Goodbye Yellow Basket! Indonesia's restriction on TikTok Shop: A Legal Analysis of Regulatory Frame
Written by : Bryan Gadrian Tjahjadi, Katrina Martin, and Raoul Pandeirot
The emergence of TikTok Shop as a transaction medium for buying and selling goods has resulted in a decline in the competitiveness of Micro, Small, and Medium Enterprises (MSMEs) and traditional markets in Indonesia. One fundamental change TikTok Shop brought about is that producers can now directly sell their goods and services to consumers without intermediaries like distributors. While this might seem like an opportunity for efficiency and cost savings, it has also led to a concerning trend of predatory pricing, where some producers are selling their products at a loss by applying big discounts on their products. This predatory pricing strategy is often sustained by producers with substantial capital.
Furthermore, the frequent use of social media apps, combined with the affordability and wide variety of cheap products available at the tap of a screen on TikTok Shop, has won the hearts (and wallets) of Indonesian consumers, setting it apart from MSMEs. Therefore, the Indonesian government is taking steps to protect MSMEs and traditional markets by creating a new legal basis that limits Social-Commerce such as TikTok only as a medium for promoting goods, services, and entertainment.
As of September 26, the Ministry of Trade has issued the Minister of Trade Regulation (Permendag) Number 31 of 2023 concerning Business Licensing, Advertising, Guidance, and Supervision of Business Actors in Trading Through Electronic Systems as a form of revision or refinement of Minister of Trade Regulation 50/2020. Minister of Trade Regulation Number 31 of 2023 added 7 new things:
Defining business models for Electronic Trading Organizers (PPMSE) such as marketplaces and social commerce, to facilitate guidance and supervision from the government
Setting a minimum price of 100 US dollars per unit for finished goods from overseas that are directly sold by traders to Indonesia via cross-border e-commerce platforms.
Special conditions that must be met by foreign traders in the domestic marketplace such as submission of proof of business legality from the country of origin, compliance with standards (mandatory SNI) and halal license, inclusion of Indonesian language labels on products originating abroad, and information on the origin of goods sent.
Marketplaces and social commerce are prohibited from acting as producers
Electronic Trading Organizers (PPMSE) and affiliates are prohibited from controlling public data and are obliged to ensure that there is no misuse of user data control
Social commerce is only to facilitate the promotion of goods or services and is prohibited from providing payment transactions
In an interview on October 10, 2023, at ITC Cempaka Mas in Central Jakarta, Minister of Trade Zulkifli Hasan disclosed that the government is currently crafting a "positive list" to specify which foreign goods can comply with cross-border rules. This list will specify which foreign goods are allowed to follow cross-border rules. Indonesia's recent regulatory measures must reflect its commitment to international trade agreements, particularly the General Agreement on Tariffs and Trade (GATT) and the General Agreement on Trade in Services (GATS). Under Article III of GATT, which upholds the principle of "national treatment," imported products must receive equitable treatment compared to domestically produced ones upon entering the domestic market. In the context of the TikTok restriction, this principle necessitates that Indonesia enforce its regulations without discrimination, ensuring that imported e-commerce products that are sold in TikTok Shop are not unfairly treated in comparison to domestic products.
In addition, GATS encompasses various aspects of trade in services, including domestic regulation, market access, and national treatment. Pertaining to the TikTok restriction, several GATS articles come into play:
Article XVI of GATS emphasizes that Indonesia's measures should not unjustly hinder market access, demanding transparency and non-discrimination in trade restrictions.
Article XVII of GATS reinforces the principle of national treatment in services trade, ensuring that foreign service providers, such as TikTok, receive equitable treatment compared to domestic counterparts.
Indonesia’s new regulations include requirements for foreign traders, such as proof of business legality, standards compliance, and Indonesian language labeling, to ensure product safety and consumer protection without discrimination against foreign traders. Additionally, the prohibition on marketplaces acting as producers should not unfairly disadvantage foreign e-commerce platforms. The imposition of a minimum price for imported goods may be viewed as a trade barrier and could potentially face challenges under GATT if it leads to discriminatory treatment. Lastly, the regulations' focus on user data control and data protection aligns with international privacy principles when applied consistently.
While many countries have various regulations on the subject of protecting the domestic economy from the dangers of foreign goods, Indonesia has set a precedent in placing legal policies on limiting social commerce to protect the economic strength and livelihood of smaller businesses. When looking internationally, Western countries such as the US have regulations and trade policies that influence their imports and production. President Trump's tariffs, under Sections 232 and 301, played a role, causing a 17.2% drop in steel and 19% in aluminium imports in 2021. However, various factors, including the pandemic, rising energy prices, geopolitical events, and sustainability concerns, have also influenced these industries. Prices rose in 2021, but instability persisted due to these factors.
Similarly back in 2010, the European Union went head-to-head with Google, claiming that Google was showing favouritism, particularly with its own shopping service in search results. This led to a massive €2.42 billion fine in 2017. Essentially, the EU wanted to make sure the digital competition remained fair and square. Indonesia's response, with measures such as setting minimum prices and introducing a "positive list" for foreign products, is akin to the European Union's actions in imposing fines on Google to maintain a level playing field in the digital marketplace. These cases show the global challenge of regulating and ensuring fair competition in the digital age, as tech platforms can disrupt traditional markets and impact local businesses.
However, the exceptions under Article 20 of the GATT and the GATS do not apply to the Indonesian case concerning TikTok Shop. Indonesia's regulatory actions in the e-commerce sector are aimed at addressing domestic concerns related to market competitiveness and consumer protection, rather than the specific exceptions outlined in Article 20. As a result, Indonesia's regulatory actions in the e-commerce sector, prompted by the rapid growth of TikTok Shop, are not in accordance with international trade law as they hinder global market access thereby portraying a sense of discrimination between online platforms and MSMEs. To address the challenges brought about by the rapid growth of TikTok Shop and ensure compliance with international trade agreements, Indonesia should initiate a comprehensive review of its recent regulations through open discussions with various stakeholders, including small businesses and online platforms, to ensure fairness and alignment with global trade norms while striking a balance between promoting economic growth, safeguarding local businesses, and upholding international trade commitments.
Article III National Treatment on Internal Taxation and Regulation, www.wto.org/english/res_e/booksp_e/gatt_ai_e/art3_e.pdf. Accessed 5 Oct. 2023.
ARTICLE XVII OF THE GENERAL AGREEMENT ON TRADE IN SERVICES (National Treatment), https://www.wto.org/english/res_e/publications_e/ai17_e/gats_art17_oth.pdf.
Accessed 5 Oct.2023.
ARTICLE XVII OF THE GENERAL AGREEMENT ON TRADE IN SERVICES (Market Access), https://www.wto.org/english/res_e/publications_e/ai17_e/gats_art16_oth.pdf Accessed 5 Oct.2023.
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