Singapore trade offer

Singapore's offer to include information technology (IT) products from Indonesian Bintan and Batam islands in its bilateral free-trade pact with the United States is a smart, well-thought move that will greatly help Indonesia and improve the spirit of ASEAN cooperation.

The gesture will go a long way to reduce suspicions among Singapore's fellow members in the ASEAN free trade area about its aggressive move to open bilateral free-trade arrangements with countries outside the region such as the U.S., Australia and New Zealand.

The U.S. approval of the initiative to qualify IT products manufactured on the two Indonesian islands for duty-free exports from Singapore to the American market under a provision called an integrated sourcing initiative will also be well-noted by the Indonesian government as a gesture of goodwill on the part of the U.S. government.

This trade offer, we think, will have a much more significant impact on Indonesia's economy than the soft loan pledged annually by the American government under the Consultative Group on Indonesia (CGI) donor consortium, especially if the facility can subsequently be extended to products from other islands in the Riau archipelago.

Most important is the facility will make the Indonesian islands near Singapore much more attractive to foreign investors intending to tap the ASEAN and American market.

Access to the American market will allow foreign investors to harness Batam's and Bintan's specific assets such as a strategic location near Singapore, low-cost labor, good infrastructure and fiscal incentives to produce highly competitive exports.

In fact, the Singapore-U.S. free-trade arrangement, which is scheduled to be signed this year will be much more effective than the ASEAN free trade area (AFTA) in wooing more investors to the Riau archipelago. Officially launched earlier this year, AFTA has yet to remove non-tariff barriers to facilitate really smooth trading between member countries. Production standards have yet to be standardized and transportation, communications and customs procedures in ASEAN countries have yet to be made more efficient.

It is precisely because of its impatience with the slow pace of trade facilitation efforts within ASEAN that Singapore has moved aggressively to seek bilateral free-trade agreements with other big trading countries.

Indonesia's Minister of Industry and Trade Rini Soewandi who joined her Singapore counterpart George Yeo and U.S. Trade Representative Robert Zoellick at a meeting in Bintan last Saturday, is obviously excited about the offer.

Rini should, however, act immediately to gain the Cabinet's full support for the project because the offer could be wasted if the two islands, as the pilot project for the Singapore-U.S. integrated sourcing initiative, are not made good hosts for high capital IT factories.

Beside the standard requirements for a conducive investment climate such as efficient licensing procedures, adequate infrastructure such as port-handling facilities, trained labor, the regulatory and bureaucratic environments on the two islands should be made more conducive.

Creating an efficient regulatory and bureaucratic environment is vital, especially for export-oriented industries, which usually depend largely on imported inputs, as is the smooth implementation of the integrated sourcing initiative within the Singapore-U.S. free trade arrangement.

Inefficient port handling, corrupt immigration, tax and customs service, which remain major sources of complaints among the business community in Indonesia, are the main barriers to global sourcing.

All these requirements are far beyond the authority of the Ministry of Industry and Trade to handle. Therefore, it is most imperative that the Cabinet throw its full support behind the trade offer.