Planned protectionist e-commerce rules may trigger retaliation: Experts

Industry experts have expressed support for the proposed changes but also noted that some parts could cause policy headaches in the future.

Deni Ghifari

Deni Ghifari

The Jakarta Post


Indonesian trade ministry is planning to regulate foreign merchants selling on domestic e-commerce platforms. A draft regulation stipulates that the merchants will be mandated to provide a copy of proof of business legality approved by official Indonesian representatives seated in the merchant’s country and submit information on their products’ origin.(Shutterstock/-)

February 6, 2023

JAKARTA – The Trade Ministry plans to change the rules on e-commerce in a move aimed at protecting local manufacturers of consumer goods against competition from abroad.

The Jakarta Post has got hold of a draft for a new regulation to amend Trade Ministry Regulation No. 50/2020 concerning the e-commerce industry, dated Dec. 19.

Industry experts asked about the draft generally expressed support for the proposed changes, but they also noted that some parts could cause policy headaches in the future if passed in the currently proposed form.

“If we could support [the production of] brooches but we still import them from China, this nation is so stupid – [as] if we couldn’t produce brooches [ourselves],” dean of the Law Faculty of the University of Indonesia Edmon Makarim said in support of the draft on Friday.

If the regulations were revised according to the draft obtained by the Post, foreign merchants selling on domestic e-commerce platforms would be mandated to provide a copy of proof of business legality approved by official Indonesian representatives seated in the merchant’s country and submit information on their products’ origin.

On top of that, the merchants would need to ensure that they use simple Indonesian in product or service descriptions, reveal their identity, provide proof of standard compliance and submit their bank account details to the marketplace.

Overall, Edmon agreed with the ministry’s plan to add permit layers, arguing that e-commerce was essentially export and import activity and therefore had to be in accord with trade laws.

Furthermore, he expressed understanding for the protectionist element, which he said was for the benefit of the national economy, since it would force the market to prioritize domestic trade.

“Goods going out and coming in must follow the conventional provisos, in this context export and import [rules], that are not to be violated,” said Edmon.

Article 15A of the draft would interfere strongly with pricing mechanisms by stating that imported goods sold on domestic e-commerce platforms must have a minimum freight-on-board (FOB) price of US$100 per unit.

Digital economy expert Bima Laga told the Post on Friday that the government needed to be more mindful of this, since it may impact the value of all goods unconditionally.

“Our international trade principle is to import goods we can’t produce domestically,” Bima said, suggesting that, instead of mandating a universal minimum price, the government apply it only to goods that cannot be produced domestically.

Bima explained that, if the idea of this revision was to protect micro, small and medium enterprises (MSMEs), then the restriction would be understandable if the government had conducted an assessment of goods MSMEs could supply.

He added that “it is reasonable to import” products that could not be procured within the country.

The government had to take into account that Indonesia’s trade partners may perceive this protectionist regulation as erecting trade barriers and may seek legal remedy through the World Trade Organization, Bima warned.

“Or they could retaliate [with the same measure] against our exporting MSMEs,” he added.

Firlie Ganinduto, vice chairman overseeing the communication and informatics field at the Indonesian Chamber of Commerce and Industry (Kadin), agreed with Bima, saying that import restrictions had to be in line with the demand and supply of goods within the domestic market.

Despite the intention to protect local MSMEs, Firlie opined that the proposed amendment may have a negative impact on the national economy because “it may trigger inflation due to massive supply changes in the market.”

“Implementing this regulation is easy, but if you dissect the details, this regulation may violate international trade agreements,” Firlie told the Post on Friday, adding that: “On the consumer side, of course, the availability of goods will dwindle and may cause shortages or even inflation.”

Firlie was not against restrictions through permits, especially with the intention of protecting local MSMEs.

However, he emphasized that the regulation had to comply with WTO rules and the government had to consider the risk of retaliation against Indonesian exporters.

E-commerce transactions totaled Rp 476.3 trillion ($31.7 billion) in 2022, according to Bank Indonesia, and the central bank expected that figure to shoot up another 12 percent this year, as reported by the Republika daily on Jan. 19.

According to a press statement released on Dec. 28, Trade Minister Zulkifli Hasan said the new rules would protect the domestic market against unhealthy trading practices.

“Through this [revision], the government ensures a fair and beneficial [online retail] playing field, especially for [MSMEs],” said Zulkifli.

Echoing that justification, Edmon argued that every country was protective about its internal market since self-sufficiency was always the main goal when it came to trade with the idea of “kickstarting the engine of the national economy.”

Edmon argued that a nation had to think about national sovereignty in this context and not rely heavily on imported products.

“Remember that we were colonized through trade by the VOC [United East India Company]; that happened because trade is a very strategic sector,” Edmon told the Post.

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