28 Jan 2013
NEW MINISTER OF TRADE REGULATION ON FRANCHISING

The Minister of Trade issued his Regulation No. 53/M-DAG/PER/8/2012 concerning Franchise Management (“Regulation No. 53”), revoking at the same time the previous Minister of Trade Regulation No. 31/M-DAG/PER/8/2008 (“Regulation No. 31”) on the same subject matter. The new regulation aims at increasing franchising business partnership between franchisors and Indonesian small and medium scale business enterprises and promoting the use of locally made products.

We highlight the following new provisions on franchise management:

1.Compliance with pertinent laws and regulations (article 6)
In the implementation of the franchise agreement, both the franchisee and the franchisor are obliged to comply with all of the laws and regulations that relate to their business activities, among others pertaining to consumer protection, health, education, the environment, spatial planning, labor and intellectual property.

2.No controlling relationship between Franchisee and Franchisor (article 7)
A franchisor may not appoint a business enterprise with whom it has a controlling relationship, as its franchisee.

3.Clean break requirement for unilateral termination of the franchise agreement by the franchisor (article 8)
If the franchise agreement is unilaterally terminated by the franchisor, before the franchisor can appoint a new franchisee for the same territory a mutual settlement agreement between the franchisor and the franchisee or a court stipulation with permanent legal power is required.

4.Franchise Logo (article 18)
Franchisors and franchisees which hold a STPW (Franchise Registration Certificate) must use a Franchise Logo. The specification and manner of usage of this Franchise Logo will be regulated in a separate ministerial regulation.

5.Minimum 80 % local products/services requirement (article 19)
Franchisors and franchisees are obliged to use at least 80% local products or services in their raw material, equipment and merchandise. Exemption from this requirement may be made in certain circumstances upon the recommendation of an evaluation team.

6.Partnership requirement with local small and medium scale enterprises (SME) (article 20)
Franchisors are required to work together with SMEs which meet their requirements by appointing them as their franchisee or supplier of goods and/or services.

7.Limited sale of supporting items (article 21)
Franchisors and franchisees may, in certain circumstances, sell goods that support its main business; the sale of these goods may not exceed 10% of their total sale.

Regulation No. 53 has been effective since 24 August, 2012 (By: Evelyn Irmea Sinisuka)