House finally endorses FTZ emergency regulation

Andi Haswidi, The Jakarta Post, Jakarta

Plans for the development of the Batam, Bintan and Karimun free trade zones (FTZs) can now proceed as scheduled after the House of Representatives finally endorsed the government regulation in lieu of law (emergency regulation) amending the 2000 FTZ law at a plenary session Tuesday.

This means that the emergency regulation has now been converted into a law.

Under the emergency regulation, the government can designate an area as a FTZ by way of government regulation rather than having to have a special law passed by the House, as was the case in 2000 when it established Sabang island, Aceh, as a free trade zone.

"With the amendment, we now have a legal foundation for improving the investment climate, particularly on Batam, Bintan and Karimun islands -- something that has assumed the greatest urgency for us," Trade Minister Mari Elka Pangestu said in her speech to the House on Tuesday.

The government had argued that the country's attractiveness as a foreign investment destination was under serious threat from increased competition from neighboring countries, such as Malaysia and the Philippines, which have established their own free trade areas.

For that reason, the government issued the emergency regulation in June, which paved the way for the establishment of Batam, Bintan and Karimun islands in Riau Islands province as FTZs.

At least 20 companies would be interested in investing up to $1.8 billion in the islands if they were awarded FTZ status, the government had said, while warning that a failure to endorse the emergency regulation would mean a loss of investment and some 88,000 jobs.

After much debate during a number of working meetings, all of the factions in the House agreed to support the government's stance, except for Indonesian Democratic Party of Struggle (PDI-P) and the National Mandate Party (PAN).

PDI-P spokesperson Hasto Kristianto said that the investment crisis had been created by the government itself, which he claimed had deliberately postponed introducing bills for the designating of Batam, Bintan and Karimun as FTZs.

"What the government needs are strategic and focused policies, not shortcuts that could led to even greater problems," Hasto argued.

The problem, Hasto said, concerned consistency with other legislation and the Constitution, which clearly states that the boundaries and rights of regions must be provided for by law.

He also said that the substance of the emergency regulation contravened article 9 of the 2004 Local Government Law and article 31 of the 2007 Investment Law, which provided that the rules governing the operation of FTZs must be stipulated by law.

Based on the these reasons, Hasto said, his party would challenge the endorsement of the emergency regulation in the courts.

Unlike the PDI-P, PAN spokesperson Drajad Wibowo said that his party was still pondering the issue.

"Considering the potential for conflict with other laws, I think we would have a pretty strong case in the courts. But we're still thinking about it," Drajad said.

Speaking to reporters after the House plenary session, Justice and Human Rights Minister Andi Matalata said that even though a court challenge was likely, the emergency regulation had been endorsed by the House and now had the power of law.

Riau Islands governor, Ismeth Abdullah, warmly applauded the House decision, saying that a large number of firms were ready to invest in the new FTZs.

"There are plenty of positive signals already. We will prove to everyone that the development of Batam, Bintan and Karimun will deliver the goods as expected," he said.