House looks set to pass FTZ law

Andi Haswidi, The Jakarta Post, Jakarta

Despite a potential conflict with existing regulations, most factions at the House of Representatives on Thursday approved an emergency law on a free trade zone (FTZ).

Eight of the 10 factions in the House, including the Golkar Party faction which holds the most seats in the body, decided to side with the government, paving the way for the planned establishment of the country's second FTZ area, covering Batam, Bintan and Karimun islands.

Sabang is Indonesia's first free trade zone.

Two other factions -- the Indonesian Democratic Party of Struggle (PDI-P) and the National Mandate Party (PAN) -- rejected the emergency law, saying it violated existing laws that state the establishment of a FTZ requires a law.

"In principle, we support any efforts for the country to improve its competitiveness. However, with this regulation, we see a potential conflict with other laws and this could bring serious legal consequences.

"That's why we rejected this," Zulkifli Hakim of PAN said Thursday evening.

A plenary meeting is scheduled for Oct. 10 to hear the House's official decision on the emergency regulation.

Even if it goes to a vote, the regulation would be expected to sail through, with the PDI-P and PAN boasting a total of just 162 seats in the 549-seat House.

The government introduced the emergency regulation, or regulation in lieu of law, in June to replace a 2000 law on FTZs.

At the time, the government said the country's economic development was in a "state of emergency" as a result of increased competition from neighboring countries.

The government hopes the regulation will allow it to declare an area an FTZ through a government regulation and not through a law, as demanded by the 2000 law on free trade zones.

In August, the government issued three government regulations to make the entire area of Batam island and parts of Bintan and Karimun islands an FTZ.

A free trade zone can eliminate all tariffs on imports, value added tax, luxury goods tax and excise duty.

Under Indonesian law, an emergency law must be approved by the House before it can take effect.

With Thursday's decision, the government will likely go ahead with its plan and push for the implementation of the FTZ in Batam, Bintan and Karimun islands no later than next January.

Trade Minister Mari Elka Pangestu has said there is an urgent need to give legal certainty to the status of the three islands, or else more companies could depart over competitiveness issues.

"Within the period of 2004 until 2006, a total of 26 companies closed their operations on the islands, causing a potential loss of $91.9 million and the firing of 23,140 workers," Mari said.

Thanks to the FTZ plan, the government said, there are already 20 companies willing to invest in the islands, with total investments estimated at $1.8 billion.

The government says the development of the FTZ is crucial for next year's economic growth, as it is expected to contribute greatly to total investment growth of 15.5 percent and total export growth of 12.7 percent targeted for 2008.

If things go as planned, the islands are also expected to provide about 350,000 new jobs.
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