U.S.-Singapore trade pact good news for Indonesia

Adianto P. Simamora, The Jakarta Post, Jakarta

The newly signed free trade pact between the United States and Singapore will also benefit Indonesia as it will increase investment on the industrial islands of Batam and Bintan, chairman of the Batam Industrial Development Authority (BIDA) Ismeth Abdullah says.

Ismeth anticipated more Singaporean manufacturing companies would relocate their operations to the two islands, which offer lower production costs.

"This (the trade pact) is good news for Indonesia because we can benefit," he told The Jakarta Post over the weekend.

He said that following the U.S.-Singapore free trade agreement, companies from other countries like South Korea, Japan and Taiwan had also expressed interest in investing in Batam and Bintan, which are only a short ferry ride from Singapore.

He added that with the growing manufacturing activities, exports from the two islands would also increase.

Singapore Prime Minister Goh Chok Tong and U.S. President George W. Bush last week signed a bilateral free trade agreement in Washington, kicking off sweeping trade liberalization in goods and services.

Full implementation of the deal is expected in 2004, once the U.S. Congress has approved it.

Under the deal, Singapore will be allowed to export high- technology products assembled on Bintan and Batam to the U.S. duty free.

The agreement to include high technology products from Bintan and Batam was reached last year on Bintan during a meeting between U.S. trade representative Robert Zoellick, Singapore trade minister George Yeo and Indonesian industry and trade minister Rini MS Soewandi.

At the meeting, Zoellick said some 100 items of information technology products from Bintan may enter the U.S. market via Singapore.

Ismeth said that Singaporean companies would be keen to open manufacturing operations on Batam and Bintan as the cost of manufacturing goods on the two islands was only about half the cost of that in Singapore.

The flow of investment into Batam and Bintan has shown a rising trend. Last year, Batam and Bintan attracted over US$600 million worth of investments with 80 new foreign companies coming in.

As of March 2003, there were 22 new foreign investment companies on Batam, injecting some $60 million worth of investment.

The export value of the islands' output last year was over $6.5 billion, or about 14 percent of the country's total exports in a year.

According to Ismeth, some 60 percent of the total 611 foreign investment companies operating on Batam were in the electronics sector.

While on Bintan, about half of the total 38 companies produce electronic goods.

Indonesia is now studying the possibility of entering into a free trade agreement with the U.S., which is the country's largest export market accounting for 16 percent of total export sales.

The U.S. has hopes that its trade pact with Singapore will become a model for future deals with other countries in the Southeast Asian region.