Batam upgraded to 'Bonded Zone Plus'

Zakki P. Hakim, The Jakarta Post, Jakarta

The government is slated to amend its regulation on Batam within the next three weeks by upgrading the status of the island to a "Bonded Zone Plus" as a temporary solution to provide legal certainty for investors.

Minister of Trade Mari E. Pangestu said the government had opted to amend Presidential Decree No. 28/1992 on the Batam Bonded Zone as a way to provide incentives for investors, such as easier, faster processing of customs clearance.

"This is a way to guarantee legal certainty and create a climate conducive to luring investment," she said during Thursday's hearing with the House of Representatives' Commission VI on trade, industry and small and medium enterprises.

Mari explained that incentives would also be in the form of a zero import tariff, value-added tax (VAT) exemption on raw materials used for manufacturing export goods and the application of taxes in a non-retroactive way.

To attract more investors, the ministry would also delegate authority to local administrations to issue permits on importing second-hand capital goods, she said.

By delegating that authority they believe it will simplify and speed up the importing process, thus encouraging investors to relocate their plants on Batam.

The government's amendment was completed amid the ongoing debate in the House on whether a "full" or "enclave" Free Trade Zone (FTZ) concept should be applied on the island.

Commission VI chairwoman Khofifah Indar Parawansa questioned the effectiveness of amending the regulation. "A government regulation would not be strong enough in a case when a violation takes place, as compared to a law," she told reporters on the sidelines of the meeting.

A regulation can only impose administrative sanctions such as canceling a violator's permit, but not a fine or jail time, which a law can do.

Khofifah also questioned whether the government would be able to finish such amendments in the near future, considering the same administration had yet to issue a number of crucial regulations that it promised to enact last year.

She also reminded the legislators that the trade ministry had promised to push for the enactment of a regulation restraining hypermarket expansion in the country and a government regulation in lieu of law against smuggling.

"Both (regulations) are urgent, particularly the anti- smuggling one, but we have yet to see any progress on them. What would make the government regulation on the Batam bonded zone be different from the previous two," she said.

Responding to Khofifah's statement, Mari said she personally followed the progress of the amendment and she was sure that a Presidential Regulation would be in place within two or three weeks as a revision to the Presidential Decree No. 28/1982.

"Upgrading the Bonded Zone status to Bonded Zone Plus does not need a law, therefore a Presidential Regulation would be enough," the minister said.

The debate between the government and the House started during former President Megawati Soekarnoputri's term, in which the two sides failed to reach an agreement on the status of Batam as an FTZ.

Last September, the House endorsed a bill granting FTZ status to the whole of the island of Batam. The bill was opposed by the government.

Without the government's approval, the law cannot take effect, creating further uncertainty for investors on the island, which, since 1978 has been promoted as an industrial bonded zone to attract foreign investors.

Batam has become one of the most attractive manufacturing and industrial locations in Southeast Asia, hosting some 600 foreign companies and absorbing over US$3 billion in foreign investment.

As soon as Susilo Bambang Yudhoyono took office as President last October, Singapore, which is just a 45-minute ferry ride from Batam, expressed hope that the new government would quickly decide on the FTZ status of Batam. Otherwise, existing and potential investors would turn away to competing investment areas in China and Vietnam.