High-level joint steering committee to be headed by VP Jusuf Kalla, SM Goh

SINGAPORE and Indonesia will sign a Framework Agreement to establish Special Economic Zones (SEZ) on Batam and Bintan by the end of this month, said Minister of Foreign Affairs George Yeo yesterday.

'Basically we have settled the framework agreement which will be announced by President Susilo Bambang Yudhoyono and Prime Minister Lee Hsien Loong when they meet in Batam hopefully sometime later this month,' said Mr Yeo.

'The agreement is to help establish special economic zones in both Batam and Bintan, simplify the rules there and make them more attractive for investments,' he said.

The framework agreement will build upon earlier agreements signed between Singapore and Indonesia on Batam and Bintan with a view towards strengthening them and extending their scope. Mr Yeo noted that the framework agreement also has provisions for Singapore to help Indonesia in some other geographical locations.

'The objective is for Batam and Bintan to be demonstration models the way Suzhou has become a demonstration model in China.'

As part of the agreement, a high level joint steering committee will be established headed by Indonesian Vice-President Jusuf Kalla and Senior Minister Goh Chok Tong. The committee will also include the foreign and economic ministers from both sides.

'This will ensure that problems are resolved quickly and investors will feel confident that whatever difficulty they face will be addressed in an expeditious and effective manner,' Mr Yeo noted.

One of the first items the steering committee will look at is the reporting structure of the special economic zones given that under the Regional Autonomy Law, provincial governments have widespread powers to determine taxes.

According to Mr Yeo, the Indonesians are looking at a structure with clear reporting lines between the SEZ management, the provincial governor and the vice-president.

While details on the operational nature of the SEZs have yet to be worked out, Bintan, which has an industrial estate with clear boundaries, will be fully a free trade zone.

But in the case of Batam, because it has a diversity of businesses, Jakarta is considering following a simple ruled formula where capital goods and spare parts will be considered as being part of the free trade zone but consumer goods will be subjected to the normal taxes of Indonesia.

'Existing problems like labour disputes, the tax regime and custom enforcement will have to be addressed, and I hope they will be addressed early because these are the areas which investors complain much about,' said Mr Yeo

'By having better administration, simplifying the rules and better coordination between Indonesia and Singapore, I believe we can improve in a significant way the investment environment.'

Singapore, he added, will also help train Indonesian officials and help to establish a training institute on Batam the way it has already done so in Vietnam and Suzhou. In the case of labour disputes, the new investment law now before the DPR will be helpful.

'This new law will also allow for special labour courts to be established if necessary so that all parties can have a fair hearing and disputes can be resolved in a fair and expeditious way,' said Mr Yeo.

Such clear rules for Batam and Bintan, he said, will be helpful in removing some of the problems related to taxes, customs and industrial disputes and the issuance of visas.

'On both sides now, there is a good meeting of minds and I hope we can put into effect what we have agreed on quickly,' he said.

'We have helped China, we have helped Vietnam and we are prepared to help India and Russia,' he noted.

'Why should we not help our closest neighbour with whom we have a close relationship and in whose prosperity we have a strong vested interest?'