To protect Micro, Small, and Medium Enterprises (“MSME”) and domestic business actors, the Government revoked Minister of Trade Regulation Number 50 of 2020 on Provision on Business Licensing, Advertising, Development, and Supervision of Business Actors in Trading through Electronic Systems by enacting Minister of Trade Regulation Number 31 of 2023 on Business Licensing, Advertising, Development, and Supervision of Business Actors in Trading through Electronic Systems (“MoT Reg 31/2023”). Based on MoT Reg 31/2023, the Government officially prohibited the integration of e-commerce operations in social media.
Highlights of the Regulation
- Definition of Social Commerce and Marketplace under PPMSE Regulations
According to Article 2 Paragraph (3) of MoT Reg 31/2023, the Government has categorized Social Commerce and Marketplaces as a business model used by E-Commerce Organizers (Penyelenggara Perdagangan Melalui Sistem Elektronik/“PPMSE”). They are categorized alongside other business models i.e. Online Retail, Online Classified Advertisement, Price Comparison Platform, and Daily Deals.
Among other definitions of the business models under PPMSE, Article 1 of MoT Reg 31/2023 defines Social Commerce as “a social media organizer that provides certain features, menu, and/or facilities that enable Merchants to place offers for Goods and/or Services.” Marketplace is defined as “a provider of facilities in which part or entire of the transaction process is in an Electronic System in the form of a commercial website or an application as a forum for Merchants to be able to place offers for Goods and/or Services.”
- Restriction and Prohibition for Social Commerce
Based on Article 21 of MoT Reg 31/2023, Social Commerce, and also a marketplace, is not allowed to be a producer of goods under the regulations on the distribution of goods. Furthermore, Article 21 of MoT Reg 31/2023 also prohibits Social Commerce to facilitate payment transactions on its system. Therefore, such an integration of Social Commerce and Marketplace cannot be conducted in one platform.
- Minimum Price Restriction
Under Article 19 MoT Reg 31/2023, there is a minimum price for goods sold in an electronic system that are directly imported to Indonesia. The minimum price is determined at Freight on Board (FoB) USD 100 per unit (“Minimum Price for Import”).
Pursuant to Article 50 MoT Reg 31/2023, the new regulation contained arrangements related to the imposition of administrative sanctions, i.e., written reprimand, being prioritized to be monitored by the relevant authority, being included in the blacklist, temporary blockage, and/or revocation of business licenses. The imposition of the sanction is determined based on the violation conducted.
With these restrictions, it is hoped to prioritize the presence of MSMEs and local companies to control goods at this price level.
Opinion on Potential Opportunity and Issue Related to MoT Reg 31/2023
- Increasing Opportunity for Domestic Goods
The stipulation on Minimum Price for Import has limited the number of goods that had been previously imported and sold in the domestic market. While the demand from the market will not be affected by the MoT Reg 31/2023, the supply will be impacted. Therefore, it might increase the opportunity for business players to produce goods whose import has been restricted in Indonesia. Not only serve as an opportunity for domestic business players, but foreign business players might also start to consider an investment in Indonesia to capture this opportunity in the market.
- Oversight on Potential Violation of the Competition Law
One of the underlying issues behind the enactment of MoT Reg 31/2023 is the concern from local MSMEs regarding the fact that goods sold on certain platforms are much lower than the average price of the goods in the regular market. This raises the allegation of predatory pricing which contravenes the Law No. 5 of 1999 on the Prohibition of Monopolistic Practices and Unfair Business Competition and its amendment (“Competition Law”). To respond, the government enacted MoT Reg 31/2023 which among other things, regulates the Minimum Price for Import.
Although the issuance of MoT Reg 31/2023 has not been argued by many scholars and practitioners on Competition Law as the best action to prevent predatory pricing practices in the market, at the very least, it shows the government’s commitment to increasing the oversight given to the potential violation towards the Competition Law.
Consequently, such a commitment might result in a better business atmosphere in Indonesia. Nevertheless, business players and companies might start to pay more attention to their compliance with the Competition Law, such as towards the Regulation of The Business Competition Supervisory Commission No. 3 of 2023 on the Assessment of Mergers, Consolidations or Acquisitions of Shares and/or Assets Which May Result In Monopolistic Practices And/Or Unfair Business Competition.
It is important to note that by the enactment of MoT Reg 31/2023, Social Commerce business models can still advertise goods and/or services through online platforms such as social media. However, such a transaction cannot be done through the same platform. In addition, the new regulation of MoT has increased the opportunities for business in Indonesia. Lastly, MoT Reg 31/2023 This regulation also shows the government’s commitment to give more attention to overseeing the potential violation of the Competition Law in Indonesia, which may increase the quality of the business atmosphere in Indonesia while at the same time, requiring business players in Indonesia to pay more attention in its compliance to the Competition Law.
*The author deliver his appreciation to Mr. Muhammad Rifky Wicaksono, a Competition Law and Digital Economy Researcher at the University of Oxford, for the time he shared to have an informal discussion with the author on this topic. In addition, the author also acknowledge the contribution of our Apprentice, Ade Fiera Irawati in preparing this Legal Alert.