Singapore welcomes review of Indonesian free trade zone

Singapore welcomes review of Indonesian free trade zone

The islands of Batam, Bintan and Karimun became a free trade zone in 2007, but the joint project between Singapore and Indonesia, has not lived up to its potential. Jakarta is considering moving administrative control of the area back to the capital.

SINGAPORE: Singapore has welcomed efforts by Indonesia to review the Batam, Bintan and Karimun (BBK) Free Trade Zone.

Jakarta is considering moving administrative control of the zone back to the capital. Meanwhile, the Economic Development Board told Channel NewsAsia that it welcomes the interest and the continued emphasis by the Indonesian central government to develop the area.

The islands of Batam, Bintan and Karimun became a free trade zone in 2007, with businesses enjoying customs and tax exemptions. However, the area, which is a joint project between Singapore and Indonesia, has not lived up to its potential.

Analysts said it has been bogged down by bureaucracy following decentralisation of powers in Indonesia.

“What happened in 1998 when the Suharto regime collapsed - the change in Indonesian politics at that time whereby the local government gains big power - this is regional autonomy,” said Mr Adri Wanto, Research Associate Fellow at S Rajaratnam School of International Studies. “This is the beginning of dual authorities in the Free Trade Zone area, and until now this problem is not resolved.”

An analyst from the Singapore Business Federation said regional autonomy created legal uncertainties for investors, so businesses welcome the idea to centralise the management of the Free Trade Zone.

“Central control would actually provide more what investors are looking for - certainty, policy certainties, no flip-flops, no going forward three steps, and coming back two steps,” said Mr Alan Tan, director of ASEAN and South Asia Global Business Division at the Singapore Business Federation. “So, there is more certainty, business assurance for our companies."

As businesses brace themselves for change, they remain upbeat about the potential of the Free Trade Zone.

"For BBK to stay relevant it has to continuously step up its value chain, improve productivity, and also maintain close economic linkages with neighbouring economies like Singapore,” said Mr Edmund Lai, head of marketing industrial parks at Gallant Venture. “So, in my opinion BBK FTZ can continue to be an important manufacturing supply chain to Singapore, especially in labour-intensive activities.”

Indonesia has also revised investment treaties with a number of countries to ensure they stay relevant to current economic situations.

Recently, Indonesia informed Singapore that it will discontinue the agreement on promotion and protection of investments after the agreement expires on Jun 20, 2016. Such an agreement gives assurance to foreign investors that their investments are adequately protected, and also helps in the settlement of investments disputes.

Singapore investments in Indonesia made before Jun 20, 2016, will continue to be covered by the Agreement for a further 10 years, till Jun 20, 2026.

Although the agreement will end, Singapore's Ministry of Trade and Industry (MTI) said the Republic's investments will remain covered by the regional treaties such as the ASEAN Comprehensive Investment Agreement.

MTI added that Singapore’s economic relations with Indonesia remain deep and multi-faceted, and that it will continue to look for ways to enhance bilateral economic cooperation between the two countries.

Source: CNA/xq