03 Mar 2021
New Omnibus Law Regulation More a Big Tweak than Big Bang for Indonesias Trade, Retail & Distribution Sectors

February 2021 saw the issuance of a raft of new Government Regulations to give effect to the reformist Job Creation Law (colloquially, the “Omnibus Law”), which entered into force on 2 November 2020. In this ABNR legal update, we discuss Government Regulation No. 29 of 2021 on the Trade Sector.

As the largest economy in Southeast Asia and with a rapidly growing middle class of eager new consumers, Indonesia’s enormous market of almost 275 million people is of importance, not just domestically or regionally, but also globally.

To overcome long-standing obstacles seen as hampering the trade sector’s growth in the past, such as excessive bureaucracy and impediments to competition, the Omnibus Law amended a number of provisions of the Trade Law. To give effect to these amendments, Government Regulation No. 29 of 2021 on the Trade Sector (the “Regulation”) was issued on 2 February 2021.

A long and complex piece of secondary legislation, the scope of the Regulation encompasses a wide range of issues and areas, including retail and distribution, the export and import trade, export development, standardization and many other areas besides. It also provides new guidelines that should be adhered to by the Ministry of Trade (the “Ministry”) when formulating and implementing policy, and conducting supervision and exercising control over the trade sector.

While the Regulation is primarily required to give effect to the Omnibus Law’s amendments to the Trade Law, the Government has also availed of the opportunity to harmonize and bring together the key norms, procedures, policies and rules related to trade regulation in a single implementing regulation. Given that these were previously spread across a diverse range of other regulations, this is something that will make the law more accessible and will thus benefit both legal practitioners and businesspeople alike.

As the changes brought about by the Regulation consist of a long series of tweaks rather than a dramatic “big bang,” in this ABNR Legal Update we present a general overview of the licensing and regulatory requirements as they now apply to the trade, retail and distribution sectors following issuance of the Regulation.

A. Indirect Distribution of Goods

Indirect distribution of goods must be accompanied by a written agreement, appointment or other transaction documentation. It may be undertaken through the following types of arrangement:

1. A distributor and its network (distributor, wholesaler, and retail)
2. An agent and its network (agent, wholesaler, and retail)
3. A franchise

Distributor:A distributor must have an NIB (Business Identification Number) and Distributor Business License issued by the Online Single Submission (OSS) system (Indonesia’s online one-stop shop for business licensing). The distributor must own or control a registered warehouse. In the event that a manufacturer appoints a sole distributor, the former is not permitted to appoint another distributor of the same products. According to Article 35(4), the appointment of a sole distributor by a manufacturer must be valid for at least for 5 years and must be extended at least once. While the duration of an appointment, or the number of times it may be extended, is not restricted, it should be at least for 10 years (5 years under the first appointment plus another 5-year extension). A distributor cannot distribute directly to consumers.

Agent: An agent must have an NIB and Agent Business License, and is paid on a commission basis by the appointing party. Should the manufacturer appoint a sole agent, it is not permitted to appoint another agent to distribute the same products. The agent cannot transfer rights over products owned or controlled by the manufacturer, supplier, or importer that appointed him.

Wholesaler: A wholesaler must have an NIB and Wholesaler Business License, and is prohibited from distributing goods directly to consumers.

Retailer:A retailer must have an NIB and Retailer Business License, and is prohibited from importing goods. Retailers distribute their wares through shops and other types of outlet. They may also sell online and engage in itinerant trading (where retailer goes from place to place selling its wares).

B. Direct Distribution of Goods

Direct distribution of goods may be conducted on a single-level or multi-level basis. A company engaged in direct goods distribution must have a Business License and meet the following criteria:

1. holds an exclusive distribution right to the products;
2. has adopted a marketing plan;
3. has adopted a code of conduct;
4. recruits direct sellers via networking; and
5. sells products directly to consumers via a marketing network developed directly by sellers.

Direct sellers are paid on a commission basis, and their aggregate commissions must not account for more than 60% of turnover.

C. Export and Import Trade

Reg. 29/2021 also covers the authority of the Ministry to supervise and control exports and imports. The Ministry is given authority to issue or adopt approvals, licenses, requirements, verifications, obligations, and prohibitions on export-import activities. The Ministry also has power to supervise and sanction those who violate policy and regulations relating to export-import activities.

In general, an exporter or importer must hold an NIB, and is prohibited from importing or exporting prohibited goods that relate to (i) public health, flora and fauna, and the environment; (ii) national security and the public interest, including social and cultural heritage and public morality; or (iii) protected wild plant or animal species.

For an importer, their NIB doubles up as a General Importer Identification Number (“API-U”) or Producer Importer Identification Number (“API-P”). To import certain types of goods, the importer must hold an additional license issued by the Ministry (depending on the circumstances, an Import Registration or Import Approval for Producer-Importers, that is, companies that import materials used in the manufacture of their own products). Imported products must be brand new, unless the Ministry explicitly approves the importation of second-hand items.

For an exporter to export certain types of goods, they must then have an Exporter Business License issued by the Ministry, which could be an Exporter Registration or Export Approval, depending on the types of goods.

D. Warehousing

The criteria for warehousing differ by the type of warehouse, as explained in Article 60 Reg.29/2021. A warehouse owner must have a Warehouse Registration Number (“TDG”) issued by the relevant governor or regent / mayor where the warehouse is located. The owner of a warehouse is obliged to record the ownership and the specifications (name, type, origin, purpose, etc.) of the goods stored in it. This is not necessary for a warehouse used temporarily by a logistics company. A TDG is not required for a warehouse in a bonded zone or one that is attached to a retail store or manufacturing plant.

E. Markets

Traditional Markets: Reg. 29/2021 provides that the central government, acting through local government, has an obligation to promote the establishment, development and management of traditional markets. The location of traditional markets should take into consideration the needs of local communities.

Malls and Modern Markets:This covers shops, malls, plazas, minimarkets, supermarkets, department stores, hypermarkets, and other self-service shops. Owners of these types of market must take into account the economic and social circumstances of local people, and of traditional markets. The owners of malls and modern markets must also engage with small and medium enterprises (SME) when sourcing supplies, and stock domestic products, to facilitate the growth of SMEs.

F. Domestic Standards

Products sold in Indonesia must comply with the mandatory technical requirements set out in the Indonesian National Standards (“SNI”), where applicable.

G. Use of Bahasa Indonesia on Labelling

Products sold on the domestic market must be labelled in Bahasa Indonesia. The domestic market extends to e-commerce and single- or multi-level distribution arrangements. The obligation must be complied with by manufacturers, importers, and product packagers in Indonesia. The label must state the name and origin of the product, identity of the manufacturer, and relevant advice and warnings on product usage. The label must also display the SNI number, where applicable.

ABNR Commentary

Given the expectations generated by the Government’s undoubted commitment to bureaucratic reform and improved ease of doing business, many will be disappointed upon reading the Regulation. The reality is that it changes very little of substance, and so the previous licensing and regulatory edifice remains more or less intact. There are many things that could have been done to make things better, such as reforming the rules governing warehouse receipts or improving the e-commerce regime, to give just some examples. However, the opportunity has now been missed.

On a more positive note, that the ground rules for doing business in the trade, retail and distribution sectors are now for the most part codified in a single regulation is a step forward that should make things easier for everyone. However, there is also a downside: Regulations issued prior to the Regulation remain in effect save where they are incompatible with it. Further, as always in the civil law’s system of “trickle down” legislation, a large number of new directives will need to be issued by the Trade Minister and his senior officials to put the Regulation fully into effect. Despite this, the fact that we now have an umbrella instrument to refer to is definitely an improvement on how things were before.

By partner Mr. Freddy Karyadi (fkaryadi@abnrlaw.com) and senior associate Ms. Christine Hakim (chakim@abnrlaw.com).

This ABNRNewsand its contents are intended solely to provide a general overview, for informational purposes, of selected recent developments in Indonesian law. They do not constitute legal advice and should not be relied upon as such. Accordingly, ABNR accepts no liability of any kind in respect of any statement, opinion, view, error, or omission that may be contained in this legal update. In all circumstances, you are strongly advised to consult a licensed Indonesian legal practitioner before taking any action that could adversely affect your rights and obligations under Indonesian law.