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Analysis: Singapore-New Zealand: Human reality hidden in new free trade deal

New Zealand Herald, Auckland

Dialogue: Human reality hidden in new free trade deal

6 September 2000

By Aziz Choudry

The Singapore and New Zealand Governments are selling their new free trade and investment agreement as an abstraction, unlinked to people’s lives. On Batam, an Indonesian territory 40 minutes from Singapore by boat, I saw the human realities that lie behind the deal.

This agreement has already been dubbed a Trojan Horse for a possible new trade bloc covering South-east Asia, Australia and New Zealand. Trade Minister Jim Sutton wants to assure us that proposed rules of origin for goods covered by the deal will prevent Singapore being used as a new backdoor to products from low-wage Asian factories.

A briefing paper states: "The rules of origin applied to goods traded between New Zealand and Singapore recognise the economic circumstances of Singapore as a city state."

Another Trojan Horse lurks in these special "economic circumstances." "Made in Singapore" can mean as little as 40 per cent of the product’s value comes from Singapore. The last process of manufacture must be performed in Singapore and cannot be minimal (such as packaging). But it might simply involve pressing and labelling garments made overseas. This means competition not only between New Zealand and Singaporean workers but also low-waged Indonesians on Batam.

In 1968 Batam, in Indonesia’s Riau province, was nearly all rainforest, with 3000 inhabitants. A bonded free trade zone since 1978, it now boasts 13 industrial parks and about 400,000 people, predominantly migrant factory workers. The Suharto regime invited foreign investors, mostly from Singapore, Taiwan and Japan, to build electronic and other middle-size factories, resorts and golf courses there.

Transnational corporations based in Singapore and Singaporean companies have relocated to Batam, attracted by a large pool of cheap, trainable labour and available land. Singapore’s former Ambassador to Indonesia stated that the intention was "a free flow of goods, services and investments between Singapore and Batam so that the industries which were located in Batam will support industries in the region to be more competitive for export to Europe, the United States and Japan."

Exports from Batam grew to $NZ3 billion by 1994. By 1998, 350 foreign companies operated in Batam and private investment surpassed $15 billion. Singapore remains the largest investor there - of the 35 companies which set up in the first half of 1998, 10 were Singaporean.

Batam is the apex for the Singapore-Johor (Malaysia)-Riau economic growth triangle, mooted in 1989 by Singapore Prime Minister Goh. This has enabled relocation of industries with conventional technology which had lost their competitive advantage in the world market while they were located in Singapore.

With scarce land and higher wages, Singapore has used Batam and Johor to expand its economy regionally, strengthen its economic advantage and enjoy lower costs. Investors on Batam are exempt from income tax and VAT for up to five years. Foreigners may own 100 per cent of their businesses. Imports are duty-free, including raw materials, machinery, other equipment and spare parts. There are no stamp duties on the import of capital goods.

Jakarta has spent many millions on developing Batam’s essential infrastructure. Singaporean capital has developed investment parks and a project aimed at supplying water to Singapore. I visited the showpiece BatamIndo Industrial Estate, home to 80 companies, a joint venture between a consortium of Singaporean companies (led by a Singapore Government-linked company, Singapore Technologies, which controls Computerland in New Zealand) and a consortium of Indonesian investors.

I jotted names down: Oki, National-Panasonic, Philips, Matsushita, Viking, Kyocera, Sony Chemicals, Epson, Ciba Vision, Singacom, Novartis, Shimano, Sanipak ... Electronic and computer-related industries dominate on Batam, including factories assembling computer components and parts, audio and video equipment and auto parts.

After assembly, parts mostly return to Singapore to be included in product marketed from there and exported as "made in Singapore." Significantly, given the proposed removal of textiles, clothing and footwear tariffs under the Singapore free trade agreement, other factories manufacture leather goods, shoes, garments, and toys.

Visitors to Batam could be distracted by the shiny factories and good roads and miss the human costs of this model of economic integration. But survival is tough for workers drawn from across Indonesia. There are no unions and few family or community support networks. Ethnic clashes have left dozens dead, scores seriously hurt and hundreds fleeing their homes.

Some 2000 troops were sent last July to buttress local security forces. Houses, cars and motorcycles have been torched. Bataks, originally from North Sumatra, have clashed with migrants from Flores over control of local transport routes. National and local authorities have tried to play down the conflict.

The minimum monthly wage for factory workers is 425,000 rupiah ($118). Virtually all food is imported. Prices tend to be higher than Jakarta. More than 60,000 workers work in BatamIndo. Many live in company dormitories which, like the factories, are ringed by high fences, barbed wire and security guards. Religious and ethnic tension is common.

Illegal shanty towns contrast with the Batam business elite’s gleaming mansions. Meanwhile, in karaoke bars and resorts, legions of sex workers wait for mostly Singaporean clients.

The speech from the throne last year said "legitimate issues of labour standards ... need to be integrated better with trade agreements." When Singapore rejected such demands, our Government quickly acquiesced. When "free trade" itself leads to human misery and exploitation such as that in Batam, it is hardly surprising that many trade unions and peoples’ movements smell hypocrisy in official calls to link free trade and investment agreements with such standards.

While free trade and investment remains the ultimate goal, how can we rely on any government to respect workers’ rights when the intention is clearly to trade such concerns away at the drop of a hat?

Singapore has huge financial, political and economic investments in Batam and the growth triangle. The international competitiveness of much of its industry depends on these production mechanisms. Are we to seriously believe that any of this will change for a trade agreement with New Zealand?

*Aziz Choudry, of Gatt Watchdog, visited Indonesia in August.