In spite of these efforts by theGovernm ent to stream line Property Rights Laws in Bangladesh, there have been a few U.S.com plaintsto date.Legislation to update the Patentsand Designs Actand the Tradem arks Actisstillpending finalvetting by the M inistry ofLaw,Justiceand Parliam entaryAffairs.The CountryCom m ercial Guide 2003-2004, published by the U.S. Trade Centre in Dhaka, indicated thatBangladesh'sdisputesettlem entm echanism was afundam entalim pedim entto foreign investm ent.The Guide added that dispute settlem ent was also ham pered by shortcom ings in accountingprinciples and registration ofrealproperty.
"Special 301" W atch List of the U.S. Trade Representative, that identifies countries denyingsufficientprotection ofintellectualproperty rightsorfairand equitablem arketaccess forpersons
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thatrely on intellectualproperty protection,has neverincluded Bangladesh.However,in 2003,aUS trade association proposed adding Bangladesh to the W atch List. In this country, intellectualproperty infringem ent is com m on, especially of com puter software, m otion pictures,pharm aceutical products, CDs/DVDs, and audio and videocassettes. As a result of the ram pantcopying ofCDs/DVDs and audioand videocassettes,therehave been two particularim pactsonthelocaleconom y:
l the violation of copyright laws, depriving the foreign producers of these audio-videom aterialsoftheirentitlem entsin return ofsuch copying;and
l poising of unhealthy com petition to the local film and m usic industry when the verylatestforeign film s areavailablein the m arketwithin 24 hoursoftheirrelease abroad.
The m ethod ofcopying and distribution ofsuch entertainm enthas been discovered by The DailyStarin itsJuly02,2003 issue as the following.
IV.4 Structure ofthe JudiciaryThe country's legal system com prises of Adm inistration of Civil Justice and Adm inistration ofCrim inalJusticeregulated procedurallyby two distinctsetsoflaws,thatis,CivilProcedureCode(CPC)1908and Crim inalProcedureCode (CrPC)1898.Besides certainspeciallaws enacted fromtim e to tim e in specificurgentsituations,the PenalCode 1860 dealswith the offences in term s ofdefinitions,extentofpunishm entand exceptions,etc.Underthe speciallaws,certainprovisions ofthe Code of Crim inal Procedure with regard to investigation, arrest, bail, seizure, attendance ofwitness,etc.,areapplicable.
The Bangladesh Constitution 1972 includes aseparatepart(PartVI,Articles 94-117)dealing withthe judiciary. The Suprem e Court of Bangladesh com prises of the High Court Division and theAppellateDivisionheaded by the ChiefJusticeofBangladesh.The High CourtDivision,beside itsappellate and revisional jurisdiction in civil and crim inal m atters, has extraordinary jurisdictionknown as writ jurisdiction under Article 102 of the Constitution toward enforcem ent offundam entalrights.The AppellateDivisionisthe topm ostcourtthat,besides having jurisdictionofappealarising from the decisions ofthe High CourtDivision underArticle 103,has been vestedwiththe jurisdictionofdoing com pletejusticeunderthe Constitution'sArticle104topreventfailureofjustice.In addition,the AppellateDivision has advisory jurisdiction on legalm attersofpublicim portance underArticle106 ofthe Constitution wheneversoughtby the President.The Suprem eCourthas the jurisdictiontodecide the constitutionalityofany law and itcan also strike down anylaw thatisultravires orinconsistentwith any provision ofthe Constitution.The decisions oftheAppellateDivision arebinding upon the High Courtas wellas on the subordinatecourtsand thedecisions ofthe High CourtDivision on allcourtssubordinateto it.
The subordinatejudiciary consistsofthe courtsofdistrictjudges,additionaljudges,jointDistrictjudges, assistant judges and the m agistrates. The district judges, additional judges and the joint
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"The movies are recorded in theatres when they are released abroad. They are thenmailed through the Internet to groups in M alaysia or Pakistan. Here, after somefilteringandediting,the movies are burntontocompactor digitaldiscs.These are thendistributed by smugglers to various destinations. Usually they travel by air andtherefore,the very latestmovies likeM atrixReload,X-M en 2andDevdas are foundinDhaka onlyfifteen tosixteen hours after theirrelease inforeigncountries.Butproofoftheirpiracy isapparentinthe viewingas the shadows ofaudience members can be seenatthe bottom ofthe screen."
districtjudges,apartfrom theirciviljurisdiction,arealso vested with the crim inaljurisdiction andareclassified as the courtsofsessions judge,additionalsessions judge and assistantsessions judge.Below the courtsofsessions judge,therearethe m etropolitan m agistrates forthe m etropolitan areasand m agistrates for other areas trying cases which cannot be tried by the Courts of Sessions.Offences punishable with im prisonm ent up to five years m ay be tried by different classes ofM agistrates.AssistantSessions Judges can tryoffences and pass sentences notexceeding ten years.Sessions Judges and AdditionalSessions Judges can pass any sentence authorized by law and alsosentence of death subject to confirm ation by the High Court Division (Sections 6, 31, 32 of theCrPC). Appeals against the judgm ents of conviction and sentences passed by the M agistrate arem ade to the court of Sessions, and appeals against the judgm ents of conviction and sentencespassed by the Sessions Judges arem ade to the High Court.
Underthe crim inaladm inistrationofjustice,offences aregenerallycategorized intocognizableandnon-cognizablewith theirclassification as to arrest,bail,com poundability,courtsby which to betried, procedure of trial, etc., shown in the Second Schedule of the Code of Crim inal Procedure(CrPC).Crim inalproceedings areinitiated by eithercom plaintorFirstInform ation Report(FIR).In cognizable cases, police can arrest the alleged offenders without warrant from the court.Prosecution in cognizable cases is the state's responsibility. A crim inal proceeding com prises ofinvestigation and trial during which offenders are detected and apprehended, evidences arecollected and the case is m ade ready for trial. The foundation of the case is built duringinvestigation. Detection of the real crim inal and collection of proper evidence lay the realfoundation of a crim inal case because the success of the prosecution depends on the efficienthandling ofthe cases by the investigators.The m ethodology forinvestigations tobe conducted,andwhetherstatem entsofwitnesses,confessionalstatem entsofthe accused and the dying declarationareto be recorded willallbe regulated by specificprovisions oflaw.
M agistrates are em powered to try sum m arily petty offences punishable up to two yearsim prisonm entunderChapterXXIIofthe Code ofCrim inalProcedure (CrPC).The procedure oftrialbeforethe CourtofSessions iscontained in ChapterXXIIIofthe CrPC.
IV.5 Independence ofthe JudiciaryAs perthe provision ofArticle94(4)ofthe Constitution,the chiefjusticeand otherjudges oftheSuprem e Court are independent in the exercise of their judicial functions. Sim ilarly, all personsem ployed inthe judicialserviceand allm agistrates areindependentinthe exercise oftheirjudicialfunctions as provided underArticle116A ofthe Constitution.The independence ofthe judiciaryisthe precondition of fair trial and fair justice. Another prerequisite of sound and independentjudiciary isthe separation ofthe judiciary from the executive organ ofthe state.Article22 oftheConstitution contains fundam entalprincipleofstatepolicy to the effectthat"the stateshallensurethe separation of the judiciary from the executive organs." Although there is the constitutionalcom m itm entforthe separation ofthe judiciary,no positive steps have been taken tilltoday fortheseparation ofthe judiciary.
The landm ark decision ofthe Secretary,M inistry ofFinance vs.M asdarHossain (1999)52 DLR(AD) 82 was determ ined on the basis of how far the Constitution of Bangladesh had actuallysecured the separation of the judiciary from the executive organs of the State and whether theParliam entand the Executive had followed the Constitutionalpath.In brief,the case was decidedfollowing how farthe independence ofthe judiciaryisguaranteed by the Constitutionand whetherthe provisions of the Constitution had been followed in practice. The court identified fiveconditions ofjudicialindependence:
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(i) Securityofjudicialtenure;(ii) Securityofjudicialsalary;(iii)Institutionalindependence ofsubordinatejudiciary;(iv)Judicialappointm entsby separateJudicialServiceCom m ission;(v) Adm inistrative independence and financialautonom y ofjudiciary.
As aconclusion to the case on Secretary,M inistryofFinance vs.M asdarHossain (1999)52 DLR(AD)82,the AppellateDivisionofthe Suprem e Court,initsjudgm ent,gave 12-pointguidelines toim plem entthe separationofthe judiciaryfrom the executive organ ofthe state,as reported onPageof52 DLR (AD).The Governm ent,by taking perm ission from the Suprem e Court,has postponedthe decision ofseparating the judiciary from the executive forfourteen tim es.In the lastweek ofM ay 2003, the Suprem e Court allowed another tim efram e of four m onths to the Governm ent toim plem entseparation ofthe judiciary.
The expectations ofthe com m on citizens arenotonlyajudiciaryseparatefrom the executive organofthe state,butalso ajudiciaryindependentfrom the influence ofantulteriorquarters.The artofpracticing im partiality does not develop overnight, it rather results from understanding,appreciating and acknowledging the m oral values, ethics and professional responsibility over aconsiderableperiodoftim e.Itisbasicallyaquestionofdeveloping an attitude.Inthisregard,thereisthe need to look atthe types ofincum bentsin the judiciary and the particulararrangem entsfortheirrecruitm ent,codes ofethics and training in the judicialservice.
IV.5.1 Appointmentand Term in Office
Atpresent,the judges ofthe subordinatecourtsareunderthe adm inistrative controlofthe M inistryof Law, Justice and Parliam entary Affairs which, according to Article 116 of the Constitution,exercises thiscontrolin consultation with the Suprem e Court.However,the m agistrates areunderthe adm inistrative controlofthe M inistryofEstablishm ent.The m agistrates perform bothexecutiveand judicialfunctions.The dualadm inistrative controloverthe judges and the m agistrates has som eadverse reflection on the independence ofthe judiciaryaffecting,som etim es,fairtrial.
As acurrentpractice,the judicialofficersofthe subordinatejudiciaryareappointed by the PublicService Com m ission, an executive unit of the state. The advice given to the Governm ent in itsconclusionofthe case onSecretary,M inistryofFinance vs.M asdarHossain(1999)52DLR (AD)82, the Governm ent also m entioned that the Governm ent should appoint, in its process ofseparation of the judiciary, judicial officers of the subordinate judiciary by a Judicial ServiceCom m ission,instead ofthe PublicServiceCom m ission.
The vastm ajorityofthe judges and judicialofficersareappointed from eitherthe m em bersoflegalprofession with long professional standing or the law graduates by way of judicial serviceexam ination intake.The legaleducationalinstitutes ofBangladesh do notteach itsgraduates theethics orprofessionalresponsibility.Thereisnoconceptualfram eworkthatastudentneeds tolearnand develop good ethics to be agood lawyer.As such,thereisno subjectlike legalethics in theofficialcurriculum ofany ofthe law degrees in thiscountry.
Though one m ay argue that the legal educational institutes do not produce professionals butacadem ics,then the totalresponsibility shiftsto the professionalbodies (e.g.,the Bangladesh BarCouncil, the Bar Associations, JATI- Judicial Adm inistration Training Institute, etc.). It is theirresponsibility to ensurethattheirm em bers,beforejoining theirrespective professions,undergo aproper system of training where they are carefully introduced to the issues of legal ethics andprofessionalresponsibility.
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As perRule10 ofThe Bangladesh LegalPractitionersand BarCouncilRules 1972,the functionsofthe Bangladesh BarCouncilincludes,am ong others:
(i) Adm itting persons as Advocates on itsroll;(ii) Holding exam inations forpurpose ofadm issions;(iii)Rem oving Advocates from itsroll;(iv)Laying down standards ofprofessionalconductand etiquetteforAdvocates;(v) Entertaining and determ ining cases ofm isconductagainstAdvocates onitsrolland ordering
punishm entin such cases;and(vi)Prom oting legaleducation.
Underthe currentpolicy ofthe Bangladesh BarCouncil,everyperson shall,beforebeing adm ittedas an Advocate,pass awritten exam ination,viva-voce and avocationaltraining course ofaroundseven weeks.The syllabus forthe written exam ination forenrollm entincludes a topic "Rules ofProfessionalEtiquette" which isexam ined by assessing acandidate'sknowledge onBangladesh BarCouncilCanons ofProfessionalConductand Etiquette.
These canons werefram ed in exercise ofthe powerconferred on the Bangladesh BarCouncilbySection 48(q) of the Legal Practitioners and Bar Council Act 1965 and are crucial for any legalpractitioneras he (an Advocate)isexpected todischarge certainhigh-levelduties inthe society.InBangladesh,the Advocates areexpected to be rolem odelsof"integrity,im bued with the spiritofpublic service and dedicated to the task ofupholding the rule oflaw and defending atalltim es,without fear or favor, the rights of citizens.’’ Therefore, as per the Bar Council Enrollm entExam ination Policy,every candidateisrequired to be fam iliarwith these canons and isexam inedby way of answering a given hypothetical problem of ethical conflict situation. But thisarrangem entisnotenough toensurethe targetresultofhaving an overallethicaland professionallyresponsiblelegalprofession because:
(i) Thereisno system orinstituteto provide tutorialsto explain ordiscuss the issues ofethicsand professional etiquette to the aspiring candidates. Therefore, the candidates takepreparation forthe written exam ination on theirown.The need forpopularizing legalethicsand basicprofessionalism cannotbe treated so easily.
(ii)The m aterialson legalethicsprovided and suggested to the candidates areinsufficient.Thecandidates areprovided withonlythe barerules,noexplanatorynotes orcase references areattached or suggested. As such, there is no way for a candidate of the average quality todevelop acriticalm ind whilereading through the words ofthe ethicalrules.
(iii)The candidates arenotexam ined as to whetherthey arefam iliarwith differentgrounds forwhich they can be disqualified foradm ission to be an Advocate.No m aterialsareprovidedregarding actualcases ofdisqualification in the previous years.
(iv)The candidates arenotexam ined onthe basisoftheirknowledge indisciplinaryproceedingsofthe BarCouncil.No reading m aterialsareprovided forexplaining to the candidates whenthey can be found guilty ofprofessionalorothertypes ofm isconduct.They also do notgetto refer to previous decisions of the tribunal or court to find out different incidences ofprofessional m alpractices for which they can be reprim anded, suspended or even rem ovedfrom practiceorstruck offthe roll.
In addition, though the candidates answer a question on legal ethics in the written exam ination,thereisnoway toknow whetherthey have written the rightanswers,once the resultsarepublished.
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Therefore, there is a danger that the candidates m ay fail to realize the im portance of beingprofessionallyethical,once they enterinto the profession.
The currentpolicy ofthe BarCouncilisthatevery successfulcandidate (thatis,those who havepassed the written exam ination and viva-voce) would need to go through a com pulsory trainingcourse known as BarVocationalCourse (BVC)to getacallto the Barand the ‘‘Sanad.’’BVC isconducted by the LegalEducation and Training Institute(LETI)ofBangladesh BarCouncil.
W ithin a span of seven weeks, the students of BVC have approxim ately 80-84 classes. In thiscourse, only 3 classes (each having approxim ately one-hour duration) are allocated to have adiscussion on the topic of Professional Ethics. The discussion is of general type and there is nospecific syllabus available for these sessions. This is the first and only tim e the newly recruitedAdvocates getan opportunity to have adiscussion on the m ostsensitive issue oftheirprofessionand thatdoes notreceive properweightage in the induction m echanism .
The otherelem entsthatplague the judiciaryofBangladesh quiteoften arethe increasing incidentsofpoliticization and superseding ofone incum bentwith anotherby the ruling politicalparties inappointm entstopositions ofjustices tothe Suprem e Court.Once such incidentinJuly2003pushedthe Suprem e CourtBarAssociation atbay with the Governm ent;and italso resulted in boycottingofthe court(Suprem e Court)by them .
IV.5.2 Codes ofEthics
The ConstitutionofBangladesh enjoins onthe judges toperform theirduties withoutfearofreprisalor influence of any person, institution or authority. Judges should also recognize their duty touphold high standards ofpersonalconductand professionalism so as to preserve the independenceand integrity of their Judicial Office and to preserve the faith and trust which the society hasbestowed upon them . Judges, am ong others, should follow the following principles in theperform ance oftheirjudicialduties and in the conductoftheirpersonallives.
(a) Judges should discharge the duties oftheirJudicialOfficeaccording to the Constitution andthe Laws of Bangladesh. They have a duty to apply the relevant law to the facts andcircum stances ofthe cases beforethe Courtand renderjusticewithin the fram ework ofthelaw.Reasons forthe judgm ent/ordershouldbe recorded inclearlanguage so as toenablethelitigantsto understand the reasons behind the decisions.
(b) Judges m ustbe im partialand objective in the discharge oftheirjudicialduties.They shouldnot be influenced by public pressure or fear of criticism . Judges shall not, by words orconduct,m anifestfavor,bias orprejudicetowardany party.They need notdoanything whichisim properto earn popularityfrom any person orgroup.
(c) Judges shallendeavorto m aintain orderand decorum in courts.They m uststrive to rem ainpatient,dignified and courteous inperform ing the duties ofJudicialOfficeand shallcarryouttheirrolewith integrity,appropriatefirm ness and honor.
(d) Judges should conductcourtbusiness with due diligence and dispose ofallm attersbeforethem prom ptly and efficiently having regard,atalltim es,to the interestsofjusticeand therightsofthe parties beforethe court.Thereisnojusticewheredelay issuch thatby the tim ethe decision isrendered,itno longerhas any practicalm eaning to the litigants.Thereisnosuch ifthe prohibitive costoflitigation preventsacitizen from seeking justicethrough thecourtsystem .Inordertoensurespeedy justice,the judges shoulddevotethe entireprescribedtim e for judicial work and discourage adjournm ent of hearing of cases on an insufficientground.
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(e) The prim ary responsibility ofthe judges isthe discharge oftheirjudicialduties.Subjecttoany restrictions im posed by law orrules,the judge m ay participatein law-related activitiesprovided such activities do notinterferewith the judge'sjudicialduties.
(f) The judges should m aintain theirpersonalconductatalevelthatwillensureand m aintainthe people'strustand confidence.Judges m ustnotabuse the poweroftheirJudicialOfficeoruse itinappropriately.In otherwords,judges should notinvolve them selves in any activitywhich isincom patiblewith theirJudicialOffice.
IV.5.3 Training Process
As perthe JudicialAdm inistration Training InstituteAct1995 (as m entioned Bangladesh GazetteNotification-ExtraordinaryIssue dated July9,1995),the Governm entofBangladesh has setup aJATIto arrange fortraining ofpersons appointed in the judicialservice,lawyersand som e otherprofessionalsconnected with the judicialsystem in orderto enhance theirprofessionalefficiency.The JATIisnow functioning in the Old High CourtBuilding in Dhaka and the foundation foritsnew building has already been laid down. The sources of JATI's funds are grants from theGovernm ent,grantsfrom the localauthorities loans obtained on priorapprovalofthe Governm entand others.The establishm entofJATIand the conversionofthe Law Com m issionintoaperm anententityhave been rendered underaUS$2,000 m illion projectwith supportfrom the W orldBank.
Functions ofJATIThe gazettenotification dated July9 1995 outlines JATI'sfunctions as the following:
l Im parttraining to the persons appointed in the judicialservice,law officersentrustedwith conducting of governm ent cases, advocates enlisted with the Bangladesh BarCounciland officersand staffofallcourtsand Tribunalssubordinatetothe High CourtDivision ofthe Suprem e Court;
l Arrange and im part training in legislative drafting and drafting of other legaldocum ents;
l Im parttraining in legislative drafting and drafting ofotherlegaldocum entsto traineesfrom abroad in cooperation with internationaldonoragencies;
l Conductresearch and investigation in respectofcourtm anagem entand to publish thesam e;
l Arrange and conductnationaland internationalconferences,workshops and sym posiaforim provem entofthe judicialsystem and quantityofjudicialwork;and
l Publish periodicals,reports,etc.on the judicialsystem and courtm anagem ent.
Curricula ofJATIAs in the case of various courses at the Bangladesh Bar Council, the curriculum for the BasicCourse at JATI does not have any m odule of ethics or professional responsibility. However, thecurriculum forJudicialAdm inistrationTraining Course forthe districtand sessionjudges containsam oduleon JudicialEthics and Code ofConductofJudicialOfficers.Underitscurrenttrainingpolicy,the JATIruns the following training courses:
l DistrictorJointDistrict-and-Sessions Judges (6-day);l BasicCourse forNewlyAppointed AssistantJudges (60-day);l SeniorAssistantJudges (21-day,and som etim es 3-day shortcourses);l PublicProsecutors(6 days to 21 days);l Governm entPleaders(6 days to 21 days);l In-ServiceTraining Course forM inisterialOfficersofthe SubordinateCourtsand
Tribunals(One to 2 weeks).
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AchievementsofJATIIn five years,from June 1997 to M ay 2002,JATIim parted training to 1397 judges,advocates andcourt support staff. The institute introduced and conducted the first batch training for the courtsupportstaff(i.e)Adm inistrative Officers,Nazirsand Bench Assistants)in the year2000.Each ofthe training program s was differentin natureand intensity.The curriculum was m ade the basisoftraining,butim provem entswerem ade as to theircontentsand m ethods to achieve optim um resultin each course. Study tours were an integral part of JATI's judicial training. The trainee-judgesvisited the Jatiyo Sangsad (NationalParliam ent),the Suprem e Court,the M inistryofLaw,Justiceand Parliam entary Affairs, UNICEF-Dhaka, Dhaka Central Jail, the Defense Staff College, theIslam icInstituteofTechnology,BARD (Bangladesh Academ y forRuralDevelopm ent),NationalJuvenileCorrectionCentreatTongiand otherinstitutions ofreputetom ake trainees awareoftheiractivities and gain m oreknowledge on otherim portantissues beside the law.
FacultyDevelopmentatJATIThe Institute,from the beginning,gave significantim petus on facultydevelopm ent.JATI'sfacultym em bers visited countries like Japan, India, Canada and Britain for gaining knowledge aboutjudicialtraining and training facilities there.The Institute'sofficersalso received various types oftraining and projectrelated activities forbettertraining m anagem entatJATI.
Danish SupporttoJATI'sDevelopmentSupport to Capacity Building of the JATI of Bangladesh is a five-year capacity building projectaim ed atenabling the JATIto dealwith well-structured professionaltraining in orderto increasejudicial efficiency of the subordinate courts and m ake the judiciary understand its roles andresponsibilities.The projectconstitutes acom ponentofthe W orldBank-financed Legaland JudicialCapacityBuilding Project.The m ajoractivities include the following:
l m anagem entand institutionaldevelopm ent;l developm entand application oftraining plans and training needs analysistools;l developm entoftraining curricula,training m aterials,and audio-visualaids;l training oftrainers;l developm entand im plem entation oftraining courses forthe targetgroups.
In addition,the projectalso includes procurem entofeducation and training equipm ent necessaryforthe function ofan envisaged new JudicialAdm inistrationTraining Institute.
IV.6 Fairness in Trialand Sentencing Process(a) Fairness inTrialTo get fair and speedy trial is a fundam ental right guaranteed in the Bangladesh Constitution.Article35 ofthe constitution reads as follows:Article35.Protection in respectoftrailand punishm ent:
(1) No person shallbe convicted ofany offence exceptforviolationofalaw inforceatthe tim e
ofthe com m issionofthe actcharged as an offence,norbe subjected toapenaltygreaterthan,
ordifferentfrom ,thatwhich m ighthave been inflicted underthe law in forceatthe tim e of
the com m ission ofthe offence,
(2) No person shallbe prosecuted and punished forthe sam e offence m orethan once,
(3) Every person accused ofacrim inaloffence shallhave the rightto aspeedy and publictrial
by an independentand im partialcourtortribunalestablished by law,
(4) No person accused ofany offence shallbe com pelled to be awitness againsthim self,
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(5) No person shall be subjected to torture or to cruel, inhum an or degrading punishm ent ortreatm ent,
(6) Nothing in Clause (3) or Clause (5) shall affect the operation of any existing law whichprescribes any punishm entorprocedurefortrial."
The question offairtrialpresupposes fairinvestigation,fairprosecution and fairprovision ofthescope forthe defense ofthe accused underlegaldispensation.A person accused ofan offence shallbe presum ed to be innocent so long he or she is not proved guilty by legal evidence beyond allreasonable doubt. This im plies that even ten accused persons m ay be acquitted but not a singleinnocent person should be convicted. That a person shall have the protection of law is theinalienablerightguaranteed in the Constitution inArticles 31and 33,which read as follows:
Article 31. Right to Protection of Law- To enjoy the protection of law, and to be treated inaccordance with law and only in accordance with law, is the inalienable right of every citizen,wherever he m ay be, and of every other person for the tim e being within Bangladesh, and inparticularno action detrim entalto the life,liberty,body,reputation orpropertyofany person shallbe taken exceptin accordance with law.
"Article33.Safeguards as toArrestand Detention(1) No person who isarrested shallbe detained in custody withoutbeing inform ed,as soon as
m ay notbe,ofthe grounds forsuch arrest,norshallbe denied the rightto consultand bedefended by alegalpractitionerofhischoice.
(2) Every person who isarrested and detained in custody shallbe produced beforethe nearestm agistratewithin aperiod oftwenty-fourhoursofsuch arrest,excluding the tim e necessaryforthe journey from the placeofarresttothe courtofthe m agistrate,and nosuch person shallbe detained in custody beyond the said period withoutthe authorityofam agistrate… ..."
As forthe purpose ofprotecting socialorderand peace by preventing prejudicialactivities againstthe state, the Special Powers Act 1974 was enacted. In the m eantim e, this law has been largelym odified. There are a lot of argum ents and criticism for and against this law, which curtails thefundam ental rights of the citizen. Instances are not rare when concerned agencies of theGovernm entsom etim es use the provision ofthislaw arbitrarily.Despitethis,the Suprem e Court,in orderto check thistype ofarbitrary arrestsand detentions,has so fargranted anticipatory bailsand directed the release ofsom e detainees forthwith.Currently,the dem and forthe repealoftheSpecialPowersAct1974 stillpersistsatthe end ofthe conscious sections ofthe people.However,aftersom e m odifications rendered tothe SpecialPowersAct1974,thislaw has been com plem entedby the enactm entofotherlaws titled Speedy TrialAct(onOctober24,2002)and the Anti-TerrorismAct.
Another socio-econom ically em bedded factor that hinders fairness of trial in general is the highcostsofhiring lawyers.Access tothe Governm ent'ssupportsystem form anaging orattending legalsuits by the relatively poorer sections of the population is extrem ely lim ited. As such, the poorvictim s are often com pelled to avoid litigation or to stop appealing or attending legal suits aftershort-run efforts.
The recent rise in threats or other form s of coercion from godfathers of the crim e world to thesociallypowerless victim s have stopped them shortofgoing forlegalsuits.Additionally,the weakand corrupt structure of the law enforcing agencies has also failed to provide protection to thejustice-seeking socio-econom icallyweak victim s.Even the m ediahave reported frequentlyon them urdersofvictim s ortheirwitnesses in the courtsand courtprem ises because they appeared there
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in orderto attend the hearing sessions.Thissituation tellson the outcom e ofthe corruption andweaknesses ofthe law enforcem entagencies obstructing pursuitoffairtrialand justice.
(b) Sentencing ProcessSentencing,the finaland concluding partoftrialin acrim inalcase,isdeterrentand retributive inBangladesh.The entiredram a ofacrim inalproceedings ends withthe verdictofthe courtinwhichthe police/investigators, the witnesses, the prosecutors and the judges/m agistrates play theirrespective roles.Apparently,acrim inalcharge againstaperson inthe societycarries certainstigm a;and forthisreason the peoplegenerallytryto avoid crim inalcharge orotherwise being entangledin crim inalproceedings.
Sentence ofdeath,im prisonm entforlife,im prisonm ent(rigorous orsim ple),forfeitureofpropertyand fine are prescribed by Section 53 ofthe PenalCode which m ay be awarded to the offendersaccording tothe natureofcharges.By Ordinance XLIof1985,the term "transportationforlife" hasbeen substituted by the word "im prisonm ent for life" equivalent to thirty years of rigorousim prisonm ent under Section 57 which the Governm ent m ay com m ute into im prisonm ent notexceeding twentyyearsas provided underSection 55 ofthe PenalCode (Ordinance XLIof1985).Sentence ofdeath passed by the CourtofSessions shallhave to be confirm ed by the High CourtDivisionunderSection374ofthe Code ofCrim inalProcedure.Itiswellwithinthe prerogatives ofthe President,who can grantpardons,reprieves,respites,rem it,suspend orcom m uteany sentencepassed by any court,tribunalorotherauthorityunderArticle49 ofthe Constitution.
In passing the sentence,the courtm usthave fullregard to the natureofthe offence,status oftheaccused persons and overallthe ends ofjusticein allfairness ofthings.Exceptin cases involvingthe sentence of death and im prisonm ent for life, the courts are given wide discretion in passingsentences of various term s. The cardinal principle is that the sentence m ust not be excessive ordisproportionatetothe natureand gravityofthe offence.Inpractice,differentcourtspass differentterm s ofsentences in sim ilartypes ofcases which are poised atpricking the people'sconscienceand shaking theirconfidence inthe judiciary.Accountabilityinthe propersense ofthe term onthepartofevery quarterengaged in the task ofadm inistering justice (e.g.investigators,prosecutors,judges or m agistrates) is relatively low, and such deficiencies in the judicial system have oftengiven rise to unwelcom e public opinion about the honesty, attitude and role of the country'sjudiciary.As forinstance,one m ay referthe case ofShim a ChowdhuryofChittagong Districtwhichjolted the conscience notonlyofthe peopleofBangladesh,butalso ofthe peopleofm any partsofthe world.Sim ilarm ishap in the perform ance ofthe judiciary in passing sentences was visibleinthe case ofYasm inM urderCase inDinajpurDistrict.Therefore,itm ay be concluded thatthe lawsand the practices in the deliveryofjudgm entrequires urgentim provem ent.
IV.7 Speed ofTrialvs.Backlog ofCasesItisthe constitutionalrightofthe peopleofBangladesh to getspeedy and fairtrialunderthe legaldispensation.However,in the legalsystem ofthiscountry,delay in the dispensation ofjusticehasbeen achronicproblem .The m ounting backlog ofcases in alm ostalltiersofthe judiciary isthem ain cause ofdelay in disposalofcases.As a resultofsuch delays in delivery ofjudgm ent,thepeople are also losing confidence in the fairness of the judiciary. In general, the causes of suchdelays m ay be classified undertwo broad heads,the court'sdelay and the law'sdelay.
The factthatthe laws ofthe land tend todelay the disposalofcases and thatsuch delays areagoodcause forbailin non-bailableoffences have been wellillustrated in an articletitled "Undue delayin trialisgood ground forbailin non-bailableoffence" published in The DailyStardated July13,2003 in Dhaka.Itwas stated there thatthe particularAppellate Division Crim inalCase between
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Captain (Retired) Nurul Huda (Appellant) vs. State (Respondent) had its judgm ent delivered onDecem ber01,2002afteralong trialsince October1996(High CourtM iscellaneous Crim inalCaseNo.1965 of1997 arising outofRam na PS Case No.93 dated October21,1996 underSections149/448/326/307/302/34 ofthe PenalCode).The deliberations presented in the newspaperarticleindicatethatarelativelylarge num berofCrim inalProcedureCode (e.g.Sections 496,497,497,and339C-4)wererelated withthe disposalofthe case from appealforbail.The finalverdictperm ittingthe release ofthe accused on baileven contradictsthe earlierverdictsgiven by the High Courtonm ultipleoccasions.The accused had tolanguish injailwithproblem s inhisprostateglands,urinarytractinfections and serious depressionforbeing incustody form orethan sixyearswithoutdisposalofthe case.
W hileelim inationofthe problem s causing the law'sdelay isalong-term issue,the types offactorscausing the court'sdelay arerelativelym orevisible.Case m anagem entinBangladesh'scourtsisnotsatisfactory. The judges usually do not m ake a prior m ental picture of the cases in hand. It is aprerequisiteforeveryjudge tolookafterthe adm inistrationofthe courtbesides disposing ofcases,butthe judges spend m ostoftheirtim e in certain routine jobs only.Itisalso argued thatthey areoverburdened withhuge piles ofcases and thatthey donothave sufficienttim e tolookintovariousaspectsofthe cases wellbeforethey com e tothe courtforhearing.Thiscarries the judicialsystemto the point that the num ber of courts is disproportionately fewer than the num ber of cases,irrespective ofthe levelsofcom plexities ofcertain cases.
Apparently,inam ove todispose ofthe form idablylarge backlog ofcases,the Governm entenactedthe Speedy TrialActonOctober24,2002.The politicaloppositioniststerm ed itas an instrum enttoharass them and to stop them from full exercise of their political rights. The deploym ent of theBangladesh Arm y with quasi-m agistracy given to them coupled with the enactm entofthe SpeedyTrialAct2002 resulted in arrestsofm any terroristsreportedlypatronized in the pastby anum berof political parties. M edia reports have it that prior inform ation sent to a num ber of the otherterrorists from and by the ruling party led to the flight of these terrorists to India escaping thecam paign by the arm y.Besides,anum berofseniorpoliticalleadersam ong the oppositionistswerearrested,quizzed and reportedlytortured inthe process.M oreover,num berofarrestees faced quickdeaths in custody even beforethe stateinitiated the process oftrial.Despiteappealsfrom variousinternationalhum an rightsagencies to carryoutinvestigations into these deaths,the processes andreasons form any ofthose deaths in custody stillrem ain shrouded in m ystery.There were m anyserious questions alleging the Governm entofhaving given the powerofm agistracy tothe arm y andchallenging the good intent of the Governm ent behind the waging of this so-called m ilitarycam paign terrorism .
In June-July 2003,severalcases around m ostly socialcrim es weredisposed ofunderthe SpeedyTrialAct,ending in verdictssentencing the alleged crim inalsto atleastlifeterm s ordeaths.W henthe m ajorityofthe cases arelefthanging inthe lowercourts,the quick disposalofafew raises thequestion in the press as to whetherthe Actwas justaface-saverforthe Governm ent.
IV.8 M echanism ofthe Poor'sAccess to Justice
As perfindings ofasurvey conducted by the Transparency InternationalBangladesh (TIB)Chapterand areportaboutaSpecialCellpublished in theDailyM uktakantha dated M ay 24,1999,about90percentofthe victim s asserted thatitwas alm ostim possibletogethelpfrom the policewithoutm oney orinfluence.In the m atterofcourtcases,engagem entofalawyerisverycostlyand apoorlitigantcannotengage agood orseniorlawyer.Generally,the lawyerscharge higherfees than theprescribed fixed fees.Effective m easures are necessary so thatonly prescribed fees are charged.
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Honestyand integrityofthe lawyersand courtem ployees arevitalfactorsforthe poor'saccess tojustice. M oreover, the Civil Procedure Code (CPC) has been am ended by way of am icablesettlem entbetween the parties to ensurequick disposaland the poor'saccess to justice.
V. K EY RECO M M ENDATIONSIn an era of globalization, and interdependence of econom ies, the following areas should beconsidered and strengthened seriouslyin orderto increase the capacityofstatein prom oting tradeand investm entin Bangladesh:
1. PoliticalW ill,Com m itm entand Stabilitya.Institutionalizing dem ocraticnorm s and values;b.Ensuring ruleoflaw;c.Initiating electoralreform ;d.Im proving law and ordersituation;e.Initiating reform s to strengthen localgovernm ents;f. M apping oflocalresources;
l Itisevidentthatthe bulk portion ofweaknesses ofthe stateem anated from the lack ofcom m itm entand willofthe politicalleaders.So any reform designed to im prove thestatecapacityshould startfrom the ruling politicalparty.
l Opposition political parties can also play a vital role by participating in the politicalprocess in adem ocraticm anner.
2. Good Governance to M inim ize the CostsofDoing Business in Bangladesha. Stream lining bureaucracy (Training,Posting,Transfer,and Prom otions);b. Curbing Corruption:
i. M ake BAC independentand m oreefficient;ii. Strengthen and reform NBR and other relevant agencies for increased financial
transparency;c. Strengthening BOItoprom otesectoralpriority,and areas ofcom parative advantage by
sector,including export-oriented FDIs;d. Prom otion ofeconom icdiplom acy;e. Introducing e-governance forincreased transparency;f. Engaged governance: Increased efforts to im prove relationships between public
officialsatthe grassrootleveland localbusiness people;l Itisrepeatedlynoted thatitisnotthe policy failurebutthe structuralweaknesses ofthe
stateand itsbureaucracy which isresponsibleforfailureto attractFDIsin Bangladesh.These structural weaknesses work as an extra tax, and thus dissuade investors fromcom ing to Bangladesh.
3. Conducive Infrastructurea. Im proving servicedeliveryofutilities,including electricityand gas;b. Increasing efficacy ofports;c. Developm entofinform ation technology backbone;
l Bangladesh could neverattractFDIswithoutadequateinfrastructuralsupport.Itis,however,im portantto notethatalthough expansion ofpublicsectoram enities isvital,itiseven m oreim portantto ensurequalityand prom ptservicedeliveryofwhatwealready have.
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4. Developm entofCapitalM arketa. Properuse ofrem ittance (the prim e sourceofforeign currency earning)b. Transparency ofthe stock exchange activities.
5. Im age Building ofBangladesh
l Chinese and Indian experiences suggestthatingeneralexpatriateinvestorspioneerFDIsinacountry.However,Bangladesh isseriouslysuffering from an im age crisis.Even thelocalinvestorsarehighlyreluctanttoinvestinBangladesh.Hence,the GoB has totakeconcerted efforts,along with aforem entioned activities,to upliftthe popularim age ofBangladesh.
It is m ost likely that all these steps would im prove Bangladesh's perform ance in trade andinvestm ent. However, how and when these steps are to be taken are subject to further in-depthstudies.Such research studies shouldbe carried outonurgentbasisbothtoform ulatewell-inform edpolicies in arapidlychanging world and to identifyim plem entation priorities foraccelerated tradeand investm entin the eraofglobalization.
ReferencesAhm ed,Ishtiaq.n.d.Banking Law and PracticeRelating to InternationalTrade.Training Session
forJointDistrictJudges Dhaka:JudicialAdm inistrationTraining Institute(JATI).Aziz,M .Abdul.1996.Study ofthe Trade Policy Relating to Com m odities ofFood Processing
Industries ofBangladesh IFDC/ATDP,USAID-Dhaka,Dhaka.Bangladesh Bank.n.d.AnnualReportofBangladesh Bank 2001-2002.(as availableonBangladesh
Bank'swebsite).BB.n.d.InvestmentFacilities in Bangladesh (as availablefrom Bangladesh Bank'swebsite).BDF.2003.Bangladesh:Globalization,the Investm entClim ateand Poverty Reduction.
Dhaka:Bangladesh Developm entForum .BOI.2002.Bangladesh InvestmentHandbook.Dhaka:Board ofInvestm ent.Chowdhury,A.N.M .Khaled.1984.Law onCorruption.Chittagong:Bangladesh.Chowdhury, Am ir Khosru M ahm ud. 2003. Private Sector Developm ent Investm ent
Clim ateand FDIin Bangladesh.Dhaka Bangladesh Developm entForum .Dym ond,W illiam A.2000.InternationalInvestm entAgreem ents:An Overview ofthe
Issues M eeting with Private Sector Representatives on W TO and M ultilateralInvestm entAgreem ent. Dhaka Cham ber of Com m erce and Industry (organizedby CentreforPolicy Dialogue).
Governm entofBangladesh.1995.Bangladesh GazetteExtraordinaryIssue-ActNo.XVof1995,Dhaka.
............1997. Export Policy of Bangladesh 1997-2002. M inistry of Com m erceGovernm entofthe People'sRepublicofBangladesh,Dhaka.
............1997. Import Policy of Bangladesh 1997-2002. M inistry of Com m erceGovernm entofthe People'sRepublicofBangladesh,Dhaka.
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Islam , A. I. Am inul. 1999.Public Administration in Bangladesh- Role in PromotingPrivateSector andAttractingDomesticandForeignInvestment.Dhaka.
Kam al, M ustafa. 1996. W hy Judicial Training. JATI (Judicial Adm inistration TrainingInstitute)Souvenir.Dhaka:JATI.
Khan, M . Hafizuddin. 2002.Corruption in Public Administration- Role of W atchdogAgencies .Dhaka.
M ian,SiddiqurRahm an.2001.DurneetiDaman Ain (Laws ofAnti-Corruption).Dhaka:New W arsiBook Corporation,
NRG.2002.Investm entforDevelopm entProject(DraftSum m aryReportofthe Proceedings)FirstNationalReference Group (NRG)M eeting ofthe Bangladesh Chapter.Dhaka.
Rege Vinod. et al. 1998. Final Act of the Uruguay Round of M ultilateral TradeNegotiations-Reportofthe Study Team .M inistryofCom m erce Governm entofthe People'sRepublicofBangladesh Dhaka.
Sen, Kunal. n.d. Globalization and Em ploym ent in Bangladesh and Kenya. DiscussionPaper 7, produced under the Globalization Production and Poverty Project ofDFID by Overseas Developm entGroupatthe UniversityofEastAnglia,and theInstituteofDevelopm entStudies atthe UniversityofSussex UK.
UPL.1996.Bangladesh-GovernmentthatW orks:Reforming the PublicSector.Dhaka:UniversityPress Lim ited.
W orldBank.2002.Bangladesh-FinancialAccountabilityfor Good Governance(A W orldBank CountryStudy)The W orldBank,W ashingtonD.C.
.............2002.Tam ing Leviathan: Reform ing Governance in Bangladesh. W ashingtonD.C The W orldBank.
W TO.2002.M odalities forPre-Establishm entCom m itm ents.W orldTrade OrganizationW orking Grouponthe Relationshipbetween Trade and Investm ent.Tokyo.
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Annex I
RAS/01/061/A/09/01:RegionalInitiative on H DRs in Asia and the Pacific-Globalization and StateCapacity
Term s ofReference ofNationalCase Studies
Itisincreasingly being acknowledged thatthe Stateisakey actorin the developm entprocess.Ithas a m ajor role to play in m aking globalization useful for all; alleviating poverty and incom einequality;inadvancing hum an rightsand dem ocracy;inprotecting the environm entand prom otingsustainabledevelopm ent.One ofthe m ainconclusions,which can be extrapolated from the UnitedNations M illennium Declaration,isthatreinforcing statecapacityand prom oting good governanceisaparam ountfactorin im plem enting the M illennium Developm entGoals.
How the public sector is structured, how it is adm inistered and how it operates, as well as thepolicies thatarepursued have agreatim pactonpeople'swellbeing.M anaging the publicsectorintoday's environm ent of constant change, particularly in view of globalization, has becom e anincreasingly dem anding challenge fornationaldecision m akers,policy advisors,service deliverym anagersand civilservantsatlarge.Reform ing public adm inistration system s and strengtheningstateinstitutions arekey factorsinordertoenablepeopletoseize the opportunities ofglobalization.Unfortunately, globalization has benefited only a relatively sm all num ber of countries and som eregions ofthe worldarestillnotintegrated intothe worldeconom y.Even incountries thatm ay havesignificant advances due to globalization, there are huge disparities in the distribution of itsbenefits.
Experience has shown that States with effective public adm inistration system s and stronginstitutions have the capacity to channelglobalization to theirown advantage and to m inim ize itscosts.W ithoutbuilding strong institutions and effective regulatoryfram eworks atthe nationallevel,including independent and effective judiciaries, strong parliam ents, accountable executives,m echanism s of transparency and accountability, and without adequate social policies, includingthose on health, education, and social security system s, there are too m any risks that either acountry willbe m arginalized oritwillnotbe ableto shield the m ostvulnerablegroups ofsocietyfrom the negative effectsofglobalization.
Trade and investm ents provide opportunities for benefits to both developed and developingcountries.In addition to the econom ic and financialcontribution thattrade and investm entsm ayprovide,they are also a growing source ofsocialgoods and services.Thisisparticularly true ofdeveloping countries,especially the leastdeveloping countries where dom estic resources are notadequateforthe econom y to provide the socialneeds oftheirconstituents.The key consideration,however,isthe institutionalization and appropriate application ofthe channeling ofthe potentialbenefitsto be derived from trade and investm entsforsocialgoods and services.
Inlightofthe above,one ofthe outputsofthisProjectisaregionalreportcentered onregionalandcountry-levelexperiences and practices related to statecapacityand globalization.The reportwillfocus onthreedim ensions ofstatecapacitythatcontributetothe prom otionoftrade and investm ent:(a)adm inistrative capacityofthe State,(b)system s oftransparency and accountability,and (c)legaland judicialfram eworks.Forthispurpose,six nationalcase studies willbe com m issioned in thefollowing countries: Bangladesh, China, India, Indonesia, M ongolia and the Philippines. Theresultsofthese nationalcase studies willform the basisofthe regionalreport.
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Each nationalcase study willaddress the following topics (thisisnotintended to be an exhaustivelist):
1.Adm inistrative capacityofthe Statein prom oting trade and investm ent:(a) Leadership and strategicplanning capacities;(b) Hum an resources developm ent, including negotiating skills required to effectively
participatein m ultilateralagreem entsand regionaltreaties;policy analysiscapacity(c) Perform ance standards form anagem entdevelopm ent(d) Publicserviceprofessionalism(e) Inform ation technology in governm entoperations(f) Existence ofInvestm entCouncils(like in Japan)
2.Transparency and accountabilityin trade and investm entactivities:(a) Anti-corruption laws(b) Conventions againstcross-bordercorruption(c) Agencies and/orinstitutions(d) Enforcem entm echanism s
3.Legaland judicialfram ework:(a) Regulatoryfram ework fortrade and investm ent(b) Propertyrightslaws(c) M echanism s to protectpropertyrights(d) Independence ofthe judiciary1. Training and recruitm entprocess2. Appointm entand term in office3. Codes ofEthics
Itwould also be usefulto provide som e inform ation on the overallstructure and m echanism s ofaccess to justiceforthe poor(forexam ple,publiclegalassistance).
The finaloutline willbe discussed with each identified nationalconsultantby DESA priorto thepreparation ofthe study.Consultantswillbe given six m onths to prepare theirrespective studieswith the firstdraft(in electronicform -PC version ofM icrosoftW ord)to be subm itted atthe endof the fourth m onth of the contract. The paper should be between 20 and 30 pages at 1.5 linespacing,excluding tables and graphs.Each consultantwillhave an opportunity to presenthis/herown findings at a Senior Policy W orkshop in the region to be jointly organized by DESA andUNDP.The workshop istentativelyscheduled forFebruary-M arch 2003.Each ofthe nationalcasestudies willbecom e the propertyofthe Project.
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Annex II
EXPO RT PO LICY 1997-2002
The ExportPolicy 1997-2002has been designed tooperateinthe im peratives and opportunities ofthe m arket econom y with a view to m axim izing export growth and narrowing down the gapbetween im portpaym entand exportearning.The principalobjectives ofthispolicy are:
l To achieve optim um national growth through increase of export in regional andinternationalm arket;
l To narrow down the gap between the country's export earning and im port paym entthrough achievem entofthe exporttargets;
l To undertake tim elysteps forproductionofexportablegoods atacom petitive pricewithaview to exporting and strengthening existing exportm arketsand m aking dentin newm arkets;
l To take the highest advantage of entering into the post Uruguay liberalized andglobalized internationalm arket;
l To m ake our exportable item s m ore attractive to the m arket through productdiversification and qualityim provem ent;
l To establish backward linkage industries and services with a view to using m oreindigenous raw m aterials,expand the productbase and identifyand exporthighervalueadded products;
l To sim plifyexportprocedures and to rationalize and solidifyexportincentives;l To develop and expand infrastructure;l To develop trained hum an resources in the exportsector;l To raise the qualityand grading ofexportproductstointernationallyrecognized levels.
The following strategies shall be undertaken to attain the objectives of the export policy 1997 -2001:
l Sim plifying exportprocedures and helping the privatesectorachieve efficiency.l Enhancing technologicalstrengthand productivityand facilitating reductionofcostand
attaining internationallyaccepted standardofqualityofexportableproductsand therebyconsolidating theircom petitiveness.
l Ensuring m axim um use of local raw m aterials in the production of export goods andencouraging establishm entofbackward linkage industries.
l Participating inthe internationaltrade fairs,specialized fairs,singlecountryexhibitionsabroad and also sending outtrade m issions withaview toconsolidating ourpositioninthe existing m arketand creating new m arkets.
l Encouraging export of new category high value added readym ade garm ents and alsoencouraging the concerned trade associations forestablishm entofaFashion Institute.
l Forprom otion ofhigh value added leatherand leathergoods export:providing variousfacilities including bonded warehouse facilities for im port of m aterials such as rawhides,pickled,wetblue,crushed and finished leather,com ponentsand chem icals,etc.,to 100 percentexport-oriented leatherindustries.;
l Forprom otion ofexport ofshrim p:Extension and m odernization oftraditional/sem i-intensive m ethodofshrim p cultivationand ensuring qualityas perbuyer'srequirem ents.
l Forprom otion ofexportofjuteand jutegoods:Undertaking extensive publicityofjuteand jutegoods as environm ent-friendly naturalfibreand diversification ofthe uses ofjuteproducts.
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l Forprom otion ofexportoftea undertaking program forestablishing brand nam e anddeveloping linkage with established blending and distributing agents.
l For prom otion of export of agro-based products: undertaking program for raisingqualitystandard and expansion ofm arket.
l For the prom otion of export of electrical and electronic goods (including com putersoftwareand dataentry):Building and ensuring conducive infrastructure.
l For the prom otion of export of engineering consultancy and other services and sub-contracting involving,inabiggerway,Bangladesh m issions abroad obtaining contracts.
l Organizing regularlyinternationaltrade fairsand product-specificfairswiththe country.l M aking appropriatedevelopm entand expansion ofinfrastructureconducive to export.l M aking arrangem entsfornecessarytechnicaland practicaltraining fordevelopm entof
skilled m anpowerin the exportsector.l Ensuring m axim um utilization offinancialand otherassistance extended by the W orld
Trade Organization to the leastdeveloped countries.l Extending technicaland m arketing assistance fordevelopm entofnew productsand for
finding appropriatem arketing strategies.l Taking necessary steps to assist procurem ent of raw m aterials by the export-oriented
industries atworld price.
ExportProm otion Councils/Com m itteesA National com m ittee on export has been form ed. The highest-level com m ittee on exportprom otion isheaded by the HonorablePrim e M inisterand consistsofthe HonorableM inistersforForeign Affairs,Finance,Com m erce and Industries,Planning,Jute and Textile as well as seniorgovernm entofficialsand representatives ofim portanttrade associations.The com m ittee reviewsthe exportsituation,provides necessary directions and readily resolves problem s.Forim m ediateattentionand actiononexportrelated problem ,atask forcehas been form ed underthe chairm anshipof the Honorable M inister for Com m erce. W ith a view to exchanging ideas with Cham bers ofCom m erceand Industries,Exporters'Associations and privatesectororganizations in form ulatingexportpolicy and strategies,and uplam enting policy decisions,an exportcouncilhas been form ed.A task force shall also be form ed to recom m end practical m easures for export increase andm onitoring the im plem entationofincentives and facilities ofthrustsectorand crash program item s.
Com m odity CouncilsCom m odity Councils shall be form ed for jute, tea, shrim p, readym ade garm ents and leather andleatherproducts.
ThrustSectorLeather and leather goods industries, high and high value added readym ade garm ents,com putersoftwareand agro-processing sectorshave been identified as thrustsectorsinthis export policy.Although the leather and leather goods sector has enorm ous exportpotential,the sectorhas notbeen able,tilldate,to achieve desired results.On the otherhand,the readym ade garm entssectorisexpected tostage abreakthrough inthe exportofhigh-priced, high value-added garm ents of newer categories after having survivedsuccessfully the initial phase of exporting low-end garm ents. Like wise com putersoftwareand agro-processing sectorscouldnotrecordthe desired levelofexportthroughthe sectorsofferbrightprospectsforearning foreign exchange.These foursectorshavebeen declared ‘‘ThrustSectors’’in thispolicy to ensureprioritywith the following linesofactions:
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Leather and Leather GoodsLeather m anufacturing units shall be m odernized in order to enable them to produce increasedqualityoffinished leatheroutofraw hides.W ithaview toreducing costofproduction,steps shallbe taken to establish accessories industries for producing necessary chem icals and other inputswithin the country. The existing Leather Technology Institute shall be m odernized for use as‘‘Com m on Facilities Centre’’for the country's leather units. Necessary credit facilities shall beextended forsetting up ofleathergoods industries and effortsform arketing the produces shallbestrengthened. Cluster industries com prising sm all units of leather goods factories shall be set upwithaview togenerating em ploym ent.A ‘‘leatherCouncil’’shallbe form ed.Industrialunitshavingno bonded warehouse atthe sam e tim e notinterested to availofdutydraw back facilities shallbeentitled to cash benefit in lieu of duty drawback. Im port of raw hides, including wet blue andpickled leather,shallcontinue withthe prevailing custom s duty(2.5percent)and im portlicense fee(2.5percent)leviableonthe im portationofraw leatherforthreeyears.Uniform policy onbank loanas regards criteriaand rateofinterestshallbe followed forcreditto leathersector.The totalcreditexcluded to the leathersectorshallbe broughtunderasinglebank and exportwillalso be affectedthrough thatdesignated bank.Aftercarefulrevisionofthe overallsituationprevailing inthe leatherindustries,the tim e lim itforexportofcrustleatherhas been extended uptothe year2000.FacilitiesforBM RE and othertransform ation process shallbe m ade availableto alltanning unitsto enablethem to switcher,by 2000,to processing crust/finished leatherfrom wetblue leather.
Readymade GarmentsAll out efforts would be m ade and steps be taken for production and export of high pricedreadym ade garm entsin lightofthe prevailing m arketdem and.Im m ediatesteps shallbe taken toestablish aFashionInstitute.Pending establishm entofthe FashionInstitutem easures willbe taken,underspecialarrangem ents,to extend expertservices to m atch the actualdem and.Liberalcreditm ay be considered for capacity building and hiring technology for producer of high qualitygarm ents.
Computer SoftwareForthe developm entofhum an resources in the softwareinform ation ofcom puterscience,coursesin all universities including BIT and Polytechnic Institutes and selected colleges shall beconsidered.Sim ilarly,forhaving apoolofskilled and trained instructors,basiccom puterschem eatgraduation levelm ay be introduced.An Inform ation Technology Village,m aking m ultifacetedfacilities,shallbe established as partofinfrastructuredevelopm entforprom otion ofexportin thissector. As a fillip to effective software m arketing, appropriate provisions on protection ofintellectualim portsshallbe incorporated in the existing CopyrightAct.
Agro ProcessingFor the developm ent of the agro-processing industries, ‘‘Hortex Foundation’’has already beenestablished.Developm entactivities ofthissectorunderthe Foundations program s willgo on.
ExportIncentivesInlightofthe objectives and strategies ofthe ExportPolicy 1997-2002,severalnew incentives andfacilities have been m ade availableto the exporters.Besides,som e existing incentives have beenm odified and im proved to m ake them m ore workable. The rest of the existing facilities andincentives willrem ain unchanged.The incentives as offered areenum erated below.
FiscalIncentivesRestructuring ofthe ExportCreditGuaranteeSchem e (ECGS):Atpresent,therearefourschem es,nam ely, the Export Credit Guarantee (Pre-shipm ent), Export Credit Guarantee (Post-shipm ent),Export Paym ent Risk Policy (Com prehensive Guarantee) and W hole Turnover Pre-shipm ent
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Finance Guarantee,availableunderthe ExportCreditGuaranteeSchem e (ECGS)covering risks onexportcreditas wellas probablecom m ercialand politicalrisks occurring abroad.
ConvertibilityofTakaTaka has been m ade convertibleinthe currentaccountinlieu withthe policy ofexport-led growthin the liberalized world m arket. As a result, earning from the trading account shall be freelyconvertible into foreign exchange for im port of goods (barring a few banned item s). Under thisarrangem ent,exportersshallbe allowed toretaintheirforeign exchange earnings intheirrespectiveforeign exchange accountsgraduallyathigherproportion.
Utilization ofForeign Exchange by Exportersl So long, exporters were allowed to retain 20 percent of their f.o.b. earnings in their
respective foreign currency accountsinUS dollarorPound Sterling.From now on,theywill be entitled to retain either 40 percent of such earning or at a rate fixed by thegovernm entfrom tim e to tim e on properreview.However,in cases ofexportproductswhere the im port contents used in the m anufacture of such item s are relatively high(such as, naphtha, furnace oil, bitum en and other petroleum products, readym adegarm ents and electronic goods) and in the case of export of services (legal advice,consultancy and sim ilarprofessionalservices),the exportersconcerned willbe entitledto retain only 7.5 percentoftheirf.o.b.exportearnings.Im m ediately on realization ofexportproceeds,the concerned banks willcreditthe exporters'foreign currency accountin proportion to their respective entitlem ents. Exporters m ay utilize this foreignexchange forbona fide business purposes,nam ely,undertaking business trips abroad,participating in export fairs and sem inars, im porting raw m aterials, m achinery andspares and even setting upoverseas business offices.Foreign exchange m ay also be keptinthe renewablefixed depositaccountwhich willbearinterestatthe rateof10percentp.a.
ExportPromotion Fund (EPF)The following assistance and support would be provided out of the Export Prom otion Fund toproducers/exportersofnew and non-traditionalitem s including those underthe crash program forproductdevelopm entand productand m arketdiversification:
(a) Venturecapitalon easy term s and low interestrates;(b) Assistance in obtaining foreign technology and consultancy for product developm ent and
diversification;(c) Assistance in fielding m arketing m issions abroad and participating in internationalfairsfor
m arketcom patibilityofproducts;(d) Assistance in establishing sales and display centers abroad and extending warehousing
facilities;(e) Assistance for participation in overseas training program s on product developm ent and
m arketing help develop technicalskilland m arketing expertise;(f) Assistance in any otheractivityrelated to productand m arketdevelopm ent;(g) Loan from GoB banks atarateofinterestof7percentp.a.forestablishing factories as well
as foroperating capital(including LC m oney).
Extension ofTime-limitfor AdjustmentofExportCreditfrom 180 days to 270 daysAtpresent,exportcreditisallowed atconcessionaryrateofinterestforam axim um period of180days.A sectionofexportershowevercannotenjoy the benefitofsuch concessionarycreditfacility
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due to structuralcharacteristics ofcertain com m odities.Undersuch circum stances,the tim e-lim itforrepaym entofexportcredithas been extended from 180 days to 270 days in case ofexportoffrozen food,teaand leatherby way ofrelaxing the condition ofsubm ission offirm contractL/C,and considering working capitalas exportcredit.The tim e lim itforexportcreditunderthe ExportProm otion Fund in certain cases shallbe extended up to 270 days.
ExportFinancing(a) Introduction of Credit Card: In view of the risks involved in carrying of cash, foreign
currency/travelers cheque while undertaking business trip abroad, the practice of issuingcredit cards to exporters against their respective foreign exchange entitlem ents willcontinue.
(b) Lim itofExportCredit:Exportersm ay obtainexportcreditfrom com m ercialbanks upto90percentofthe value oftheirirrevocableletterofcredit/confirm ed contract.
(c) Credit to first tim e applicant: W ith a view to encouraging the new com ers to enter intoexporttrade,the com m ercialbanks willconsidertheircreditproposalson aprioritybasis.
(d) M onitoring the Overallflow ofexportcredit:Bangladesh Bank willtake necessarysteps toensurethatnorm alflow ofexportcreditism aintained.The C.C.lim itofthe exporterswillbe determ ined onlyonthe basisoftheirexportperform ance inthe preceding year.Thiswillnot be subject to any general credit squeeze m easure. Such credit facilities will also beavailableto new contracts.
(e) Overdue interest:No overdue interestwillbe charged by the com m ercialbanks in cases ofexportagainstirrevocable letterofcrediton sightpaym entbasis.In such cases,however,exporterswillbe required to subm itnecessaryexportdocum entswithin the specified tim e.
(f) Exportcreditcell:A specialexportcellto supervise and m onitorthe exportfinancing hasbeen functioning inBangladesh Bank.Besides,ineverycom m ercialbank aspecialunithasbeen created forprocessing exclusive exportcreditproposals.
(g) Exportm onitoring:A high-powered com m ittee has been functioning to assess the exportcredit requirem ent and to review and m onitor the flow of export credit to ensure thatadequateand tim elycreditsarem ade availableto the exporters.
(h) Inland back-to-back letterofcredit:Authorized dealersm ay establish inland back-to-backletterofcreditin favoroflocalsuppliersofraw m aterialsagainstthe corresponding m asterletterofcredit.
Rebateon Insurance PremiumSpecial rebates are allowed on prem ium covering fire and m arine insurance to export-orientedindustries (non-traditionalitem s).Such rebates willbe availablealso tothe exportersofthese item son shipm entofgoods.
l Incentives forexportofnon-traditionalindustrialproducts:Incentives willbe providedforexportofnon-traditional/new industrialproducts,especiallywherevalue additionis50 percentorm ore.
l Sim ilarly, export firm s having exceeded the proportionate export target set for thatproduct-sectorwillbe considered forincentives facilities.
ImportFacilities ofRaw M aterialsfor Export-oriented Leather IndustriesTo encourage increase in exportoffinished leatheratcom petitive price,custom s duty and im portlicense feeleviableon im portofwetblue and pickled leatherby export-oriented leatherindustrieswillbe exem pted.
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IncomeTax Rebateon ExportEarningsPreviously, 50 percent rebate on taxable incom e generated from export earning was adm issibleunderthe Finance Actevery year.From now on 50 percentofthe incom e tax on any incom e onexportwillbe exem pted through incorporation ofa new provision in the Incom e Tax Ordinanceitselfratherthan as atem poraryreliefhitherto granted underthe Finance Actsonayearlybasis.
Loweringthe RateofAIT atSource Tax atsourceon allexportearnings shallbe deducted atthe rateof0.25 percent.
PaymentofDutyDrawback through CommercialBanksForquick disbursem entofdutydrawback withaview togiving acom petitive edge toourexportinthe internationalm arket,paym entswillbe m ade by the com m ercialbanks im m ediatelyon receiptofforeign exchange againstallexports,exceptthe deem ed exports,determ ined on the basisoftheprinciples laid down by the NationalBoard ofRevenue.
Bonding Facilities for Export-oriented Industries:Bonded warehouse facilities have generated special enthusiasm am ong the im port-led export-oriented industries. To sustain such interest, the procedures for providing bonded warehousefacilities to such industries will be further sim plified, and will be extended to all industriesrecognized as 100 percentexport-oriented industries.
Duty-free ImportofCapitalM achinery by Export-oriented IndustriesPresently,item s produced in the ExportProcessing Zones (EPZ)are entirely exported.Likewise,100 percentexport-oriented industries located elsewherein the countryarealso required to exporttheirproduces entirely from thispointofview as the objectives and functions ofthe industries ofboth locations areidentical.Duty-freeim portfacilityofcapitalm achineryhas also been extendedto the 100 percent export-oriented industries out side the EPZ. As for export-oriented garm entfactories also,im portdutyisnilon im portofcapitalm achinery,fabricand accessories.
Alternative Facilities in lieu of Customs Bond or Duty Drawback for Export-oriented DomesticTextileSector and GarmentsIndustriesDuring fiscalyear1995-96,the governm ent,in an attem ptto give incentive to the dom estictextileand garm entssector,allowed 25percentcom pensatoryassistance tothe industries ofthissector.Infuture also, these sectors will continue to receive reasonable facilities. Such com pensatoryassistance willalso be adm issibletoacom positeunitproducing bothfabricand garm entsortothem anufactureronly in case the exporterisnotthe producerofthe localfabricprovided no bondedwarehouse or duty drawback facilities were availed of for such im portation. If, however, theexporterisan interm ediarybuyer,the facilitywillgo to the originalproducerofgoods.
Tax HolidayTo encourage a rapid growth and attract entrepreneurs to export oriented industries, tax holidayincentive willcontinue tillthe year2000 in consonance with the IndustrialPolicy.The industrialenterprises enjoying the benefitoftax holiday shallbe exem pted from deduction oftax atsource.After2000,decision on tax holiday willbe taken in lightofthe governm entpolicy ofthatperiod.
DutyDrawback Scheme(a) Exportersofm anufactured productsareentitled to draw back afterthe exportisaffected.(b) The rateofdutydrawback payableonexportofalltraditionaland non-traditionalitem s will
be renewed atregularintervalsand m oreand m orenew productswillbe broughtunderthedutydrawback system .
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Value Added Tax (VAT)onPackagingM aterialsShould juteclothes and bags be used in the packing ofexportgoods,VAT paid on such productswillbe refunded.
Simplificationofthe Procedure for RefundofVATTo m aintain com petitiveness ofexportprices,VAT paid on exportsupportservices,nam ely,C&Fservice,telephone,telex,fax,electricity,insurance prem ium ,shipping agent'scom m ission/bill,willbe refunded underasim plified procedure.
Reduced Airfreightfor ExportofallCrash Program Items including Fruitsand Vegetable
l Airfreightatlowerratewillbe changed forexportofallcrash program item s including
fruitsand vegetables.l W ithdrawalofroyaltyfrom foreign airlines extending cargo services.
SettlementofTrade DisputesThe Export Prom otion Bureau will initiate steps for settlem ent of trade disputes throughconciliation.
Recognizing Sm alland M edium -sizeAgriculturalFarm s as IndustryTo encourage production of fruits, vegetables, fresh flowers, orchid, etc. for export, agriculturalfarm s ofam inim um size of5acres have been recognized as ‘‘Industry’’and becom e eligibleforallfacilities ofexport-oriented industries.
Research and Developm entM arketing of products in the international m arket is becom ing increasingly com petitive due toglobalizationand liberalizationoftrade.To sustaininthe faceofsuch stiffcom petition,continuousqualityim provem entand m arketadaptabilityhave becom e necessary.As forthispurpose,industrialenterprises should be equipped with theirown Research and Developm ent(R & D)facilities.
Com m odities under the Crash Programl Atpresenttoys,luggage and fashion item s,electronics,leathergoods,diam ond cutting
and polishing, jewellery, silk fabric, stationery goods, cut and artificial flowers andorchid, gift item s, vegetables and engineering consultancy and services have beenincluded under the crash program . In order to boost production and export, prom otegoods/services underthe crash program ,soft-term creditwillbe provided forproductdevelopm ent,m arketadaptation,and m arketing.Inaddition,assistance willbe providedform arketexplorationforobtaining jointventure.Fresh flower,fruitsand bam boo,caneand wooden furnitureshallbe included inlistofcrash program ing item s apartfrom theitem s listed above.
l In order to increase the export of agro-based products, necessary assistance will beprovided to the high value added agriculturalproducts.
Participation in International Trade Fairs, O rganizing Single Country Exhibitions and
undertaking M arketDevelopm entProgram m es Abroad
As apartofexportprom otionBangladesh regularlytakes partininternationaltrade fairs,organizessinglecountry exhibitions and undertakes m arketdevelopm entprogram s in differentcountries ofthe world.Privateenterprises and organizations areencouraged totake partinsuch export-orientedevents and are accorded various incentives. Besides, program s to organize single countryexhibitions in differentcountries through com bined publicand privateinitiatives willcontinue.
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StrengtheningTraining on Export-related M attersKnowledge about the facilities and incentives available in the export trade leads to intensifiedexport activities in the country. To apprise the country's exporters of the various facilities/incentives available, training sessions, sem inars and workshops in different parts of the countryunderthe NationalExportTraining Program ofthe ExportProm otion Bureau willcontinue to beorganized.
Establishm entofW orld Trade CentreThe governm enthas decided toestablish aW orldTrade CentreinDhaka inabidtostrengthen infra-structuralfacilities forthe developm entand expansion ofexport.An areaof6.12 acres nearHotelSonargaon has been earm arked forthispurpose.
InternationalTrade CentreSim ultaneouslywiththe establishm entofaW orldTrade CentreinDhaka,ithas been decided tosetup, in Chittagong, an International Trade Centre at private initiative. Necessary land for thispurpose has already been allotted.
O rganizing LocalFairs ofInternationalStandardOrganizing trade fairs of international standard plays a very im portant role in the prom otion ofexports. Trade fairs help product fam iliarization on the one hand and establishm ent of closercontactsbetween foreign buyersand localsellersonthe otherhand.Considering thisgeneralaspect,specialized trade fairsofinternationalstandard willbe organized within the country.
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Annex III
EXPO RT PRO CESSING ZO NES(Source:ExportProm otion Bureau'sW ebsite)
IntroductionInordertostim ulaterapideconom icgrowth,particularlythrough industrialization,the Governm enthas adopted an ‘‘Open DoorPolicy’’to attractforeign investm entto Bangladesh.The BangladeshExportProcessing Zones Authority (BEPZA)isthe officialorgan ofthe Governm entto prom ote,attractand facilitateforeign investm entin the ExportProcessing Zones.
The prim aryobjective ofan EPZ istoprovide specialareas wherepotentialinvestorswouldfindacongenialinvestm entclim ate,freefrom cum bersom e procedure.Two EPZs,one inChittagong andthe otherone nearDhaka,arenow operational.
Following inform ationisprovided tothe potentialinvestorsforinvestm entinEPZs ofBangladesh:
EligibleInvestors100 percent foreign owned including Bangladesh nationals ordinarily resident abroad, (Type-A).JointVenturebetween foreign and Bangladesh entrepreneursresidentinBangladesh (Type-B).100percentBangladesh entrepreneursresidentin Bangladesh (Type-C).
M ode ofInvestmentInvestm ent in convertible foreign currencies by foreign investors. Option to establish public/privatelim ited com panies orsoleproprietorship/partnership concerns.
InvestmentGuaranteeForeign PrivateInvestm ent(Prom otion and Projection)Act1980 secures allforeign investm entinBangladesh. OPICs (Overseas Private Investm ent Corporation, USA) insurance and financeprogram s operable. Security and safeguards available under M ultinational Investm ent GuaranteeAgency (M IGA)ofwhich Bangladesh isam em ber.Arbitrationfacilityofthe InternationalCentreforthe Settlem entofInvestm entDispute(ICSID)available.
TelecommunicationsTelex,fax and InternationalDialing Services connected through satellitesystem available.
CommunicationsAdequatesea,rail,road and aircom m unication services available.
O ne W indow Sam e Day Serviceand Sim plified Procedure
BEPZAl Sanctions projectsgenerallywithin one week.l Issues required Im port/ExportPerm its.l Issues required W ork Perm itsforforeign nationalsworking in EPZ enterprises.l Provides required infrastructurefacilities in EPZs.l Offers‘‘One W indow Sam e Day Service’’to investorsin EPZs.
Production-O riented Labor LawsLaw forbids form ation of any labor union in EPZs. BEPZA is vested with responsibility toadm inisterlaborm attersforallenterprises in EPZs.
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M inim um W ages (M onthly)l Apprentices/Trainees US$22.00l Unskilled US$38.00l Sem -skilled US$45.00l Skilled US$63.00
Other benefits include Conveyance Allowance, House Rent, M edical Allowance and FestivalBonus.
W orking H ours:-48 hoursaweek in afactory-40 hoursaweek in an office-5 working days aweek.
Em ployees'Leavel 10 days CasualLeavel 17days AnnualLeave.
Facilities and IncentivesFacilities:
l Land and factorybuilding areavailableon rentalbasis.l Electricity,water,gas and telecom m unications areprovided by the zones.l Im portand exportperm itsareissued by EPZ within 24 hours.l W ork perm itsareissued by BEPZA.l EPZ isasecured and protected area.l Recreationalfacilities areavailable.l Availability of foodstuff and beverage on paym ent of nom inal tax for foreigners
working in EPZs.l Potentialinvestorsarerequired to dealonly with BEPZA forinvestm entand allother
operationalpurposes.
IncentivesFiscal:i.Tax Exemptiona. Tax holiday for10 years.b. Exem ption ofincom e tax on intereston borrowed capital.c. Relieffrom doubletaxation subjectto bilateralagreem ent.d. Com pleteexem ption from dividend tax fortax holiday period forforeign nationals.e. Exem ption of incom e tax on salaries of foreign technicians for 3 years subject to certain
conditions.
ii.Duty-Free ImportandExporta. Duty-freeim portofm achinery,equipm entand raw m aterials.b. Duty-free im port of three m otor vehicles for use of the enterprises in EPZs under certain
conditions.c. Duty-freeim portofm aterialsforconstruction offactorybuildings in the zones.d. Duty-freeexportofgoods produced in the zones.
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Non-Fiscal:i.Investmenta. Allforeign investm entssecured by law.b. No ceiling on extentofforeign investm ent.c. Fullrepatriation ofprofitand capitalperm issible.d. Repatriation ofinvestm entincluding capitalgains,ifany,perm issible.e. Rem ittances allowed in following cases:l Savings from earnings,retirem entbenefits,personalassetsofindividualon retirem ent/
term ination ofservices.l Approved royalties and technicalfees.l No perm ission forexpansion ofthe projectorproductdiversification.
ii.ProjectFinancing and Bankinga. Offshorebanking facilities available.b. Localand internationalbanking facilities also wide open.
iii.Importa. Freedom from nationalim portpolicy restrictions.b. Im portofraw m aterialsalso allowed on Docum entaryAcceptance (DA)basis.c. Advantage of opening back to back LC for certain types of industries for im port or raw
m aterials.d. Im portofgoods from the dom estictariffareaperm issible.
iv.ProjectImplementationa. Re-location ofexisting industries from one zone to anotherwithin the perm issiblecountry.
v.Operationa. Sub-contracting within EPZ allowed.b. Inter-zone and intra-zone exportperm itted.c. Allcustom s form alities done atthe gate site ofthe respective factory building within the
zone.d. Perm ission forim port/exportgiven on the sam e day.e. Repairing and m aintenance ofm achinery and capitalequipm entfrom dom estictariffarea
areallowed.
vi.Employmenta. Liberalem ploym entofforeign technicians/expertsallowed.b. Foreigners em ployed in the zones enjoy equal rights sim ilar to those of Bangladesh
Nationals.c. Law forbids form ationofany laborunioninthe zones.Strike withinthe zones isprohibited.
vi.SupportServicesCustom s Office,PostOffice,M edicalCentre,FireStation,PoliceStation.
Dhaka ExportProcessing ZoneLocation:Savar35 km from Dhaka CityCentre25 km from ZiaInternationalAirport,DhakaZone Area:58hectares (142acres)
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LandTotalnum berofplots:100Size ofeach plot:2000 sq.m .Tariff:US$1.50/sq.m ./year
Standard Factory BuildingSpace:72,000 sq.m .in 16 blocksTariff:US$2.00/sq.m ./m onth
W arehouseSpace:2,300 sq.m .Tariff:US$2.00/sq.m ./m onth
Utility ServicesW aterSupply:DEPZ getswaterfrom itsown watersupplysystemStorage Capacity:4,520,000 liters/dayTariff:Tk.13.56 persq.m .PowerSupply:11 KV,3-phase,50 cyclesTariff:Tk.2.86 perKW H (IndustrialUse)Gas Supply:136,000 cubicm eters/day or5,667 cubicm eters/hourTariff:Tk.3.64 percubicm eter(IndustrialUse)
Chittagong ExportProcessing ZoneLocation:2.40 km from the Chittagong Sea Port5.63 km from the m ain business centreofChittagong7.24 km from the Chittagong InternationalAirportZone Area:255 hectares (630 acres)
LandTotalnum berofplots(planned):430Size ofeach plot:2044 sq.m .Tariff:US$1.50/sq.m ./year
Standard Factory BuildingSpace:39,000 sq.m .in 16 blocksTariff:US$2.00/sq.m ./m onth
Utility ServicesW aterSupply:CEPZ getswaterfrom Chittagong W ASATariff:Tk.13.56 persq.m .PowerSupply:11 KV,3-phase,50 cyclesTariff:Tk.2.70 perKW H (IndustrialUse)Gas Supply:CEPZ getsgas from the Titas Gas FieldTariff:Tk.3.64 percubicm eter(IndustrialUse)
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G LO BALIZATIO N AND STATE CAPACITY:NATIO NAL CASE STUDY O N TRANSPARENCY AND ACCO UNTABILITY IN TRADE AND
INVESTM ENT ACTIVITIES IN CH INA
Xin Chunying He M ing*
I. DETERM INATIO N O F TH E CCP AND TH E CH INESE GO VERNM ENT INFIGH TING AGAINST CO RRUPTIO N
The term ofcorruptionm eantdifferentlyunderthe planning econom y system ,which lasted inChina form orethan 30years.A m an having an extram aritalaffairm ightbe considered as thecorrupted person and be punished strictly, he m ay loose his job, and his children m ay behum iliated inschool.A hungrym other,stealsapieceofbread in publicdining room m ay bepunished as corruption too.Therem ightbe politicalcorruption in politicalsense,thatpeopleweredepressed,and theirm oralabilitywas deprived.Butineconom y sense,the countrywasclean.Generallyspeaking,publicofficialsdidnothave access togethim selfm oreshares fromthe publicpocket,because the tightcontrolinallaspectsofsociallifeelim inated possibilitiesforcorruption.And thatiswhy som e elderpeoplestillthink those days arethe "golden tim e"because everyone was equalin term s ofhaving socialshares,given the factthatthey lived inavery poorlife,and enjoyed fewerrights."Poorbutequal"was one way to keep the socialorder.
It is true that corruption has becom e one of the m ajor challenges to Chinese Governm enttoday.The high-speed econom icdevelopm entproduced prosperityon one hand,and broughtaboutproblem s such as corruptiononthe other.Studies show thatm ostChinese peoplearenothappy with the situation ofcorruption,whilebenefited from econom icreform s,they feeltheGovernm entneeds to do m orein com bating corruption.
Given thisbackground,fighting againstcorruption has been on the top agenda since the 13thCPC CentralCom m itteeConference forChinese Com m unistPartyand Chinese Governm ent.As PresidentJiang Zem in putitas am atterof"lifeand death ofthe Party and the State",hecalled forallm em bersofthe CCP to"fullyunderstand the im portantsignificance forthe workof fighting against corruption and building a clean and honest Governm ent."1 Thedeterm ination to fighting againstcorruption has been tested in aradicalway in 1989,2 therearem orethan 10im portantspeeches m ade by topleadersofthe Partyand the Stateonfightingagainstcorruption.As the ruling partyofthe State,the strong willofCPC has resulted ingreatnum ber of anti-corruption regulations, and institutional capacity has been strengthened aswell.
Given the effortsm ade,corruption in China isstillon the rise.In the year2001,Courtsatalllevels punished 17,931 crim inals involving graft and em bezzlem ent, including high-levelofficials such as Hu Changqing, Deputy Governor of Jiang Xi Province, and Cheng Kejie,Deputy President of the Standing Com m ittee for the National People's Congress, both gotdeath penalty.China isunique in the sense thathigh governm entofficialsarebeing executedfor corruption in this country. According to the report that the subm itted by the Suprem e
*ProfessorofLaw,the Law committeeofthe NationalPeople'sCongress.He M ing isaResearch Assistantatthe InstituteofPublicSecurityStudies.1Jiang Zemin:Speech onthe FourthPlenaryofthe 13thCPC CentralCommittee.2The studentdemonstrationwas inthe name ofAnti-corruption.
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Procurator's Office to the National Peoples' Congress, 45113 em bezzlem ent, bribery andderelictionofdutycases werefiled atProcurator'sOfficeatalllevelsinthatyear.Am ong themthere were 1335 "Big Cases", the standard is each of them involves m ore than one m illionRM B.Otherthan Hu and Cheng,LiJizhou,form erdeputym inisterofthe M inistryforPublicSecurity, was sentenced to death penalty with two-year suspension. He was involved in asm uggling case,accepted briberyfrom the sm uggler,and interfered the investigationby usinghispower.3
II.TRANSPARENCY AND ACCO UNTABILITY IN TRADE AND INVESTM ENTACTIVITIES
II.1Anti-corruption Laws
II.1.1DevelopmentofAnti-corruption LawsSince corruptionusuallylinked withpublicpowerand position,so the firstphrase ofanti-corruptionregulation was developed with the Party and adm inistrative system ,in the form of"docum ent"or"circular".The m ilestone foranti-corruption legaldocum entswas the crim inallaw.
CriminalLaw The crim inal code was am ended in 1997 on the basis of the 1979 version. Three additionalam endm ents were added to the law in 1999 and 2001, som e of the added articles are aim ed atpunishing new corruption cases.Now therearetwo specificchapterson suppression ofthe crim eofcorruption:crim es ofgraftand bribery,and crim es ofdereliction ofduty.The form erincludesem bezzlem ent, accepting and offering bribes, while the latter includes abuse of power by statepersonnel.
Article382ofthe Crim inalCode stipulates thatany Statefunctionarywho,by taking advantage ofhisoffice,appropriates,steals,swindles publicm oney orpropertyorby otherm eans illegallytakeitintohisown possessionshallbe guiltyofem bezzlem ent.Any person authorized by Stateorgans,state-owned com panies,enterprises,institutions orpeople'sorganizations toadm inisterand m anagestate-owned property who, by taking advantage of his office, appropriates, steals, swindles ownpossession shallbe regarded as being guiltyofem bezzlem ent.W hoeverconspires with,orengagein em bezzlem entshallbe regarded as jointoffendersin the crim e and punished as such.Personswho com m itthe crim e ofem bezzlem entshallbe punished respectively in lightofthe seriousnessofthe circum stances and in accordance with the following provisions:
(a) An individualwho em bezzles notless than 100,000 Yuan shallbe sentenced to fixed-termim prisonm entofnotless than 10 yearsorlifeim prisonm entand m ay also be sentenced toconfiscation ofproperty;ifthe circum stances areespecially serious,he shallbe sentencedto death and also to confiscation ofproperty.
(b) An individualwho em bezzles notless than 50,000Yuan butless than 100,000Yuan shallbesentenced tofixed-term im prisonm entofnotless than five yearsand m ay also be sentencedtoconfiscationofproperty;ifthe circum stances areespeciallyserious,he shallbe sentencedto lifeim prisonm entand confiscation ofproperty.
(c) An individualwho em bezzles notless than 5,000 Yuan butless than 50,000 Yuan shallbesentenced to fixed-term im prisonm ent of not less than seven years but not m ore than 10years.Ifan individual,who em bezzles notless than 5,000Yuan and less than 10,000Yuan,shows true repentance aftercom m itting the crim e,and gives upthe em bezzled m oney ofhis
3Reportby the Suprem e ProcuratorsOfficetothe NationalPeople'sCongress,M arch 22,2001.
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own accord,he m ay be given am itigated punishm ent,orhe m ay be exem pted from crim inalpunishm ent, or he m ay be exem pted from crim inal punishm ent but shall be subjected toadm inistrative sanctions by hiswork unitorby the com petentauthorities atahigherlevel.
(d) An individual who em bezzles less than 5,000 Yuan, if the circum stances are relativelyserious, shall be sentenced to fixed-term im prisonm ent of not m ore than two years orcrim inal detention; if the circum stances are relatively m inor, he shall be givenadm inistrative sanctions atthe discretionofhisworkunitorofthe com petentauthorities ata higher level. W hoever repeatedly com m its the crim e of em bezzlem ent and goesunpunished shall be punished on the basis of the cum ulative am ount of m oney he hasem bezzled.
ForStatefunctionaries,the law stipulates thatany Statefunctionary who,by taking advantage ofhisposition,m isappropriates public funds forhisown use orforconducting illegalactivities,orm isappropriates a relatively large am ount of public funds and fail to return it after the lapse ofthree m onths,shallbe guilty ofm isappropriation ofpublic funds and shallbe sentenced to fixedterm im prisonm ent of not m ore than five years or crim inal detention; if the circum stances areserious,he shallbe sentenced to fixed-term im prisonm entofnotm ore than five years.W hoeverm isappropriates a huge am ountofpublic funds and failsto return itshallbe sentenced to fixed-term im prisonm entofnotless than 10 yearsorlifeim prisonm ent.
W hoever m isappropriates for his own use funds or m aterials allocated for disaster relief,em ergency rescue, flood prevention and control, special care for disabled servicem en, aid to thepoor,m igration and socialreliefshallbe given aheavierpunishm ent.Any Statefunctionarywho,by taking advantage of his position, extorts m oney or property from another person, or illegallyacceptsanotherperson'sm oney orproperty in return forsecuring benefitsforthe person shallbeguilty of acceptance of bribes.Any State functionary who, in econom ic activities, violates Stateregulations by accepting rebates or service charges of various descriptions and taking them intohis own possession shall be regarded as guilty of acceptance of bribes and punished for it.W hoever has com m itted the crim e of acceptance of bribes shall, on the basis of the am ount ofm oney orproperty accepted and the seriousness ofthe circum stances,be punished in accordancewith the provisions of relevant articles in the law. W hoever extorts bribes from another personshallbe given aheavierpunishm ent.
W hereaStateorgan,state-owned com pany enterprise,institution orpeople'sorganization extortsfrom anotherperson orillegallyacceptsanotherperson'sm oney orpropertyin return forsecuringbenefitsforthe person,ifthe circum stances areserious,itshallbe fined,and the persons who aredirectly in charge and the other persons who are directly responsible for the offence shall besentenced tofixed-term im prisonm entofnotm orethan five yearsorcrim inaldetention.Any oftheunits m entioned in the preceding paragraph that, in econom ic activities, secretly accepts off-thebookrebates orservicecharges ofvarious descriptions shallbe regarded as guiltyofacceptance ofbribes and punished in accordance with the relevantprovisions ofthe law.
Any State functionary who, by taking advantage of his own functions and powers or position,secures illegitim ate benefits for an entrusting person through another State functionary'sperform ance ofhisduties and extortsfrom the entrusting person oracceptsthe entrusting person'sm oney orpropertyshallbe regarded as guiltyofacceptance ofbribes and punished forit.W hoever,for the purpose of securing illegitim ate benefits, gives m oney or property to a State functionaryshall be guilty of offering bribes. W hoever, in econom ic activities, violates State regulations by
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giving him rebates orpropertytoaStatefunctionaryorby giving him rebates orservicecharges ofvarious descriptions shallbe regarded as guiltyofoffering bribes and punished forit.
W hoevercom m itsthe crim e ofoffering bribes shallbe sentenced to fixed-term im prisonm entofnotm orethan five yearsorcrim inaldetention;W hoeveroffersbribes tosecureillegitim atebenefits,ifthe circum stances areserious orifheavy losses arecaused to the interestsofthe State,shallbesentenced to fixed-term im prisonm entofnotless than five yearsbutnotm orethan 10 years;ifthecircum stances areespeciallyserious,he shallbe sentenced to fixed-term im prisonm entofnotlessthan 10yearsorlifeim prisonm entand m ay also be sentenced toconfiscationofproperty.W hoever,forthe purpose ofsecuring illegitim ate benefits,gives m oney orproperty to a State organ,Stateowned Com pany,enterprise,institutionorpeople'sorganizationor,ineconom icactivities,violatesStateregulations by giving rebates orservicecharges ofvarious descriptions shallbe sentenced tofixed-term im prisonm entofnotm orethan threeyearsorcrim inaldetention.W hereaunitcom m itsthe crim e m entioned in the preceding paragraph,itshallbe fined,and the persons who aredirectlyin charge and the otherpersons who are directly responsible forthe offence shallbe punished inaccordance with the provisions ofthe preceding paragraph.
Forthose who introduce a bribe to a State functionary,ifthe circum stances are serious,shallbesentenced to fixed-term im prisonm entofnotm orethan threeyearsorcrim inaldetention.W hereaunit4 offers bribes for the purpose of securing illegitim ate benefits or, in violation of Stateregulations,gives rebates orservicecharges toaStatefunctionary,ifthe circum stances areserious,itshallbe fined,and the persons who aredirectlyin charge and the otherpersons who aredirectlyresponsible for the offence shall be sentenced to fixed-term im prisonm ent of not m ore than fiveyearsorcrim inaldetention.Any person who takes intohisown possessionthe illegalgains derivedfrom bribing shallbe convicted and punished in accordance with relevantprovisions ofthisLaw.Any State functionary who, in his activities of dom estic public service or in his contacts withforeigners,acceptsgiftsand does nothand them overtothe Stateas isrequired by Stateregulations,ifthe am ountinvolved isrelatively large,shallbe convicted and punished in accordance with therelevantprovisions ofthisLaw.
Any Statefunctionary,whose propertyorexpenditureobviouslyexceeds hislawfulincom e,ifthedifference isenorm ous,m ay be ordered to explain the sources ofhisproperty.Ifhe cannotprovethatthe sources arelegitim ate,the partthatexceeds hislawfulincom e shallbe regarded as illegalgains,and he shallbe sentenced tofixed-term im prisonm entofnotm orethan five yearsorcrim inaldetention,and the partofpropertythatexceeds hislawfulincom e shallbe recovered.
Any State functionary shall, in accordance with State regulations, declare to the State his banksavings outside the territoryofChina.W hoeverhas arelativelylarge am ountofsuch savings anddoes notdeclarethem to the Stateshallbe sentenced to fixed-term im prisonm entofnotm orethantwo years or crim inal detention; if the circum stances are relatively m inor, he shall be givenadm inistrative sanctions atthe discretion ofhiswork unitorthe com petentauthorities atahigherlevel.
W here a State organ, State-owned com pany, enterprise, institution or people's organization, inviolation ofStateregulations and in the nam e ofthe unit,divides up State-owned assetsin secretam ong allthe individualsofthe unit,ifthe am ountinvolved isrelativelylarge,the persons who aredirectly in charge and the other persons who are directly responsible for the offence shall besentenced to fixed-term im prisonm entofnotm orethan threeyearsorcrim inaldetention and shall
4Unitistranslated from the Chinese term "Dan W ei",which m eans aworking unitthatcouldrefertoam inistryoran institute,oreven acompany.
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also,orshallonly,be fined;ifthe am ountinvolved ishuge,they shallbe sentenced to fixed-termim prisonm entofnotless than three yearsbutnotm ore than seven yearsand shallalso be fined.Any judicialorgan oradm inistrative law-enforcing organ that,inviolationofStateregulations and in the nam e ofthe organ,divides up in secretthe fines overto the State,am ong allthe individualsofthe organ,shallbe punished in accordance with relevantprovisions ofthe law.
AuditLawThe auditlaw was enacted in 1994.The guideline forthislaw isto im plem entArticle 91 oftheConstitution,which stated thatauditoffice shallbe established by the State Councilto auditandsupervise the financial situation of all governm ent departm ents and local governm ents.
No organization or individual m ay refuse or obstruct auditors' perform ance of their functions inaccordance with the law,orretaliateagainstauditors.Persons in charge ofauditinstitutions shallbe appointed orrem oved in accordance with legalprocedures.None ofthem m ay be rem oved orreplaced atrandom unless they arefound guilty ofillegalactsornegligentofduties orno longerqualified forthe post.
Auditinstitutions shallexercise supervisionthrough auditing overthe budgetim plem entation,finalaccountsand m anagem entand use ofextra-budgetaryfunds ofdepartm ents(including unitsdirectlysubordinateto them )atthe corresponding levelsand ofthe people'sgovernm entsatlowerlevels.The NationalAuditAdm inistration shall,underthe leadership ofthe prem ierofthe StateCouncil,exercise supervision through auditing over the im plem entation of the central budget and subm itaudit reports thereon to the Prem ier. Local audit institutions at various levels shall, under therespective leadership of the governors of provinces, chairm en of autonom ous regions, m ayors,prefectural heads and heads of counties or districts as well as under the leadership of auditinstitutions at the next higher levels, exercise supervision through auditing over the budgetim plem entationatthe corresponding levelsand subm itauditreportstothe people'sgovernm entsatthe corresponding levelsand to the auditinstitutions atthe nexthigherlevels.
The NationalAuditAdm inistration shallexercise supervision through auditing overthe financialrevenues and expenditures ofthe CentralBank.Auditinstitutions shallexercise supervisionthrough auditing overthe assets,liabilities,profitsand losses ofthe State-owned m onetary organizations;through auditing overthe financialrevenues and expenditures ofStateinstitutions;through auditing overthe financialrevenues and expenditures ofStateinstitutions;through auditing overthe assets,liabilities,profitsand losses ofState-owned enterprises.
Auditinstitutions shallconductauditin aregularand planned way with regard to the state-owned enterprises thatare vitalto the nationaleconom y and the people'slivelihood,orthe state-ownedenterprises thatheavily depend upon governm entsubsidies,orhave large am ountsoflosses,andother State-owned enterprise designated by the State Council or the people's governm ents at thecorresponding levels.
Auditinstitutions shallexercise supervision through auditing overthe budgetim plem entation and finalaccountsofthe State'sconstructionprojects;through auditing overthe financialrevenues and expenditures of the socialsecurityfunds,funds from publicdonations and otherrelevantfunds and capital m anaged by governm ental departm ents or by public organizations authorized by thegovernm ents;through auditing overthe financialrevenues and expenditures ofprojectwithaids orloans provided by internationalorganizations orgovernm entsofothercountries.
In addition to the auditm attersspecified in thisLaw,auditinstitutions shall,in accordance withthe provisions ofthisLaw as wellas relevantlaws,oradm inistrative rules and regulations,exercise
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supervisionthrough auditing overthe m attersthatshallbe audited by auditinstitutions as stipulated by otherlaws,adm inistrative rules and regulations.
W ith regard to particularm attersrelating to the State'sbudgetaryrevenues and expenditures,auditinstitutions shallhave the powertocarryoutspecialinvestigations through auditing am ong relevantlocalities, departm ents and units and governm ents at the corresponding levels and to the auditinstitutions atthe nexthigherlevel.Auditinstitutions shalldeterm ine theirauditjurisdictiononthe basisofthe auditees'subordinaterelations inbudgetaryand financialaffairsorthe supervisoryand m anagerialrelations with respectto the State-owned assetsofthe auditees.W hereadisputearises on audit jurisdiction between audit institutions, the m atter shall be determ ined by an auditinstitutionsuperiortobothdisputing parties.Auditinstitutions athigherlevelsm ay authorize auditinstitutions atlowerlevelstoauditthe m atters,which arewithinthe jurisdictionofthe form er.Auditinstitutions at higher levels m ay directly audit the m ajor m atters under the jurisdiction of auditinstitutions atlowerlevels.
Departm ent of the State Council and of the local people's governm ents at various levels, State-owned m onetary organizations, enterprises and institutions shall establish and im prove theirinternal auditing system s in accordance with the relevant regulations of the State. Such internalauditing shallbe subjectto the professionalguidance and supervision ofauditinstitutions.Publicauditfirm thatindependentlyconductpublicauditaccording tolaw shallbe guided,supervised and m anaged in accordance with relevantlaws and regulations ofthe StateCouncil.
AdministrationSupervisionLaw Thislaw isenacted tostrengthen the supervision,guaranteethe sm oothim plem entationoflaws and governm entdecrees,to build an honestand clean governm ent,to raise adm inistrative efficiency.
Supervision organs exercise the function ofsupervision on behalfofthe governm ent,supervising adm inistrative organs and publicservantsofthe Stateand otherpersons appointed by adm inistrative organs ofthe State.
Supervision willbe enforced by relying on people.Supervisoryorgans shallinstitutean inform ing system to facilitate citizens to bring accusations orexpositions againstany adm inistrative organsand civil servants, or any persons appointed by adm inistrative organs that violate laws or arederelictintheirduties.
The supervisory organ under the State Council shall supervise over all departm ents and theirfunctionary. Other persons appointed by the State Council and the various departm ents under it,People's governm ent of provinces, autonom ous regions and m unicipalities directly under theCentralGovernm entand the leading m em bersofthose governm ents.
The supervisory organs oflocalpeople'sgovernm entsare setup atand above county level,theyshall exercise supervisions over the various departm ents and their civil servants, other personsappointed by the people's governm ents, the governm ent at the next lower level and its leadingm em bers.
W heredepartm entsorpersons undersupervision violatelaws and regulations by com m itting anyofthe following acts,adm inistrative sanctions willbe im posed:withhold the truth,provide falseevidence or conceal, transfer, alter or destroy evidence; deliberately delay providing docum ents,data,financialaccountsorotherm aterialsorinform ation relevantto the m atterundersupervisionorrefuse to provide them ;selloffortransfersuspectproperty during the period ofinvestigation;
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refuse to explain orclarify the questions raised by the supervisory organ;refuse to im plem entthesupervisory decision or refuse to adopt this law, where the circum stances are serious. W hoeverretaliates against or fram e up any com plainants, accusers, or supervisors shall be givenadm inistrative sanction, if the act constitute a crim e, crim inal responsibility shall be im posedthrough legalprocedure.
Other M ajor LegalDocumentsOtherm ajorlegaldocum entsreferto adm inistrative regulations by StateCounciland itsGeneraloffice.Those kind oflegaldocum entsplay an im portantrolein keeping governm entalofficialsinline.Ofcourse,the adm inistrative punishm entsarem ostdisciplinary,butthey couldchange the fateofacivilservant.
The m ostpopularregulations are:l Regulation ofgraftand briberyofpublicofficialsin adm inistration 1988,by the State
Council.l Regulation ofprohibiting giftsbe given oracceptin publicaffairs1988,by the State
Council.l Regulation ofrestricting leading cadres to go abroad 1989,by the generalofficeof
the StateCouncil.l Regulations forCivilServants1993,by the StateCouncill RegulationofGiving and accepting giftsinforeign related activities 1993,by the
StateCouncil.l Regulation ofreporting im portantpersonalaffairsforleading cadres 1997,by the General
Officeofthe StateCouncil.l Regulation ofspecialinspectors1998,by the StateCouncil.
II.2 Conventions againstCross-border Corruption
Generally speaking, Chinese Governm ent has been active in participating International anti-corruption efforts.In the ADB and OECD Anti-corruption Initiative forAsia-Pacific,China isanactive partner.China attends the IACC conference regularly.The SeventhIACC was heldinBeijing in 1995. The Suprem e People's Procuratorate was the organizer. M ore than 900 participants,consisting governm entofficials,judges,publicprosecutorsattended the conference,which was the largestsince the IACC holds itsregularConference.
Chinese laws are also corresponding with international treaties on com bating corruption. Forexam ple,the crim inallaw clearlydem onstrated thatthe Stateisharsh oncrim es such as sm uggling and othercross-bordercrim es.
II.3Agencies and Institutions
II.3.1StateProcurators Office
The StateProcuratorsOffices areStateOrgans forlegalsupervision.ThereisSuprem e procuratorateand people'sprocuratorateatvarious locallevels.They have heavy responsibilities tosupervising the law enforcem ent,specificallyovercases oftreason.They acttodism em berthe Stateand othercrim inalactivities im peding the unified enforcem entofStatepolicies,laws,decrees andadm inistrative orders. They also conduct investigation on crim inal cases directly handled bythem selves, review cases investigated by police and determ ine whether to approve arrest, toprosecute,tosupervise overinvestigatoryactivities ofthe policetosee ifthey conform ed withlaws,
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as wellas to supervise overthe execution ofjudgm entsand ordersin crim inalcases,overprisons,detention centers,and organs in charge ofreform through labor.
W hatwe wantto explain hereisthatthe statutoryprocedureforthe judiciaryto dealwith specificcorruptioncases isbased onthe Crim inalProcedureLaw,which provides the procuratoratewiththe jurisdictionovercrim es ofcorruptionby officials.However,forsom e cases,particularlyinvolving high-ranking officials, the Chinese Com m unist Party's (CCP) com m ittee of discipline inspectionintervenes first.
The Anti-Corruption Bureau was established within the system ofprocuratoratein 1995.Itwas an effortto learn from Hong Kong,which isconsidered to be agood m odelform ainland China.TheresponsibilityofAnti-CorruptionBureaus is:
l to guide the investigation and pre-trialforcorruption cases in the country;l to participatethe investigation ofbigbriberyand corruption cases;l tocoordinatethe workininvestigating bigcorruptioncases when jointworkareneeded;l to study and propose policy and legalproposalsforcom bating corruption.
II.3.2Supervision M inistry
The SupervisionM inistryisthe m inistrythatisincharge ofthe adm inistrative supervisions overallgovernm ents divisions and their officials, governm ents of provinces, autonom ous regions,m unicipalities directly under the Central Governm ent and their officials in im plem enting StateLaws,policies and regulations,adm inistrative orders.Investigation shallbe conducted iftherearem is-conducts,and adm inistrative punishm entwillbe im posed according to laws and regulations.
Supervision departm entsareestablished atalllevelsofgovernm ents.They play an im portantrolein guaranteeclean and efficientgovernm ents.Legally,theirresponsibilities are:
l to supervise adm inistrative organs atalllevelsin im plem enting statelaws,regulations,orders,and decrees
l toacceptcom plaintsand charges againststateorgans and theirfunctionaryforviolationofthe law ordereliction ofduty;
l toinvestigateand punish actsofstateadm inistrative organs,functionaryand otherstaffwho areappointed by adm inistrative organs ifthey violated laws and policies.
II.3.3AuditInstitutions
According to the law,the State Councilshallestablish the NationalAuditAdm inistration to takecharge ofthe auditwork throughoutthe country underthe leadership ofthe Prem ierofthe StateCouncil. The Auditor-General shall be the adm inistrative leader of the National AuditAdm inistration.
Audit institutions of the people's governm ents of provinces autonom ous regions, m unicipalitiesdirectly under the Central Governm ent, cities divided into districts, autonom ous prefectures,counties,autonom ous counties,cities notdivided into districtsand m unicipaldistrictsshallbe incharge ofthe auditworkwithintheirrespective adm inistrative areas underthe respective leadershipofgovernorsofprovinces,chairm en ofautonom ous regions,m ayors,prefecturalheads,orheads ofcounties and districtsas wellas underthe leadership ofauditinstitutions atthe nexthigherlevels.Localauditinstitutions atvarious levelsshallbe responsibleand reportontheirworktothe people'sgovernm entsatthe corresponding levelsand to the auditinstitutions atthe nexthigherlevelsandtheirauditwork shallbe directed chieflyby the auditinstitutions atthe nexthigherlevel.
Auditinstitutions m ay,as required by work,appointresidentauditofficerswithinareas undertheirjurisdiction. Resident audit officers shall, according to the authorization of audit institutions,
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conductauditwork in accordance with the law.Funds necessary forauditinstitutions to performtheirfunctions shallbe included in the budgetsofthe governm entsand guaranteed by the people'sgovernm ents at the corresponding levels. Auditors shall possess the professional knowledge andability suitable to the audit work they engage in. In handling audit m atters, if auditors have aninterestin the auditees orthe audititem s,they shallwithdraw.Auditorsshallbe protected by lawin perform ing theirfunctions.
II.3.4InternalSetting in allGovernmentalAgencies
ItisaspecialfeatureofChina thatsupervision organs aresetin allgovernm entalagencies,state-owned enterprise,hospitals,even schools.The m issionofthose supervisionorgans aresupposed towatch their workers in com plying with laws and regulations. There are disagreem ents over theeffectiveness ofthose settings,butthey arean integralpartofthe wholesupervision m echanism .
II.4EnforcementM echanism
Som e so-called anti-corruption laws are,strictly speaking,notlaws butpoliticaland disciplinarynorm s form ulated directlyby the CCP orjointlyby the CCP and governm entalagencies.Infact,theCCP'sCentralCom m itteeforDiscipline Inspection (CCDI)has prepared num erous disciplinarydocum entsaim ed atcurbing corruption.Atadm inistrative level,as we presented inthe firstsectionof this paper, there are m any regulations targeting on the behaviors of State functionary, the lastm easureislegal,when acorruptioncase was broughttocourt,laws willbe applied.Itislike a"net",as the old Chinese proverb describe as "the netofheaven neverleak".
III.LEG AL AND JUDICIAL FRAM EW O RK
III.1 Regulatory Fram ework for Trade and Investm ent
III.1.1Law on Foreign CapitalEnterprise
The law on foreign capitalenterprise was enacted in 1986.Thislaw isform ulated to protectthelawfulrightsand interestsofthe parties inChinese-foreign econom iccontracts.Article4ofthe Law stipulates thatthe investm entsofaforeign investorin China,the profitearned by them and otherlawful rights and interests, are protected by Chinese law. The State shall not nationalize anyenterprises with foreign capital.
Underspecialcircum stances,when publicinterestrequires,enterprises withforeign capitalm ay be requisite by legal procedures and appropriate com pensation shall be m ade.According to this law, if an enterprise with foreign capital m eets the conditions of legal personunder Chinese law shall acquire the status. Enterprises with foreign capital shall conduct theiroperations and m anagem ent in accordance with laws and shall be free from any interference.Enterprises with foreign capital m ust set up account books in China, conduct independentaccounting, subm it the fiscal report and statem ents as required, and accept supervision by thefinancialand tax authorities.
III.1.2Law on Chinese Foreign ContractualJointVentures in 1988
Thislaw isform ulated to expand econom iccooperation and technologicalexchange with foreigncountries, to prom ote the joint establishm ent by foreign enterprises and other econom icorganizations orindividualswithChinese enterprises orothereconom icorganizations insetting upcontractualjointventures onthe principalofequalityand m utualbenefit.The Stateshall,according to law,protectthe lawfulrightsand interestsofthe contractualjointventures and ofthe Chineseand foreign parties.
The application forthe establishm entofsuch a jointventure shallbe exam ined and approved byrelevantagencies and the exam inationand approvalauthorityshalldecide within45days.Once the
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jointventureisapproved,the parties shallapply to the adm inistrative authorities within30 days to obtain a business license. The m anagem ent and production is free frominterference. Any disputes arising from the execution of the contract shall be settledthrough consultation or m ediation. In case both parties are unwilling to settle throughconsultation orm ediation,they m ay choose aChinese ArbitrationAgency,they can alsobring the case toChinese Courtifnoarbitrationclause isprovided.
Interm s oftrade therearelaws and regulations,butm oreim portantisthe com m itm enttoW TO,since China isnow apartyState.Thispaperwillprovide China'scom m itm entwithW TO agreem entatthe end ofthe paper.
III.1.3The Foreign Trade Law
The foreign trade law was enacted in1994inordertoprovide asuitableenvironm entforforeign trade.Article4ofthe Law stated thatthe Stateshallinstituteauniform system offoreign trade and safeguardafairand freeforeign trade orderinaccordance withthe law.China prom otes and develops trade relations with other countries and regions on theprincipleofequalityand m utualbenefits.Inforeign trade,China grantsthe m ostfavorednationtreatm entand the nationaltreatm enttoothersignatories oracceding parties onthebasisofthe internationaltreaties and agreem entsthatChina has signed oracceded to,orto the otherpartyunderthe principleofm utualbenefitand reciprocity.
Cross-boardereconom iccrim es arestrictlyforbidden underthislaw.Chapter7ofthe lawis concentrated on legal liabilities for such illegal acts. According to those articles,whoever sm uggles goods that are prohibited or restricted to whose im port and export,such an actconstitutes acrim e,shallbe investigated forcrim inalresponsibility.Ifsuch anactdoes notconstituteacrim e,the offendershallbe punished by the Custom s Law.Theirbusiness licenses forforeign trade m ay also be revoked.
Forthose who counterfeitsoralterscertificates oforigin orlicense ofim portand exportshallbe investigated forcrim inalresponsibilityconnected torelevantarticles ofCrim inalLaw.W hereaunitcom m itsthe crim e specified,afine shallbe applied.Persons directlyincharge shallbe investigated forcrim inalresponsibility,theirbusiness license m ay alsobe revoked. W hoever knowingly uses counterfeited or altered licenses to im port andexportgoods shallbe punished according tothe relevantarticles ofthe Crim inalLaw.
W hoever in violation of this law, im port or export technologies that are prohibited orrestricted,ifsuch an actconstitutes a crim e,shallbe investigated forpersonalgains orabuse ofpower.
The State functionaries engaged in foreign trade, who neglect their duties or practiceirregularities forpersonalgains orabuse theirpower,shallbe investigated and punished.Iftheiractsdonotconstituteacrim e,they shallbe given adm inistrative sanctions.
The Statefunctionaries engaged in foreign trade who by taking advantage oftheirofficeextortotherpersons'm oney orgoods orillegallyacceptotherpersons'm oney orgoods soas to seek benefitsforsuch persons,shallbe investigated forcrim inalresponsibility,ifsuch an actdoes notconstituteacrim e,adm inistrative sanctions shallbe im posed.
III.2 Property RightsLaws
Thereareanum berofpropertyrightslaws in China.The Trade M ark Law was enactedin1982,the PatentLaw was enacted in1984,and the Copy RightLaw in1990.
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III.2.1Protection ofTrade M arks
The Trade M arkLaw was enacted in1982withtwo am endm entsin1993and 2001.Article1ofthe Law stipulates that"thislaw isform ulated forthe purpose ofim proving the adm inistrationoftrade m arks,protecting the righttoexclusive use oftrade m arks and encouraging producerstoguaranteethe quality of their goods and m aintain the reputation of their trade m arks, so as to protect theinterests of consum ers and prom ote the developm ent of the socialist com m odity econom y."
Any of the following acts shall be an infringem ent of the right to exclusive use of a registeredtradem ark:
l using atrade m arkwhich isidenticalwithorsim ilartothe registered trade m arkonthesam e kindof goods orsim ilargoods withoutalicense from the ownerofthatregisteredtrade m ark;
l m anufacturing or selling, without authorization, representation of the registeredtradem ark of another person; or harm ing, in other ways, another person's right toexclusive use ofaregistered tradem ark.
The party whose righthas been infringed m ay requestthe adm inistrative departm entforindustryand com m erce to handle the m atter, they should stop the infringem ent act im m ediately, and tocom pensatethe partywhose righthas been infringed.Ifthe infringem entisserious,and the parties do notagreewith the settlem ent,they can bring alawsuitto court.
III.2.2Protection ofPatent
The patentlaw was enacted in1984withtwo am endm entsin1992and 2000.Thislaw isform ulated to protect patent rights for inventions and creations, to facilitate their popularization andapplication,prom otethe developm entofscience and technology.Ifany actsofinfringem entarise from the exploitation ofapatentwithoutthe authorization ofthepatentee, the patentee or interested parties m ay request the patent adm inistrative authorities tohandlethe m atterorm ay directlyfilealawsuitin court.Any staffm em berofthe patentOfficeorany ofthe relevantstatefunctionaries engages in m alpracticeforbenefitofhim selforhisfriends,adm inistrative sanction shallbe im posed.Ifthe case isserious,crim inalliability shallbe appliedm utatism utandisofthe Crim inalLaw.
III.2.3Protection ofCopy RightAccording to the copy rightlaw,anyone who com m itsany ofthe following actsofinfringem entshall bear civil liability for such rem edies as ceasing the infringem ent, elim inating its ill effects,m aking apublicapology,and paying dam ages,depending on the circum stances:
l publishing awork withoutthe perm ission ofthe copyrightowner;l publishing awork ofjointauthorship as ones very own withoutthe consentofthe co-
authors;l affixing ones nam e to awork created by anotherperson,forfam e orforgain,without
having participated in itscreation;l m isrepresenting ordistorting awork created by anotherperson;l m aking use of a work either by way of perform ance, broadcasting, exhibition,
publication,and productionofm otionpictures,televisionprogram s orvideo recordings,orthrough adaptation,translation,annotation,orcom pilation,withoutthe perm issionofitscopyrightowner,unless otherwise provided in thisLaw;
l m aking one's of a work created by another person, without paying rem uneration inaccordance with regulations;
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l m aking live broadcastswithoutthe perm ission ofthe perform ers;l other acts of infringem ent of copyright, or of relevant rights and interests related to
copyright.III.3 M echanism s to ProtectProperty Rights
Anyone who com m its any of the following acts of infringem ent shall, depending on thecircum stances,bearcivilliabilityforsuch rem edies as ceasing the infringem ent,elim inating itsilleffects,m aking a public apology,forpaying dam ages,and m ay,in addition,be subjected by thecopyright adm inistration departm ent to such adm inistrative sanctions as confiscation of illegalincom e and infliction ofafine:
l appropriating orplagiarizing awork created by anotherperson;l reproducing and distributing aworkforcom m ercialpurposes withoutthe perm issionof
itscopyrightowner;l publishing a book of which the exclusive right of publication is enjoyed by another
person;l producing and publishing a sound or video recording without the perm ission of the
perform er;l reproducing and distributing a sound or video recording produced by another person
withoutthe perm issionofthe producer;l reproducing and distributing aradioortelevisionprogram withoutthe perm issionofthe
radio ortelevision station which has produced it;l producing orselling awork offine artwith forged signatureofanotherauthor.
A partythatfailstoperform hiscontractualobligations,orperform s them inam anner,which isnotin conform ity with the agreed term s, shall bear civil liability in accordance with the relevantprovisions ofthe GeneralPrinciples ofthe CivilLaw.Any disputeoverinfringem entofcopyrightm ay be settled through m ediation.The disputem ay be broughtbeforeapeople'scourtifeitheronsettlem entcan be reached,orapartyhas retracted from the settlem entreached through m ediation.Ifany party refuses to acceptm ediation,he m ay also directly bring the dispute before a people'scourt.
Any dispute over a copyright contract m ay be settled through m ediation, or be subm itted to acopyrightarbitrationagency forarbitrationinaccordance withthe arbitrationclause ofthe contractor a written arbitration agreem ent subsequently concluded. Parties concerned shall execute thearbitralaward.In case aparty failsto executethe award,the otherparty m ay apply to apeople'scourtforitsenforcem ent.The courtwherethe enforcem entofthe award issoughtshallhave therighttorefuse itsenforcem ent,ifthe courtfinds thatthe awardisinviolationofthe law.W hen the courthas refused the enforcem ent,any partym ay bring the disputebeforeapeople'scourt.W herethereison arbitration clause in the contractand on arbitration agreem entsubsequently concludedeither,parties concerned m ay directlybring the disputebeforeapeople'scourt.Any partyrefusing toacceptan adm inistrative sanctionm ay bring the case beforeapeople'scourtwithinthreem onths from receive the adm inistrative sanction paper.
III.4 Independence ofthe JudiciaryThe constitutional base for independent judiciary is stated in Article 126, which says that thepeople'scourtexercises judicialpowerindependentlyinaccordance withthe provisions ofthe law,and isnotsubjectto interference by any adm inistrative organ,publicorganization orindividual.
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III.4.1 Qualifications for Judges
The Judges Law was enacted inJuly1995,which stated thattobe ofthe nationalityofthe People'sRepublicofChina,one m usthave the following qualifications:
l to have reached the age of23;l to endorse the Constitution ofthe People'sRepublicofChina;l to have fine politicaland professionalqualityand to be good in conduct;l to be in good health;and l to have worked foratleasttwo yearsin the case ofgraduates from law specialties of
colleges or universities or from non-law specialties of colleges or universities butpossessing the professionalknowledge oflaw;
l orto have worked foratleastone yearin the case ofBachelorsofLaw.
Those who have M aster's Degree of Law or Doctor's Degree of Law m ay be not subject to theabovem entioned requirem entsforthe num berofyearssetforwork.
Persons tobe appointed judges orassistantjudges forthe firsttim e shallbe selected through publicexam inationand strictappraisalfrom am ong the bestqualified forthe post,and inaccordance withthe standards ofhaving bothabilityand politicalintegrity.Persons tobe appointed presidents,vice-presidents, m em bers of the judicial com m ittees, chief judges, and associate chief judges ofdivisions shallbe selected from am ong those who areexperienced in practicalwork.
Persons to have been subjected to crim inalpunishm entforcom m ission ofa crim e;orhave beendischarged from publicem ploym entshallnothold the postofajudge.
III.4.2TrainingandRecruitmentProcess for Judges
The judicial personnel who do not possess the qualifications as provided prior to theim plem entation ofthisLaw shallreceive training so as to m eetthe qualifications as provided bythisLaw within aprescribed tim e lim it.The specificm easures shallbe laid down by the Suprem e People'sCourt.
III.4.2.1AppointmentandTerm inOfficeArticle11ofthe Judges Law stipulates thatajudge shallbe appointed orrem oved from the postinaccordance withthe lim itofauthorityfor,and procedures ofappointm entorrem ovalas prescribed by the constitution and laws. The President of the Suprem e People's Court shall be elected orrem oved by the National People's Congress, the vice-presidents, m em bers of the judicialcom m ittee,chiefjudges and associatechiefjudges ofdivisions ofthe NationalPeople'sCongressupon the recom m endation ofthe Presidentofthe Suprem e People'sCourt.The presidentsofthelocalPeople'sCourtsatvarious levelsshallbe elected orrem oved by the localPeople'sCongresses at various levels. The vice-presidents, m em bers of the judicial com m ittees, chief judges andassociate chief judges of divisions and judges shall be appointed or rem oved by the standingcom m ittees ofthe People'sCongresses atthe corresponding levelsuponthe recom m endationofthe presidents of those courts. The appointm ent or rem oval of the presidents of the interm ediatePeople's Courts, set up in prefectures of the provinces or autonom ous regions or set up in them unicipalities directlyunderthe CentralGovernm ent,shallbe decided by the standing com m ittees of the People's Congresses of the provinces, autonomous regions or municipalities directly undertheCentralGovernm enton the basisofthe nom inations m ade by the respective councilsofchairm en.The vice-presidents,m em bersofthe judicialcom m ittees,chiefjudges and associatechiefjudges ofdivisions and judges shall be appointed or rem oved by the standing com m ittees of the people'scongresses of the provinces, autonom ous regions or m unicipalities directly under the CentralGovernm ent upon the recom m endations of the presidents of the higher People's Courts. The
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presidentsofthe localPeople'sCourtsatvarious levelssetupinthe nationalautonom ous areas shallbe elected orrem oved by the people'scongresses atvarious levelsofthe nationalautonom ous areas.The vice-presidents,m em bersofthe judicialcom m ittees,chiefjudges and associatechiefjudges ofdivisions and judges shall be appointed or rem oved by the standing com m ittees of the people'scongresses atthe corresponding levelsuponthe recom m endations ofthe presidentsofthose courts.The assistantjudges ofthe People'sCourtsshallbe appointed orrem oved by the presidentsofthe courts where they work. The m easure for the appointm ent or rem oval of the presidents, vice-presidents,m em bersofthe judicialcom m ittees,chiefjudges and associatechiefjudges ofdivisions and judges of the special People' courts such as the m ilitary courts shall be form ulated by theStanding Com m ittees ofthe NationalPeople'sCongress separately.
III.4.2.2 Codes ofEthicsIfajudge isfoundtobe inany ofthe following circum stances,areportshallbe subm itted according to law concerning the rem ovalofhisorherpost:
l having forfeited the nationality of the People's Republic of China; having beentransferred outofthiscourt;
l having no need to m aintain hisorheroriginalpostafterachange ofpost;l being determ ined to be incom petentin the postthrough appraisal;l being unabletoperform the functions and duties ofajudge foralong periodoftim e due
topoorhealth;l having retired from the post;having resigned the post,orhaving been dism issed;l being disqualified from continuing to hold the postbecause ofviolation ofdiscipline,
law orcom m ission ofacrim e;orl othercircum stances thatcallforrem ovalofthe post.
No judges m ay concurrentlybe m em bersofthe standing com m ittees ofthe people'scongresses,orhold posts in adm inistrative organs, procuratorial organs, enterprises or institutions, or serve aslawyers.
Judges who are connected by husband-wife relationship, or who are directly related by blood,collateralrelated withinthreegenerations,orcloselyrelated by m arriage m ay not,atthe sam e tim e,hold the following posts:
l the president,vice-presidents,m em bersofthe judicialcom m ittee;l chief judges or associate chief judges of divisions in the sam e People's Court; the
president,vice-presidents,judges orassistantjudges in the sam e People'sCourt;l the chiefjudge,associatechiefjudges,judges orassistantjudges in the sam e division;
orl presidentsorvice-presidentsofthe People'sCourtsatthe levelsnextto each other.
No judges m ay com m itany ofthe following acts:
l spread statem entsdam aging the prestige ofthe State;l joinillegalorganizations;l take partinsuch activities as assem bly,processionand dem onstrationagainstthe States,
and participatein strikes;l em bezzlem oney oracceptbribes;l bend law forpersons gain;
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l extortconfessions by torture;l concealorfalsifyevidence;l divulge Statesecretsorsecretsofjudicialwork;l abuse functions and powers;and l infringe upon the legitim ate rights and interests of citizens , legal persons or other
organizations;l neglecthisorherdutyso as towronglyjudge acase ortocause heavy losses tothe party
concerned;l intentionallydelay the handling ofacase so as to affectthe work adversely;l take advantage ofthe functions and powersto seek gain forhim selforherselforother
people;l engage in profit-m aking activities;l m eetthe partyconcerned orhisorheragentwithoutauthorizationand attend dinnersor
acceptpresentsgiven by the partyconcerned orhisorheragent;orl com m itotheractsin violation oflaw ordiscipline.
A judge who has com m itted any of the acts listed above shall be given sanctions; if the caseconstitutes acrim e,he orshe shallbe investigated forcrim inalresponsibility.Sanctions include adisciplinary warning,adem eritrecorded,agrave dem eritrecorded,dem otion,dism issalfrom thepostand discharge from publicem ploym ent.The salary ofajudge who has been dism issed fromthe post shall at the sam e tim e be reduced and his or her grade be dem oted.A sanction shall beauthorized and procedures gone through in accordance with the relevantregulations.
III.4.3Training and RecruitmentProcess for Procurators
Qualifications forapublicProcuratorisprovided by the Law forProcurators.Article10ofthe Law states thatapublicprocuratorm ustpossess the following qualifications:
l be ofnationalityofthe People'sRepublicofChina;l have reached the age of23;l endorse the Constitution ofthe People'sRepublicofChina;l have fine politicaland professionalqualityand to be good in conduct;l be ingood health;l have worked for at least two years in the case of graduates from law specialties of
colleges or universities or from non-law specialties of colleges or universities butpossessing the professionalknowledge oflaw;or
l have worked foratleastone yearin the case ofBachelorsofLaw.
Those who have M aster's Degree of Law or Doctor's Degree of Law m ay be not subject to theabovem entioned requirem entsforthe num berofyearssetforwork.The publicprocuratorswho donot possess the qualifications as provided prior to the im plem entation of this Law shall receivetraining so as tom eetthe qualifications as provided by thisLaw withinaprescribed tim e lim it.The specificm easures shallbe laid down by the Suprem e People'sProcuratorate.
According toArticle11,persons who have been subjected to crim inalpunishm entforcom m issionof a crim e or have been discharged from public em ploym ent shall not hold the post of a publicprocurator.
A public procuratorshallbe appointed orrem oved from the postin accordance with the lim itofauthorityfor,and procedures ofappointm entorrem ovalas prescribed by the Constitutionand laws.
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The Procurator-Generalofthe Suprem e People'sProcuratorateshallbe elected orrem oved by theNational People's Congress. The Deputy Procurators-General, m em bers of the procuratorialcom m ittee and the procuratorsshallbe appointed orrem oved by the Standing Com m ittee oftheNational People's Congress upon the recom m endation of the Procurator-General of the Suprem ePeople'sProcuratorate.The chiefprocuratorsofthe localPeople'sProcuratorates atvarious levelsshallbe elected orremoved by the localPeople'sCongresses atthe corresponding levels.The deputychiefprocurators,m em bersofthe procuratorialcom m ittees and procuratorsshallbe appointed orrem oved by the standing com m ittees ofthe people'scongresses atthe corresponding levelsuponthe recom m endation ofthe chiefprocuratorsofthose procuratorates.The appointm entorrem ovalofthe chiefprocuratorsofthe localPeople'sProcuratorates atthe various levelsm ustbe reportedtothe chiefprocuratorsofthe People'sProcuratorates atthe nexthigherlevel,who shallsubm itthe m atter to the standing com m ittee of the people's congress at that level for approval. The chiefprocurators,deputychiefprocurators,m em bersofthe procuratorialcom m ittees and procuratorsofthe branches of the People's Procuratorial set up in prefectures in the provinces or autonom ousregions orsetupinthe m unicipalities directlyunderthe CentralGovernm entshallbe appointed orrem oved by the standing com m ittees ofthe people'scongresses atthe corresponding levelsuponthe recom m endation of the chief procurators of the People's Procuratorates of the provinces,autonom ous regions or m unicipalities directly under the Central Governm ent. The assistantprocuratorsofthe People'sProcuratorates shallbe appointed orrem oved by the chiefprocuratorsofthe procuratorates wherethey work.The m easures forthe appointm entorrem ovalofthe chiefprocurators,deputychiefprocurators,m em bersofthe procuratorialcom m ittees and procuratorsofsuch special People's Procuratorates as the m ilitary procuratorates shall be form ulated by theStanding Com m itteeofthe NationalPeople'sCongress separately.
III.4.3.1Qualifications for ProcuratorsPersons to be appointed procurators or assistant procurators for the first tim e shall be selectedthrough publicexam ination and strictappraisal,from am ong the bestqualified forthe post,and inaccordance withthe standards ofhaving bothabilityand politicalintegrity.Persons tobe appointed chief procurators, deputy chief procurators or m em bers of procuratorial com m ittees shall beselected from am ong those who areexperienced in practicalwork.
If a public procurator is found to be in any of the following circum stances, a report shall besubm itted according to law concerning the rem ovalofhisorherpost:
l having forfeited the nationalityofthe People'sRepublicofChina;l having been transferred outofthisprocuratorate;l having no need to m aintain hisorheroriginalpostafterachange ofpost;l being determ ined to be incom petentin the postthrough appraisal;l being unabletoperform the functions and duties ofapublicprocuratorforalong period
oftim e due to poorhealth;l having retired from the post;having resigned the post,orhaving been dism issed;l being disqualified from continuing to hold the postbecause ofviolation ofdiscipline,
law orcom m ission ofacrim e;orl othercircum stances thatcallforrem ovalofthe post.
W herean elected chiefprocuratorofaPeople'sProcuratoratedoes notpossess the qualifications as provided by thislaw,orachiefprocuratorofaPeople'sProcuratorateiselected in violation ofthe statutoryprocedures,the chiefprocuratorofaPeople'sProcuratorateatthe nexthigherlevelshall
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have the power to apply to the standing com m ittee of the people's congress at that level fordisapproval.
The Procurator-General of the Suprem e People's Procuratorate and the chief procurators of thePeople's Procuratorate of the provinces, autonom ous regions or m unicipalities directly under theCentralGovernm entm ay m ake proposalsto the standing com m ittees ofthe people'scongresses atthe corresponding levels to rem ove or replace a chief procurator, a deputy chief procurator or am em ber of the procuratorial com m ittee of a People's Procuratorate at lower levels. No publicprocuratorsm ay concurrently be m em bersofthe standing com m ittees ofthe people'scongresses,or hold posts in adm inistrative organs, judicial organs, enterprises or institutions, or serve aslawyers.
Publicprocuratorswho areconnected by husband-wiferelationship,orwho aredirectlyrelated by blood,collaterally related within threegenerations,orclosely related by m arriage m ay not,atthesam e tim e,hold the following posts:
l the chief procurator, deputy chief procurators, or m em bers of the procuratorialcom m itteein the sam e People'sProcuratorate;
l the chiefprocurator,deputychiefprocurators,procuratorsorassistantprocuratorsinthesam e People'sProcuratorate;
l the procuratorsorassistantprocuratorsin the sam e division;orl chief procurators or deputy chief procurators of the People's Procurators at the levels
nextto each other.
No publicprocuratorsm ay com m itany ofthe following acts:l spread statem entsdam aging the prestige ofthe State;l joinillegalorganizations;l take partinsuch activities as assem bly,processionand dem onstrationagainstthe State;
andl participateinstrikes;l em bezzlem oney orreceive bribes;l bend law forpersonalgain;l extortconfessions by torture;l concealorfalsifyevidence;l divulge Statesecretsorsecretsofprocuratorialwork;l abuse functions and power;l infringe upon the legitim ate rights and interests of citizens, legal persons or other
organizations;l neglecthisorherdutyso as towronglyjudge acase ortocause heavy losses tothe party
concerned;l intentionallydelay the handling ofacase so as to affectthe work adversely;l take advantage ofthe functions and powersto seek gain forhim selforherselforother
people;l engage in profit-m aking activities;l m eetthe partyconcerned orhisorheragentwithoutauthorizationand attend dinnersor
acceptpresentsgiven by the partyconcerned orhisorheragent;orl com m itotheractsin violation oflaw ordiscipline.
A publicprocuratorwho has com m itted any ofthe actslisted ofthislaw shallbe given sanctions;
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if the case constitutes a crim e, he or she shall be investigated for crim inal responsibility. Thesanctions include:adisciplinarywarning,adem eritrecorded,agrave dem eritrecorded,dem otion,dism issalfrom the postand discharge from publicem ploym ent.The salary ofapublicprocuratorwho has been dism issed from the postshallatthe sam e tim e be reduced and hisorhergrade bedem oted.A sanction shall be authorized and procedures gone through in accordance with the relevantregulations.The salarysystem and scales forpublicprocuratorsshall,inlightofthe characteristics ofprocuratorialwork,be form ulated by the State;the salaryofapublicprocuratorwho has m adespecialcontributions m ay be raised in advance in accordance with regulations.Publicprocuratorsshallenjoy procuratorialallowances,regionalallowances and otherallowances and insurance andwelfarebenefitsas prescribed by the State.
III.5Access toJusticefor the Poor:LegalAidChina'slegalaid system em erged in the m id-1990s.Even though thereisno unified legalaid lawin the Stateleveltillnow,butm any regulations have been adopted in centraland locallevel.Itisnot designed for fighting against corruption directly, but em powers the poor to seek justice. Ofcourse,itisausefultoolforthe grassrootsto appealto the form allegalinstitutions.
China'sM inistryofJusticeform allyputforwardthe proposaltoestablish legalaidsystem in1994.A pilot project of legal aid was initiated in som e big and m edium -sized cities. The practice hadgained greatexperiences forthe form alsystem to be built.
The Crim inalProcedureLaw and the Law forLawyersam ended in 1996 provided the legalbaseforthe legalaid system .Article34ofthe Law stipulated as follows:
"If a case is to be brought in court by a public prosecutor and the defendant involved has notentrusted anyone tobe hisdefender due tofinancialdifficulties or other reasons the People'sCourtmay designatea lawyer thatisobligated to provide legalaid to serve as a defender."
Ifthe defendantisblind,deaform ute,orifhe isam inor,and thus has notentrusted anyone to be hisdefender,the People'sCourtshalldesignatealawyerthatisto provide legalaid to serve as adefender.
Ifthereisany possibilitythatthe defendantm ay be sentenced todeathand yethe has notentrusted anyone tobe hisdefender,the People'sCourtshalldesignatealawyerthatistoprovide legalaidtoserve as adefender.
Since April1997,the M inistryofJustice,togetherwith the Suprem e People'sCourt,the Suprem eProcuratory,the M inistryofPublicSecurity,M inistryofCivilAffairs,issued m any docum entsonlegalaid.Localregulations werealso enacted to m eetthe need.Tillnow,m orethan 20 provinceshave adopted localregulations.Itwouldbe fairtosay thatlegalaidisinastage ofstandardization.
As rules arem ade,legalaid centersthatareto im plem entthose rules aretaking shape.Therearem ore than 2000 legal aid centers at different level, m ore than 8300 legal aid practitionersnationwide.Lawyers,notaries,grassrootslegalworkersarealso providing legalaid when needed.Various socialorganizations,such as the AllChina W om en'sFederation,AllChina Trade Union,theYouthLeague and the Associationforthe Handicapped,have setuplegalaidinstitutions toprovidelegalaid.
Legalaid centersare structured in fourlevels:the LegalAid CenterunderM inistry ofJustice inStateLevel,provinciallevel,m unicipalitylevel,countyand districtlevel.The firsttwo levellegal
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aid centers are responsible for m anagem ent, and the real legal aid work is done in m unicipality,countyand districtlevelfortheirrespected areas.
To qualifyforlegalaid,acitizen m ustshow firstlythathe has reasonablegroundtorequestforlegalassistance in order to protect his legal rights. He m ust m eet the m inim um standard of living orunem ploym entreliefstipulated by the localgovernm ent,orotherproofsto show thathe has realfinancial difficulties in paying the legal cost. Legal aid is provided in the form of legal advice,m ediation,defense,representation ofparties to courtand notaryservice.
IV.W TO CO M M ITM ENT TO TRANSPARENCY AND ACCO UNTABILITY IN TRADE AND INVESTM ENT ACTIVITIES
China'saccession ofthe W TO isconsidered to be the "win-win" gam e both forChina and fortheinternational com m unity. China undertakes that only those laws, regulations and other m easurespertaining tooraffecting trade ingoods,services,TRIPS orthe controlofforeign exchange thatarepublished and readily available to other W TO M em bers, individuals and enterprises, shall beenforced. In addition, China shall m ake available to W TO M em bers, upon request, all laws,regulations and other m easures pertaining to or affecting trade in goods, services, TRIPS or thecontrol of foreign exchange before such m easures are im plem ented or enforced. In em ergencysituations,laws,regulations and otherm easures shallbe m ade availableatthe latestwhen they areim plem ented orenforced.
IV.1Transparency
China shall establish or designate an official journal dedicated to the publication of all laws,regulations and other m easures pertaining to or affecting trade in goods, services, TRIPS or thecontrol of foreign exchange. After publication of its laws, regulations or other m easures in suchjournalChina shallprovide areasonableperiod forcom m entto the appropriateauthorities beforesuch m easures areim plem ented,exceptforthose laws,regulations and otherm easures involvingnational security, specific ensures setting foreign exchange rates or m onetary policy and otherm easures,the publicationofwhich wouldim pede law enforcem ent.China shallpublish thisjournalon aregularbasisand m ake copies ofallissues ofthisjournalreadilyavailableto individualsand enterprises.
China shallestablish ordesignatean inquirypointwhere,uponrequestofany individual,enterprise orW TO M em ber,allinform ationrelating tothe m easures required tobe published underparagraph 2(C) of the Protocol m ay be obtained. Replies to requests for inform ation shall generally beprovided within 30 days afterreceiptofa request.In exceptionalcases,replies m ay be providedwithin 45 days after receipt of a request. Notice of the delay and the reasons therefore shall beprovided in writing to the interested party.Replies to W TO M em bersshallbe com pleteand shallrepresentthe authoritative view ofthe Chinese governm ent.Accurateand reliableinform ationshallbe provided to individualsand enterprises.
IV.2JudicialReview
China shall establish, or designate, and m aintain tribunals, contact points and procedures for theprom pt review of all adm inistrative actions relating to the im plem entation of laws, regulations,judicialdecisions and adm inistrative rulings ofgeneralapplicationreferred toinArticleX:1ofthe GATT 1994,ArticleCL ofthe GATS and the relevantprovisions ofthe TRIPS Agreem ent.Such tribunals shall be im partial and independent of the agency entrusted with adm inistrativeenforcem entand shallnothave any substantialinterestin the outcom e ofthe m atter.
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Review procedures shall include the opportunity of appeal, without penalty, by individuals orenterprises affected by any adm inistrative actionsubjecttoreview.Ifthe initialrightofappealistoan adm inistrative body,thereshallin allcases be the opportunityto choose to appealthe decisionto ajudicialbody.Noticeofthe decision on appealshallbe given to the appellantand the reasons forsuch decision shallbe provided in writing.The appellantshallalso be inform ed ofany righttofurtherappeal.
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ADM INISTRATIVE CAPACITY,CO RRUPTIO N REG ULATION,AND JUDICIAL INDEPENDENCE IN INDIA
ErrolD'Souza*I.INTRO DUCTIO NAs econom ies globalize the effectiveness with which nations can benefit from this dependscrucially on the capacity ofgovernm entsto m anage resources efficiently as wellas to form ulate,im plem ent,and enforcesound policies.The benefitsfrom thisin turn depend on the qualityofthe institutions that govern econom ic and social interaction as the delivery of services is m ediatedthrough institutions. This paper accordingly inquires into the organizational capacity,responsiveness,and m otivation ofthe stateadm inistration with reference to India.Thisinquiry isguided by the prem ise thatthe benefitsofintegration into the world econom y arehindered whenorganizational and technical capacity in the state adm inistration is weak. Besides adm inistrativecapacity,the broaderenvironm entthatincludes the degreetowhich dysfunctionalbehaviorand the subversion ofinstitutions through corruption affectsthe conductofordinary business lifethroughsubverting rules and regulations isanotheraspectofthe governance ofinstitutions thatisinquired into. Finally, the judiciary provides security against corruption and expropriation and as anenforcem entinstitutionitssuccess depends largelyonthe extentofitsindependence as wellas the training and recruitm ent of the individuals who are its agency. Thus, the paper concludes byinquiring intohow independentthe judiciaryis,and the adequacy ofjudges training and tenurethataffectstheirability to dispense justice.The m echanism ofpublic legalassistance so as to reduceexclusion from justicein Indiaisalso described.
II.ADM INISTRATIVE CAPACITYThe adm inistrative system in Indiahas evolved from the tim e ofthe British ruleand now has five distinguishing features:(1) The districtas the basicunitofadm inistration;(2) Centralization ofdecision m aking as the principlein policy;(3) A single dom inating civil service with the Indian Adm inistrative Service as the elite
occupying the top position am ong otherallied and subordinateservices;(4) A system of elaborate rules and regulations as a m eans of m aintaining control over the
adm inistrationthatcom prises peoplefrom diverse socialand training backgrounds and whoaredispersed farfrom the adm inistrative centers;
(5) A split system of functioning ostensibly to separate questions of policy from those ofadm inistration.1 The Desk Officer system introduced in 1973 was intended to deal withpolicy-m aking, planning and problem solving. The Secretariat continued to deal withadm inistration.
W ith the advent of globalization, the Governm ent of India, through its Departm ent ofAdm inistrative Reform s,organized a nationaldebate on how to m ake adm inistration responsive,accountableand effective.An ActionPlan was discussed and concretized inaConference convened by the Prim e M inisterofallthe ChiefM inistersofthe states.ThisActionPlan dealtwith
(1) How to m ake governm entaccountableand citizen friendly;(2) Transparency and the rightto inform ation;and (3) Im proving the perform ance and integrityofthe publicservices.
*Professorand Chairm an,Econom ics Area,Indian InstituteofM anagem ent,Ahm edabad,India.1 UnderIm perialrule,the system had Secretariatand Executive Offices.
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An outcom e of this has been that a num ber of Citizen's Charters have been instituted by centraldepartm ents and state governm ents (Annual Report, 1997-98 of M inistry of Personnel, PublicGrievances and Pensions,Governm entofIndia).Fixed tim e lim itshave been specified forhandling grievances and publicizing the nam es ofofficershandling grievances and asystem ofcom puterized m onitoring has been installed in m any departm ents. W ith a view to sim plifying laws andprocedures,aCom m issiononReview ofAdm inistrative Laws was setupin1998.The Com m issionrecom m ended:
(1) Com pilation of up-to-date inform ation about rules, regulations, and procedures underdifferentCentralLaws adm inistered by various M inistries;
(2) Am endm entsto 109Acts;(3) Repealof1382 CentralLaws ofabout2500 Laws in forceas they have becom e irrelevant;(4) Unification and harm onization of statutes, laws and regulations with reference to the
perspective ofdom esticand foreign investors,trade and industry;(5) Expansion ofthe system ofalternatedisputeresolution and m oreeffective utilization ofthe
Arbitration and ConciliationAct.
The follow-upactiononthishas been im pressive withim plem entationthe recom m endations ofthe Com m ission being coordinated by the Departm ent of Adm inistrative Reform s and PublicGrievances and the Legislative Departm ent. Three hundred eighty of the 1382 Central Lawsrecom m ended forrepealhave already been repealed.The Departm entofLegalAffairshas created the International Centre for Alternate Disputes Resolution as a private registered society inHyderabad thattrains arbitrators,conciliators,and m ediators,and provides m odelcontractclauses to build arbitration into business relationships.These conciliation clauses arein consonance withthe United Nations Com m ission on InternationalTrade Laws m odel.
The adm inistration has also drawn up a M inim um Agenda fore-Governance which includes thesetting up of LAN, training and capacity building in IT, redress of grievances using IT, m akingavailableform s on web sites and enabling the subm ission ofthese form s online,etc.IT M anagershave been designated in various M inistries and about one-third of the M inistries have onlinedeliveryofservices.A Plan schem e topilotprojectsinadm inistrative reform s inthe following areas is also being im plem ented Evaluation and Benchm arking, Developm ent of KnowledgeM anagem ent System , and Assessm ent of Quality in Governm ent.2 A citizen's charterinitiative is also on since the last five years. These charters have been fram ed for m any centralm inistries and state governm ents and publicize the com m itm ent of the organizations, expectedstandards of service delivery, tim efram e, grievance redress m echanism , etc. Com puterizedInform ation and Facilitation Counters (IFCs) have also been set up in various m inistries anddepartm ents to provide inform ation about schem es and procedures and to appraise the status ofapplications and grievances.A code of conduct prescribing standards of integrity for the publicservices has also been form ulated and endorsed by the ChiefM inisters'Conference and atpresentisbeing given alegalshape.
Despite these positive changes, for the adm inistrative set up in India,am ongst the four stages in the decision-m aking process for any new investm ent decision by aforeign investor-(1)screening,(2)planning,(3)im plem enting,and (4)operating and expanding -the biggest barrier is at the screening stage itself according to the Boston ConsultingGroup(BCG)withthe perceptionbeing thateven "beforethe foreign investorm ay even consideraproject, he is already Enroned." The im pression that investors carry, according to BCG, is that
2 A M anual of Quality M anagement in Government is already published and circulated to central and stateadministrations and training institutes.
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"these guys are nice but haven't organized them selves" which points to the need for attention togovernm ent process and m achinery. Sim ilarly, M cKinsey in 2001 found that the tim e taken forapplication and approvalofFDIprojectswas too long.M ultipleapprovalsand delays in receiving licenses have resulted inaloss ofinvestor'sconfidence.The ConfederationofIndian Industryfoundfor instance that a typical power project requires 43 central governm ent clearances and 57 stategovernm ent level clearances. Even though the num ber of clearances m ay be sim ilar in OECDcountries, the process is m ore transparent and relies m ore on self-certification. An AT Kearneysurvey pointed outthatbureaucracy and redtape topped the listofinvestorconcerns.The FederationofIndian Cham bersofCom m erceand Industry(FICCI)has also recentlyconducted astudy onthe experience offoreign directinvestorsin Indiaand the obstacles m entioned include the following:plethora of clearances, archaic legislations (India does not have a separate Foreign Investm entLaw),centre-stateduality,weak database,unhelpfulbureaucracy,laborlaws and weak im age.
Clearly, India's m ain obstacle from enjoying the benefits of globalization is its quality ofgovernance. At present, the Departm ent of Adm inistrative Reform s & Public Grievances hasresponded at a very elem entary level by introducing an Incentive Schem e for M odel Behaviorwhich deals with clearing, cleanliness, punctuality, availability and to som e extent innovativeeffortsto im prove work in qualitative term s.Thisison apilotbasisand avery lim ited response.M uch m ore needs to be done in term s of evaluation and benchm arking, the application ofinform ation technology,and the developm entofaknowledge m anagem entsystem .
InIndia,the bureaucracy has been identified withacultureofconform ism am ongstem ployees and a higherauthority appropriation by the m anagem ent.Foritto becom e an effective instrum entofgovernance,thereisan urgentneed forchange in the following dim ensions:
(1) From an adm inistrative cultureofconform itywith procedures to acultureofperform ance;(2) From acultureproviding subserviceto acultureofresponsibility;(3) From abudgeted costcultureto acultureofcostawareness;(4) From a continuity and stability culture to a culture of innovation and progressive
developm ent.
The initiatives needed to bolsterthe adm inistrative capacity ofthe statespan range ofm easuresthat include product, service and process quality im provem ents, as well as m easures related tocostsand productivity,and peopleinvolvem entand developm ent.The following criteriapointtothe enabling actions required in thisregard.
(1) Leadership-Strong and sustained supportofpoliticalleadersisan essentialconditionforthesuccess of the reform Leadership stem s from an involvem ent of the head of governm ent,cabinetm inisters,and the adm inistrative heads ofdepartm ents.As ofnow,politicians view thebureaucracy as an obstacletothe achievem entoftheirpoliticalgoalswhich has resulted inthepoliticization ofthe bureaucracy and has com prom ised publicserviceintegrity and aloss ofethics in public life. The adm inistration, on the other hand, needs to encourage em ployeeem powerm entand take an active role in quality enhancem entand training in an attem pttom ove from being supervisorsto becom ing leaders.The Fifth CentralPay Com m ission oftheGovernm ent of India had envisaged a system that is geared to the em ergence of"Adm inistrative Entrepreneurs" who take risks and stick theirnecks outforthe benefitofthepublic.Such public-spirited persons doexistinthe adm inistrative services who can be ignitedto becom e visionaries.
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(2) Policy and Strategy -The adm inistration ofgovernm entneeds to declareaform alpolicy ofserving the citizen through benchm arking with otheradm inistrative departm entselsewhere,staffappraisals,and regularreviews.Centraltosuccess isthe inductionofprocesses wherebyprior options are reviewed and consultation ranges from staff to governm ent to businessgroups whilstsetting agenda.A Departm entofAdm inistrative Reform s,headed by a seniorand outstanding bureaucrat,needs to be established as the m ostim portantdepartm entofthegovernm ent.
(3) People M anagem ent - The full potential of the adm inistration is realized through thedevelopm entofskills.Inanarrow sense,thisisthe stock ofexpertise ofthe staffas given byits technical knowledge, experience, and know-how.In broader term s, it deals with theadequacy of training system s, experience in the execution of policies, the extent ofunderstanding ofthe im pactofalternative deliverym echanism s on policy outcom es,and theinform ation infrastructureofthe adm inistration which encourages com m unication thatisnotstrictly univocaland top-down.Training thatisintegrally linked to careerdevelopm entandwith som e autonom y for staff to select their own training schedules as well as to assesswhethertraining m eetstheirneeds isan im portantrequirem entcurrently.Forlowerlevelstaff(Group C and D),training should be directed to m ulti-skilling and enabling them to becom eexecutive assistantsso thatsom e ofthe auxiliary staffcould be downsized.Forhigherlevelstaff (Group A and B), training needs to focus m ore on attitudinal change that encouragesdecentralized and innovative processes whereinitiative and change aregiven precedence overconform ityand excessive stability.
(4) Resources -The prim aryresources ofadm inistrationareinform ationand negotiationskills.Astrategy of change which identifies the type of training required in these areas, that willprom oteeffectiveness onthe job,istobe evolved inthe Indian context.These program s oncein place should be reviewed and changed to reflect the goals of the adm inistration as thepolitico-econom icenvironm entevolves.Apartfrom training abroad whereuniversities havebeen m oreadeptindeveloping publicadm inistrationdepartm entsand schoolsofgovernm ent,adm inistratorscouldbe attached forshortperiods oftim e totopprivatesectorcom panies thathave an international presence and that negotiate contracts not only dom estically but withothercountries as well.
(5) Custom erSatisfaction-Altering governm entbehaviorfrom com m and and controlsystem s toa service orientation aim ed at the facilitation rather than distrust of business requiresadm inistratorsto relinquish powers,reduce cum bersom e procedures,and to apply discretionin a principled rather than ad hoc m anner. Speed in clearing projects for instance requiresstream lining the docum entationprocess,reducing reporting requirem ents(like the duplicationinvolved in going through a num ber of governm ent departm ents that do not cooperate andcom m unicate with one another).Audits, which report the tim e taken to get clearances andidentifycom plications,couldbe done internallyas wellas soughtfrom firm s so thatabroaderview couldbe addressed.Navigating the localbureaucraticm aze isnevereasy,especiallyforforeign investorsand itrequires thatthey be putatease intheirdealings withpublicofficials.Apart from speed in processing, quality of access is im portant and this occurs the m oreadm inistrationassum es ownershipofthe process and signalscom m itm entthrough publicizingActionTaken Reportson audits.
(6) PeopleSatisfaction-Thisreferstohow adm inistratorsthem selves feelabouttheirorganizationincluding the work environm ent, m anagem ent style, career planning and job security. Thisrequires the establishm ent of a fiercely m eritocratic structure that system atically weeds out
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incom petent and corrupt adm inistrators. The adm inistrative services in India have been largelyim m une from the im position ofpenalties due to professionalfailureand corruption as com plicatedprocedures have been instituted as a result of constitutional guarantees against arbitrary andvindictive action (Article311).Thishas shielded the guilty from swiftpunishm entand caused anerosionofaccountability.Bonuses can be handed outonthe basisofregularperform ance appraisalof the departm ent which evaluates not only outputs but also planning and policy, m onitoring, aswellas operations.Grievance redressal,by bothem ployees and custom ers,isan integralpartofthis.Apartfrom redressalatthe bureaucraticlevel,thereisalso the need foran Om budsm an outside theroutine bureaucraticm achinery.
Perform ance appraisal is yet another dim ension that requires som e attention. As of now,AnnualConfidential Reports are written which do not grade on a ten-point scale but use grades likeOutstanding,Good,Average, Poor, etc., which induces an averseness to slotting an em ployee asAverage.Perform ance appraisalon a team basisalso needs to be introduced.Also,reporting andreviewing isnotforwardlooking and isnotused forprom otions orsalaryincrem ents.They shouldalso be shared with em ployees so that feedback could be used for im proving perform ance. Toenable corrective action, appraisals should be m ore continuous - quarterly rather than annually.Finally,toinsulatethe adm inistration,they shouldbe protected from the use oftransfersas athreatby politicians to influence them .Certain norm s like having the prem ature transferorrem ovalofofficers,exam ined by ahigh powered CivilServices Board com prising the CabinetSecretary andotherprom inentpersons from publiclife,need to be instituted.
M ostim portantly,the staffshould be oriented towards acorporatespiritand thisisbestachievedby organizational form s that shift from specialized structures based on functions to structuresbased on coordinated work team s.The staffalso needs to understand and periodically revisitthegoals of the organization. This is best achieved by the production of the following docum ents -explanatory reports of yearly activity, docum ents containing statem ents on the philosophy,guidelines and purposes ofthe public body,and form aldocum entsfrom the seniorpolicym akersin the organization, such as plans and strategies, training handbooks, and organizational charts.The overall objective of the adm inistration should be the m inim ization of transactions costs forfirm s whileexecuting projects-the costsofcoordinating the interestsofstakeholders,collectinginform ation, negotiating contracts, m onitoring project progress, auditing and organizing localbeneficiaries.
II.1 Corruption and Enforcem entM echanism sCorruption is pervasive in India and worldwide the perception is that the system runs oncorruption. As recent as July 2001, the Indian Prim e M inister offered to resign in the wake ofscandalsrelating to Tehelka.com and the UnitTrustofIndia.3 In arecentstudy by TransparencyInternationalIndia,which focused on corruption as faced by the com m on m an,4 the m ostcorruptsectors in descending order were found to be Police, Health, Power, Education, Rations, LandAdm inistration, Judiciary, Taxation, Railways, and Telecom . The total estim ated outflow due tocorruption in these sectorswas about10.5 percentofthe totalcom pensation m ade to publicsectorem ployees in a year. The key suggestion m ade by those surveyed for com bating corruption wasfor the punishm ent of wrong doers. India, m eanwhile, is a signatory to the ADB-OECD Anti-Corruption Initiative forAsia-Pacific,which requires itto address three pillarsofanti-corruptionactivity: Civil service im provem ent, reduction of bribery, and the closer involvem ent of civilsociety.3Tehelka.com secretlyfilmed officialsdemanding bribes forarms sales.India'slargestmutualfund,the state-runUTIstocked 43millioninvestorsinAugust2001by freezing redemptions.4High levelcollusive corruptionwas notcaptured.
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The anti-corruption institutions ofthe centralgovernm entarethe following:(1) Prevention ofCorruptionAct,1988;(2) CentralBureau ofInvestigation;(3) CentralVigilance Com m ission;(4) ChiefVigilance Officersin various m inistries and organizations;and(5) Civilserviceconductsrules.
The Prevention ofCorruptionActwhich existed earlierwas revised in 1987 and the definition ofpublic servant was expanded to include elected public officials and m em bers of the legislature.Under this anyone with assets disproportionate to his incom e is deem ed to com m it crim inalm isconduct. If convicted, the person can be im prisoned from 6 m onths to 7 years. The CentralBureau of Investigation (CBI) is the prem ier investigating police agency in India. It functionsunder the Central Vigilance Com m ission (CVC) with respect to investigation of corruptioncases in public services. It is the body that puts into effect the provisions of the Prevention ofCorruption Act as m ajor com plaints of corruption in governm ent departm ents andstatutory bodies ofthe governm entareinvestigated by the CBI.As policing isastate(provincial)subject, the CBI has to take concurrence of the state governm ent for investigating a corruptionoffence. Though initially set up as an anti-corruption agency, it now takes up cases of heinouscrim es,terrorism ,etc.,which som ewhathas diluted itsfocus.
The Central Vigilance Com m ission was set up in 1964 as the apex organization for m aintainingprobity in public life.The lapses investigated by the Com m ission ranges from m isuse ofofficialposition and violation ofprescribed rules and regulations,violation ofconductrules,dem and andacceptance of bribes, and gross negligence of duties to possession of assets disproportionate toknown sources of incom e. Its advice is not binding on the governm ent though disagreem ents incases m entioned in the annual report are placed before Parliam ent. The Com m ission has thepowersto exercise superintendence overthe vigilance adm inistration ofvarious m inistries oftheCentralgovernm ent,publicsectorundertakings,etc.In arecentreport,the CVC studied the stateof vigilance m echanism s with respect to the m em bers of the prem ier civil service, the IndianAdm inistrative Service.The m ostcom m on lapse am ounting totwo-thirds ofthe cases wererelated to the failure of officers to observe the lim its of their delegated powers conferred on themstatutorily or adm inistratively, for instance, by showing undue favor and causing a loss to theorganization.The dem and and acceptance ofbribes am ounted to6percentofthe cases and having assetsdisproportionateto known sources ofincom e am ounted to 10.5 percentofcases.The CVCconcluded thatcorruptpractices arepossiblym uch m oreafunctionofneedlesslycom plex system s and procedures and that future reform should be directed to putting in place system s that m akedecision m aking less com plex and m ore transparent.The cases also indicated a linkage betweenbureaucratic and political corruption and these points to the need for independent civil serviceboards to ensureim partialselection forkey posts.
Each m inistry and public sector organization has a Chief Vigilance Officer (CVO) who isappointed after clearance from the CVC. All cases of corruption in the organization are to bereferred to the CVO who m onitors and takes action on the irregularities and reports them to theCVC. There is no functionary equivalent to CVOs in state governm ents. Also, in stategovernm ents,the role ofthe CBIisplayed by the vigilance wing ofthe state police and the roleofthe CVC isplayed by the statevigilance bureaus/om budsm an. . .
The Conduct Rules are quite strict in m onitoring the higher civil services. It requires intim ationaboutallm oveable/im m ovablepropertyatthe tim e ofjoining the civilservice.Thisdoes notapply
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to the judiciary,defense forces and otherpublicsectorem ployees.An annualreturn in respectofim m ovablepropertyisto be filed and no acquisition ofsuch propertyisallowed withoutprevious intim ation to the governm ent. In addition, every transaction exceeding Rs. 15,000 is to beinform ed of within a m onth and officers can accept gifts from friends and relatives on specialoccasions within Rs. 5,000. No speculation in stocks and shares is perm itted and there is anexpectation of no conduct unbecom ing of a governm ent servant. Currently, the existingprocedures for gathering evidence on corruption include laying traps through a bribe giverinform ing the police in advance, search and seizure operations, and dem onstrating that assetsowned orpossessed aredisproportionateto known sources ofincom e.W histleblowerscan play avery im portant role in providing inform ation about corruption and m al-adm inistration as peopleworking in the sam e departm entknow betteras to who iscorrupt.A W histleblowers'Acthas been recom m ended by the Law Com m ission of India but is yet to be enacted. Such an Act m ust, ofcourse,ensurethatinform antsareprotected againstretribution and any form ofdiscrim ination forreporting whatthey perceive to be wrongdoing.
Punishm entsforcorruption today arepossiblethrough prosecution underthe PreventionofCorruption Act,1988,orthrough departm entalactions.Given the slow pace atwhichcases are disposed of in the judicial system , the CVC has issued directives thatdepartm entalactions be com pleted within six m onths.The CVC has also recom m endedthat the Corrupt Public Servants (Forfeiture of property) Act drafted by the LawCom m ission be im plem ented so that confiscation is in addition to conviction andim prisonm entunderthe PreventionofCorruptionAct.Anotheractionthatcan be taken isforthe governm entto prescribe rules forconfiscation ofbenam ipropertyunderSection8 ofthe Benam iTransaction Prohibition Act.ThisActwas passed in 1988 and tillnowthe governm enthas notfram ed rules so thatitcan confiscateproperties acquired by therealownerinthe nam e ofhisbenam idars.Anotherlaw which has been envisaged overalong period foreradication ofcorruption isthe Lok Pal(FederalOm budsm an)and LokAyuktBill.ThisBillhas been in draftform in Parliam entsince itwas firstintroduced in1968 buthas notyetbeen legislated.In itscurrentguise the Prim e M inisterfallswithinitspurview.Thishas stalled the billbecause orchestrated attem ptstom align the im age ofthe Prim e M inistercould affectthe functioning ofthe governm entand so thereisacaseforkeeping the PM outofthe purview ofthe Lok Pal.
The person who bribes isequallyguiltyas the individualwho acceptsit.Inthe 1970s theUS had enacted the Foreign Corrupt Practices Act (FCPA) by making Am ericancom panies giving bribes abroad liableto prosecution within the US.By 1997,34 OECDcountries had signed the anti-briberyconvention.InIndiathe cham bersofcom m ercesuchas CII, ASSOCHAM and FICCI are yet to com e together to sign an antibriberyconventiontoensuretheirm em berswillnotbribe.
Em powering the public through transparency in adm inistration is another m ethod ofenforcem entofanti-corruption.The objective ofthe Freedom ofInform ation Bill,2000,isto prom otetransparency in governm entactivitybutitcontained m any loopholes suchas,forinstance,nothaving penalty clauses for,notproviding inform ation.M eanwhile,m any Indian states such as Karnataka,Kerala,Goa,M aharashtra,Rajasthan,TamilNadu,and AndhraPradesh have enacted theirown access toinform ationlaws.E-governance isanothertoolofan inform ation led anti-corruption strategy.The Bhoom i(land)projectofonline deliveryofland records in the stateofKarnataka reduced the discretion ofpublic
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officialsby introducing provisions forrecording requeststo alterland records upon saleorinheritance ofland online.Such e-governance schem es can neverbe com prehensive ina developing econom y due to weak technological infrastructure though it curbsopportunities for arbitrary action. Another form of public accountability that has beensuccessfullypioneered by an Indian NGO,the M azdoorKisan ShakthiSangathan,istheuse of jan sunwais (public hearings) which com prises a public audit of developm entexpenditures by village residents to m ake officials accountable. A m ajor source ofcorruptioninIndiaispoliticalpartyfinancing.The nexus between corruptionm oney andpartyfunding ishighlighted by the accelerated entryofcrim inalsintopolitics.InFebruary2002 elections in the state of Uttar Pradesh, for instance, seventeen percent of thecandidates had crim inalrecords orcharges filed againstthem .Indiarequires an enablinglaw such as in Thailand where political parties are required to disclose their financialaccounts to the public. Audited political party accounts can m ake influence peddlingcostly.Finally,an effective enforcem entm echanism isthe voicem echanism ofthe reportcard system used by the PublicAffairs Centre in Bangalore which catches individualsinvolve in offering bribe, identify the governm ent agencies involved and publishescom parisons between agencies and servicedeliverylocations so thatpublicscrutiny couldbe focused onthe agencies.
III.TH E JUDICIARY,ITS INDEPENDENCE,AND TH E CO VERAGE O F JUSTICE
India'slegalsystem isbased onEnglish com m on law.DistrictCourtsexistatthe firsttierlevel.High Courtsthatstand atthe head ofastate'sjudicialadm inistrationconstitutethesecond tier.The Suprem e Courtisthe highesttiercourtinIndia.Itisthe ultim atecourtofappeals and hears appeal from the High Courts and is the court of review undersubordinate tribunals. The Suprem e Court exercises original jurisdiction in disputesbetween the Unionand the states orbetween the states.Itcan also issue writsinthe natureof habeas corpus, m andam us, prohibition, and certiorari and quo warrantor for theenforcem entoffundam entalhum an rights.
The Departm ent of Justice within the M inistry of Law, Justice and Com pany Affairsadm inistrates services within the Suprem e Courts, High Courts and other courts anddevelops the infrastructureforfacilities and adm inisterstraining forthe judges.
The m ethod of selection to the High Courts and Suprem e Courts has been a m atter ofgreatcontroversy.The powerofappointm entwas vested inthe executive form any yearsuntil the decision of the Suprem e Court in 1993 which reversed it. By that tim e thearbitrarytransferofJudges ofthe-High Court,the m annerin which additionalJudges inHigh Courtsweredealtwitheitherby notconfirm ing them orby granting extensions forshortperiods,and the arbitrary m annerin which severalappointm entshave been m adeincluding the super-session of senior m ost judges had raised questions about thedesirability ofthe executive in the process.As ofnow forthe appointm entofjudges tothe Suprem e Courtitisthe practicethatthe recom m endationshouldbe m ade by the ChiefJusticeofIndiaand hisfoursenior-m ostcolleagues and thatjudges ofthe Suprem e Courthailing from the High Courttowhich the proposed nam e com es from m ustbe consulted.The ChiefJusticeofIndiaand hisfoursenior-m ostcolleagues arethe collegium s m akingthe recom m endationtothe Presidentwho by warrantm akes the appointm ent.The senior-m ost judge is to be appointed the Chief Justice of India. This has resulted in theappointm entofjudges who do notoccupy the position forlong periods oftim e which isnotdesirablein thatchange isaslow process.
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Forthe appointmentto the High Court,the recommendation isto be made by the ChiefJusticeofthe concerned High Courtin consultation with histwo senior-mostcolleagues.The recommendation is then considered by the Governor of the state who offers hiscommentsand the matteristhen referred tothe ChiefJusticeofIndia.The opinionoftheChiefJusticeofIndiaisgiven primacy inthe matterand prevailsoverthatofthe Governorofthe stateoreven thatofthe High Courtifinconsistentwithhisview.The Presidentthenmakes the formal appointment. The District Judges who are at the highest rung of thesubordinate judiciary are appointed both by direct recruitment and by promotion. Theselection ofdirectrecruitdistrictjudges ismade by the High Court.On the High Court'srecommendation,the Governorappointsthem.Promotion to the postofdistrictjudge isalso made by the High Courtwith the formalordersbeing issued by the Governor.Theappointmentsto the lowestrung in the subordinatejudiciary munsiffsand magistrates ismade by the PublicServiceCommission and the High Court.In some states,aJudge ofthe High Courtsitswith the PublicServiceCommission forthe purpose ofselection andin some states the powerofselection isvested exclusivelyin the High Court.Again,therecommendation in either case goes to the Governor who makes the appointment. Forpromotions from munsiff/magistrate to the intermediate higher level of subordinatejudge/assistant sessions judge, it is made by the High Court itself. Thus, for theappointment,promotion and postings ofthe subordinatejudiciary,the High Courtistherealauthority and the roleofthe stategovernmentisformalin character.As the opinionrendered by the judiciary(in consultation)isbinding upon the executive,the judiciaryisindependentto asubstantialextentin India.
W ith regard to complaintsofmisbehaviorand incapacity againstjudges in the Supremeand High Courts, even though there is a Judges Inquiry Act, a committee to examinecomplaintsisconstituted ad hoc from case tocase and isnotapermanentcommitteewithfixed tenure.The convention,ifcharges areproved,ranges from recommending awarningto achange in the allotmentofwork to the judge to removalwhich requires the judge todemit office himself failing which the matter is placed before Parliament which mustrecommend removalthrough an absolutemajorityofthe totalstrengthofthe House and atwo-third majorityofthe memberspresentand voting.
In such cases,itisleftto Parliamentto decide on whatconstitutes "proved misbehavior"on a case to case basis and the Constitution is silent about what to do in the cases ofdeviantbehaviornotamounting to proved misbehavior.In the US too federaljudges areto serve forlifeduring good behaviorwhich had raised acontroversy aboutwhetherbadbehavior that does not amount to "high crimes and misdemeanor" (treason, bribery) isground fordisciplining judges otherthan by removal.Thisknotty problem was resolvedinthe US by the judiciarypassing the Code ofConductforUS judges in1973and in1980the Congress passed the Judicial Councils Reform and Judicial Conduct and DisabilityAct.Thissystem has notyetbeen instituted inIndia.The recentNationalCommissiontoReview the Constitution realizing thislacuna has suggested thatacommitteecomprisingthe Chief Justice of India and four senior-most Judges of the Supreme Court beempowered to examine complaints of deviant behavior against Judges. The Committeecould ascertain whether
(1)thereissubstance to the complaint;(2)itisrequired to callforafullerinvestigation;or(3)whetheritissufficienttoadministeran appropriatereprimand tothe erring Judge or
recommend re-allotmentofworkortransfer.
Ifthe matterisserious enough,itcouldbe referred forafullinquirytoacommitteeunderthe Judges Inquiry Act.Discussion aboutthe placeforaCode ofConductforJudges isyet to take place in India. The idea of addressing complaints against Judges to acommitteeofthe Judiciaryistovestthe powertorecommend removaland such directionsin a judicial body rather than in a political body like Parliament. The NationalCommission recommendation thus allows room for the executive in the matter ofappointmentbutnotinthe matterofremovalorindisciplinarymatters.However,itdoesraise the issue ofconcentration ofpowerwith the Judiciaryas the ChiefJusticeofIndiaorhiscolleagues arenotaccountableto the people.
The qualifications required tobe aJusticeofthe Supreme Courtiscitizenshipwithatleast5yearsexperience onthe High Courtoratleast10yearsexperience as an advocateoftheHigh Court. Even though the constitution contemplates appointment to the SupremeCourtfrom threesources,in the lastfiftyyearsnotasingledistinguished juristhas beenappointed, and from the Bar less than half a dozen judges have been appointed. To beappointed tothe High Court,ajudge musthave heldjudicialofficeinthe territoryofIndiaforatleast10yearsorhave been an advocateforatleast10yearsataHigh Court.DistrictJudges mustalready have been in service to the Union orstate orhave atleast7 yearsexperience as an advocateorapleader.
III.1TransferofJudges
Disciplinary actions can be taken in order to transfer judges from one High Court toanother.However,atransferforany otherreason can turn into acontentions issue.TheLaw Commission of India has opposed the policy of transfer on the grounds that theargument that Judges will acquire local connections and prejudices is unwarranted asHigh CourtJudges arerecruited mainlyfrom the Bar.Transferswouldlead todifficultiesinthe way ofleading membersofthe Baraccepting the office.InarecentConference ofChiefJustices adecisionhas been taken todiscontinue the policy oftransferofJudges ofthe High Courts. However, the policy of having an outsider as Chief Justice in a HighCourt continues. The outside Chief Justices are reported to suffer from a lack ofknowledge as tothe ability,characterand performance ofthe membersofthe Barand sorelyheavilyon the adviceoflocaljudges who may notbe seniorenough.
The Fifteenth Amendment to the Constitution, effected in 1963, stipulates the age ofretirementforjudges ofthe High Courtas 62and forjudges ofthe Supreme Courtas 65.Thishas created an incentive forjudges ofthe High Courtsto seek to be elevated to theSupreme Courtwhen they areclose to retirementeven though the remainderofthe timemay notbe sufficientto make acontribution.Itthereforemakes sense to have auniformage ofsuperannuationat65as isthe case inthe UK forexamplewherejudges ofthe HighCourtand the CourtofAppealretireatthe same age.
Postretirementassignmentshave been asourceofundermining the independence ofthejudiciary. In India both Parliament and state legislatures have created a number oftribunalsand commissions towhich persons who have been judges ofthe High CourtandSupreme Courtare eligible.Forsome appointmentslike to the NationalHuman RightsCommission orthe Press CouncilofIndia,the selection istransparentlydone by apanelof high officials but many other selections are the choice of the central or stategovernments.Thisopens up the likelihood ofthe governmentdispensing favorswithout
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due attention to merit which indirectly affects the independence and integrity of thejudiciary.To minimize thispossibility,itmightbe worthconsidering making itmandatorythatwhen retired judges are soughtto be appointed to tribunalsand commissions suchappointmentsshould be made in consultation with the concerned ChiefJusticei.e.ChiefJusticeofIndiaifthe retired judge isfrom the Supreme Court,and ChiefJusticeoftheHigh Courtifthe retired judge isfrom the High Court.
III.2 JudicialFinancesThe backlog ofcases in Indiaishuge and often the judiciary isblamed foritdue to theadmission ofcases thatcan be disposed ofordismissed in the firstinstance itself.Longand winding argumentsbeing entertained instead ofbeing discouraged,frequentrequestsfor adjournment by lawyers on the flimsiest of grounds are accepted often due to theheavy load ofcases listed everyday,and delays in deliveries ofjudgmentslong afterthehearings arecompleted.However,since Independence therehas been noproperallocationoffunds commensuratewith the corresponding increase in population and litigation.In1998,the ChiefJusticeofIndia,in hisaddress to the BarCouncil,stated thatin severalEuropean countries the numberofjudges permillion populations varies from 90 to 100whereas inIndiaitisonly11.M oreover,about25to30percentofpostsarelying vacantatany pointin time.The Indian system isbetterthan thatofmany European countriessuch as UK and France as the officersand staffsofthe courtsareunderthe controloftheChief Justices of the court and there is no interference from the executive or thelegislature. However, lack of long-range planning and finances has been a majorshortcoming.As ofnow,the ChiefJusticeofthe courtprepares abudgetwiththe helpofthe Registrarsbutthese areroutine budgetsbased on acostplus increase ofthe previousyearsfigures and arenotbased on any long-run orshort-run planning.The budgetsarethen sentto the executive who makes cutswithoutconsultation.The ChiefJustices areempowered to make rules in regard to serviceconditions,salaries and allowances oftheadministration ofthe courtsbutifthishas an impacton the finances ofgovernment,itrequires the approvalofthe Presidentorthe Governorofastate.M oreover,even afterthefinances have been allocated forany expenditureexceeding Rs.10,000,fresh sanctionhastobe soughtfrom the Secretariatwhich keeps the Registrarsbusy atthe Secretariat.ChiefJustices ofHigh Courtsare also notallowed to re-appropriate amountsallocated underone head inthe budgettoanotherwhich resultsinunder-spending and pressing needs notbeing catered to. The Judiciary is, thus, not effectively associated with planning,budgeting and implementation ofthe requirementsofthe administration.
The National Commission to Review the Constitution sought to remedy this bysuggesting the creation,underlaw,ofaNationalJudicialCouncilforIndia.Thiswouldbe comprised of the Chief Justice of India, two judges nominated by him from theSupreme Court,and allthe ChiefJustices ofthe High Courts.The JudicialCouncilcango into the question of the uniformity in the service conditions of the subordinatejudiciaryinthe wholecountry.Fourinstitutions recommended tobe putunderthe controlofsuch abody are:
(a)InstituteofCourtM anagementproposed tobe set-uptotraingraduates inlaw inthemanagementsystems required to run the courtson aprofessionalbasis;
(b) National Judicial Academy, Bhopal, which has been set up and could conductcourses on Continuing LegalEducation;
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(c) The Indian Law Institute, New Delhi which could be made a deemed Universityawarding degrees and diploma;and
(d)InternationalLegalDataCentre,New Delhiwhich could house information subjectwise on the legalliteraturefrom alloverthe world.
The budget for the National Judicial Council, it is suggested, should be settled inconsultation with the centralgovernmentand by way ofconvention passed in Parliamentwithoutadownward revision.Once passed the budgetshould be underthe controloftheCouncil which should not be asked to seek permission from the executive from re-appropriation. The budgets of State Judicial Councils could be finalized in a similarmanner.
III.3TrainingTraining fornew entrantsto the judicialservicehas notreceived the attention itdeservesfrom the courtand governmenttillrecently.The Law Commission in its1986 reportonTraining ofJudicialOfficersstated that,apartfrom acoupleoftraining institutes givingpre-servicetraining,fresh recruitsaredirected toworkwithseniorciviljudges orDistrictorsessions judges foraduration ofthreeto six months beforeactualposting isgiven.In1992,aclaim forin-servicetraining was made by judicialofficersinapetitionbeforetheSupreme Court(AilIndiaJudges'Association v.Union ofIndia& Others,AIR1992 SC165) which responded by directing that an AllIndia Institute ofIn-service Training forhigher officers of the judiciary and state level institutes for training the subordinatejudiciarybe setup.The schemes,10yearslater,arestillatthe drawing boardstage.Thereare presently quite a few training institutes such as the North Eastern Judicial Officers'Training Institute, Guwahati,Andhra Pradesh JudicialAcademy, Secuderabad, M adhyaPradesh Judicial Officers' Training Institute, Gujarat State Judicial Academy, Judicial'OfficersTraining Institute,Nagpur,InstituteofJudicialTraining and Research,U.P,etc.offering mainly foundation courses for munsiffs and judicial magistrates and somerefresher courses for additional and assistant district sessions judges. The NationalJudicial Pay Commission observed that training is restricted mainly to repetition ofsubjects taught in law colleges with some emphasis on their practical relevance. Itrecommended an urgentenhancementin the qualityofthe training institutions.
The NationalJudicialPay Commissionalso conducted surveys amongstthe judiciaryanditsassociations aboutthe training goalsand the inadequacies in building capacities.Thesurvey revealed that the demand of the judiciary from a good training program is thattrainees imbibe judicial ethics and standards of judicial conduct are sensitized to thevalues and ethics ofthe constitution,areupdated with legalknowledge,arefamiliarizedwiththe forces operating atthe social,economic,politicaland administrative environmentin which judges work, develop analytical and communication skills and research andwriting skills for the job, are imparted skills of management, including computertechnology, cash flow and accounting techniques,etc. Amongst the inadequacies inexisting training listed are:
(a)moststates do nothave training schemes;(b)availableschemes areneitherscientificallyorganized norbased on experience;(c)mostschemes have no examination to assess the impactoftraining;
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(d)thereisno training on change ofjobs oron promotion;(e)thereisatotalabsence ofcompetenttrainerswho areskilled on the job;and (f)the curriculum isnotscientificallyevolved and training in appreciation ofscientific
evidence isnon-existent.
Keeping these inputsinmind,the NationalJudicialPay Commissionhas evolved acoursearound the following sixmajorthemes forinduction training forjudicialofficers:(1)Law,Justiceand Society;(2)RuleofLaw,JudicialProcess and ConstitutionalGovernment;(3)ProceduralLaws and AdministrationofJustice;(4)Technology,M odernizationand M anagementofChange;and (5)JudicialEthics and Accountability.
It also recommended that training academies need to inculcate some of the basicprinciples ofhighereducation,academicautonomy,professionalisms,and have in placeacorefacultywho can structureitslong-term goalsand give effecttoscientificschemesof training as well as conduct research. This has been a large felt need. The NationalJudicialAcademy has been offering training courses on new aspectsoflaw such as ongenderand juvenilejusticebutan overarching training program as envisaged around thesixthemes mentioned above isyetto take itsroot.
III.4 PublicLegalAssistanceThe Indian Constitution provides, through Article 39A, free legal aid so that lack ofeconomicmeans does notresultindenialofjusticetopersons.However,itwas notuntil1987thatthe LegalServices Authorities Actwas enacted togive astatutorybase tolegalaid programs. The Act was enforced in November 1995 and by 1998 the office of theNationalLegalServices Authority became functional.Every person,who has to file ordefend acase,isentitled tolegalservices underthe Actifthe person is-
(a) From the scheduled castes ortribes,(b) A victim oftrafficking in human beings orabeggar,(c) A woman orachild,(d) A mentallyillorotherwise disabled person,(e) A victim ofmass disaster,ethnicviolence,flood,drought,earthquake,etc.,(f) An industrialworkman,(g) In custody, including custody for immoral traffic or in a juvenile home or
psychiatricnursing home,(h) In receipt of an annual income less than Rs.50,000 p.a. for a case before the
Supreme Courtand Rs.25,000 foracase beforealowercourt.
The NationalLegalServices Authorityisthe apex body thatlays down the principles andpolicies formaking legalservices availableunderthe Act.The ChiefJusticeofIndiaisitsPatron-in-Chief and the norm instituted is that the senior-most judge of the SupremeCourtwillbe the Executive Chairman.Each statehas aLegalServiceAuthoritywith theChiefJusticeofthe stateHigh Courtbeing the Patron-in-Chief.LegalServiceauthoritieshave also been setupatdistrictand taluka levels.Since 1998,permanentand continuousLok Adalats (People's Courts) have been established for disposing pending cases anddisputes at the pre-litigation stage for government departments, statutory authorities
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(m unicipal corporations, general insurance corporation, etc.) and public sectorundertakings.A scheme of accreditation of NGOs for campaigns for legal literacy andawareness has also been implemented.To sensitize officersto legalservices schemes arecentChiefJustices'Conference passed aresolution thatthe servicerecords ofjudicialofficersshould reflecttheirinterestin legalaid programs.The NationalLegalServicesAuthority also publishes an official quarterly newsletter,‘‘Nyaya Deep’’that includesstatistical information in regard to legal aid schemes and programs and has become aforum forlegalservice functionaries to exchange views.Italso issues press releases inleading newspapersinregionallanguages toconvey salientfeatures ofthe scheme and theutilityofLok Adalats.Up tothe year2000,about3.2millionpersons have been estimatedto benefit from this legal aid, of which 0.7 million belong to the scheduled castes andtribes, 0.27 million are women, and 9,000 are children. Approximately 72,038 LokAdalats have also been organized throughout the country where 12 million cases havebeen amicably settled. Of these, about 0.5 million cases pertain to M otor AccidentCompensation Claims where compensation amounting to Rs. 24,690 million has beenawarded. The legal services aid movement in the country aims to develop a culture ofconciliation ratherthan litigation so thatdisputes are resolved quickly.The process hasbeen slow but the legal aid movement in India is emerging as a powerful method ofreducing exclusion and has been amechanism forproviding an equalopportunityforallcitizens to participateas wellas improve the coverage ofjudicialservices.
IV.CONCLUSIONS
Ithas long been recognized thatthe stateplays amajorroleindefining and enforcing therules governing the access to markets. Government often enacted legal and regulatoryreforms in orderto deepermarketaccess.However,these aredysfunctionalwithoutthedevelopmentand training ofthe civilservice,the developmentofjudicialand legislativefunctions,and othersuch organizationalreforms.Thispaperhas focused on the serviceorientationofthe civilservice,withcorruptionbeing treated as an aspectofpoorserviceprovisionas itresultsinpoorqualityand operationalinefficiency.Anotherkey institutionis the judicial system which includes the courts, public prosecutors, enforcementagencies, and the market for legal services (lawyers) which determines to what extentprotection and redress ofcitizens iscatered to.Thisisalarge areaand the paperfocuseson to whatextentthe judiciary isindependentofthe executive/legislature,so thatcasesaredecided withoutoutside pressure.In thiscontext,the issues like the appointmentofjudges,the adequacy oftheirtraining,theirtenure,and finally the coverage ofjusticeinterms ofthe publicsupportforlegalservices forthose who arenotin aposition to haveaccess to the judicial body is considered. The issues pointed out are important for thesustainability ofareform and the benefitsaccruing from globalintegration as these willbe mediated through the deliveryofeffectiveness ofthese institutions.
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NATIONAL CASE STUDY ON THE STATE
CAPACITY AND G LO BALIZATION
Batkhuu Barkhuu*I.INTRO DUCTIO NM ongolia opens and approaches more closely to the world than before. Impact ofglobalization is increasing in all spheres of political, economical, and social lives inM ongolia.The sectorofForeign Investmentand Foreign Trade has also been affected bythe internationalopenness.In contrastto 1990 when the country has been trading onlywith the countries of COM ECON, in 2002 the country expanded its trade relationshipwith88countries inthe fieldofforeign trade and atotalofUS$ 1159.9millionwerespentforitsturnover.Between 1990 and 2002,around 2400 companies of70 countries haveinvested aboutUS$800 million in alleconomicalsectorsofM ongolia.
As opposed to this, the country is facing huge difficulty in improving the competitivecapacityofnationalindustries inordertoholdapositioninthe internationalmarketby itsproducts that differ by qualifications and uniqueness and so. It is clear that goods andproducts from national industrial companies with old technology cannot compete intoday'sfreemarket.Itconfrontstomoretrialsthan opportunities.M oreover,M ongoliaisfacing other serious problems such as poverty, corruption, environmental and naturaldisasters. The Living Standards M easurement Survey, which was conducted in 1998,showed that36percentofthe populationlive underpovertyline.Frequentoccurrence ofdud and droughtin the lastfew yearsworsened livelihoods,and hence decreased supplyofraw materialsand producttrading.1 In addition,corruption and bribe has become realatalllevelsofstateinstitutions and theirnegative impactsareincreasing.
These positive and negative conditions demand us now to realize how we should adaptand benefit,and how we should discovernationalpeculiarfeatures and progress itin thein the context of globalization, rather than discuss the issue of to join or not to joinglobalization. The state is key actor in the development process, but State Capacity inM ongoliaisstillveryweak.
The CapableStateplays amajorrolein resolving confronted problems such as poverty,economiccollapse,corruption,bribe,and impactsofnaturaland ecologicalhazards anddisasters.Building upstatecapacitythatpromotes foreign investmentand foreign trade isone ofthe appropriateways to provide economicgrowth.
The purpose ofthisstudy istoprepareareportcentered oncountry-levelexperiences andpractices related to statecapacityand globalization.Therewillbe threemain sections ofstatecapacitythatcontributeto the promotion oftrade and investmentafterintroductorysection.The second sectioncoversadministrative capacityofthe Stateinpromoting tradeand investment issues. The section divided into six sub-sections. The third sectionconsiders transparency and accountability in trade and investment activities and anti-corruptionactivities ofthe state.The lastsectioncoverslegaland judicialframeworkanddivides into threesub-sections.
*SeniorConsultant,CentreforSocialDevelopment,Ulaanbaatar,M ongolia.1PovertyReductionStrategy Paper,firstdraft,2002,p.9.
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II.ADM INISTRATIVE CAPACITY OF THE STATE IN PRO M O TINGINVESTM ENT AND TRADE
Statecapacityisthe abilityto mobilize socialand economicpowerthrough participationand cooperation to achieve a wide variety of social and econom ic goals, andadministrative capacity is one of its essential components. On the other hand, whileadministrative capacityinvolves producing outputs,statecapacityisameasureofabilityto achieve outcomes.2
Administrative capacity is the efficient management of resources and knowledge invarious administrative processes is required for delivering the outputs of government,such as foreign trade and foreign investment service. Strategic planning, leadership,performance,evaluationand monitoring areissues ofadministrative capacity.Inaddition,we shouldemphasize onskillsofpublicservants(multilateraland bilateralcollaboration),rewarding system and publicinformation system.
II.1 Leadership and StrategicPlanningLeadershipisan abilityofcreating apositive impacttopersuade an organization,people'spsychology topursue achievementofgoalsofnationaldevelopmentpolicy.The nationaldevelopmentconceptcontemplates overcoming the transition period,nationaleconomicrenaissance and stabilization,and creating asound,self-sustaining economy in M ongolia.Itcan be seen thatapreconditionforthe success ofthe Nationaldevelopmentconceptistobuild up nationalleadership capacities.Thus,the Governmentprefersvisibleand effectiveleadership from the centercombined with appropriate,integrated accountability.3
The following types ofleaderships existin publicadministration.
PoliticalLeadership.Formulationofthe conceptforpoliticalleadershipisdefined by thenatureofpoliticalparties'activities and theirarrangementin society.However,politicalpartythatgetsmajorityofseatsin freeelection play the key rolein making the nationalpolicies, such as foreign trade and foreign investment policies. M oreover, leadingpoliticalpartynominates itsmembersin politicalposition ofthe stateinstitutions.Thus,nominated servantsare leadersin implementing the Government'sAction Program.Forinstance, M inister for the Industry and Trade takes responsibility for making policiesrelated to foreign trade and foreign investmentas wellas implementin M ongolia.
PublicAdministrativeLeader.Publicadministrative leadersarepubliccivilservantinthemanaging position,who carries ontheirservices independentlyfrom the outcomes oftheelections. In this case, State secretary of the ministries and head of departments anddivision of the ministries and agencies are public administrative leaders. As publicadministrative leaders, they favor legitimacy, respect ethic of public service, efficientallocation of budget and expenditure, and social outcome rather than political wishes.Nomination procedures of public administrative leaders are based on "Regulation ofselectionand nominationofidealpublicservants" among experienced and knowledgeablecandidates and relyon principles ofopen competition.
Study about leadership in public administration shows that skills in identifying themethods to approach the proposed goals, skills to support others, to define vision andmission,to convince othershad deficit.Thus,consideration ofhow to improve lack ofskills in public administrative leadership and definition of general guidelines is alsoessential.4
2M artinPainter.StateCapacity,InstitutionalReform and Changing Asian Governance.2001,p.2.3M ongolian statepolicy onreforming Governmentprocesses and the generalsystem ofstructure,1996,p.6.4N.Narantuya,FinalReportofResearch onLeadershipPractices,2002.
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Inthe reportaboutIndustrialand Trade DevelopmentPolicy (ShafiqDhananiand others,2002)explained the following key constraintsin the M ongolian trade sector:
(i) limited productdiversification,and heavy reliance oncommodityexports(copper,gold and cashmere), whose prices fluctuated in the world market and haveexperienced long-term declines,leading to deteriorating terms oftrade;
(ii) limited marketdiversificationofmostM ongolian exports,withone countryoftenpurchasing close to 95 percentofeach ofthe main exportssuch as copperandgarments;
(iii) poor market 'positioning because the world demand for traditional M ongolianexports (mostly resource-based and labor-intensive, including its newest export,garments),has declined relative to othergoods traded in the world market;
(iv) abolition of the M ultifibreArrangement by the end of 2005 and of preferentialaccess particularly to the USA,and the likely exodus ofgarmentmanufacturersout of M ongolia and into countries with lower transport costs and highereconomies ofscale;
(v) difficult access to the relatively lucrative markets of neighboring Russia andChina,due to high tariffbarriersin the case ofRussia,and non-tariffbarriersinthe case ofChina;
(vi) M ongolia'sweak position in fighting non-tariffbarriers,due to the prevalence ofanimaldiseases and poorhygienicand sanitation standards;and
(vii) underdeveloped trade promotion services from government agencies as well asfrom privateinstitutions.5
Visibleand effective leadershipisneeded inthe currenthazardous circumstances oftradeand foreign investment in M ongolia. Furthermore, as leadership is one of importantcomponentsofpublicmanagement,itisaconceptthatcloselyrelates tostrategicplanningand performance. Before discussing about strategic planning, we will see scheme ofdistribution ofresponsibilities ofthe GovernmentofM ongolia in trade and investmentsector(see TableI).
M inisterofthe Trade and Industryisthe memberofthe Governmentand isresponsibleforpolicymaking and strategicplanning in trading and foreign investment.The ForeignTrade and Foreign InvestmentAgency isresponsibleforpolicy implementation.NationalAuditing Office and Public Service Council are taking control on effectiveness ofactivities and monitoring implementation of laws and other related regulations and
5M ongolia:Industrialand Trade DevelopmentPolicy Review,UNDP,UNIDO,GovernmentofM ongolia, p1.
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TABLE ISchem e ofDistribution ofResponsibilities in Trade and Investm entSector
Levels
Atthe CentralAdministrativeOrganizationLevel
Atthe Province,CityandDistrictLevels
Governance'sOffice
Sub ProvincialLevel Governance'sOffice Governance'sOffice Governance'sOffice
Governance'sOffice LocalAuditing Division
Government,M inistryofIndustryand Trade
Foreign InvestmentandForeign Trade Agency
NationalAuditing OfficePublicServiceCouncil
StrategicPlanning andPolicy Guideline
Performance,OutcomeInspectionand AuditingPolicy Implementation
decisions.At the local level, administrative organization is authorized to develop localpolicy and action plan and itsperformance.
The ways inwhich Governmentcarries outitsmandates fordirecting the affairsofnationinnew publicmanagementarethrough indirectmeasures ofstrategicplanning and policyguidance, rather than through direct measures of command and control of policyimplementation. Strategic planning is setting national goals, and choosing the mostappropriatepolicies and programs forreaching them.6 The Governmentisresponsiblefordefining priorities and organizes its performance. Government develops its ActionProgram fitted tothe conceptofnationaldevelopmentand implementsitinthe followingfouryears.
Furthermore, every year Government of M ongolia develops statement on State BudgetFramework.Thisdocumentdescribes allocationofstatebudgetcovering uptothreeyearsoftime.Initsturn,the M inistryofIndustryand Trade develops program ofdevelopmentin trade and foreign investmentand plan ofactivities.
Priorities intrading and investmentthatarelisted inthe GovernmentActionProgram andotherrelated papersofministry:
l To improve competitive quality ofgoods and services in world marketand toincrease export, to develop trade networking system of import and goodsproduced by nationalentities,and wholesaleofraw materialin the conceptonregional socioeconomic development, and to reach the customers of remoteareas;
l To supportforeign trade and foreign investment;l To carry responsibilities of M ongolia under the contract, agreement with the
W TO;l To apply modern advanced methodologies and experiences into practice, to
integrate worldwide highest technology, to deepen the reform and intensifyrestructuring;
l To rehabilitatenationalindustry;l To increase working placeby promoting smalland medium enterprises.
Supporting foreign trade and foreign investment will be implemented through 31activities.Some essentialofthem are:
l Develop strategic program on development of export of wool and cashmere,skin and hides,mineralsand meatand meatproducts;
l Build exportsupporting fund;l Developand implementstep by step policy onimporttarifftosupportnational
industries producing exportgoods;l Increase foreign loan and aid supporting industries produce exportgoods;l Develop conceptofforeign trade ofM ongolia;l M ake contract on continuation of discount in export trading from developed
countries to M ongolia;l Expand export,including cashmereand meatproducts;l Lessen bureaucracy,hierarchy,and createsound participationand coordination
ofthe statein foreign trade and investment.
6 M ongolian statepolicy onreforming governmentprocesses and the generalsystem ofstructure,4.7.1.
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The abovementioned activities arecloselyrelated to otherpriorities.
Head of the Foreign Investment and Foreign Trade Agency of M ongolia (FIFTA)concludes and implementsacontractofbusiness plan with the ministersofthe M inistryof Industry and Trade. The business plan of the organization, which includes detailedlisting ofactivities ofimplementation ofGovernmentaction program,financialsources,period of accomplishment, will be a Document Paper. Performance of business plan isprepared and reported every month and quarterly to the related high organizations andpublic.
Properstrategicplanning depends on many factors.Developmentofleading priorities inforeign trade and foreign investmentthatareproposed by specialistsofthe M inistry ofIndustryand Trade requires multilateralskillsand knowledge.Publicservantsgain themusually from trainings and workshops that are organized by international agencies orthrough state reform related activities.Although a new framework, promoting foreigninvestmentand foreign trade sectors,isbuilding up.Butthe question,how long itwilltake foritsformation and empowermentisstillamajorconcern.
II.2 Perform ances Standards ofM anagem entDevelopm entOutcomes ofGovernmentactivities have directimpacton statebudget.Accordingly,itsineffective and high expenditurecauses cutback ofbudgetin othersocialservices.Thus,new publicmanagementhas multipleobjectives targeting tomake clearpolicy and goalsofGovernment,and toprovide accuratedistributionofstateresource.Inprevious section,we discussed about strategic planning in foreign trade and foreign investment. But theissues ofperformance indicator,evaluation and monitoring aremostdifficult.
Preferred outputs,productsand inputscan serve as indicatorsofachieving goals.Use ofmethodologies for financial and performance auditing and evaluation is increasing toestimateoutputs.7 Preferred goalsdepend onmany externalfactorsthatmay notrelatetoorganization and publicservantsand sometimes itcannotbe main indicatorto evaluateresponsibilities, especially in the sector of trade and foreign investment. In contrast,activities oftheM inistry ofIndustry and Trade and FIFTA to implementGovernment'spriorities are measurable. These can be number of contracts and agreements madebetween internationalorganizations and countries,provision ofpreparation,provision oflegal and economical enabling environment for foreign trade and investment, etc.Consequently,in thiscondition,estimation ofrequired inputismuch morepossible.
Efficiency in the performance offoreign trade and investmentpolicy ofthe Governmentindicates itsoutcome.Accountability and rewarding mechanism are essentialfactorstoincrease efficiency ofperformance.Accountabilityframeworkconsistsofthe following:
l Clear definition of task and responsibilities of public organizations that areresponsible for trading and foreign investment and clear understanding ofservantswhattheirroles are.Clearobjectives and goals;
l Comparison ofactualand planned outputs;l Sufficientpowerto achieve goals;l Rewarding mechanism to supportperformance.
7Namkhaijantsan,Finance and M anagementReform inPublicOrganizations,2003,p.31.
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New publicmanagementisutilized tostrengthen thisframeworkinpublicorganizations.Anotherindicatorofperformance isimpactonthe societyand economy.Itincludes totalamount of foreign investment, total amount of export and import and loss and gain inforeign trading.
II.3 Developm entofH um an Resource (M ultilateralAgreem ent/Contractand Skillsto Analyze Policies, and to Enable and Engage Efficient Involvem ent ofContractsatRegionalLevel)
GovernmentofM ongoliaaims todevelopmultilateraland bilateralcollaborationbetweencountries to provide favorable environment for foreign trade and foreign investment.Thus, the need for developing skills, knowledge and experiences that matches to theprogress of developing policy, policy analysis, multi and bilateral cooperation istremendouslyincreasing in the sectorofforeign trade and foreign investment.M ongoliaiscollaborating activelytointegratemultilateralpartnershipwithUNDP,W orldBank,theW orldTrade Organization(W TO)and otherdonorcountries.
For example, Government implemented several joint projects to develop personnelcapacityatnationallevelwithW TO,as memberofthe W TO.The Project,"InternationalTrade and W TO", with assistance of GTZ is one of them. Under this project, manytraining and seminars, purposed to introduce activities of W TO, selling of intellectualproperty and integrated information system, were organized. Also, a joint project"provision of preparation to support developing efficient trade networking" with W TOwas organized and around100persons from publicand privateenterprises participated inthe international seminar discussing issues on industry, trade policy and sectoralproblems.Inaddition,30officersfrom the M inistryofIndustryand Trade and the FIFTAwere involved in the seminars on "Trade and Investment", "Trade and Environment","International Investment", and "Skills on Agreement" which were conducted by theseorganizations.These measures weretargeted todevelopcapacitybuilding fordevelopingmultilateralcollaboration and experiences.
Also, there are many activities carried out to develop bilateral cooperation with theRepublicofChina,the Russian Federation,the United States ofAmerica,Canada,SouthKoreaand Germany through jointmeetings,exchange visitsand jointprojects.
Lately, activities targeted to improve collaboration in the area of trade and foreigninvestment between M ongolia and China are progressing. As a result, project on"Development of M ongolia and Southern Region of Inner M ongolia of China" isapproved and the ADB isproviding financialassistance.One ofthe positive outcomes ofthisprojectisexpected to build up the experience and knowledge ofregionaltrading.
The Russian Federation isanotherregionalbusiness partnerofM ongolia.Collaborationintrade and investmentinvolves contractbetween Governmentsand between Regions.Asa result, M ongolia is exporting meat and coal to the near border towns, cities andprovinces ofRussiafollowing the agreementsand contracts.
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Activities directed to support effort of servants like to increase their participation indeveloping strategicplanning.Developmentofmethodologies to identifymain directionofthe organization atlowerlevelisprogressing.
M inistryofIndustryand Trade,and relevantagencies arecarrying outactivities targetedto prepare human resource and improve level of comprehensive knowledge. In 2002,around 30 publicservantswereinvolved in short-term courses offoreign language andprofessionaltraining,locally and abroad.M oreover,postgraduatecourses forbachelor,master and doctorate in 19 different subjects are offered to future state servants andaround 30 people have been in contract to attend in master degree courses in foreigncountries by Government sponsorship assistance. Selection criterions of appropriatecandidates are based on basic requirement and rules of foreign host universities, anduniversities and institutions ofM ongolia.
II.4 PublicServiceProfessionalism
Effective implementation of proposed goals and objectives of Government depends onknowledge,capacity and experiences ofpublicservants,and thus,existence ofenablingenvironmentin publicserviceiscrucialforsuccess.Framework forselection ofskillfulpersonnel,provisionofsustainableenvironmentand developmentofcapacitybuilding inpublicservices arerenovating.Thisconceptofreform inpublicservicehas embedded inPublicServiceLaw and Finance,and M anagementLaw.
By the Law ofPublicService,everycandidatetakes an entryexaminationofstateserviceprofession,as itispartofselection process.Every yearstateserviceorganizations sendorderforrequired numberofpersonnelbased ontheirsurvey inneeds forpersonneltothePublic Service Committee and it organizes selection competition. The candidate, whopasses the examination,works as intern forthe following one year.Afterthe internship,on the basis of the reference letter from administration where the candidates ability tocarry duties and to fulfill other requirement would be described, the process ofrecruitmentwillbe conducted.Ifthe person meetsmainrequirementsofthe organization,by the resolutionofthe authorized administrative person,he/she shalltake an oathofcivilservants.
Core of the existence of public service is based on the principles of specialization andsustainability. In contrast, today political indicator is commonly used for selection andappointmentofcivilservantatany levelsofpublicorganization.Researchersargue thatithas negative impacton publicorganizations'activities.Also,low wage and salary,andlow socialguarantees cause the highlyskilled servantsto lose theirinterest.
II.5Inform ation Technology in G overnm entO peration
Globalization and reform in public services are hard to imagine without informationtechnology.In M ongolia,reform in publicadministrative information system isgrowingfastersince 1995.Information technology brings many advantages and opportunities topublic administrative organizations. Through improving quality, speed, acceptability,
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responsibility and transparency, citizens and partner organizations are advancing moretrustin elimination ofcorruption and bribery.
W ebsites are providing essential information on time to citizens, investors and otherstakeholdersin integrating theircollaboration.Information isproduced both in Englishand M ongolian languages. W ebsites provide essential information for investment toM ongolia,information related to legalenvironment,and information aboutforeign tradeand foreign investment.Also,the sites enabletointroduce monthly,quarterly,and annualreportsofthe M inistryofIndustryand Trade and the FIFTA.Inaddition,itprovides directcommunication opportunity with public servants who are responsible for foreign tradeand foreign investment.
Certain works wereconducted to develop administrative information system.M inistriesand theiragencies communicatethrough internaladministrative informationanetworkingsystem and information fund thatconsistsresolution,orderand documentpapers.AttheM inistrylevel,75usersarecurrentlybenefiting from the networking system.The internalinformation fund contains statisticalinformation offoreign trade commodity circulationbetween 1995 and 2003,laws and regulation,fund ofresolution and decision,and alsorecords ofcivilservant.Exercise ofinternalinformation networking resultsin the speedof information development and delivering labor productivity. As a result, positiveenvironment for developing new methodology, in collaboration between specialists, iscreated.
II.6 Existence ofInvestm entCouncils
The FIFTA is the Government agency, which is responsible for the promotion andfacilitation of foreign direct investment and foreign trade in the country. Predecessororganizations ofFIFTA wereForeign InvestmentDepartmentofthe M inistryofTrade andIndustry,1990-1996,and the BoardofForeign Investment(BFI),1996-1998.FIFTA wasformed in 1998 to handletrade and foreign directinvestmentissues ofthe country.TheFIFTA has 20 employees and isdivided into the following sections:Foreign InvestmentPromotion Team; One-Stop Service Center; Administration Unit; Small and M ediumEnterprise SupportOfficeand Information and Communication Unit.The FIFTA'smainfunctions areas follows:
l Provides investment matchmaking services to both foreign and M ongolianinvestors seeking cooperation in the areas of technology, management,marketing;
l Hostsforeign-investors'missions and organizes M ongolian business missionsoverseas, as well as international investors conferences and seminars. Inaddition, FIFTA carries out investment promotion activities in order tofacilitateadequateimage ofthe M ongolian business environment;
l FIFTA is the first contact for investors seeking to establish their business inM ongolia.
The FIFTA's One Stop Service Center provides information related to investmentopportunities and incorporation procedures.The main objectives ofthe Centerareto presenteffective and centralized servicefrom the executive governing bodies to foreign investors,toimprove the registration and monitoring activities and to make them open and non-bureaucratic.The Center's function principle is based upon the presentation of relevantministries and agencies thatissue licenses and permissions forforeign investment.
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Also, it supports stability agreement. Foreign investors will be accorded the sameconditions as those offered to localinvestorswho are engaged orwillbe engaged in asimilar business. The Cabinet member responsible for taxation policy may then sign aStability Agreement with the investor, which provides a legal guarantee for stablecorporationand otherdirecttaxes and importdutyforaspecified period.The durationofthe StabilityAgreement(10 or15 years)isdetermined by the size ofthe investment.
III. TRANSPARENCY AND ACCO UNTABILITY IN TRADE AND INVESTM ENT ACTIVITIES
III.1Anti-corruption LawsThe State GreatKhural(Parliament)ofM ongolia adopted Anti-corruption law in April1996.Anti-corruption law is supposed to regulate state officials' corruption and bribesrelated activities.Itincludes:
l Stateofficialsincharge ofpoliticaland specialpositiondefined inthe Law onStateService;
l Chairman and Secretary ofthe Heads ofCitizens'Representative Conferenceofaimag,capitalcity,sum and district;
l Stateofficialsin charge ofgoverning and administrative position ateconomicentities ofstatepropertyorinvolving stateproperty;
l Stateofficialsincharge ofgiving permission,right,privileges,arranging loansand assistance as wellas making registrations;
l Person who isincharge oftemporaryorpermanentpositiontocarryoutspecialduties ofstateexecutive organization orcertain duties ofsubsectorsunderthesetlegislative procedure;
l Stateofficialsin charge ofgoverning position ofstateservantservice.
Underthe law,stateofficialshave tosubmittheirincome reportbutitisuncertainwhere,whom and in whatway itshould be done.Itisconsidered thatsubmitting income reportannuallykeeps stateofficialsaway from corruption.
Authorities of implementing anti-corruption activities are generally devolved to police,prosecuting organizations and courts. Unfortunately, provisions of the law were notimplemented absolutely.The reason forthisisthatthe way offighting corruption isnotcompletely defined and authority and obligations ofimplementing organization are notset forth clearly. Therefore, in order to intensify activities against corruption there is anecessity to form legalframework ofstateserviceand upgrade the systems ofthe stateservice.Thatiswhy forupgrading stateservicethe following activities wereformulated,forimplementation by 2010,in the "NationalProgram onAnti-corruption".
l To adoptthe amended ornewlydeveloped legalrule(itincludes the legalruleofan officeratthe customs,taxation,prosecuting and courtorganizations);
l To createafavorablecondition fortransparentand faircompetition to chooseacivilservant;
l To reduce bureaucracy atalllevelsofstateorganization;l To increase salaryofacivilservantand thus improve the living standard;l To conclude atreatywith each civilservantto keep away from corruption;l To upgrade the mechanism ofsubmitting the income reportofacivilservant
and the scrutiny procedureofthe income report;l To appointaperson forcorruption prone position forthe duration ofnotmore
than two years.
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IV.LEGAL AND JUDICIAL FRAM EW ORK
IV.1Regulatory Fram ework for Trade and Investm entM ongolia set the roots of developing under world trend and standards of developmentfrom the beginning of the 1990s and the legislative basis of it was laid down in theamendmentsofthe Constitutionofthe year1960.One ofthe mainissues settled by theseamendmentswas the recognitionofthe privatepropertyand thischanged completelytheprinciplewhen trade,industryand the way ofrunning economy weremanaged by the solecentralized economy and were based on socialistproperty.Underthese amendmentsofthe Constitution,Law on Property was adopted in 1991 which allowed the existence ofprivateproperty in M ongoliaand the firstLaw on EconomicEntity was also adopted inthe same year.Thereby according to these laws,activities ofproperty have taken placeand the firstprivateeconomicentities have begun tobe established.Inotherwords,beforethe mentioned reforms orbeforethe 1990s,issues offoreign and domestictrade as wellas investment were solely State's business and the right and responsibilities to conductactivities werealso the Stateorthe Government'sduty.And as forforeign trade,M ongoliadepended greatlyon memberstates ofthe EconomicM utualAssistance Council.
Thus,M ongoliaadopted itsnew democraticConstitutionin1992and declared clearlythebasic regulations for developing all forms of property equally and freely. Thereby themonopolysituation when the Governmentalone had the rightto take partin foreign anddomestictrade as wellas investmenthad been removed,and the privatesectorhas had theopportunity to participate in these relations. In this regard, the State Great Khural hasregulated issues of adopting new national legislations as well as joining internationalorganizations and internationaltreaties and conventions on trade and investment.
As for legal system, M ongolia belongs to continent of Rome-German civil law andtherefore, there is no special law on regulating trade activities and the main law thatregulates them isthe CivilLaw.The CivilLaw thatserved since 1963 was renewed andadopted in1994inconformitywiththe contentand principles ofthe new Constitutionandthus itperformed itsregulating roleofthe transitionalperiod.Following the developmentof social relations and reforms taken place in economy, this law was adopted under anewlyformulated conceptin 2002 and came into forceon September1,2002.
The main purpose of the Civil Law is based on the principles of equality, sovereignty,inviolability ofproperty,freedom ofthe treaty,nonintervention in privatebusiness,carryingout lawful activities by citizens and economic entities, resumption of violated rights,protection by the court. Besides the Civil Law, the following laws regulate relations of acertain sectorin detail:Law on Oil,1991;Law on Foreign Investment,1993-2002;Law onChamber of Trade and Industry, 1995; Law on Foreign Trade Arbitration, 1995; Law onCurrency Regulation, 1994; Law on M ining, 1997; Law on Friendship, 1999; Law onCompany, 1999; Law on regulation of buying goods by state or local property's assets,choosing executives ofajoborservice,2000;Law onProhibitionofunfaircompetition,2000;Law on Labor;Law on Customs;Law on Customs Tariff;Law on Bankruptcy;Law on BondM arket, 2002; Law on insurance, Law on Banking; Law on Non-Banking FinanceOrganization,Law on Taxation Package ofPopulation income,trade,value added,economicentities,organization; Law on Protecting Surroundings;Law on Quality and Standard;Lawon FreeZone;Law on Tourism.IV.1.1 Foreign Investm entLaw
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The Foreign Investment law enacted in 1993 (latest amendments adopted in January2002)contains foursections dealing with:
l General provisions relating to foreign investment, including a definition offoreign investmentand an outline ofthe types and forms offoreign investmentallowed.
l Protection offoreign investmentincluding legalguarantees and the rightandduties offoreign investorsincluding protection in the eventofexpropriation.
l Operation of business entities with foreign investment including registrationand dissolution ofbusinesses,exemptions from customs duties and sales tax,land use and otherpracticalissues relating tothe operationofbusiness entitieswithin M ongolia.
l Settlementofdisputes.
IV.1.2Com pany Law
The Company law of M ongolia is one of important and authoritative legislation thatgoverns alloperations and activities ofbusiness entities in M ongolia.
l A open or joint stock company whose shareholders' capital is divided intoshares which may be freelytraded by the public;and
l A closed or limited liability company whose shareholders' capital is dividedinto shares,wherethe rightto those to dispose ofsuch shares islimited by thecompany'scharter.
The Statemay also participatein business through companies with stateownership.
V.1.3 Law on Econom icZones
The Parliamenthas recentlyapproved the Law on EconomicZones.Economiczone willbe established inthe cityofAltanbulag onRussian and M ongolian border.Thislegislationenvisions virtuallytax freebusiness environmentand minimum bureaucraticobstacles forforeign and domestic companies. The Government of M ongolia intends to establishsimilarFreeEconomicZones in Zamiin Uud and Tsagaan nuuras well.
IV .1.4 ContractLawsM ongolia'sprincipallaws ofcontractformation,performance,assignment,remedies fornon-performance,etc.arefoundinthe currentCivilCode,enacted inNovember1994andamended a number of times later on. The latest version was approved in the spring of2002. Issues relating to contracts concluded before the enactment date continue to begoverned by the priorCivilCode.Contractsinvolving legalentities orland,as wellasmostothercontractsaresupposed to be in writing and certified by notarypublic.
Since 1990,M ongoliahas concluded trade agreements,based onthe new conditions,withmany nations and such agreementsonprotecting and encouraging investment,exemptionfrom double taxation, fighting against evasion from taxpaying, have created favorableconditions for trade, economy and investment. M ongolia became a state party to theTW O on January29,1997 and thus itjoined the basicconventions ofW TO and took 20responsibilities to implementforbecoming the memberstate ofW TO.Some importantresponsibilities are:
l Nottointroduce anew tariffotherthan the permitted importtariffby W TO;l Notto levy differenttaxes on domesticand imported goods;l To reduce numberofchemicalgoods related license;
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l To inform W TO about the reforms in trade and economy in the transitionalperiodand reportW TO aboutthe propertyprogram and the implementationofthe obligations bi-annually.
l To publish any trade related law,rule orresolution before entering them intoforce in order to get acquainted with them and not to enter them into forcebeforepublishing;
l To follow the agreementon investmenttrade related measures;l To bring into conformity activities and clearance of customs with the
provisions 7,8,10ofTXEX;l To adheretotrade relating partsofthe agreementonintellectualpropertyright.
Some internationaltrade related conventions which M ongoliajoined are"Conventiononthe Limitation Period in the InternationalSaleofGoods" (New York,1974)1974.06.14,"UN Convention on Contracts for the International Sale of Goods" (Vienna, 1980)1991.01, and so on. Besides these, there are several programs and projects that areimplemented. For example, The M ongolian German Project called "Cooperation onInternationalTrade Policy:W TO."From the abovementioned discussion itcan be seenthat in the framework of trade and investment M ongolia managed to do its nationallegislation and internationallegalregulation atthe appropriatelevel.
IV.2PropertyRightsLaws
As forproperty rightsitwas mentioned in the fistpartthatin M ongoliasince 1990 theconstitutional regulation has defined the principles of the existence of all forms ofproperty and multiple structure economy. As it is declared in the 16th article of theConstitution ofM ongolia"The citizen ofM ongoliahas the rightto secure,own,possessand inherit movable and immovable property fairly. Private property is prohibited toconfiscateorobtainby unlawfulmeans.Incase privatepropertywas getby forcestateoritsauthorized organization on the basisofsocialinevitablenecessity compensates itbypaying the price."And also according to the 2nd provision ofthe 5th article,"the staterecognizes any form ofpublicand privateproperty,and protectsthe rightsofpossessionby law". This declaration became the basic legal principle to be abided by in propertyrelating issues.
Thereareseverallaws regulating property issues,butthe main sourceisthe CivilLaw:2002.Underthislaw propertyrightsissues areregulated such as movableand immovableproperty, getting the right to possess the intellectual property, to sell them, protect therights to possess, inherit, shared property, servitude, usufruct, mortgage, the right toconstructbuildings on the land ofothers,loan,fiduciary.
M ainlaws regulating relations ofpropertyareLaw onPatent:1993,Law onCopy Right:1993,Law on Registration ofImmovable Property:1995,Law on Name ofGoods andEconomicEntity:1997;Law on Conveying Technology:1993;Law on Stateand LocalProperty: 1996; Law on Apartment Privatization: 1996; Law on Shared ApartmentPossession: 1996; Law on Friendship: 1995; Law on Cooperative: 1999; Law onCompany:1999;Law on Bond M arket:2002;Law on Land Possessing to the Citizen ofM ongolia: 2002; Law on Prohibition of Unfair Competition: 2000; Law on ForeignInvestment: 2002; Law on Protection of the Rights of Customer: 1991; Law onOrganization Confidentiality:1995 and so on.
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M ongoliaisamemberstateofthe W orldIntentionalPropertyOrganization(W IPO)andjoined the main conventions issued by this organization as the 11th country. AlsoM ongoliaratified TRIPS /TreatyonRightsofIntellectualPropertySales ofthe W TO.
IV.3M echanism s toProtectPropertyOwner Rights
Property owner rights operate on legislation, based on the principle of equal lawprotection. In the legal framework of protecting property owner rights, the Civil Lawplays a major role and in this issue criminal legislation has a certain role. Court,arbitration,prosecutor,customs,policeand organizations carrying outcourtverdictplayan importantrole in protecting property owner'sviolated rights,in resuming rightsandcompensating damages.And also specialbodies in charge ofconfirming legalrightsofproperty owner conduct their activities. For example, Intellectual Property Office ofM ongoliaregistersintellectualproperty,issues patentsto samples ofinventions and alsoa certificate. Land, Geodesy and Scheme Office are in charge of issues related to theregistration ofimmovablepropertyand land.
The StateGreatKhuralrenewed and adopted five basiclaws in the yearof2002 such asthe CivilLaw,CriminalLaw,Law onVerdictofCitizen'sCase,Law onCriminalPenalty,Law onEnforcementofCourtVerdictand these laws entered into forceon September1,2002. Therefore, it is possible to be protected under the abovementioned laws in casepropertyownerrightsand interestsareviolated.
References
Bathuu,B.and others.2002.Glossary ofGovernance.
Bulletin ofPublicServiceLaw and Regulations,2002.
Dauvergne,P.1997.W eak States andthe EnvironmentinIndonesiaandthe Solomon
Islands.
GlossaryforM ongolian Constitution 2000.
Industryand Trade Bulletin 2003.
M ongolian laws,2003.
M ongolian StatePolicy onReforming GovernmentProcesses and the GeneralSystem of
Structure,1996.
Namhaitsanjan.2003.Finance and M anagementReform in PublicOrganization.
Narantuya,N.2002.FinalReportofResearch on Leadership Practices.
NationalTransparency Report,2002.
Painter,M .2001.StateCapacity:InstitutionalReform and Changing Asian Governance.
Policy Document, the Government of M ongolia and Good Governance for Human
SecurityProgramme,2001.
PovertyReduction Strategy Paper,firstdraft,2002.
Tungalag.2002.Business and InvestmentGuide for M ongolia.
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G LO BALIZATION AND STATE CAPACITY:TH E PH ILIPPINES
Philippine Institutefor DevelopmentStudies*
I.INTRO DUCTIO NThe determining factor behind the state of fiscal affairs in the Philippines is theeffectiveness of the state to cope with the demands of globalization.An effective stateallows the efficientprovisionofgoods and services.An effective statelikewise possessesrules and institutions thatallow marketsto function and people to enjoy everyday life.Although the stateiscentraltoeconomicand socialdevelopment,itdoes notnecessarilyfollow thatitactsas a directproviderofgoods and services;itcan achieve growth bysimply serving as partner,catalyst,orfacilitator.Thisstudy documentsthe rules,laws,regulations, institutions, and agencies that underlie the administrative capacity of thePhilippines to promotetrade and investments,and thereby to achieve economicgrowth.
The reportisorganized as follows:the second sectiondescribes the objective ofthe study.Section threeexplains the methodology used in assessing the statecapacity and Sectionfouranalyzes the administrative capacityofthe state.The fifthsectionexamines the legaland judicialframework.Sectionsixassesses transparency and accountabilityintrade andinvestm ent activities. Finally, section seven discusses the conclusions andrecommendations.
II.O BJECTIVE AND RATIONALEThe objective of this study is to document and analyze Philippine's experience andpracticerelated to statecapacityand globalization.The study willcoverthreeaspectsofstatecapacitythatcontributetothe promotionoftrade and investments:(a)administrativecapacity, (b) systems of transparency and accountability, and (c) legal and judicialframeworks.Inaddition,the study willprovide some informationonthe overallstructureand mechanisms to access justiceforthe poor.
III.M ETH O DO LO G YThe W orld Development Report (1997) states that, "good government is not a luxury,[but]a vitalnecessity fordevelopment."FurtherSnowdon and Vane (1999)states that,"countries with perverse [social]infrastructure,such as a corruptbureaucracy,generaterent-seeking activities devoted to the diversion of resources rather than productiveactivities."The following discussion focuses on the role and capabilities ofthe state inorder to function effectively and efficiently, achieve social stability, and promotesocioeconomicdevelopment.
III.1 StateCapacityW hatconstitutes statecapacity? A framework ispresented in TableIthat"classifies thefunctions ofgovernmentalong acontinuum,from activities thatwillnotbe undertaken atall without state intervention to activities in which the state plays an activist role incoordinating markets or redistributing assets" (W orld Development Report,1997). Theframework suggests that governments assume some role and perform a number offunctions depending on theirstatecapability.
Basic functions such as the provision of pure public goods-property rights,macroeconomicstability,publichealth,safewater,roads,nationaldefense,protection of
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the economically poor-should be the focus ofcountries with low statecapacity (W orldDevelopment Report, 1997). M oreover, the W orld Development Report (1997) furtherincludes that "social and institutional (including legal) fundamentals [should also beprovided]to avoid socialdisruption and ensuresustained development."
States with more capability provide more than the basic services. At this level, statesperform intermediatefunctions such as managementofnegative externalities,regulationof markets and industries, and the provision of social insurance (W orld DevelopmentReport,1997).M oreover,the W orld DevelopmentReport(1997)argues thatstates withintermediate capability "cannot choose to provide or intervene, but only how best tointervene,since governmentcan workwith partnership with marketsand civilsocietytoensurethatthese publicgoods areprovided."
TheW orld DevelopmentReport(1997)contends that,"states with strong capability cantake on moreactivistfunctions,dealing with the problem ofmissing marketsby helpingcoordination."The experience ofJapan and the EastAsian Tigersindicates thatthe statehas arolein promoting marketsthrough active industrialand financialpolicy.
Source:W orldDevelopmentReport(1997).
Thus,depending onitscapability,agovernmentcan functionas providerofbasicservices(although itmay notbe the onlyprovider),as marketregulatortomoderatethe effectsofmarket failure, as interventionist in the sense that it should coordinate the actions ofmarkets and civil society in effecting more efficient outcomes, or as an activist inlegislating orpromoting active industrialand financialpolicy.
The Philippines iscurrently into allthree levels,assuming the role and performing thefunctions ofastatewithlow,intermediate,and strong capability.Although the PhilippineGovernment has moved on beyond the basic services by venturing into regulation of
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TABLE IFunctions ofthe State
M inimalFunctions
ActivistFunctions
Redistribution
Assetredistribution
Coordinating PrivateActivity
Fostering marketsand clusterinitiatives
IntermediateFunctions
AddressingExternalities
lBasiceducationlEnvironmentalprotection
Regulating
lM onopoliesUtility regulation
lAntitrustpolicy
OvercomingImperfectInformation
lInsurance (health,life,pensions)
lFinancialregulation
lConsumerprotection
Providing socialInsurance
Redistributivepensions
lFamilyallowanceslUnemploymentinsurance
Providing PurePublicGoodslNationaldefenselLaw and orderlPropertyrightslM acroeconomicmanagementlPublichealth
Protecting the PoorlAnti-povertyprogramslDisasterrelief
markets,ithas yetto provide programs thatalleviatethe conditions ofthe economicallypoor, a requirement for the basic functions of the state. M oreover, although a pensionsystem exists, an indication that the country is performing functions beyond the basicservices, the amounts given to the pensioner are insufficient to meet basic needs.Furthermore, the national health care coverage (M edicare and PhilHealth) is insufficient tomeetthe needs ofdestituteindividualsthatrequirehealth services beyond basichealth care.
The Philippine Governmenthas also been implementing assetredistribution through theComprehensive Agrarian Reform Program and land grantsto informalsettlersin urbanareas,an indicationthatthe countryisperforming an activistfunction,acharacteristicofcountries withstrong statecapability.W hat'smore,the governmenthas created trade andexport development councils that are analog to those implemented in East Asianeconomies in the 1990s, although the country has yet to provide the basic servicesrequired ofcountries withlow statecapacityand has yettodeliverthe basicfunctions ofthe state-law and order,propertyrights(e.g.contractualobligations between parties areusuallymuddled in Philippine courts)-in amoreeffective and efficientmanner.
Itseems thatthe Philippine Governmentisperforming alotoffunctions,some ofwhichcharacterize astatewithstrong capability.A closerlook atthe outcomes ofthese activitiesseems to indicatethatthe Philippine Governmentistaking on functions thatitisnotyetcapableof,atleastgiven the definitionofastatewithstrong capabilityand given the factthatthe economically poorare notadequately protected and provided for,and thatlawand orderisstilltenuous.
III.2System s ofTransparency and Accountability1
The key to achieving transparency and accountability in governance isto find rules andnorms thatcreatethe appropriateincentives forstateagencies and officialsto actin thecollective interestwhilerestraining arbitraryaction.Thiscan be achieved through:
l Rules and restraints, such as an independent judiciary, are mechanisms forenforcing the rule of law, which are critical foundations for sustainabledevelopment.Appropriateseparation ofpowersand the presence ofwatchdogbodies also restrainarbitrarybehavior;
l Building accountabilitynecessitates formalmechanisms ofrestraint,anchoredin corestateinstitutions;
l Power can be divided - executive, legislative, judiciary, or among central,regional,provincialorlocalgovernments;
l The broaderthe separationofpowers,the greaterthe numberofvetopointsthatcan check arbitraryaction(although multiplevetopointscan make itas hardtochange the harmfulrules as the beneficialones);
l Inmany developing countries legislative and judicialoversightofthe executivebranch is weak - the setting of goals and the links to the policies needed toachieve them are som etim es diffused, legislators suffer from lim itedinformation and capability (and in the Philippines, most members of thelegislature are corrupt and/or incompetent), and judicial independence iscompromised;
l An independent judiciary is vital to ensure that the legislative and executiveauthorities areaccountableunderthe law,and tointerpretand enforcethe termsofthe nation'sconstitution (i.e.supreme courtjustices mustbe appointed forlifeand appointmentsmustgo through arigorous process);
1The discussionon"Systems ofTransparency and Accountability" istaken from the W orldDevelopmentReport
(1997).
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l Formalchecks and balances can helptoreduce,butareseldom enough,so thatreforming the civilservice,restraining politicalpatronage,and improving civilservicepay may be needed toreduce corruptionby giving publicofficialsmoreincentive to play by the rules.
Competitive pressure can come from within the government bureaucracy throughrecruitmentofcivilservantsonthe basisofmerit.Itcan also come from the privatesectorby contracting outservices and allow privatefirms tocompetewithgovernmentagenciesin the provision ofgoods and services.Itcan come from the internationalmarketplace,through trade and the influence ofglobalbond marketson fiscaldecisions as well.
l Government agencies should be free from political interference, must havelimited butclearobjectives,given adequateresources and training,and the staffmustbe wellcompensated;
l Cross-country evidence indicates that bureaucracies with more competitive,merit-based recruitment and promotion practices, and better pay are morecapable;
l Political appointments must be the exception, not the rule, so that the statebureaucracy relies on highly competitive recruitmentand apromotion systemthatexplicitlyrewards merit(ongoing reforms inthe Philippines areexaminingthese issues in an effortto improve bureaucraticcapability);
l Countries with weak capacity need first to strengthen rule-based complianceand financialaccountabilitywithin the publicsector,provide greaterclarityofpurpose and task,and introduce performance measurement;
l As outputmeasurementand ex-postcontrolson inputsarestrengthened,stateagencies can be provided moreflexibilityinexchange ofgreateraccountabilityfor results (for countries with weak capacity and inadequate controls,governmentexecutives thataregiven moreflexibility may resultto increasedarbitrariness and corruption with no com m ensurate im provem ent inperformance).
Voice and partnership is the means to achieve transparency and openness in modernsociety and governance, such as business councils, interaction groups, and consumergroups. Institutional working arrangements with community groups can contribute togreater state effectiveness by giving citizens a greater voice in the formulation [andimplementation]ofgovernmentpolicies.
l Governmentsaremoreeffective when they listen tobusinesses and citizens andworkin partnership with them in deciding and implementing policy;
l Even the best-intentioned government is unlikely to meet collective needsefficientlyifitdoes notknow whatthe people'sneeds are;
l Governmentprograms workbetterwhen they seek the participationofpotentialusers,and when they tap the community'sreservoirofsocialcapitalratherthanworkagainstit;
l Policy-making should be embedded in consultative processes,which providecivil society, labor unions, and private firms opportunities for input andoversight;
l Decentralizationcan improve the qualityofgovernmentand the representationoflocalbusiness and citizens'interests.
III.3 Legaland JudicialCapacityThe Philippines mustdemonstrateacredibleruleoflaw.W riting laws israthereasy whileenforcing them are fraught with problems, especially when the independence of the
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judiciary is com prom ised (W orld Developm ent Report,1997). The PhilippineGovernmentcan reinvigoratethe publicsectorthrough the containmentand reductionofopportunities forcorruption by cutting back on discretionaryaction and authority.
The firststep in ensuring acredibleruleoflaw isto have aconstitution thatprotectsthebasic rights of persons (natural or juridical) and to have institutions that interpret andimplementthese laws as they are.Onlywhen arbitraryactions and discretionaryauthorityarerestrained,the Philippines can achieve some semblance ofjustice-the demonstrationofacredibleruleoflaw.The second step istoenhance the institutions ofrestraintbecausesuch things take tim e to develop and establish them selves, while internationalcommitmentmechanisms may help to fillin the gap even as the state'slegaland judicialinstitutions develop through international adjudication guarantees from internationalagencies (W orldDevelopmentReport,1997).
W hen corruption is entrenched, as in the case of the Philippines, efforts that are moredramaticareneeded touprootit,and these effortsshouldbe focused onbettermonitoringofofficialaction-bothby formalinstitutions and by individualcitizens -and punishmentof wrongdoing in the courts (W orld Development Report, 1997).The Department ofJusticeand the Officeofthe Ombudsman aretwo agencies thataresupposed to interpretand implementthe ruleoflaw in the Philippines.The historyofboth agencies islitteredwith corruption and ineptness, which have fostered skepticism and ridicule among thegeneral public with regard to the rule of law in the Philippines. M oreover, Philippinecourtsarefamous fortheirslowness inlitigationand taking actionagainstthose thatbreakthe rules and laws ofthe land.Corruption,despiteclaims to the contrary,isnotculturespecific,and reducing itwillrequireamulti-pronged approach,which mustinclude theprivatesectorand the civilsocietymorebroadly(W orldDevelopmentReport,1997).
III.4 Standards and Indicators ofStateCapacity2
To ensureeffective institutions,the Philippine Governmentmustsupplyeffective marketsupporting institutions and createthe demand forsuch institutions (i.e.agencies,systems,and mechanisms). The following are examples of how to ensure the effectiveness ofinstitutions in effecting socioeconomicdevelopment:(a) Design institutions tocomplementwhatalready exists-interms ofothersupporting
institutions,human capabilities,and availabletechnologies;(b) Innovateto design institutions thatworkand drop those initiatives thatdo not;(c) Connectcommunities ofmarketplayersthrough open informationflows and open
trade;(d) Promotecompetition among jurisdictions,firms,and individuals.
III.5 StateIntervention in Socioeconom icDevelopm entThe economicrationaleforstateintervention usuallyrevolves around marketfailureandthe concern for equity. M arket failure results when "a market left on its own fails toallocate resources efficiently" (M ankiw,1998). M ost of the discussions supportinggovernment regulation stems from market failure with an implicit assumption that the"process of government intervention is costless or, at the least, its benefits exceed thecosts" (W eidenbaum, 1995). The following situations are some examples with varyingdegrees ofmarketfailure.
2The discussionon"Standards and IndicatorsofStateCapacity" istaken from the W orldDevelopmentReport(2002).
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The state,even one with alow statecapability,istasked to provide publicgoods,whicharenon-rivaland non-excludable.These characteristics make itinfeasibleto charge feesforthe use ofpublicgoods,which means thatprivatesuppliersdonothave the incentivetosupplythem (W orldDevelopmentReport,1997).Inthiscase,publicgoods necessitatethatthe governmenttakes an interventionistroleby providing the publicgoods thatthepeopleneed.Examples ofpublicgoods arenationaldefense and ruralroads.
Common property goods are rival but non-excludable so the government and privateinvestorscan sharethe costofproviding such goods (W orldDevelopmentReport,1997).Common propertygoods,such as irrigationsystems forafarming communityorLevelIIwater supply systems (public faucets) for an urban community, can be operated andmaintained by the users.The governmentsimplyprovides the basicinfrastructure,whilethe community shoulders the maintenance and other operating expenses.Although thegovernmentintervenes toprovide the basicgoods atthe outset,itsinterventionislimited.
Club goods arenon-rivalbutexcludable.So privateinvestors,with some help from thegovernment,may be persuaded to provide club goods,such as tollroads and inter-urbanhighways, which directly benefit some motorists and certain communities (W orldDevelopm ent Report,1997). In this case, the governm ent sim ply prom otes theundertaking by asking forbids from the privatesectortoundertake such projectsthroughbuild-operate-transfer (BOT) and other related financing schemes. Since toll and otheruserfees willbe collected forsuch facilities tocoverthe costsofconstruction,operation,and maintenance,the privatesectorhas the incentive to supplyclub goods.
Externalities arise when the actions of an individual or a firm hurt or benefit otherswithoutthatindividualorfirm paying orreceiving compensation (W orld DevelopmentReport,1997).Negative externalities,such as pollution,may be solved by using Pigoviantaxes ortradablepollution permitsorregulating the industry(M ankiw,1998).Thus,thegovernmentmay eitherregulatean industry thatproduces negative externalities ormaysimplyintervene to moderatethe effectsofsuch externalities by using Pigovian taxes ortradablepollutionpermits.Positive externalities,such as technology transferand primaryeducation,benefitsocietyas awhole.Insuch cases,the governmentand the privatesectormay share in the provision of such goods (primary education) or the government maysimply provide incentives or subsidies to the private sector to adopt or develop newtechnologies.
Governmentregulationmay be desirablewhen the industryisanaturalmonopolyinorderto protect the public from monopolistic firm behavior. However, W eidenbaum (1995)argues that natural monopoly is only "natural" in a given technological or economicenvironment. That is, today's monopoly can become tomorrow's competitive industry(e.g.US railroads now competewith trucking and barges formoving cargo).M oreover,changes in technology and marketshave created new scope forcompetition in servicesonce considered monopolies (W orld Development Report, 1997), such as in powergeneration and transmission,postalservice,airlines,and telecommunications.Thus,thegovernmentmay simplyprovide the rightmixofincentives toenticethe privatesectortotake on services thatthe governmentused to provide.
Incompletemarketsand imperfectorasymmetricinformationarepervasive problems thatmay result in inefficient outcomes (W orld Development Report,1997). A number of
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countries have sought to address these problems by ensuring widespread coverage inhealth,unemployment,and othersocialinsurance;and holding down costsonmedicationby implementing price controls of ethical (prescription) drugs or the introduction ofgeneric drugs. Governments have addressed these problems by regulating privateinsurance,financing ormandating socialinsurance,orby directly providing healthcare(W orld DevelopmentReport,1997).
Promoting equity may compelgovernmentsto intervene even in the absence ofmarketfailure(W orld DevelopmentReport,1997).Competitive marketsdo notalways resultinequitableand sociallyacceptableoutcomes.Persons with limited assetsmay be leftwithinsufficientresources to achieve socially acceptableliving standards.Thus,governmentintervention may be required to protectthe economically,socially,and politically weakthrough assetredistribution ordirectpayments.
IV.ADM INISTRATIVE CAPACITY O F TH E STATEThe state is tasked to promote the well-being of its citizens by having a socialinfrastructure-the collectionoflaws,institutions,systems,and governmentpolicies thatmake up the economic environment that helps the country attain its potential. Socialcapability refersto the various institutionalarrangementsthatsetthe framework fortheconduct of productive economic activities without which market economies cannotfunction effectivelyand efficiently(Snowdon and Vane,1999).Capability,in general,isthe abilityofthe stateto take on and fostercollective actions such as law and orderandbasicinfrastructuretosupportsocialand economicdevelopment,whileeffectiveness isaresult of state capability in meeting society's demand for basic services (W orldDevelopment Report,1997). In the Philippines, agencies and institutions have beenestablished to assistthe governmentin helping the country to achieve itspotentialwithregardtosocioeconomicdevelopmentand deliveryofbasicservices tothe people,amongothers. Thus, the administrative capacity of the state to promote socioeconomicdevelopment rests on the interplay and dynamism of a network of agencies andinstitutions in the government and the private sector to promote investments in capitalprojects and social programs, as well as the capability, effectiveness and efficiency ofagencies and institutional arrangements that transpire in the course and conduct ofdevelopment-oriented activities.
Inordertopromoteinvestmentsthatsupportsocioeconomicdevelopment,the PhilippineGovernmenthas setup agencies and institutions to review,approve,implementprojects,and facilitatelegislation thatsupportthese projectsand programs.Therearethreemajorinstitutions - the Investment Coordination Committee (ICC), the Legislative ExecutiveDevelopmentAdvisoryCouncil,and the DevelopmentBudgetCoordinationCommittee-thatfacilitate,recommend,orreview governmentprojectsand programs geared towardssocioeconomicdevelopment.The institution thatoversees the majorcapitalinvestmentsofthe governmentisthe ICC.3 The ICC isamulti-agency working group thatreviewsthe fiscal,monetary,and balance ofpaymentsimplications ofmajorcapitalprojects.
IV.1 ProjectReview and ApprovalThe ICC follows athree-step projectreview and approvalprocess,which can take aroundtwo-and-a-half months. Upon submission of the required documents by the proponent3 The Appendixcontains amoredetailed discussiononthe mandateand functions ofICC.
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agency to the ICC Secretariat,the ICC TechnicalBoard (ICC-TB)takes around fourtosixweeks to conductprojectevaluation and preparethe projectevaluation report(PER).The ICC review process breaks down when the ICC-TB and ICC Cabinet Committee(ICC-CC)take too long in reviewing a project,which may happen due to a numberoffactorsincluding
l non-inclusionofthe proposed projectinthe listofpriorityprojectsforthe year;l technical flaws in the project proposal that are difficult to resolve or require
inter-agency consultationforthe resolutionofproblems;l the proponent agency lacks the institutional mandate to undertake such
projects;l the proponentagency lacks the institutionalcapacity to undertake the project;
orl there are insufficient budgetary appropriations for the proponent agency to
undertake the projectin the currentyear.
Once the PER is complete, the ICC Secretariat furnishes the proponent agency with acopy so thatthe agency isableto respond to the issues raised in the PER.Thisexercisetakes atleastone week to completeand may take longerthe proponentagency isunableto complysatisfactorilywith regard to the issues raised by the ICC-TB.Projectsthatarenotapproved atthe ICC-TB are remanded back to the ICC Secretariatfortechnicalorotherrevisions so thatitcan be taken up in the nextICC-TB meeting.
Assuming thatallgoes wellwith the ICC-TB and the proponentagency during the post-PER process,the ICC Secretariatthen forwards the projectforfurtherreview by the ICC-CC,which deliberates on the meritsofthe proposed project.Thisprocess takes atleasttwo weeks since thereareonly two ICC-CC meetings in amonth.Projectsthatarenotapproved at this level are scheduled for further deliberations in the next ICC-CCmeetings,whilethose thatareapproved areforwarded to the nextNEDA Boardmeetingfor formal approval and budgetary appropriations for the next fiscal year. The NEDABoard approval may take one month because it only meets in the second week of themonth,which means thatprojectsthatarenotapproved by the firstweek ofthe montharescheduled fornextmonth'smeeting.Thus,although the ICC review and approvalprocesstheoreticallytakes two-and-a-halfmonths,itcouldtake longerdue tofactorsthatmay bebeyond the controlofthe ICC Secretariatand the proponentagency,which means thatthesystem is flawed and needs to be more flexible to accommodate priority projects andprograms forimmediateapprovaland implementation.
IV.2 Interagency CoordinationThe legislative and executive branches jointly undertake investment planning anddecision-making. In theory, there exists a detailed legislative involvement in thepreparation of the M edium-Term Philippine Development Plan (M TPDP) and itsattendant document, the M edium-Term Philippine Investment Plan (M TPIP), and thediscussionofthe BudgetofExpenditures and Sources ofFinancing (BESF),although thelegislature has shown limited commitment to the objectives of the medium-term planbecause Congress has failed to approve the M TPDP (Systems and Gap Analysis,1997).Nevertheless, the main institution that oversees the coordination of developmentalactivities in the two branches ofgovernmentisthe Legislative Executive Development
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Advisory Council(LEDAC).4 The LEDAC istasked,among otherthings,to facilitatethe passage ofprioritylegislation thatsupportssocioeconomicdevelopmentplanning sothat such activities that promote economic development are given annual budgetaryappropriations.M oreover,the LEDAC provides amechanism forfacilitating consensusbetween the legislative and executive branches on various socioeconomic goals andobjectives ofthe currentadministration.The creationofconsultative forums,such as theLEDAC and joint technical working groups and committees in various levels of thegovernment bureaucracy, is a positive development towards building transparency andconsensus among key agencies and institutions (Systems and Gap Analysis,1997).
Although onpaperthe LEDAC isagood avenue whereinthe goalsand objectives oftheexecutive branch with regard to programs and projectsforsocioeconomicdevelopmentarecoordinated with the budgetary appropriation exercises conducted by the legislativebranch,the process may become dysfunctionaldue to the divergentpriorities ofthe twobranches ofgovernment.The Philippines isone ofthe mostpoliticized countries when itcomes to appropriating budget for programs and projects. Congresspersons and otherpoliticians exertpressureon the executive branch through the implementing agencies toaccommodatetheirprojectsin theirdistrictsorconstituencies,which may notbe in linewith the priorities set by the present administration. W hen this happens, the LEDACbreaks down as an institution that coordinates socioeconomic plans with budgetaryappropriations and becomes avenue wherein the executive branch becomes exasperatedwith the myopic concerns and fragmented approach to national development of thelegislative branch.The consequences ofsuch dysfunctionalbehaviorsmay be the non-passage of legislation that facilitates socioeconom ic plans or the inclusion ofcongressional or politically motivated programs and projects that do not contribute tosocioeconomic development in a national or regional scale. Though fraught withproblems initsimplementation,the LEDAC isstillapositive step towards aconsultativeand moreinclusive form ofgovernance,which helps to improve the capacityofthe statein achieving itsgoalsand objectives foreconomicdevelopment.
Complementing the functions of the LEDAC in the area of expenditure levels forprograms and projects is the Development Budget Coordination Committee (DBCC).5
The DBCC is tasked to recommend for approval of the President the level of annualgovernmentexpenditureprogram and the ceiling ofgovernmentspending foreconomicand social development, among other things. The DBCC also recommends to thePresident the proper allocation of expenditures for all development activities for thevarious infrastructureorcapitalprojects.Thus,the LEDAC promotes the facilitation ofsocioeconomicprograms and projectsthrough legislation,whilethe DBCC recommendsthe annualbudgettobe spentonprograms and projectsthatcontributetosocioeconomicdevelopment.The ICC,LEDAC,and DBCC areinstitutions thatseek to coordinatethesocioeconomicinvestmentactivities ofthe governmentinordertoimprove itscapacitytoattract more investments to finance programs and projects that improve the country'ssocioeconomic infrastructure. These institutions enhance the administrative capacity ofthe statebecause they promoteinteragency cooperation thatleads to amorerationalandcoherentinvestmentprogram.
4 The Appendixcontains amoredetailed discussiononthe mandateand functions ofLEDAC.5The Appendixcontains amoredetailed discussiononthe mandateand functions ofDBCC.
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There has been quite a debate with regard to how big a governmentshould be orwhatservices it should provide and the kind of interventions to make in order to promoteeconomic developmentthat'sputting thisdebate to restmay mean taking a look attheexperiences ofstates inthe lastcenturythatwas characterized by robusteconomicgrowthand developmentin NorthAmerica,Europe,Australiaand New Zealand,and EastAsia.The history of the developing and evolving states tends to show that industrializedcountries,in general,have spentmoreon governmentservices as aproportion ofgrossnational product than lower income countries (W orld Development Report, 1996). Tofurtherthisargument,Bertucciand Alberti(2001)contend thatintelligentstates intervenestrategicallyby creating the conditions thatpromote[economic]growth.
IV.3 Investm entProm otionThe Philippines vigorously promotes investment activities that lead to socioeconomicgrowth and developm ent through the aforem entioned institutions that facilitateinvestmentsand,moreimportantly,through itstwo majoragencies thatdirectlypromoteinvestmentpolicies and programs -the Board ofInvestments6 (BOI)and the PhilippineEconomic Zone Authority7 (PEZA).As the lead agency in promoting investments,theBOI assists Filipino and foreign investors to venture and succeed in desirable areas ofeconom ic activities such as in food processing, construction, m etal products,telecommunications, power and infrastructure projects, among others. The BOI isresponsibleforthe policies and incentives thatgoverninvestmentsinthe country,localorforeign.On the otherhand,the PEZA istasked to contributeto the accelerated creationofemploymentand othereconomic opportunities,especially in the countryside,and tospurthe growthand diversificationofexportsby encouraging and supporting investmentsin the developmentand operation ofeconomic zones.The PEZA regulates the policiesand activities ofthe differentspecialeconomiczones inthe country,which areusuallythevenue of direct foreign investments and complement PEZA's functions by promotingtheirown suitabilityand attractiveness as destinations forforeign investments.
The delineation of functions between BOI and PEZA is unclear since both promoteforeign trade and investmentsalthough the formerismoregeneralthan the latter.Buttheapparentoverlap inthe functions ofBOIand PEZA may be asourceofconfusionamongforeign investors or worse. In case of the foreign investors required to deal with bothagencies, the investment process may prove to be more cumbersome, which coulddiscourage directforeign investmentsfrom flowing intothe country.Thus,thereisaneedto rationalize the mandates and functions of BOI and PEZA to prevent overlappingjurisdictions in policy-making and implementation regarding the country's investmentactivities.
IV.4 Investm entPlanning and CoordinationTo furtheritsobjective ofpromoting investmentsinkey areas ofeconomicdevelopment,the Philippine Government annually conducts an interagency investment planningexercise called the Investment Priorities Plan8 (IPP). The IPP is the government'sblueprintforpriority programs and projectsin a fiscalyearand isupdated annually toreflectthe developing priorities ofthe governmentwith regard to socioeconomicsectorsin aglobalenvironment.
6The nextsectioncontains amoredetailed discussiononthe mandateand functions ofBOI.7The nextsectioncontains amoredetailed discussiononthe mandateand functions ofPEZA.8The Appendixcontains amoredetailed discussiononthe mandateand functions ofIPP.
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The IPP is divided into national and regional lists. The national list includes exportactivities,mandatoryinclusions underexisting laws,and supporttogovernmentprogramsfrom livelihood, infrastructure and environmental projects to social and culturalprograms. The regional list includes industry clustering endorsed by the Small andM edium Enterprise Development(SM ED)Counciland priorityprojectsformarginalizedand autonomous regions in the country.The SM ED Council,with the help ofBureau ofSmall and M edium Business Development (BSM BD), is helping small and mediumenterprises (SM Es) to better prepare for the coming globalization by reviewing andformulating policies and proposed legislative bills affecting the country's SM Es. TheBSM BD supports the SM ED Council through the conduct of policy researches andstudies on SM Es, preparation of position papers, interagency coordination,implementation and enforcement of policies, and monitoring of the implementation oflaws concerning SM Es.
The IPP embodies broad objectives foracompetitive economy thatiscapableofbuildingwealthforthe countryinamoreinteractive globalsetting and arobustagriculturalsectorthat matches the global standards of efficiency. The IPP identifies specific priorityeconomicareas and strategicactivities thatareabletosustaineconomicdevelopment.Ina way, the IPP contains a coherent investment plan of the government to effect andpromote economic development that strikes a balance between national and regionaldevelopment, which may help the government to attract more investments in theidentified priority sectors. Nevertheless, Patalinghug (1992) observes that the IPPcontains too many "priority areas", 261 in 1990 and 95 in 1991, whereas the SouthKorean Government was more selective by being more narrowly focused. Althoughstrategic in its importance in achieving a rational and coherent investment plan, theprocess of including programs and projects in the annual IPP is compromised whencongresspersons and other special interest groups pressure the executive branch inincluding programs and projectsthatbenefitonly certain districtsand constituencies tothe detrimentofthe restofthe country.W hen the programs and projectsfavored by thepoliticians runcontrarytothe priorityprograms and projectscontained inthe M TPDP andM TPIP,the process thatgoverns the IPP becomes an exercise in futility.
IV.5Revenue Collection and Expenditure Program sThe government has been implementing reforms with regard to revenue collection toimprove itseffectiveness and efficiency in increasing itscoffersto supportitsprogramsand projects. To this end, the Bureau of Internal Revenue (BIR) and the Bureau ofCustoms (BOC),the two mostimportantrevenue collectionagencies ofthe government,are rationalizing theircollection mechanisms and improving theirincentives forpropertax payments and collection of duties from businesses and individuals. Both agencieshave started using information and communication technologies (ICTs)to supporttheiroperations and improve the deliveryofservicetotheirclienteleand the generalpopulace.Despitethe government'seffortstoboostitsrevenue collection,governmentexpendituresstilloutstripgovernmentrevenues.The revenue-expendituregap necessitates the infusionoflarge amountsoffinancing from foreign sources,as wellas from domesticborrowing.Improving tax policy and administration is the key to close the revenue gap (W orldDevelopmentReport,1996),although the gap isexpected tocontinue given the increasingdem and for governm ent services stem m ing largely from the country's runaway
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populationgrowthrateand antiquated servicedeliverysystems.Thereisapending billinCongress tocreatethe NationalAuthorityforRevenue Administrative (NARA)toreplaceBIR and to strengthen tax administration.
Granted thatthe governmentwillbe abletosellstateassetstofinance itsever-increasingrevenue shortfalls, it is expected that it will continue to rely on foreign borrowing tofinance mostofitsmajorcapitalprojects(M CPs)forthe foreseeable future,especiallywhen thereareno longerany assetsto sell.The onlyway forthe governmentto stem itsgrowing revenue shortfallisto improve itsrevenue collection capability and implementprudence in itsexpenditure programs.Thus,there isa need to reform the agencies andinstitutions thatreview,approve,plan,and program publicinvestmentssuch as the ICC,DBCC,LEDAC,and IPP.The governmentshoulddiscipline itselftodrafting investmentand expenditure programs closely linked to its level of revenues (from collection andborrowing)so thatgovernmentresources arenotrationed among expenditureprograms(Systems and Gap Analysis,1997).Thismatching ofrevenues withexpenditureprogramswill help the government to achieve efficiency because it will be forced to select andimplement programs and projects that have the highest impact on socioeconomicdevelopment to maximize the use of its scarce resources. (Low-impact programs andprojects with regard to socioeconomic development will have to wait until enoughresources areavailableforsuch projects.)Thisexercise willhelpthe governmentimproveitscapacity in projectselection and implementation,which may go along way in termsofpromoting and realizing socioeconomicdevelopmentin the long term.
IV.6FiscalM onitoring and Evaluation SystemThe Philippine Government'sefforttorationalize itssupportforgovernmentcorporationsisone way ofimplementing prudence initsexpenditureprograms.In1994,the CorporateAffairsGroup ofthe DepartmentofFinance (DOF-CAG)submitted the finalreportonthe FiscalM onitoring and Evaluation System EnhancementProject(referred to as "theProject" in the remainder of the text) as part of the Reform Program for GovernmentCorporations.
The Projectwas pursued tostrengthen and institutionalize the CorporateConcerns Officeofthe DOF-CAG'sexisting system ofmonitoring and evaluating the financialoperationsof retained government-owned-and-controlled corporations (GOCCs) and governmentfinancial institutions (GFIs), especially with respect to the economic management offiscalresources.One ofthe outputsofthe Projectisafinancialinformation system thatwillprovide databases forthe purpose oftracking corporateperformance,as wellas forpolicy analysis.The evaluationprocedures centeronthe financialaspectofthe operationsofGOCCs and GFIs,which isofparamountimportance when itcomes toevaluating therequestsofGOCCs and GFIsforbudgetaryassistance from the nationalgovernment.
W iththe fiscalmonitoring and evaluationsystem inplace,the nationalgovernmentwouldbe ableto objectivelyevaluatewhetherornotitisin the bestinterestofthe countryandofthe nationaleconomy tocontinue infusing huge amountsofresources tothe financiallystrapped GOCCs and GFIs that usually ask for financial support. (Perhaps, the newsystem will help the government decide on the fate of the GOCC or GFI in question,whetheritshould continue in itsoperations orjustbe shuttered.)Implementing reformsthatwillhelpthe GOCCs and GFIstoefficientlymanage theirfiscalresources may mean
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less reliance on the nationalgovernmentforbudgetarysupportand capitalprojects.Theeffectwould be less financialburden on the partofthe nationalgovernmentsince someofthe retained GOCCs and GFIsmay no longerrequire governmentinfusion once thereforms are implemented. This means that the national government can have moreresources (because ofthe freed upresources stemming from the reforms tostreamline theoperations of GOCCs and GFIs) to spend on other activities, such as programs andprojectsthatfurthersocioeconomicdevelopment.
IV.7 O fficialDevelopm entAssistance (O DA)The Philippine Governmenthas historicallyrelied onforeign assisted projectstodevelopits economic infrastructure (Systems and Gap Analysis, 1997). Since the IPP containsgoals and objectives geared towards economic development that necessitate largeamountsofresources -monetaryorotherwise the countryregularlylooks forforeign aidto fulfill its capital requirements. To this end, the Philippines benefits from loans andgrantsfrom multilateraland bilateralfinancing agencies.The countryreceived an averageofUS$ 4,418 million as officialdevelopmentassistance 9 (ODA)from multilateralandbilateralagencies during 1988 to 2001(see Figure1).
The GovernmentofJapan,through itsloan and grantprograms,contributes an average ofUS$1,828 million annually in ODA for the aforementioned period and is the country'sbiggestsourceofaidfinancing.Japan'sODA contributions have increased morethan 128percentbetween 1988 and 2001.The contributions ofW orld Bank (W B)and itsvariousagencies have dwindled through the years,from ahigh ofUS$2,062millionin1993toalow of US$741 million in 2001, averaging US$1,598 million during 1988 to 2001.Between 1989 and 2001,the W B'sannualcontributions were down almost33 percent.The Asian DevelopmentBank (ADB)has been steadilyincreasing itsODA contributionsto the country during the same period, averaging US$1,107 million annually. In 2001,ADB contributed US$1,432 million in ODA, which was 162 percent more than its
9The basicdatawereprovided by the ProjectM onitoring Staffofthe NationalEconomicand DevelopmentAuthority.
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OfficialDevelopm entAssistanceDisbursem entLevels
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contribution made thirteen years earlier. ODA from other multilateral and bilateralagencies isnotan importantsource ofexternalfinancing to the country,although theircontributions have increased morethan 18percentbetween 1988and 2001,averaging justUS$226 million annuallyforthe period.
M ost projects funded by the Government of Japan, W B, and ADB are large multiyearcapitalinvestments.Otherinstitutions such as the United Nations DevelopmentProgramand bilateral agencies usually finance social projects that relate to poverty alleviation,human resourcedevelopment,institutionalcapabilitybuilding and institutionalreforms,among others.Indeed,developmentassistance plays amajorroleinthe country'sdrive foreconomic development,butexternalsupportsuch as aid financing may achieve little ifthe Philippine Government's will to reform is weak, or worse or non-existent (W orldDevelopmentReport,1997).
Despite the huge amount of development assistance that flows into the country everyyear,the donoragencies'proclivityto finance certain projectsin specificsectorsoftheirown choosing withoutregardtothe priorities setinthe M TPDP,M TPIP,and IPP may beproblematic. In relying largely on foreign-assisted projects to contribute to economicdevelopment,the governmentmay attimes implementprojectsthatithas been forced intobecause of the donor agencies' preferences, which may not at all contribute to themedium-term plan ofthe country.Thus,despitethe huge infusions offoreign aidintothecountryeveryyear,the programs and projectsthey finance sometimes do notbenefitthelarger population and only contribute to the increasing m arginalization of theeconomicallypoorand the politicallyweak.
Figure2compares the levelofscheduled and actualavailmentofODA.The graph showsthatthe gap between the actualand the scheduled levelofavailmenthas been wideningin the past fourteen years. This may be a telling sign that implementing agencies areinefficientin utilizing availableODA financing,butitcould also mean thatanumberofthe government's priority programs and projects are not supported by the funding
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OfficialDevelopm entAssistanceScheduled vs.ActualAvailm ent
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agencies (i.e. the funding agencies have not identified these projects in their list ofpreferred programs and projects).To make mattersworse,the governmentpays penaltiesand fees annuallyforthe un-drawn amount.As the gap between funds usage and availablefinancing widens,the penalties and fees thatthe governmentpays also increase.The rateatwhich implementing agencies use up theirscheduled ODA financing,ceterisparibus,may be connected totheircapacitytoimplementprojectsefficientlyand effectively.Thewidening gap may be indicative that the institutional capacity of some implementingagencies to carryouttheirmandates and functions isdeteriorating.
Figure 3 complements the previous discussion on ODA availment gap by showing theannualutilization rateofODA.The graph shows the deteriorating ODA utilization ratethrough the years,which may be related to institutionalinefficiency and ineffectivenessofimplementing agencies,the incompetence ofagencies and institutions involved in theplanning, programing and disbursement of ODA, or the proclivity of financinginstitutions for certain programs and projects that may be different from the priorityprograms and projectsofthe government.
The deteriorating ODA utilization rateneeds to be abated so thatthe country isabletospend the maximum amount of available ODA in any given year to speed up theimplementation and completion of its priority programs and projects that redound tonational development, economic or otherwise. M oreover, the financing institutionsshould not prescribe the programs and projects the government should undertakeespeciallywhen the financing agencies'preferences runcontrarytothe priorities setintheM TPDP,M TPIP,and IPP.Thus,the governmentshould secureloans and grantsthatarenottied tothe preferences offinancing agencies orthe technology and services providedby the country of origin of financing institutions. M oreover, the W orld DevelopmentReport (1997) furthers that foreign aid needs to be tied more closely to the recipientcountry's policies [and programs] in order to be more effective. To this end, thegovernmentneeds morebargaining skillstoeffectthe needed changes inhow foreign aidisutilized and maximized.
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OfficialDevelopm entAssistanceUtilizationRate(1988-2001)
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IV.8 ProjectIm plem entation and M onitoringThe monitoring mechanism employed by the government is biased towards foreign-assisted projects (FAPs), which means that locally funded projects (LFPs) are notaccorded with the same scrutiny and attention when itcomes to projectmonitoring andfunds usage.M oreover,the procedures forthe selectionand managementofLFPs arelessrigorous and less welldefined (Systems and Gap Analysis,1997)than those employed forFAPs. This bias is detrimental to the overall implementation of projects because FAPsusuallyhave locallyfunded counterpartprograms and projects.Thus,itisnotuncommonto have FAPs thatend upnotbeing implemented welldue toill-advised and ill-managedlocal counterparts. Sometimes the implementing agency of a FAP does not have thecapability of operating and maintaining the project once it is complete, which oftenresults in underutilized infrastructure or worse, unusable facilities due to inadequateresources (institutionalcapability,financial,orotherwise)foroperationand maintenance.
The prevalence ofprojectswithcostoverruns also indicates or,atthe least,suggeststhatincentives areperverse (Systems and Gap Analysis,1997).Corruption and fraud arenotuncommon in the implementation of large infrastructure projects, and the country'sjudicialsystem isweak orineffective in bringing erring governmentofficialsand otherparties to court. In a way, the lax implementation of the rule of law does not act as adeterrent to fraudulent activities. The Systems and Gap Analysis Report (1997) alsosuggeststhatthe PHP300-million threshold forprojectsiscounterproductive because itencourages implementing agencies to fragmentprojectsin orderto evade ICC scrutiny.Fragmenting projectsin orderto evade the PHP300-million rule may resultin projectsthatarenevercompleted because ofthe inability ofthe implementing agency to securethe required financing forthe next"fragment"ofabiggerproject.Thus,the ICC projectreview and approvalprocess,though commendableintheory,isfraughtwithproblems atthe projectplanning and implementationlevels.
IV.9Trade and IndustryIn itsdrive to become anewlyindustrializing economy by the year2000,the PhilippineGovernment, in 1996, created the Industry Development Council (IDC) to formulatepolicies thatrationalize the government'sindustrypromotionand developmentprograms,periodically review and assess the performance ofthe country'svarious industries,andrecommend toCongress any legislationthatcontributes tothe developmentofPhilippineproducts (Patalinghug, 1997). In theory, the IDC with its emphasis on industrial andinvestment policies of the government complements the objectives contained in theM TPDP and M TPIP.
To further the country's industrial activities, the Department of Trade and Industry10(DTI)leads the domesticinvestmentactivities,and the industryand trade promotions ofthe government. The DTI acts as a catalyst for intensified private sector activity toaccelerate and sustain economic growth through a comprehensive industrial growthstrategy. The agency also seeks to promote a progressive and socially responsibleliberalization and deregulation program, and policies designed for the expansion anddiversification ofboth domesticand foreign trade.W ith regard to foreign trade,the DTIspearheads the ExportDevelopmentCouncil(EDC),which oversees the implementationofthe Philippine ExportDevelopmentPlan (PEDP)and coordinates the formulation and10 The nextsectioncontains amoredetailed discussiononthe mandateand functions ofDTI.
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implementationofpolicy reforms tosupportthe Plan.The EDC isempowered toapprovethe PEDP;coordinate,monitorand assess the implementation ofthe PEDP and instituteappropriateadjustmentsinordertoadapttochanging conditions inboththe domesticandinternational environm ents; periodically review and assess the country's exportperformance,problems,and prospects;identifythe main bottlenecks,problem areas andconstraints in all areas that influence export development, such as policy framework,physical infrastructure, finance, technology, promotions and marketing; among others. TheEDC is an institution that has the potential to enhance the country's capacity to seize theopportunities thatmay resultfrom increased trade and the coming globalization by involvingboth governm ent and non-governm ent agencies and institutions in the growth anddevelopmentofthe country'sexportsector.The IDC and EDC arethe Philippines'institutionalcounterparts to EastAsia's "deliberation councils", which provide a forum for governmentpolicy formulationand implementation,as wellas forconsensus building (Patalinghug,1997).
Complementing the EDC on the domestic front is the Domestic Trade DevelopmentCouncil(DTDC),created in1999underDTI,which takes careofindustries leftoutintheEDC and IDC (Patalinghug,1997).The IDC,EDC,and DTDC areinstitutions thathavebeen created to ensurethatthe industrialand trade policies ofthe countryarerobustandresponsive tothe ever-changing globaleconomy and aremeanttoenhance the PhilippineGovernment'scapacity and effectiveness in realizing the gains from freertrade thatwillcome with increasing globalization and atthe same time mitigatethe negative effectsofglobalization in the othersectorsofthe economy.
The three"deliberationcouncils" areinstitutions thatarecapableofenhancing statecapabilitybecause governmentsaremoreeffective when they listen tobusinesses and citizens and workin partnership with them in deciding and implementing policy (W orld DevelopmentReport,1997). But in order for the country to have a coordinated industry and export policyformulationand plan implementation,the IDC and EDC shouldbe merged intoone entitythatwillinclude allkey playersin the sector,comparableto Japan'sIndustrialStructureCouncil(Patalinghug,1997).
InJune 2000,Executive Order(EO)225was enacted effectivelyintegrating the threeindustrydevelopment councils - EDC, IDC, and DTDC - into the Trade and Industry DevelopmentCouncil(TIDC)inordertoremove duplicationofworkand functions.11 The executive orderrenamed EDC into TIDC and expanded itsmandateand functions by absorbing the functionsofIDC and DTDC.The TIDC has the mandateto preparethe Philippine Trade DevelopmentPlan (PTDP), and review and evaluate the country's performance with regard to exports,industrialgrowth and development.M oreover,TIDC istasked to identify the majorproblemareas and constraintsthataffectindustrydevelopmentand the growth and flow oftrade.TheTIDC isamajorstep in improving Philippine exports,butin orderforthe country to benefitfrom the TIDC the availmentofexportincentives musthave adefinitetime horizon and mustbe based on performance (Patalinghug,1992).
A more powerfultrade and industry council,such as the TIDC,willhave betterbargainingskillsand influence when itistime fortrade negotiations with the W orld Trade Organization(W TO).To thisend,the FederationofPhilippine Industries (FPI)has presented Congress withadraftbillthatwillshoreupthe country'snegotiating skillsatthe W TO by creating the Officeof the Philippine Trade Representative, similar to the influential US Trade Representative'sOffice.12 The proposed Officewillbe tasked torepresentand lobby forthe country'sinterestsatthe W TO inordertoaffectmorefavorableoutcomes forPhilippine industries and products.
11M anilaBulletin,June 12,2000."EO consolidates [three]industrycouncils."12Philippine DailyInquirer,M arch 17,2003."W anted:Competenttrade negotiators."
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IV.10 IntellectualPropertyA related trade and investmentactivitywhereinthe governmentismaking some progressisin the protection ofintellectualpropertyrights.As amemberofthe W orldIntellectualProperty Organization (W IPO), the Philippines revamped the then Bureau of Patents,Trademarks and Technology Transfer and renamed it the Intellectual Property Office(IPO)tospearhead the country'sdrive toprotectand enforcerules thatgovernthe use andmisuse ofintellectualproperty -patents,copyrights,utility models,trademarks,productdesign and patterns, among others. The IPO is tasked to implement the IntellectualPropertyCode ofthe Philippines,which "embodies the tides ofchange in aworld wherefastdevelopmentin technologies has become away oflife."13 Such changes pose bigchallenges tothe protectionofcreative,inventive and innovative ideas,which compelledthe IPO to reformulateitsvision and mission in orderto be aproactive agentofchangein the intellectualpropertytrade.
The IPO and itsactivities arethe government'scommitmenttothe worldcommunitythatit will uphold and protect intellectual property rights, making it easier for foreigncompanies tosetupsubsidiaries inthe countrywithoutfearthattheirtechnology orotherintellectualproperty willbe unscrupulously imitated and traded.Itisalso away forthecountry to appease the demands ofindustrialized economies to protecttheirinventionsand innovations from getting copied withoutthe properlicensing agreementsorfacedireeconomicconsequences.
The W TO and W IPO aretwo institutions thatthe Philippines issignatorytoand as such,the countryisbound to uphold the rules governing internationaltrade and the protectionofintellectualpropertyrights.The Philippines needs acoherentand rationaltrade policyforittoinfluence the conductoftrade thataffectsitscitizens,companies,and productsina favorable manner.As a developing country, the Philippines is slow in implementingintellectual property rights because of the relatively high cost of doing business usinglicensed copies of software and other copyrighted materials and patented equipment.M oreover, the W orld Development Report (2002) furthers that "the Trade-RelatedAspectsofIntellectualPropertyRights(TRIPS)Agreementcan impose significantcostson [developing] countries, because strong patent [and copyright] protection is not asappropriateforthem as itisfor[industrialized]countries."Despitethe country'sslownessin implementing the rules and enforcing the law that govern the use of intellectualproperty,laws and rules doexisttoprotectthese and thisisagood startforthe countrytoenhance itscapacitywith regard to enforcing these laws.
IV.11Inform ation and Com m unication TechnologyW ith the adventofcomputersand networks,the governmenthas embarked on ajourneyin making government information available and most government services accessiblethrough the Internet,especiallythrough the W orldW ide W eb.The earliestInternetserviceinthe countrycan be traced back tothe DepartmentofScience and Technology'snetworkin 1994,which connected the country'seightmajorinstitutions ofhigherlearning acrossthe country with the DOST to furtherresearch and developmentamong academics and
13Taken from the IPO website.
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professional scientists in the government. The DOST has been in the forefront oftechnology research and development, not limited to information and computertechnologies, although the application of ICTs has become the one area where thegovernmentismaking realimprovementsin the deliveryofitsservices.
The Department of Education (DepEd), in cooperation with private institutions, hasembarked to accelerate ICT literacy in public schools to keep up with other emergingeconomies and in preparation forthe imminentglobalization.The Philippines needs tobeefup itshuman capitalby providing adequatefacilities and training to equip Filipinoswith,atleast,the standardinformationand communicationtechnology literacy skillsthatarethe mainsourceofcompetitive advantage inthe knowledge age.And by encouraginghigh schoolstudentsto develop an interestin ICT through various education and skillsprograms, the country increases its chances of establishing a large pool of qualityinformation technology (IT) professionals, which will be handy once globalizationreaches the countryin full-force.
The NationalComputerCenter(NCC)isthe lead agency forpromoting and directing theuse ofICT ingovernment.W ithavisionofan e-government,the Philippine Governmentenacted the E-CommerceActrequiring governmentagencies and theiraffiliates to havea functionalwebsite in which people can transactbusiness and access information andgovernmentservices online.The NCC strengthens itssupporttothe governmentIT sectorthrough its active participation in the passing of the E-Commerce Act, advocacy andbuilding of the knowledge-economy framework of the Philippines, and its continuingresearch ofnew and emerging ICT technologies.
The NCC recently conducted an ICT usage survey on national government agencies(NGAs), called the "State of W eb Presence of National GovernmentAgencies".As ofM arch 31,2003,atotalof379 NGAs have been studied and the resultsshow that98.4percent or 373 NGAs have websites, while only 1.6 percent or 6 agencies have nowebsites.The resultsofthe survey indicatethatthe governmentisserious inpreparing forthe imminentglobalization by harnessing the powerand potentialofICTs in enhancingits capability to deliver its services to the people, as well as its capacity to implementreforms in the government bureaucracy by adopting systems that streamline itsoperations, increase people's participation in the process of public governance, andenhance its transparency and accountability before a more informed and ever-watchfulpopulace.Thisheightened scrutiny may lead toabettergovernment(W orldDevelopmentReport,1997).
At present, the government website (www.gov.ph) contains almost everything one canknow aboutthe Philippine Government.A numberoftransactions thatused totake hourscan now be made online, while information that used to be difficult to obtain is nowavailable and accessible on the website. The government's goal of becoming an e-governmentisslowlycoming into fruition as moreand morepeoplewho have access tothe Internetuse itsservices availableonline.
Procurementisone areawherethe governmenthopes to make arealimpactusing ICTs.The GovernmentProcurementAct14 directsallgovernmenttransactions thatpertain toprocurement of materials and services to be centralized through a major computer
14The Appendixcontains amoredetailed discussiononthe GovernmentProcurementActorRA 9184.
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networkinfrastructurecalled the ElectronicProcurementSystem (EPS),which representsthe Philippine Government'sfirststep towards electronicprocurementpractices thatwillprovide both governm ent agencies and suppliers a m ore open, transparent andcompetitive environmentforthe procurementofgoods and services by the Government.The Actisintended to help preventgraftand corruption,improve operationalefficiency,foster transparency, and encourage competition in the bidding process. By taking thenecessary steps to streamline procurement transactions using real-time systems, thegovernment is able to demonstrate that it has the capacity to facilitate governmentservices and the resolve to improve the transparency of its actions, where and whennecessary,to enhance itscredibility in orderto attractmoreinvestmentsin the country.Informationtechnology has revolutionized the way the governmentcurrentlyconductsitsfunctions and deliversitsservices because real-time transactions tend tocreateasense ofurgency in the delivery of government services to those who demand it. This sense ofurgency may redound to increased efficiency on the partofthe governmentin orderforitto satisfy the demands ofitsclientsin real-time.The GovernmentProcurementActisastep towards thisend,and one ofthe many steps thatthe governmentneeds to take toimprove efficiency ofitsservices and enhance the transparency ofitsactions.
IV.12 H um an and IntellectualCapitalThe foregoing agencies and institutions allworktogethertohelpthe governmentpromotetrade and investmentsin the country and provide an institutionalnetwork thatisabletoseize the opportunities and moderate the threats that are attendant with the comingglobalization.One governmentinstitutionsupportsthisendeavorby making surethatthepersonnel,intellectualcapitaland skillrequirementsofthese agencies and institutions arein place even before globalization invades the country in full-force. The Civil ServiceCommission (CSC) is responsible for the recruitment, development, protection, andretention ofacompetent,professional,and highlymotivated governmentworkforcethatisresponsive to the needs ofthe various publics thatinteractwith the government.TheCSC ispreparing the various agencies and institutions forthe impending globalizationbyproviding them withqualityand competentpersonnelwiththe necessaryintellectualandsocialcapital.
The CareerExecutive ServiceOfficer(CESO)Program ofthe CSC isone mechanism thatensures a high degree of competence and qualifications among civil servants in thehighest echelons of the government bureaucracy. The rigorous program is meant toreward exemplary employees who have both the academic requirements and theprofessional competence to become permanent government executives. Although theCESO Program is admirable in its intentions to recognize high achievement andcommendableperformance ingovernmentservice,itprecludes the CSC from firing civilservantswithaCESO rank who laterbecome lax and incompetentintheircurrentoffice.The protection that the CESO affords civil servants from possible dismissal due toincompetence and othercauses isalso a source ofitsweakness.Itisnotuncommon tohave governmentexecutives thathave become incompetentand areno longerusefulintheirpresentpositions butstillcontinue tobe employed by the governmentbecause ofthetenurethataCESO rank provides.
Complementing the functions ofthe CSC on abroaderscaleisthe TechnicalEducationand Skills Development Authority (TESDA). The major objective of TESDA is toprovide directions,policies,programs and standards towards qualitytechnicaleducation
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and skilldevelopmenttoallsectorsofsociety.As the leading partnerinthe developmentofthe Filipinoworkforcewithworld-class competence and positive workvalues,TESDAassiststhe governmentinitsmissiontoimprove the leveloftechnicalcompetence ofthepopulace,which isusefulinmoderating the negative effectsofthe coming globalization.TESDA plays acrucialrolein helping displaced workers(due to the negative impactofglobalization on certain sectors)receive the necessary training and learn new skillsthatareimportantin the globaleconomy.
V. LEG AL AND JUDICIAL FRAM EW ORKW hilethereareno legalorjudicialmeasures thatdirectly bearon globalization,perse,there are other legal and judicial measures that bear on economic development and,consequently,globalization.
The presentPhilippine legaland judicialsystems could enablethe Philippines to benefitfrom globalization.However,itmustbe remembered thatthe benefitsofglobalization,interms ofenhanced prospectsfordevelopment,may notbe reaped,and itsillswarded offoratleastdelayed,even with allthe properlegaland judicialmeasures in place,wherethereisno firm politicalwill.
The Ramos Administration,in 1992,laid the foundations forplans and programs15 toopen up the Philippine market to competition and the implementation of an economicreform agenda through various legislative measures and executive orders aimed atpreparing forcoping with,and ultimatelybenefiting from globalization.
In1998the Estrada Administrationcontinued,tosome extent,thiseconomicreform withthe enactmentoflaws ongeneralbanking,securities regulation,electroniccommerce,andsafeguard m easures against the possible negative im pact of globalization. Thisadministration also enacted numerous measures to combat corruption in government.Ironically, however, people power protests and the withdrawal of cabinet, military andpolicesupportresulted inthe ousterofPresidentJoseph EjercitoEstrada from office,overhigh-levelcorruption.
From the firstquarterof2001 to the present,the Arroyo Administration has seen to theimplementationofafive-pronged anti-povertystrategy and the promulgationofexecutiveand administrative orders designed to curb corruption, encourage transparency ingovernment transactions, stop money laundering, terrorism, and in fine, make thePhilippines an acceptableglobalpartner.
In the judicialand quasi-judicialsphere,new laws relating to the CourtofAppeals,theSandiganbayan, and the National Labor Relations Commission have been enacted andnew rules on criminalprocedure,electronicevidence,search and seizurein civilactionforinfringementofintellectualpropertyrights,among others,have been promulgated.
V.1 RelevantPhilippine Laws and RegulationsPhilippines economicdevelopment,ornon-development,isnothappening in avacuum,but in an increasingly global economy. W ith news, business, technological, and socialdevelopments being reported worldwide as it happens or as soon as it happens, quickresponses to world eventshave become morenecessarythan ever.
15Philippines 2000,Peoples 2000,and the Buklod-Buhay Foundation,Inc.
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Overthe past18 years,the Philippine governmenthas passed executive and legislativeinitiatives tospurand protecteconomicdevelopmentand,itistobe hoped,torespond toglobalization'schallenges.Atthe very least,the Philippines needs to be perceived as acountrywherebusiness may be conducted withoutthe added costsand barrierscreated bycorruption.
Reforms were introduced through demonopolization of public utilities, privatization ofstate enterprises, reduced state intervention in the market, trade and investmentliberalization, service industry deregulation, taxation reform, tariff reduction and/orelimination,monetaryand fiscalreforms,anti-povertyand anti-corruptionmeasures,andimprovementofpeace and orderand administration ofjustice.
V.1.1Taxation,M onetary and FiscalM easures
Significanttaxation,monetaryand fiscalmeasures have been adopted:
l Tax treaties for the avoidance of double taxation and prevention of fiscalevasion have been entered into with 34 countries,to date,Australia,Austria,Belgium,Brazil,Canada,China,Czech Republic,Denmark,Finland,France,Germany, Hungary, Indonesia, India, Israel, Italy, Japan, Korea, M alaysia,Netherlands, New Zealand, Norway, Pakistan, Romania, Russia, Singapore,Spain, Sri Lanka, Sweden, Switzerland, Thailand, United Kingdom, and theUnited States ofAmerica.
l Increased penalties for tax evasion and violations of the provisions of theNationalInternalRevenue Code (RepublicActNo.7642).
l TheTax Reform Actof1997(RepublicActNo.8424)forthe simplificationofincome and excise taxation in order to improve tax collection efforts.Unfortunately, however, the political intervention of Congress and privatevested interestgroups so diluted The Tax Reform Actof1997thatthe taxationsystem underthe new law stillremains verycomplicated and improvementsintax collection have yetto be realized.
l Rationalizationofthe documentarystamp tax system (RepublicActNo.7660.l The imposition oftaxes forsaleofshares ofstock through the stock exchange
orthrough initialpublicofferings (RepublicActNo.7717).l Law onExpanded Value-AddedTax (RepublicActNo.7716).l Lifting offoreign exchange restrictions,allowing the marketto freelytrade in
foreign currencies (Central Bank Circular No. 1389, Consolidated ForeignExchanges Rules and Regulations)and allowing the saleofforeign exchangereceipts,acquisitions,orearnings forpesos outside the banking system ortounauthorized agentbanks,and retentionordepositinforeign currency accountsinthe Philippines orabroad,oruse forany otherpurpose (BSP CircularNo.5,s.1993).
l Express repealofthe Uniform Currency Law (RepublicActNo.529)whichrestricted parties to acontractto dealonlyin Philippine Peso in orderto settlemonetaryobligations (RepublicActNo.8183).
l The GeneralBanking Law of2000 (RepublicActNo.8791).l Regulations to Implement Section 16 Art XI of the Constitution "No loan,
guaranty,orotherform offinancialaccommodation forany business purpose
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may be granted,directlyorindirectly,by any government-owned orcontrolledcorporation or financial institution to the President, Vice President, them em bers of the Cabinet, the Congress, the Suprem e Court, and theConstitutionalCommissions,the Ombudsman,ortoany firm orentityinwhichthey have controlling interest, during their tenure." (BSP Circular No. 195s.1999).
l The Securities Regulation Code (RepublicAct.No.8799).l Punishmentofmoney laundering,with the promulgation ofThe Anti-M oney
Laundering Actof2000(RepublicActNo.9160,as amended by RepublicActNo.9189).
l Creation of the Anti-M oney Laundering Council and enactm ent ofImplementing Rules and Regulations ofRepublicActNo.9160 (BSP CircularNo.333,s.2002).
These reforms were aimed at improving and strengthening the legal and regulatoryinfrastructure fordoing business in the Philippines.M ore specifically,taxation,foreignexchange, and securities regulation were revised supposedly to bring these closer toglobalstandards.Some reforms weremeanttoease restrictions onbusiness.Othersweremeant to ensure a more predictable legal regime with stricter enforcement againstcriminality and corruption. For example, the Anti-M oney Laundering Act was animportant milestone in securing the international credibility of the Philippine financialsystem.The law was intended toremove the Philippines from the internationalwatch listofcountries involved in money laundering.
However, in the end, these new laws and regulations will only be as effective as theiractualimplementation and thiswilldepend on honest-to-goodness politicalwill.
V.1.2Peace and Order and the Adm inistration ofJustice
The Arroyo Administration has recognized that poverty directly affects the peace andorder situation of the country, and that it is imperative to alleviate poverty even whileimproving the country's competitiveness and capacity to respond to the challenges ofglobalization. The 2001-2004 M edium-Term Philippine Development Plan includes ananti-povertystrategy.
Various legislations aim ed at fighting corruption and cronyism , im proving lawenforcementmechanisms,and the judiciaryand administrative agencies exercising quasi-judicialfunctions wereenacted:
l Expansionofthe jurisdictionofthe CourtofAppeals(RepublicActsNos.7902and 8246).
l Strengthening of the functional and structural organization of theSandiganbayan (RepublicActsNos.7975and 8249).
l Vesting ofconcurrentjurisdiction in the first,second and third division oftheNationalLaborRelations Commission (RepublicActNo.7700).
l Expansion of the jurisdiction of the first, second and third division of theNationalLaborRelations Commission (RepublicActNo.7691).
l Strengthening of the operational, administrative and information supportsystem ofthe Philippine Centeron TransnationalCrime (Executive OrderNo.100,s.1999).
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l Philippine NationalPoliceReform and ReorganizationLaw (RepublicActNo.8351)uplifting ofthe image ofthe Philippine NationalPolice.
l The establishment of the PresidentialAnti-Crime Commission16 (ExecutiveOrderNo.3 s.1992).
l The reorganization ofthe Peace and OrderCouncil(Executive OrderNo.309s.1987),as amended.
l The JakartaAgreementof1996 creating the Southern Philippines CouncilforPeace and Development(SPCPD)in M indanao.
l CourtRules on ElectronicEvidence,effective 01August2001,implementingRepublicActNo.8792,ElectronicCommerceAct(A.M .No.01-07-01-SC).
l EO 268 (s.2000)Creating the NationalAnti-Corruption Commission.l Revised Rules of Criminal Procedure, as amended (Rules 110-127), 01
December2000.l Prohibiting PublicOfficersand Employees from entering into certain kinds of
officialtransactions withreal,pretended orimaginaryrelatives ofthe President(Administrative OrderNo.1,s.2001).
l Creating the NationalAnti-Crime Commissionand OtherPurposes (ExecutiveOrderNo.223,s.2001).
l Reorganizing and Extending the Lifeofthe SpecialTask ForceCreated UnderExecutive OrderNo.156 dated 07 October1999,entitled "Creating aSpecialTask Force to Review, Investigate and Gather Evidence Necessary toSuccessfully Prosecute Irregularities Com m itted at the BIR and OtherGovernment Offices and Agencies under or attached to the Department ofFinance (Executive OrderNo.38,s.2001).
l Creating an Anti-Sm uggling Intelligence and Investigation Center toInvestigateand InterdictSmuggling and OtherActsContraryto the TariffandCustoms Code ofthe Philippines (Executive OrderNo.155,s.2003).
l Alternative Law Groups (ALG), a coalition of public interest law groupsproviding legal assistance in issues of justice concerning women, labor, theurban poor,farmers,migrantworkers,and the underprivileged.
l Philippine Judicial Academy (PHILJA), an institution providing judicialeducation and alternative disputeresolution.
l Justice Reform Initiatives Support (JURIS) Project, a five-year C$7 millionPhilippines-Canada bilateral project, launched in 2003 and funded by theCanadian International DevelopmentAgency(CIDA) to support the SupremeCourt's Action Program for Judicial Reform and strengthen the "access tojustice" of civil society. The project brought together the Supreme Court,PHILJA, the Program M anagem ent Office, the Office of the CourtAdministrator,and the ALG.
Not only does the Philippines have so many laws, rules and regulations, it also hasnumerous generaland industry-specificagencies enforcing the foregoing laws,rules andregulations.
l NationalLibrary,forcopyrightregistration.
16Now defunctand discredited withthe ousterofPresidentJoseph EjercitoEstrada.
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l DepartmentofTrade and Industry (DTI)and itsattached agencies,includingBureau of Trade Regulation and Consumer Protection (BTRCP), Bureau ofFood and Drugs (BFAD), Bureau of Patents, Trademarks and TechnologyTransfer(BPTTT),Bureau ofProductStandards (BPS),forconsumerwelfareand protection.
l Securities and Exchange Commission (SEC), supervision and monitoring ofstock and non-stock corporations, including the resolution of intra-corporatedisputes, and the regulation of all forms of securities, brokers and dealers,financing companies and investmenthouses.
l Philippine Economic Zone Authority (PEZA),foreconomic zone developersand economiczone registered enterprises.
l Bases Conversionand DevelopmentAuthority(BCDA),forthe administrationdevelopmentofformermilitarybases,otherthan Subicand Clark,and BCDA-registered enterprises.
l SubicBay M etropolitan Authority(SBM A),foradministrationdevelopmentofthe formerAmerican SubicNavalBase and SBM A-registered enterprises.
l ClarkDevelopmentCorporation(CDC),foradministrationdevelopmentoftheformerUS ClarkAirBase,and Clark-registered enterprises.
l Bangko Sentralng Pilipinas (BSP),forbanks and financialinstitutions.l Insurance Commission (IC),forinsurance companies.l PhilippineTourism Authority(PTA),forthe tourism industry.l Housing and Land Use Regulatory Board (HLURB), for land use and real
estatedevelopment.l National Food Authority (NFA), for rice, corn, wheat and other grains and
foodstuffs.l SugarRegulatoryAdministration (SRA),forthe sugarindustry.l Philippine CoconutAuthority(PCA),forthe coconutindustry.l Garmentsand Textile Export Board (GTEB), for garment manufacturers and
exporters.l Board of Investments (BOI), for pioneer or non-pioneer industries and those
listed in the Investments Priorities Plan, availing of the incentives under theOmnibus InvestmentsCode.
l National Telecommunications Commission (NTC), for telecommunicationscompanies.
l Land TransportationFranchising and RegulatoryBoard(LTFRB),forcommonland carrier.
l CivilAeronautics Board (CAB),forcompanies engaged in aircommerce.l M aritime IndustryAuthority(M ARINA),forthe shipping industry.l Philippine PortsAuthority(PPA),forportoperatorsand arresterservices.l DepartmentofEnergy(DOE),EnergyRegulatoryCommission(ERC),and the
National Power Corporation (NPC), for power generation companies and oilcompanies.
It is heartening to see that the Philippine Government is serious about curbing anderadicating corruption and other crimes that affect its credibility and capability as aparticipant in global economic development. It would also appear that with so manymeasures,inadditiontothe basiclaws like the Philippine Constitution,the CivilCode ofthe Philippines,and the Revised PenalCode,the Philippines should be wellequipped tocurb corruption and othercrimes.
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However, these pluralities of laws and enforcement agencies have created their ownproblems. Responsibility is too diffused and accountability for implementation of thelaws is difficult to locate or fix. For instance, the Philippine anti-trust laws need to bereformed.No agency implementsthe laws orprosecutes firms.The country has similaranti-trust laws as the US but Philippine anti-trust laws are in the Revised Penal Code,unlike US anti-trustlaws which arein the US Constitution and well-developed throughjurisprudence and quasi-judicial decisions. Thus, certain anti-competitive and corruptpractices can onlybe prosecuted inthe criminalcourts,along and tedious process thatisimpracticaland useless to the business world wheretime isoften ofthe essence.
Finally,the generallack ofcourtresources and judges'training in these new laws hindercourtproceedings,thus undermining outcomes.
V.1.3 Trade and Foreign Investm entLiberalization
The first real barriers to any market are tariffs and other non-tariff structures, such asquantitative orimportrestrictions.Forthisreason,mostofthe bilateraland multilateraltrade agreementsimpose the observance ofreduced tariffrates.
TheTariffReform Program iscurrentlybeing implemented to reduce tariffsand removequantitative restrictions.
In compliance with international commitments, various tariff rates for a number ofindustrial and agricultural products in the Philippines have either been reduced and/ormodified through the issuance of Executive Orders.17 By 2001, the simple averagenominaltariffratewas down to 7.7 percentfrom 13.4 percentin 1997.
Additionally, though Congress enacted Republic Act No. 8178 to remove quantitativerestrictions on agriculturalproducts,significantnon-tariffbarriersremain.To illustrate:sensitive agricultural products, such as live animals, fresh, chilled or frozen beef andother meats, potatoes, coffee, corn, and sugar, are subject to minimum access volumetariffratequotas until2005.Increased protection ofagriculturalproductsresulted.On apositive note,the governmenthas moved toprivatize riceimportation,butthe process hasbeen slow.
W ith respect to tariff reduction, the hoped-for response of Philippine industries torestructure themselves into more globally competitive enterprises has not substantiallymaterialized. The inflow of foreign investments resulted in the appreciation of thePhilippine peso.Thistogetherwith tariffreduction made the import-dependentsectorofPhilippine industries uncom petitive, while penalizing the export-oriented sector.Consequently, Philippine industries were not impelled to become competitive as theappreciation of the peso provided windfall profits to Philippine industries in the non-tradablesectors,such as realestateindustry.
The unexpected strength ofthe peso also encouraged Philippine industries to fund long-term peso projectwithshort-term US dollarloans.The resulthas been the Asian financialcrisis,which wreaked havoc onthe financialhealthofasubstantialsectorofthe economy.The irony isthatthe sharpdevaluationofthe peso has made Philippine industries globallycompetitive,ifonlythey could have the resources to seize the opportunities presented.
17EO No.1(1992),EO No.2(1992),EO No.8(1992),EO No.79(1993),EO No.94(1993),EO No.106(1993),EO No.115 (1993),EO No.116 (1993),EO No.145 (1993),EO No.146 (1993),EO No.147 (1993),EO No.148(1993),EO No.153 (1994),EO No.160 (1994),EO No.172 (1994),EO No.173 (1994),EO No.189 (1994),EONo.204(1994),EO No.227(1995),EO No.237(1995),EO No.264(1995),EO No.287(1995),EO No.288(1995),EO No.313(1996),EO No.328(1996),and EO No.163(1999).
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M easures to ensuremoreefficientcollection oftariffshave also been enacted.RepublicAct No. 7650 amended the provisions of the Tariff and Customs Code on physicalexamination of imported articles, particularly Sections 1401 and 1403, and repealedSection1404.Congress also enacted RepublicActsNos.8181and 9135toshiftthe basisforthe computation ofduties from home consumption value to transaction value,whichisthe globalstandard forcustoms valuation.
As asafety netmeasure,orto safeguard againstthe dumping offoreign productsin thePhilippines,RepublicActNo.7843,also known as the Anti-Dumping Actof1994,wasenacted to rationalize and strengthen the provisions on anti-dumping in the Tariff andCustoms Code.
Additionally,RepublicActNo.8800,otherwise known as The Safeguards M easures Act,was enacted toallow tariffstobe raised temporarilyso thatqualified domesticindustriescouldhave time toundergo rehabilitationthatwouldenablethem tocompetewithimportscoming in as a resultofliberalization underthe W orld Trade Organization agreements.Applications for protection under The Safeguards M easures Act are filed with theDepartmentofTrade and Industry fornon-agriculturalindustries and the DepartmentofAgricultureforagriculturalindustries.
To liberalize the entry offoreign investments,RepublicActNo.7042,otherwise knownas the Foreign InvestmentsAct(FIA),was passed.RepublicActNo.8179,amended theFIA,to allow foreign corporations which are100 percentFilipino-owned to do businessin the Philippines as a Philippine national,18 to allow domestic market enterprises toimmediatelychange theirstatus to export-oriented enterprises19’, todeleteNegative ListC which reserved certainareas ofbusiness toPhilippine nationals20’, and tograntformernatural-born Filipinos the same investments rights as Filipino citizens in cooperatives,ruralbanks,thriftbanks and privatedevelopmentbanks,and financing companies,21 andownership ofprivatelands.22
The Omnibus InvestmentCode,Executive OrderNo.226,was also amended toconformto the currenteconomicagenda.W ith RepublicActNo.7888,the BOIwas granted thepowertorecommend tothe Presidentofthe Philippines the suspensionofthe nationalityrequirements,tothe extentallowed by the Constitutionand relevantlaws,inthe cases ofASEAN projects, investments by ASEAN nationals, regional ASEAN or multilateralfinancialinstitutions inpreferred projectand/orprojectsallowed through eitherfinancialortechnicalassistance agreementsentered intoby the Presidentorinthe case ofregionalcomplementation for the manufacture of a particular project which seeks to takeadvantage ofeconomies ofscale.23
Republic Act No. 7918 amended the Omnibus Investments Code to rationalize andqualifyincentives enjoyed by BOI-registered enterprises.The tax and dutyexemptiononimported capitalequipmentand sparepartsand tax crediton domesticequipmentwererestricted by limiting the period when enterprises may avail of such incentives. Theexemption from contractor'stax was also deleted.24
18 RA No.7042(1991),Sec.319 RA No.7042(1991),Sec.720 RA No.7042(1991),Sec.821 RA No.7042(1991),Sec.922 RA No.7042(1991),Sec.1023 EO No.226(1987),Article7(13),as amended by Rep.ActNo.7888(1995).24 EO No.226(1987),Article39,as amended by RepublicActNo.7918(1995).
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RepublicActNo.7918,as amended by RepublicActNo.8756,provided forthe terms,conditions and licensing requirementsofregionalorareaheadquarters,regionaloperatingheadquarters,and regionalwarehouses ofmultinationalcompanies.
A major component for attracting foreign investments was the establishment of SpecialEconomicZones (SEZs).SubicNavalBase was converted into the SubicBay FreePortandSpecialEconomic Zone,Clark AirBase was converted into Clark SpecialEconomic Zone,and otherformerUS militarybases wereconverted into SEZs,underRepublicActNo.7227.SEZs werealso created inZamboanga underRepublicActNo.7903and inthe municipalitiesofSta.Ana and neighboring islands ofAparri,Cagayan underRepublicActNo.7922.M oreSEZs have been soughtto be created underRepublicActNo.7916,which provided forthelegalframeworkand mechanics inthe creation,operation,administrationand coordinationofSEZs and the organization of the Philippine Economic Zone Authority (PEZA), whichsucceeded the now-defunctExportProcessing Zone Authority(EPZA).
The disqualification of foreigners from owning land in the Philippines has, to someextent,discouraged investorsfrom coming in.To address the situation,RepublicActNo.7652 was enacted to allow foreign investorsto lease,butnotown,private lands in thePhilippines foraperiod notexceeding 75 yearsforthe purpose ofengaging in business.
Republic Act No. 7844 gave the policy framework to support export development,25
provide forthe formulationofthe Philippine ExportDevelopmentPlan,26 and grantotherincentives toexport-oriented enterprises such as exemptionfrom PresidentialDecreeNo.1853,zero-rated duty forimportation ofmachinery and equipment,tax creditand long-term credit facilities.27 The Export and Investment Development Council was laterreorganized into the ExportDevelopmentCouncilthrough Executive OrdersNos.98 (s.1993),110(s.1993)and 180(s.1994).
Othersignificanttrade and investmentliberalization measures are:
l Liberalizationofthe serviceindustries,i.e.RepublicActNo.7721allowing theentryofmoreforeign banks,RepublicActNo.7718expanding the contractualarrangementsallowable underthe Build-Operate-And-Transferlaw,RepublicActNo.7942providing forgreaterincentives inmining,and RepublicActNo.8366 liberalizing the investm ent houses industry, and the granting ofcongressional franchises to new players in the civil aviation,telecommunications and televisions and radio broadcasting industries.
l Book industry-RepublicActNo.8047.l Agricultureand fisheries -RepublicActNo.8435.l Jewelrymanufacturing -RepublicActNo.8502.l Small-and medium-scaleenterprises -RepublicActNo.8289.l Financing companies -RepublicActNo.8556.l Public utilities sectorderegulation -Executive OrderNos.185 (s.1994)and
213 (s.1994)which relaxed rules on the entry ofnew shipping operatorsand thederegulationofdomesticshipping rates,Executive OrderNo.212(s.1994),whichdemonopolized governmentports,Executive OrderNos.59 (s.1993)and 109 (s.
25 RA No.7844(1994),Sec.326RA No.7844(1994),Sec.527RepublicActNo.7844(1994),Sec.16.Pres.DecreeNo.1853(1982)requires the depositofduties atthe time of
opening oflettersofcreditcovering imports.
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1993) which paved the way for the entry of new telecommunications firms,Republic Act No. 7925 which allowed the operation of Value-Added Serviceproviders(e.g.,internetand electronicdatainterchange networkoperators)withoutneed of a legislative franchise, Executive Order Nos. 215 (s. 1987) and 462 (s.1997) which promoted private sector participation in the business of generatingelectricityand in the exploration,development,utilization and commercializationofocean,solarand wind energyresources forpowergeneration and otherenergyuses,respectively,and RepublicActNo.8479,which provided forthe deregulationofthe downstream oilindustry.
l IntellectualPropertyCode ofthe Philippines (RepublicActNo.8293).l Protection oflayoutdesigns ortopographies ofintegrated circuits(Intellectual
PropertyCode ofthe Philippines,as amended by RepublicActno.9150).l Court Rules on Search and Seizure in Civil Action for Infringement of
IntellectualPropertyRights(A.M .No.02-01-06-SC).l ElectronicCommerceAct(RepublicActNo.8792).l The Securities Regulation Code (RepublicActNo.8799).l Establishing the Information Technology and Electronic Commerce Council
(ITECC),from the mergerofthe NationalInformationTechnology Councilandthe Electronic Commerce Protection Council (Executive Order No. 264, s.2000).
l Rules on the submission, review and approval of government contracts(Administrative OrderNo.7,s.2001).
l Streamlining the Rules and Procedures on the Review and Approval ofAllContractsofdepartments,Bureaus,offices,and Agencies ofthe Government,including Governm ent-Owned or Controlled Corporations and theirSubsidiaries (Executive OrderNo.109,s.2002)
l An Act Establishing the Philippine Quality Award in Order to encourageorganizations in both the public and private sectors to attain excellence inquality and in the production and/or delivery of their goods and services(RepublicActNo.9136).
l ElectricPowerIndustryReform Actof2001.l Consolidating ProcurementRules and Procedures forallNationalGovernment
Agencies, Government-Owned or -Controlled Corporations and GovernmentFinancial Institutions, and Requiring the Use of Government electronicProcurementSystem (Executive OrderNo.40,s.2001);DepartmentofBudgetM anagementRules and Regulations Implementing Executive OrderNo.40,s.2001 (28 February2002).
l An ActProviding forthe M odernization,Standardizationand RegulationoftheProcurementActivities ofthe Governmentand ForOtherPurposes (RepublicActNo.9184).
l An ActtoPromotethe EstablishmentofBarangay M icroBusiness Enterprises(BM BEs),providing incentives and benefitstherefore,and forotherpurposes(RepublicActNo.9178).
l EO No. 156 (s. 2003) Providing for a Comprehensive Industrial Policy andDirections forthe M otorVehicleDevelopmentProgram.
l FurtherEnhancing the Speedy Resolution ofAppealed Cases in the Officeofthe Presidentand Increasing the NumberofAuthorized Officialsto sign "ByAuthority of the President" for this purpose (Office of the President
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M emorandum OrderNo.81,s.2003).l Institutionalizing the "Isang Bayan, Isang Produkto, Isang M ilyong Piso"
Program to Stimulate LocalEconomicActivity (Executive OrderNo.176,s.2003).
l Providing For the Establishment of Greater M anila M ass Transport System(Executive OrderNo.179,s.2003).
l Omnibus Guidelines for the Issuance of Employment Permits to ForeignNationals,as amended by DepartmentofLaborand EmploymentDept.OrderNo.41,s.2003 (DOLE Dept.OrderNo.12,s.2001).
l Liberalization ofthe RetailTrade Business,repealing RepublicActNo.1180,as amended,allowing undercertain conditions 100 percentforeign ownershipofaretailtrade enterprise (RepublicActNo.8762).
As may be noted from the foregoing enumeration,the imperatives ofglobalcompetitionhave benefited various serviceindustries,including the stock market,banking,insurance,infrastructure, book publishing and mining, among others, through the deregulationreforms instituted.
Changes underthe Securities Regulation Code improve listing requirementsand insidertrading sanctions. The new law also offers better protection to minority shareholdersthrough mandatory tenderoffersand deterrence ofmarketabuses and fraud through theprohibitionofinsidertrading,affiliated brokerand dealertransactions and segregationofbroker and dealer functions. However, enforcement of insider trading rules has provendifficult.W hileinvestigation ofcases has been ongoing forsome time,no one has everbeen prosecuted. Failure to resolve cases such as that of BW Resources downgradesinvestorconfidence in the country'sstock market.
In banking,the basicpreparation forchange was effected through the reorganization ofthe CentralBank ofthe Philippines into the Bangko Sentralng Philippines (BSP),underRepublic Act No. 7653. The BSP continues to play a stabilizing force in the entireeconomy.Threemajorlaws wereenacted toenhance competitioninbanking:
l RepublicActNo.7906,which provided forthe regulation ofthe organizationand operations ofthriftbanks;
l Republic Act No. 7721, which liberalized the entry of foreign banks in thePhilippines by allowing foreign equityownership ofup to 60 percent28 ofthevoting stock of existing domestic banks or the incorporation of a newsubsidiaryinthe Philippines,and the entryofnew foreign bank branches withfullbanking authorityand moreimportantly;
l RepublicActNo.8791,orThe GeneralBanking Law of2000,which clarifiedthe BSP'sprudentialresponsibilities,imposed tough criteriaon bank auditors,consolidated banking supervision, form ally adopted risk-based capitalrequirements, increased allowable foreign ownership of local banks to fully-owned (i.e. 100 percent owned), clarified the legal basis for determiningunsafe bank practices, and increased bank transparency and disclosurestandards.
W ith The General Banking Law, the country is now at the forefront of internationalprudential banking standards, in as far as legislation goes. Though, the actual
28Thispercentage was increased underThe GeneralBanking Law of2000,RepublicAct8791.
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implementation of bank supervision is still lacking in some areas. However, retailbanking is still closed relatively to new foreign bank entrants. Freer entry of foreignfinancial institutions could strengthen competition, corporate governance, and bankingindustrystandards.The privatization and publiclisting ofgovernmentbanks would helpdisperse bank holdings and promoteefficiency.
In the insurance industry, the entry of foreign insurance and reinsurance companies orinterm ediaries was encouraged through various initiatives from the Executivedepartment.W ith DepartmentofFinance OrderNo.100-94,issued on 24 October1994,several multinational insurance companies have already entered the Philippine market,such as AIG,and Prudential.
The Ramos Administration recognized the inadequacy ofgovernmentresources to meetallofthe public'sinfrastructurerequirements.Accordingly,itsupported the amendmentofRepublicActNo.6857,otherwise known as the Build-Operate-Transfer(BOT)Law,which allows the privatesectorto participatein infrastructureand developmentprojectsordinarilyundertaken exclusivelyby government.Privatesectorparticipationwas furtherenhanced with the enactment of Republic Act No. 7718 by expanding the contractualarrangements that may be entered into by a government-implementing agency and aprivateproponent.
RepublicActNo.8047 provided forthe developmentofthe book industry through theformulation and implementation of a national book policy29 and national bookdevelopmentplan30 and the creationofaNationalBook DevelopmentBoard(NBDB).31Underthe law,persons orentities engaged in publishing and registered with the NBDBmay avail of incentives provided under the Omnibus Investments Code, subject to thequalifications and requirementssetby the BOI.M oreover,books,magazines,periodicals,newspapers, and book publishing and printing, distribution and circulation are exemptfrom the coverage ofthe Expanded Value-AddedTax.32
Republic Act No. 7942, or the Philippine M ining Act of 1995, provided for therequirem ents and incentives for the exploration, developm ent, utilization andconservation ofmineralresources.
In the area ofpublic utilities,Executive OrderNo.185 (s.1994)was adopted to fostercompetition through more liberalized rules on the entry of new operators for existingroutes presentlyserviced by one operator,33 new operatorsofdevelopmentroutes,34 thederegulation of the entry of newly-acquired vessels into routes already served byfranchised operators,35 and vessel rerouting or amendment of authorized route andchange in sailing schedules and frequency.36
Executive OrderNo.213(s.1994)provided forthe deregulationofdomesticshipping rates inthe following areas: (a)firstand second class passage rateforpassenger-carrying domesticvessels,37 (b)passage rates forvesselscatering to tourism as certified by the Departmentof
29 RepublicActNo.8047(1995),Sec.430RepublicActNo.8047(1995),Sec.531RepublicActNo.8047(1995),Sec.732RepublicActNo.8047(1995),Sec.1233Executive OrderNo.185(1994),Sec.1.134Executive OrderNo.185(1994),Sec.1.235Executive OrderNo.185(1994),Sec.1.336Executive OrderNo.185(1994),Sec.1.437Executive OrderNo.213(1994),Sec.1(1)
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Tourism (DOT)orthose serving DOT-certified touristprioritylinks/areas,38 (c)freightratesfor all commodities classified as Class "A" and "B" and "C", except for non-containerizedbasiccommodities,and wherethe route/link isstillbeing serviced by onlyone operator.39
Two new airline companies (PacificAirways Corporation,RepublicActNo.7909)andAll Asia Airlines Company, Republic Act No. 8103) were granted congressionalfranchises to provide airtransportservices.
M oreover,by virtue ofExecutive OrderNo.219(s.1995),internationalcivilaviationwassought to be liberalized through the designation of at least two official carriers for thePhilippines,and the possibilityofdesignating othercarriersas officialcarrierswhen thetotalfrequency requirementsofthe Philippines underitsvarious AirServices Agreementcannot be fully serviced by the first two designated official carriers.40 Philippine AirLines (PAL)and Cebu Pacifichave been designated as designated officialcarriers.
Since 1999, frequency of flights and capacities has been increased, in particular forKorean Air,SingaporeAirlines,Emirates,GulfAir,and QatarAirways.The RP-US AirTransportationAgreement(ATA),signed in1992,provides unlimited frequency offlightsand seats between the two countries. However, PAL has succeeded in delayingimplementation for five times already since 1996. The ATA is now scheduled to beimplemented beginning 01October2003.Cebu Pacifichas publiclydeclared thatithas noobjections to the implementation ofthe ATA.
For domestic air transportation, a minimum of two operators in each route/link isencouraged, and for routes/links presently serviced by only one operator, additionaloperatorsarelikewise encouraged to enter.41 Passage rates forroutes/links serviced bymore than one operator is no longer regulated but merely monitored by the CivilAeronautics Board (CAB). Passage rates for routes/links serviced by single operatorsremain regulated by the CAB.42
In order to accelerate the demonopolization and privatization program for governmentports,Executive OrderNo.212 (s.1994)was issued.Competition isencouraged in theprovision of cargo handling and other port services. Under the governm ent'sdemonopolizationprogram,shipowners,operators,charterparties orotherusershave theoption to contract or engage the services of the Philippine Ports Authority (PPA)authorized handlerorportservice contractoroftheirchoice.43 Underthe privatizationprogram,privatesectorparticipation in the operation,maintenance and developmentofgovernment ports is encouraged through capital leases, cargo licenses, and servicecontractsto private companies to carry outcargo handling,dredging,portsecurity andotherservices.44 The PPA isdirected toensurethatfreeaccess tothe portsisallowed toallsectorsofthe industry and thatthereshallbe no discrimination in the provision andavailmentofservicecontracts.45
39 Executive OrderNo.213(1994),Sec.240Executive OrderNo.219(1995),Sec.141Executive OrderNo.219(1995),Sec.2.142Executive OrderNo.219(1995),Sec.2.243Executive OrderNo.212(1994),Sec.144Executive OrderNo.212(1994),Sec.245Executive OrderNo.212(1994),Sec.4
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In no otherarea has there been a greaterdisplay ofpoliticalwillthan in the successfulbreaking up monopolies and cartelsin telecommunications.Executive OrderNo.59 (s.1993)required mandatory interconnection forothertelecommunications firms with thePhilippine Long Distance Telephone Company (PLDT)backbone.
Executive Order No. 109 (s. 1993) laid down the government's policy to improve theLocal Exchange Carrier Service. Authorized international gateway operators wererequired to provide local exchange service in served and un-served areas, includingM etro M anila, within three years from the grant of authority from the NationalTelecommunication Commission.46
Republic Act No. 7925 entitled "An Act to Promote and Govern the Development ofPhilippine Telecom m unications and the Delivery of Public Telecom m unicationsServices", was enacted to provide a comprehensive guideline regulating the publictelecommunications industryin the Philippines.
These measures have been met with enthusiasm. New telecommunications companieshave entered the market, like Digital Telecommunications Philippines, Inc., BellTelecoms, IslaCom, M ajor Telecoms, which were granted congressional franchises toinstall,operateand maintain telecommunication system throughoutthe Philippines,andIsland Paging, Inc., M ulti M edia Telephony, Inc., which were granted radio-pagingfranchises.
The powercrisisofthe recentpastdebilitated the economy.To address the situation,theRamos Administration secured the enactmentofRepublicActNo.7648,which grantedthe Presidentemergency powers,foraperiod ofone yearfrom affectivityofsaid law,toenterintonegotiated contractsforthe construction,repair,rehabilitation,improvementormaintenance ofpowerplants,projectsand facilities,to fixthe rateofreturn on ratebaseofthe NationalPowerCorporation(NPC)tonotmorethan 12percent,and toreorganizethe NPC. The law encouraged the entry of foreign power firms and the execution ofvarious powercontracts.
In addition, Executive Order No. 215 (s. 1987) was issued to promote private sectorparticipation in the business of generating electricity. Republic Act No. 8180, whichprovides forthe deregulation ofthe oilindustry,was also recentlyenacted.
However,in both the telecommunications and powerdistribution sectors,family-ownedmonopolies would be difficult to break and powerful commercial interests couldinfluence regulatory bodies. For instance, Globe Telecoms (Ayala Group) and SmartCommunications (M etro PacificHoldings Group)virtually simultaneously announced a60percentreductionoffreeshortmessaging services.W hen the legalityofsaidreductionwas questioned, the National Telecommunications Commission issued a temporaryrestraining order,butthe orderwas lifted almostimmediately allegedly because oflackofsufficientevidence.
Anothercrisis,thistime in the watersector,prompted the enactmentofthe W aterCrisisAct, Republic Act No. 8041. Like in the power crisis act, the President was conferredemergency powers to enter into negotiated contracts for water supply and distributionprojects under the BOT or related schemes. The President's authority to negotiate,46 Executive OrderNo.109(1993),Sec 5.
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however,expired on 15 July 1996 withoutany such contractbeing finalized.The samelaw provided for the privatization of the M etropolitan W ater and Sewerage System(M W SS). In this regard, Executive Order No. 311 (s. 1996) was issued to encourageprivate sector participation in the operations and facilities of the M W SS. In 1997, thegovernment engaged in its largest privatization effort with the sale of the M W SS toprivatecorporations,M anilaW aterCorporationand M aynilad W aterCorporation,whicharenow servicing M etro M anila.
Government participation in commercial enterprises discourages the entry of privateentrepreneursinthe market.Forthisreason,the governmenthas long adopted apolicy toprivatize GOECs as earlyas 1986underProclamationNo.50and 50-A which created theCommittee on Privatization and the Asset Privatization Trust. The same laws remaineffective through severalextensions affected by RepublicActsNos.7181,7661and 7886.
The effortsatdivestmentofsome governmentassetshave proven difficulttomarket.Forthisreason,Executive OrderNo.298(s.1996)was issued by the Presidenttoprovide foralternative and/orintermediate modes ofprivatization through jointventures,BOT andrelated schemes,managementcontracts,lease purchase arrangementsand securitization.Finally, notable by its absence, is the lack of effective anti-trust legislation in thePhilippines.Infact,inthe region,onlythe Philippines and Vietnam have yettorecognizethe need to establish effective anti-trust legislation and regulatory agencies. Philippinem arkets lack com petition with diverse, horizontal and vertical fam ily-ownedconglomerates and large government-owned or-controlled firms.The top five familiescontrolapproximately43percentoftotallisted corporateassets,the highestinEastAsia.Philippine conglomerates operate in a wide range ofindustry sectors.Forinstance,theAyala Group of Com panies has 48 com panies controlling real estate, localtelecommunications,agribusiness,food,and industrialbusinesses.On the otherhand,thegovernmentowns and manages 179 companies engaged in agriculture,railways,power,water, technology, and banking and finance. For instance, the government-ownedDevelopmentBank ofthe Philippines may be directed tolend toothergovernment-ownedfirms and increase the risk ofpoorinvestments.
V.2 Country Readiness for G lobalizationThe foregoing review ofexisting Philippine law and regulations,which have an impacton the capability ofthe Philippines to cope with the challenges ofglobalization and tobenefitfrom it,clearlydemonstrated thatthe Philippines has soughttomake itsindustriesgloballycompetitive through certain publicpolicy initiatives:
l Reduction of infrastructure costs of telecommunications, transportation, andbanking by breaking upthe monopolies and cartelstoreduce the costofdoingbusiness in the Philippines as wellas provide cheap and easy access to globalmarkets;
l Provision of energy requirements by harnessing private sector resourcesthrough BOT schemes and deregulation ofthe oilindustry;
l Reduction of tariff barriers as to gradually expose Philippine industries tointernational competition and so force such industries to become globallycompetitive.
W hile such public policies met with enough success to remove the title "Sick M an ofAsia" from the Philippines, certain developments have enabled the doubters of suchpolicies to have abasisforcalling forareview,oreven areversal,ofsuch policies.
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As with allchanges,globalization poses new challenges to existing industry playersaswell as to the new entrants to the industry. It must be kept in mind that market-strengthening activities areas importantas regulatoryreform.
V.2.1Over-Safeguarding,Bail-Outs,and the New Protectionists
Globalization policies give more freedom, which unfortunately carries with it thepossibilityand,moreimportantly,the necessitytohave the abilitytoacceptfailure.Thatcertain companies willfailisarealpossibility thatchallenges publicpolicymakerswhowould be under public pressure to bail out companies that fail the test of increasedcompetition globalization would bring.
One development,which isaconsequence ofsuch policies,has been the demise orthedebacle of Philippine companies exposed to global competition. The prime example isPAL and,to alesserextent,shipping companies such as Negros Navigation.Failing thetestofthe marketplace,PAL has been forced toreduce itsworkforceand ended upbeingcrippled by apilots'strike.Underthe liberalization framework,PAL,Asia'sfirstairline,would have suffered the same fate as Pan Am, the world's first airline. However, thegovernment flinched from such a draconian stance and sought to revive the airline.Fortunately,forthe public,the governmentwiselyrefused touse publicfunds tobailoutPAL.
PAL has sustained its efforts through the years to oppose the liberalization of the airtransport industry. In fact, there is a clamor from other gateways in the country, i.e.,Diosdado M acapagal International Airport, M actan International Airport, and DavaoInternationalAirportforthe Philippines to declareopen skies in orderto generatemoreairtraffic.
On the otherend ofthe spectrum has been the PLDT.In spiteofthe liberalization oftheindustry and the entry of several big players, PLDT has successfully defended itsdominantpositionthrough acombinationofreforms,such as the ZeroBacklog Program,and itsstranglehold on interconnection.Even with such stranglehold though,PLDT hasnotfared so wellin the cellularphone sub-market.Observershave raised the troublingissue that PLDT has now the best of both worlds: enjoying the use of its leverage asdominantplayerand yetnotas tightlysubjectto regulation as before.
Thereexistsanotherrealpossibilitythatthe new entrants,having been admitted into theindustry, will suddenly switch positions and advocate restrictions on later entrants.Today's free-marketers can become tomorrow's protectionists. Industry players candevelop new strategies and evolve new strategic alliances thatcould,ifnotanticipatedand countered, return the industry into a position of anti-com petitiveness anduncompetitiveness.
V.2.2Prom otion versus Regulation
The initialassumption thatglobalization and liberalization willmake the work ofpublicpolicymakers easier is wrong. The role of public policymakers has shifted fromregulatory functions to promotion functions. Instead of being active participants orintervenersin the marketplace,publicpolicymakershave to setthe properenvironmentforcompetitionand competitiveness and toassurealevelplaying fieldamong allindustryplayers,so thatPhilippine industries can survive in the globalsetting.
The basic premise of the liberalization policies and laws of the various governmentadministrations since the term ofPresidentFidelV.Ramos isthatPhilippine industries
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are not globally competitive, with a few exceptions in the industry sector. This is themajor reason why the Philippines have lagged behind the Asian tiger economies. Thetrend towards globalization has become irreversible. Thus, unless Philippine industriescan be made globallycompetitive,the economicfutureofthe countrywillbe bleak.
However, liberalization efforts should not focus on the few exceptional competitiveindustries buton those industries thathave been making such competitive industries lesscompetitive in the market place, e.g. expensive local sugar is making local foodprocessors uncompetitive. The philosophy behind Hong Kong and Singapore as FreePortsisthatsuch policy enables theirindustries tosourcefrom anywhereinthe worldthebest and the cheapest inputs possible for their industries. In sharp contrast, Philippineexport-oriented industries have been used and arecontinuing to be used to subsidize theless competitive industries.Thus,whilethe industries ofHong Kong and Singaporestartwith an inputadvantage,Philippine exportindustries startwith an inputhandicap.
Inputshererefernotonlyto the raw materialsbuteven to infrastructureservices such aspowerand telecommunications wherecross-subsidies exist.Such cross-subsidies usuallyconsistofcharging below marketrates toconsumersand offsetting the losses by chargingabove marketrates tocommercialusers.Thishas been the easy policy way outratherthanintroducing competition among the infrastructure services providers so as to lower thecharges to both consumersand commercialusers.
The new roleofpublicpolicymakerswillalso breed the selectionofand developmentofnew policymakers.
V.2.3 Building Im plem entation Capacity
The new roleofpublicpolicymakersrequires the building ofimplementationcapacity.Asisevident,reasonablelaws and regulations topreparethe Philippines forand benefitfromglobalizationarealready inplace.Itisnotenough tohave internationalstandards inplace.Poorimplementation hobbles orpreventseconomicand socialgrowth.To implementallthese laws, even more the new laws specifically enacted to cope with globalization,personnel of regulatory, judicial and quasi-judicial agencies have to be trained on thecomplex aspects of these laws and their enforcement. This will be a long process,entailing,as itdoes,strong politicalwill,privatesectorcooperation,and vigilance frompublicinterestgroups.
Supportforanti-corruption initiatives would increase the capacity ofthe governmenttoeffectivelyenforceregulations.
VI. TRANSPARENCY AND ACCO UNTABILITY IN TRADE AND INVESTM ENTACTIVITIES
The chief aim of the country's agencies and institutions is to ensure and enhance thecountry'scredibilityinenforcing the ruleoflaw thatgoverns markettransactions and theenforcementofcontracts.Governmentsthatfailtoensurelaw and order,protectpropertyand property rights,and apply rules and policies predictably arenotconsidered credibleby investors, and growth and development in these countries suffer as a consequence(W orldDevelopmentReport,2002).Thereareanumberofagencies and institutions thatpromotetransparency and accountabilityintrade and investmentactivities inthe country.
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Among these arethe NationalEconomicand DevelopmentAuthority,the DepartmentofTrade and Industry,the Board ofInvestments,the Philippine EconomicZone Authority,the Securities and Exchange Commission, the Bangko Sentral ng Pilipinas, theDepartment of Finance, the Bureau of Internal Revenue, the Bureau of Customs, andBureau ofImmigration,among others.
The National Economic and Development Authority47 (NEDA) is the government'scentral planning institution, which consists of the NEDA Board and the NEDASecretariat.48 The powers and functions of NEDA reside in the NEDA Board, thecountry's highest socioeconomic development planning and policy coordinating body.Five cabinet-level interagency com m ittees - Developm ent Budget CoordinationCommittee, Investment Coordination Committee, Infrastructure Committee, SocialDevelopment Committee, and Committee on Tariff and Related M atters - assist theNEDA Board in the performance of its functions. The NEDA Secretariat serves as theresearch and technicalsupportarm ofthe NEDA Board.Specifically,itprovides technicalstaff support and assistance that include the conduct of studies and the formulation ofpolicy measures and other recommendations on the various aspects of developmentplanning and policy formulation, and coordination, evaluation and monitoring of planimplementation.A Director-General who also carries the rank and title of Secretary ofSocioeconomic Planning and Development heads the NEDA Secretariat. The NEDASecretariat is composed of three offices - National Development Office, RegionalDevelopmentOffice,and CentralSupportOffice.
The NationalDevelopmentOffice(NDO)provides technicalstaffsupportto the NEDABoard in coordinating the formulation of national and sectoral policies, plans, andprograms;monitorsmacroeconomicand sectoralperformance and prepares the necessaryeconomicreports;and conductseconomicand developmentstudies onmacro-levelplansand policies.The NDO iscomposed ofsixbureau-levelstaffunits.
The Regional Development Office (RDO) provides technical staff support as may berequired by the implementing agencies at the regional level. The RDO is tasked tomonitor regional and interregional development policies, plans and programs; prepareintegrated reports on regional planning; and conduct studies on regional developmentpolicies.Inordertoperform itsfunctions,the RDO iscomposed oftwo bureau-levelstaffunits and fifteen regional offices. The NEDA Regional Offices (NROs) serve as thetechnicalstaffofthe RegionalDevelopmentCouncil(RDC)in the region,provide staffassistance to the RDC in the coordination ofplan formulation and implementation attheregional level, provide staff assistance to implementing agencies in the region inidentifying and developing programs and projects,evaluateand review proposed regionalprograms and projects for consideration by the RDC, monitor and assess projectimplementation at the regional level, and coordinate with regional offices of otherdepartmentsand agencies and with localgovernmentunitsoutside the NationalCapitalRegion in the performance oftheirassigned tasks.47NEDA brochure.48 NEDA was created in 1972, exercising the functions then vested in the National Economic Council, the
Presidential Economic Staff,and otherad hoc economic institutions.Executive Order(EO)230,issued on 22July1987,reorganized NEDA intoitspresentorganization,function,and responsibilities.
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The Central Support Office (CSO) provides the NEDA Secretariat with technicalassistance and support services in the areas of development administration, internalmanagementimprovement,legalservices,developmentinformation,and administrativeservices.Five bureau-levelstaffunitscomprise the CSO tohelpimplementitsduties andresponsibilities.
The DepartmentofTrade and Industry49 (DTI)isthe government'sprimarycoordinative,promotions,and facilitative arm with regard to trade,industry,and investmentactivities.The DTIactsas the catalystforintensified privatesectoractivitytoaccelerateand sustaineconomicgrowth through acomprehensive industrialgrowth strategy;aprogressive andsocially responsible liberalization and deregulation program; and policies designed forthe expansion and diversification ofboth domesticand foreign trade.
In orderto achieve itsmandate,the Departmentsees itsrole as business and consumerchampion guided by its five-point action strategy, namely, to promote and developbusiness, with focus on small and medium enterprises; to prepare the country for itsbecoming a knowledge economy; to lower the cost of doing business; to ensure thatconsumersgetthe bestvalue fortheirmoney;toupgrade the qualityofgovernance intheDepartment.The overarching goalofthe Departmentthrough the aforementioned five-point action plan is to grow and expand Philippine trade and industry as the means togeneratejobs and raise incomes,so thatFilipinos may enjoy continuing improvementsintheirqualityoflife.
The Board ofInvestments50 (BOI)isan agency attached to DTIand isresponsibleforthe promotion of investments in the Philippines. BOI is divided into four operatinggroups:InvestmentsPromotion,TechnicalServiceGroup,IndustryDevelopmentGroup,and ProjectAssessmentGroup.As the lead agency inpromoting investments,BOIassistsFilipino and foreign investors to venture and succeed in desirable areas of economicactivities such as in food processing,construction,metalproducts,telecommunications,powerand infrastructureprojects,among others.
In order to meet the diverse requirements of investors, BOI offers specialized servicessuch as information assistance to localand foreign investors;timely investmentadviceand facilitation regarding investor'sbusiness transactions;assistance in the selection ofideal investment location; joint venture matching services for local and foreignentrepreneurs with international businesses; business linkages with public and privatesectors; evaluation and supervision of investment applications; training on investmentprom otion; sem inars on investm ent networking for local executives; investm entbriefings,inboundand outboundmissions,seminarsand conferences forlocaland foreigninvestors; entrepreneurial assistance to overseas Filipino workers; after-hours servicethrough the InvestmentPromotionNetwork-asystem ofhotlines connecting InvestmentPromotion Units across twenty-four related government agencies; and industry sectorplanning and preparation ofindustrysectorprofiles.
The BOImustbe transformed from an enterprise-specificincentives-granting agency intoapromotionalagency with industry-wide assistance (Virataand Associates,1996).
49 www.dti.gov.ph50 www.boi.gov.ph
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Instead of focusing its resources on registration of projects and administration ofincentives,the BOIcan now directitsenergies on the formulation ofindustrialpolicy:collect, exchange, and disseminate information on industrial productivity and worldcompetitiveness. The authority to grant and administer incentives should be theresponsibilityofthe Philippine EconomicZone Authority(PEZA),whileBOIfocuses onpromotionalactivities (Patalinghug and Salazar,1993).
The Philippine EconomicZone Authority (PEZA)isagovernmentcorporation attachedto DTI responsible for the promotion and establishment of world-class, environmentfriendly economiczones alloverthe country as aresponse to the demand forready-to-occupy locations forforeign investmentsand businesses.51 The PEZA Board,athirteen-person group headed by the DTI Secretary, is responsible for the formulation andimplementation ofpolicies,plans and programs forPEZA,as wellas the establishmentand enforcementofrules and regulations thatgovern the establishmentand conductofeconomic zones in the Philippines. The mission of PEZA is to contribute to theaccelerated creation ofemploymentand othereconomicopportunities,especially in thecountryside, and to spur the growth and diversification of exports by encouraging andsupporting investmentsin the developmentand operation ofeconomiczones.52
The vision ofthe Securities and Exchange Commission53 (SEC),as an independentandcredibleregulatoradhering tointernationalstandards,istobe aprime moverofeconomicdevelopmentin the country by ensuring afair,efficient,and transparentcapitalmarket.The SEC shall actively promote the development of a globally competitive capitalmarket,effectively regulate and monitoritsoperations,and widely disseminate reliableinformationforthe protectionofthe investing public.Inorderforthe SEC tocarryoutitsmission,itshallharness itsempowered human resources,functioning underthe cultureofefficiency and integrity, and deliver services through systems enhanced by appropriatetechnology.
The SEC isempowered by law tohave jurisdictionand supervisionoverallcorporations,partnerships orassociations who arethe grantees ofprimary franchises and/oralicenseorpermitissued by the Government;formulatepolicies and recommendations on issuesconcerning the securities market, as well as advise Congress and other agencies on allaspectsofthe securities marketand propose legislationand amendmentsthereto;approve,reject,suspend,revoke orrequireamendmentstoregistrationstatements,and registrationand licensing applications;regulate,investigate,and supervise the activities ofpersons toensure compliance;supervise,monitor,suspend ortakeoverthe activities ofexchangesand other clearing agencies; impose sanctions for the violation of laws and the rules,regulations,and ordersissued pursuantthereto;prepare,approve,amend orrepealrules,regulations and orders, and issue opinions and provide guidance on and supervisecompliance with such rules, regulations and orders; and enlist the aid and support ofand/ordeputize any and allenforcementagencies ofthe Government,civilormilitaryaswellas any institution,corporation,firm,association orperson in the implementation ofitspowersand functions underthisCode.
51PEZA was established through alegislative enactmentknown as "The SpecialEconomicZone Actof1995."52www.peza.gov.ph/aboutus.htm53www.sec.gov.ph
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M oreover,the Commissionisempowered toissue cease and desistorderstopreventfraudorinjurytothe investing public;punish forcontemptofthe Commission,bothdirectandindirect,in accordance with the pertinentprovisions ofand penalties prescribed by theRules ofCourt;compelthe officersofany registered corporation orassociation to callmeetings ofstockholdersormembersthereofunderitssupervision;issue subpoena ducestecum and summon witnesses to appear in any proceedings of the Commission and inappropriate cases,orderthe examination ofreturns,books ofaccountsofany entity orperson under investigation as may be necessary for the proper disposition of the casesbeforeit,subjecttothe provisionofexisting laws;suspend orrevoke,afterpropernoticeor hearing, the franchise or certificate of registration of corporations, partnerships orassociations,upon any ofthe grounds provided by law;and exercise such otherpowersas may be provided by law as wellas those which may be implied from,orwhich arenecessaryorincidentaltothe carrying outof,the express powersgranted the Commissionto achieve the objectives and purposes ofthese laws.
Underthe New CentralBank Act,the Bangko Sentralng Pilipinas54 (BSP)was grantedincreased fiscal and administrative autonomy from other sectors of the Government,which means thatitno longerundertakes quasi-fiscalactivities thatused to be done bythe formerCentralBank ofthe Philippines.M oreover,pursuanttothe New CentralBankAct,the BSP isnotpermitted to engage in developmentbanking orfinancing.
The main objective of the BSP is to formulate and implement policy in the areas ofmoney, banking and credit, with the primary purpose of maintaining stable pricesconducive to balanced and sustainable economic growth in the country. The BSP alsoseeks to promote and preserve monetary stability and the convertibility of the nationalcurrency [to othercurrencies].Underthe New CentralBank Act,the BSP performs thefollowing functions, all of which relate to its being the country's central monetaryauthority.
l Conduct monetary policy. The BSP formulates and implements a monetarypolicy aimed atmanaging the expansionorcontractionofmonetaryaggregatesto affectpricestability.
l Issue currency.The BSP has the exclusive powertoissue the nationalcurrency.l Lend to other banks and the Government. The BSP is authorized to extend
discounts, loans and advances to banking institutions for the purpose ofinfluencing the volume ofcreditconsistentwithBSP'sobjective ofmaintainingprice stability. In general, the BSP does not regularly extend credit to theGovernment although it purchases government securities in the secondarymarket with regard to its open market operations. The BSP may financegovernment expenditures (annual appropriations) provided that the amountborrowed isrepaidwithinthreemonths and thatthe amountshouldnotexceedtwentypercentofthe average annualrevenues ofthe Governmentin the mostrecentthreefiscalyears.
l M anage foreign currency reserves. The BSP aims to maintain sufficientinternational reserves to meet any foreseeable net demands for foreigncurrencies in orderto preserve the internationalstability and convertibility ofthe nationalcurrency.
l Supervise and regulatefinancialinstitutions.Inthiscapacity,the BSP conductsperiodic or special examinations of banking institutions and quasi-banks,including theirsubsidiaries and affiliates engaged in allied activities.
54www.bsp.gov.ph
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l Determine exchange rate policy. Currently, the BSP adheres to a market-oriented foreign exchange rate policy such that BSP's role is principally toensureorderlyconditions in the [foreign exchange]market.
l Lastly, the BSP functions as the banker, financial advisor and officialdepository of the Philippine Government, its political subdivisions andinstrumentalities, and government-owned-and-controlled corporations. TheBangko Sentralalso provides the Governmentwith opinions on the monetaryimplications of any foreign or domestic borrowing operations. M oreover,foreign borrowings ofthe GovernmentrequireBSP'sapprovaland the BangkoSentral also represents the Government in international financial institutions,such as the InternationalM onetaryFund and the W orldBank.
The DepartmentofFinance55 (DOF)isthe government'slead agency inproviding asolidfoundation forthe country'sdrive to become one ofthe mostdynamiceconomies in theworld -globally competitive and forward looking -by building a strong fiscalposition.Specifically, the DOF is responsible for the formulation, institutionalization andadministration of fiscal policies in coordination with other concerned agencies andgovernment institutions; generation and management of financial resources for thegovernment; supervision of revenue operations in and of all local government units;review, approval and management of all domestic and foreign public sector debt; andrationalization,privatization,and publicaccountabilityofcorporations and assetsowned,controlled,oracquired by the government.
Inordertoperform itsmandate,the DOF isempowered by law toformulategoals,actionplans and strategies for the government's resource mobilization efforts; formulate,institutionalize and administer fiscal and tax policies; supervise, direct and control thecollection of government resources; act as custodian of and manage all financialresources ofthe government;manage publicdebt;review and coordinatepolicies,plansand programs of GOCCs; monitor and support the implementation of policies andmeasures on local revenue administration; coordinate with other government agenciesand institutions onmattersconcerning fiscal,monetary,trade,and othereconomicissues;and investigateand arrestillegalactivities such as smuggling,dumping,illegallogging,and other unscrupulous economic activities that may affect or impact the economicinterestsofthe country.
The Bureau ofInternalRevenue has amandateto assess and collectallnationalinternalrevenue taxes, fees and charges, and to enforce all forfeitures, penalties and finesconnected therewith,including the executionofjudgmentsinallcases decided initsfavorby the Court of Tax Appeals and the ordinary courts.56 Given its mandate, the BIRintends toraise revenues forthe governmentthrough effective and efficientcollectionoftaxes,quality service to taxpayers,and impartialand uniform enforcementoftax laws.The Bureau envisions a tax-paying public satisfied with its services; an agency that istaxpayer-focused, efficient and transparent; an organization that is stream lined,productive,and responsive initsfiscaland administrative operations;aworkforcethatisprofessional, competent, morally upright and properly motivated; and an agency thatmodelsgood governance in the publicsector.57
55www.dof.gov.ph56Section2ofthe NationalInternalRevenue Code of1997.57www.bir.gov.ph
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The Bureau of Customs58 is an important and the second largest contributor togovernment coffers. The Bureau aims to be more efficient and effective in customscollection,which adheres to the world'sbestpractices on customs administration and bemoreresponsive tothe customs serviceneeds ofitsclients.Inordertoachieve itsmission,the BOC isempowered by law toassess and collecttax revenues from imported articles,fines and penalties, among other things, under the Tariff and Customs Code (TCC);prevent and suppress smuggling and fraud in customs administration; supervise andcontrol the entrance and clearance of vessels and aircraft engaged in foreign trade;supervise and control the handling of foreign mail arriving in the Philippines for thepurpose of collecting taxes on dutiable articles thus imported and prevent smugglingthrough mail; supervise and control all import and export cargoes, landed or stored inpiers and terminal facilities, including container yards and freight stations; exerciseexclusive jurisdictionoverseizureand forfeiturecases underthe tariffand customs laws;and enforceTCC and allotherlaws,rules and regulations relating to tariffand customsadministration.
The four-fold thrust of the BOC revolves around revenue collection, trade facilitation,intelligence and enforcement,and internaladministrationofitsresources.Underrevenuecollection, the BOC seeks to collect targeted revenues through improved collectionefficiency and plugging of revenue leakages; under trade facilitation, it supportsgovernment programs through speedy clearing of goods and passengers from customs;underintelligence and enforcement,the Bureau protectssocietyagainstprohibited drugsand otherharmfulsubstances,and illegaltrade ofnaturalresources;and underinternaladministration,itsupportsthe government'sthrustto streamline the bureaucracy and toemploy resources more effectively and efficiently. In order to expedite customsprocessing, the Bureau has adopted the SPACE Program, which represents the fivegeneralprinciples underlying progressive clearance procedures and systems.Specifically,SPACE stands for-
l Selectivity: only high-risk shipments undergo the regular clearance process,whilethe majorityundergoes express processing;
l Postaudit:shipmentsgiven express clearance may be subjected topostauditorsome form ofrelease clearance processing;
l Advance processing:the clearance process isinitiated wellinadvance ofcargoarrival;
l Client self-assessment: the Bureau will increase its reliance on client self-assessmentand develop ofatmosphereofhonestand fairdealings;
l Electronicdatainterchange:the process willbe,to the fullestextentpossible,automated and computerized.
In accordance with the Revised Administrative Code of 1987, the Commission onImmigration and Deportation was renamed Bureau of Immigration59 as it is moreproperlycalled today.UnderthisCode,the Bureau iscomposed ofthreestructuralunitsnamely:the Officeofthe Commissioner,the Board ofCommissioners,and the Board ofSpecialInquiry.These groups actas collegialbodies and exercise quasi-judicialpowersaffecting the entryand stay offoreign nationalsin the country.
VII. CO NCLUSIO NS AND RECO M M ENDATIONSThe reportdescribes the various laws,rules,regulations,agencies,and institutions thatdefine the ability of the Philippines government to promote trade, investment, and
58www.customs.gov.ph59www.gov.ph
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growth. Administrative theory posits that states with effective public administrationsystems and strong institutions have the capacity to channel globalization to their ownadvantage and to minimize itscosts.
The Philippine State is performing a lot of functions, some of which characterize thefunctions ofastatewith strong capability.A closerlook atthe outcomes ofthe assignedroles toPhilippine agencies and institutions seems torevealthe inconsistency between thestate'sroleand itscapability.
The Philippine Government has been engaged in activities and functions related toredistribution and protecting the environment, a characteristic of countries with strongcapability.However,in doing these activities,itweakens itsability to deliverbasicandproductivity-enhancing services such as upholding the rule of law, protecting propertyrights, providing infrastructure, and supporting education. Thus, a state with low statecapacity com prom ises of delivering basic services when it sim ultaneously andprematurely adds several functions which are inconsistent with its given set ofinstitutions,resources,and stage ofdevelopment.
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La Porta,etal.1998.InvestorLaw and Finance.JournalofPoliticalEconomy.(December).
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M okoroLimited.1997.Systems andGap Analysis:The Philippines.
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Patalinghug,E.E.1992.‘‘IndustrialPolicy in ExportOriented Economies:Lessons from the Experiences ofJapan South
Korea,and Taiwan.’’The Philippine Review ofEconomics and Business,Vol.XXIX,No.2,December1992,pp.
264-276.
........and M .Salazar,Jr.1993.SectoralFramework Paper:Trade,Industry,Tourism,and EconomicDiplomacy,A Paper
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-June 2000,Vol.1,No.1,pp.31-59.
Schleifer,A.and R.Vishny.1993.‘‘Corruption’’.QuarterlyJournalofEconomics,Vol.108,pp.599-617.
Snowdon,B.and H.R.Vane.1999.ConversationswithLeadingEconomists.London:EdwardElgarPublishing Limited.
Virataand Associates.1996.A Proposalfor anIntegrated DepartmentofTrade,Industry andToursim.DTIT.
W eidenbaum,M .1995.Business andGovernmentinthe GlobalM arketplace Prentice Hall,5thedition,pp.24-52.
W ilson,J.1989.Bureaucracy:W hatGovernmentAgencies Do andW hy TheyDo It New York:BasicBooks.
W orldBank.1996.W orldDevelopmentReport1996. New York:OxfordUniversityPress.
...............1997.W orldDevelopmentReport1997. New York:OxfordUniversityPress.
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AppendixInvestm entCoordination Com m ittee
The Investment Coordination Committee is one of the five cabinet-level interagencycommittees thatassistthe NEDA Board in the performance ofitsfunctions.60 The ICCis a multi-agency working group that reviews the fiscal, monetary, and balance ofpaymentsimplications ofmajorcapitalprojects61,then recommend tothe PresidentoftheRepublic of the Philippines the timetable of the implementation of these projects on aregularbasis;submittothe Presidentastatus ofthe fiscal(budgetary),monetary(credit),and BOP implications ofthe M CPs;and review and evaluatespecificM CPs withrespectto their technical, financial, economic, social, institutional development feasibility orviability,as wellas from the contextofsectoralplans and geographicalstrategies,thenrecommend to the NEDA Boardforapproval.62
In general,ICC review isundertaken forM CPs requiring ICC clearance and/orNEDABoard approval as preconditions for loans and guarantees by the national government;private sector access to concessional ODA financing; obtaining BSP authority tonegotiate foreign loans and M onetary Board approval of foreign borrowing; andbudgetary appropriations [for national line agencies, other government agencies, andgovernmentowned and controlled corporations].
The ICC review process covers any independent undertaking of the public sector withtotalprojectcostofatleastPHP300 million resulting in new capitalformation63 in theeconomy without regard of the source of financing (i.e. whether for local financing orthrough foreign loans and/orgrants);publicsectorprojectswith foreign borrowing ofatleastUS$5 million;privatesectorprojectsseeking concessionalODA financing underon-lending arrangements and/or national government financing guarantees, which mayinclude infrastructure projects to be undertaken under the build-operate-transfer andrelated schemes; and other projects and/or programs that do not fall under theabovementioned definitions shallbe considered on acase to case basis.
The ICC review process consists of three levels - the technical board, the cabinetcommittee,and the NEDA Board.The ICC issupported by the ICC Secretariat,whichprovides technicalsupportto the ICC TB and CC.The duties and responsibilities oftheSecretariatincludes butnotlimited to the evaluation ofallprojectssubmitted to the ICCand come up with comments and recommendations for consideration by the ICC;recommendation of the relative priority of projects with respect to sectoral or regionalplans; assessment and improvement of existing methods and guidelines for projectevaluation to proponentagencies,among others.
The ICC TB deliberates on the economic, social, financial, technical, and institutionalaspectsand implications ofM CPs,including policy issues raised by the ICC Secretariat;identifies priority areas for foreign financing to guide the BSP in the evaluation andapprovalofforeign loan proposals;referto the ICC CabinetCommitteefordeliberationand review the recommended actions,policies,and issues concerning specific projects;review the fiscal, monetary, and BOP implications of M CPs, and formulate policies
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60 The otherfourcabinet-levelcommittees arethe DevelopmentBudgetCoordinationCommittee,InfrastructureCommittee,SocialDevelopmentCommittee,and CommitteeonTariffand Related M atters.
61 ProjectsthatcostatleastPHP 300million.62 ICC Guidelines and Procedures Revised on11April1991perICC CabinetCommittee.The ICC Guidelines and
Procedures wereoriginallyformulated as partofEO 230reorganizing the NationalEconomicand DevelopmentAuthorityonJuly22,1987.
63New capitalformationreferstorealinvestmentsinvolving physicaladditions tothe capitalstock ofthe economy.
appropriate to the review of projects in general, and other matters relevant to theperformance ofthe functions ofthe ICC.64
The ICC CC recommends for approval to the NEDA Board the decisions on specificprojectsand/orprograms submitted forICC clearance,as wellas otherissues concerningICC; recommends to the NEDA Board an annual implementation program for M CPsthrough the M edium-Term Philippine InvestmentProgram (M TPIP);and submitsto thePresidentthrough the NEDA Boardastatus ofthe fiscal,monetary,and BOP implicationsofM CPs.65
The NEDA Boardisthe country'shighestsocialand economicdevelopmentplanning andpolicy coordinating body. The Board ultimately decides the approval of M CPs forimplementation and budgetaryallocation and support.
Legislative Executive Developm entAdvisory CouncilThe mandateofthe Legislative Executive DevelopmentAdvisory Council66 isto actasan effective advisory and consultative mechanism to ensureconsistency in coordinatingexecutive development planning and congressional budgeting and to provide themechanism for generating consensus among the legislative and executive branches onvarious socioeconomicgoalsand objectives;and to serve as aconsultative and advisorybody to the Presidenton certain programs and policies essentialto the realization ofthegoalsofnationaldevelopment.
The main functions of the Advisory Council are to facilitate the passage of prioritylegislation [that support socioeconomic development] and to provide a forum forcontinuing consultations and consensus building onvitalsocioeconomicconcerns.Underthe Advisory CouncilproperisaLEDAC Executive Committee,68 which approves andrecommends to the Advisory Council the agenda for the LEDAC meetings; sets theoverallthrustand direction ofthe LEDAC Secretariat;identifies priorityareas requiringattention by the Advisory Council; and formulates options or alternative modes forresolving these issues for consideration by the Advisory Council. Under the LEDACExecutive Committee is the LEDAC Secretariat, which oversees and coordinates theprovision ofthe overalltechnicaland administrative supportto the advisoryCouncil.
64 The ICC TB is chaired by NEDA and co-chaired by the International Finance Group of the DOF. The othermembersofthe ICC TB includes DOF'sCorporateAffairsGroup,Officeofthe President,DepartmentofBudgetandM anagement,DTI,DepartmentofAgriculture,BSP,DepartmentofEnvironmentand NaturalResources,DepartmentofEnergy,and Coordinating CouncilforPrivateSectorParticipation.Otheragencies may be invited to the ICC TBdeliberations when deemed necessary.65The ICC CC ischaired by the Finance Secretaryand co-chaired by the Director-GeneralofNEDA.Itsmembersinclude the Executive Secretary, the Budget and M anagement Secretary, the Trade and Industry Secretary, theAgricultureSecretary,the EnergySecretary,the BSP Governor,and the CCPSP Secretary.Representatives from otheragencies, private and non-government institutions may be invited to the Committee's deliberations when deemednecessary.66The legalbasisofLEDAC was created on9December1992through RA 7640.67 The AdvisoryCouncilischaired by the Presidentand composed oftwentymembers:the VicePresident,SenatePresident,Speakerofthe House,seven Cabinetsecretaries,three senators,three congresspersons,a representativeeach from the localgovernment,the youth and privatesectors.A numberofsenatorsand congresspersons may beinvited occasionallytoensureamorethorough discussionand considerationofvitalsocioeconomicand developmentissues.68The NEDA Director-Generalchairsthe LEDAC Executive Committeewithrepresentatives from the OfficeofthePresident,House ofRepresentatives,and Senateas members.
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Developm entBudgetCoordination Com m itteeThe Development Budget Coordination Committee is one of the five cabinet-levelinteragency committees thatassistthe NEDA Board in the performance ofitsfunctions.The DBCC has three functions, which include the recommendation for Presidentialapprovalofthe levelofthe annualgovernmentexpenditure program and the ceiling ofgovernment spending for economic and social development, national defense, generalgovernment, and debt service; the recommendation to the President of the properallocation ofexpenditures foralldevelopmentactivities forthe various infrastructureorcapitalprojects;and the recommendationtothe Presidentofthe amountsetforallocationoncapitaloutlay undereach developmentactivityforthe various infrastructureorcapitalprojects.69
CivilServiceCom m issionThe CivilServiceCommission isthe Philippine government'scentralpersonnelagencywithamandatetopromotemorale,efficiency,integrity,responsiveness,progressiveness,and courtesy in the civilservice.The Commission has an adjudicative responsibilityandistasked to renderfinalarbitration on disputes and personnelactions on mattersrelatingtocivilservice.The CSC isresponsibleforthe recruitment,development,protection,andretention ofacompetent,professional,and highlymotivated governmentworkforcethatisresponsive to the needs ofthe various publics thatinteractwith the government.TheCommission'sspecificfunctions include leading and initiating the professionalization ofthe civil service; promoting public accountability in government service; adoptingperformance-based tenurein government;and implementing the integrated rewards andincentives program forgovernmentemployees.70
RepublicAct9184Formerly referred to as the GovernmentProcurementReform Bill,RA 9184 directsallgovernment transactions that pertain to procurement of materials and services to becentralized through a major computer network infrastructure called the GovernmentElectronic Procurement System. The implementing rules and regulations of RA 9184would create a Government Procurement Policy Board whose membership would becomposed ofgovernment,non-governmentand privatesectors.
The objectives ofRA 9184supportthe overarching objective ofthe currentadministrationto minimize graftand corruption and increase transparency in allgovernmentactivities.RA 9184isintended tohelppreventgraftand corruption,improve operationalefficiency,fostertransparency,and encourage competition in the bidding process.RA 9184 ortheGovernment ProcurementAct is a step to streamlining the government's procurementtransactions, which, according to a private sector-led watchdog, is plagued by illegaldeals.71
ExportDevelopm entCouncilThe ExportDevelopmentCouncil72oversees the implementationofthe Philippine ExportDevelopmentPlan (PEDP)and coordinates the formulationand implementationofpolicyreforms to supportthe PEDP.The EDC isempowered to approve the PEDP;coordinate,monitor and assess the implementation of the PEDP, and, when necessary, institute
69 NEDA brochure.70 www.csc.gov.ph71 www.mctimes.net72EDC brochure.
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appropriateadjustmentsinordertoadapttochanging conditions inboththe domesticandinternational environm ent; periodically review and assess the country's exportperformance,problems,and prospects;identifythe main bottlenecks,problem areas andconstraints in all areas that influence export development, such as policy framework,physical infrastructure, finance, technology, promotions and marketing; among otherthings.
The ExportDevelopmentActof1994 isimplemented within the institutionalstructuresand strategies ofthe ExportDevelopmentCouncil.The goalofthe ExportDevelopmentActisto provide amacroeconomicpolicy framework thatsupportsexportdevelopment,especiallyin the following key areas ofconcern:
l M onetary and foreign exchange policies that establish and maintain acompetitive exchange rate, supported by measures to provide safety nets forvarious sectorsthatmay be adversely affected by the implementation ofsuchpolicies, and that such policies shall be consistent with the objectives andfunctions ofthe BSP.
l Fiscal and credit policies that provide adequate funds for public and privateinvestments and business expansion for export purposes, while keeping thecostofcreditcomparabletointernationallevelsand ensuring access toloanablefunds forSM Es as wellas highlytechnicalexportenterprises.
l Agricultural policies that build up viability and competitiveness of thecountry's agricultural sector and facilitate their linkage with industry tostrengthen the agri-industrialbase ofthe country'sexportthrust.
l Trade,tariff,and customs policies thatengendercompetitiveness ofdomesticindustries and facilitatetheirparticipation in internationaltrade.
l Technicalsupportpolicies thatimprove the qualityofexportproductsshallbeadopted, particularly those related to technology transfers, research anddevelopment,technicaltraining,and related activities.
l Policies that affect infrastructure in order to ensure the adequate supply andqualityofpower,water,transportation,communications,among otherthings inthe contextofthe nationalexportdrive.
l Policies that strengthen the link between export growth and countrysidedevelopmentthrough policies favorable to SM Es,regionalindustrialcenters,exportprocessing zones,etc.
l Policies that promote labor and industrial relations, which recognize theinevitableindustrialshiftsthatmay occurin the effortto achieve internationalcompetitiveness.
l Policies and measures that minimize bureaucratic redtape and simplifyprocedures to supportthe country'sexportdevelopmentthrust.
l Repealthe provisions ofexisting laws deemed detrimentaltothe exportsector.
The Investm entsPriorities PlanThe InvestmentPriorities Plan73 identifies specificpriorityeconomicareas and strategicactivities thatare able to sustain economic development.The theme ofthe 2002 IPP is"Sustaining EconomicDevelopmentthrough Globally Competitive Industries".The IPPembodies broad objectives ofthe currentadministration fornationalstrategicconsensuson a competitive economy thatiscapable ofbuilding wealth forthe country in a moreinteractive global setting and a robust agricultural sector that matches the globalbenchmarks ofefficiency.Regionaldevelopmentisaddressed through industryclusteringas one primary concern for a balanced economic program for global competitiveness.
732002IPP provided by the BoardofInvestmentsofthe DTI.
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The 2002 IPP involves the regions in identifying priority industrial and agriculturalactivities and linkages foradispersed growth to allregions ofthe country.74
2003 IPPUnderthe M andatoryInclusions ofthe NationalList,the 2003 IPP differsonlyfrom the2002 IPP in that it includes RA 9003 or the Ecological Solid W aste M anagementAct.M oreover,underthe Supportto GovernmentPrograms ofthe NationalList,the item onenvironmental projects is not included in the 2003 IPP, while a new item, printingfacilities,isadded.Thereisnoadditionalitem forthe RegionalList,which consistsoftheIndustry Clustersand the ARM M List.However,Item 6 ofthe 2002 IPP Guidelines onthe "testing and/or measuring services for emission and effluent and other relatedenvironmental parameters for machineries and equipment to exclude motor vehicle" isamended.
Itappearsthatthe non-inclusion ofenvironmentalprojectsin the 2003 IPP isdue to theadditionofRA 9003orthe EcologicalSolidW asteM anagementActunderthe M andatoryInclusions on the NationalList,although the item on environmentalprojectsin the 2002IPP involves activities thatareunrelated to solid wastemanagement(e.g.environmentalpollution,which may also include airand waterpollution;ecologicalfacilities and riverrehabilitation;among others).The exclusion ofmotorvehicles in the amended Item 6 ofthe 2002 IPP may be due to the existing laws on vehicle emission, which makes theinclusion ofmotorvehicles in Item 6 unnecessary.
The inclusion of RA 9003 is a step forward in the Government's efforts to stem theworsening problem on solid waste management,especially in highly urbanized centerslike M etro M anila.The effortisseen as acommitmentofthe presentadministration toformulatepolicies and come upwithsolutions tothe solidwastemanagementproblem inthe country. The end result would be a more sustainable and environmentally soundsocioeconomicdevelopmentpolicy forthe Philippines.
742003IPP isnotyetapproved as ofApril4,2003.
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ASSESSM ENT O F VIETNAM 'S STATE M ANAG EM ENT CAPACITY ININTERNATIO NAL ECO NO M IC INTEG RATIO N AND PO LICY
RECO M M ENDATIO NS FO R IM PRO VING M ANAG EM ENT CAPACITY
Pham Quoc Tru*
I.INTRO DUCTIO N
I.1 O bjective ofthe StudyFrom the late1980s todate,globalizationhas developed vigorouslyintoadominanttrendin the world, exerting profound and comprehensive impacts on the socioeconomic andpoliticallives ofallcountries and oninternationalrelations.Thisverytrend has created astrong momentum for countries to pursue economic integration into the regional andglobal economies. Against this background, in full awareness of the inevitability ofinternationaleconomicintegrationtodevelopment,almostallcountries have been tryingto participatein thisprocess atdifferentlevelsand forms,and thus have gained variousresults.These resultsdepend onmany factors,among which the mostdecisive one isthestate's capacity in m anaging the international econom ic integration process. Agovernment capable of managing well the international economic integration canmaximize benefits(i.e.make fulluse ofopportunities)and minimize challenges and risksbroughtaboutby the globalization and internationaleconomicintegration process.
In parallel with the reform process, Vietnam has gradually carried out its internationaleconomic integration,and has achieved initialpositive resultswhile encountering nota fewchallenges.Inthe yearstocome,Vietnam willcontinue tointensifyitsinternationaleconomicintegration in both depth and scale.Thisprocess has been rendering considerableimpactsonVietnam'ssocioeconomicdevelopment,and promptsthe need to adjustthe roleand the statemanagement capacity. In addition, it creates conditions for the improvement of the statemanagementcapacityon the economy as wellas otherfacetsofthe society.
This research aims to analyze and give a brief assessment of Vietnam's current statemanagement capacity for its international economic integration, and then come up withrecommendations to furtherenhance thiscapacity.
I.2 Definitions ofConceptsTo facilitate the analysis on the basis of a consistent understanding, we define some keyconceptsand terms used in thisstudy as follows:
I.2.1 InternationalEconom icIntegrationInternationaleconomicintegration isaprocess in which acountrylinks itseconomy with theregionaland world economies through itseffortsto liberalize itseconomy,open itsmarketatunilateral,bilateraland multilaterallevels,thus creating conditions favorableforthe effectivesocioeconomic development. Simply put, international economic integration means theparticipation into globalization.
I.2.2 Econom icGlobalization (defined as globalization in thisreport)Globalization isa process to form and develop regionaland world integrated markets,thusincreasing the interaction and interdependence,firstand foremostin economicfield,amongcountries through the increase ofcross-bordertrade flows and resources exchanges,inparallelwiththe establishmentofinternationalinstitutions and organizations responsibleformanaginginternationaleconomicactivities and transactions.
*DepartmentforM ultilateralEconomicCooperation,M inistryofForeign Affairs,Hanoi,Vietnam.
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I.2.3StateM anagem entCapacityStatemanagementcapacityrefersto the capacityofthe Stateto carryoutfunctions and tasksin maintaining social order and the smooth operation of all activities nation-wide. In otherwords, state management capacity is the synthesis of factors, which constitute strength toenforcethe publicpower.M ajorcomponentsofthe statemanagementcapacityare:
l Structures, apparatus from central to local levels: The state apparatus wellorganized (thismeans the constituentelementsofthisapparatus arewellorganizedand connected,have clearly-defined functions and authority)enables the fullandeffective exercise ofpowersand duties ofthe entireapparatus.
l Institutions: Laws and other legal provisions, administrative regulations andprocedures are the main substantive contents of the institutional system. Aninstitutional system, which is well and scientifically stipulated and articulated,could lay the foundation for the swift, uniformed and smooth operation of theadministrative apparatus.
l Quality of the officers and civil servants: Their good morality, high professionalknowledge and skillsareimportantfactorsforthe good statemanagementcapacity.
l Resources allocated:Necessary and sufficienttechnicalconditions arerequired toguarantee the efficiency and effectiveness of state management capacity. Thesecomprise offices,equipment,and funding,etc.
State management capacity can be analyzed by examining its four constituent elementsmentioned above and the resultsofthe realizationofthe Satefunctions and tasks,particularlythe effectiveness and the efficiency ofStatemanagement.
I.2.4 Efficiency ofStateM anagem entEfficiency refersto the correctand successfulimplementation ofthe Statemanagementwiththe aim to achieving the settargets.The efficiency ofStatemanagementisexhibited clearlyand mostlyinthe factthatorganizations and individualsinthe wholesocietyobserve laws andgovernmentpolicies seriously,thoroughly,and swiftly.
The efficiency ofStatemanagementrelies on the following factors:
(1) The capacityand qualityofthe institutions,Stateapparatus,officers,and civilservants;(2) The support of the people, in other words, the attractiveness of the administrative
regime tothe peopleand the genuine values the regime brings tothe people.The higherthe attractiveness tothe people,the greaterthe efficiency ofStatemanagement.Thisisthe outer efficiency of State management. In the meantime, State management alsodepends onthe organizationand the operationalmechanism ofthe politicalsystem.Theefficiency of State management relies very much on the leadership of the governingparty,the cleardivision among the legislative body,the executive and the jurisdiction,and people'smastership rolethrough democraticmechanisms,and socialassociations.Thisisthe innerefficiency ofStatemanagement.
I.2.5 Effectiveness ofStateM anagem entThe effectiveness ofStatemanagementrefersto the resultobtained by the Stateas comparedto the consumption of resources and the relationship between social and economiceffectiveness. The effectiveness of State management is demonstrated through achievingmaximum administrative managementtargetsatminimum resources consumption.Achievingtargetsisnotonly in relation to resources consumption (human and financialresources,etc.)butalso to socialeffectiveness.
Capacity, efficiency, and effectiveness of the State management are closely connected.Efficiency and effectiveness are measures of the state management capacity and howeverdepend on the capacity and the quality of state administrative management. In order toimprove the efficiency and effectiveness of administrative management, it is necessary tofocus ondeveloping and perfecting elementsofthe stateadministrative managementagencies'capacity. On the contrary, to assess the progress of the state administrative managementagencies, it is necessary to build upon concrete parameters and criteria, which reflect theefficiency and effectiveness ofthe Statemanagement.
II. VIETNAM 'S INTERNATIO NAL ECO NO M IC INTEG RATIO N PRO CESSO VERVIEW
II.1Activities
II.1.1 UnilateralLiberalization
W ith the said definitions ofinternationaleconomicintegration,Vietnam,whileskipping thepastcolonialeconomicdevelopment,has embarked onrealinternationaleconomicintegrationsince the 1980s when it initiated the reform process with a series of measures to graduallyliberalize economic activities (gradually shifting from the centrally planned economy tomarketeconomy,reform the salary,monetaryregimes,restrictthe doublepricing system andstate foreign trade monopoly, intensify foreign direct investment (FDI) attraction, developnon-stateeconomicsector,reform the stateeconomicsector,banking and finance etc),openitsmarketand participatein regionaland world organizations/institutions.
II.1.2 Participation in M ultilateralEconom icInstitutionsThe break through of Vietnam 's participation in international econom icorganizations/institutions is its accession to the ASEAN Free Trade Area (AFTA) in 1996.Since then, Vietnam has joined many ASEAN economic cooperation mechanisms in suchfields as services (ASEAN Framework Agreement in Services), investment (ASEANInvestmentAgreement),intellectualproperty,informationtechnology (E-ASEAN agreement),etc. In recent years, ASEAN's economic cooperation process has developed considerablythrough itsacceleration ofthe timeframes to complete obligations inAFTA,AIA and activepromotion ofthe idea to establish the ASEAN EconomicCommunityby 2020.
In 1995, Vietnam submitted its application to the W orld Trade Organization (W TO) andcommenced the process ofpreparation and negotiation forW TO accession.To date,Vietnamhas implemented anumberofpreparatorysteps atthe W TO'srequest,namely,convening sixsessions withthe W orking GrouponVietnam'sW TO accession,and basicallycompleting theexplanatory and transparency-making phase ofVietnam'sforeign trade regime.Vietnam hasalso put forward its initial offers on market access (tariff, non-tariff, and services) and hasconducted several bilateral negotiations on market access with interested W TO members.Vietnam setsthe targetofaccomplishing itsW TO negotiations and becoming aW TO memberbeforethe conclusion ofthe Doha Round in 2005.
Since early 2002, Vietnam and other ASEAN countries have conducted negotiations withChina on the establishmentofthe ASEAN-China FreeTrade Area(ACFTA).Then,ASEANcountries and China signed,in earlyNovember2002,the bilateralFrameworkAgreementonComprehensive EconomicCooperation,which lays outfundamentalprinciples ofthe ACFTA.Among these principles, the deadline for China and ASEAN-6 to accomplish theirACFTAobligations is2010 and thatforASEAN-4 is2015.Since 2003,ASEAN and China willcarryoutnegotiations to turn these principles into concreteprovisions forACFTA materialization,especiallymarketaccess commitmentsingoods,services and investment.The two yearsEarly
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HarvestProgram fortariffsreduction to zero percentofagriculturalproductswithin chapters1-8 willbegin to be implemented in 2004.
In September 2002, Vietnam and other ASEAN countries signed with Australia and NewZealand ajointstatementonthe establishmentofClose EconomicPartnership(CEP)betweenthe two sides.Negotiatorsfrom ASEAN,Australia,and New Zealand arediscussing concretemeasures to realize thisCEP.
InNovember2002,Vietnam,otherASEAN countries and Japan agreed to establish ASEAN-Japan Comprehensive EconomicPartnership(AJCEP)including an FTA between ASEAN andJapan within10years.Since January2003,negotiations forthe AJCEP frameworkhave beencarried outand itisexpected thatASEAN and Japan willconclude these negotiations and signthe frameworkatthe end ofthisyear.
Since the beginning of 2003, Vietnam, with other ASEAN countries and India have beenimplementing the statementissued atthe ASEAN-IndiaSummiton building ASEAN-IndiaComprehensive Economic Partnership (AICEP) towards a bilateral free trade area.ASEANand Indian officialshave been drafting abilateralframeworkonAICEP,which isscheduled tobe completed forsigning in 2003.
Inaddition,Vietnam and otherASEAN countries have been carrying outactivities toestablishASEAN-EU economic linkages in the framework of the Trans-Europe-Asia Trade andInvestment Initiative (TREATI), ASEAN-US economic linkages through negotiations forsigning a bilateral Trade and Investment Facilitation Agreement (TIFA), and East Asianeconomiclinkages on the ASEAN+3 basis.
II.1.3 BilateralEconom icLinkages
Vietnam has established bilateraleconomicrelations withmorethan 150countries.However,theVietnam-US BTA isthe firstbilateraltrade agreementbased on W TO rules thatVietnamhas signed with a country untilnow.Thisagreementhas entered into force since December2001. Now, Vietnam has been negotiating and promoting the possibility of the negotiationotherbilateralfreetrade agreements.
II.1.4 Sub-regionalEconom icLinkages
Apart from multilateral and bilateral economic linkages, Vietnam, in the past years, hasconcurrentlyparticipated insub-regionaleconomiclinkages such as the GreaterM ekong Sub-region (GM S),W est-EastCorridor(W EC),and developmenttriangleamong Vietnam,Laos,and Cambodia,etc.
To conclude, Vietnam 's international econom ic integration process from sim ple tosophisticated stages (the higheststage isnow AFTA)takes place atunilateral,bilateral,andmultilaterallevels,and links sub-regional,regional,inter-regional,and globalscopes inalmostallareas,namely,goods,services,investment,intellectualproperty,etc.
II.2A sum m ary ofVietnam 'sPrincipalIntegration Com m itm entsTo date,Vietnam'smajorintegration commitmentsareas follows:
II.2.1 M ost-Favored Nation (M FN)and NationalTreatm ent(NT)ClauseVietnam will fully implement the non-discrimination treatment (M FN& NT) to members ofASEAN,APEC,ACFTA,W TO (orinothereconomiccooperationframeworks whereVietnamparticipates in)in the fields ofgoods,services,investmentand intellectualproperty.
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II.2.2 TariffReductionl AFTA:Vietnam started reducing itstariffsin1996.Ingeneral,allitstariffswillbe
broughtdown to0-5percentby 2006withregardtogoods imported from ASEANcountries,and 100 percenttarifflines willstand atzero percentby 2015.
l APEC:Vietnam'starifflines willbe atzero percentby 2020.l Vietnam-US bilateraltrade agreement:Vietnam willreduce around 240 tarifflines
foritsproductsaccording to differentschedules.l ASEAN-China FreeTrade Area:W ithin the Early HarvestProgram,Vietnam will
carryoutthe fast-track tariffreduction to agriculturalproductsfrom chapter1 to 8ofthe harmonized tariffsystem.
II.2.3Abolishing Non-tariffBarriersl AFTA:By 2006,Vietnam willcompletethe abolishmentofquantitative restrictions
togoods imported from ASEAN countries and willmove towards eliminating othernon-tariff barriers. Vietnam also started implementing the customs valuationagreem ent of the W TO in January 2002, and gradually im plem ented thesim plification, facilitation and unification of custom s procedures regardingimported goods from ASEAN countries.
l APEC:Vietnam will gradually reduce and basically abolish non-tariff barriers(NTBs)by 2020.
l Vietnam-US Bilateral Trade Agreement: The abolishment of NTBs will beimplemented according to specific timeframes concerning over 200 productsimported toVietnam from the US.
II.2.4 ServicesVietnam has committed to liberalize many ofitsservices atdifferenttimeframes in ASEAN,APEC,and Vietnam-US bilateraltrade agreement.Ingeneral,Vietnam willgraduallyopen itsmarketand accord M FN and NT treatmentsto foreign services and investorsin thisfield.
II.2.5 Investm entVietnam has also made commitments in ASEAN,APEC, and Vietnam-US Bilateral TradeAgreementby opening itsmarketforforeign investors.Itwillimplementtrade liberalizationand facilitation measures with regard to FDI and finally provide NT treatment to foreigninvestors.
II.2.6 IntellectualPropertyVietnam'scommitmentsarebased onprinciples ofthe TRIPSAgreementand W IPO'streaties.Inthisconnection,Vietnam has tohonorand protectcopyrights,patents,trademarks,designs,industrialpatterns,plantsand breeds,etc.
II.2.7 TransparencyVietnam has to make public her policies, laws, regulations, and provisions related to trade,administrative procedures concerned, and guarantee that people can easily access theseinformation.Fine disclosureand transparency ofinformationwillcontributetoenhancing thepredictabilityofVietnam'smarketand facilitatetrade and investmentactivities in Vietnam aswellas between Vietnam and othercountries.
II.2.8 Governm entProcurem entThe top requirement is that Vietnam has information dissemination mechanism related togovernment procurement, which ensures transparency, implements public and fair bidding,and allows private and foreign companies to participate in public procurement projects.Vietnam also needs to perfectitslegalsystem related to governmentprocurement.
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II.2.9 M obilityofBusiness PeopleW ithin certain bilateral and multilateral frameworks, Vietnam has pledged to loosen itsrestrictions on entry visa issuance and residence, mobility of foreign business people andprofessional or high skilled labors, especially those from m em ber countries of theorganizations/institutions thatVietnam isapartof.
II.2.10 Custom ProceduresIn general,Vietnam has made commitmentsto multilateraland Bilateral Trade Agreementsto build transparent legal frameworks on custom procedures and make these proceduressimpler, clearer so as to facilitate import and export goods between Vietnam and relevantcountries.
II.2.11Standards and Conform ance Vietnam has to build new national standards and revise old ones in compliance with theregionaland internationalones and complywiththe terms ofM utualRecognitionAgreements.
II.2.12 DisputeSettlem entVietnam agrees to the methods of dispute settlement regulated by the internationalorganizations or institutions that she has been participating, such as dispute settlementmechanism inASEAN and disputesettlementprovisions inAPEC,BTA.
II.3 Im plem entation ofVietnam 'sCom m itm ents
II.3.1 Non-discrim ination Treatm ent(M FN and NT)A review oflegaldocumentsissued by various branches ofthe Governmenthas been done inordertofindoutand adjustregulations thatareinappropriateorhinderthe implementationofthe M FN and NT principleon trade in goods,trade in serviceand foreign investments.Thegovernm ent has gradually m inim ized and eventually elim inated regulations, whichdiscriminatedomesticgoods,services and investmentswiththose from foreign countries.Forexample, the extra-high charges on foreigners in hotels have generally been eradicated;differences between prices forVietnamese and foreignershave graduallybeen abolished inthefields of transportation (aviation and railway), electricity, water supply, telephone, andtelecommunication.
However, this review has only been carried out at the central level and cannot detect allinstitutional and practical inconsistencies. At the local level, this process is barelyimplemented.In reality,many inconsistencies remain unresolved atthe locallevel.The extracharges ofservice(hotelroom charges,transportfees,visiting fees,etc.)forforeignersarestillapplied in many provinces and cities whilethey have been removed atthe centrallevel.FullimplementationofM FN and NT wouldpose moreacutedifficulties toVietnamese enterprises,especiallystate-owned ones (SOEs),as they have tocompeteinafairerenvironmentand theiradvantages ofstateprotection and preferences aretaken away.
II.3.2Trade in GoodsW ith regards to tariffreduction,untilthe year2000,Vietnam has placed about5500 outof6400 commodities in the M FN import list for CEPT Agreement reduction with a view toAFTA implementation. In 2003, Vietnam has to put the remaining 760 commodities in theTemporary Exclusion List(TEL)to the Inclusion List(IL).Nevertheless,because ofcertaindifficulties,the Governmenthas decided to postpone the phasing outof41 tarifflines relatedtoautomobileand motorcyclepartsfrom TEL toIL.Tariffreductionofaround245tarifflines,according tothe BTA and APEC roadmap,arespecificallyformulated and implemented inthetime to come.
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Tarifflines,which mustbe reduced inthe 2003-2006period,willhave asignificantimpactondomestic production and Vietnam's imports from ASEAN countries, as the products in thereduction listconstitutethe majorityofVietnam trading with ASEAN membercountries.Onthe otherhand,the currentExclusionListofVietnam retains many lines (around130,ranking2nd in allASEAN countries).Some ofthem arevery importantforVietnam'seconomy,butarebeing requested in the reduction listby the ASEAN (e.g.smallcars).
W ith regards to non-tariffissues,following the regulations ofCEPT Agreement,Vietnam hasbegun eliminating some quantitative restrictions and othernon-tariffmeasures,implementingcustoms evaluation atthe beginning of2002.
In brief, the implementation of Vietnam's commitments on tariffs and NTBs, reductions indifferent frameworks has been carried out relatively well. But the country will also meetdifficulties,especiallywhen she willbe deeplyinvolved inthe tariffsand NTBs cutprocess inthe yearsto come.
II.3.3 Trade in servicesVietnam has unilaterallyimplemented liberalizationpolicy atthe properpace insuch servicesas banking, insurance, auditing, legal consultancy, health care, education, constructiontransportation, etc. To some extent, the scope of liberalization has gone beyond its currentcommitmentsinASEAN and BTA framework.
However, to fully fulfill its responsibilities and commitments in the future, especially afterbecoming a full-fledged W TO member and concluding the negotiations for roadmaps ofservices liberalization in ACFTA,AFAS frameworks,Vietnam has to continue amending thesystem oflegaland administrative regulations inservices so as toconform toand enhance theenforcementpowerofthe Stateapparatus.
II.3.4Investm entVietnam has seriouslyimplemented itsinvestmentcommitmentsinAIA and BTA frameworks.Regulations of M FN and NT in investm ent have been gradually im plem ented. Thegovernmenthas laidstress onimproving the investmentenvironment.Therefore,measures toinvestment liberalization have been carried out at a faster pace than Vietnam's currentcommitmentsinframeworks ofASEAN,BTA and APEC.
However,measures to liberalization implementation have notbeen synchronous,sometimeseven distorted due to bureaucracy and corruption,as wellas weak professionalqualificationsof a number of civil servants at the central and local level. The parallel existence of twoinvestmentlaws (Foreign InvestmentLaw and DomesticInvestmentLaw)has,tosome extent,broughtaboutdiscriminationininvestmentactivities,and therefore,failed toencourage theseactivities.
II.3.5 PropertyRightsProtectionIn recentyears,Vietnamese governmenthas made effortsto ensureon the implementation ofpropertyrightsprotection.The system oflegalregulations inthisareahas been amended so asto ensure a strongerlegalcorridorforproperty rightsprotection.The Governmenthas paidattention to improve knowledge ofthe state administrative managementapparatus and civilservantsin the field ofintellectualproperty;italso plays active rolein intellectualprotectionpropaganda towards wide-range public community. Besides, the Government has takenvarious strictand tightmanagementmeasures onpreventing the productionand trading offakeand imitated products,and illegally copied compactdisks and videotapes,etc.whiletreatinglawsuitsregarding intellectualviolation in an objective and fairmanner.
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However,thisremains one ofthe weakestfields in Vietnam.Though legalregulations havestrengthened,they arestillinsufficientand inconsistent.Law enforcementremains weak.Theadministrative management system and officers in intellectual property are not qualified tocarryouttheirresponsibilities due tothe lack ofprofessionalcapacity,moralityand resources.The publicawareness isgenerallylimited due totheirincompleteunderstanding,unfamiliaritywithregardtopersonalrightsofintellectualproperty.Peopleseem togetquiteacquainted withand regard intellectualviolation activities as normal(e.g.the illegalcopy and application ofintellectualproducts),whilethe authorities have notkeptclose eyes on these activities foralong time.Even many Vietnamese enterprises do not understand well and are not aware ofregulations inintellectualprotection,thereby notregistering theirtrademarks and goods labelsto the competentagencies.
II.3.6 Governm entProcurem entThe Government has made notable efforts in formulating regulations on this field incom pliance with general regulations within the international econom ic institutions/organizations wherein Vietnam takes part. Yet, the implementation of these regulationsencounters numerous difficulties and is ineffective due to the complicated administrationprocedures and the impacts of negative factors. In the coming time, Vietnam has to furtherdevelop its legal regulations, sim plify adm inistration procedures and enhance thetransparency,disclosureand fairness ofthe process toconsiderand selectbidders,as wellthemanagementand supervision ofthe implementation ofstate'sprojects.
II.3.7 M obilityofBusiness PeopleVietnam has signed with ASEAN countries bilateral agreements on short-term entry visaexemption to ASEAN citizens and thisvisa exemption has been applied to ASEAN membersfor recent years, which makes the residence and traveling of ASEAN citizens, especiallybusinessmen,inVietnam moreconvenientand easy.Outside the ASEAN framework,Vietnamhas issued entry visa to foreign business people and tourists who come to Vietnam forbusiness,working ortourism inafavorableand convenientmanner.Vietnam,along withotherAPEC members,has been applying regulations on facilitating the entry,residence,and travelof business people. In conclusion, Vietnam's regulations and their application are quitefavorableand consistent,thus meeting the requirementsofinternationaleconomicinstitutions/organizations in which Vietnam participates. However, Vietnam must further improve theprocedures ofconsidering and solving the requestsofentry,residence,and travelofbusinesspeople. It should, therefore, apply modern methods to help foreign business people andtourists satisfy their aspirations more quickly and conveniently while still ensuring thenecessarilystrictcontroloverforeigners.
II.3.8Custom ProceduresVietnam has implemented regulations in building ASEAN harmonized tariff nomenclature(AHTN)with6and 8digits.Vietnam has so farbroughtitsAHTN with 6 digitsinto use,andnow has completed its AHTN with 8 digits in 2003 (postponed 1 year as compared to itsschedule). The proclamation and simplification of custom procedures in accordance withASEAN harmonized standards and the application of "green line" have been carried out asrequired.Vietnam has been gradually modernizing itscustom procedures by using effectivechecking system,computerizing,and net-connecting many stages ofthese procedures.
The custom officers' ability and quality must be improved in parallel with reforming,managing and strictly controlling stages of customs procedures. At the same time, it is
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necessary to settle cases ofviolation in a strictand fairmanner,so as to simplify and maketransparentcustoms procedures,togive the mostfavorableconditions forgoods import-exportactivities,and minimize the customs costforenterprises.
II.3.9 Standards and Conform anceVietnamese Governmenthas made effortstoimprove itslegalcorridorand statemanagementin technical standards and conformance to implement regulations/commitments within theframework ofinternationaleconomicorganizations as wellas to build Vietnamese standardsbased on internationaland regionalones (ISO,IEC,EN,BS,etc),making those complywithTBT Agreementofthe W TO.Propaganda and proliferation ofthese technicalstandards andqualities have been enhanced to attract attention from the society in general and from theenterprises in particular.
However, the full implementation of Vietnam's regulations/commitments in standards,qualities and conformance requires more efforts in amending and perfecting its system ofregulations on technical standards and qualities, developing the infrastructure to assess andsupervise the standards and qualities. On the other hand, it is necessary to propagate thetechnicalstandards and qualities notonlytoenterprises butalso tothe wholesocietytomakeeveryone fully aware of standards, qualities as well as strict punishments for violating orcheating allregulations on technicalstandards and qualities.
II.3.11TransparencyIn recent years, much progress has been made in the implementation of transparency anddisclosuretowards Vietnam'strade policy and regulations.However,thisisone ofVietnam'sweakestareas.Therearetoomany types ofinformation,which arenotdisclosed,whilebeingallowed fordisclosurein othercountries (e.g.export-importtarifflist,Statebudgetcontents,economicdata,financialsituation ofenterprises).
The disseminationofinformationtointerested people(especiallyforeigners)remains limited.M any State agencies responsible for issuing and providing information to people have notfulfilled their responsibility, even some individuals use information to seek profit or askinformation seekersformoney.
II.3.12 DisputeSettlem entM any effortshave been done tosetupand improve Vietnam'slegalsystem,and tostrengthenthe capacity ofjudicialofficersin courts,boards ofcontrolatcentraland provinciallevels.Addressing trade and investmentdisputes in Vietnam,including those between Vietnam andher foreign partners, have been partly supported by the existing Enterprise Law, theCommercial Law, the Investment Law, the Safeguard Decree, the amended M FN and NTDecree, and the Anti-dumping Decree (which is under drafting). The government has beentaking into accountthe signing ofand joining in some internationalconventions on disputesettlement, such as the International Convention of Settling Investment Disputes (ICSID).However,in general,in terms ofinstitutions and the capacity ofofficersand civilservants,Vietnam still has many weaknesses and cannot successfully solve trade disputes. Theseweaknesses include:
l The lack ofspecific,consistentand reliablerules and regulations forsettling tradedisputes related to Vietnam (in the fields ofinvestment,intellectualproperty,anti-dumping,subsidies,etc.Vietnam'sregulations remain weak);
l The limited capacity for trade dispute resolution of judicial bodies, includingcourts, boards of control. In Vietnam, the number of courts capable of handlingcases oftrade disputes,especiallyinternationalones,islimited.In disputes related
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to foreigners, the latter rarely used to solve their disputes through Vietnamesecourts because they do not believe in capacity, independence and impartiality ofthese bodies.
l Legalprocedures inaddressing trade disputes remaincomplicated,unspecified andsometimes misused by some incapable,bureaucraticand corruptofficers.
l Therearenotenough advocateses and expertswithgood knowledge and experiencein the field oftrade disputesettlement.
II.4 Econom icand SocialIm pactsof G lobalization and InternationalEconom icon Vietnam
II.4.1 PositiveIm pacts
Globalizationand internationaleconomicintegrationhave rendered severalimportantpositiveimpactsboth in terms ofeconomicand socialaspects.M ain pointsareas follows:
l Speed up the restructuring ofthe nationaleconomy towards higherefficiency andcompetitiveness, and the reform of state-owned enterprises with a view toimproving theireffectiveness and competitiveness.Therefore,they also contributedto the reduction ofstateinefficientinvestments;
l Helped bring aboutimportantchanges inadjusting,supplementing Vietnam'stradeand economiclaws and regulations in the direction ofbeing moreconsistentwiththe rules ofregionaland internationaleconomicinstitutions ofwhich Vietnam isamember;
l Expanded marketforthe consumptionofVietnamese goods and services,increasedthe numberoftrade partners,especiallymaintained high and sustainablegrowthofVietnam'strade in the pastyears;
l Improved the investmentand business environmentinVietnam so as toincrease theattraction of capital and technology transfer from abroad, while encouragingsignificantlydomesticinvestments,helping economicgrowth;
l Build up the new business thinking in line with market economy, regional andworld economicintegration,whiletraining and enhancing the capacityofofficers,and managersofenterprises and human resources;
l Laid the foundation forthorough nationalreform.
II.4.2 Difficulties and Challenges (NegativeIm pacts)
A lotofdifficulties and challenges Vietnam has had to face,including:l Lack ofuniform and common understanding and high determination from central
tolocallevelsincarrying outthe internationaleconomicintegration.The guidanceand coordination remain inconsistent,and thereisno masterintegration plan.
l Slow dom estic preparation for integration process: econom ic restructuring,amendmentsand completion ofthe legalsystem,enterprises reform,institutionaland administration reforms did not meet the requirements of internationalintegration;the infrastructureisnotyetdeveloped.
l Lack of researches on various aspects of economic integration and consultationsamong policymakers, researchers and business people in the process of makingpolicies and building up ofcommitmentsin internationaleconomicintegration.
Beside the abovementioned weakne,Vietnam has to cope with many serious difficulties andchallenges,which can be identified as follows:
l Competitionisgetting moreand morefiercefrom foreign goods and services.Thiskind of challenge will be increasingly serious in the context of Vietnam'sinternational economic integration from an underdeveloped economy, relyingmainlyonagriculture(inthe process ofshifting from centrallyplanned economy to
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marketeconomy).Apartfrom asmallnumberofgoods,which arecompetitive,thebulkofVietnam'sgoods and services have low competitiveness.The majorities ofVietnam's enterprises are small-sized; use outdated machines and technologies,insufficient management. The business environment in Vietnam, despite certainrecent im provem ents, still rem ains unfavorable for business due to m anydifficulties, which make the opportunity cost of investment and business inVietnam higher than other countries in the region. This hinders very muchVietnam'scompetitiveness.
l Danger of increasing division and contradiction among social groups whoseinterests adhere to state protection or the opening of the economy, and hencewidening the gap between the poorand the rich in the country.
l Threatto Vietnam'seconomicand politicalindependence;and also many risks forthe economy.
l ErosionofVietnamese traditionalculturalvalues and nationalidentity.l Increase of transnational crimes and unhealthy activities such as terrorism,
prostitution,epidemics (AIDS,SARS),and illegaldrug uses and trafficking,etc.
III.STATE M ANAG EM ENT CAPACITY O F VIETNAM IN INTERNATIONALECO NO M IC INTEG RATION
III.1 O verview ofthe StateM anagem entSystem in InternationalEconom icIntegration
III.1.1Overview ofVietnam 'sAdm inistrativeM anagem entSystemThe Statepowerstructurein Vietnam comprises ofthreecomponents:
l The Legislative body composed of the unique National Assembly, which is arepresentative organizationofpeopleand the mostpowerfulStateorganizationthatiselected by directelections and has the tenureof5years.M ostofthe membersofthe parliamentareunprofessional.
l The Executive body includes government and local authorities at various levels(provinces,cities belong directlytocenterauthority;districts,towns belong directlyto province;communes,wards)in which Governmentisthe executive body oftheAssembly and the most powerful State agency. The Government consists of 26M inistries and some otheragencies.The localauthorities include People'sCouncil(the representative organizationofthe peopleand also the powerfulstateone intheregion)and People'sCommittee (the executive body ofthe People'sCouncilandalso the administrative organization atthe locallevels).
l Juridicalbody includes asystem ofcourtshierarchicallyorganized from the centralto the locallevels,a system ofPeople'sorgan ofcontroland the State InspectionOrgan.
The threepowerfulStatebodies arenotindependentfrom each otheraccording tothe principle"the separation of the three powers". In Vietnam, the division of competence and therelationship between these threebodies arebased on the philosophy ofVietnam'sCommunistParty which maintains thatpowerhas to be divided and coordinated among differentbodiesbut united under the leadership of the Party (by making policies and guidelines). Theguidelines areconcretized in policies and legalsystem ofthe Stateand realized through thepartymemberswho seize mostofthe importantpostsinthe powerfulStateagencies from thecentralto the locallevel.
The system of state administrative management agencies in Vietnam can be exhibited asfollows:
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III.1.2 System of Vietnam 's Adm inistrative M anagem ent Agencies in International Econom ic
IntegrationInternational economic integration has close links to the whole administrative managementagencies of Vietnam. At the central level, the administrative management performance oninternationaleconomicintegration isunderthe controlofministries and ministerialagencies;and atthe locallevel,itismostlyunderthe provincialormunicipaladministrations.
All ministries and ministerial agencies have a focal unit taking major responsiblity for theimplementation and coordination of international economic integration activities amonginside-ministerial agencies, as well as the cooperation with other ministries/agencies andlocalities inthe process ofinternationaleconomicintegration.Am ong ministries,the M inistryofTrade takes responsibilitytoplay aleading roleinVietnam'snegotiationprocess ofbilateral
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GovernmentPrime Minister
Vice Prime MinisterMinisters and Heads
of ministerial agencies
Ministries
20organizations
Ministerialagencies
5 organizations
Other bodies
21 organizations
People’s CommitteeProvinces and cities under direct central
control with 61 organizations
People’sCommittee
District, towns, cities under provincial
control with 633
People’sCommitteecommunes,
districts with10,603
organizations
Office, servicesof provinces and
cities under direct central control
Bureaus ofdistricts,towns and cities under provincialcontrol
Professionalservices and titles
People’s CouncilProvinces and cities under
direct central control
People’s Council District, towns,
cities underprovincialcontrol
People’sCouncil,
communes, towns
OverallChartofthe Administrative Apparatus
Note:
Leadershiprelations ProfessionalguidanceOrganizationalaffiliation
Financialand personnelaffiliationStateauthorityatlocalities
and multilateraltrade agreementsas wellas itstrading commitmentarrangement.However,the focal role in managing each specific field is allocated to different ministries/agencies,depending on theirfunctions and responsibilities:
l The M inistryofFinance isfocalpointresponsibleforthe building ofcommitments,and the negotiations on tariffsand custom procedures.
l The M inistryofPlanning and Investmentisresponsiblemainlyforthe building andnegotiations on investment, government procurement and services. However, thefocal role of managing services related to specific service sectors is allocated toother specialized ministries/agencies up to their administrative managementfunctions.
l The M inistry ofTrade takes responsibility in the fields ofnon-tariff,competition,anti-dumping,and transparency.
l The line M inistries such as Industry, Agriculture and Rural Development,Construction, Agriculture, Transportation, Health, Education, Culture, Science-Technology,Telecommunication are responsible for building commitments onmarket access, negotiations and implementation of commitments in the fields ofgoods,services,investment,intellectualproperty,governmentprocurementfallenundertheircompetence.
l The M inistryofForeign Affairsand M inistryofPublicSecurityareresponsibleformobilityofbusiness peopletraveling.
l The M inistry of Science and Technology is responsible for intellectual propertyrights,standards and conformance.
l The M inistryofJusticeisresponsiblefordisputesettlement.
Atthe governmentalstage,the NationalCommitteeofInternationalEconomicCooperationisan inter-ministerialmechanism bearing the task ofproviding assistance to the Prime M inisterin coordinating international economic integration activities throughout the country. ThisCommittee is led by a Deputy Prime M inister meanwhile the M inister for Trade holds theposition ofthe Committee'sViceChairman.Committee'smembersarerepresentatives oftheleadership of various ministries/agencies. The Committee does not have authority to issuelegaldocuments,butprovide advices and recommendations orpolicy proposalsto the PrimeM inister or other administrative agencies, and make administrative decisions in order tocoordinate governmental agencies' activities of international economic integration. TheCommitteeholds regular3-month meeting (exceptextraordinarymeeting).The Committeeisassisted by an officeoperating generallyas asecretariatboardinordertoensureadministrativeand otherspecificfunctions.M oreover,the Government'strade negotiating delegation isalsoconsidered acomponentofthe NationalCommitteeofInternationalEconomicCooperation.Delegates arenegotiatorsappointed by ministries/agencies.However,the participantsarenotfixed,and depend onnegotiating issues and the kindofAgreementtobe negotiated.Inreality,the negotiating Delegationhas been established mainlytocarryoutnegotiations forVietnam'saccession to the W TO.
At the local stage, each province or equivalent city has its focal units to assist the localadministration in the realization of international economic integration activities. Localadministration does nothave the authority to make commitmentsorpolicy on internationaleconomic,buttoensurethe implementationofcommitmentsmade by the centralGovernmentin their provinces/cites. However, in order to assume their responsibility on internationaleconomic integration, local administration could make administrative decisions, includingsome of policy nature aimed at promoting the province's socioeconomic development inaccordance withthe requirementsofinternationaleconomicintegrationprocess.
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Besides the State agencies that are directly involved in the management of internationaleconomicintegrationinVietnam,itisnecessarytonotethe roleofothernon-Stateagencies inthe process ofinternationaleconomicintegration.They arethe Party'sagencies.Theirrolearevery important as they provide leadership and guidance, and at the highest stage, policydecisiontobe implemented by the Government(Thereareatthe central-level: the Politburo,the Board ofSecretaries,the CentralCommitteeand otherbodies ofthe Party,especiallytheCentralCommittee forEconomics;atthe local-level:Differentexecutive committees ofthePartyin the provinces,districtsand villages).
III.2 Assessm ent of Vietnam 's State M anagem ent Capacity in International Econom icIntegration
As stated inthe introductionpart,evaluating statemanagementcapacityrequires examinationsand assessmentsofthe key constituentelementsofstatemanagementcapacity(organizationalstructures of, institutional system, officers and civil servants, and resources allocated), therealization of economic integration activities, particularly the results of the commitmentsimplementation in various specific sectorsofthe internationaleconomic integration process(incomparison withthe requirementstomeet),and especiallythe efficiency and effectivenessofstatemanagementin each sector.W e make generalassessmentsbased on the informationand reportswe have received from various sources.
III.2.1 OrganizationalStructuresThe currentorganizationalstructures (as introduced in the above point1)have the followingweaknesses:
l Too cumbersome:Therearetoo many administrative levelsfrom the centralto thegrassroots (Government/M inistries and ministerial agencies, provinces/cities,districts/blocks, villages/precincts, hamlets/people groups); not to mention thevarious levelofParty'sagencies and union(Fatherland Front,Trade Union,Youth,W omen,etc.)who also carryoutdifferentforms ofStatemanagementactivities.
l There is an inappropriate, unclear and encroaching (overlapping) division ofjurisdiction of State management among agencies of equal level (ministries andm inisterial agencies, provincial and m unicipal adm inistrations; districtadministration, commune and village administrations, people committees andpeople councils at the different local levels, etc.) and among different levels ofauthority (central governm ent and provincial/m unicipal adm inistrations,province/city and district,districtand commune,commune and village).In manycases, it is not clear to whose jurisdiction some certain things belong to. Inparticular, the definition of the boundary of roles and tasks of the Stateadministrative agencies and those ofvarious bodies ofthe socialunions in manysectors/fields or kinds of activities is also unclear. In addition, the collectiveleadershipmechanism also contributes toslow and ineffective decision-making andimplementation. Though the National Assembly's jurisdiction of law making hasrecently been improved,itsperformance isstillinefficientand the quality oflawmaking is very limited because of the fact that the delegates are merelyrepresentatives oftheirsocialstrata,and unprofessionalpoliticians and the methodofmaking law isimperfect.M oreover,the NationalAssemblyisinclined toengagediscussions onissues,which areunderthe competence ofthe executive branch (likeeconomic targets, socioeconomic development programs, even big projects, etc.)M eanwhile, rooms for the under-law and regulatory decisions making of thevarious agencies ofthe executive branch aretoo large,because the system oflawsin Vietnam is insufficient and consists m ainly of fram ework laws. Thus,
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encroachmentofjurisdiction isabigremaining problem.l In relation to the international econom ic integration, the abovem entioned
organizationalstructures createvarious problems and difficulties towhich Vietnamhas to face and settle in order to ensure her smooth international economicintegration process.Besides the weaknesses and limitations ofhersystem ofStatemanagement in general, the mechanism of State management for internationaleconomicintegration has also severalshortcomings.
Firstly,Vietnam has the lack ofanationalbody with sufficientpowerto perform the unifiedstatemanagementon economy and internationaleconomic integration in the whole country.Thecurrent National Committee of International Economic Cooperation, which is merely an inter-m inisterial m echanism of consultancy and coordination nature without com petence ofadministrative management,thereby could notperform the function ofunified Statemanagementoninternationaleconomicintegration,afieldhaving close links withmany othersectorsoftheeconomic,politicaland sociallife.Inreality,thismechanism has shown alimited effectivenessoverthe pastfew yearsofitsexistence.M eanwhile,the Statemanagementcompetence performedby ministries and governmentalagencies as wellas provincialadministrations areso importantthatthey could be compared to "kingdoms in a State".M ostministries are also representatives oftheGovernmentwho take in charge ofstate-owned enterprises operating in sectorsbelonging to theirState managementcompetence,thus,they are eagerto "protecttheirown back-yard" and are notreallywilling to cooperateforopenness and liberalization efforts.
Secondly,there is no clear and appropriate division of tasks in relation with internationaleconomicintegration.The existence ofthreedifferentbodies performing almostthe same taskof focal point for the Government (National Committee for International EconomicCooperation,M inistryofTrade and the DepartmentofInternationalEconomicOrganizationsof the Government's Office) creates encroachments and confusions, making the workcomplicated and in many cases noteven on time.Therearealso overlapping and sometimesinappropriatedistribution oftasks and works between ministries.Take the case ofAPEC forexample:the assignmentofthe task offocalpointforSeniorOfficialsM eeting (SOM )andEconomic M inisterial M eeting was given to the M inistry of Trade while the M inistry ofForeign Affairswas given the task offocalpointforthe JointM inisterialM eeting.
Thirdly, in many ministries, organizational structures to perform tasks and works oninternational economic integration are inadequate and there is also the problem of uncleardivisionoftasks and works,and ofencroachment.InM OFA,although thereisthe DepartmentofM ultilateralEconomicCooperation whose function isto coverthe responsibility ofissuesrelating to economic integration and multilateral economic cooperation, many issues of thesame naturehave been given to otherdepartments(DepartmentofGeneralEconomicIssues,DepartmentofInternationalOrganizations,DepartmentofAsiaII).The same situation couldbe found in many otherministries.Thiscontributes to complication ofthe process ofdoingworks, making it more difficult and less efficient. In several ministries, there is not anyresponsibleleaderspecialized in internationaleconomicintegration issues,thus the guidanceand decision from the leadership for dealing daily integration works is lack of rapidity,exactness and coherence.1 Finally,there isshortofcompetence given to officialsin variousdepartments and units who deal with everyday integration issues. This has rendered thedealing process to be slow and lack ofdynamism.
1 Research report"The Limitation ofInternationalEconomicIntegration Capacity ofM inistries/Agencies and TechnicalAssistance of International Community" (VIE 01/004 Project) conducted by the National Committee of InternationalEconomicIntegration,2002-2003.
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Fourthly,itisimportantto add to the above said pointsaboutthe shortcomings ofVietnam'scurrentorganizationalmechanism dealing with internationaleconomicintegration issues thatthere isa serious lack ofcoordination and cooperation between ministries,and between thelatterand the provinces,even between differentdepartmentsand unitswithineach ministryorprovince.The informationsharing isnotgood.The consultations among ministries concernedand between the Government,the academiccircleand the business community in the policymaking process are farfrom being good.The role ofthe academic circle isnotsufficientlyrespected and the business communityhas been rarelyconsulted.
III.2.2 InstitutionsOver the past few years, Vietnam's National Assembly has made great efforts in the law-making process.Ithas issued,amended anumberoflaws and ordinances in accordance withrequirementsofthe internationaleconomicintegrationprocess,especiallywiththe demand forthe implementationofVietnam'sinternationaleconomicintegrationcommitments.M oreover,otherstatemanagementbodies (Government,ministries/agencies and localauthorities)haveactivelycontributed effortsinthe amendmentand completionofthe regulatorysystem (under-law documents,administrative decisions and procedures)in orderto conform to internationalrules and requirements of Vietnam's commitment implementation. However, until now, thesystem of social, political and economic institutions in Vietnam remains inadequate,incoherentand nottotallyfavorableforthe sake ofinternationaleconomicintegration.
Vietnam has notcompleted the transition period from the centralized (socialist)and plannedeconomy to the marketeconomy.The socio-politicaland economicinstitutions have notyetescaped from the shadow ofthe old regime.A globalized marketeconomy mustbe based oninstitutional foundation of an open market economy operating in conformity with theprinciples and rules ofeconomicand trade liberalization.Such economy mustbe supported byadequateand appropriatesocio-politicalinstitutions.Effortsdeployed by Vietnam in the pastyearstochange the oldfoundation,buildnew institutions have obtained good results,buttheseresults have not created a complete system of adequate and coherent institutions needed toensure a good operation ofthe marketeconomy integrated in regionaland world economy.The initial review and comparison, done by Vietnam's Justice M inistry in cooperation withotherministries,ofover200 legaltextsissued by differentState managementbodies atthecentrallevelvis-à-visthe provisions ofW TO'sagreementsand the Vietnam-US BTA haveshown quiteagood dealofinadequacies and inconsistencies ofVietnam'slegalsystem.
Inthisregard,following sectionwillgive abriefoutline ofVietnam'slegalframeworkintrade,investment,intellectualpropertyand some comments.
III.2.2.1 Regulatory Framework for Trade and Investment
(i)Trade Regulatory FrameworkThe legalframework fortrade in Vietnam comprises differentlegaldocumentsfrom two setsofdifferentsources:documentsissued by various Vietnamese Statemanagementbodies andinternationalcommitmentsinvarious internationalframeworks (AFTA,BTA,APEC,ACFTA,M iazawa Program,IM F and W B (as summarized in PartIIofthisreport).Provisions ofthetwo sources ofdocumentscovermostofdimensions oftrade such as tariff,NTBs and NTM s,custom procedures, trading State enterprises (monopoly issues), M FN & NT, subsidies,disputesettlement,etc.
W ith regards to tariff and NTBs/NTM s, Vietnam's legal framework has been the mostdeveloped sectoruntilnow.M oreover,the tariffssystem ofVietnam isalways changing and
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unpredictable, therefore creates difficulties to enterprises. In this regard, business people'sconfidence in Vietnam business environment is weak. The current Vietnam's non-tariffmeasures system has been regarded as complicated, and has been hindering significantlycommercial activities. This system includes some measures, which are not in conformancewith international regulations; some measures are too simple and rudimentary. M eanwhile,thereisstillalack ofeffective measures to controland regulatetrade.
Concerning custom procedures,the legalframeworkisquitecompleteand basicallyconsistentwithinternationalrules.Rightnow,Vietnam has applied the Harmonized System ofCustoms(HS)with8digits.The Custom ValuationAgreement(CVA)provisions have been applied forASEAN and US imports,butnotyetforothercountries.
Togetherwiththe market-oriented reforms,the crucialsteps ofabolishing the SOE monopolyon trade have been undertaken. The entry into international trading activities (foreign traderights)has been graduallyrelaxed.The Foreign Invested Enterprises (FIE)aregranted withthesame export rights as domestic firms, but subject to more restrictive measures regardingimports.FIEs thatareestablished formanufacturing areonlyallowed toimportinputsfortheirproduction process,butno othergoods.Amendmentsto the Foreign InvestmentLaw passedin M ay 2000 have notchanged thissituation.In general,Vietnam'strade policy has becomemoretransparentand stable.As ofApril2001,the M inistryofTrade (M OT)submitted afive-year blue-print on export-import management regulation for 2001-2005. The blueprint wasapproved and issued as Decision 46/2001/QD-TTg inApril2001.According tothisdecision,allenterprises areallowed totrade freelycommodities/items,exceptthose prohibited orunderspecialized management.
Vietnam'slegalframeworkisquiteweak in the fields ofsubsidies,anti-dumping,and disputesettlement and competition policy. Lack of regulations in these fields, particularly in anti-dumping and subsidies,isserious and causes difficulties forVietnam toensurefairtrade.
(ii)InvestmentRegulatory FrameworkVietnam's legal framework for investment also has two sources: domestic source andinternationalsource.The lattercomes mainlyfrom AIA,BTA,and APEC.
Since Doimoihas been undertaken,the investmentregulatory framework has improved stepby step and consolidated (with major laws like Law on Foreign Direct Investment (FDI),Domestic Investment Encouragement Law, Enterprise Law and a numbers of under laws),hence investment climate has become more friendly and attractive for investors, especiallyforeign ones.
In general, investment regulatory framework tends to create a level playing field forenterprises ofallkinds ofownership (state,non-stateand foreign invested)butmorein favorofforeign invested enterprises (in terms oftax incentives,pricediscrimination,foreign traderights,etc.).The existence oftwo differentlaws in investmentand ofmany otherprovisionscreates discrimination between domesticand foreign investors.Thisisinconsistentwith NTprinciplethatVietnam has made committed.
III.2.2.2 IntellectualPropertyRightsRegulatory FrameworkAlong with itscommitmentsin agreements,treaties,and internationaleconomic institutionswhere it has signed or acceded to such as ASEAN, APEC, BTA, W IPO, Vietnam's legalframework in intellectual property has been gradually supplemented and adjusted incompliance with internationalrules.Vietnam's great efforts to build her legal framework inintellectualpropertyand guaranteeenforcementare:
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l Enactmentin 2000 and 2001 ofseverallegalinstrumentsto regulateIPR:CircularNo825/2000/'TT-BKHCNM T guiding Implementation of Decree No 12/1999ND-CP onthe handling ofAdministrative violations in the field ofIndustrialProperty;DecreeNo06/2001/ND-CP on the protection ofthe business secrets,geographicindications,tradenames and protectionagainstunfaircompetitionrelated toIP;DecreeNo.06/2001/ND-CP on amendmentofDecreeNo 63/CP on detailed provision concerning IP.
l M easures have been taken todealwiththe problems ofbacklog ofapplications throughautomation of office operations, enhancing capacities of staff, simplification ofadm inistrative procedures; conducting of education, training, propaganda,disseminationofindustrialpropertylaws have been conducted onamoreregularbasis;setting up and strengthening mechanism to protectpropertyrights.
Despiteallthe effortsmade,Vietnam'sregulatoryframeworkin the field ofIPR isnotstrongenough to allow the strictobservation ofIP rules.Implementation ofIPR rules has stillloweffectiveness and efficiency inVietnam (as we have analyzed inpoint3ofPartII).As aresult,the piracy has been a prevailing phenomenon.2 According to the W orld Economic Forum(2001),Vietnam has been ranked 57th by IntellectualProperty Protection outof59 selectedcountries.
To sum up, building on the above analyzes about the implementation of Vietnam'sinternationaleconomic integration commitments(point3 ofpartII),severalfeatures ofthemostacuteinadequacies ofVietnam'slegalsystem and policies in thisregard are as follows.
First,the legalsystem andpolicies onmarketeconomy managementare stillnotsynchronous,completed.There are lack ofregulations for various sectors,usually changing and shortoftransparency as wellas notin fullconformance with internationalrules and practices.
Besides the weaknesses and shortcomings of the trade, investment and IP regulatoryframeworks as we have pointed outabove,itisnecessaryto notethat
l There exist leaks and shortcomings in legal frameworks on several other sectorslike service, finance, monetary and stock market, banking, implementation offoreign arbitrators'decisions in Vietnam,etc.
l There remain out-of-date measures taken by the Government in favor of state-owned enterprises such as capitalsupply,subsidies,debtsuspense,preferences andprivileges. This results in mistletoe-mentality of these enterprises and unequalityamong economicsectors.
l A greatnumberofeconomicexpertsargue thatthe mostfundamentallimitations ofthe current economic legal system of Vietnam are old-fashioned settlements ofeconomicdisputes withoutreflectionofcommon pratices ofthe world.Thismakesitdifficultforbusiness partnersto accede and masterthe contentsofVietnameselaws and regulations.Thisalso isofno interestforVietnamese enterprises in theirbusiness and economicintergration.Forexample,the obstinateexistence ofaseriesof stiff and irrational regulations of the 1989 Ordinance on Economic Contractregarding definition,signatories,implementation and forms ofcontract,etc.in thehighly centrally planning and subsidized economy which is not in conformance withmarketeconomy.Atthe same time,anumberofarticles ofthe 1997 Trade Law whichis considered an important tool for Vietnam's international economic integration hasbecome irrelevant to regulations of market economy countries and to internationalpractices.A narrow definition of trade as written in Vietnam Trade Law, which isirrelevantto internationalpractices,would make itdifficultforVietnamese enterprisestosign and implementcontractswithforeign partnersand limitVietnam'sabilitytofullyimplementinternationalconventions in which Vietnam has adhered.
2According toofficialstatistics,over90percentofthe soft-wearproductsthathave been used inVietnam areillegal.
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Second,although administrative procedures that assure the State management on economicactivities and settlementofeconomicdisputes in Vietnam have been improved,they remainrathercomplicated and often distorted due to corruption.
III.2.2.3 Judiciary FrameworkVietnam'sjudiciary framework isstipulated in itsconstitution and many law and under-lawtexts. Along with her reform process and international economic integration, Vietnam hasmade many effortsto reform herjudiciarysystem with aview to improving the effectivenessand meeting the demands from socioeconomic development and international economicintegration.
Since severalyears,the principleofindependence ofthe courtin judging has been relativelyimproved.The judge isnow selected through the assigning system instead ofthe voting one.The incentives forjudges also have been improved.Lawyersincreasingly engage in courts.And many courtshave notonlyopened to the public,butalso attracted the attention ofmanymorepeople.Therefore,judgmentsarebecoming moreand moreprudentand unprejudiced.Economicarbitrationcourtshave been established,replaced the oldsystem,which belongs tothe Government,and are remaining now relatively independentfrom the Government.Thisestablishment has radically changed the administrative characteristics of this kind ofinstitutions and makes itmoresuitablein amarketeconomy.
Enforcementofcivilsentences has been separated from the Courts'functions and becomes afunctionofGovernment.A system ofenforcementhas been setupfrom the centralleveltothelowerlocallevel.Thissystem isincreasinglydecentralized.
However,Vietnam's laws and judiciary practices in general do not grant independence tojudiciaryagencies (courts,boards ofcontrol,etc.)These agencies operateunderthe leadershipand guidance ofthe NationalAssembly,the Government,and especiallythe Party.Litigationprocess is still not truly democratic, unprejudiced and impartial. Lawyers, judges andprosecutors still do not have equal rights to advocate in the courts. Prosecutors and peoplejudge isnottrulyindependentinmaking decisions obeying the laws.During thisprocess,theyarestillpressed by the interventions ofpowerfulforces.Besides,thereisalack ofcodes ofethics,which can draw compliance from judges and lawyers.
Inaddition,the limited knowledge and capabilityofjudges and lawyerscoupled withnegativeimpactsofcorruption also contributeto the weaknesses ofVietnam'sjudiciarysystem.
III.2.3 CivilServantsand Cadre ContingentAlthoughVietnam'scurrentcivilservantsand cadres contingenthas been trained and providedwithbasicknowledge ofculture,expertise and skillsatamuch higherlevelthan ten yearsago,the numberofgraduatecivilservantsand cadres isprominentin centralagencies.However,due to the reducing quality and backwardness ofVietnam'seducation and training system aswellas modes ofrecruitment,employment,treatment,fostering and careertraining forcivilservants which have not been well carried out, the civil servants and cadres contingent ofVietnam in generaland the peopledirectlydealing with internationaleconomicintegration inparticular are still short of knowledge, professional skills and foreign language practice.Almostpeopleofmorethan 40 yearsold have been educated and trained in the old system,thus they have notvery much knowledge aboutmarketeconomy and internationaleconomicintegration.Few ofthem can use English.Vietnam is particularly lack of good negotiators,legalexpertsand good policy analystsand makers.
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Anotherweakness ofthe civilservantsand cadres contingentresides in the low quality ofagreatnumberofcivilservantsand cadres being corrupted,weakness ofprofessionalcapacity,lack ofsense ofresponsibility,authoritative and bureaucratic.
Thereisalso lack ofcommon view and willingness among civilservantsand cadres abouttheneed of carrying out international economic integration. M any of them have not beenconvinced and arenotready to take partactivelyin the process.
Faced with present the increasing high demand of broadening international economicintegrationofVietnam,the civilservantsand cadres contingentshouldbe provided withmorefundamental knowledge and professional qualifications in particular, especially foreignlanguages (firstand foremostEnglish)and ability to make contribution to economicpolicy-making process,law and regulationmaking,participateinnegotiations,building internationalcommitments as well as implementing commitments. This team needs to be morally-bettertrained and fostered,endorsing highersense ofresponsibility,patience,sound spirituallifeandabilityto serve people.
III.2.4 Resources Allocated to the State M anagem ent of International Econom icIntegration.
Vietnam isapoorcountry(GDP percapitaisaboutUS$400 peryear);administrative expensesfor civil servants per head are low (salary, office expenditure, and other necessaryequipment).3 In general, good working conditions and sufficient tools including financingsources mustbe ensured toeffectivelyfulfillalladministrative functions and tasks inthe fieldofinternationaleconomicintegration.Atpresent,thereremain numerous weaknesses in thisarea. Particularly, there is a shortage of money for various activities such as hiring foreignconsultancy companies to help the process of law and policy making, dispute settlement;training of officials and cadres; conducting comprehensive research of all aspects ofinternational economic integration that will be the foundation for making policies andstrategies in specific areas; sending officials abroad for negotiations or internationalworkshops to learn and share experiences; disseminating information and knowledge oninternationaleconomicintegration to allpeoplein the societyto improve theirunderstandingand hence encourage them to participatein the process ofintegration.
Insufficientresources foreconomicintegrationactivities areone ofthe importantcauses ofthelimitations ofVietnam'sstatemanagementcapabilityin internationaleconomicintegration.
In aword,Vietnam'sstatemanagementin internationaleconomicintegration has been facingim portant weaknesses and shortcom ings in both term s of organizational structures,institutions, human contingent and resources to be used. These have made it difficult forVietnam to perform well in its State management function in international economicintegration whilethe country isgoing to deepen moreand moreinto the process in the yearsto come.III.2.5 Vietnam 's State M anagem ent in Specific Sectors of International Econom ic
Integration
III.2.5.1 Trade,Investmentand FinanceThe achievementsof Vietnam in itsinternationaleconomicintegration process overthe pastdecade(as mentioned inPartII)also stem from the economicreform carried outby VietnameseGovernment, especially in trade, finance and investment.A score of measures of trade and3Itisalso because ofalarge contingentofparasites ofVietnam'sbudget.
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investmentliberalizationhave been putinplacetobetterliberate,allocateand utilize nationalresources,buildfreermarketties and mechanism,and graduallyopen Vietnam'smarkettotheregion and the world. The pivotal results gained during the course of trade, finance, andinvestment reforms have made Vietnam's economic and trade regime more open, graduallyremoved barriers to trade, investment and finance activities, and created incentives for thevigorous growthofitsinternationaltrade and investment,thus contributing tomaintaining itsrelativelyhigh and sustainablegrowthrateoverthe lastdecade.Allofthese show encouragingimprovementsinVietnam'sStatemanagementcapacityin trade,investment,and finance.
However, in these very areas, state management capacity displays a few limitations andweaknesses which areas follows:
(i)Leadership and strategicplanning and managementcapacities atalllevelsofgovernment,from the centraltothe local,arestillweak and inadequate.The currentadministrative systemisdecentralized onlyin averylimited sense.W hiletherehas been adelegation oftasks fromthe central government to the local ones, it is less clear how to promote two-waycommunication between them in the area of planning and management. The centralgovernment reflects valid national concerns, though there is also the need to incorporateappropriatelocalinformationinthe process ofplanning.Scope forplanning and managementautonomy is limited at the district and commune levels.As well,the top to down planningsystem may notencourage honestassessmentofperformance oflocalauthorities.The detailedshortcomings ofleadership and strategicplanning capacities willbe analyzed as follows.
l Leadershipofsome departments(atthe ministeriallevel)has short-view horizon onpreparing measures to challenge economic integration, case-by-case solutioninstead ofpackage and comprehensive policy to promote efficiency ofeconomicintegration.
l Bad coordination and cooperation between various levels of government andbetween ministries,even between differentdepartmentsin each ministry.
l Roles ofpolicy study,policy implementing and policy monitoring have notbeenclearlydefined and distributed among differentdepartments.
l Professional databases and other information on international trade, investment,finance, integration process, etc. are insufficient, inconsistent and not timelyupdated.
(ii)The policy ofadjusting the economicand investmentstructures isinadequate,incoherent,and has not focused on economic efficiency. The formulation of financial, investment, andespecially trade policies and economicdevelopmentplan on nationaland sectorallevelsarenotwellconnected to the internationaleconomicintegration process.Therefore,the makingofmarketaccess commitmentsorthe implementationofsuch commitmentsalways encounterdifficulties due tothe protectionpressures fordomesticproduction,notleasttothose productsin the nationaldevelopmentprogram (forexample,automobiles,motorbike,sugarand sugarcane,cement,steel,etc.).
Globalization and internationaleconomic integration interactamong economies and deepeninternational labor division. Countries all try to adjust their economic structures towardsdeveloping industries and sectorswherethey have moreadvantages than othercountries,thusmaximizing socio-economic efficiency ofthe investment,production and business activitiesand enhancing the mutually beneficialinternationalinvestmentand trade exchanges.Realityshows thatthe economicadjustmentprocess inVietnam overthe pastyearstakes placeslowly,
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incoherently and not in a uniformed manner. This adjustment is spontaneous and has"planning" character.Itisnotbased on a long-term economic adjustmentstrategy,which isformulated on the basisofspecificallyanalyzing,researching,forecasting,and calculating allfactors,and especiallynotlinked tothe contextofglobalizationand Vietnam'sintegration.Thedevelopmentofsuch astrategy has been touched upon and carried outin the pastfew yearsand then incorporated into the national 2001-2010 and 2001-2005 socioeconom icdevelopment strategy with a view to swiftly shifting the economic, investment, laborstructures in the direction ofindustrialization,and modernization on the basisofbuilding onnational comparative advantages, and linking with demands of domestic and internationalmarkets.
Itisobvious thatthe mostacuteproblem ofVietnam'seconomicstructures adjustmentin thepast years is the failure to focus on exploiting and developing sectors and industries whereVietnam enjoys advantages and can perform mostefficiently.The Stateinvestmentisscatteredand concentrated onlow economicefficiency industries and sectors(sugar,cement,steel,coal,etc.)Thisrealitypromptsfrom many factors.Am ong them the mostsignificantare:
l Policymakers and consultants have lack of sufficient capacity in analyzing,assessing,forecasting,and formulating investmentplans,examining and approvinginvestmentplans and projects;
l Corruption and personal interests of a group of officials engaging in investmentprojectsand partialinterestsoflocalities.
In agriculture, although there have been great achievements in the past decade, biological,post-harvest, and processing technologies have yet to be adequately invested to elevate theproduction efficiency and product value. In the meantime, the sector-based economicrestructuring in recentyearshas notseen considerablechanges,partlydue to the slow reformpace of state-owned enterprises, partly due to the relatively small proportion of the privateenterprises (amounting to 9% ofGDP in 2002),despite itsswiftdevelopmentin 2000.Theprivateenterprises,therefore,have notbeen abletogeneratepivotalchanges tothe wholenon-stateeconomicsector.
Investmentand trade policies to date focus mainly on developing sectorswhich are capital-intensive,inefficient,relyon high protection,reflectthe high unemploymentratein Vietnam,and therefore restrict the growth and development of the national economy. W ith regard toforeign direct investment, policies often grant priorities to investment projects in import-substitutionproductsand services,thereby creating an environment,which encourages foreigninvestorstoseek and receive stateprotectionforguaranteeing extra-high profits.However,thelegalenvironmentand policies stillpose afew difficulties to foreign investors.Thisisone ofthe reasons thatpromptthese investorsto covertheircostsby asking the stateto ensuretheirmarket share, and protect their business activities. In the case of domestic investment,protection is always accorded to projects that develop the state economic sector. Sugar andcementaretypicalexamples forthe protectionassociated withlarge-scaleinvestmentfrom thegovernment. M eanwhile, due attention has yet to be paid to develop the private sector, andsmall-and medium-sized enterprises.
(iii) There has not been necessary transparency and stability of the tariff and non-tariffsystems,as wellas the properusage ofthese tools.The policy formoreactive internationaleconomicintegration to replacethe trade policy,which relies on the said tools,has notbeenworked out.
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(iv) The financial market remains at low stage of development and there still existconsiderablebarriersto financialactivities.(v) The weakness of the State administrative apparatus, the lack of close, uniformedcoordination among ministries and agencies, local and central levels of administrations,governm ent and enterprises, m ake the policy-m aking, negotiating, form ulating andimplementing commitmentsin internationaleconomicintegration areas moredifficult,time-consuming,costlyand less effective.M oreover,thisrealityalso obstructsforeign investmentintoVietnam and weakens Vietnam'seconomiccompetitive capacity.
III.2.5.2 Enterprise PolicyM ulti-sectoral economic policy and integration over the past time has brought about initialachievements, namely, the increased number of enterprises and entrepreneurs, significantchange of econom ic sectoral structure, significantly enhanced financial potential ofenterprises.As compared tothe periodprevious tothe reform process,when the privatesectorwas tiny and FDI-funded sectorbarelyexisted,the State-runsectorjustnow accountsfor38.3percentofGDP,whilethe combination ofthe non-stateand FDIsectorsaccountsforover61percentofGDP,13.9 percentoutofwhich belongs to the FDIsector.However,Vietnameseenterprises are largely of small size and capital, and an important proportion of them wereformed and operated a long time in the subsidized regime.Apartfrom a limited numberofenterprises, which have made obvious progress in business activities in the marketmechanism, the remainder is still slow at modernizing technologies, management method,design,quality,and technicalspecifications ofproductsto meetmarketdemands.M oreover,due toweak financialpotential,they have low internationalcompetitive capacity.M eanwhile,mostofstate-owned enterprises (SOEs)operateinefficiently,and relyonstateprotection.Theloss-making and inefficiency ofSOEs pose aserious concern.M any SOEs do nothave long-term business strategy,donotinvestinmarketresearch and creating new products,and donotcooperatewellwitheach otherintheirrespective associations and professionwiththe view toenhancing their competitiveness. Furthermore, a good deal of enterprises has not paid dueattention to business prestige.
The relatively common assessment of many analysts has it that the current policy system,managementmechanism ofthe Vietnamese government has not only failed to create a realcompetitive environment among enterprises of all economic sectors, but also promoted thetendency ofrelying on Statesubsidy and protection.Typicalexamples areas follows:
(i) Thereisalack oflaws and policies guaranteeing faircompetition and anti-monopolypractices, and preventing unhealthy competition practices among enterprises of alleconomicsectors.
(ii) The reform ofSOEs remains slow and inefficient.(iii)There remain a good dealofadministrative interventions into business activities,not
leastthe rising tendency to criminalize economicactivities.(iv) Policies and measures in support of enterprises which actively restructure their
investment,modernize technologies and management,trainand re-trainworkersremainlimited and inconsistent.
A recent survey of enterprises' opinion shows that most of them are not satisfied with thecurrentbusiness environmentdue toreality-inconsistentlegalregulations and unfairtreatmenttoenterprises whereadvantages aremostlyinfavorofstatemanagementagencies.Along thisline,they hold the view thatthe immediatereform priorities should focus on reforming more
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robustly administrative procedures, then tax policies and procedures, banking system,investmentenvironmentand the salaryregime.M any scholarsarealso ofthe view thatthereare three big obstacles to the sustainable and efficient development of Vietnam's economy,which are:
(i) The discriminationinpracticeagainstthe privatesector,and the incompletedisposalofloss-making SOEs;
(ii)The maintenance of the begging-giving mechanism, and many administrative andsubsidizationforms;and
(iii)The hesitation in internationaleconomicintegration which isevidentthrough the over-protection,the tendency to focus on import-substitution investment,and the failuretolink with the supply-demand ties ofthe wholeregion.
Consequences arethatthe competitive capacityofthe wholeVietnamese economy remains atvery low ranking, and unstable as compared with other countries and improves slowly.According to the W orld Economic Forum (W EF),the competitive capacity ofVietnam wasranked 49th outof53 countries in 1997,39th in 1998 due to crises in othercountries,52ndoutof59 countries in 2000,60th outof75 countries in 2001,and 65th outof80 countries in2002.
III.2.5.3Propaganda andInformationDisseminationandTraininginServiceofInternationalEconomicIntegration
During the pastyears,despitesignificanteffortsinpropagating,and disseminating informationaboutinternationaleconomicintegration among officers,businessmen,and people,focusingon educating officers and businessmen, the achievements are modest and the target groupsremain quitelimited,mainly officersengaging directly in internationaleconomicintegrationofministries,agencies and big cities,provinces and a smallproportion ofenterprises in bigcities.
The propaganda contents remain narrow, have not focused on quantitative analysis ofadvantages and disadvantages ofinternationaleconomic integration to the whole society aswellas toindividuals,ways and means tomaximize advantages and minimize disadvantages.Therefore, public opinion has not been mobilized to support opening door, liberalization,integration policies and measures,and reduce protection and doorclosing.M eanwhile,thereis increasing demand of propagating and disseminating information to all social strata,especiallythe business circleaboutsuch issues as laws and regulations ofregionaland worldtrade economic institutions and their member markets, as well as Vietnam's policies,regulations and trade partners,etc.
III.2.5.4InformationTechnology in GovernmentOperationsM odernizing state management through the application of information technologies andmodern management models is one important aspect of Vietnam's current administrativereform. In September 2001, the Prime M inister issued a decision on state administrativem anagem ent com puterization. However, several im portant obstacles rem ain forimplementation.
In the areaofcomputerization,e-business and e-government,the key obstacles arerelated tothe lack of cyber laws, including legislation on privacy, digital signature, certification, andauthentication. An appropriate legal fram ework to perm it effective developm ent ofe-governmentand publicservicedelivery systems,and to protectthe interestofboth service
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providers and end users is missing as well. The lack of adequate international standards ofprofessionalism in information technology management,including strategicplanning,systemsupport, operation and maintenance, is another important problem area. Properly trainedhuman resources forinformation technology managementarestillin shortsupply.
The Government recognizes that a process of modernization needs to go beyond theintroduction ofnew technologies.Equally importantarethe measures and actions to reviewand streamline work procedures and processes so that efforts at introducing e-governmentapplication,computerization and related upgrading ofdatabase ‘M onitoring and Evaluation’systems and tracking systems can bring aboutmorefocused and effective resultsin terms oforganizationaland individualperformance.In orderto ameliorate e-governmentin Vietnamand upgrade her worldwide e-government rank of 90th on 133 countries, a nationale-governmentdevelopmentprogram isunderconsideration by the Government.
The governmentinformation network,CPNET,isstillatan initialphase ofdevelopment;ithas not yet been able to resolve the crucial issue of integrating all ministries, agencies andlocal governments' networks. Lack of integration hinders the data interchange processesbetween governmentagencies.Expensive and less efficienttelecommunication systems haveadverselyaffected the growthofinformationtechnology applicationinVietnam,especiallyine-businesses.
The introductionofcomputerized personnelinformationsystem inministries and provinces isproceeding and will,when completed,facilitateamacro managementapproach to personnelmanagement.Currently,8ministries and centralagencies,and 53provinces have installed andoperatecomputerized system forthispurpose.
On the whole,the administrative modernization program willrequireconsiderabletechnicaland financial resources to accomplish its objective. It will also require that governmentagencies shiftaway from acultureofnotsharing information.
III.2.5.4 Transparency and AccountabilityAs we mentioned in Section II.3,despiteVietnam'seffortsto exercise transparency and buildaccountabilityinitstrade,investmentlaws and regulations,itstransparency and accountabilityremain low,as manifested as follows:
(i) Therearemany types ofinformation which cannotbe disclosed;(ii) Therelacks amechanism to guaranteetransparency,and publicity;(iii)Difficulties and expenses in accessing information sources, even those allowed for
disclosure;things aremoredifficultforforeign due to limited information in English;(iv)W idespread corruption contributes to distorting information or cause difficulties for
information access;(v) The low reliability and inaccuracy of many information sources, even data from the
GeneralStatistics Department(thisagency does nothave the sufficientindependence).
Regarding corruptionand anti-corruptioninVietnam,according tothe W orldCompetitivenessReport (2001), Vietnam has been ranked 47 out of 59 selected countries by Corruption inLegalSystem Index.Corruption in Vietnam thrives because of:
l Complicated and unclearadministrative procedures,l Ex-cassava regulations,l The opaque natureofdecision-making,
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l Lack ofpublicinformation,l Bureaucraticdissection on the partofmiddle-levelofficials,and long delays,l Low salary in the public sector. This results in civil servants pursing various
strategies to augment their incomes, ranging from holding multiple public sectoroffices ormaintaining otheremploymenttopettybribe taking and corruptpractices
l Anotherfactorthatincreases the risk ofcorruptionisthe strong autonomy ofmajorprovincial areas, for example, some municipalities have set up dozens of publicenterprises,many ofwhich arenonproductive vehicles forrewarding loyalcronies.The Governmenthad to cutback on the creation ofsuch new enterprises throughstricterregulations butwith onlyintermittentsuccess.
The Government of Vietnam has passed a number of ordinances and decrees to addresscorruption, such as the 1998 Ordinance against Corruption. In 1998, the Prime M inisterestablished a hotline to receive business complaints, and in addition to the General StateInspectorate, several ministries now have units for tackling grievances and corruption. TheVietnam Communist Party launched an anti-corruption campaign in 2000, but results havebeen limited.Promulgation ofthe CivilCode in 1998 provided the public with avenues forredressing complaints and for mediation in disputes with government administrators.However, further measures are needed, for example, minimizing red tape and arbitrarydiscretion, increasing the amount of information in the public domain, harnessing citizens'groups to fightcorruption,and developing an appropriatelegalframework.
Besides, to minimize the risk of corruption and local governance failures, empowerment,transparency and accountability are important. Civil society organizations can mobilizecitizens and make their voice heard in decision-making. The mechanism like GrassrootsDemocracy Decreeand the envisaged steps toincrease the jurisdictionofadministrative courtsystem could serve as safeguards in Vietnam's decentralization process and corruptioncombating.
GrassrootsDemocratization isintended to combatcorruption viafourmechanisms.Thefirstisviaprovision meantto increase the transparency,participation and accountabilityof budget and special program allocations and to improve the two-way channel ofinformationbetween the Governmentand the citizens inVietnam.The second mechanismis via increased participation of "the people" in decision-making and establishment ofvarious proceduralsafeguards.The third isthatthe Decreeforesees an active roleofthepeopleinpolicing ormonitoring localgovernment,and lodging complaintswherethe lawhas been broken.A finalmechanism isimplied in the titleofthe decree.Although notaformal level of the government, the village is recognized as the basic residential andsocial unit with a long and sustained history in Vietnamese society; it is level at withdemocratization can be mostdirectlyand widelyimplemented.’’
Ensuring financial transparency and accountability is a crucial dimension of goodgovernance. However, accounting and auditing practices in Vietnam have severalshortcomings with the currentsystems.Internationalaccounting and auditing standardsareyettobe introduced.Thereisalso need formorequalified accountants.The professionitself,and Vietnam Accounting Association,should be strengthened.
As forprocurement,the legalframeworkissound,butshortcomings have been rooted ininstitutional and human resource capacity deficiencies. The introduction in 1996 of aprocurement system with some competitive elements might have led to significantsavings.According toGovernmentestimates,in1999those savings reached 14percentof
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the pre-bidestimates.However,even largersavings couldbe made and corruptioncurbediffurtherprocurementreforms wereundertaken.
A comprehensive review ofthe oversightfunctionshouldbe undertaken tostreamline theroles and the responsibilities of various agencies involved in audit and inspection.Ensuring thatthe StateAuditofVietnam has aformaland directreporting relationshiptothe National Assembly, and makes audit report publicly available are important stepstowards effective oversight.
Regarding conventions againstcross-bordercorruption,Vietnam isstillin the process ofdrafting the Anti-M oney Laundering LegalDocument.Itwillbe noteasy forVietnam tobuild up thislegaldocumentand implementiteffectively.M ainreasons are:
l It would contradict with the existing foreign exchange regulations (e.g.customershave notto revealthe origin offoreign exchange deposits);
l Dollarisation and smuggling/contraband have been prevailing phenomena inVietnam as "cash" economy;
l Regulatoryand supervision ofbanking system arestillveryweak.
III.3 Recom m endations aboutM easures to Im prove StateM anagem entCapacityinInternationalEconom icIntegration
III.3.1Continuing Accelerated Adm inistrativeReformTo improve the capacity, efficiency, effectiveness of State management to meet therequirements of industrialization and modernization, the Vietnamese government hasformulated the 2001-2010 administrative reform programs with the major contents asfollows.
III.3.1.1 InstitutionalReformThe maincontentsand guidelines ofthe stateadministrative managementreform programconsistof:
l Building and perfecting institutions, first and foremost those of the marketeconomy with socialistorientations and those related to the organization andoperation ofthe stateadministrative system.
l Regarding economicinstitutions,the reform program immediately focuses onanumberofcoreinstitutions like those related to the capital,monetary,stock,realestate,scientificand technological,laborand services markets.
l Concerning institutions related to the organization and operation of theadministrative system,the reform concentrates on such issues as the relationsbetween stateadministrative agencies,the stateand people,Statemanagementauthority to enterprises in generaland to SOEs in particular,the processes offormulating and issuing legaltexts,the legalenforcementofstateagencies andofficers, grassroots dem ocratic regulations, inspection, supervision, andadministrative procedures.Administrative procedurereform plays an importantrole in ensuring the legality, effectiveness and fairness in m anagingadministrative works.
III.3.1.2Reformingthe AdministrativeApparatusThe reform focuses on the following issues:
l Adjusting the functions and duties of the government, ministries, ministerialagencies, government-affiliated agencies, and local authorities at differentlevelsinconformance withthe Statemanagementdemands inthe new context.
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l Clearlydefining the authorityand responsibilityofallthe bodies and agenciesofthe governmentfrom the centrallevelto the localone.
l Restructuring the organization of the government and all bodies, agenciesrelated with the view of:
- Separating the State m anagem ent function of m inistries, m inisterialagencies along the industries and sectors from the function of managingpublicprofessionalorganizations which areunderthe directcontroloftheseministries and ministerialagencies.Therefore,administrative organizationsare separated from the public professionalorganizations,and they operateunderdifferent,appropriate,and efficientmechanisms.
- Restructuring the internal mechanism in a streamlined and appropriatemanner.
l Reforming the localauthorityapparatus and organization towards:- Clearlydefining functions,duties,authorities and responsibilityonthe basis
ofcleararrangementbetween centraland locallevels.- Restructuring professionalagencies underpeople'scommittees atdifferent
levels towards identifying clearly responsibilities, stream lining theapparatus,enhancing the professionalism,and promptlyhandleaffairs.
l Reforming the management method and working style of administrativeagencies atdifferentlevels.
l Gradually modernize the administrative management through the use ofinformation technologies, modern and advanced management methods andinstruments.
III.3.1.3 Improving the QualityofOfficers and CivilServantsThe program focuses on:
Reforming of management works concerning officers and civil servants inconformance with the socioeconomicdevelopmentand administrative reformwith the following measures.
l Reforming salaryand compensation regime forcivilservantsand officers.l Training and retraining of officers and civil servants both in general and
professionalknowledge,foreign languages and skillsonadministrative works.l Improving the responsibilityand moralityofofficersand civilservantsthrough
enhancing educationalmeasures aboutresponsibility,dedication to one'sjob.Formulating criteriaforthe professionalmoralityofofficersand civilservants,highlypraising theirprofessions and virtues,issuing and implementing strictlycivil regulations in connection with the democratic regulations in stateadministrative agencies,fully implementing the disclosure regulation ofcivilactivities, guaranteeing the discipline of the apparatus, and strengthening thecombatagainstcorruption and redtape in the stateapparatus.
III.3.1.4 PublicFinancialReform:with major directions andmeasures are as follows:l Reforming the mechanism to divide the levels of financial and budgetary
management,guaranteeing the integrityofthe nationalfinancialsystem and theleading role of the central budget, concurrently promoting the activeness,dynamism, creativeness and responsibility of localities and branches inmanaging theirfinances and budgets.
l Basicallyreforming the financialmechanism toprofessionalorganizations andthe public service sectors.Itisnecessary to develop correctperception aboutpublic services and the state's role to public services. In each area, it isnecessarytoidentifyclearlythe workthatthe statemustdirectlycarryout,and
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those should be handled by non-state organizations. The state should havepolicies toassistenterprises,socialorganizations inproviding directlyservicesin support of production and everyday life, under the guidance, assistance,inspection and supervision of state management agencies. Eliminating the"begging-giving" financialdistribution system,promulgating mechanisms andpolicies to implement financial independence for professional organizationssuch as universities, hospitals, research institutes, etc. on the basis ofidentifying the tasks which mustbe fulfilled,the leveloffinancialsupportfromthe state,and the remaindercovered by these organizations.
l Reforming the auditing toadministrative and professionalagencies withaviewtoenhancing responsibilityand the effective use ofexpenditures from the statebudget.Exercising democracy,publicityand transparency in publicfinance.
During the threeyearsofimplementing the administrative reform program,Vietnam hasmetmany requirementssetforthe firststage (2001-2005)ofthe nationaladministrativereform program (amending the 1992 Constitution and State organizational laws;reviewing functions and tasks of m inistries, provincial people's com m ittees; re-identifying the organizationalstructures and reducing administrative staffs;constructingand implementing new mechanism for the organization and operation of universities,hospitals,scientificresearch institutes;preparing the projecttofundamentallyreform thesalary regimes for officers and civil servants for possible implementation by 2004;submitting tothe NationalAssemblythe organizationand structureofthe governmentforapproval, which have been renewed in line with the administrative reform spirit, andissuing the ordinance which stipulates functions, duties, authorities of ministries andministerialagencies.However,resultsarestilllimited,the reform pace remains slow.Itdoes not catch up with the practical demands and has not improved significantly theefficiency and quality of State management in general and in international economicintegration in particular.
On the basis of the results achieved in the first stage, Vietnam needs to continuestrengthening comprehensive administrative reform, linking it with the continuedeconomic reforms,and gradualrenewalofrespective politicaland socialinstitutions inconformance with the developmentlevelofthe economy and the internationaleconomicintegration process.
III.3.2Building and Am eliorating the LegalSystem
Vietnam needs to furtherpromotethe formulation and perfection ofherlegalsystem intrade and other related areas with the aim to guaranteeing the stability, transparency.Besides,she also needs to strengthen the compliance monitoring and disputesettlementm echanism s towards im plem enting sufficiently and effectively her internationaleconomicintegration commitments.
Inthe immediatefuture,Vietnam shouldfocus onamending and supplementing laws andregulations, which have been pointed out by the recent legal review in comparison toW TO's rules and other international economic institutions of which Vietnam is amember. Striving to abide by BTA's provisions is also another important step inpreparation for Vietnam's accession to the W TO and other international economicorganizations/institutions.
However,Vietnam'searlyaccessiontothe W TO shouldbe regarded as one importantgoaland therefore requires the strong determination in the government's guidelines andcoordination ofimplementation effortsby ministries and agencies.
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III.3.3Building aCom prehensiveStrategy for the W holeIntegration Process Vietnam needs to swiftly complete the formulation of a master international economicintegration strategy, which identifies the overall roadmap for the next decades and theroadm ap of com m itm ents in each area, and in each international econom icorganizations/institutions. This would form the basis for the government to exerciseuniformed guidance and active managementofVietnam'sentire internationaleconomicintegration process,and atthe same time forministries,agencies,provinces,cities,andenterprises to devise theirdevelopmentand operation strategies and plans ofactions.
III.3.4 Im proving Coordination and CooperationVietnam also needs topromptlyputan end tothe factthateach ministry,agency,province,cityisa"kingdom" and these bodies lack close coordination.To thatend,itisnecessaryto have astrong mechanism which exercises uniformed guidance and statemanagementofinternationaleconomic integration (the currentNationalCommittee forInternationalEconomic Cooperation does nothave sufficientauthority and capacity to carry outthisfunction). This mechanism will draw several authorities from ministries and agencies.Besides,itisnecessarytoimprove the coordinationand cooperationmechanism betweenministries,agencies with aview to ensuring uniformed and close coordination.Thereisequally an urgent need to improve the division of tasks and works concerninginternational economic integration of different State management bodies such asministries,agencies,and departments/unitsinside each ministry/agency.
III.3.5 Training ofthe PersonnelTraining ofthe human resources,especially the peoplewho aredirectly involved in theprocess of integration such as negotiators, officials dealing with economic integrationissues, policymakers, lawyers, judges, parliament members, etc. Among other things,trade and international economic integration become an increasing need to meet byVietnam'sgovernmentinordertoimprove itsStatemanagementcapacityininternationalintegration.
III.3.6 Building Inform ation Exchange M echanismBuilding and strengthening the information system which guarantees the prompt,sufficient, cost-effective information sharing among government bodies and agencies,research agencies,enterprises,associations and individualsin the society.To realize thisgoal, one of the pivotal measures that the Vietnamese government should pay specialattention isto promotethe use ofnew information technologies forStateadministrativemanagement,and build astrong e-government.
III.3.7 M ore Resources Reserved for Integration W orksReserving morefinancialresources tointernationaleconomicintegrationworks isanotherimportantneed toimprove Vietnam'sStatemanagementineconomicintegration.Vietnamhas to pay abiggerattention to thisissue with priority given to the training ofthe "firstneeded people",the amelioration ofthe legalsystem,the formulation ofpolicies and theimplementation.
III.3.8 TechnicalAssistanceEnhanced internationaltechnicalassistance to improve stateadministrative managementcapacity for Vietnam's international economic integration process is no less important,especiallyinthe contextofVietnam'sbackward,poor,less-developed economy.Vietnamneeds to be assisted in improving the institutionalsystem and human resources training,
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first and foremost the civil servants directly in charge of international economicintegration affairs, policymakers, as well as those responsible for the enforcement ofVietnam'spolicies,laws and internationalcommitments.
IV.CONCLUSIONSince its reform and international economic integration, Vietnam has reaped importantsocioeconomicachievements.Afteroverten yearsofreform and opening,Vietnam,fromacentrallyplanning economy which was almostseparated from the worldby herclosingdoorsand the embargo imposed by the US and otherW estern countries,has completedquite a long leg on its path of international economic integration. Vietnam's currenteconomy isamong the mostopen economies in the world ifwe regard the ratio betweentrade turnoverand GDP as the firstparameter(morethan 100 percentin 2002).
Vietnam has been concurrently participating in many economic linkages at bilateral,multilateral (sub-regional, regional, inter-regional, global) and regional levels. In thefuture,Vietnam'sinternationaleconomic integration process willdevelop in both depth(the levelofliberalization)and scale (in terms oforganizations/institutions and linkageareas).Thisprocess willexpose Vietnam to both ascoreofopportunities and notafewdifficulties and challenges.
Despitethe factthatthe Doimoiand the internationaleconomicintegrationprocess inthepast years have considerably improved Vietnam 's state m anagem ent capacity ininternationaleconomicintegration,hercapacityremains aproblematicissue and has notbeen abletosuccessfullymeetthe requirementsofthe internationaleconomicintegrationprocess.To meetthe demands ofthe internationaleconomic integration process,whichincrease in both number and complexity in the years to come, Vietnam must bedetermined topush upeffortstowards improving comprehensivelythe Statemanagementcapacityboth in terms oforganizationalstructures,institutions,personneland resources.The continued good implementation ofthe administrative reform program isone majorissue ofthe above-said efforts,among others.
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REPO RT O N TH E FO LLO W -UP O F TH E W O RLD SUM M IT FO R SO CIALDEVELO PM ENT (W SSD):STATE AND G LO BALIZATIO N,CH ALLENG ES FO R
H UM AN DEVELO PM ENT
Bangkok 17-19 December,2003
UNITED NATIONS
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PART ONE
SummaryofProceedings
I.BACKGRO UND
Globalization, being a dominant force in the twenty five century, is providing newopportunities to countries around the world through economic liberalization, foreigninvestments and capital flows, technological change and information flows. Yet, theimpactofglobalization has notbeen equal,norhas itsbenefitsspread equitably acrosscountries. In many cases, globalization seems to be contributing to undesirable socialconsequences.Financialpressures areforcing governmentsto cutback on the supply ofbasicsocialservices.Further,whileglobalization has induced growth in many cases,thefactremains thatnearly 1.5 billion peoplecontinue to remain poor,many lack adequateaccess to clean water, and a large percentage of these people are in South and CentralAsia.Inequalities between countries and among groups areincreasing.
Peoplearefacing new threatstohuman security-such as the financialturmoilinEastandSoutheast Asia during the late nineties, insecurity in employment and income derivingfrom economicand corporaterestructuring,the spread ofHIV/AIDS,illicittrade indrugsand weapons,money laundering,physicalviolence and environmentaldegradation.Poorpeople and poor countries are being marginalized within the rapidly expanding globaleconomy. In addtion, both the role and the coverage of the State in management ofsocieties have been altered as aresultofglobalization and liberalization.
The W orld Summit for Social Development (W SSD) is putting people at the centre ofdevelopmentand the Stateremains akey actorinthe developmentprocess.Ithas amajorroletoplay inmaking globalizationworkforall;alleviating povertyand reducing incomeinequality;inadvancing human rightsand democracy;inprotecting the environmentandpromoting sustainabledevelopmentand strengthening the vulnerable.The W orldSummitfor Social Development, the 24th Special Session of the United Nations GeneralAssembly 2000 and the United Nations M illennium Declaration underscore that statecapacity and good governance are paramount to eradicating poverty, protecting thevulnerable,and increasing the participationofwomen and disadvantaged groups inpolicyand decision-making in aglobalizing world.
The qualityofthe publicsectorhas adirectbearing on the qualityofthe State.How thepublic sectorisstructured,how itisadministered and how itoperates,and indeed howpolicies are formulated and modified have a great impact on people's well-being.M anaging the public sector in today's environment of change, particularly in view ofglobalization, has become an increasingly demanding challenge for national decisionmakers,policy advisors,servicedeliverymanagersand civilservantsatlarge.Reformingpublicadministrationsystems and strengthening stateinstitutions iskey toexploiting theopportunities and facing the threatsthatemanatefrom globalization.
Experience has shown that States with effective public administration systems and stronginstitutions have the capacitytochannelglobalizationtotheirown advantage and tominimizeits costs. W ithout building strong institutions and effective regulatory frameworks at thenationallevel,including independentand effective judiciaries,strong parliaments,accountableexecutives, mechanisms of transparency and accountability, and without adequate socialpolicies,including those onhealth,education,and socialsecuritysystems,therearetoomanyrisks that either a country will be marginalized or it will not be able to shield the mostvulnerablegroups ofsocietyfrom the negative effectsofglobalization.
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Strengthening good governance isthereforekey tothe promotionofhuman developmentin the Asian and Pacific region.A variety of tools, techniques and methologies can beapplied to mainstream the concerns of the poor and disadvantaged into policy makingprocesses of governm ent. For exam ple, in several developing countries Hum anDevelopment Reports are increasingly used as important inputs for planning socialdevelopment.Interms oflinking citizens'voices intopolicy deliberations some countriesand regions arepromoting new initiatives such as engaged governance.These and otherissues need to be highlighted and discussed further for learning lessons and, whereneeded, for capacity building. In recent years, the UN-DESA has collaborated with arange ofinstitutions,including governments,and civilsociety organizations,as wellasthe United Nations Development Program (UNDP), to research and analyze theimplications ofglobalization and to identify options,toolsand institutionaladjustmentsthat may help in mitigating the negative effects of globalization and at the same time,develop processes and arrangementsthatmay help in mainstreaming the concerns ofthepoorand the disadvantaged into policy and program processes ofgovernment.
II.GLO BALIZATION AND STATE:CO NCEPTS,ISSUES AND CH ALLENGES1
Taking into consideration the pointsmade in the background notes,the Socio-EconomicGovernance and M anagementBranch ofUNDESA convened the follow-up meeting oftheW orld SummitforSocialDevelopmentin partnership with UNESCAP.The meetingwhich took placein Bangkok,Thailand from 17 to 19 December2003,broughttogether25expertsfrom aroundthe regiontoconsiderthe issue ofthe roleofthe Stateinassistinghuman development,with particularreference to the impactofglobalization on humandevelopment.
A.The Changing RoleofGovernm entin the Era ofGlobalization
Globalization implies integration of markets under a common set of rules within agenerally agreed framework. M arkets include the commodity markets, capital marketsand labor m arkets. Hallm arks of globalization on national econom ies includeprivatization of state owned activities, privatization of state owned enterprises in themanufacturing sector, privatization of state owned enterprises in the service sector andprivatization of activities producing public goods. In addition, there is generally anoutsourcing ofactivities ofgovernmentand aderegulation ofinvestment,as wellas anopening up ofallactivities forthe privatesectorand an opening up ofthe servicesectorfor foreign actors. There is generally no discrimination between local and foreigninvestors. The resultisan increase in the flow ofshort-term foreign capitalalong withforeign directinvestment,as wellas cross-borderborrowing and often the developmentofacommon regionalcurrency.
Anothercommon outcome ofglobalization istrade liberalization,and with itareductionin tariffrates and dispersions,reductions in non-tarifftrading,an increased exposureofthe servicesectortointernationalcompetitionand moreinternationalcooperationthroughbilateral,regionaland multilateralagreements.
Common global rules and standards are also developed, as a result of globalization,resulting in, or requiring a broad consensus on macroeconomic policy framework, acommon set of rules for global trade, a common set of rules for global financialtransactions,internationaldisputesettlementprocedures,common standards forproductsand processes,higherdemand on universalsocialstandards (labor,human rights,
1Thisisasummarized versionofapaperpresented by Dr.Debapriya Bhattacharya.
environmentetc.),increased transparency in publicaffairs,moretransparentand simplerregulatory systems, increased global oversight for ensuring transparency and broaderinvolvementofcivilsociety.
Despite the many positive outcomes ofglobalization,there have been some limitationsnoted in the current globalization process. One such limitation is that liberalization ofmarkets is sequenced to benefit developed countries, as is the legal framework whichlargely protects the interests of the developed countries. For example, traditionalknowledge (TK) is not protected, whereas lifesaving drugs are patented. Furtherdetracting from the benefits of globalization for developing countries is the conflictbetween trade and aid policy. In addition, the benefits are not just spread unevenlybetween developed and developing countries, even within countries there is often anunequaldistribution ofbenefitsfrom globalization.
Thispaperdoes notseek toaddress the issue ofglobalizationand itsbenefitsorotherwise,butmorespecificallyitaddresses the issue ofstatecapacity,and the new demands placedonitby globalization.
As States have endeavoured to reap the rewards of globalization for their people andcountries,they have also been forced,often ratherrapidly,tochange theirrole,many fromgovernmentswho saw themselves as "controllers" extensivelyinvolved in production,togovernments who now must become "enablers". However, whilst pursuing efforts tomake theireconomies moreopening and inviting forglobaltrading partners,the importantroleofthe Stateinensuring the provisionofpublicgoods mustbe maintained.They mustalso play aroleinrulesetting and enforcementofterms forengagementinglobalization,and seek greaterengagementin internationalrulemaking fornationalbenefit.However,the realchallenge isto allow forparticipatorypolicy-making.
B.Em erging Challenges and CapacityBuilding needs
Globalization can be an integrating force. It is an old phenomenon with a newmanifestation. It offers real threats and illusive opportunities.As such, globalization isputting new demands on statecapacity,and the nationaland globalinterfaceisthe newchallenge facing States. The majorconceptualdebatearound globalization,however,ishow to ensure that the benefits of globalization reach all, including the poor anddisadvantaged.One way isto strengthen the capacityofStates representing these groups- such that the pace of government reform and strengthening matches the pace ofglobalization.
M ajorareas ofcapacitybuilding beginning withinternallyoriented capacityinclude mostimportantly, strengthening the supply-side capacities of States to engage in externalmarkets. Other challenges include the development of trade and investment supportiveinfrastructure, the improvement of quality of the workforce and linkage industriesdevelopment.
Secondly,thereisaneed toimprove governance formoreefficienteconomictransactions.Such im provem ents include legislative reform s for strengthening property rightsincluding community property, judicial reform for faster enforcement of contracts, andbenefitsharing to cope with the socialcostsduring adjustmentand restructuring and toengage disadvantaged groups in the globalization process.
Finally,tomeetthe challenges ofglobalization,thereisaneed fornew socialand politicaltoolstomatch the economicdemands.Greateremphasisoncorporatesocialresponsibilityis required, particularly to reflect stakeholders' concerns. W ays to ensure that
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globalization and economic development are in compliance with core social standardsshould be developed.So too should ways to increase transparency and accountability ofgovernments, for example e-governance. All States should establish independentAnti-Corruption Commissions ifone isnotalready in place,along with independentHumanRights Commissions, and the appointment of Ombudsmen. Finally, there should beeffective parliamentary oversight bodies to ensure the process of globalization in ademocraticone.
III.STATE CAPACITY IN PROM OTING TRADE AND INVESTM ENT:TH E
CASE O F BANGLADESH 2
Globalization isnotnew,butwhatisnew isthe pace ofitsgrowth.Fifty yearsago,theworld traded around a billion dollars a day; today, the same one-billion-dollar-trade ishappening every90minutes.Globalizationismulti-dimensionaland can be broken downinto numerous complex processes that have dynamism of their own, resulting in bothvaried and often interrelated and unpredictable effects. Hence, it has given rise toconcerns in both developed and developing countries. M any developed countries fearcompetition from low-wage labourabundantcountries,while localfirms in developingcountries find itdifficultto competewith foreign firms with bettertechnology,strongercapital base, and superior productivity, especially against M ulti National Corporations(M NCs)based inand supported by powerfulstates.
Although theoretically it has been proved that globalization and social progress are
positively correlated,the answerto the question ofwhetherglobalization isgood forall
isnotastraightforward"yes".Differentcountries reap differing degrees ofbenefitsfrom
globalization.The extentofthe benefitisprimarilydetermined by each country'scapacity
todealwithunforeseen outcomes.
Developed countries with good governance capacity are well suited to protect andsafeguard theirconsumersfrom the negative externalities ofglobalization.On the otherhand,countries with weak governance capacity,such as Bangladesh,remain vulnerabletounanticipated effects.W hiledeveloping countries ofthe worldarecompeting toattractforeign investments,the rateofsuccess varies widely.Forexample,although Bangladeshoffers one of the most liberal foreign investment regimes in the world, its success inattracting foreign directinvestment(FDI)remains low.Analysisofthese resultsrevealsthatBangladesh'slack ofsuccess isnotbecause ofpolicy failures;ratheritisareflectionofstructuralweaknesses,which deterforeign entrepreneursfrom investing inBangladesh.
A.Adm inistrative Capacityofthe Statein Prom oting Trade and Investm entBangladesh is governed by a parliamentary democracy, where general elections areconstitutionallyrequired atleastonce ineveryfive years.Thereare300elected membersin the Parliamentcalled the Jatiyo Sangsad.Politicalregimes in Bangladesh have oftenbeen marked by overwhelming short-lived popularity,followed by mostlyviolentchangeofgovernment.Between 1975 and 1990,Bangladesh experienced poormanagementandgovernance both at the hands of m ilitary governm ents and legitim ate civiliangovernments. This slowed down the democratization process, and made attracting FDIdifficult.
2Thisisasummarized versionofapaperpresented by AbulBarkat,M ozammelHoque and ZahidHassan Chowdhury
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There has been some improvement since then with the establishment in 1990 ofparliamentarydemocracy.However,some problems including mistrustofpoliticalpartiesand representatives, misuse of office, partisanism and inefficiency in the bureaucracyremain to be addressed.
Improving the human resource management systems is one way of combating thenegative perception of government and bureaucracy in Bangladesh. Another way isthrough the implementation ofthe FirstPerspective Plan (1995-2010).
Previously,therehave been severalfive-yearand bi-annualplans.Atpresent,the planningprocess ismostly short-term and top-down,butthere has been some progress toward amore participatory approach, aided by donor support. One good example is the policyformulation for small and micro enterprises carried out by the Bangladesh PlanningCommission in 1999 under the project, "Formation of National Action Plan for Non-FormalEmploymentGeneration in Bangladesh".
The institutions charged with promoting trade and investmentin Bangladesh include theM inistries ofCommerceand Finance,the BoardofInvestment,utilityservices (publicandprivate),the judiciary,and the Bureau ofAnti-Corruption.The Board ofInvestmentwasspecifically established to facilitate investment, and provides one-stop services topotentialinvestors.
Staff capacity in many of these institutions is somewhat limited, and human resourcetraining is considered bureaucratic and not well able to respond to the changingrequirementsofthe globalwork and marketplace.Emphasison internationaleconomicrelations has been a relatively recent phenomenon. Government agencies are stillgrappling with up-skilling staff to deal with the new challenges and ways of workingpresented by the globalmarketplace.
Lack ofpropernegotiating skillsforexamplecan pave the way forthe foreign investorsto dictate terms according to their advantage. However, Bangladesh is gaining someexpertise in thisrespect.A low levelofnegotiating skillhas given rise to terms oftradewith participating countries orinvestorswhich isunfavorable forBangladesh and givesrise to perplexities in the balance ofpaymentsin the country.
Bangladesh stillhas along way to go,because thereisalack ofconcerted effortsto useinformationtechnology (IT)as ameans toimprove efficiency orthe governmentofficialsand the qualityoftheirwork.Some organizations such as the BoardofInvestment(BOI),the ExportPromotion Bureau,M inistryofFinance and Bangladesh Bank make use ofITinthe sense thatthey have theirown W eb sites,butthatisall.The governmenthas decidedtofunda‘‘SupporttoICT TaskforceProgram’’aimed atimproving the efficiency as wellas the transparency and accountabilityofthe government.
Otherproblems include low salarylevelswhich can demotivateofficials,and the limitedparticipation ofthe business communityin trade and investmentnegotiations.
Itisnoteworthy thatinregardtoFDI,Bangladesh offersbetterfacilities and incentives forinvestment than many other neighbouring South Asia countries. But despite this, itsneighbourscontinue to be the main recipientsofFDI. Some ofthe deterrentsto FDIinBangladesh include lack of stability, frequent shifts in policy, the high cost of doingbusiness, poor infrastructure, and a lack of sufficient accountability and transparencymechanisms.
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B.Corruption Laws and Enforcem entM echanism sW hileBangladesh offersavery encouraging investmentregime,thereisaconcern heldby many investorsthatthe risk ofinvestmentinBangladesh ishigherthan itscompetitors.The risks include alack ofstability,frequentshiftinpolicy,high narrow marketsize,andthings discourage prospective investors.Rigidbureaucracy and officialhierarchy preventdecision-making atlowerlevels,and aresignificantfactorswhich add tothe costofdoingbusiness in Bangladesh.
These risks createahigh opportunitycostofinvestment,discouraging FDIand portfolioinvestment.Severalattemptshave been made toredress thissituation,the mostimportantofwhich isthe PreventionofCorruptionAct(1947,ActNo.IIof1947).The PreventionofCorruptionActhoweverhas largelybeen ineffective incombating corruption.Anotherlaw, the Criminal Law AmendmentAct 1958, was enacted with the objective to holdspeedy trialsofpublicservants.ThisActrequires sanction by the Governmentwho maywithhold orrefuse sanction atitsdiscretion.
Bangladesh has notdeveloped any legislationspecificallyagainstcross-bordercorruptionbutthe prevailing anti-corruptionenactmentcoversthe citizens ofBangladesh as wellasthe cross-border citizens. In addition, Bangladesh has an anti-money laundering act. Italso uses the prevailing anti-corruption enactmentto coverscross-bordercitizens.
The main enforcementagency in Bangladesh isthe Bureau ofAnti-Corruption (BAC).The Bureau fallsunderthe jurisdiction ofthe Prime M inister'sOffice.Thisarrangementunfortunatelyleaves itopen tocharges ofpoliticization.Due tothis,the Governmenthaspledged to replacethe Bureau with an independentanti-corruption commission.
Article77 ofthe Bangladesh Constitution provides forestablishmentofan Ombudsmanwho will be an independent high level public official to receive complaints againstgovernment agencies, officials etc. and to keep watch and control over persons underhis/her jurisdiction. Ombudsman Act No. XV of 1980 has been enacted but as yet anappointmenthas notbeen made.
C.The Legaland JudicialFram ework toSupportPropertyRightsLawsThe legalsystem ofpresentday Bangladesh emanates from a‘‘mixed’’system thathas astructure,certain legalprinciples and specific conceptsmodelled on both Indo-M ughaland English Law.
Bangladesh became an independentand sovereign stateon 16 December1971.In orderto ensure continuity in all legal spheres in independent Bangladesh, the LawsContinuance Order1971,effective from 26M arch 1971,legalized and made effective allexisting laws inherited from Pakistan subjecttothe ProclamationofIndependence 1971.Thereafterthe judiciary ofthe country was setinto motion with the appointmentoftheJudges ofthe High Courtofthe countryon11January,1972by aPresidentialOrderNo.5of1972.
The 1972ConstitutionofBangladesh has setupatthe apex ofthe Judiciary,the SupremeCourtofBangladesh comprising the AppellateDivision and the High CourtDivision.Itisthe soleSupreme Courtofthe country.The ChiefJusticeofthe Supreme Court,who isappointed to the Appellate Division, is constitutionally known as the Chief Justice ofBangladesh.
In recentyears,there have been some noteworthy developmentsin the legalsystem ofBangladesh.These arethe Ombudsman Act1980 (ActXV of1980),the AdministrativeTribunalsAct1980(ActVIIof1981),the Income Tax Ordinance 1984(Ordinance XXVof1984),the Land Reforms Ordinance 1984 (Ordinance X of1984),the Family CourtsOrdinance 1985 (Ordinance XVIIIof1985),and the Companies Act1994.
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The Law Reform Ordinance 1978 was promulgated amending the Civil and CriminalProcedural Laws, related to Court Fees and the Law of Arbitration based onrecommendations ofaLaw Committeesetupin1976.A permanentLaw Commissionhasbeen established to suggest suitable changes to existing laws as necessary, so that thechanged laws can meetthe demands ofthe presenttime.
Rules pertaining to trade and investment are not transparent and so bureaucrats,businesses,professionals,trade unions and politicalparties with vested interestspracticethislack oftransparency.Regulationoftrade and investmentby the governmenthas beenfalling since the early1990s.
Bangladesh allows privateownershipand investmentinallsectorslike arms,productionof nuclear energy, air transportation and so on. The mechanism to protect and enforceproperty rights,however,isnottransparentand isa serious concern to investors,asidefrom being cumbersome and time consuming.
Efforts to privatize the economy have been monitored with great interest by variousinternationalbodies as a barometerofBangladesh'sattitude towards the private sector.The PrivatisationBoardstates inwritten reportsthatithas soldoff30companies since itwas created in 1993,primarilyin the jute,textiles,sugar,and food sectors.Despitethis,progress has been slow, and from July 2001 to June 2002, no single company wasprivatized, although partial shares of 11 companies were sold. Further, there is someconcern thateven following privatization,some companies arestillexperiencing stronggovernmentinvolvement.
In terms of intellectual property, Bangladesh is a signatory to the Uruguay Roundagreements and a member of the W orld Intellectual Property Organization (W IPO) inGeneva.Ithas also acceded to the ParisConvention on IntellectualProperty.In signingthese agreements,Bangladesh isobliged to bring itslaws and enforcementeffortsintoTRIPS (Trade Related Intellectual Property Rights) compliance by 1 January, 2006.Copyright conformity with the W orld Trade Organisation's TRIPS was established byway of legislation in November, 2000. However, laws to enforce the new copyrightlegislation have notyetbeen drafted.
D.Key Recom m endationsInan eraofglobalization,and interdependence ofeconomies,the following areas shouldbe considered and strengthened inordertoincrease the capacityofthe Stateinpromotingtrade and investmentin Bangladesh:
1.Politicalwill,commitmentand stability:
(a)Institutionalizing democraticnorms and values;
(b)Ensuring ruleoflaw;
(c)Initiating electoralreform;
(d)Improving law and order;
(e)Initiating reforms to strengthen localgovernments;and
(f)M apping localresources.
Itisevidentthatthe politicalwillofleadersplays an importantrolein the strengtheningofthe state.
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2.Good governance to minimize the costofdoing business in Bangladesh:(a) Streamlining ofbureaucracy;(b) Strengthening anti-corruption policies and agencies;(c) Strengthening the Board ofInvestmentto promoteareas ofcomparative advantage
by sector;(d)Promotion ofeconomicdiplomacy;(e)Introducing e-governance forincreased transparency;(f)Promoting aparticipatoryapproach to governance.
Ithas oftbeen noted thatitisnotpolicy failurebutstructuralweaknesses ofthe Stateanditsbureaucracy thatisresponsibleforfailuretoattractFDIinBangladesh.Thisstructuralweakness acts as an extra "tax", and thus dissuades investors from investing inBangladesh.
3.Enabling infrastructure:(a)Improving servicedeliveryofutilities,including electricityand gas;(b)Increasing efficacy ofports;and(c)Developmentofinformation technology systems.
Bangladesh cannot attract FDI without adequate infrastructural support. It is, however,important to note that although expansion of public sector amenities is vital, it is asimportantto ensurequalityand promptservicedeliveryofexisting services.
4.Developmentofcapitalmarket:(a)Properuse ofremittances;and(b)Transparency in stock exchange activities.
5.Image building:Chinese and Indian experiences suggestthatin generalexpatriateinvestorspioneerFDIin acountry.To encourage increased foreign investment,the GovernmentofBangladeshshould promote,along with the aforementioned activities,astrong and reliableimage ofBangladesh to globalinvestors.
Politicalwill,commitmentand stabilityarethe keys to capacitybuilding in Bangladesh,along with good governance, conducive business structure, development of the capitalmarketand betterimage building.Building abetterbusiness environmentshould be thefirststep towards capacitybuilding torestorelocalinvestorconfidence inBangladesh andto allow itto take advantage ofglobalization.
In the discussion thatfollowed thispresentation,itwas noted thatwhileBangladesh hadmade a lotofadvancementsin human development;the Governmenthad notyetmadeadequate progress in increasing transparency and accountability in public service andgovernance.The Chairsaid the presentation demonstrated thatBangladesh had achievedconsistentgrowthbutitwas hampered by weak governance.Itwas noted thatitappearedthateconomicperformance was increasing atamuch fasterpace than politicalreform.
IV.ADM INISTRATIVE CAPACITY,CO RRUPTIO N REGULATION,ANDJUDICIAL INDEPENDENCE IN INDIA3
As economies globalize, the effectiveness with which nations can benefit from thisdepends cruciallyonthe capacityofgovernmentstomanage resources efficientlyas wellas to formulate,implementand enforcesound policies.The benefitsfrom thisin turn
3Thisisasummarized versionofapaperpresented by Dr.ErrolD'Souza.
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depend onthe qualityofthe institutions thatgoverneconomicand socialinteractionas thedeliveryofservices ismediated through institutions.Thispaperaccordinglyinquires intothe organizational capacity, responsiveness, and motivation of the state administrationwith reference to India.
This inquiry is guided by the premise that the benefits of integration into the worldeconom y are hindered when organizational and technical capacity in the stateadministration is weak. Besides administrative capacity, the broader environment thatincludes the degree to which dysfunctional behavior and the subversion of institutionsaffects the conduct of ordinary business life is another aspect of the governance ofinstitutions thatisinquired into.
Finally,the judiciaryprovides securityagainstcorruptpractices and expropriationand,asan enforcementinstitution,itssuccess depends largely on the extentofitsindependenceas wellas the training and recruitmentofthe individualswho areitsagency.Thus,thispaperconcludes by inquiring into how independentthe judiciary isand the adequacy ofjudges'training and tenurethataffectstheirabilitytodispense justice.The mechanism ofpubliclegalassistance so as to reduce exclusion from justicein Indiaisalso described.
A.Adm inistration CapacityThe administration system in India has evolved from the time of British rule and hasfive distinguishing features:
1. The districtas the basicunitofadministration.2. Centralization ofdecision making as the principlein policy.3. A singledominating civilservicewiththe Indian Administrative Serviceoccupying
the top position among otherallied and subordinateservices.4. A system ofelaboraterules and regulations as ameans ofmaintaining orderoverthe
administration thatcomprises peoplefrom diverse socialand training backgroundsand who aredispersed farfrom administrative centres.
5. A splitsystem offunctioning ostensibly to separatequestions ofpolicy from thoseofadministration.
W ith the advent of globalization the Government of India through its Department ofAdministrative Reforms organized a national debate on how to make administrationresponsive,accountableand effective.An ActionPlan was discussed and concretized inaConference convened by the Prime M inisterofallthe ChiefM inistersofthe states.ThisActionPlan dealtwith(1)how tomake governmentaccountableand citizen friendly;(2)transparency and the right to information; and (3) improving the performance andintegrity of public services. An outcome of this has been that a number of Citizen'sChartershave been instituted by centraldepartmentsand stategovernments. Fixed timelimitshave been specified forhandling grievances and publicizing the names ofofficershandling grievances and asystem ofcomputerized monitoring has been installed inmanydepartments.W ith aview to simplifying laws and procedures,aCommission on Reviewof Administrative Laws was set up in 1998. The follow-up action on this has beenimpressive, with implementation of the recommendations of the Commission beingcoordinated by the DepartmentofAdministrative Reforms and PublicGrievances and theLegislative Department. Further, the Department of Legal Affairs has set up theInternationalCentreforAlternateDisputes Resolution as aprivateregistered societythattrains arbitrators, conciliators, and mediators, and provides model contract clauses tobuild arbitration into business relationships.
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However,despitethese positive changes,an AT Kearney survey found thatbureaucracyand red tape remain the main concern ofinvestorsin India.Clearly thisperception isamajorobstacle to India benefiting from the increased globalization ofthe economy.Torespond to this challenge to change perceptions systems need to be developed forevaluation and benchm arking; the application of technology; and knowledgemanagement.
Thereisan urgentneed forchange inthe following dimensions:1)from an administrativeculture of conformity with procedures to a culture of performance; 2) from a cultureproviding sub-serviceto acultureofresponsibility;3)from abudgeted costcultureto aculture of cost awareness; 4) from a continuity and stability culture to a culture ofinnovationand progressive development.
The following criteriapointtothe enabling actions required inthisregard:(1)Strong andsustained supportofpoliticalleadersisan essentialcondition forthe success ofreform;(2) The administration of government needs to declare a formal policy of serving thecitizen through benchmarking with other administrative departments elsewhere, staffappraisals, and regular reviews; (3) Training that is integrally linked to careerdevelopmentand with some autonomy forstaffto selecttheirown training schedules aswellas toassess whethertraining meetstheirneeds isan importantrequirementcurrently;(4) Altering government behavior from command and control systems to a serviceorientationaimed atthe facilitationratherthan distrustofbusiness requires administratorsto relinquish powers, reduce cumbersome procedures and to apply discretion in aprincipled ratherthan ad hoc manner;(5)Peoplesatisfaction should be stressed i.e.howadministratorsthemselves feelabouttheirorganization including the work environment,managementstyle,careerplanning and job security.
B.Corruption and Enforcem entM echanism sIndiaisasignatoryto the ADB-OECD Anti-Corruption Initiative forAsia-Pacificwhichrequires itto address three pillarsofanti-corruption activity:civilservice,reduction ofbribery,and the closerinvolvementofcivilsociety.
The anti-corruption institutions ofthe centralgovernmentare:
l Prevention ofCorruptionAct,1988;l CentralBureau ofInvestigation;l CentralVigilance Commission;l ChiefVigilance Officersin ministries and organizations;andl Civilserviceconductrules.
The CentralVigilance Commission (CVC)was setup in 1964 as the apex organizationfor maintaining probity in public life. The Commission has powers to exercisesuperintendence overthe vigilance administrationofministries ofcentralgovernment,thepublic sector and so on. Each ministry and public sector organization has a ChiefVigilance Officer (CVO) who is appointed after clearance from the CVC.All cases ofimproper conduct in the organization are referred to the CVO who monitors and takesaction,reporting irregularities tothe CVC.Conductrules arequitestrictinmonitoring thehigher civil services. A W histleblowersAct has also been recommended by the LawCommission ofIndia,buthas notyetbeen enacted.
Punishments for corruption are possible through prosecution under the Prevention ofCorruptionAct,1988,orthrough departmentalactions.The CVC has also recommendedthat the Corrupt Public Servants (Forfeiture of property) Act drafted by the LawCommission be implemented so that confiscation is in addition to conviction andimprisonmentunderthe Act.
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Empowering the public through transparency in administration is another method ofenforcementofanti-corruption.The objective ofthe Freedom ofInformation Bill,2000,isto promotetransparency in governmentactivities.However,therearesome problemswith the bill,including lack ofpenaltyclauses fornotproviding information.
E-governance isanothertoolofan information-led anti-corruptionstrategy.The Bhoomi(land) project of online delivery of land records in the state of Karnataka is a goodexample. The online delivery ensures that records are not open to manipulation byrecording online requeststo alterland records upon saleorinheritance ofland.Such e-governance schemes can neverbe fully comprehensive in adeveloping economy due toweak technological infrastructure, but they can assist in limiting opportunities forarbitraryaction.
Anotherform ofpublicaccountabilitythathas been successfullypioneered by an IndianNGO isthe use ofjan sunwais(publichearings).These hearings comprise apublicauditofdevelopmentexpenditures by village residentsto make officialsaccountable.
A majorchallenge,however, remains thatofmanaging and making transparentpoliticalpartyfunding. InThailand the Statehas addressed the issue by creating an enabling lawwhereby politicalparties are required to disclose theirfinancialaccountsto the public.Thistoo may be an option forIndia.
C.The Judiciary and the Coverage ofJustice
India'slegalsystem isbased onEnglish common law.DistrictCourtsexistatthe firsttierlevel.High Courtsthatstand as the head ofastate'sjudicialadministrationconstitutethesecond tier. The Supreme Court is the highest tier court in India. The Department ofJustice with the M inistry of Law, Justice and Company Affairs administrates serviceswithinthe Supreme Courts,High Courtsand othercourtsand develops the infrastructureforfacilities and administerstraining forjudges.
In terms of appointments to the courts, up until 1993, the power of appointment wasvested inthe Executive,who had the powertoarbitrarilytransferjudges forone courttoanother.Italso had the powertograntan extensionofappointmentsforshortperiods andwith no confirmations, including the supersession of senior most judges. Such powersraised questions aboutthe desirability ofthe Executive in the process.The system nowallows for the appointment of judges to the Supreme Court by recommendation of theChiefJusticeand hisfoursenior-mostcolleagues.They make arecommendation to thePresident,who by warrantmakes the appointment.As opinion rendered by the judiciaryis binding on the Executive, the judiciary is still independent to a substantial extent inIndia.
W ithregardtocomplaintsofmisbehaviourand incapacityagainstjudges inthe Supremeand High Courts,thereisaJudges InquiryAct.However,complaintsareexamined by acommitteewhich isconstituted onan ad hoc basisfrom case tocase.The Convention,ifcharges areproved,range from recommending awarning toachange inthe allotmentofworkto the removalofthe judge from office.
Thereareseveralspecificissues thatarerelated to the judiciary in India,and should beaddressed. Thereareoverten million cases pending in various courtsin Indiaand somehave been inthe courtsfordecades;stillundecided.Therearemany reasons fordelays inthe system,including:
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l Lack ofjudges;
l Non-filling ofpostsintime,often due toeitherinterference orindifference;
l Frequentrequestsforadjournmentson insubstantialgrounds;
l Inappropriatebehaviourin courtby some lawyers;
l Delay in deliveryofjudgments;
l Admission ofcases which could have been disposed ordismissed;
l Transferofjudges to courtsin states in which they do nothave suitableprior
knowledge;
l Deficiencies ininvestigationand presentationofevidence incourt;
l Poorinfrastructurein courts;
l Lack ofpropertraining institutions forthe judicialfraternity;and
l Complicated disciplinarian procedures, making it difficult to penalize errant
judges,even in obvious cases ofmisdemeanor.
D.Recom m endations
An effective judicial system can be ensured by keeping the judiciary free frominterference, influence and pressures from extraneous sources. The mechanics forselection ofjudges and theirappointmentsshould be primarilythe function ofaJudicialCommission which should consistpredominantlyofjudicialofficers.
The pay and promotion prospects must be such as to attract talented young men andwomen to judicialservices and ensurethatthe judges areabove wantand temptation.
Vacancies ofjudges mustbe filled on top priority and action to be initiated wellin timefor the filling up of vacancies that will occur due to retirement of a sitting judge.Appointmentofjudges should be based strictly on merit,characterand integrity oftheindividuals.Retirementage ofjudges should be raised to 70 yearsand on retirementthejudges should nottake up any otherofficialassignment.
Time limitsmustbe laid down and strictly adhered to forclearance ofcases in variouscourts.Inthe exampleofthe Philippines and Nepal,stipulationofone yearinthe case oflowercourtsand two yearsforthe High Courtsand the Supreme Courtfordisposalofcases works effectively. Long and winding arguments should be severely discouraged;instead written briefsshould be insisted upon to save the time ofcourts.
The costoffiling and fighting acase isbeyond the means ofordinarypeopleletalone thepoorwho areunabletotake recourse tojudicialremedies even ingenuine cases.Lawyersmusttake upmorecases onpro-bonobasisas apartoftheircommitmenttowards society.Judges mustabide by acode ofconductand selfdiscipline and possess unimpeachableintegrity. Also, there is a need for the lawyers to abide by a code of conduct with theinterest of the plaintiff upper most in their minds and in conformity with the highestjudicialstandards.
The highercourtsmustexercise theirsupervisorypowersand carryoutrigorous inspections toensurethatlowercourtsand theirjudicialofficersarepromptin the disposalofcases.
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Procedureforinitiating and finalizing disciplinaryactionrequires tobe suitablyamendedto avoid politicizing issues and to prevent extraneous factors from interfering with thefinalizing ofthe cases.
Amelioration of existing conditions in the lower courts where the infrastructure isabysmallypoorshould be taken up on top priority.
Scientific management principles should be adopted in documentation procedures andcomputerization musttake placedown to the lowestcourts.
Chief justices must have vigilance officers drawn from judicial cadre to deal withcorruption cases involving the judiciary.
The appointmentofaJudicialOmbudsman shouldbe made ineverystatetolook intotheproblems ofplaintiffswho have problems withthe procedures.
The biggest litigator in the country is the Government of India. Government Officialsshould be encouraged notto proceed forlitigation unless absolutelynecessary.
E.ConclusionsIthas long been recognized thatthe Stateplays amajorroleindefining and enforcing the rulesgoverning access tomarkets.Inordertodeepen marketaccess,governmentsoften enactlegaland regulatoryreforms.Butthese arenotenough withoutthe developmentand training ofthecivil service, the development of the judicial and legislative functions, and other suchorganizationalreforms. The paperfocused on the serviceorientation ofkey institutions -thecivilserviceand the judicialsystem.The appointmentofjudges,the adequacy oftheirtraining,theirtenure,and finally,the coverage ofjusticein terms ofpublicsupportforlegalservicesforthose notin aposition to access the courtswas considered.These issues areimportantforthe sustainabilityofreform,and the benefitsaccruing from globalintegration,as these willbemediated through the servicedeliveryeffectiveness ofthese institutions.
V. NATIONAL CASE STUDY ON STATE CAPACITY AND GLO BALIZATION IN M O NG O LIA4
M ongoliaismoreopen and has closerties withthe restofthe worldthan everbefore.Theimpactofglobalization isincreasing in allspheres ofpolitical,economic,and sociallifein M ongolia. In 1990 the countrytraded onlywith countries ofCOM ECON,by 2002 ithad expanded itstrading partnerstoinclude 88countries,and toatotalof1,159.9millionUSD.Between 1990 and 2002,around 2,400 companies in 70 countries invested about800millionUSD inM ongolia.
Despitethe rapidopening upoftrade,therestillremainsome challenges forM ongoliainimproving the competitive capacity ofitsnationalindustries,and in holding itspositionin internationalmarketswith niche productsand marketing.M oreover,M ongolia must,like m any countries, address serious issues such as poverty, corruption, andenvironmental and natural disasters. For example, the Living Standards M easurementSurvey conducted in 1998 showed that 36 percent of the population lives below thepoverty line. These challenges require M ongolia to adapt and to discover its specialnationalcharacteristics thatwillenableittoprogress inthe eraofglobalizationratherthanjustsimplydiscuss it.
4 Thisisasummarized versionofapaperpresented by M r.Batkhuu
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The State is the key actor in the development process. However, State capacity inM ongolia is not yet as strong as it could be. The capable State plays a major role inaddressing problems such as poverty,economiccollapse,corruption,bribery,and impactsofnaturaland ecologicalhazards and disasters.
Strengthening State capacity that promotes foreign investment and foreign trade is oneappropriateway to encourage economicgrowth.
The purpose ofthisstudy istofocus oncountry-levelexperiences and practices related toState capacity and globalization. The specific sections of State capacity addressed arethose thatcontributeto the promotion oftrade and investment. The firstsection coversadministrative capacityofthe Stateinpromoting trade and investmentissues.The secondsection considerstransparency and accountabilityin trade and investmentactivities.Thelastsection coversthe legaland judicialframework.
A. Adm inistrative Capacityofthe Statein Prom oting investm entand TradeStatecapacityisthe abilityto mobilize socialand economicpowerthrough participationand cooperation to achieve awide variety ofsocialand economicgoals.Administrativecapacity is one of the essential components of state capacity.Administrative capacityinvolves producing outputs, while state capacity is a measure of ability to achieveoutcomes.5
Administrative capacity is the efficient management of resources and knowledge invarious administrative processes required fordelivering the outputsofgovernment,such as foreign trade and foreign investm ent service. Strategic planning, leadership,performance,evaluation and monitoring areissues ofadministrative capacity.
B.Leadership and StrategicPlanningGood leadership enables progress and change by uniting public and administrativesupportbehind the goalofnationaldevelopment. Itrequires the ability to look beyondthe period of transition, to a time of national economic renaissance and stability, andultimatelyaself-sustaining M ongolian economy.
Visibleand effective leadershipisessentialinthe currentchallenging times fortrade andforeign investment in M ongolia. Leadership is one of most important components ofpublic management, and is a concept that closely relates to strategic planning andperformance.
In the distribution ofresponsibilities in the trade and investmentsector,the M inisterforTrade and Industry is a member of government, responsible for policy making andstrategic planning in trading and foreign investment. The Foreign Trade and ForeignInvestment Agency is responsible for policy implementation. The National AuditingOffice and Public Service Council oversee the effectiveness of activities and monitorimplementation oflaws and otherrelated regulations and decisions.Atthe locallevel,administrative organizations areauthorized to develop localpolicy and action plans.
The Governmentcarries outitsmandate formanaging the affairsofthe nation throughindirectmeasures involving strategicplanning and policy guidance,ratherthan throughdirectmeasures ofcommand and controlofpolicy implementation.The Governmentisresponsiblefordefining priorities and developing plans ofactiontoreach these priorities.As such,the GovernmentofM ongoliahas formulated aGovernmentActionProgram toguide nationaldevelopmentforthe nextfouryears.
5 Painter,M .(2001).Statecapacity,InstitutionalReform and Changing Asian Governance,p.2.
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Priorities in trading and investmentlisted in the GovernmentAction Program include:
l To improve M ongolia'scompetitiveness and quality of goods and services tomeet world standards, to increase exports, to develop a trade networkingsystem forimportsand goods produced by nationalcompanies,and to reachconsumersin remoteareas.
l To supportforeign trade and foreign investment.l To meetobligations underM ongolia'sagreement with the W TO.l To applymodern,advanced methodologies and technologies toproductionand
manufacturing,and to furtherpursue reform and restructuring in the trade andinvestmentsector.
l To rehabilitatenationalindustry.l To increase employmentby promoting smalland medium enterprises.
2.Perform ance Standards ofM anagem entDevelopm entThe outcomes of government activities have direct impact on the state budget.Accordingly,it'sineffectiveness orhigh expenditure can cause cutbacks in othersocialservices. Thus,new publicmanagementhas to take into accountmultipleobjectives informulating its policies and goals, the most important of which must be the fairdistribution of state resources. But the development of performance indicators forgovernment,and evaluation and monitoring aremostdifficult.
The output and performance of the M inistry of Industry and Trade and ForeignInvestment and the Foreign Trade Agency can be measured to a degree. They can beevaluated based on the numberofcontractsand agreementsmade between internationalorganizations and countries, as well as by the provision of a legal and economicallyenabling environmentforforeign investmentand trade.
Efficiency ofperformance offoreign trade and investmentpolicy indicates itsoutcome.Accountability and rewarding mechanisms areessentialfactorsto increase efficiency ofperformance.The accountabiltyframeworkconsistsofthe following:
l Clear definition of tasks and responsibilities of public organizationsresponsiblefortrading and foreign investment.
l Clearobjectives and goals.l Comparision ofproposed and actualoutputs.l Sufficientpowerto achieve goals.l Rewarding mechanism to supportperformance.
Anotherindicatorofperformance isthe impacton societyand the economy. Itincludesthe totalamountofforeign investment,totalamountofexportand importsand loss andgaininforeign trading.
3.Developm entofH um an ResourcesThe Government of M ongolia aims to develop multilateral and bilateral collaborationbetween countries to provide afavorableenvironmentforforeign trade and investment.Thus,thereisaneed forfurtherdevelopmentofskills,knowledge and experiences tokeeppace withpolicy.
M ongolia has worked actively to develop multilateralpartnerships with the UNDP,theW orldBank,the W orldTrade Organization(W TO)and otherdonorcountries.
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One such exampleofthese effortswas the jointM ongolia-W TO projecttodevelophumanresource capacity at national level, entitled, "International Trade and W orld TradeOrganization." The project was implemented with the assistance of GTZ . Under thisprojecttrainings and seminarsareconducted toraise awareness ofW TO activities,suchas regulating the sale of intellectual property and developing integrated informationsystems.
Therehave also been many activities conducted todevelopbilateralcooperationwiththePeople's Republic of China, the Russian Federation, the United States, Canada, theRepublic of Korea and Germany through joint meetings, exchange visits and jointprojects.
Further,the M inistry ofIndustry and Trade and otherrelevantagencies have conductedactivities aimed at enhancing human resource preparation and comprehension levels.Short-term foreign language courses and professionaltraining courses in M ongolia andabroad have been made availableto civilservants,with governmentassistance.
4.PublicServiceProfessionalismEffective implementation of proposed goals and objectives of Government depends onthe knowledge, capacity and experiences of public servants. Thus, the existence of anenabling environment in the public service is crucial for success. A framework forselectionofskilled personnel,provisionofasustainableenvironmentand developmentofcapacity in public services are reforming the civil service. This concept of reform isembedded in the PublicServiceLaw and Finance and M anagementLaw.
5.Inform ation Technologyand GovernanceGlobalization and reform in public services is difficult to imagine without the aide ofinformation technology. In M ongolia, reform in public administrative informationsystems has grown rapidlysince 1995.Informationtechnology provides many advantagesand opportunities to public administrative organizations. Through improving quality,speed, accessability, responsibility and transparency for citizens and partnerorganizations,transparency and accountabilityareincreasing.
6.Investm entCouncilsThe Foreign Investment and Foreign Trade Agency of M ongolia (FIFTA) is thegovernment agency responsible for the promotion and facilitation of foreign directinvestmentand foreign trade inthe country.Predecessororganizations ofFIFTA weretheForeign InvestmentDepartmentofthe M inistry ofTrade and Industry (1990-1996),andthe Board of Foreign Investment (1996-1998). FIFTA was formed in 1998 to overseetrade and foreign directinvestmentissues.FIFTAs mainfunctions areas follows:
l Provide investment matchmaking services to both foreign and M ongolianinvestors seeking cooperation in the areas of technology, management, andmarketing.
l Host foreign investor missions and organize M ongolian business missionsoverseas as well as international investors' conferences and seminars. Inaddition, FIFTA carries out investment and promotion activities in order topromoteM ongoliaas abusiness orinvestmentopportunity.
l Firstliaison pointforinvestorsseeking to establish businesses in M ongolia.
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FIFTAs One Stopservicecentreprovides informationrelated toinvestmentopportunitiesand incorporation procedures.The main objectives ofthe centreareto presenteffectiveand centralized service from the executive governing bodies to foreign investors, toimprove registration and monitoring activities and to make them more open and lessbureaucratic.
Also, it supports stability agreements which guarantee that foreign investors will beaccorded the same conditions as those offered to local investors engaged in a similarbusiness.The cabinetmemberresponsible fortaxation policy may then sign a stabilityagreementwiththe investor,which provides alegalguaranteeforaspecified period.Theduration of the Stability Agreement (10 or 15 years) is determined by the size of theinvestment.
C.Transparency and Accountabilityin Trade and Investm entThe State Great Khural (Parliament) of M ongolia adopted the Anti-corruption Law inApril1996.The Anti-corruptionLaw covers:
l Stateofficialsholding politicaland specialpositions as defined in the Law onStateService;
l Chairm en and Secretaries of the Heads of Citizens' RepresentativeConferences;
l State officials holding governing and administrative positions at economicentities ofstatepropertyorinvolving stateproperty;
l State officials responsible for giving permission, rights, privileges, arrangingloans and assistance as wellas making registrations;
l Persons holding temporaryorpermanentpositions tocarryoutspecialduties ofthe state executive organization orcertain duties ofsub-sectorsunderthe setlegislative procedure;
l Stateofficialsholding governing positions ofstatecivilservice.
Underthe law,stateofficialsmustsubmittheirincome report,butitisuncertain where,whom and in what way it should be done. Enforcement of anti-corruption laws andregulations are generally devolved to the Police Department,prosecuting organizationsand the courts. However, enforcement is hindered in part because the authority andobligations of enforcement agencies is not clearly set forth. Therefore, in order tointensify actions againstcorruption there isa need to form a legalframework forstateservice.To this end, the "National Program on Anti-Corruption" listed the followingactivities forimplementation by 2010:
l To createafavorableconditionfortransparentand faircompetitioninhiring ofcivilservants;
l To reduce bureaucracy atalllevelsofstateorganization;l To increase salaries ofcivilservantsand,thus,improve living standards;l To conclude atreatywith each civilservantto fightcorruption;l To upgrade accountability mechanisms such as the submission of income
reportsby governmentemployees;andl To appointpersons to high-risk positions foraduration ofnotmorethan two
years.
D.Legaland JudicialFram eworkThe process of opening up its economy and improving its legal framework to meetinternationalstandards began in M ongolia in the early 1990s. A series ofamendmentsweremade to the 1960 Constitution,including,mostimportantly,the recognition oftheright of citizens to own private property. This was a major step forward, dramatically
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changing the principles on which the country'strade,industryand economy had hithertobeen managed.Previous to the reforms foreign and domestictrade as wellas investmentwas the soleresponsibilityofthe State.Underthe amendments,the Law onPropertywasadopted in1991,allowing the ownershipofprivatepropertyforthe the firsttime,and theLaw on EconomicEntity was also adopted in the same year,allowing forthe firsttimeestablishmentofprivatecompanies oreconomicentities.
M ongoliaadopted itsnew Constitutionin1992,which declared the new basicregulationsfor developing all forms of property equally and freely, removing the Government'ssingularcontroloverforeign and domestictrade.
The Civil Law that served M ongolia since 1963 was renewed and adopted in 1994 inconformitywiththe contentand principles ofthe new Constitutionand thus itperformedaregulating rolein the transitionalperiod.Furtheramendmentsweremade in 2002 andcame into forceon September1,2002.
The CivilLaw isbased onthe principles ofequality,sovereignty,inviolabilityofproperty,freedom ofthe treaty,non-intervention in privatebusiness,carrying outlawfulactivitiesby citizens and economicentities,resumption ofviolated rights,and protections by thecourts.Besides the CivilLaw,the following laws provide regulations forspecificsectors:Law onOil(1991),Law onForeign Investment(1993,2002),Law onChamberofTradeand Industry (1995), Law on Foreign Trade Arbitration (1995), Law on CurrencyRegulation(1994),Law onM ining (1997),Law onFriendship(1999),Law onCompany(1999), Law on Prohibition of Unfair Competition (2000), Law on Labor, Law onCustoms,Law onCustoms Tariff,Law onBankruptcy,Law onBond M arket(2002),Lawon Insurance, Law on Banking, Law on Non-Banking Finance Organization, Law onTaxation Package,and Law on EconomicZones,amongstothers.
The Law on Economic Zones is particularly interesting. It was recently approved byParliament, and will allow for an economic zone to be established in the city ofAltanbulag on the Russian-M ongolian border.Thislegislation envisions avirtually tax-freebusiness environmentand minimum bureaucraticobstacles forforeign and domesticcompanies.The GovernmentofM ongoliaalso intends toestablish similarFreeEconomicZones in Zamin Uud and Tsagaan Nuur.
In the questions thatfollowed,the workshop noted thatM ongolia'ssituation was quitedifferent from the South Asian economies that were presented earlier. The paperhighlighted that M ongolia was an economy in transition, with the system itselfundergoing restructuring and reform. In response to the question of whether M ongoliawas inaperiodofeconomictransitionordemocratictransition,M r.Batkhuu replied thathe believed thatthe country had some way to go beforedemocraticreform matched thesuccess achieved by economicreform.
VI.GLO BALIZATION AND STATE CAPACITY IN THE PHILIPPINES6
The determining factor behind the state of fiscal affairs in the Philippines is theeffectiveness ofthe Stateto cope with the demands ofglobalization.An effective Stateallows the efficientprovision ofgoods and service and possesses rules and institutionsthatallow marketsto function.The Stateiscentralto economicand socialdevelopment.
The presentstudy foundthatinthe Philippines the determining factorbehindthe stateoffiscalaffairsisthe effectiveness ofthe Stateto cope with the demands ofglobalization.
6Thisisasummarized versionofapaperpresented by Philippine InstituteforDevelopmentStudies.
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Even though the Philippine Statehas characteristics ofacountry with strong capability,the study revealed thattherewereinconsistencies between the State'sroleand capacity.The study has utilized informationfrom analyticalbooks and papersas wellas datafromtheW orldBank’sW orldDevelopmentReports.
The objective ofthe study was to documentand analyze the Philippine experiences andpractices related to Statecapacity and globalization.The study covered threeaspectsofStatecapacitythatcontributetothe promotionoftrade and investments:1)administrativecapacity; 2) systems of transparency and accountability; and 3) legal and judicialframeworks.
The study also provided informationonthe overallstructureand mechanism ofaccess tojusticeforthe poor.
M aterialsfrom secondarysources wereused toanalyze the Philippines'Statecapacityandthe challenges thatitfaced in responding to globalization.
A.IssuesThe Philippines Governmentperforms the basic,intermediateand activistfunctions oftheState,even though there are otherprovidersofbasic services.Thismeans thatthere isprovision forderegulation in the basicservicemarket.
Although the Governmenthas started regulating the markets,itisyetto activatepovertyalleviation programs,which fallunderthe ‘‘basicfunctions’’ofthe State.
The Philippines Governm ent has im plem ented asset redistribution through theComprehensive Agrarian Reform Program and land grantsto informalsettlersin urbanareas,an indicationthatthe Philippines isperforming an activistfunction,acharacteristicofcountries with strong statecapability.
The Department of Justice and the Office of the Ombudsman are two agencies thatinterpretand implementthe ruleoflaw in the Philippines,butboth need to do much toimprove theirtransparency,capacityand publicimage.
Inordertopromoteinvestment,the Governmentofthe Philippines has setupthreemajorinstitutions to review, approve and implement projects: the Investment CoordinationCommittee (ICC), the Legislative Executive Development Advisory Council, and theDevelopmentBudgetCoordination Committee.The ICC isthe institutewhich overseesthe majorcapitalinvestmentsofthe Government.Although the ICC review and approvalprocess theoretically takes two and ahalfmonths,usually ittakes longerdue to factorswhich arebeyond the mandateofthe ICC Secretariat.
The Legislative Executive Development Advisory Council (LEDAC) oversees thecoordinationofthe executive and legislative branches ofthe Government.Butthe processofcoordination sometimes becomes dysfunctionaldue to the divergentpriorities ofthetwo branches. The consequence of the failure of LEDAC to coordinate between theexecutive and legislative branches may be the nonpassage of legislation that facilitatessocioeconomicplans orthe inclusion ofcongressionalorpoliticallymotivated programsand projectsthatdo notcontributeto socioeconomicdevelopment.
In the Philippines, the Civil Service Commission provides various agencies andinstitutions with quality,competentand motivated personnelwith necessary intellectualand socialcapital.
In terms ofusage ofinformation technology (IT),the Philippines Governmenthas madereal progress in establishing the use of IT in government operations. The National
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ComputerCentre(NCC)has been established withthe task topromoteand directthe useof information and communication technologies (ICT) in government. W ith an aim toestablish e-governance, the Government enacted the E-Commerce Act, requiringgovernmentagencies and theiraffiliates to have a functionalwebsite where people canhave business transaction, had have access to information and government servicesonline.
There are a number of agencies and institutions that promote transparency andaccountability in trade and investment activities.Among these are: National Economicand Developm ent Authority, the Philippines Econom ic Zone Authority, and theDepartment of Trade and Industry. The Department of Justice and the Office ofOmbudsman are the agencies that interpret and implement the rule of law in thePhilippines.
The creation of consultative forums, such as the LEDAC and joint technical workinggroups and committees in various levels of the government bureaucracy is a positivedevelopment towards building transparency and consensus among key agencies andinstitutes.
B.Conclusion and Recom m endationThe Philippines is performing some functions that characterize a State with strongcapability,butacloseranalysisindicates thatthe Governmentistaking onfunctions thatit is not yet capable of, given the fact that the economically poor are not adequatelyprotected and provided for,whilethe law and ordersituation isslowlydeteriorating.
The Philippines Governmentshouldbe focused onbettermonitoring ofofficialactiontoensuregreateraccountabilityand transparency.The system underwhich institutes like theInvestment Coordination Committee operate can be improved and needs to be moreflexible to accommodate priority projects and programs for immediate approval andimplementation.
VII.ASSESSM ENT O F VIETNAM 'S STATE M ANAGEM ENT CAPACITY IN INTERNATIONAL ECONOM IC INTEGRATIONS7
From the late1980s todate,globalizationhas developed vigorouslyintoadominatetrendworldwide, exerting a profound and comprehensive impact on the socioeconomic andpoliticallives ofallcountries and on allinternationalrelations.Thistrend has created astrong impetus for countries to pursue economic integration into regional and globaleconomies.Againstthisbackground,infullawareness ofthe inevitabilityofinternationaleconomic integration, almost all countries have participated in this process at varyinglevelsand invarying forms,and thus have achieved varying results.These resultsdependon many factors, among which the most decisive is the state's capacity to manage theinternational economic integration process. A government capable of managing wellinternational economic integration can maximize benefits (i.e. make full use ofopportunities)and minimize challenges and risks broughtaboutby the globalization andinternationaleconomicintegration process.
In parallel with the reform process, Vietnam has gradually carried out internationaleconomic integration, and has achieved positive results while encountering somechallenges. In the years to come, Vietnam will continue to intensify its internationaleconomicintegration in both depth and scale.Thisprocess has resulted in considerableim pactonVietnam’ssocioeconomicdevelopment,and has prompted the need to adjustthe roleof
7Thisisasummarized versionofapaperpresented by Pham Quoc Tru.
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the Stateand itsmanagementcapacity.Inaddition,itcreates conditions forthe improvementofthestatemanagementcapacityofthe economy as wellas otherareas ofsociety.The presentpaperaims to analyze and give abriefassessmentofVietnams currentstatemanagement capacity to enable international economic integration, and to providerecommendations to furtherenhance thiscapacity.
A.O verview ofVietnam ’sInternationalEconom icIntegration Process Vietnam has embarked on realinternationaleconomicintegration since the 1980s,whenitinitiated the reform process with aseries ofmeasures to graduallyliberalize economicactivities (gradually shifting from a centrally planned economy to a market economy,reforming wages and monetary regimes,restricting the double pricing system and stateforeign trade monopoly, intensifying foreign direct investment, developing a non-Stateeconomicsector,and reforming the Stateeconomicsector,and banking and finance andso on), opening its m arkets and enabling participation in regional and globalorganizations and institutions.The breakthrough inVietnam’sparticipationinthe globaleconomy was itsaccession to the ASEAN FreeTrade Area(AFTA)in 1996.Vietnam isalso working towards accession to the W orld Trade Organization and has implemented anumberofpreparatorysteps.
Vietnam has also established bilateralrelations withmorethan 150countries.Inadditiontoitsmultilateraland bilateraleconomiclinkages,Vietnam inpastyearshas concurrentlyparticipated insuch sub-regionalpartnerships as the GreaterM ekong Sub-region(GM S),W est-East Corridor (W EC) and the development triangle with partners including thePeople'sDemocraticRepublicofLao and Cambodia.Vietnam’sinternationaleconomicintegrationisaprocess thattakes placeatunilateral,bilateraland multilaterallevels,andlinks sub-regional, regional and inter-regional, and global interests in almost all areas,namely,goods,services,investmentintellectualpropertyand so on.
B. Econom icand SocialIm pactsofGlobalization and InternationalEconom icIntegration on Vietnam
The implications of greater integration into the world market are many and linked toVietnam ’s State m anagem ent capacity. Globalization and international econom icintegration have rendered severalimportantpositive impactsboth in terms ofeconomicand socialaspects.They areas follows:
l A speed up in the restructuring and reform of the national economy and itsincreased efficiency and competitiveness has contributed to a reduction ininefficientStateinvestments;
l Vietnam’s trade and economic laws and regulations have become moreconsistent with regional and international economic institutions of whichVietnam isamember;
l Vietnam’s export market and trading partners have increased, helping tomaintainVietnams strong growth in trade;
l Vietnam’s attraction to overseas investors for a capital and technologyinvestm ent has increased through im proved investm ent and businessenvironments;
l The capacityoflocaland stateenterprises and staffhas been enhanced;andl A base from which topursue furtherreform ofstateindustries and investments
has been created.l Despitethese positive impacts,challenges arestillpresent,includingl Lack of uniform and common understanding from central to local levels.
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Guidance and coordination remains inconsistent,with no masterintegration plan;l Preparation forintegration lacking in pace,and infrastructurehas notyetbeen
developed;andl Lack ofanalysisoneconomicintegrationamong policymakers,researchersand
business.
Besides the above mentioned challenges, there are many other challenges such asincreased competition from overseas goods and services. Thisisaserious challenge toVietnam’seconomy which presentlyrelies largelyonagriculture.W hilealimited numberofVietnamese produced productsareinternationallycompetitive,many arenotyetatthatstage.Further,the business environmentin Vietnam,despite recentimprovements,stillhas some way togo inreducing the costofbusiness and investment,whereitisstillhigherthan many othercountries in the region,hindering itscompetitiveness.
Otherchallenges include adangerofincreasing divisionand conflictamong civilgroups;Vietnam’s economic and political independence may be threatened; traditional culturalvalues and nationalidentity may be eroded;and an increase in transnationalcrimes andsocialproblems such as prostitution,epidemictransmissionsuch as HIV orSARS,illegaldrug use and trafficking.
C.StateM anagem entCapacityofVietnam for InternationalEconom icIntegration
1.O verview
The Statepowerstructures inVietNam arecomprised ofthreecomponents:
l The Legislative body,composed ofthe NationalAssembly;l The Executive body,including governmentand localauthorities;andl The Juridicalbody;including the courts.
The three bodies are interdependent, based on the Communist Party's philosophy thatpowershould be divided and coordinated among differentbodies,butunited undertheleadershipofthe Party.
International economic integration is closely linked to the whole administrativem anagem ent of Vietnam . At the central level, the adm inistrative m anagem entperformance on internationaleconomicintegration isunderthe controlofministries andministerialagencies;and atthe locallevel,itismostlyunderthe controlofprovincialormunicipaladministrations.
Allministries and ministerialagencies have a focalunittaking majorresponsibility forthe implementation and coordination of international economic integration activitiesamong and withinministerialagencies,as wellas the cooperationwithotherministries oragencies and localities inthe process ofbilateraland multilateraltrade agreementsas wellas its trading commitment arrangements. However, the focal role in managing eachspecificfieldisallocated todifferentministries oragencies,depending ontheirfunctionsand responsibilities.Forexample,the M inistryofFinance isthe focalpointforbuildingcommitmentsand undertaking negotiations on tariffsand customs procedures.
Besides the Stateagencies thataredirectly involved in the managementofinternationaleconomic integration in Vietnam,the role ofothernon-State agencies should be noted.They are the Party's agencies, (the Politburo, the Board of Secretaries, the CentralCommittee and other bodies of the Party) and their role is to provide leadership and
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guidance,and atthe highestlevel,to assistin the implementation ofgovernmentpolicy.2. Assessm entofVietnam s StateM anagem entCapacity in InternationalEconom ic
Cooperation
Evaluating State managementcapacity requires examination and assessmentofthe keyconstituent elem ents of State m anagem ent capacity (organizational structures,institutionalsystems,officersand civilservants,and resources allocated),the realizationofeconomicintegration activities,and mostparticularly,the efficiency and effectivenessofStatemanagementin each sector.
Current organizational structures are too cumbersome, with too many administrativelevelsfrom centralgovernmentto grassrootslevels. Further,there isno nationalbodyinvested with sufficient power to oversee management of Vietnams internationaleconomic integration. There is no clear division of tasks. There currently exist threedifferent state bodies performing the same task of acting as a focal point for theGovernment(NationalCommitteeforInternationalEconomicCooperation,M inistry ofTrade and the DepartmentofInternationalEconomicOrganizations ofthe Government'sOffice)creating confusion and uncertaintyofrole.
In addition, in many ministries, organization structures are inadequate and there is anunclear division of task and function which complicates the process. Lastly, there is aserious lack ofcooperation and coordination between ministries and between ministriesand provinces,with information sharing needing to be improved.
In terms of State institutions, the National Assembly has made much progress,legislatively, on international economic integration. M oreover, other state managementbodies have actively contributed to the amendment and completion of the regulatorysystem to achieve conformity with international rules and requirements. There is stillmuch to be done, however, as Vietnam still has not completed the transition from acentralized planning economy to marketeconomy.
The thirdfactoristhe qualityofcivilservants.Due totraining and the provisionofbasicskills and knowledge, this is higher than it was in the past; however, there is still ashortage ofknowledge,professionalskillsand foreign language skills.
Other impediments include lack of transparency and accountability amongst civilservants,limited professionalcapacity,and alack ofresponsibility.
The final factor affecting Vietnam’s state management of international economicintegration isresourceallocation. To summarize the challenges in thisarea,Vietnam ispoor country with a GDP per capita of 400 USD per annum. Particularly, there is ashortage of financial resources for much needed activities such as hiring foreignconsultancy companies to help the process oflaw and policy making,training officialsand cadres;conducting research onaspectsofinternationaleconomicintegrationthatwillprovide the foundationforpolicies and strategies;and fordisseminating informationandknowledge on international econom ic integration to the com m unity to im proveunderstanding and participation in the process ofintegration.
Insufficient resources for economic integration activities is one of the most importantfactors impeding Vietnam's state management capacity in international economicintegration.
From the above overview,itcan be seen thatVietnam'sstatemanagementininternationaleconomic integration needs to continue to focus on improvements to its organization
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structures,itsinstitutions and human resources and itsfinancialresourceallocationifitisto see gains from itseffortsto open itseconomy to the world.Despitethese difficulties inorganizationalstructuring and so on,some achievementshavebeen made,particularlyin trade,finance and investment.These achievementsstem fromeconomic reform carried out by the Government, including trade and investmentliberalization.These reforms have made Vietnam'seconomicregime moreopen,and haveresulted in the gradual lifting of barriers to trade, investment and finance, and havecreated incentives for vigorous growth in international investment and trade, thuscontributing tomaintaining Vietnam’srelativelyhigh growth rateoverthe lastdecade.
D.Recom m endations
1.Continuing Accelerated Adm inistrative ReformTo improve the capacity,efficiency and effectiveness ofState managementto meettherequirements of industrialization and modernization, the Vietnamese Government hasformulated the 2001-2010 Administrative Reform Program whose major componentsinclude institutional reform, reforming the administrative apparatus, improving thequalityofofficersand civilservants,and undertaking publicfinancialreform.
During the first three years of implementation, many targets have been met, includingam ending the 1992 Constitution and State organizational laws, and reviewingorganizationalstructures and reducing administrative staff.
On the basisofthe resultsachieved inthe firststage,itisevidentthe pace ofreform needsto be increased if the efficiency and quality of State management in general, and ininternational economic integration in particular is to improve significantly. Vietnamshouldcontinue tostrengthen itscomprehensive administrative reform,linking itwiththecontinued economic reforms,and the gradualrenewalofrespective politicaland socialinstitutions in conformance with the development level of the economy and theinternationaleconomicintegration process.
2.Building and Restructuring the LegalSystemVietnam shouldfurtherpromotethe formulationand perfectionofitslegalsystem intradeand otherrelated areas withthe aim ofguaranteeing stabilityand transparency.Vietnamshould also focus on strengthening its compliance monitoring and dispute settlementmechanisms towards effectively implementing its international economic integrationcommitments.
Further,Vietnam'searlyaccession to the W TO should be regarded as an importantgoal,requiring determined supportforthe Government'sguidelines and assured coordinationofimplementation effortsby ministries and agencies.
3.Building aCom prehensive Strategy for the W holeIntegration ProcessA master integration strategy should be completed swiftly, identifying the overallroadm ap of com m itm ents in each area, and in each international econom icorganization/institution.
4.Im proving Coordination and CooperationItisnecessary to have astrong mechanism which exercises uniform guidance and Statemanagement of international economic integration. The coordination and cooperationmechanisms between ministries and agencies couldalso be enhanced,ensuring consistentand close coordination. There is an equally urgent requirement to further develop thedivision of tasks between ministries, agencies and departments/units within eachministry/agency.
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5.Training ofPersonnelDevelopmentofhuman resources,especiallyindividualsdirectlyinvolved inthe processofintegrationsuch as negotiators,officials,policymakers,lawyers,judges,parliamentarymembersand so on should be emphasised.
6.Building Inform ation Exchange M echanism sBuilding and strengthening information systems which guaranteeprompt,sufficientandcost-effective information sharing among government bodies and agencies, as well asresearch agencies, enterprises, associations and civil society should be prioritized. Torealize this goal, special attention should be given to promoting the use of newinformation technologies forstateadministrative managementand forbuilding astronge-government.
7.M ore Resources Reserved for Integration W orkReserving increased financialresources forinternationaleconomicintegrationisanotherimportant need. Attention should be given to training, the restructuring of the legalsystem,and the formulation and implementation ofpolicies.
8.TechnicalAssistanceEnhanced internationaltechnicalassistance to increase stateadministrative managementcapacity is equally important, especially in the context of Vietnam's lessdevelopedeconomy.Vietnam requires assistance in improving its institutional system and humanresources developm ent, especially for those civil servants directly involved ininternational economic integration, as well as those responsible for the enforcement ofStatepolicies,laws and internationalcommitments.
D.ConclusionsSince the beginning ofitsreform and internationaleconomicintegrationprocess,Vietnamhas reaped important socioeconomic achievements.After over a decade of reform andgradualopening ofthe economy,Vietnam has moved from acentrallyplanned economy,which was largely separated from the rest of the world, to an economy which is nowamong one ofthe mostopen in the world ifwe regard the ratio between trade turnoverand GDP.
Vietnam has been concurrently participating in many economic linkages at bilateral,multilateral and regional levels. In the future, Vietnam's international economicintegrationprocess willdevelopbothindepthand scale.The process willexpose Vietnamto a score of opportunities and challenges. Therefore Vietnam’s management capacityremains acrucialissue.To meetthese demands Vietnam mustcontinue tofocus effortsonimproving state management capacity both in terms of organizational structures,institutions,personneland resources.
VIII.M ILLENNIUM DEVELO PM ENT GO ALS,PUBLIC PO LICY ANDGO VERNANCE CH ALLENGES
Following the countrypresentations,the UN-DESA representative,M r.AdilKhan,leadthe workshop in an analysisofgovernance challenges and some ofthe innovations andtools available to assist human development. The comprehensive presentation focusedspecifically on aid flow and targeting ofthe poorand how both werelinked to povertyreduction. The presentation began by focusing on development trends in various
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countries,theirarrangementsand the experiences so far.Inthe 1970s itwas realized thatinvestmentin human capital-health,education and so on -was essentialforeconomicsector growth. W hat would be the scenario beyond 2001 was not clear, althoughunderlying alltrends was the issue ofreform.
The presentationsuggested thatinterms oftargeting ofthe poor,bothgeographicallyandsectorally, aid needed to be better targeted to reach the poor. Geographically aid wasmoving away from the LeastDeveloped Countries (LDCs)tootherpartsofthe world,forexample conflict zones such as Iraq and Afghanistan. Sectorally only 11 percent wasgiven tothe socialsectoras opposed tothe mandated 20percent.Aid,itwas putforward,was notgoing tothe rightgroups,inparticular,women and minorities.Anotherdifficultywas thatthe strategicframework forprogramming,delivery and monitoring was donor-driven and at recipient level, bureaucratically driven. Further, both direct foreigninvestmentand aid flow wereincreasing in relative terms by notin absoluteterms.
In terms of public policy, the presentation proposed that the main challenge was toachieve the rightkind ofgrowth.Growth,itsaid was good,butnotallgrowth was poorfriendly.The presentationadvocated thatgrowthshouldbe steered inamannerthatwouldreduce poverty. Demands were increasing, but resources were less. One way it wassuggested to address thischallenge was through reform oftax systems,which in manycountries were weak, inefficient, or not suitably transparent. The paper noted that inmany projects there was considerable wastage of resources, and there should beexploration of internal reform rather than external. There was also a need, thepresentation proposed, to increase governance but not government, making it morecitizen-based in terms ofdecision making.UN-DESA advocated "engaged governance",thatinvolves civilsociety and NGOs in the State'sdecision-making,and M r.Khan saidinthisaspect,the United Nations and governmentscan collectivelyplay averyimportantrolein maintaining afocus on pro-poorfinancing.
In making the presentation,M r.Khan asked how itmightbe possible to do more withless.Itwas suggested itwas notyettime to look forothersources forfunding;ratheritwas still possible that money could be raised internally through increased efficiency.Research by the Asian DevelopmentBank revealed while many countries in Asia haveincreased disbursement of funds, sustainability and effectiveness of programmes isfalling.The inference being thatinvestorsarethereforeincurring losses -inallocationofinvestmentand resources -and couldgetmoreoutofcurrentaidallocations by improvingthe success ofinvestments.Further,the presentation stated that60 to 70 percentofaidgiven by bilateralsgoes back to the source.
Inconclusion,itwas proposed thattherewas aneed formoreresources,butthe questionwas asked,how shouldthese resources be targeted?
IX.M ILLENIUM DEVELO PM ENT GO ALS AND GO VERNANCE IN SRI LANKA
The presentation by M r. Rahabadde commenced with a brief summary of Sri Lanka'spoliticaland economichistory.SriLanka was described as aculturallyand economicallydiverse country. Threedifferentcolonialpowershad ruled itinthe last450yearsuntilitgained independence in 1948. Since thattime therehave been ten governmentsin fivedecades.From 1948to1977,therewas Statecontrolofthe economy,withpositive socialindicators such as life expectancy, literacy and so on, which were compatible with
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developed countries.Growth was atthreepercent,with apercapitaexpenditureof300USD.In the second period,since 1977,the economy has been integrated with the worldeconomy.SriLanka has now experienced two decades ofglobalization.
The first period saw a high level of human development, with almost 50 percent ofgovernmentexpenditureon socialwelfare.However,during thatperiod the countryalsoexperienced very low annual growth rates. The presentation suggested the high rate ofsocialachievementhad come atthe costofgrowth.
Inthe second period,which saw open economicand trade policies,therewas areductioninsocialwelfareexpenditure,butan average growthrateoffive percent,and the country'spercapitaincome increased from 300 to 900 USD,yetpovertywas stillhigh.
However,therewas some hope aboutthe futurescenario.M edium term macro-economicpolicies forwarded by the Governmentaimed to createafive percentgrowth ratein themedium term and ten percentin the long term.To combatpoverty,ahigh growthrateisnecessary.
The presentation suggested thatgreaterbenefitsmay have been experienced earlierhadthe countryopened itseconomy earlier. The focus now needed to be on regaining thesemissed opportunities,ratherthan being concerned onlywith reducing income disparitiesand poverty.Priorto 1977,the internationalsituation was quitefavorableto opening upthe economy. Other Asian economies, such as Thailand, the Republic of Korea andTaiwan,Province ofChinese,opened upbefore1977,preparing themselves foroutward-looking export-oriented growth. However, after 1977 the presentation put forward thatconditions wereless favourable.
The presentation warned thatunless therewas increased governmentrevenue through anincreased rateofgrowth,itwouldbe difficulttocontinue the currenthigh levelsofsocialwelfareexpenditure.To be abletocontinue itssocialwelfareexpenditure,M r.RahabaddesaidSriLanka had started borrowing funds which had resulted inincreased indebtedness.Itwas suggested thatmostofthe Statebudgetwas now allocated to loan repayments.
A two-pronged approach toaddressing SriLanka'sindebtness was proposed -ahigh rateofgrowth through private sector-led growth,and enlisting civilsociety to public sectorprograms. However, there were risks to this approach. It was possible that oppositionpoliticalparties may challenge such fasttrack reform policies;otherpossible obstaclesincluded a1.4billionUSD pledge which was now indoubtas aresultofthe stalled peaceprocess;the need forpublicsectorreform and developmentofnegotiating skills;and theneed to change the approach ofthe publicsectorto debtmanagement.
X.H UM AN DEVELO PM ENT REPO RTS AS A TOOL FOR SOCIAL DEVELO PM ENT
Indiahas produced 22 Human DevelopmentReports(HDRs),allofwhich are"owned".The question posed by the presentation by M s. Kathel was what was the independentvalue ofthe HDRs?
A HDR mustbe seen as aserious document,buttherearechallenges toitscredibility,itsreliability and itsindependence.The two main challenges according to the presentationarequalityand credibility.The credibilityofthe Reportsarequestioned because they arenotindependently produced,butinstead fallunderthe responsibility ofthe governmentofthe day. M s.Kathelwarned thatsuch an arrangementcouldallow HDRs tobecome abandwagon forgovernmentpolicy,withthe proliferationofReportsand the developmentofwhatshe termed the HDR "industry".The presentation posed the question,based onthisevaluation ofHDRs,how do we go forward?
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Itwas suggested thattherewas aneed to ensurequality and to investin the process.Aseverycountrymustnow also produce aM illennium DevelopmentGoal(M DG)Reportinaddition to aHDR how thisreportmightfitwith the HDR needed to be considered.Thepresentation suggested that currently M DGs are not being reported on by governmentwho werelargelyreporting onlyonmonitorabletargets.Anotherdifficultywiththe HDRwas thatitdid notcovertrade and globalization in itsreporting.Thiswas considered animportantomission,as itwas importantto ensure there was understanding of,and dataon,governmentpolicies on livelihood and how these impacted on ruralcommunities.
The Chairrequested clarification on the linkage between investmentin the socialsectorand economic growth. M s. Kathel responded that economic growth was a necessarycondition, but not a sufficient condition. She continued that there was a differencebetween investment in the social sector (human capital) and the economic sector.Investment in the social sector was a long-term issue, and it was not just economicvariables thatlead toeconomicgrowth-human capitaland socialvariables areimportantforeconomicgrowth.
In terms of East Asian growth, an efficiency factor arose when human capital wasintroduced into the equation.W hilean integrated socialsectorplanning modelhas beendeveloped,whatwas importantwas thatthe socialsectorwas explicitly introduced intothe model,as opposed tomoretraditionalrevenue driven models.The presentationstatedthatbased on this,the Human DevelopmentIndex (HDI)was developed.
A controlled experimentcarried outby UNDP Indiawas described in which amodeltoobserve the impact of diverting resources from public economic sector investment tosocialsectorinvestmentwas developed.The modeled resultwas non-linear(u-shaped)showing the economy going down for four years, before hitting the bottom and thenstarting to rise again. Ittook seven to eightyearsto rise.The modelshowed the seven-to eight-yearperiod as unchanging regardless ofhow aggressive the policies forgrowth.W hilenoconclusions weredrawn from the outcome,the workshop was asked toconsiderwhy such an outcome may have occurred.
The presentation concluded by returning to the theme ofHDRs and said thatthe Reportshouldbe seen as aplatform foraccountability.The issue ofthe Report'scredibilitycouldbe addressed by ensuring quality and independence and by investing in the process.Credibility, it was suggested, also depended upon quality of follow-up. This includedwidespread dissemination of the Report, and encouragement of print and TV media tofocus on criticalmessages within the Report. Follow-up,itwas proposed,was the bestway to sustain interestin the StateHDR message.
XI.AN OVERVIEW OF LEAST DEVELOPED COUNTRIES
A.AfghanistanIn Afghanistan security is linked to development. Afghanistan, it was reported, was alandlocked country,the leastofthe LeastDeveloped Countries (LDC)and afailed state.Because ofthese factorsand itsexperience of24yearsofwarfare,therehas notbeen anysubstantialgovernmentstructures developed orputin place.
However,in the presentation given by M r.Raglan,itwas suggested thatsecurity undertheTaliban was superficially betterthan now and thattherewas very littlecrime in thecountry.Itwas furthersuggested thatthe Taliban had managed toappeartohave reducedopium production,butthiswas notverifiable.Underthe Taliban therewas morephysicalsecurity,butincreased insecurityinterms ofdecreasing socialcapital.Forexample,therewas littletrustinthe familyand community,creating asituationwherenoone feltsecure.
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The presentation raised the question offlow offoreign aid -whatwas the status,weredeveloped countries delivering on their promises? The presentation put forward thatduring the period ofruleby the Taliban,the United Nations played the roleofsurrogategovernment.However,the interim administration said thatto build credibility itneededto be seen as the one delivering services. It therefore requested, according to thepresentation,thatthe United Nations hand overadministrationtoit.Thiswas consideredpossible,buthad to be undertaken cautiouslyso as notto createtoo high an expectationof new administration.As a result, there was a gradual handing over of responsibility;howeveritwas atapace considered tooslow by the interim administration.The resultwasconflict, with lack of donor confidence in the Government, due to the lack ofaccountability systems. The outcome was limited by these factors, and especially bydonors' reluctance to direct their funding to the Government, despite the handover ofresponsibility.As aresult,the presentationstated thattherewas veryslow deliveryby theGovernment, with the United Nations and NGOs able to move quicker because fundshave been entrusted tothem.
The othersubjectdiscussed in the presentation was thatofnationalreconciliation.Therewas a com m itm ent given by the international com m unity to support nationalreconciliation,butithad been cautious and the delivery offunds much slowerthan wasrequired.Atthe Tokyo Summit,the W orld Bank,the Asian DevelopmentBank and theUnited Nations estimated Afghanistan needed five to six billion USD forthe firstfewyears,butithas now been realized thatthatestimatewas too low.The presentation saidthe challenge was now to convince the internationalcommunity they needed to provideeven moremoney to the GovernmentofAfghanistan.
The presentation compared the aid funding per capita in Afghanistan with that of theBalkans following the war there, and reported that the amount of aid was about onequarter of that which went to the Balkans, making the point that contrary to popularperception,verylittleaid comparativelyisgoing intoAfghanistan.
Anotherchallenge to the country'srecovery discussed by the presentation was the top-down approach to development programing. It was offered that there was only limitedlocal community participation or involvement in the decision-making and planningprocesses.A contributing factoraccording to the presentation was the historicallack ofcommunityparticipationinAfghanistan.Therewas howevernow some supportfrom theinternational community to encourage such an approach. The presentation drew theworkshop's attention to a national solidarity program to help initiate communitydevelopmentparticipationas an exampleofthis.However,itemphasized thatthe degreeofsocialdisintegration isunimaginableand stillmuch moreneeded to be done.
Afghanistan,according toM r.Ragland,was faced withasituationwherethe internationalassistance communitywas verycautious,and as aresulttherewas verylittleaidintermsofrequirementscoming intothe country.M any donorswerewaiting tosee demonstrableimprovements in the country's administration and whether the shift to democracy wassustainable and nationalreconciliation was possible.There was a reluctance to provideaidand investmentiftherewas apossibilityitmay be lostthrough conflict.However,thepresentation warned that without investment and funding conflict was inevitable. Inconcluding,M r.Ragland said thatdonors,NGOs,civilsociety and governmentmustbeencouraged toworktogetherand have faiththatAfghanistan can be changed from afailedstateto aviablestate.
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B.BhutanM r.Sonam Phuntsho W angdi,gave apresentation on the status ofBhutan.Bhutan wasdescribed as asmallcountry in Himalayas,with amountainous and challenging terrain.The presentation claimed thatitspopulation was about700,000 and nationalGDP wasjustover500 million USD.According to the presentation,Bhutan was in self-imposedisolation until the early sixties. It was now into its ninth development plan (five-yearcycles).The lastdecade had seen rapidsocioeconomicdevelopment,and the presentationcommended the leadership ofthe country'sconstitutionalmonarch.
The presentationby M r.W angdicontinued withadiscussionofBhutan'sconceptofGrossNational Happiness.GNH em phasized the im portance of other dim ensions ofdevelopment,forexample,environment,governance,cultureand identity.DevelopmentforBhutan was saidtobe focused onmaximizing happiness throughoutthe developmentprocess,ensuring thateconomicas wellas otherneeds ofthe peoplewereabletobe metby the State.
The poverty level in Bhutan was hard to estimate, as a large percentage was notmonitored,however,M r.W angdisaid roughlyfive percentwerebelow the povertyline.The presentationdescribed the pillarsofBhutan nationaldevelopmentas GNH,economicdevelopment, good governance, environment, culture and identity. To this end, Bhutanwas in the process of developing formal indicators for the qualitative realm that gobeyond quantity.
M oregenerally,Bhutan'spolicies and strategies weresaid to be cautious.Bhutan had anopen economy,withtrade atabout65percentofGDP.However,interms ofmultilateraltrade inthe process ofaccessiontothe W TO,Bhutan had notbeen immune tothe changesin the region. Unilateral liberalization has had to be taken, for example, harmonizingtariffs,opening up to foreign directinvestment(FDI)and so on.Bhutan has been veryactive in bilateraland regionaltrade.The vastmajority,95 percent,ofitstrade was withIndia,and Bhutan maintained afreetrade agreementwith India.In terms ofimports,82percent were also from India. Further, 99 percent of Bhutan's exports were to tradingpartnersin the region,while80 percentofitsimportswerefrom countries from withinregion.Itwas noted thatinterms ofexportand products,Bhutan had averynarrow base,and the same was true ofitsmarket,which was largelyIndia.
Referring togrowth,itwas stated thatthe maingrowthsectorwas the hydrosector,whichwas responsiblefor50 percentofnationalrevenue and 11percentofGDP,making itthebackbone of growth. In addition, Bhutan also received grant aid (ODA).About 50 percentofthe budget,according to the presentation,was financed by grantaid. Thiswaspotentiallyaproblem as donorresources shifted to Iraq and Afghanistan.
On governance, the presentation said m any efforts had been m ade towardsdemocratization, with Bhutan's government described as very clean and efficient. Thechallenge was now tobuildcapacityand manpower,forwhich itwas suggested technicalassistance from the internationalcommunitywas needed. However,Bhutan'sclose linkswith India, one of the main regional powers, provided some protection, and helpedBhutan absorb many shocks.
C.Cam bodiaM r. Theng Pagnathun made a presentation on Cambodia's National Poverty ReductionStrategy (2003-2005).
The National Poverty Reduction Strategy's (NPRS) main goals were outlined as:promoting income earning opportunities; expanding job opportunities; improving
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capabilities; supporting institutional strengthening and improved governance; reducingvulnerability; promoting gender equality and promoting public resource acquirement andmanagement.
To evaluatethe progress ofthe Strategy,figures and indicatorsreflecting progress inreachingthe Strategy'skey objectives wereprovided.
Forthe objective ofpromoting income earning opportunities the growthratewas ontarget,andforthe year2000 exceeded by 0.7 percentthe targetrate ofbetween six and seven percent.However,the poverty headcountindex revealed therewas stillsome effortneeded to ensurethe targetof31percentwas reached by 2005.M ostrecentfigures availablefrom 1999showedthe index at36 percent.
Effortsunderthe Strategy to improve livelihoods ofthose on the land and moregenerally toexpand jobopportunities forCambodians had notyetreached theirtarget.Up to15percentofruralfamilies werestilllandless.Away from the ruralsector,indicatorsshowed thatindustrywas booming,growing in realterms by 29 percentin 2000.However,the servicesectorwaslagging behind somewhat,below itstargetof8 percentgrowth in realterms by 2005.
The resultsforthe objective ofexpanding capabilities weremixed. Foreducation,no recentfigures wereavailableon primary schoolcompletion,with mostfigures from 1998 revealingthatjustunderathird ofall12-year-olds completed primary school.M orerecentfigures forenrollements however show a 100 percent enrolment rate, suggesting the figures forcompletion of primary level education will increase in years to come. The literacy rate inCambodia for 15 to 24 year-olds, male and female was 76 percent, with the Governmentsetting atargetof90 percentliteracy by 2007.The infantmortality rate(2000)was 95,withthe target rate, 90. The maternal mortality rate was 437 (1998) with a target set of 372.Twenty-one percentofwomen ofreproductive age weremalnourished,and 45percent(2000)of children under the age of five suffered from protein energy malnutrition. HIV/AIDSprevalence (15-49)was 2.6percent(2002).No recentfigures wereavailableregarding accessto sanitation and clean drinking water,although figures from 1999 indicated thatmuch stillneeds to be done,particularlyin ruralareas.
Cambodiaalso remains vulnerableto naturaldisasterwith 40 million USD worth ofdamageto crops and housing reported in 2002.In response,the governmentwas replanting seedlingstoreduce vulnerability.
M oving to income, according to the presentation, the average monthly salary for a publicservantwas 20 USD (2001). In addition,itwas agovernmentobjective to reduce the size ofthe public/civilserviceand the armed forces.Interms ofpoliticalrepresentation,women held9.3percentofseatsinthe NationalParliament,and therewereplans toformulateand approveanti-corruption legislation.
The northeast of the country was the most poverty-stricken with figures from 1998revealing many areas inthe regionwithgreaterthan 75percentpoor.Itwas importantM r.Theng saidtoensurethatthe NationalPovertyReductionStrategy (NPRS)reached theseareas. The Strategy had being implemented by distributing it at commune level,undertaking interventioninthe poorestprovinces,distributing aReducing Povertyleafletwith the 20 strategicactions atcommunityleveland producing mobileshows,televisionand radio spotsand postersto increase awareness among the publicofthe Strategy.
Cambodia had recently joined the W TO, and as a result the Government had revisedinvestmentlaws toattractincreased FDItoCambodia.Inaddition,M r.Theng saidhe feltthe NPRS also demonstrated the government's commitment to strengthening humanresourcedevelopmentto help Cambodiaglobalize.
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The presentation concluded with details of the next step in the implementation of theStrategy which included preparation of a progress report, upgrading of the currentstrategy,and linking the Strategy to the M illenium DevelopmentGoals.
D.NepalM r.Balananda Poudelreported on Nepal,beginning with adescription ofthe country'slandscape,ofwhich 87 percentwas covered by mountains,making the terrain extremelydifficult.The countrywas described as amelting potofChinese and Indian culture,andas such was influenced by Indian policy.
Inthe recentperiodofliberalizationand globalization,Nepalhad attempted toreduce itsfiscal deficit, and prioritize expenditure, with allocations based on human resourcedevelopment. The Government had also tried to increase domestic resources by, forexamplebroadening the tax base.The Governmenthad also liberalized interestrates,andprivate and government banks were free to fix interest rates. It had also allowed theopening up ofcurrentaccounts.
The limiting factorhowever,was the pegging ofthe Nepalicurrency to the Indian currency.Despitethis,privatization was reported to be underway and progressing slowly,butwell.
The Governmentwas reported to be endeavouring to reform the financialsector,as non-performing assets of two of the country's biggest banks were very high. This wasdescribed as being adifficulttask,and in acriticalsituation rightnow.The civilservicewas also preparing aroadmap forreform,which was stillinthe developmentalstages.Inaddition,decentralization was being prepared for,with plans to devolve authority to thedistrictlevel.The civilserviceofNepalwas described as broad-based.
An issue,and acontinuous one noted in the presentation,was thatofcapacity building.It was reported however, that efforts were being made to encourage greater socialinclusion. The Government has prepared a poverty index and strategy paper, and isworking todevelopabaseline report,afterwhich itwillcontinue tomonitoronthe issue.
The presentation on Nepal concluded with a brief discussion of the M aoist politicalmovement.The M aoistsweresaid to have emerged firstin remoteareas ofthe country;areas where the human development index (HDI) was poor. The movement is nowspreading to other parts of the country. M r. Poudel suggested that there may be somecorrelation between these two factors,and thatmoreresearch was needed.
E.Sam oaM s. Laugalau F. Eteuati Shon followed with an overview of Samoa. Samoa had apopulation of just 172,000. It was a very small island nation; however its economicgrowth was exemplary amongstthe Pacificislands. Ithad an annualgrowth rateof3.5percent.Ithad enough foreign reserves to buy commodities forsix months,and itsHDIwas good.This,according tothe presentation,was attributabletoleadershipwithavision;leadership which believed in economicperformance;and aculturewhich was integratedinto socioeconomicdevelopment.
Samoa'sdevelopmentwas described as internally-driven and externally-facilitated.M uchofthe developmentinSamoa had been facilitated by ODA from bilateraland multilateralpartners. There were still however many constraints on economic development. Theseincluded itssmallisland economy;itssmalland dispersed population;itssmallland mass;itsvulnerability to externalfactorsand naturaldisasters;itssmalldomesticmarket;andthe backbone ofitseconomy,agriculture,has asignificantsubsistence component.
There had been privatization as well as corporatization of state-owned enterprises such aselectricity,water,televisionand radio.One exampleofgood practicewas the disbandmentofthe M inistryofPublicW orks.M inistryworkersweregiven achoiceofredundancy orsetting
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upbusiness units.The workerschose tosetupbusiness units,which have now become partofthe privatesector.The M inistry ofPublicW orks has now been realigned and combined withthe M inistryofTransport.M s.Shon said thatin 1996,Samoa changed from an inputbudgetto outputbudgetbased onperformance. The 1996 Statement of Economic Strategies has eight strategic outcomes,including a stable macroeconomic framework, and strengthening of social structures,including the roleofNGOs,religious groups,and youth.Itwas atthispointin 1996,itwasproposed by the presentation, that the Government became the enabler, and an engine forcreating privatesectorgrowth.Integration ofthe privatesectoras wellas the communitywasundertaken through consultation and discussion.
In the beginning the Governmenthad largelyshort-term strategies foreconomicgrowth,nowthey weresaid to be moving towards medium-term strategies and goals.Samoa was based onprinciples of good governance, including accountability and transparency. M inistries arerequired todevelopcorporateplans as wellas chartersofservice.Inthe pastthe Governmenthad concentrated on infrastructure development,more recently,however,ithas increasinglyconcentrated on socialand human resourcedevelopmentand increasing budgetallocation toeducation and health.
Further,civilsocietyhas been integrated intothe decision-making process atahigh level.Thishas been facilitated through consultation on the Statement of Economic Strategies ofGovernment,based on partnership with privatesectorand civilsociety.Increasinglycapacitybuilding has been focused on the promotion and developmentofthe capacity ofNGOs andvillage communities,notonly the civilservice.The presentation concluded with detailsofavillage-based development project. The project was conducted in collaboration with theUnited States Peace Corps, working in capacity building in the areas of project proposalwriting and design and management. The aim of the project was to develop within localcommunities the capacity to identify and writetheirown projects.Thisin turn enabled themto apply directly to donorsforfunding,and to directly participate in the developing oftheirown economy,and theirown socioeconomicdevelopment.
XII.AN O VERVIEW O F LANDLO CKED CO UNTRIES
A.Arm eniaM r.Samson Davoyan began the overview oflandlocked countries (LLC)with apresentationon Arm enia. Arm enia was one of three Caucasian republics undergoing econom ictransformation. Itcovered 30,000 sq.km.,with apopulation ofthreemillion.
Its distinguishing features included three times more diaspora living abroad than thepopulation living inArmenia. Also,itwas avery homogeneous country,with 97 percentofthe populationethnicallyArmenia.
Economicchallenges have resulted from effortstotransform the economy in1994.The resultwas the loss ofconsiderableGDP.The majority,70percentofGDP,now belongs tothe privatesector,with the publicdebtofthe Governmentat45 percentofGDP. The percapitaincomeis800USD.Despitethis,the economy was now saidtobe veryopen,and the budgetdeficitwas threepercent.Inflation was also threepercentorbelow and the unemploymentratewas nine percent.However, if hidden unemployment was taken into account, the rate, according to thepresentation,was closerto 20 percent.
The economy was described as veryopen and wellintegrated intothe globaleconomy.Ithasbeen aW TO membersince 2002,and registered ten percentgrowthduring the pastfouryears.
Armenia's HDI was higher than its neighbours, but it does have some complex socio-economicproblems including:
l Ithas one ofthe worstforms ofincome distribution in the region;l The percentage ofthe population living below the povertyline is50 percent;
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l A m ajor reason for unequal distribution of income is the high blackmarket/shadow economy, which makes up roughly 40 to 50 percent of theeconomy;
l The tax ratewas currently 17 percent,which was considered to be low giventhe size ofeconomy and incentive structure;and
l The majorchallenge togovernmentwas now tocreatealevelplaying fieldforpropertyownership and forthem to take partin the developmentprocess.
The presentationnoted thatglobalizationwas supposed tocreatealevelplaying field,butstated that the evolving global governance structures were being influence by biggertrading nations,with biggereconomicfootage,disadvantaging smallernations.
B.KirgizstanA presentation on Kirgizstan was made by M r.Acylbek Jumabaev. M r.Jumabaev statedthatKirgizstan was formerly partofthe ex-USSR,and located in centralAsia.Itwas asmallcountrywith apopulation offive million and an areaof200,000 sq.km.
Kirgizstan was situated on the Asian Silk Road, and had a rich history. Ethnically thecountrywas 65percentKirgi,withthe restmade upofotherethnicgroups.Itwas amixedcultureand religion.AlmostallofKirgizstan,90percent,was mountainous,withthe landhaving hydro-electricitypotential,butgold was currentlythe majorexport.
The topicofglobalizationwas addressed,withthe presentationadvocating aneed toadaptglobalization to each country. Developing countries should focus donor assistance toLLCs on environment and drug trafficking issues and indicators. Indicators weredescribed as mostimportantin helping to promoteglobalstabilityin the future.
Great efforts had been made according to the presentation to ensure transparency andaccountability in government however it said there was still some way to go. TheGovernmenthad proclaimed 2004as the yearofgood governance and mobilization.TheGovernment has also developed a framework for poverty reduction, with 360 millionUSD overthreeyearsapproved forallocation,agreatcomponentofwhich was grants.
The factorsconsidered importantforthe developmentofKirgizstan weresummarized asfollows:
l Itstraddled allthreemajorreligions,Christianity,Islam and Buddhism;l Itwas situated on the road fordrug trafficking from centralAsiatoEurope;l Ithad many waterresources;l Located in central Asia, it was a very attractive region due to the large
resources from oiland drugs;l There were areas ofthe country contaminated by nuclearwaste deposited by
the formerSovietmilitarysystem;andl Thereweresome borderdisputes which could become adestabilizing factor.
In addition to these factors,Kirgizstan was situated in the cornerwherethe interestsofbig powersmeeteach other(Russia,China and USA),with bothAmerican and Russianbases located in Kirgizstan,which was aunique situation.
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PART TW OOrganizationofthe M eeting
I.O PENING STATEM ENT
The meeting was opened on the 17th ofDecemberwith astatementby the Executive SecretaryofUN-ESCAP read by the principalofficer.
M r.Kim H ak-SuUnder-Secretary-Generalofthe United Nations andExecutive Secretary,UN-ESCAP
(delivered by M r.Siva Thampi,PrincipalOfficerand Officer-in-Charge ofthe Secretariat)
Distinguished participantsColleagues from the DepartmentofEconomicand SocialAffairs,Ladies and Gentlemen,
It gives me great pleasure to welcome you to this Follow-up of the W orld SummitforSocialDevelopment:Governance Challenges and Innovations forHuman Development.Atthe outset,allow me to express my appreciation to the DepartmentofEconomicandSocialAffairsforproposing to organize thisvery importantRegionalW orkshop jointlywith UN-ESCAP.
The Copenhagen Declaration and Program ofAction adopted by the W orld SummitforSocialDevelopmentin1995remains the key globalmandateforsocialdevelopmentandspecifies the ultimate objectives of economic devlopment. One hundred and seventeenheads of State or Government committed their countries to a number of fundamentalobjectives,including toeradicateabsolutepoverty,tosupportfullemploymentas abasicpolicy goal,topromotesocialintegrationbased onthe enhancementand protectionofallhuman rights, to achieve equality and equity between men and women and to attainuniversaland equitableaccess to education and primary health care.W hileotherglobalmandates for economic and social development have also been adopted, none is morecomprehensive in spelling outthe ultimate goalsofdevelopment:economic well-beingwithsocialinclusionand equity.
UN-ESCAP assistsitsmembersand associatemembersto implementthe commitmentssetoutin the Copenhagen Declaration and Program ofAction,and we regularly assessprogress in the achievement of those goals. Last year the theme topic of the annualsession of the Commission was "Sustainable social development in a period of rapidglobalization:Challenges,opportunities and policy options".In astudy prepared forthesession,the UN-ESCAP secretariatemphasized thatdisparities in income had increasedwithin and between countries during the recentperiod ofrapid globalization.The studynotes that challenges to social inclusion had resulted from changing labour marketconditions, regional disparities, population ageing, social conflicts, disability and theHIV/AIDS epidemic. The Asian financial crisis that began in 1997 demonstrated thatsocialprotectionsystems wereinadequateinscope and coverage inmany countries intheregion.
Ourconclusions werenotallpessimistic,however.Countries inAsiaand the Pacifichadgreatly reduced poverty levelsoverthe pasttwo orthreedecades.Investmentin humancapitalisessentialforsustained economicgrowth.Countries in the region had laid that
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foundation for such growth by greatly increasing primary and secondary schoolenrollment rates, by lowering infant and child mortality, by reducing high levels offertilityand by increasing lifeexpectancy.
W e have observed thatthe economies thatparticipated mostactivelyin globaleconomicprocesses have expanded overallemploymentthe mostsignificantly.The greatestgainsinemploymenthave been achieved by women butthey arealso the mostvulnerabletojoblosses during economicdownturns.
Distinguished participants,
The nationstatehas ceded some controloverthe nationaleconomy toglobalinstitutions,transnationalcorporations and internationalcapitalflows.Nonetheless,the fundamentaldecisions regarding education, health, employment, social security and social inclusionremainthe responsibilityofthe State.The Statemustshape the frameworkand determinethe appropriateinteractionamong nationaland localgovernment,the privatesector,non-governmentalorganizations and othercivilsocietyorganizations.Itisonlythe Statethathas the interestand ability to forge the socialcontractupon which economicand socialdevelopmentrest.
You have the opportunity over the next three days to review these and other issuesconcerning globalization and governance. W e expect that the discussions will bestimulating and that you will be able to provide valuable guidance to the secretariat inshaping itsideas and program ofwork.
Iwish yourdeliberations everysuccess.
Thank you foryourattention.
II.M EETING AGENDAThe workshop adopted the following agenda:
1. Opening ofthe session.2. Globalization and the State:Concepts,issues and challenges:
(a) A conceptualunderstanding ofglobalization and the Stateand an overview ofregionalexperiences;
(b) Countrypresentations.
3. Governance challenges,innovations,toolsetc.forhuman development:
(a) M illennium DevelopmentGoals,publicpolicy and governance challenges;(b)M illennium DevelopmentGoalsand governance in SriLanka;(c) Human DevelopmentReportsas atoolforsocialdevelopment;(d)An overview ofleastdeveloped countries;(e) An overview ofland-locked countries;(f) Group discussions.
4. Plan ofactions and closing.
III.LIST OF PARTICIPANTS
ARM ENIAM r. Samson Davoyan, Director, Institute of M anagement and Economic Reform,GovernmentofArmenia,Yerevan
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BANGLADESHM r.Debapriya Bhattacharya,Executive Director,CentreforPolicy Dialogue,Dhaka
M r.AbulBarkat,Professor,DepartmentofEconomics, University of Dhaka, and Chief Advisor (Hon.), Human DevelopmentResearch Centre,Dhaka
BH UTANM r.Sonam Phuntsho W angdi,DeputySecretary,Policy and Planning Division,M inistryofTrade and Industry,Bhutan
CAM BO DIAM r. Theng Pagnathun, Deputy Director, Directorate of Planning, M inistry of Planning,Phnom Penh
INDIAM r. Errol D'Souza, Professor and Chair, Econom ics Area, Indian Institute ofM anagement,Ahmedabad
KAZAKH STANM r.Erzhan Utembayev,DeputyHead,President'sAdministration ofKazakhstan,Astana
KIRGIZSTANM s.Almaz Isanoc,Economist,Economic Policy Development,Office ofthe President,Bishkek
M r.Acylbek Jumabaev,DeputyDepartmentHead,PresidentAdministration,Bishkek
M O NGO LIAM r.B.Batkhuu,SeniorConsultant,CentreforSocialDevelopment,Ulaanbaatar
NEPALM r.Balananda Poudel
PAKISTANM r.SirajM azhar,Research Fellow,ConsumerRightsCommission ofPakistan (CRCP),Islamabad
PH ILIPPINESM r.W ilfred Sebastian M anuela
SAM O AM s.Laugalau F.EteuatiShon,ChiefExecutive Officer,M inistryofW omen,Communityand SocialDevelopment,Apia
SRI LANKAM r.Sam Rahubadde,GovernmentofSriLanka,Colombo
TIM O R LESTEM r.Albano Salem, Director of Employment and Skill Development, and Secretary ofStateforLabourand Solidarity,Dili
M r.M agpo Perreira,DirectorofVeterans Affairs,and SecretaryofStateforLabourandSolidarity,Dili
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TH AILANDM s. Prachayanee Prampan, M inistry of Social Development and Human Security,Bangkok
M s. Sunee Srisangatrakullert, M inistry of Social Development and Human Security,Bangkok
UZBEKISTANM r.M avlonkulov M ikhammad-Rashod,Assistantofthe FirstDeputy M inister,M inistryofEconomy,Tashkent
VANUATUM r.Kalfu Kaloris,DirectorDepartmentofForeign Affairs,PortVila
VIETNAMDr. Pham Quoc Tru, Department for M ultilateral Economic Cooperation, M inistry ofForeign Affairs,Hanoi
UNITED NATIO NS DEVELO PM ENT PRO GRAM (UNDP)M s. M eenakshi Kathel, Research Associate (Gender) Human Development ResourceCentre,New Delhi
UNITED NATIO NS CH ILDRENS FUND (UNICEF)M s.Eva Jespersen,RegionalAdvisor,SocialPolicy and EconomicAnalysis,EastAsiaand the PacificRegionalOffice,Bangkok
UNITED NATIO NS DEVELO PM ENT FUND FO R W O M EN (UNIFEM )M s.Amalin Sundaravej,NationalProgramme Officer,Bangkok
FO O D AND AGRICULTURE ORGANIZATION (FAO)M r.W im Polman,RuralDevelopmentOfficer,Bangkok
M s.Kayo Torii,Programme Officer,ThaiAffairsSection,Bangkok
UNITED NATIONS DEPARTM ENT OF ECONOM IC AND SO CIAL AFFAIRS(UNDESA)M r.AdilKhan,Chief,Socio-Economic Governance and M anagementBranch DivisionforPublicAdministration and DevelopmentM anagement
M r.AlexeiTikhomirov,Chief,Asiaand Transition Economies Unit,Division forPublicAdministration and DevelopmentM anagement
UNITED NATIONS ECONOM IC AND SO CIAL COM M ISSION FOR ASIA ANDTH E PACIFIC (UNESCAP)M r.S.Thampi,PrincipalOfficerand Officer-in-Charge ofthe Secretariat
M s.Thelma Kay,Chief,Emerging SocialIssues Division
M r.JerroldW .Huguet,Chief,Populationand SocialIntegrationSection,Emerging SocialIssues Division
M r.AynulHasan,Coordinator,LeastDeveloped Countries Coordination Unit,Officeofthe Executive Secretary
M r. Syed Nuruzzam an, Econom ic Affairs Officer, Least Developed CountriesCoordination Unit,Officeofthe Executive Secretary
M r. Christian De Sutters, Officer-in-Charge, a.i.,Administrative Services Division andChief,Conference Services Section
M r.David Lazarus,Chief,United Nations Information Services
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3. NOTE Disclaimer-Sampleattached.To be printed onthe back ofthe TITLEPAGE
4. M ISSION STATEM ENT Attached
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7. (REPORT/PAPER/DOCUM ENT itself)
8. BACK of COVER SUM M ARY tobe printed onthe back
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GovernmentPrime Minister
Vice Prime MinisterMinisters and Heads
of ministerial agencies
Ministries
20organizations
Ministerialagencies
5 organizations
Other bodies
21 organizations
People’s CommitteeProvinces and cities under direct central
control with 61 organizations
People’sCommittee
District, towns, cities under provincial
control with 633
People’sCommitteecommunes,
districts with10,603
organizations
Office, servicesof provinces and
cities under direct central control
Bureaus ofdistricts,towns and cities under provincialcontrol
Professionalservices and titles
People’s CouncilProvinces and cities under
direct central control
People’s Council District, towns,
cities underprovincialcontrol
People’sCouncil,
communes, towns
OverallChartofthe Administrative Apparatus
Note:
Leadershiprelations ProfessionalguidanceOrganizationalaffiliation
Financialand personnelaffiliation
Stateauthorityatlocalities
3
GLO BALIZATIO N AND TH E STATE:H UM AN DEVELO PM ENT ANDCAPACITY BUILDING NEEDS -A REVIEW O F
ASIAN CO UNTRY EXPERIENCESDebapriya Bhattacharya*
I. INTRO DUCTIO NGlobalization isnotanew phenomenon from the historicalpointofview,butthe process has greatlyaccelerated during the pastdecades.Economicderegulation,financialliberalization,increased flow ofgoods and services -underpinned by the developmentsininformationand communicationtechnology- have distinguished the new phase of globalization. These new dimensions of globalization haveincreased both opportunities and risks for the nations to achieve sustainable development for theircitizens. This has particularly become a major concern as the gains and losses emanating fromglobalization have notbeen shared equitablywithin and among the countries.
Thus, to make the nations capable of realizing the opportunities and managing the challenges ofglobalization more efficiently,capacity building ofindividualcountries has become one ofthe mostfundamental prerequisites for ensuring competitive development. However, this process of capacitybuilding ofthe stateremains largelyconditioned by the contextualrealities ofspecificcountries.
The Study DesignAdmittedly,each countryismanaging the globalization process uniquelyby way ofevolving itsownresponse strategy.W ithaview toassess the capacitybuilding implications ofthismultitude ofresponsestrategies,the United Nations DepartmentofEconomicand SocialAffairs(UNDESA)undertook sixcountrystudies inAsia.These studies werecarried outinthe following countries:Bangladesh,China,India,M ongolia,the Philippines and Vietnam. Subsequently,an ExpertGroup M eeting (EGM )wasconvened todiscuss the findings ofthese studies.The presentpaperdraws onthe countrystudies andproceeding ofthe EGM to synthesize the outcome ofthe aforesaid initiative.
The conceptual framework deployed in the synthesis paper evolves around three major interrelatedprocesses,viz.the new features ofglobalization,ability ofthe state to respond to the new demandsemanating from globalization,and capacitybuilding needs ofthe stateforresponding tothe challengesofglobalization.To develop the conceptualframeworkareview ofrelevantliteraturewas done.
The key analytical approach deployed in the present study is based on comparative reading of thecountry studies. Cross-country analysis revealed the commonalities as well as the distinguishingfeatures ofthe experiences.Dataand information from secondary sources werescanned to createanissue-relevantcountryprofile.
Guiding QuestionsRemaining cognizantofthe diverse geographic,economic,socialand politicaldifferences among thesamplecountries,the study seeks toaddress the capacitybuilding needs ofindividualcountries withinacommon framework.In doing so,the study attemptsto address asetofguiding questions.
First,arethereany genericcommonalities among these diverse countries interms oftheirexperiencesregarding the process ofcapacitybuilding ofthe stateforaddressing the challenges ofglobalization?
* Executive Director, Centre for Policy Dialogue (CPD), Bangladesh. He can be reached at debpriya@ bdonline.com. The authoracknowledges the extensive and efficientresearch supportreceived from Syeed Ahamed,SeniorResearch Associate,CPD.
1The countrystudies arepresented inPartB ofthe volume.(Barkat,A.,Hoque,M .and Chowdhury,Z.H.2003;M ing,X.C.H.2003;D'Souza,E.2003;PIDS,2003;Tru,P.Q.2003;and Barkhuu,B.2003).
2The reportofthe ExpertGroupM eeting isplaced inPartC ofthe volume.
Second,are the differences in theirexperiences are basically an issue ofsequencing ofpolicy and institutionalreforms predicated by theirbenchmarkconditions?
Third,towhatextentthe observed policy and institutionalreform initiatives areexternallyprompted and to whatextentthey areinternallydriven?
Fourth,isitpossibletoidentifysome bestpractices inthese countries regarding buildingcapacityofthe statewith emphasison human development?
Fifth, what are the preconditions for successful replications of the identified bestpractices,ifany,in otherdeveloping countries?
Layoutofthe PaperFollowing the introductory section, Section II of the paper discusses the conceptualunderpinnings ofthe process ofglobalization,highlightsthe new demands on the State'scapacitytopursue an effective response strategy.Thissectionalso analyzes the evolvingrole of the national government in the era of globalization. Section III puts together acomparative picture of the six sample countries, sketching their selected globalizationrelated features.
The subsequentthreesections ofthe paperaddress threecommon setofissues which areofparticularimportance fordeveloping capacity ofthe Stateformeeting the challengesand benefiting from the opportunities ofglobalization.Accordingly,Section IV analyzesthe capacity of the State to promote trade and investment, Section V emphasizes ontransparency and accountability foreconomicmanagement,and Section VIIfocuses onthe evolving legaland judicialframeworkofthe samplecountries.
Guided by the conceptualframework,review ofthe contextualbackgroundofthe samplecountries and analysis of the three overarching issues of regional experience, theconcluding section (Section VII)identifies the majorcapacity building requirementsforaddressing the internaland externaldimensions ofglobalization.The section also seeksto delineatethe identified measures which areto be in pursued by specificactors.
II.TH E CO NCEPTUAL FRAM EW ORKII.1Defining Globalization The conceptofglobalizationispopularlydefined as expansionofgloballinkages amongnations.Notwithstanding such simpledefinition,globalization isoften considered to be"the mostoverused and underspecified term in the internationalpolicy sciences".3 Tosome,itisahideous word ofobscuremeaning,coined in the 1960s,thatcame into ever-greater vogue in the 1990s.4 Some have gone so far and to state that the termglobalization "has now becom e so slippery, so am biguous and so subject tomisunderstanding and politicalmanipulation,thatitshouldbe banned from furtheruse,atleast until there is a precise agreement as to its meaning".5 Such extreme positionsessentially reflect the intensity of the theoretical contestations which we observeregarding securing the essence ofglobalization."6
3Devetak,R.and Higgot,R.1999."JusticeUnbound? Globalization,States and the TransformationoftheSocialBond".InternationalAffairs,July.4Llosa,M .V.2000."Liberalism inthe New M illennium",inIan Vasquez (ed.),GlobalFortune:The StumbleandRise ofW orldCapitalism.Chapter1.W ashingtonDC:CatoInstitute.5Helleiner,G.2001."M arkets,Politics and Globalization:Can the GlobalEconomy be Civilized?"GlobalGovernance,July/September.6The otherterm which may contestinthe recenttime forsuch distinctionis"governance".
4
Some have viewed globalization as the compression ofthe world and the intensificationofconsciousness ofthe world as awhole.7 Othershave defined itas aprocess orasetof processes which embodies a transformation in the spatial organization of socialrelations and transactions - assessed in terms of their extensity, intensity, velocity andimpact- generating transcontinental or inter-regional flows and networks of activity.8However,itisverycommon tofindmoreemphasisoneconomicliberalization,assessingglobalization as a process ofremoving government-imposed restrictions on movementsbetween countries in orderto create an open,borderless world economy.9 Keeping inmindthe growing flows oftrade and capitalinvestment,some10 indicateglobalizationasthe possibilityofmoving beyond an inter-nationaleconomy,wherethe principleentitiesarenationaleconomies.
In contrast, holistic perspective has identified globalization "in three distinct butinterrelated senses:first,to describe the economicphenomenon ofincreasing integrationof markets across political boundaries; second, to describe the strictly politicalphenomenon of falling government-imposed barriers to international flows of goods,services and capital;and,finally,to describe the much broaderpoliticalphenomenon ofthe global spread of market-oriented policies in both the domestic and internationalspheres."11
Therefore,forsuch an extensivelyused term such as globalization,theredoes notappearto be any precise, widely agreed definition. Rather the extent of its meanings isincreasing,taking oncultural,politicaland otherconnotations inadditiontothe economicaspects.
Although some have went on to distinguish globalization as a verb and a noun,12 amainstream consensus seems to be emerging regarding material manifestations ofglobalization in itscurrentphase covering the lastthreedecades.Understandably,such aphenomenon does not remain limited to the sphere of economics. However, a moretechnical definition of economic globalization would be "integration of nationaleconomies in the international economy through trade, direct foreign investment (bycorporations and multinationals),short-term capitalflows,internationalflows ofworkersand humanitygenerally,and flows oftechnology."13
Thus to explicate the scope of this study, the concept of globalization in this paper isinterpreted as the integration of a country's local economic system with internationalmarketsand institutions through economicliberalization,foreign investmentsand capitalflows, technological exchanges as well as information flows, where the factors ofproduction areused on aworld scale,instead ofwithin the individualstateeconomies.
The ChronologicalPerspectiveIndeed, globalization is not altogether a new phenomenon. Proponents of historicalperspectives inform us thatevolutionofglobalizationmay be traced back toexpansiono
7 Robertson,R.1992.Globalization.London and NewburyPark:Sage.p.8.8 Held,D.,M cGrew,A.,Goldblatt,D.and Perraton,J.1999.cited inAhamed,S.and Ehsan,M .2005.
"IllusionofSelfDependency and the ImpactofGlobalizationonBangladesh'sM acroeconomicPolicy".AsianAffairs.Vol.27(1).p.24-45
9 Scholte,J.A.2000.Globalization.A criticalintroduction.London:Palgrave.10 Forinstance,Hirstand Peters.1996.cited inScholte,J.A.2000.Globalization.
A criticalintroduction,London:Palgrave.11 Lindsey,B.Againstthe Dead Hand.cited inW olf,M artin.2004.W hy GlobalizationW orks.YaleUniversityPress.12 Tabb,W .2004.EconomicGovernance inthe Age ofGlobalization.ColumbiaUniversityPress,New York..13 Bhagwati,J..2004.InDefense ofGlobalization.OxfordUniversityPress.
5
capitalism (usually taking the form of colonialism) during the period 1870s - 1930s.14Thisperiodwas marked by high degreeofcapitaland labormobility,togetherwithtradeboom -essentiallyresultofreduced transportcost,ratherthan freetrade.The second stageof globalization (1945-73) was characterized, inter alia, by emergence of post-colonialindependent econom ies, disintegration of the m acroeconom ic regulation regim eestablished through the BrettonW oods institutions,the firstoilcrisis,increasing mobilityofprivatecapital,and end ofthe "golden age" ofgrowth ofthe industrialized countries.The presentday connotationofthe term globalizationessentiallyreferstothe thirdorthecurrent phase of the process starting from 1973 onward coinciding with the intensivespurtofeconomicderegulationas wellas privatization,financialand trade liberalization,coupled with revolution in the sphereofinformation and communication technology.
However, the theorists are not unanimous as regard the sequence of development ofglobalization.Therearethreemajorstreams among the thinkersofglobalizationwho arereferred as the "hyperglobalizers",the "skeptics" and the "transformationalists".15
According to the hyperglobalizers,economicglobalization isconstructing new forms ofsocial organizations that will eventually supplement the traditional nation state as theprimaryeconomicand politicalunitsofworldsociety.16 Economicpowerarebecomingeffectivelydenationalized and diffused and nationstates arebecoming atransitionalmodeof organization for managing economic affairs. This school of thought reckons thatglobalization is creating a new order of relations in which states are either convergingeconom ically and politically, or are being m ade irrelevant by the activities oftransnationalbusiness and market-driven economicpolicies.
On the otherhand,the skeptics maintain thatthe currentglobaleconomicinteraction isjustaheightened levelofinternationalization,thatis,interaction between predominantlynational economies.17 The skeptics argue that there were periods of high financialglobalizationinthe past.Infact,thereexistsasubstantialbody ofliteraturewhich tries toassess phases of globalization in a comparative framework.18 In this connection,evidence onthe shareofthe currentaccountbalance innationalincome has been analyzedas a proxy for the extent of capital flows.19 This strand of literature holds that incomparison to the colonialera,the internationaleconomy has become considerably lessglobal in its geographical embrace. Rather the economic activities are experiencingsignificant'regionalization'.Skeptics also argue thatthe increasing internationalizationoftrade between some countries has led to the marginalization ofothers,notably the pooreconomies ofthe southern hemisphere.20
14See Ocampo,J.A.and M artin,J.2003.GlobalizationandDevelopment.A LatinAmerican andCaribbeanPerspective.StanfordUniversityPress.
15Ahamed,S.and Ehsan,M .2005."IllusionofSelfDependency and the ImpactofGlobalizationonBangladesh'sM acroeconomicPolicy".AsianAffairs.Vol.27(1).p.24-45.
16See Ohmae (1995)and W riston(1992)formoreonhyperglobalistarguments.17Formoreonskeptics arguments,see Hirstand Thompson (1996).18Obstfeld,M auriceand Alan M .Taylor.2002."Globalizationand CapitalM arkets".NationalBureau ofEconomic
Research.W orking Paper8846.www.nber.org.19Forcomparative analysisonfinancialflows ofpastand presenttime,see Baldwin,RichardE.and Philippe M artin.1999."Two W aves ofGlobalization:SuperficialSimilarities,FundamentalDifferences".NBER W orking Paper6904.January;Bordo,M .D.,Eichengreen,B.,and Irwin,D.A.1999."IsGlobalizationToday ReallyDifferentthan GlobalizationaHundred YearsAgo?" NBER W orking Paper7195.June;and Collins,W .J.and W illiamsonJ.G.1999."CapitalGoods Prices,GlobalCapitalM arketsand Accumulation:1870-1950".NBER W orking Paper7145.
20Cambridge,Jim.2004.GlobalizationandInternationalEducation.Intercom 10.Bath:Centreforthe Study ofEducationinan InternationalContext.URL:http://www.bath.ac.uk/ceic/archive/10cambridge.Accessed:31December2004.
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Finally,the transformationalistsconsiderglobalizationas the motivating forcebehindthefast socio-economic changes that is reshaping the modern societies and world order.According to thisline ofreasoning,globalization is"a phenomenon by which economicagentsin any given partofthe world aremuch moreaffected by eventselsewherein theworld" than before.21 Thus,globalization as apowerfultransformative forceismakingthe nationstates adaptthe new circumstances and seek coherentstrategies tobe engagedwith in an evolving world.
II.2Yields ofGlobalization Globalizationhas generated awide range ofbenefitsincluding greaterfreedom ofchoice,lower prices of goods and higher income for individuals.At the aggregate level, thesehave been paralleled by a m ore productive allocation of resources, enhancedspecialization,diversification ofrisks and investmentin areas ofhighestreturns.Thisisnot to say that globalization ensures prosperity for everyone. Indeed, given theasymmetrical nature of the process, a significant proportion of people and countriescontinue toremainexcluded from the rewards ofglobalization.The exclusionaryprocesshas been underpinned by lack of assets, incomes and capabilities on the part of thesemarginalized people and countries. No wonder that export-oriented (i.e. globalizationdriven)growth in many countries has been coupled with furtherdeterioration ofincomedisparity.In fact,mostrecenteconometricwork based on cross-country and time seriesdata has failed to establish any correlation between rates of poverty reduction andexpanding trade volumes.22
Thus, it becomes imperative for the government in the developing countries to takemeasures at two levels: first, for a more effective and balanced integration of theirrespective economies in the global economy and, second, to ensure a more equitabledistribution ofgains emerging from thisintegration among itscitizens.
W hile anticipating measures on the part of the governments, one, however, should notforget the limits of domestic policy initiatives in the era of globalization. The currentimbalance which we observe in the globalization process may be explained to a largeextent by the rules of the game which are perversely set at the global level. Thus weobserve thatflows ofcommodities and capitalaretotally free,whilemovementoflaborremains highly restricted. Similarly, while life-saving drugs are patented, traditionalknowledge of developing countries does not enjoy any legal protection. As wasmentioned earlier, the benefits have been disproportionately captured by rich countriesand powerfultransnationalcompanies,whilepoorcountries and poorpeoplehave beenleftbehind.The gap between winnersand losersiswidening atan alarming rate.23
Such a situation has led to a call for instituting a more accountable and inclusiveglobalization by way ofreforming,among others,the multilateralinstitutions which setthe rules concerning governance of globalization.24 The protagonists of globalizationcontend that the uneven progress of human welfare results not from failures of theglobalized markets, but from failures of politics and policies.25 However, critiques of
21Krueger,Anne.2000.cited inW olf,M artin.2004.W hyGlobalization W orks.New Haven:YaleUniversityPress.22Ravallion,M artin.2004.LookingBeyond Averages inthe Trade andPovertyDebate.W orldBank Policy Research W orking Paper3461.
23Oxfam.2000.Globalization:Submissiontothe UK Government'sW hitePaper onGlobalization.London:Oxfam GB.24Nayyar,Deepak (edited).2002.GoverningGlobalization.Issues andInstitutions.OxfordUniversityPress.25W olf,M artin.2004.W hyGlobalization W orks.YaleUniversityPress.
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revealed globalization have convincingly argued that; similar to national economies,serious and extensive market failures afflict the global economy, and these call forprovision ofglobalpublicgoods through collective actions atthe globallevel.26
In fine, apart from some marginal groups in the fringe, the "mainstream dissenters" ofglobalization arenotadvocating againstglobalization perse,ratherurging forproactivepolicies which can facilitate accelerated and beneficial integration of the marginalizedpeopleand countries inthe fastchanging globaleconomy.Inthissense,amorebalancedand equitable globalization is being considered as a powerful means in achievingsustainabledevelopment.
II.3 H allm arks ofGlobalization on NationalEconom yGlobaland nationaltrends have mutuallyreinforced themselves toprovide momentum tothe process ofglobalization.Complementaryimages ofglobalizationcan be witnessed inthe national scene in the form of as the privatization of state-owned activities,deregulation ofinvestmentregime,trade liberalization and incorporation ofglobalrulesand standards in public affairs. Globalization has catalyzed at the national leveltransparency incorporateand publicaffairsas wellas greateraccess toinformationwhichhas been largely facilitated by internet and electronic governance. One may, however,consider protests against the fallouts of globalization - rising inequality sustained highlevelofemploymentand exclusionofprimarystakeholdersfrom the governance process-arealso in away nationalphenomenon.
Both the process and impactofglobalization depend on how adomesticmarketabsorbsthe liberalization process. However, globalization and liberalization are not the same,though they are very frequently used as synonyms. W hile globalization is a process,liberalization isaresponse ofindividualstateto thatprocess.Forexample,globalizationwill proceed at a faster pace if economics liberalize their goods, services and factormarkets(liberalizationwouldalso mean liberalized movementofnaturalpersons,thoughliberalization enthusiasts are typically reticent about discussing this matter). Thus, themajor challenge for the national government is to efficiently manage the liberalizationprocess through conscious policy choices, with minimum negative impact on thedomesticmarket.
In the eraofglobalization,nationaleconomies areexposed to aprocess ofprivatizationwhereownership and managementofmanufacturing and services sectorsaretransferredfrom government to private sector to increase competitiveness. In the privatizationprocess,some countries have even gone beyond the usualdomain ofprivatesector.Forexample, in Bangladesh the privatization process has reached the sectors which havetraditionallyremained the preserve ofthe statesector,such as education,health careandpublicinfrastructure.27
Corollary to the process ofprivatization has been deregulation ofthe investmentwhichhas led toopening upnew activities forprivatesector.As apartofthis,many sectorshavebeen opened up for the foreign investors as well. In such cases, non-discriminatoryprovisions were incorporated for national and foreign investors. For exam ple,implementationofthe "M ost-Favored-Nation"28and "NationalTreatment"29 approaches
26 See forexample,Rodrick,Dani.1998.The New GlobalEconomy:M akingOpenness W ork.Policy EssayNo.24.BaltimoreJohns Hopkins UniversityPress;and Stiglitz.Joseph.2003.GlobalizationandItsDiscontent.
New York:W W NortonCompany.27 Sobhan,R.(ed.).2005.PrivatizationinBangladesh:An Agenda inSearch ofaPolicy.Dhaka:CPD-UPL.28 M ost-favored-nationtreatment(ArticleIofthe GATT 1994)requiring countries nottodiscriminate
between goods onthe basisoftheiroriginordestination.29 The principleofproviding foreign producersand sellersthe same treatmentprovided todomestic
8
ofthe W TO have become routine.Flows ofshort-term foreign capitalalong withforeigndirect investment (FDI) and cross-border borrowing have increased significantly.Introduction ofacommon regionalcurrency,as in the case ofthe European Union,maybe seen as amajorcontribution towards globalization.
Trade liberalization isanotherhallmark ofglobalization.During the pastthreedecades,nationalgovernmentstook anumberofreform initiatives toliberalize theirtrade regime.Among others, such initiatives include reduction of tariff rates and their dispersions aswellas reduction ofnon-tariffbarriers,such as importquota.Forexample,Bangladeshreduced the average non-weighted tariffratefrom 47.4percentinFY1993 to15.6percentin FY2004.As a consequence,Bangladesh'seconomy became more open to the globalmarket, increasing the average trade-GDP ratio from 21.0 percent during the 1980s toabout26.0 percentduring the 1990s.Atpresent(FY2004),the trade-GDP ratio isabout32 percent.30 Service sectors are now exposed to international competition. M oreinternationalcooperation through bilateral,regionaland multilateralagreementsisalsoobserved these days.
Common global rules and standards are developed as a result of globalization.Consequently, achieving a broad consensus on macro-economic policy frameworkbecomes pertinent. There are multilateral rules for global trade, financial transactions,international dispute settlement procedures and common standards for products andprocesses that the national economies follow. Higher demands on universal socialstandards,e.g.laborand environmentalstudies,human rights,increased transparency inpublic affairs, more transparent and simpler regulatory systems, and increased globaloversight for ensuring transparency and broader involvement of civil society areincreasinglydefining the nationalexpressions ofglobalization.
However,marketisaveryinfluentialcomponentofglobalizing economy and inefficientmarket liberalization can yield socially deleterious outcomes for a nation. Some evenargue that markets encourage immorality and have socially immoral consequences.Therefore, appropriate safeguards and institutions along with appropriate policies, atnational, regional and community levels, are necessary to minimize the risk of marketliberalization.
II.4 New Dem ands on the StateCapacityIn the past,the governmentperformed largely acontrol-oriented roleoften focusing ondirectproductionofgoods and services.Integrationofglobaleconomy and liberalizationofdomesticeconomy,coupled withdigitizationofinformation,aremaking new demandson the state capacity and, in response, state has also initiated changes in its role. Forexample, state now plays a "steering" role expressed through provision of strategicplanning and an "enabling" environment, and dispensing governance with activeparticipation ofthe privatesectorand the civilsociety.
The "new" statefocuses onthe protectionofpublicgoods including the environmentandhuman rights,putsincreased emphasison issues ofglobalgovernance.These evolvingdynamics have precipitated a realization that presence of state capacity is a necessarycondition to make use ofopportunities provided by globalization and to protectinterestsof vulnerable groups in the society. The new demands on the state in the face ofresurgence ofglobalization could be summarized as follows:
l developmentofmarketand non-marketinstitutions;l transformationfrom "controller"to"enabler";
30Bhattacharya,D.etal.2005.Bangladesh inthe GlobalTrade Regime:Labour,Environment,Agriculture,Exportand Trade Negotiations.February.Dhaka:CPD.
9
l concentrationonprovisioning ofpublicgoods;l emphasisonrulesetting and enforcement;l greaterengagementin internationalrulemaking;l participatorypolicy making.
W ith effective reinforcementofitscapacity,the statecan play amajorrolein the areashaving far-reaching implications for human development. These include alleviation ofpoverty,reducing genderdisparity,protection ofenvironment,and promotion ofhumanrights. These are exactly the areas where consequences of globalization remainconspicuous.Reinforcementsofstates capacityarethus needed in the following areas:
l New frameworks and toolsforpolitical,administrative,and financialtransparency and accountabilityincluding institutions and conventions againstcross-bordercorruption,and measures to combatdomesticcorruption;
l Legal,judicial,and regulatoryframeworks fortrade and investmentsincluding the protection ofpropertyrightsand access to justiceforthe poor;
l Capacityto assess the socialand economicimpactsofliberalization oftrade and investmentpolicies;
l Statecapacityto negotiatewith the W TO,regionalorganizations and othertrade agreementsas wellas capacityto assess theirimpacton human rightsand environmentalprotection;
l Human resourcedevelopmentwithemphasisonnew skillsofpublicofficialsinsuch areas as trade negotiations,regionaltreaties,policy analysisto assess impactofglobalization on provisioning publicgoods forvulnerablegroups;
l M echanisms and frameworks forestablishing partnerships among the publicsector,the civilsocietyand the privatesector;and
l Access to and use ofinformation technology in government-e-governmentas atoolto achieve avarietyofends.
II.5 StateResponse to Globalization and Capacity Building Schem aGlobalization has adeep impacton the policy making process ofagovernmentwhich ismanifested in the decisional, institutional, distributional and structural aspects of thepolicy making process.31 First, the decisional aspect of government policy is affectedsince government has to absorb the changes to relative cost and benefits of differentmacroeconomic, industrial and sectoral policies. Second, as regard the institutionalaspectof government policy, the government has to take initiatives for an institutionalreform toimprove globalcompetitiveness ofthe economy.Ithas totake intoaccountthegrowthofglobalproductionnetwork,multilateraleconomicsurveillance and regulations.Third, the distributional aspect of government policy is also influenced with theemergence ofglobalization,since the government'spolicy making process isnow muchinfluenced by the globaldivisionoflaborand wage competitionacross the economies.Inthisconnection,negotiations overtradableand non-tradablesectorsand benefitsofskilledand unskilled laborforces areprime agenda forgovernmentpolicies.Four,as regard thestructuralaspectsofgovernmentpolicy,globalizationalso brings some structuralchangesin the nationaleconomy since the governmenthas to cope with the altering balance ofpower between the state and markets. Identifying the country's comparative advantageand areas oftrade specializationfigurehigh inthe prime agenda forgovernmentpoliciesin aglobalized world.
31Cerny,P.G.1996."W hatNextforState" inE.Kofman and G.Youngs (eds)Globalization:Theory andPractice.
New York:Pinter.pp.123-137.
10
Therehad been differentattemptsto provide asystemicanalysisto the need forbuildingstate capacity in the context of governance related reforms.32 In this section, we haveattempted to develop aschematicframeworkforunderstanding how differentforces andactorsinterfaceto generatestatecapacity.Figure2.1presentsthe schema ofthe capacitybuilding process along with itsintrinsiccomponents,forms and cycles from the humandevelopmentperspectives.
32See forexample,Painter,M .2001.Changing Asian Governance:StateCapacityand InstitutionalReform.Availableonline atUNPAN.URL:http://unpan1.un.org/intradoc/groups/public/documents/APCITY/UNPAN002418.pdf.Accessed:16July2005;and Levy,B.and Kpundeh,S.(eds).2004.BuildingStateCapacityinAfrica:NewApproaches,EmergingLessons.W ashingtonDC:W BIDevelopmentStudies.
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Supply-drivenInternalCapacity
PrivateSector
Government
CivilSociety
StateCapacity
Identification
FeasibilityAssessment
Implementation
M anagement
M onitoring/Evaluation
ProvisioningofPublicGoods
Human ResourceDevelopment
InformationTechnology
Good Governance
CredibleLegalAnd JudicialFramework
Reforming M arketIncentives
Human Development
ComplianceW ithM ultilateraland
RegionalTrading Rules
M anagementOfFDIandODA
EnforcementofIntellectualProperty
Rights
GlobalStandardforTransparencyandAccountability
M arketOpportunityforM igrantW orkers
EnvironmentFriendliness
Demand-drivenExternalCapacity
PolicyPlanning/Designing
Figure2.1:CapacityBuilding Process ofthe State
ArchitectsofStateCapacityCapacity building of the state is a complex process which involves multifacetedinteractions between various internaland externalcomponents.Developing the capacityofthe state does notnecessarily mean developing the capacity ofthe governmentonly.W hilegovernmentremains as an importantarchitectofthe statecapacity,privatesectorand civilsocietyalso play acatalyticrolefordeveloping the statecapacity.Thus,capacitybuilding program takes placeatthreelevels.First,the governmentreinforces itscapacityatthe centraland locallevels.Second,privatesectorundertakes capacitydevelopmentatenterprise levelas wellas inthe trade bodies.Third,civilsocieties arealso endowed withcapacity through strengthening of organizational formations and networks for policyanalysisand advocacy.
Resources availablewiththe corporateand not-for-profitsectormay verycomplementthegovernment'scapacity to createthe "nationalcapacity".These partialcomplementaritiesmay manifestin the areas ofcomparative advantage ofthe corporateas wellas the not-for-profitsector.Forexample,the privatesectormay endow the governmentwithmarket-related information which is critical for attracting foreign investment and expandingforeign trade.On the otherhand,civilsocietycan sensitize the governmentregarding theglobalstandards oftransparency and accountability,domesticimplementationofwhich isvitallynecessaryforcontinued receiptofconcessionalforeign assistance.
Form s ofCapacityBuilding NeedsIn the backdrop of the state's evolving response to globalization, one may identify thecapacity building needs in two broad areas, viz. the externally-oriented and internally-oriented capacity building initiatives. These two capacity building needs can also becategorized as underdemand-driven capacityand supply-driven capacity.
Externally-oriented capacity building relates to compliance ofmultilateraltrading rules,overseeing foreign investment and foreign aid-related practices, management of othercapital and financial flows, development of overseas market opportunity for migrantworkers,enforcementofintellectualproperty rightsand mainstreaming ofenvironmentconcerns. Since this externally-oriented capacity originates from the extra-nationalpressure to maintain a global standard in economic integration, it can be called thedemand-driven capacity.
W hen a state governmentseeks to attractforeign investmentortries to exportto othercountries,ithas toaddress some externalexpectations,such as compliance ofmajorW TOrules and EU's sanitary and phyto-sanitary measures. Addressing these demands alsoenables acountrytoparticipateinvarious bilateraland multilateraltrade negotiations andto obtain membership of different global trade bodies and regional trade blocks. Thecommunication of this capacity building process works both ways creating a feedbackcycle.First,the statereceives signalsfrom globalmarketplace(trading partnersorglobaltrade bodies)and responds tothem.Then the externalpartnerreactstothe state'sresponseand sends feedback,leading tocreationofacontinuous loop.
Conversely,internally-oriented capacity building relates to developing domesticsupply-side capacities for, inter alia, provisioning of public goods, development of humanresources,firing effecttoenabling and responsive civilservice,and creationofalegalandjudicialframeworkwhich issupportive oftrade and investment.Since internallyorientedcapacity depends on the in-house competence of the state's internal organs, it can becalled the supply-driven capacity.
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CapacityBuilding CycleBoth the sets of capacity building inducements, i.e. those related to supply-driven anddemand-driven capacities evolve through a sequence of phases. As such the capacitybuilding cycle comprise ofthe following phases:(i)Identification,(ii)Policy Planningand Designing, (iii) Feasibility and Assessment,(iv)Implementation,(v)M anagement,and (vi)M onitoring and Evaluation.
How creativelyagovernmentcan precipitateacapacitybuilding process depends on theability to identify the existing and emerging challenges. At the policy planning anddesigning stage,atangibleprogram isformulated.However,the adequacy ofthe programis established through a proper feasibility assessment. But the challenge of givingmaterialshape to the program largelydepends on the skillsofimplementation.Butoncea capacity is generated, it needs to efficiently managed and sustained. Finally, at them onitoring and evaluation stage, the program receives feedback from variousstakeholders,which then eitherinstillsanew cycleinduces modification ofthe old.
H um an Developm entPerspectiveThough short-run objective of a state capacity building program is to integrate thenationaleconomy withthe accessibleglobalizationprocess,human developmentremainsits ultimate focus. A state that aims to participate in and benefit from the economicintegrationand liberalizationprocess ofglobalizationmustengage itscapacityforhumandevelopment.In thiscontext,the aim ofthe statecapacity would be to enablepeopletosolve theirown problems and sustainglobalchanges,whilehaving increased controlovertheir own economic and political destiny. In other words, the capacity of the state tomanage globalization means promoting human well-being as the end, with liberalizedmarkets,economicgrowth and distributive justice.33
Understanding thisgoal,the currentstudy seeks toevaluatethe abilityofthe nationstatesto respond to the new demands of globalization, and the capacity building needs ofindividualstates forresponding to the challenges ofglobalization.
III.AN O VERVIEW O F TH E CO UNTRY CASE STUDIESIn connection with the present study, a set ofAsian countries was selected for indepthreview of their governments' experience regarding managing globalization. These sixsample countries are at dissimilar level of economic and social development withindividualgeo-physicalattributes and demographic.They arewidelydisparateinterms ofsize,areaand population.The respective degreeofintegration ofthese countries in theglobaleconomy isalso verydifferent.
Among the sample countries,Bangladesh isthe only LeastDeveloped Country (LDC),while Vietnam and M ongolia represent the "transitional economies". India and thePhilippines are considered to be the "emerging economies", whereas China is a globaleconomic power-house. The countries are at different scale of progress in terms ofincome, human development and political institutions. They maintain distinct policyorientations and have differentiallevelofmarketization oftheireconomy.
Notwithstanding these wide variations, it seems that all the six selected countries areequipping themselves with a largely similarsetofpolicy and institutionalinitiatives toconfrontthe challenges ofglobalization.
33One may refertoUNDP.Human DevelopmentReport1999.New York:OxfordUniversityPress foran elaboratingofhuman developmentconsequences ofglobalization.
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III.1 SalientFeatures ofthe Sam pleCountriesGeographicand Dem ographicAttributesThe geographicand demographicattributes ofthe samplecountries have been reported inTable 3.1.In terms oftotalland area,China isthe largestamong the sample countries,whileBangladesh isthe smallest.China isalso the mostpopulated countryinthe sampleand its population of 1.3 billion is comparable to India's population of 1.1 billion.Nevertheless,the two countries have differing populationdensities,as India'sland areaisless than one-thirdthatofChina.M ongoliahas the smallestpopulationsize of2.7million,and with an area of 1.56 million square miles remains the sample country with leastpopulationdensity.Incidentally,populationgrowthrateishighestinthe smallestcountry,Bangladesh (1.8 percent)and lowestin the largestcountry,China (0.6percent).
W aterbodies surroundthe Philippines archipelago and ithas noland boundaries,whereasM ongoliaisentirelylandlocked.
Econom icDevelopm entAmong the sample countries, China and India demonstrated most robust economicgrowth in the recent past - in 2003 their GDP grew at 9.3 percent and 8.6 percentrespectively. Vietnam followed with an encouraging 7.2 percent growth. On the otherhand, Bangladesh and M ongolia experienced a moderate 5.3 percent and 5.7 percentgrowth,whilethe Philippines registered a4.5 percentgrowth rate.
Among these countries,the percapitaGDP in 2003 was highestforChina -$1,272,andlowestforBangladesh -$404.Country-wise information on economicgrowth,inflation,income and povertyhave been presented inTable3.2.
The openness ofthe economies ofthe samplecountries,which ismeasured by the totalofexport and import as percent of their respective GDP, is substantial. Table 3.3 reports
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TABLE 3.1Geographicand Dem ographicAttributes
CountryArea
(sq.km.)Population(million)
PopulationDensity(people/sq.km.)
PopulationGrowthRate
(percent)Bangladesh 143,998 152.6 1060 1.8China 9,600,000 1,300.0 135 0.6M ongolia 1,560,000 2.7 2 1.4India 3,100,000 1,100.0 355 1.3Philippines 300,000 82.8 276 1.6Vietnam 329,247 83.6 254 1.3Source:UN 2005.PopulationGrowthRate:HDR,2002-2015.
CountryArea
(sq.km.)Population(million)
PopulationDensity(people/sq.km.)
PopulationGrowthRate
(percent)Bangladesh 143,998 152.6 1060 1.8China 9,600,000 1,300.0 135 0.6M ongolia 1,560,000 2.7 2 1.4India 3,100,000 1,100.0 355 1.3Philippines 300,000 82.8 276 1.6Vietnam 329,247 83.6 254 1.3Source:UN 2005.PopulationGrowthRate:HDR,2002-2015.
TABLE 3.2
NATIO NAL GRO W TH AND INFLATIO N
CountryGDP
(millionUS$)GDP PerCapita
(US$) GDP GrowthRate(percent)
Inflation(percent)
Population(percent)
Living Below $1/day(1999-2002)
Bangladesh 56,844 405 5.26 4.53 36.0China 1,649,329 1,272 9.29 2.25 16.6M ongolia 1,525 606 5.65 4.74 13.9India 691,876 641 8.60 3.20 34.7Philippines 86,429 1,041 4.52 3.68 14.6Vietnam 45,210 550 7.24 5.41 17.7
Source:W orldBank,W orldDevelopmentIndicators;2003,Human DevelopmentReport2003.
NationalGrowth and Inflation
Source:
comparative statistics onthe degreeofopenness ofthe sixcountries.M ongolia'seconomyis"mostopen" as value ofexportand importtogetheras percentages ofitsGDP was thehighest, indicating foreign trade turnover as 1.5 times of its GDP (2003). India, withexport at 14.5 percent and import at 16.0 percent of its GDP, was the "least open"economy among the samplecountries,holding atrade-GDP ratio of30.5 percent.
Level of foreign investment flow also greatly differs among these countries. In 2003,foreign direct investment (FDI) as percentage of GDP was highest in M ongolia (10.3percent)and lowestin Bangladesh (0.2 percent).
SocialIndicatorsFrom the social perspective, a range of performance was observed among the samplecountries. In terms of the Human Development Index (HDI) and Gender-relatedDevelopmentIndex (GDI)isconsidered,the Philippines ranks highestamong the samplecountries recording 83 (among 177 countries) and 66 (among 144 countries) positionsrespectively.Bangladesh,onthe otherhand,ranks lowestonbothindices,at138and 110placerespectively.See Table3.4fordetails.
The Human Poverty Index is lowest in the Philippines (ranked 28) and highest inBangladesh (ranked 72).W hilethe LifeExpectancy atBirthisthe highestinChina (70.9years)and lowestin Bangladesh (61.1 years),the AdultLiteracy Rates range from alowof41.1 percentin Bangladesh to ahigh of97.8 percentin M ongolia
PoliticalSystem The countries chosen for this study also represent a diversity of political systems.Bangladesh has aparliamentarydemocracy,withthe presidentas the head ofstateand theprime ministeras the head ofthe government.Indiaisafederalrepublic,with the chiefof state being the president while the head of the government is the prime minister.
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TABLE 3.3
TRADE AND FDI FLO W S
CountryExport
(percentofGDP)Import
(percentofGDP)
Trade-GDPRatio
(Openness)
NetFDIFlow(percentofGDP)
Bangladesh 14.21 20.04 34.25 0.2China 34.34 31.79 66.13 3.8M ongolia 67.63 80.26 147.89 10.3India 14.48 15.99 30.47 0.7Philippines 48.27 50.74 99.01 0.4Vietnam 59.66 67.64 127.30 3.7Source:W orldBank,W orldDevelopmentIndicators,2003.
TABLE 3.4
SocialIndicators
ountry
HumanDevelopment
IndexRank
Gender-RelatedDevelopmentIndex
Rank
Human PovertyIndexRank
LifeExpectancy
AtBirth(years)
AdultLiteracy Rate(percent)
angladesh 138 110 72 61.1 41.1hina 94 71 24 70.9 90.9ongolia 117 94 38 63.7 97.8dia 127 103 48 63.7 61.3hilippines 83 66 28 69.8 92.6ietnam 112 87 41 69.0 90.3
BangladeshChinaM ongoliaIndiaPhilippinesVietnam
Source:W orldBank,W orldDevelopmentIndicators,2003.
Trade and FdiFlows
Country
Legislative decisions aretaken by the bicameralparliament.China,on the otherhand,isa communist state under the world's biggest political party, the Communist Party ofChina.The presidentisthe head ofstate,whilethe premieristhe head ofthe governmentwith the NationalPeople'sCongress administering legislative decisions.Vietnam isthesecond communiststatein the sample,where,although the presidentactsas the chiefofstateand the prime ministeristhe officialhead ofthe government,the realpowerisheldby the Secretary General of the Communist Party. M ongolia also has a parliamentaryform ofgovernment,where the presidentisthe head ofstate,the prime ministeristhehead ofthe governmentand the State GreatKhural,which isthe parliament,heads thelegislative branch.
The Philippines isarepublicwherethe presidentactsas both the chiefofstateand thehead of the government. The head of the legislative branch of government is theCongress.
III.2 Country O verviewsBangladeshAtthe end of1980s,Bangladesh embarked onmarket-oriented liberalizing policy reformswhich were visible through its initiatives in reducing trade barriers and harmonizingoperative and statutory tariff structures. The liberalization policy was pursued morevigorously during the 1990s.34 W ith areasonably stableeconomicgrowth,Bangladeshtransformed itselffrom aid-dependenteconomy toatrade-dependenteconomy during thisperiod which has given the stategovernmentmorebargaining powerto dealwith otherdeveloped countries. The average trade-GDP ratio of Bangladesh increased from 21.0percentduring 1980s to about26.0 percentduring the 1990s.By the end ofFY2004,thetrade-GDP ratio was about 32 percent. Bangladesh, who is a W TO member since 1January1995,often speaks forLDCs atthe W TO.
However,atpresentthe key challenges to capacity building in Bangladesh arepoliticalwill, commitment and stability. The other set of challenge relates to ensuring goodgovernance,creation ofconducive business structure,developmentofthe capitalmarketand better image building. So building an enabling business environment remains as aprioritytowards capacitybuilding toallow Bangladesh totake advantage ofglobalization.Reinforcing state capacity and extensive reform is needed to help Bangladesh create atrade and investmentsupportive infrastructureand meetthe challenges ofglobalization
ChinaChina has been a memberofW TO since 11 December2001.The economic growth ofChina,which has been persistently high atan average 9.3 percentperyear,has becomemore robust with its accession into the W TO leading to greater global market access.China has fully exploited to its advantage its vast reserve of low cost usable labor toattract foreign investment and technology to push economic development, higherefficiency and quality of economic growth. These measures have made the Chineseeconomy increasingly integrated with the world economy. China has signed theFrameworkAgreementwithASEAN onComprehensive EconomicCooperationwiththeaim of establishing China-ASEAN Free Trade Zone in 2010.35 To create an enabling
34As aresult,average non-weighted tariffratewas reduced from 47.4percentinFY1993 to15.65percentinFY2004.Average importweighted tariffratewas also reduced from 23.6percentinFY1993 to11.05percentinFY2004.Source:Finance Division.2004.Bangladesh EconomicSurvey.Dhaka:GovernmentofBangladesh.
35Peixin,Z.2003.China and Globalization.Speech atChinese EconomicAssociationAnnualConference.14April,2003.
16
environmentfortrade and investment,the Chinese governmenthas enacted severalanti-corruption laws,auditlaws,and administrative supervision laws to strengthen theirlegalsystem,along with propertyrightslaws and foreign trade laws.
The sheer size, momentum of growth and the competitive strength of China placedsignificant pressure on other low income countries, many of which compete in thedeveloped countrymarketsforsame range ofproducts.However,the fastgrowthofChinahas been amajorcontributorin the recoveryin EastAsia.Togetherwith policy stimulusin othercountries,China'sperformance lifted the region to growth of6.7 percentin 2002.36
IndiaIndia,aW TO membersince 1January1995,opened upitseconomy inthe earlynineties,following amajoreconomicemergency prompted by aforeign exchange crisis.Variousreform efforts were undertaken for developing a market-oriented economy. M ajormeasures initiated as a part of the liberalization and globalization strategy in the earlynineties included scrapping ofthe industriallicensing regime,reductioninthe numberofareas reserved for the public sector, amendment of the monopolies and the restrictivetrade practices act,startofthe privatization program,reduction in tariffrates and changeoverto marketdetermined exchange rates.Forinstance,the tariffrates reduced sharplyoverthe decade from aweighted average of72.5percentinFY1992 to24.6inFY1997.37Globalization has helped India achieve remarkable growth over the past decade.As asuccessful bilateral negotiator, India may be revised also maintains effective economicrelation with regional trade blocks such as ASEAN and BIM STEC. However, thecountry's growing competitiveness and sheer size sometimes cause threat to its smallneighbors.
M ongoliaM ongolia has been a member of W TO only since 29 January 1997. However, theunprecedented trade-GDP ratio depicts how fast M ongolia is approaching the worldmarket.Impactofglobalization ismanifested in allspheres ofpolitical,economical,andsociallives in M ongolia.The foreign investmentand foreign trade sectorhas also beenaffected by the internationalopenness.Forexample,incontrastto1990when the countryhas been trading onlywiththe countries ofCOM ECON,in2002the countryexpanded itstrade relationship with 88 countries.
In this context, a number of internally and externally oriented state capacity buildingprogram s were initiated in M ongolia, m any of which directly targeted hum andevelopment. For instance, the "Good Governance for Human Security" Program,38initiated by the governmentand supported by UNDP,was launched in early2001 with aview to achieving person-centered developmentin each and allofitsaspects.However,reducing politicalinfluence on the administration,bringing diversityin itsexportbasketand accelerating reform in the existing legalframework remain the majorchallenge forM ongolia's capacity building program. In the face of globalization, its foreign policyobjectives reside in strengthening its position in the international community and withinfluentialcountries in the region and in the world,anetwork ofrelationships based onthe interdependence ofpolitical,economicand otherinterests.39
36W orldBank.2003.GlobalDevelopmentFinance 2003.W ashingtonDC:W orldBank.37Balakrishnan,C.2004ImpactofGlobalisationonDeveloping Countries and India.’Availableonline:URL:
http://economics.about.com/od/globalizationtrade/l/aaglobalization.htm .Accessed:03August2005.38Embassy ofM ongolia.2004.M ongolia:Four Decades atthe United Nations.W ashingtonDC:Author.39GovernmentofM ongolia.2005.M ongolia'sForeignPolicy.Ulaanbaatar:Author.
17
The PhilippinesLike in most of the Asian countries, the momentum of market liberalization in thePhilippines also took placeduring the 1990s.A W TO membersince 1January1995,itisalso an active memberofthe ASEAN.The liberalizationeffortofthe governmentaimedat moving towards an open economic regime and integrating with the global economywas largelybenefited from the interactionwithitsASEAN members.The open economyof the Philippines now allows 100 percent foreign ownership in almost all sectors.Government corporations are being privatized while the banking, insurance, shippingtelecommunications and powerindustries have been deregulated.40
However, for the foreign investors, it supports a Build-Operate-Transfer (BOT)41
investmentscheme,wherethe privateinvestorsneverown the assetsused to provide theprojectservices.However,they constructthe projectand have the rightto earn revenuesfrom itsoperation foraperiod oftime.As mostsectorshave been opened up forforeigndirectinvestments,ithas encouraged entry offoreign investorsin telecom,roads,portsand inothermajorsectors.
VietnamW ithin the six sample countries,Vietnam isthe only non-W TO member.Soon afteritsapplication forW TO membership on 4 January 1995,aW orking Party on the accessionofVietnam was established on 31 January 1995 and tilldateitisan observercountry inthe W TO.
Overthe lasttwo decades,Vietnam has significantlyliberalized itstrade regime,and hasconcluded a number of trading agreements, highlighting its commitment to integrationinto the global community. By signing a series of bilateral and multilateral tradeagreements in recent years, Vietnam has signaled its decision to accelerate economicreform.Reforming obsoletejudicialand administrative system has been apriorityareaforVietnam's capacity building effort. For instance, the Enterprise Law was a major steptowardsolidifying the domesticlegalframeworknecessaryforliberalization.42 W iththisliberalization effort, exports of Vietnam have grown rapidly, both in agriculturalcommodities and increasingly in the 1990s in garments, textiles and footwear. Tradereforms and commodityexportshad had abeneficialeffectonpoverty,though gains weremade across the board in Vietnam,ruralareas stillfared less wellin poverty reductionthan urban areas.43 The consequences ofdeclining centralcontroloverthe economy as aresultofunpredictableglobalmarketshave generated aserious concernamong Vietnam'spolicymakers,particularlyin the wake ofthe EastAsian financialcrisis.
The comparative overview ofthe samplecountries clearlyindicates that,notwithstandingtheir geo-demographic, socio-cultural and politico-economic diversity, all the countrieshave emphatically embanked on the path ofglobalization.Allofthem have also chosenW TO as theiranchorpointforsetting the rules ofglobalintegration.
40 BoardofInvestment.2005.Doing Business inthe Philippines.AvailableOnline.URL:http://www.boi.gov.ph.Accessed:August4,2005.
41 Thisstructureisused wherethe publicnatureofthe project-forexample,aroad,bridge ortunnel-makes itinappropriateforittobe owned by aprivate-sectorcompany and thereforeownershipremains withthe publicsector.
42 The AsiaFoundation.2001.Vietnam'sEntrepreneurs andGlobalCompetition.Hanoi:Author.43 Thoburn,J.and Jones,R.2002.GlobalisationandPovertyinVietnam:An Overview ofTen Papers inthe DFID
GlobalisationandPovertyresearch programme.London:DFID.
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IV. REGIO NAL EXPERIENCES: ADM INISTRATIVE CAPACITY OF THESTATE TO PRO M O TE TRADE AND INVESTM ENT
As regard the organization structure,leadership and strategicplanning capacities,the sixsample countries of the present study are at different levels of their respectiveadministrative capacity. Administrative capacity will imply efficient management ofresources in various administrative process required for delivering the outputs ofgovernment, such as public services enforcement of regulation and so on. M ajorchallenge relating to the administrative capacity of the state to promote trade andinvestmentisthe lack ofleadershipand strategicplanning skills.Underdeveloped humanresource, inadequate mechanism to measure performance standards of management,absence ofe-governance,and lack ofcapacitytonegotiateatgloballevelhindersthe stategovernmentsfrom getting the maximum benefitsofglobalization.Since the size,locationand economiccapacity ofthese countries aredistinct,theiradministrative capacity alsodifferin managing the trade liberalization effectively.
IV.1Leadership and Planning CapacityM ostofthe countries endurelack ofleadership and planning capacities to assess impactof globalization on income and social indicators. They also suffer from inadequateunderstanding aboutthe policy toolsto influence the marketdecisions.Confusion aboutfocal point for strategic planning, weak coordination and cooperation in informationsharing among the government agencies also hinder these countries from properlyapproaching the process ofglobalization.Besides,low participationofthe stakeholdersinthe planning process isacommon featurein mostofthese countries.
One majorreason forthe weakness in strategicplanning in Bangladesh had been forcedchange in regime with allegations ofcorruption and violation ofdemocratic norms.Onrareoccasions whereprofessionalsmeetand discuss on majorissues like preparation ofthe annualbudget,proposalscoming outofsuch forums remainunattended by inactionofthe Bangladesh government.W hereas inM ongolia,publicmanagementiscurrentlybeingdone through indirect measures of strategic planning and policy guidance, rather thanthrough earlierdirectmeasures ofcommand and control.Since internetnetworking withinthe ministries islimited,very smallnumberofofficialsisgetting benefitofinformationtechnology atthismomentin M ongolia.
19
BANGLADESH:Role ofBoard ofInvestm ent(BOI)
The G overnm ent of Bangladesh has established the Board of Investm ent (BO I) for accelerating privateinvestm ent in Bangladesh. The Board is headed by the Prim e M inister. O ther m em bers are M inisters andSecretaries of concerned m inistries. It is vested with necessary powers to take decisions for speedyim plem entation ofnew industrialprojects and provide operationalsupportservices to the existing ones.TheBO I is a high-powered governm ent apex body for prom otion and developm ent of foreign and local privateinvestm entin the country.The Executive Councilofthe BO Iconsistsofan Executive Chairm an and M em bersand is responsible forcarrying outthe day to day functions and decisions ofthe Board which are deem ed tobe the decisions ofthe governm ent.
Established underthe Investm entBoard Act1989,the BO Iis the principalprivate investm entprom otion andfacilitation agency ofBangladesh.The actm andated BO Iforproviding diversified prom otionaland facilitatingservices with a view to intensify industrial developm ent of the country. In addition to those, the G overnm enthas also entrusted BO Iwith som e otherfunctions in itsservice list.Com bining all,BO I'spresentservices couldbe categorized as under:Investm entProm otion,Investm entFacilitation and Policy Advocacy.
Apart from investm ent prom otion, BO I also offers pre-investm ent inform ation and counselling service, aInvestor W elcom e Service with faster im m igration, support for registration and approval of foreign, joint-venture and local project, support in approving work perm it for the foreign nationals, facilitating utilityconnections, assistance in obtaining industrial plots, etc. BO I also advocates policy suggestions to theG overnm ent, by assisting the governm ent in fram ing new policies for private sector developm ent, and byassisting NationalTaskforce on Investm entClim ate Facilitation.
Source:http://www.boibd.org
In Vietnam,on the otherhand,the collective leadership mechanism resultsin slow andineffective decision-making.Strategicplanning capacityofVietnam isalso obstructed bylack ofcoordinationbetween the ministries.W hilethe economy has restructured towardshigher efficiency and competitiveness due to globalization, a lack of uniformed andcommon understanding has led to inconsistentguidance and coordination regarding theintegration process. Regarding inter-ministerial coordination as a requirement forstrategicplanning,itseems the Philippines isdoing betterthan Bangladesh,Vietnam andM ongolia.However,failureofthe Legislative Executive DevelopmentAdvisoryCouncil(LEDAC)to coordinate the executive and legislative branches created a vacuum in thesocio-economicplanning process ofthe Philippines.
IV.2H um an Resources Developm entThe competence level of civil bureaucracy is appallingly low in most of the countriesexamined underthe presentstudy.Among others,low prioritizationofstategovernmentsfor HRD need, insufficient resources for human resource development (HRD), andinadequacy oftraining program -both in terms ofquality and quantity -areresponsiblefor the lack of human resource development. Besides, a large part of the governmentexecutives arefoundincompetent;they often continue toworkforalong periodbecauseoftheircontracted tenure.There isalso the need fortraining oftop levelofficialswhorepresentthe governmentsin globaltrade negotiations.
Inmostcountries,civilserviceoffersveryunfavorablecompensationpackage which failsto attract meritorious candidates. The disincentive is further aggravated because of thepromotion system based on length to service,notperformance.
In Bangladesh, organizational requirements hardly play any role to determine trainingnecessities,rathertraining ofothersimilarorganizations determines the course.M ostofthe time, the courses offered have little relevance to the recipients' job, havinginsignificant,ifnotno,effecton the recipients'performance.In M ongolia,on the otherhand,the M inistryofIndustryand Trade and relevantagencies arecarrying outactivitiestargeted to prepare human resource to match increasing demand for knowledge,experiences and policy analysis skills in the fields of foreign trade and investment. Topromotepublicserviceprofessionalism,frameworkforselectionofskillfulpersonnelhasbeen developed with some sortofbottom-up approach in M ongolia.However,politicalindicatoriscommonlyused forselectionand appointmentofcivilservantatany levelsofpublicorganization which has negative impacton publicorganizations efficiency.
Inthe case ofVietnam,HRD training isinadequateboth in terms ofqualityand quantitythatmade itdifficultforthe countryto perform wellin itsstatemanagementfunction in
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M O NG O LIA:Foreign Investm entand Foreign Trade Agency (FIFTA)
Foreign Investm ent and Foreign Trade Agency (FIFTA) is the principal governm ent agency in charge ofprom otion and facilitation of foreign direct investm ent in M ongolia. FIFTA is responsible for coordinatingassistance to investors wishing to establish business enterprises,by providing a localnetwork facility thatwillenable them to com ply with all registration procedures required in the form ation of a business enterprise.G uidance relating to licensing, com pany registration, with direct liaison with local offices of tax, labor, socialsecurity,work perm its,visas,custom s,and allotherlegalform alities willbe provided.
FIFTA is structured to assist entrepreneurs seeking initial inform ation through geographical and sectionaldesks,thereby ensuring thatyourFIFTA representative willhave the expertise required to provide you with a"one stop" facility in establishing yourenterprise.
Source:FIFTA and http://us-m ongolia.com
international economic integration, especially in the field of trade negotiation. In thePhilippines the career executive service officer (CESO) program of the Civil ServiceCommission (CSC) ensures competence and qualifications among civil servants.Also,there is the Technical Education and Skills Development Authority (TESDA) tocomplement the functions of the CSC on a broader scale with an objective to providequalitytechnicaleducation and skilldevelopmentto allsectorsofthe society.
Itseems,withoutacomprehensive publicadministration reform,the scope foreffectiveHRD willbe ratherlimited.
IV.3Perform ance Evaluation Political influence on human resource management discourages potential and talentedofficials, since in many cases performance is measured by the perceived politicalaffiliations of respective government officials. Besides, lack of political stability andfrequentchange inhuman resourcepolicy also affectsthe statecapacitytomake optimaluse ofitshuman resource.
Inthe governmentorsemi-governmentorganizations ofBangladesh,prevailing system ofperformance assessmentisdone through the generation ofAnnualConfidentialReports(ACRs).Too often the ACR used forperformance assessmentofpublicofficersisaffectedby personalrelationship with the supervisor.In the case ofthe Philippines,performanceevaluations sometimes become useless forseniorofficials.Itisusualpracticethatdue toa work protection right, government executives who have become no longer useful intheirpresentpositions arestillcontinuing to be employed by the government.
Corruption,politicalpressureand nepotism arealso widelyprevalentinthe administrativeand personnelevaluationprocess ofM ongolia,Vietnam and China.
IV.4E-governanceExcept some spotted endeavors, e-governance is still a long way for most of the stategovernments.Informationtechnology isnotcommon ingovernmentoperations related topromotion of trade and investment.Absence of appropriate legal framework to permiteffective development of e-governance, lack of adequate cyber laws, legislation onprivacy, digital signature, certification and authentication, and lack of properly trainedhuman resources for information technology management undercut the government'sdecision to establish e-governance in the governmentstructures.However,therearealsosome encouraging movements going on as regard introduction of ICT in promotingexternal trade and investment. Initiatives include establishment of trade database, webbased dissemination oftrade information,etc.
Efforts are evident in Bangladesh for the promotion of the use of ICT in governmentoffices, although under loosely framed policies. M any of the ministries and othergovernmentorganizations now have theirown websites and provide usefulinformationthrough these sites.Also,inthe recenttimes,governmenthas initiated projectstoimproveupon the situation and integrateICT in the administration like e-policing and connectingthe prime ministersofficewithdifferentministries forfastand efficientdecisionmaking.
On the otherhand,use ofwebsites isstarting to play arolein information disseminationin M ongolia,particularlyby providing directcommunication facilities to publicservantswho are responsible for foreign trade and foreign investment. Though limited, certainworks wereconducted todevelopadministrative informationsystem.Limited networkingwithin the ministries has been developed. M odernizing state management through theapplication of information technology is an important aspect of Vietnam's currentadministrative reform.The governmentinformationnetwork,CPNET,isstillatan initial
21
phase ofdevelopment,buteffortsareunderway to integrateallministries,agencies andlocalgovernments'within anetwork.
On the otherhand,the Philippines has made notableprogress inestablishing the use ofITin government operations. The National Computer Center (NCC) has been establishedwith the task to promote the use of ICT in government. W ith an aim to establish e-governance, the government enacted the E-Commerce Act, requiring governmentagencies and theiraffiliates tohave afunctionalwebsitewherepeoplecan have businesstransactions and have access to information and government services online. TheGovernment Procurement Act directs all government procurement of materials andservices tobe centralized through acomputernetworkinfrastructurecalled the ElectronicProcurementSystem (EPS)with an intention to maintain transparency.
IV.5Negotiating Skilland Assessing Im pactsofLiberalization Propernegotiating skillatthe governmentlevelas regardtrade and investmentisacryingneed for the low income countries. For instance, in India, the primary resources ofadministration areinformation and negotiation skills.In many countries,lack ofpropernegotiating skill paves the way for the foreign investors to dictate trade terms to theiradvantage.Forinstance in Bangladesh,alow levelofnegotiating skillhas given rise toterms of trade with foreign investors (particularly in the energy sector) which isunfavorable for Bangladesh. It also creates pressure on the balance of payments in thecountry. However, in recent times Bangladesh has initiated some capacity buildingprograms forthe seniorgovernmentofficials.The M ongolian government,inthiscontext,
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THE PHILIPPINES:RoleofInvestm entCoordination Com m ittee
The InvestmentCoordination Committee (ICC)isone ofthe five cabinet-levelinteragency committees thatassistthe NationalEconomicand DevelopmentAuthority(NEDA)Boardinthe performance ofitsfunctions.The ICC is a multi-agency working group that reviews the fiscal, monetary, and balance of paymentsimplications ofmajorcapitalprojects,then recommends tothe Presidentofthe Republicofthe Philippines thetimetableofthe implementation ofthese projectson aregularbasis;submitsto the Presidentastatus ofthefiscal(budgetary),monetary(credit),and balance ofpaymentimplications ofthe majorcapitalprojects(M CP);and reviews and evaluates specific M CPs with respect to their technical, financial, economic, social,institutionaldevelopmentfeasibilityorviability,as wellas from the contextofsectoralplans and geographicalstrategies,then recommend tothe NEDA Boardforapproval.
The ICC review process consistsofthreelevels-the technicalboard,the cabinetcommittee,and the NEDABoard.The ICC issupported by the ICC Secretariat,which provides technicalsupportto the ICC TechnicalBoard (TB)and CabinetCommittee (CC).The duties and responsibilities ofthe Secretariatinclude butnotlimited to the evaluation of all projects submitted to the ICC and come up with comments andrecommendations for consideration by the ICC; recommendation of the relative priority of projects withrespect to sectoral or regional plans; assessment and improvement of existing methods and guidelines forprojectevaluationtoproponentagencies,among others.
The ICC TB deliberates onthe economic,social,financial,technical,and institutionalaspectsand implicationsofM CPs,including policy issues raised by the ICC Secretariat;identifies priorityareas forforeign financingtoguide the BSP inthe evaluationand approvalofforeign loan proposals;referstothe ICC CabinetCommitteefordeliberationand review the recommended actions,policies,and issues concerning specificprojects;reviewthe fiscal, monetary, and BOP implications of M CPs, and formulate policies appropriate to the reviews ofprojects in general, and other matters relevant to the performance of the functions of the ICC. The NEDABoard isthe country'shighestsocialand economicdevelopmentplanning and policy coordinating body.TheBoardultimatelydecides the approvalofM CPs forimplementationand budgetaryallocationand support.Source:CountryStudy and ICC.
implemented several joint projects to develop personnel capacity at national level withW TO and otherinstitutions.These measures weretargeted to develop capacity buildingfordeveloping multilateralcollaboration and expertise.
Vietnam,onthe otherhand,isparticularlylacking ingood negotiators,legalexperts,andgood policy analystand makers.One majorbottleneck isthe practiceofforeign language.Publicserviceprofessionalsdealing with the internationaleconomicintegration mustbeprovided withgood knowledge inEnglish language,globalizationand internationaltrade.
Inthe case ofM ongolia,low wage and salary,and low socialguarantees cause the highlyskilled governmentofficialsto lose theirinterest.
IV.6M echanism and Fram ework ofTripartitePartnershipM ost of the countries also lack a proper and effective mechanism and framework forestablishing partnership among the publicsector,civilsociety and privatesector.In thecases ofBangladesh,China and M ongolia,the strategicplanning process has mostlybeentop-down,which takes little note ofthe preferences ofthe people atlarge.Though thecoordination ofthe executive and legislative branches in the Philippines isadministeredby an advisory council, still the process of coordination of the two branches becomesdysfunctional sometimes. Though rare, interaction between the government and civilsocieties in Bangladesh sometimes takes place in dialogues organized by privateorganizations. Though technical and research organizations are manned by properlytrained professionals,majordecisions regarding research organizations are taken notinthe meritofthe case butin the largerinterestofthe government.
In Vietnam, the government's policy formulation process usually does not include theacademiccircleand the business community.Inrareoccasions when academiccircles areconsulted,theiropinions arenotsufficientlyabsorbed.
IV.7Trade and Investm entRelated Adm inistrative SupportsProviding administrative and legal support to the foreign investors and promotingdomestic products to external markets is a fundamental area of concern for tradeliberalization.In mostcountries,ministryoftrade and foreign affairsareresponsibleforproviding any such administrative supportto the prospective investors.However,somecountries have specialgovernmentagency entrusted with such specifictasks.
Rigidbureaucracy and officialhierarchy preventdecision-making atlowerlevelsand isasignificant factor which adds to the cost of doing business in Bangladesh. W idespreadincidence ofsolicitation ofbribes sometimes discourage foreign investment.W ithin thismilieu,the BoardofInvestment(BOI)iscompetentlydealing withforeign investmentinBangladesh. BOI has laid down several legal provisions for investment protection andgovernance.The ExportPromotion Bureau (EPB)ofthe governmentalso works forthepromotion ofexportsboth in the publicand privatesectors.
In Vietnam, the M inistry of Trade takes care of Vietnam's multilateral, regional andbilateralnegotiating process and isresponsiblefornon-tariffbarriers,competition,anti-dumping policies and transparency.The M inistryofFinance inthe countryisresponsibleforcommitmentsand negotiations ontariffsand custom procedures;whereas the M inistryof Planning and Investment is responsible for negotiations on investment, governmentprocurement and services. In M ongolia, the Foreign Investment and Foreign Trade
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Agency (FIFTA) is the principal government agency in charge of promotion andfacilitation of foreign direct investment into M ongolia. FIFTA is responsible forcoordinating assistance to investors wishing to establish business enterprises, byproviding a local network facility that will enable them to comply with all registrationprocedures required in the formation of a business enterprise. In order to promoteinvestment, the government of the Philippines has set up three major institutions toreview, approve and implement projects, those are the Investment CoordinationCommittee(ICC),the Legislative Executive DevelopmentAdvisory Council(LEDAC),and the Development Budget Coordination Committee (DBCC). The Department ofTrade and Industry (DTI)leads the domesticinvestmentactivities,and the industry andtrade promotions of the government. For foreign trade, the DTI leads the ExportDevelopment Council (EDC), which oversees the implementation of the PhilippinesExport Development Plan (PEDP). The EDC is an institution that has the potential toenhance the country'scapacity to seize the opportunities thatmay resultfrom increasedtrade and the coming globalization.
The foregoing review ofthe sixsamplecountries revealsthatthe administrative capacityof those countries remains in general very weak, particularly given the attendantchallenges emanating from the needs to attractforeign investmentand promote foreigntrade.In anumberofcountries,new institutionaland policy initiatives wereundertakento provide one-stop serviceto foreign investorsand ICT facilityto governmentofficials.However, many of these governments are unable to realize the full potential of theseinitiatives due to entrenched structural problems of the public administration (i.e. non-competitive incentive package, arbitrary promotion system and inadequate HRDpolicies).W hileawellthoughtcivilservicereform needs to be urgently introduced,allthese countries willhave tofindways and means toring-fence theirinnovative initiativesto address the challenges ofglobalization.
V.REGIO NAL EXPERIENCES:TRANSPARENCY AND ACCOUNTABILITYCorruption isaconsiderableimpedimentto developmentand isespecially damaging tothe enhancement of state capacity to promote trade and investment. Transparency andaccountabilityarekey instrumentsinthe fightagainstcorruption.Allthe countries underreview have strived to introduce transparency and accountability into many aspects ofgovernmentand society.W hilesome actions have been proved successful,othersareyettobearfruitand stillmany morehave failed.Thissectionsummarizes the experiences ofthe six sample countries in implementing procedures for deepening transparency andaccountability in the governance structure of the state to effectively confront thechallenges ofglobalization.
V.1 Bureaucracy and Anti-corruption Laws Anti-corruption laws play an importantrolein ensuring transparency and accountabilityintrade and investmentactivities.Though anti-corruptionlaws areinplaceinmostofthecountries,they remain largely ineffective due to too much bureaucracy and red tapism.Often provisions inthe laws themselves actas barrierstothe effective implementationofthe laws.Additionally,measures have to now be taken notonly againstcorruption,butalso againstthe bureaucracy thatimpedes the hand ofthe law.
Bangladesh figures high in the list o the countries perceived to be corrupt which isprepared by the Transparency International.A Bureau ofAnti-Corruption(BAC)existedinBangladesh tocombathigher-levelcorruption,butitwas alargelyineffective body dueto interference from the politicalauthorities and reported corruption among itsofficials.Recently the governmenthas replaced the Bureau with an independentAnti-CorruptionCommission.However,allthe personnelofthe earlierBureau have been reappointed in
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the Commission. This has created a widespread apprehension about its effectiveness.Besides,priorpermissionfrom the Prime M inisterisrequired beforelodging acorruptioncase againstacabinetminister,and such permissionisrarelygranted.
Corruption is also a major challenge for the Chinese Government. In addition to thesystematic enforcement of Criminal Law, Audit Law and Administration SupervisionLaw, there are the State Procurators Offices which act as the state organs for legalsupervision.However,corruptionwithinthe bureaucracy has created disagreementsoverthe effectiveness ofgovernmentalsupervisionorgans which enforceanti-corruptionlaws.
Corruptionisalso pervasive inIndiaand according tothe Transparency International,themost corrupt sectors in descending order were found to be Police, Health, Power,Education,Rations,Land Administration,Judiciary,Taxation,Railways,and Telecom.ACentralVigilance Commission (CVC)has been established to investigatethe corruptionincidences in public services. However, the anti-corruption process is criticized for itsineffectiveness and slow process.
Also,in M ongolia,corruption and bribe has become realatalllevelsofstateinstitutionsand theirnegative impactsareincreasing.In such asituation,the StateGreatKhuralofM ongoliaadopted Anti-corruption Law inApril1996.Authorities ofimplementing anti-corruption activities are generally devolved to police, prosecuting organizations andcourts.Unfortunately,provisions ofthe law werenotimplemented absolutely.The reasonforthisisthatthe way offighting corruptionisnotcompletelydefined and authorityandobligations ofimplementing organizationarenotsetforthclearly.Inthe Philippines,TheDepartment of Justice and the Office of the Ombudsman are two agencies involved infightagainstcorruption.Since the historyofbothagencies islittered withcorruptionandineptness,thishas fostered skepticism and ridicule among the generalpublic as regardtheireffectiveness incurbing corruption.
The Philippines courtsarealso wellknown foritsslowness inlitigationand taking actionagainst corruption. Vietnam passed a number of ordinances and decrees to addresscorruption.However,the mostfeaturing initiative in Vietnam was the establishmentofPrime M inister's hotline to receive business complaints. Besides, in addition to theGeneralStateInspectorate,severalministries now have unitsfortackling grievances andcorruption.However,politicized and corruptbureaucracy isthe majorimpedimenttoanti-corruptionmovement.
V.2 Cross-Border Corruption and Enforcem entThough cross-bordertrafficisan elementary partoftrade,therearefew laws and fewerfacilities in most countries governing cross-border activities. Because most of thecountries do not yet have laws or legislations specific to cross-border corruption, andthose thatarein placesufferfrom ineffectualenforcement,opportunities on thisavenueofcorruptionarerampant.
Bangladesh isyettodevelopspecialized laws todealwithcross-bordercorruption.Intheabsence ofseparatelaws,Bangladesh extends itsAnti-M oney Laundering Actand Anti-corruption enactment to cover the cross-border citizens. The Chinese government,however,has been active in participating in internationalcross-bordercorruption efforts.Vietnam inthisregardisstillinthe process ofdrafting the Anti-M oney Laundering LegalDocument.
Inan efforttoincrease statecapacitytomeetthe needs ofglobalization,the countries needtoform and enforcestringentlaws specifictocross-bordercitizens and activities inordertocurbthe corruptionoccurring there.
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V.3 O ther Enforcem entM echanism sW hile in most cases the state governments have appointed high-level officials andinstitutions to curb corruption within the higherranks,the presence ofcorruption in theanti-corruption institutions themselves acts as a barrier to the effective functioning ofthese facilities. Political authorities are also able to exert great influence on these anti-corruption institutions. Enforcement mechanisms become ineffective because of theabsence of international accounting and auditing standards, dearth of qualifiedprofessionals to administer the mechanisms, difficulties of accessing information, andinaccuracy of data. Some countries have not yet adopted international auditing andaccounting standards, which renders their enforcement mechanisms ineffective in theglobalized trade environment.
Article 77 of the Bangladesh Constitution provides for the establishment of anOmbudsperson, who will be an independent high-level public official to receivecomplaintsagainstgovernmentagencies and officialsand tokeep watch overand controlpersons under his/her jurisdiction. However, lack of political will hindered Bangladeshfrom appointing an Ombudsperson.
China has the unique featurethatsupervisionorgans aresetinallgovernmentalagencies,state-owned enterprises,hospitals,even schools.The missionofthose supervisionorgansis to ensure that their workers are complying with laws and regulations. In M ongolia,authorities of implementing anti-corruption activities are generally devolved to police,prosecuting organizations and courtsbutimplementation ofthe provisions ofthe law isnotin any sense satisfactory.
India has taken empowerment of the public and e-governance as tools for curbingcorruption.An exampleofe-governance isthe Bhoomi(land)project,wherein the stateof Karnataka reduced the discretion of public officials by introducing provisions for
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INDIA:"E-sham e" Schem e ofCentralVigilance Com m ission
The CentralVigilance Commissionwas setupin1964as the apex organizationformaintaining probityinpubliclife.Inan efforttopropagatethe idea ofzerotolerance forcorruption,the CVC inIndiahas begun tosharewithcitizens a large amount of information related to corruption. The CVC website has published the names ofofficers from the elite administrative and revenue services against whom investigations have been ordered orpenalties imposed forcorruption.Newsweek magazine carried an articleaboutthiseffort,calling itE-shame.
In 1998, based on the directive of the Supreme Court, the Government converted the Central VigilanceCommission into a statutory body through an executive order. The newly independent commission has takenseveralinitiatives,particularlyinrecommending the use ofIT by banks and otherpublicinstitutions tobring intransparency.One ofthe initiatives was the creationofawebsite;and one ofthe firstactions (January2000)wastopublish the names ofseniorofficerswho werecharged withviolating rules ofconduct.
The display ofnames ofthe seniorofficialsofthe GovernmentofIndia-including the eliteIndian AdministrativeService(IAS)and Indian Policy Service(IPS)officers-onthe CVC websiteinJanuary2000caused amildfurorin the media. According to the CVC, the publication of these names was intended to meet a long-standingdemand ofthe mediaforinformationaboutseniorofficialsfacing corruptioncharges and inquires.However,thegeneralperceptionofthe publicwas thatthiskindofnegative publicityappeared onlyagainstmid-levelorjuniorofficials.
The CVC experimentmay embolden otheragencies like publicbanks topublish the names ofwillfuldefaulters.The Governor of the Reserve Bank of India has announced that the Reserve Bank is examining this issue.Similarly,therewerereportsthatthe DepartmentofCompany Affairswas thinking ofpublishing the names ofitsdefaulters.
Source:CVC.nic.inand W orldbank.org
recording requeststo alterland records upon saleorinheritance ofland online.Anothereffective enforcementmechanism isthe voicemechanism ofthe reportcardsystem whichcatches individuals involved in offering bribes and identifies the government agenciesinvolved.The problem iswelldepicted inVietnam'scurrentsituation,whereinternationalstandards are yet to be introduced and there is a shortage of qualified accountants.Therefore,the countryisunabletoensurethese qualities initstrade and investmentlawsand regulations.
The regionalexperiences suggestthatallthe countries have recognized thatcorruptionand lack oftransparency arestory impedimentsto effectparticipations in the process ofglobalization.W hileallthe countries have enacted alarge varietyofanti-corruptionlaws,in most cases they remain ineffective due to lack of political will as well as due toinadequate progress in other complementary measures (e.g. implementation of globalaccounting standards).
VI.REGIO NAL EXPERIENCES:LEGAL AND JUDICIAL FRAM EW ORKEstablishment of a credible legal and judicial framework conducive to trade andinvestmentsectordevelopmentisaprecondition foreffective economicliberalization.Acrediblejudicialframework requires reforming ofobsoletelaws,and enacting new lawsto face the new situation as well as strengthening of the judiciary, including fullyseparating itfrom the executive organ ofthe state.A strong legalsystem notonlyactsasan arbiterofdisputes between parties,italso serves toupholdthe ruleoflaw tothe needsofthe emerging marketeconomy.However,aproperlyadministered and fullyoperationalruleoflaw and justicesystem remains one ofthe majorchallenges forthe nationstates inthe faceofglobalization.
VI.1Enforcem entofRegulatory Fram ework Absence ofeffective regulatory framework fortrade and investmentisone ofthe majorobstacles in gaining from the globalization process formostofthe countries.Differentgroups with vested intereststake advantage oftrade and investmentrelated rules thatarenot well publicized or transparent in the concerned countries.Also, for most of thesecountries, unpredictability of tariff system and opaque non-tariff measures createdifficulties forbusiness enterprises and lack ofconfidence among the potentialinvestors.
Vietnam, in this connection, has a unique experience in enforcing the regulatoryframework. Parallel existence of two investment laws - one for the foreigners and theother for the domestic investors - has brought about discrimination in investmentactivities which isin contradiction with the conceptofW TO'sNationalTreatment.Thelegal framework is also weak in the fields of subsidies, anti-dumping and disputesettlementand competition policy.Lack ofregulations in these fields,especiallyin anti-dumping and subsidies,isserious and causes difficulties inensuring fairtrade.
Conversely,in China,some so-called anti-corruption laws arenotlaws,butpoliticalanddisciplinarynorms formulated directlyby the Chinese CommunistPartyorjointlyby theparty and governmental agencies. Thus, enforcement of regulatory framework is notapolitical.
In the case of Philippines, the government undertook several reform initiatives forimproving and strengthening the legaland regulatoryinfrastructurefordoing business inthe Philippines.M ore specifically,taxation,foreign exchange,and securities regulationwererevised supposedly to bring these closerto globalstandards.The reform initiativewas intended to remove the Philippines from the international watch list of countriesinvolved in money laundering. However, effectiveness of newly introduced laws andregulations remains largelydependenton honest-to-goodness politicalwill.
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VI.2Independence ofJudiciary Lack ofindependence ofthe judiciaryhindersdeepening ofgood governance and thus tothe economic development of a nation. In the reform process of judicial framework,effective independence of the judiciary constitute the major challenge for most of thecountries.In some countries independence ofthe judiciary isyetto emerge,whereas inothercountries itonlyexistsformally.
Article22 ofthe Bangladesh Constitution contains fundamentalprincipleofstatepolicytothe effectthat"the stateshallensurethe separationofthe judiciaryfrom the executiveorgans." Although there is the constitutional commitment for the separation of thejudiciary,no positive steps have been taken tilltoday forthe separation ofthe judiciaryfrom the administration. Though the Supreme Court, in its judgment, gave specificguidelines to implementthe separation ofthe judiciary from the executive organ ofthestate, the Government of Bangladesh, by taking permission from the Supreme Court, haspostponed the decisionofseparating the judiciaryfrom the executive organ forfourteen times.
Vietnam'slaws and judiciary practices basically do notgrantindependence to judiciaryagencies forthe lastfew years,the principleofindependence ofthe courtin judging hasbeen moreeffectively recognised in the country.Similarly,in the Constitution ofChinaindependence ofjudiciaryisstated as such thatthe people'scourtexercises judicialpowerindependently, in accordance with the provisions of the law, and is not subject tointerference by any administrative organ,publicorganization orindividual.In India,onthe other hand, interference from the politicians and bureaucracy in the selection,appointment,and transferofthe judges existswhich resultsin unwanted obstacles in theway offairjudgment.
VI.3Recruitm entand Training Process The countries varyinthe process ofappointmentofjudges.Butunwanted influence intheappointmentprocess and lack ofpropertraining withan emphasisonthe code ofethics isthe most common problem faced. In Bangladesh, the Public Service Commission, anexecutive unitofthe state,appointsthe judicialofficers,the judges ofthe Supreme Courtare appointed by the President in consultation with the Chief Justice.A code of ethicsexists.Training isgiven inthe JudicialAdministrationTraining Institute(JATI).The legaleducational institutes of Bangladesh do not however teach its graduates the ethics orprofessionalresponsibility.InVietnam,the judge isselected through the assigning systeminstead ofthe voting system.Thereisalack ofcode ofethics which can draw compliancefrom judges and lawyers.
On the otherhand,training ofthe judges in India takes place in quite a few state-levelinstitutes.However,itisrestricted mainlyto repetition ofsubjectstaughtin law collegeswith some emphasis on their practical relevance. Interference from the politicians andbureaucracy in the selection, appointment, and transfer of the judges exists and thisundermines the independence of the judiciary in India. The non-filling of the posts ofjudges in time is due to political interference and bureaucratic indifference at best andmeddling at worst. There are presently quite a few training institutes offering mainlyfoundation courses forM unsiffsand JudicialM agistrates and some refreshercourses forAdditionaland AssistantDistrictSessions Judges.W hereas,in the Philippines,generallack ofcourtresources and judges'training inthe new laws hindercourtproceedings,thusundermining outcomes.
On amorepositive side,the incentives forjudges inVietnam have been improved as thelawyers increasingly engage in courts. And many courts have not only opened to thepublic,butalso attracted the attention ofthe greatercivilsociety.Therefore,judgmentsarebecoming moreand moreprudentand unprejudiced.
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VI.4 JudicialPerform ance and Access to JusticeM ajorfactorsundermining the judicialperformance ofthe selected Asian countries arethe delay intrialand the accessibilityofthe poorinthe judiciary.One socio-economicallyembedded factorthathindersfairness oftrialingeneralisthe high costsofhiring lawyers.
In Bangladesh, access to the Government's support system for managing or attendinglegalsuitsby the relativelypoorersections ofthe populationisextremelylimited withthehigh cost involved in hiring lawyers.As such, the poor victims are often compelled toavoidlitigationortostopappealing orattending legalsuitsaftershort-runefforts.Again,inthe legalsystem ofthiscountry,delay inthe dispensationofjusticehas been achronicproblem.The mounting backlog ofcases in almostalltiersofthe judiciary isthe maincause ofdelay in disposalofcases.However,the CivilProcedureCode (CPC)has beenamended by way ofamicablesettlementbetween the parties toensurequick disposalandthe poor'saccess to justice.
China'slegalaidsystem emerged inthe mid-1990s,butyettohave aunified legalaidlawinthe statelevel,although many regulations have been adopted incentraland locallevel.It is aimed at empowering the poor to seek justice rather fighting against corruptiondirectly.
In India, a scheme of accreditation of NGOs for campaigns for legal literacy andawareness has been implemented with an aim to improve the accessibilityofthe poorinthe judicialsystem.Up to the year2000,about3.2 million persons have been estimatedto benefit from this legal aid, of which 0.7 million belong to the scheduled castes andtribes, 0.27 million are women, and 9,000 are children. Approximately 72,038 LokAdalats (People's Court) have also been organized throughout the country where 12millioncases have been amicablysettled.The process has been slow butitisan effectiveendeavortoimprove the coverage ofjudicialservices.
VI.5 Protection ofIntellectualProperty RightsEnhanced trade and investm ent dem ands well-fram ed property rights laws andmechanism toprotectpropertyrights.Addressing thisdemand has been amajorchallengeformostofthe countries.However,these countries differinthe stage ofdevelopmentforpropertyrightslaws and enforcementmechanisms.Bangladesh allows privateownershipand investmentinallsectors.Butthe mechanism toprotectand enforcepropertyrightsiscumbersome and time consuming.The mechanism isalso nottransparentand isapointofserious concern to the prospective investorsin thiscountry.
Thereareanumberofproperty rightslaws in China.The Trade M ark Law was enactedin1982withtwo amendmentsin1993and 2001,the PatentLaw was enacted in1984,andthe Copy RightLaw in1990.Nonetheless,majorchallenge forthe China toattractforeigninvestorsremains controlling ofthe outrightviolation ofcopyrights.
ForVietnam too,protectionofpropertyrightsremains one ofthe weakestfields.Thoughlegalregulation has been improved from itsprevious state,they arestillinsufficientandinconsistent. Law enforcement remains weak. The administrative management systemand officersinintellectualpropertyarenotqualified tocarryouttheirresponsibilities dueto the lack of professional capacity, morality and resources. The public awareness isgenerally limited due to their incomplete understanding, unfamiliarity with regard topersonalrightsofintellectualproperty.
In the Philippines,the governmentmade some progress in the protection ofintellectualproperty rights related to trade and investment activities. The Bureau of Patents,Trademarks and Technology Transferhas been revamped and renamed as the Intellectual
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Property Office (IPO). Notwithstanding government's endeavor to protect and enforcerules that govern the use and misuse of intellectual property, implementation processremained veryslow and frustrating.
Thereareseverallaws inM ongoliaregulating propertyissues,though the mainsourceisthe CivilLaw 2002.However,copyrightprotectioninM ongoliaisstillinan infantstagewithafragileenforcementsystem.
A brief analysis of the judicial and legal framework in the selected Asian countriesdemonstrates a process of evolution. A large number of enactments have come intoexistence in most of the countries to protect, among others, private property andintellectualpropertyrights.However,many ofthese legalinitiatives areineffective due toa deep lack of political will which is epitomized by the continued attachment of themiddle and lower judiciary to the executive organ of the state. On top of this, routinecorruption is reducing the poor's access to justice. Consequently, weak rule of law isinhibiting improved flow offoreign investmentand greaterexportopportunities.
VII.CO NCLUSIO NThe presentday globalization isessentiallymanifested through the compelling forces ofeconomic integration coupled with technological innovation. Setting the rules of thegames in the fiercely competitive world, common global norms, procedures, andstandards arebeing developed tofacilitateflow ofgoods,services,capitaland intellectualproperty.As a result, the national governments of the developing countries, includingthose in Asia, are under increasing pressure to cope with the new measures of globalgovernance. However,these countries,foravariety ofreasons including the quality oftheircapacity to dealwith the process ofglobalization,have diverse capacity to attracttrade, investment and foreign assistance. In many ways these countries also have tocompetein the world marketsforthe same range ofproducts.
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CHINA:Protection ofIntellectualPropertyRights
There are a number of property rights laws in China. The Trade M ark Law was enacted in 1982 with twoamendmentsin 1993 and 2001,the PatentLaw was enacted in 1984,and the CopyrightLaw in 1990.Anyonewho commitsany actofinfringementshall,depending onthe circumstances,bearcivilliabilityforsuch remediesas ceasing the infringement,eliminating itsilleffects,making apublicapology,forpaying damages,and may,inaddition,be subjected by the copyrightadministrationdepartmenttosuch administrative sanctions as confiscationofillegalincome and inflictionofafine.
A party that fails to perform his/her contractual obligations, or performs them in a manner, which is not inconformity with the agreed terms, shall bear civil liability in accordance with the relevant provisions of theGeneral Principles of the Civil Law. Any dispute over infringement of copyright may be settled throughmediation.The disputemay be broughtbeforeapeople'scourtifeitheron settlementcan be reached,orapartyhas retracted from the settlementreached through mediation.Ifany partyrefuses toacceptmediation,he may alsodirectlybring the disputebeforeapeople'scourt.
Any disputeoveracopyrightcontractmay be settled through mediation,orbe submitted toacopyrightarbitrationagency forarbitrationinaccordance withthe arbitrationclause ofthe contractorawritten arbitrationagreementsubsequently concluded.Parties concerned shallexecutethe arbitralaward.In case aparty failsto executetheaward,the otherpartymay applytoapeople'scourtforitsenforcement.The courtwherethe enforcementoftheaward issoughtshallhave the rightto refuse itsenforcement,ifthe courtfinds thatthe award isin violation ofthe law.W hen the courthas refused the enforcement,any party may bring the disputebeforeapeople'scourt.W herethereison arbitration clause in the contractand on arbitration agreementsubsequentlyconcluded either,parties concerned may directly bring the dispute before a people's court. Any party refusing to accept anadministrative sanction may bring the case before a people's court within three months from receive theadministrative sanctionpaper.
Source:CountryStudy.
As the developing countries are at varying levels of economic, social and politicaldevelopments with widely divergent geo-demographic attributes, the costs of theirnational capacity building are not of the same magnitude. M oreover, to address thecapacitybuilding needs,understanding the benchmarksituationinindividualcountries isnecessary.Consequently,customized reform initiatives are required foreach country tomeettheirspecificcapacitybuilding need.
The case studies which wereconducted in connection with presentexercise confirm thatmostofthe countries have already embarked onaprocess ofcapacitydevelopmentwhichisgeared to managing globalization.However,these nationalinitiatives,whilereflectingthe ground realities, are yet to be fully effective in many cases. Further, humandevelopment, as the generic goal of capacity building, was found to be inadequatelyarticulated from the perspective ofdemocratizing the opportunities to equitably benefitfrom globalization.
DiversityVs Uniform ityofInterventionsIn the race of globalization, the finishing line for all the countries is common, but thestarting lines are different for each country. Hence, varied benchmark situations haveconditioned the experience ofindividualcountries in prioritizing theircapacity buildingneeds.Forinstance,protection ofintellectualpropertyisquiteanew issue in M ongolia,whereas Bangladesh, India and Vietnam are saddled with copyright and trade markprotection laws. In contrast, China and the Philippines seriously lack an effectivemechanism forenforcementofthe existing laws.
Notwithstanding the fact that the countries are placed at various stages of globalintegration,genericcommonalities werefoundinterms oftheirexperiences inthe processofcapacitybuilding ofthe state.Forinstance,the competence levelofcivilbureaucracyhas been foundtobe wanting inmostofthese countries,resulting inalack ofleadershipand planning capacities toassess impactofglobalizationonincome and socialindicators.Though negotiating skills of the government as regard trade and investment variedcountrytocountry,politicalinfluence onhuman resourcemanagementand limited use ofe-governance had been found common in allthe samplecountries.
M ost of the sample Asian countries do not have an institutional mechanism forestablishing effective tripartite dialogue among the government, corporate and not-for-profitsector.Absence offullindependence ofthe judiciaryinthese countries also termedoutto be acommon gesture.
To sum up, while the case studies do project a mosaic of experience in the concernedcountries, there happens to be an extensive common agenda in the area of capacitybuilding forcapitalizing on globalization which allthe countries areaddressing.
Sequencing ofPolicyand InstitutionalReform s It has been established earlier that one of the major outcomes of acceleration ofglobalization relates to emergence ofa setofcommon globalstandards and procedureswhich range from macroeconomic framework, trade rules and treatment of FDI tocompliance of social clauses and environmental standards, and transparency in publicaffairs.
Thus, one observes a wide array of attempts to legislate new laws and rules, but theyremain largely ineffective in the absence of proper institutional structure. Only thosecountries which have undertaken institution building effort, along with rules making,have been moresuccessfulin achieving abalanced globalintegration.The emphasisoninstitutionalbuilding isalso relevantin case reforms undertaken in old institutions.
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However, one needs to point out that the role of policymakers acquire a specialsignificance in the transition economies.In thissetofcountries,one has to give policyguidance to define the space related to the privatesectorby ways defining the propertyrightsthrough new laws.
W ithin the policymaking process one observes the overwhelming dominance ofderegulation, liberalization and privatization related measures. However, for a moreinclusive global integration the countries have to undertake appropriate labor marketpolicy as wellas human resourcedevelopmentpolicy.Regrettably,these issues gotaboutno prominence in the policy package ofmostofthe countries.
Finally,inresponse toglobalsignals,mostofthe countries areengaged inthe process ofinstitutional reengineering. Experience suggests that while institutions dealing withexternalagentsneeds tocreated,butifthe capacityofthe supply-side related agencies arenotstrengthened otherinstitutions arenotgoing tofunction.Forexample,although manycountries have setup new facilityto process FDI,butin the absence ofaugmentation ofthe supplycapacityofelectricity,water,telephone lines,etc.
Thus, it appears sequencing of policy and institutional initiatives varies betweentransitionand tranditionallymarketeconomics.Infact,the sequencing withinpolicies andinstitutions isalso quitepertinent.
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VIETNAM :Rewards and Risks ofGlobalization
Globalization and internationaleconomicintegration have rendered severalimportantpositive impactsboth interms ofeconomicand socialaspects,which include:
l Speed upthe restructuring ofthe nationaleconomy towards higherefficiency and competitiveness,and the reform ofstate-owned enterprises withaview toimproving theireffectiveness and competitiveness.Therefore,they also contributed tothe reductionofthe state'sinefficientinvestments;
l Helped bring aboutimportantchanges inadjusting,supplementing Vietnam'strade and economiclaws and regulations inthe directionofbeing moreconsistentwiththe rules ofregionaland internationaleconomicinstitutions ofwhich Vietnam isamember;
l Expanded marketforthe consumptionofVietnamese goods and services,increased the numberoftrade partners,especiallymaintained high and sustainablegrowthofVietnam'strade inthe pastyears;
l Improved the investmentand business environmentinVietnam so as toincrease the attractionofcapitaland technology transferfrom abroad,whileencouraging significantlydomesticinvestments,helping economicgrowth;
l Buildupthe new business thinking inline withmarketeconomy,regionaland worldeconomicintegration,whiletraining and enhancing the capacityofofficers,and managersofenterprises and human resources;
l Laid the foundationforthorough nationalreform.
On the contrary,alotofdifficulties and challenges Vietnam has had toface,which include:l Lack ofuniform and common understanding and high determinationfrom centraltolocallevelsin
carrying outinternationaleconomicintegration.The guidance and coordinationremaininconsistent,and thereisnomasterintegrationplan.
l Slow domesticpreparationforintegrationprocess:economicrestructuring,amendmentsand completionofthe legalsystem,enterprises reform,institutionaland administrationreforms didnotmeetthe requirementsofinternationalintegration;the infrastructureisnotyetdeveloped.
l Lack ofresearch onvarious aspectsofeconomicintegrationand consultations among policy makers,researchersand business peopleinthe process ofmaking policies and building upofcommitmentsininternationaleconomicintegration.
Dem and-PullVs Supply-Driven CapacitySince demand-pull factors defining capacity building needs of the state are almost thesame forallcountries,supply-driven factorsacquire specialimportance in determiningeach country's competitive advantage. For instance, compliance of the EU's Rules ofOrigin and W TO's TRIPs Agreement are almost equally applicable for M ongolia andChina. However, the supply-side factor, i.e. the internal capacity to respond to thoseexogenous demands isnotsame forthese two countries.Capacitydisparityofindividualcountries also impacts on the integration process. Benefits of trade are not equallydistributed when these countries faceeach otherin abilateralormultilateralnegotiationtable,orinteractin regionalorglobaltrade bodies like ASEAN orW TO.Inthiscontext,tomake alevelplaying fieldforeach country,externalsupporting isrequired toenhancethe internalcapacityofindividualcountries.
Findings ofthe study demonstratethatinmostcases,the observed policy and institutionalreform initiatives were initiated internally within the individual countries. Externalinfluence, however, mostly occurred in the forms of setting standard by importingcountries and internationalbodies.Thus,the internalcapacity building need was largelyinfluenced by the previously set standards of international trade bodies and developedcountrymarkets.Forinstance,compliance ofEU'ssanitaryand phyto-sanitarymeasures,and itsrules oforigin has been the mandatory criteria forexporting countries.Besides,foreign investment into these countries largely depends on compliance of major W TOrules,such as M ost-Favored-Nationtreatment,NationalTreatmentand implementationoftrade-related intellectualpropertyrights.Infact,alarge partofChina'scapacitybuildingeffortemanates from itsW TO accessionprotocol.
Apartfrom these indirectinfluences,internationaltrade bodies also conducted targetedprograms in these countries to strengthen theircapacity in managing globalization.Forexample,M ongoliaimplemented severaljointprojectswith W TO to develop personnelcapacityatnationallevel.
In fine, if addressing the demand-driven capacity needs is a necessary condition,engagementin supply-side oriented capacitydevelopmentisthe sufficientconditions forimproving acountry'sabilityto benefitfrom the globalization process.
The H um an Developm entDim ensionDespite the fact that economic integration is the prime expression of addressing theglobalization process,the objective ofsuch process isto improve human welfare.Thus,while economic integration remains as the locus of globalization, human developmentappearsas the definitive focus ofthisprocess.Accordingly,whileglobalizationisputtingnew demands onstatecapacityeveryday,the majorchallenge remains howevertoensurethatthe benefitsofglobalization reach all,particularlythe poorand disadvantaged.
The state has a major role to play in making globalization work for common people.Sustainable development involves equal emphasis on the part of the government onhuman,economicand socialdevelopment.Transparency and accountabilityinthe publicsector and the reform of judicial and regulatory systems are necessary to protect theinterestsofthe poorand vulnerablegroups.Statecapacity in thiscontextisan essentialprovision to make use of opportunities provided by globalization and to protect andpromoteinterestsofvulnerablegroups inthe society.Though allthe countries undertookspecificcapacity building initiatives to getthe bestoutofthe globalization,the benefitsin most cases did not trickle down equally to common people. The reasons for aninequitable distribution of benefits of globalization however varied from country tocountry.
33
Though a number of targeted schemes were taken in several countries, no majorbreakthrough linking the excluded groups was visible. For instance, when Bangladeshbegan to respond to the globalization process with market liberalization, a number ofmeasures were taken including reduction of tariff rates and harmonization of tariffstructures.Consequently,amajorstructuraltransformationinthe business and productionwas observed. During the 1990s, Bangladesh experienced an accelerated growthperformance withan average 5percentplus GDP growthrate.Unfortunately,thisgrowthwas nottranslated into equitabledistribution ofincome and fasterreduction ofpoverty.The poverty alleviation rate at the national level did slow down discernibly, while asignificantworsening ofincome inequality atthe nationallevelwas observed.44 Thisimplies that notwithstanding the overall improvement of per capita income, a largesection of the population were unable to access better quality health and educationservices.
A common citizen is the end-user of state's globalization process. Therefore, beforesetting acapacitybuilding program,itisessentialforthe policymakerstounderstand theimpactofsuch initiative from the human developmentperspectives.
Scope for Replicating BestPracticesThe case studies do indicate thata numberofcountries have been able to successfullydevelop some interesting capacity building models. This includes tariff harmonizationand trade and investment promoting exertion of Bangladesh government (e.g. throughBOI and EPB); combating corruption and enforcement of copyright laws by Chinesegovernment;effective trade negotiationpracticeofIndiabothinbilateraland multilateralarbitrations; externally oriented adm inistrative and judicial reform initiatives ofM ongolia; B-O-T investment scheme of the Philippines; and Vietnam's administrativereform initiative through e-governance.
Itisan interesting question whetherthese modelscould be replicated in othercountries.The issue ofreplication becomes particularly challenging as these modelsareoutcomesof specific historical circumstances and unique experience of policy and institutionalreforms.Itisalso true often "champions" have spearheaded creation ofthese successfulinitiatives.Thus,itisdefinitelyadaunting task to regeneratesuch confluencialfactorinanothercountry.
However,allthese successfulcases do provide us with some generallessons which canbe usefulwhile undertaking capacity building initiatives with a view to address similarproblem emanating from globalizations. First, a combined effort is more effect thanstandalone exertion and thus a synergy is very important for state capacity building.Second, in the case of weak institutions, role of leaders with a critical mass is veryimportant.Infact,leadership'sessentialroleistocreateand expand the opportunities thatempowerpeopletosustainglobalizationchanges.Third,since thereisnoone bestway ofdevelopment,adaptation through trialand errorprocess isalways desirable.Fourth andfinally,ithas to be alldone through aparticipatory process which willessentially bringthe stakeholdersinthe policy planning,implementationand evaluationprocess.However,this experience may be further modified through exchange of views among the Asiancountries to generateamoreindigenized regionalmodel.
44Bhattacharya,D.2005.Stateofthe Bangladesh Economy inthe FiscalYear2004-2005:
Second Reading.June Dhaka:CPD.
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PartAGlobalization and the State:Hum an Developm entand
Capacity Building Needs-A Review ofAsian Country Experiences
PartBCountryStudies
PartCReporton the Follow-up ofThe W orld Sum m itfor
SocialDevelopm ent(W SSD):Stateand Globalization,andthe Challenges for H um an Developm ent
Bangkok 17-19 December.2003