Wednesday, January 04, 2012

On bonded zones regulations

The Jakarta Post today (4/1) reported the new regulations on bonded zones. The Ministry of Finance Regulation PMK 147/2011 and PMK 143/2011 have ruled that, among all, 1) bonded zones of less than 10,000 square meters are to be (re-)located in industrial estates, 2) 75% of output should be exported (up from 50%), and 3) firms in bonded zones can do subcontract except for early checking, sorting, final packing or packaging.

The Post reported complaints from business community saying that the regulations are too strict and might backfire to the ongoing practices. They claimed that relocation would mean high costs as they have to re-invest in new plants, etc. I agree. Why doesn't the government just limit point one above to new firms and let the existing ones stay where they are? The businessmen also complain about obligation to export 75% of their outputs. I don't think this complaint is well justified. In fact, the main idea of bonded zones is to facilitate export. So, I actually think it has to be 100%. As for the third point above, I don't think it's necessary to restrict sub-contracting. The firms know what's the most economical way of producing. And they know better than the government. If the production sees it more profitable to sub-contract part of the manufacturing processes out to other firms, then let them do it. The government can just focus on monitoring the flow of goods, namely export.

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