STATUS AND CHALLENGES OF TRADE FACILITATION AND SUPPLY CHAIN EFFICIENCY IMPROVEMENTS IN INDONESIA: ECONOMIC CORRIDORS FOR TRADE FACILITATION 1

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1 Release as received STATUS AND CHALLENGES OF TRADE FACILITATION AND SUPPLY CHAIN EFFICIENCY IMPROVEMENTS IN INDONESIA: ECONOMIC CORRIDORS FOR TRADE FACILITATION 1 Edy Putra Irawady Indonesia Asia-Pacific Trade Facilitation Forum 2011 I. Introduction: The importance of trade facilitation in Indonesia s overall development strategy. Trade facilitation programs are the main pillars of the Government of Indonesia s (GoI) overall development/trade strategy; they are also to fulfill her international commitments: 1. Indonesian Customs Law No.10/1995 (and subsequently amended by Law No.17/2006) explicitly refers to the facilitation aspects of the international trade. By 1997 the Customs began the implementation of EDI system. 2. Indonesia signed, among others: a) The ASEAN Agreement to Establish and Implement the ASEAN Single Window (ASW) in 2005 and the ASW Protocols in 2006 Indonesia National Single Window (INSW) by b) The ASEAN Integration Protocol for The Logistics Services Sector and the ASEAN Roadmap for The Integration of Logistics Services in 2007, effective c) The ASEAN Economic Community (AEC) Blueprint 2015 at 13th Summit Meeting in October AEC Blueprint (Para 18): ASEAN Single Window: The implementation of measures of simplifying, harmonizing and standardizing trade and customs, processes, procedures and the application of ICT in all areas related to trade facilitation would be paramount in the ultimate creation of an ASEAN Single Window. The ASEAN Single Window is an environment where ten National Single Windows of individual Member Countries operate and integrate. National Single Window enables a single submission of data and information, a single and synchronous processing of data and information and a single decision-making for customs clearance of cargo, which expedites the customs clearance, reduce transaction time and costs, and thus enhance trade efficiency and competitiveness. d) The decision of the Joint ASEAN Economic Ministers 23rd AFTA Council Meeting in Bangkok on 13 August 2009 for ASEAN Member States (AMS) to establish the ASEAN Trade Repository (ATR) under the ASEAN Trade Facilitation Work Program supported by the national trade repository (NTR) of each AMS. This opinions, figures and estimates set forth in this publication are the responsibility of the author and should not necessarily be considered as reflecting the views or carrying the endorsement of the United Nations. 1

2 3. GoI priority programs: a) President Instruction (PI) No. 3 Year 2006 concerning Policy Package on Improvement of Investment Climate lists establishment/development/implementation of the Indonesia NSW (INSW) as one of the national priority programs. - The INSW Blueprint was issued in August Law No.11/2008 on Electronic Transaction and Information and Presidential Regulation No.10/2008 on the Usage of Electronic Transaction and Information within the INSW were issued. b) PI No. 5 Year 2008 concerning Focus on Economic Programs list the establishment of the national logistics system. A. Specific areas/measures that have been prioritized to achieve trade facilitation and enhance supply chain efficiency With the implementation of the INSW system, the simplification of bordercrossing formalities and cargo releases are well underway, not only for trade with ASEAN countries but also for others. Further, the INSW system is also intended to facilitate inter-island/ports trades within the country. Reform of logistics services industry is already being initiated since 2008 through the currently prepared Blueprint of the National Logistics System. Transport infrastructure improvement is included in the six economic corridors programs under the Masterplan on the Acceleration and Expansion of Indonesia Economic Development (Percepatan dan Perluasan Pembangunan Ekonomi Indonesia) , the MP3EI, recently initiated through the Presidential Regulation No.32/2011 issued on 20 May B. The main on-going initiatives and projects aimed at facilitating trade and enhancing supply chain efficiency Initiatives: INSW, National Logistics System and MP3EI. On-going project: the establishment/development/implementation of the INSW system. INSW s 1st Stage system implementation was conducted in December 2007 at the port of Tanjung Priok/Jakarta, participated by 5 Government Agencies (GAs) and about 100 priority lanes importers and INSW Portal was established at By end of May 2010, 18 GAs are participating, and usage of import facilitation, either from ASEAN or other countries, through the INSW system was mandatory at four main international ports throughout Indonesia (Tanjung Priok/Jakarta, Tanjung Perak/Surabaya, Tanjung Emas/Semarang and Belawan/Medan), and the international airport of Soekarno- Hatta/Jakarta. Export facilitation was also mandatory at these ports at end of II. Economic Corridors for Trade Facilitation The ASEAN Connectivity Masterplan was endorsed by the Leaders in Ha Noi on 28 October Among the projects listed under the Masterplan are two economic corridors 2

3 in which Indonesia is involved: The Brunei Darussalam, Indonesia, Malaysia, and the Philippines-East ASEAN Growth Area (BIMP-EAGA) established in 1994 (West Kalimantan-Sarawak Interconnection (BIMP-EAGA: Indonesia); and the Indonesia, Malaysia and Thailand-Growth Triangle (IMT-GT) established in 1994 (Melaka-Pekan Baru Interconnection (IMT-GT: Indonesia). The involvement of Indonesia at this point of time, as with other AMS, is on the initiation stage, as stated by the Masterplan: The Master Plan is both a strategic document for achieving overall ASEAN Connectivity and a plan of action for immediate implementation for the period to connect ASEAN through enhanced physical infrastructure development (physical connectivity), effective institutions, mechanisms and processes (institutional connectivity) and empowered people (people-to-people connectivity). For instance, during the IMT-GT & BIMP-EAGA Special Senior Official s Preparatory Meeting in Putrajaya, Malaysia, on 8-9 September 2011, it was agreed that the ASEAN Development Bank (ADB) will initiate input gathering for the drafting of the IMT- GT Implementation Blueprint through consultations with participating AMS during November 2011, and ADB will conduct a workshop on 24 November 2011 in Manila. The Blueprint is expected to be adopted by end of 2011 and to be implemented in A. Economic corridor development is part of the overall national trade facilitation/logistics development/trade competitiveness strategy As mentioned previously, the MP3EI includes six economic corridors (ECs) development (Sumatera, Java, Kalimantan, Sulawesi, Bali-Nusa Tenggara and Papua- Kepulauan Maluku), in addition to the strengthening the national connectivity, human resources and application of applied technology. Related to the overall national trade facilitation/logistics development/trade competitiveness strategy, the MP3EI states: - Optimization the operation of National Single Window (NSW) system at international hubs ports and airports through the improvement of Information and Communication Technology service. This strategy was set up in order to implement Customs Advance Trade System (CATS) and NSW and also make connection between national supply chain with ASEAN and global supply chain at international ports. - Enhance efficient and productive operation of international ports and airports through the implementation of integrated management logistic system - Open the new international gateways (links) to foreign countries as an alternative to existing links - Develop international exchange at growth centers - Improve regional and global connectivity infrastructure to achieve ASEAN logistic integration on 2013, ASEAN market integration on 2015, and global market integration on B. Responsible institution for economic corridor development Presidential Regulation No.32/2011 states that the implementation of MP3EI will be coordinated by a Committee chaired by the President of Republic of Indonesia. This 3

4 committee will be responsible for the coordination, monitoring and evaluation of specific strategies and actions identified in the Masterplan. The executive director of the Committee is the Coordinating Minister for Economic Affairs (CMEA). C. Responsible institution for trade facilitation The PIs No.3/2006 and No.5/2008 states that CMEA is to coordinate and oversees the priority programs (including the development/implementation of INSW and National Logistics System), and the CMEA is to report to the President. CMEA is responsible for both the trade facilitations and the economic corridors programs. D. Mechanism to monitor corridor performance The MP3EI (p. 183) states: In order to ensure the implementation of various strategies of acceleration and expansion formulated under MP3EI, a special and dedicated committee will be formed. This committee will be chaired by the President of the Republic of Indonesia in order to enhance efficiency in coordinating, monitoring, evaluating, and taking strategic decisions to deal with various problems that arise during the implementation stage. This committee should comprise of competent stakeholders from the central government, local government and business. At the regional level, the Governor will play a key role in the implementation of regional development programs in each economic corridor. It is expected that Governors are able to establish and enhance the existing governor`s forums to create unity and harmony in inter or intra-economic corridors. This committee will be established under the Presidential Regulation/Decree. The Presidential Regulation No.32/2011 established this committee: Komite Percepatan dan Perluasan Pembangunan Ekonomi Indonesia (KP3EI). E. Status and challenges in the implementation of economic corridors in which Indonesia is involved As indicated previously, the involvement of Indonesia at this point of time in the implementation of economic corridors referred above: the BIMP-EAGA: Indonesia and Melaka-Pekan Baru Interconnection (IMT-GT: Indonesia). As with other AMS, is on the initiation stage, as the ASEAN Masterplan on Connectivity itself is both a strategic document for achieving overall ASEAN Connectivity and a plan of action for immediate implementation for the period Thus, there is yet evaluation/monitoring being established to measure the affordability and predictability movement of goods and related trade & transport documents. F. Lessons learned Major issues to be addressed, other than hard infrastructure improvement, for corridors to facilitate international trade: 1. Regulation Simplification (harmonization and rationalization). Further, to migrate from paper forms into data elements to optimize the use of ICT. 2. Sustained and systematic efforts to improve the human resources. 4

5 3. Coordination - ICT standards, business process. 4. Change management/governance Awareness and sense of ownership: from stovepipe to seamless horizontal and seamless across ministers/agencies structures before establishment of formal single agency. 5. Predictability - SOP, SLA Both trade facilitation and corridor approaches are long terms endeavors, thus deliveries of quick-wins to each stakeholders need to be sustained. While corridor approach is more holistic, its complexity, however, make sustained delivery of quick-wins harder. What should/could be done at the regional/sub-regional level to ensure economic corridors do contribute effectively to trade facilitation and development, includes: 1. To employ appropriate approach recognizing the particular need due to the archipelagic nature of a nation in which, for instance, the domestic inter-islands corridors development need to be established first. 2. The archipelagic nature of a country makes it more prone to problems caused by transnational crime, illegal immigration, environmental degradation and pollution, and other cross-border challenges. 3. To established sustained and systemized/standardized improvement of human resources. 4. To ensure cohesiveness and close collaboration among stakeholders or constituents, a communications strategy, aimed at achieving the objectives is envisaged for outreach and advocacy purposes. 5. Enhanced economic corridors should narrows development gaps among participating countries and leads to increased opportunities for greater investment, trade, growth and employment in these areas. As explained previously, the MP3EI includes the optimization of INSW and National Logistics System. The establishment of a UNNExT Advisory group on Economic Corridor development will certainly be worthwhile provided that it addresses the challenges and recommendation stipulates in this note. III. Way Forward and Key Recommendation A. Key actions needed at national level trade facilitation 1. Simplification (harmonization and rationalization) of existing regulations to be followed-up with migration from paper forms into data elements to optimize the use of ICT. 2. Sustained and systematic efforts to improve human resources. 3. Balancing the need for to facilitate trades and the capacity to address/deter problems caused by cross-border activities. 4. Sustained efforts to gather inputs from stakeholders. 5

6 While recognizing the tangible benefits of trade facilitation, the problems caused by transnational crime, illegal immigration, environmental degradation and pollution, and other cross-border challenges should be addressed properly. B. Actions needed at regional/international level 1. To ensure cohesiveness and close collaboration among stakeholders or constituents, a communications strategy, aimed at achieving the objectives is envisaged for outreach and advocacy purposes. 2. To address other cross-border challenges that comes with trade facilitation. 3. To recognize and establish approaches to accommodate the needs of archipelagic nature of a nation. C. Work programme recommendations for UNNExT 1. Simplification (harmonization and rationalization) of existing regulations to be followed-up with migration from paper forms into data elements to optimize the use of ICT. 2. To identify, recognize and establish approaches to accommodate the needs of archipelagic nature of a nation. 3. To put in place sustained and systematic efforts to improve human resources