3 Islands in Riau Find That Not All Are Free in FTZs

The Jakarta Globe, Teguh Prasetyo & Dian Ariffahmi, April 3, 2009

Despite the designation of three Riau islands as free trade zones, the government will continue to control the import of primary commodities like sugar and rice into these areas, Diah Maulida, the director general of foreign trade at the Trade Ministry, said on Thursday.

“The flow of goods, especially staple foods, will remain controlled by the central government,” Diah said. “Designating the Batam, Bintan and Karimun islands as a free trade zone does not mean there will be an uncontrollable flow of goods to and from the islands.”

Collectively, the free trade zones are known as BBK.

Trade Minister Mari Pangestu officially handed over the authority to issue licenses to the free trade zone board on April 1.

Despite the fact that the FTZ board expects the three areas to boost exports significantly and generate an estimated 130,000 jobs, Indonesia for decades has hesitated to grant the areas full free trade status.

Batam was given limited status as far back as 1978, affording companies exemption from import duties and income and value-added taxes for export-oriented industries. However, since the start, state, regional and local governments have been ambivalent about granting full status over concerns that it would lead to an uncontrollable flow of goods and result in harm to local producers.

In October 2007, the government, in theory, passed legislation granting the three islands within shouting distance of Singapore full free trade status. But the official launch didn’t come until January and authorities are keeping a wary eye on it. As of that date, all goods flowing to and from the region are subject to Finance Ministry regulations on tax exemptions and customs and excise, Dian said

Licences to authorized exporters and importers will be strictly controlled by the BBK authority board, known as the Dewan Kawasan FTZ, chaired by Ismat Abdullah, the Riau Island governor. The board, she said, is evaluating the performance of exporters and importers.

“At least 118 companies have gotten licenses to export or import their goods to and from the BBK region,” she said.

The import-export companies must make master lists of the products they intend to trade.

“The master list is also a valuable source of reference for customs and excise offices to control the flow of goods to and from the region,” she said.

Import-export rights are to be granted in stages, with the first to be given to liquor and salts. Other commodities such as textiles, steel, plastics, agricultural machinery and some electronic products will be next.

Last week, the Indonesian Association of Forwarder and Expedition Companies, or Gafeksi, proposed that the FTZ authority include the Batam seaport as an international logistics hub for ports in Jakarta, Medan in North Sumatra, Surabaya and Bitung in North Sulawesi. Collectively, the move could save logistics operation costs of as much as Rp 85 trillion ($7.48 billion) per year, the association said.

The Batam seaport management is expecting an unnamed French investor to invest.