From: A.M Oktarina Counsellors at Law

Contributors: Pramudya Yudhatama, S.H., Khaifa Muna Noer Uh’Dina, S.H., Raysha Alfira, S.H., Putri Shaquila, S.H.

Reviewer: Noverizky Tri Putra Pasaribu, S.H., L.L.M (Adv)., Abdurrahim, S.H.

A.    Background

After the Covid-19 pandemic, people prefer to shop online through e-commerce. Shopping online is seen as more effective because there is no need to come to the store in person and the goods will be delivered to the buyer’s home. Electronic Commerce or e-commerce is all buying and selling activities or transactions carried out using

electronic media facilities that generally use the internet (as the link attached). But recently the social media universe is being enlivened by the prohibition of selling goods through TikTok Shop by the Government. TikTok Shop is a social-commerce platform, which is a combination of social media and e-commerce. Basically, when entering Indonesia, TikTok’s licensing is only for social media platforms and not for online trading platforms. The incessant sales on TikTok Shop have a huge impact on offline MSME sales which are declining, but of course it is also very helpful for many MSMEs who sell online. The government considers that social media platforms and buying and selling e-commerce should be separated. So how is the separation of permissions between social-commerce and e-commerce?

B.    Legal Basis

1. Law Number 5 of 1999 concerning the Prohibition of Monopoly Practices and Unfair Business Competition. (“Law 5/1999“)
2. Law Number 8 of 1999 concerning Consumer (“Law 8/1999“)
3. Law Number 11 of 2008 concerning Electronic Information and Transactions. (“Law 11/2008“)
4. Law Number 7 of 2014 concerning (“Law 7/2014“)
5. Government Regulation Number 80 of 2019 concerning Trading Through Electronic Systems. (“PP 80/2019“)
6. Regulation of the Minister of Trade of the Republic of Indonesia Number 31 of 2023 concerning Business Licensing, Advertising, Coaching, and Supervision of Business Actors in Trading Through Electronic Systems. (“Minister of Trade Regulation 31/2023“).

The definition of Social-Commerce is regulated in Article 1 number 17 of Minister of Trade Regulation 31/2023 which reads:

“Social-Commerce is a social media provider that provides certain features, menus, and/or facilities that allow Merchants to post offers for Goods and/or Services.”

By definition, electronic commerce itself refers to Article 1 number 24 of Law 7/2014

which regulates as follows:

“Trading through Electronic Systems is Trading whose transactions are carried out through a series of electronic devices and procedures.”

Article 4 letter b of Law 11/2008 also explains the principles and objectives of electronic transactions as follows:

“The utilization of Information Technology and Electronic Transactions is carried out with the aim to:

1. develop trade and national economy in order to improve public welfare”

Furthermore, Law 7/2014 explains about trading through electronic systems as regulated in Article 65 of Law 7/2014:

“(1) Every Business Actor who trades Goods and/or Services using an electronic system must provide complete and correct data and/or information.

• Every Business Actor is prohibited from trading Goods and/or Services using an electronic system that is not in accordance with the data and/or information as referred to in paragraph (1).
• The use of electronic systems as referred to in paragraph (1) must comply with the provisions stipulated in the Electronic Information and Transaction Law.
• Data and/or information as referred to in Subsection (1) shall at least contain:
  1. identity and legality of Business Actors as producers or Distribution Business Actors;
  2. technical requirements of the Goods offered;
  3. technical requirements or qualifications of the Services offered;
  4. prices and payment methods for Goods and/or Services; and
  5. how to deliver the
• In the event of a dispute related to a trade transaction through an electronic system, the person or business entity experiencing the dispute may resolve the dispute through the court or through other dispute resolution mechanisms.

• Every Business Actor who trades Goods and/or Services using an electronic system that does not provide complete and correct data and/or information as referred to in paragraph (1) shall be subject to administrative sanctions in the form of license “

As for the implementation of trade through electronic systems, one of them is regulated in Article 15 PP 80/2019 , namely:

“(1) Business actors must have a business license in conducting PMSE business activities.

• The Intermediary Facility Operator is exempted from the obligation to have a business license as referred to in paragraph (1) if:
  1. is not a beneficiary directly from the transaction; or
  2. not be directly involved in the contractual relationship of the parties conducting
• In order to make it easier for Business Actors to obtain a business license as referred to in paragraph (1), the application for a business license shall be carried out through an Electronic Integrated Business License in accordance with the provisions of laws and regulations.”

Basically, the one of the problem in this case is that offline MSMEs such as those in Tanah Abang feel disadvantaged not because of the emergence of TikTok Shop, but because imported goods sold on TikTok Shop are considered much cheaper than prices in the market so that they succeed in attracting consumer buying interest. Stores on TikTok Shop will provide low prices at the beginning of their appearance to attract consumers, even allowing them to sell at a loss. The Minister of Trade, Mr. Zulkifli Hasan, explained that the significant price difference between offline stores and online stores is called predatory pricing which can damage market prices causing other traders to lose competitiveness (as the link attached). According to Article 20 of Law 5/1999 this is a market control that is prohibited by the following rules:

“Business actors are prohibited from supplying goods and or services by selling at a loss or setting very low prices with the intention of eliminating or shutting down the business of their competitors in the relevant market so that it can result in monopolistic practices and / or unfair business competition.”

So that Article 13 Minister of Trade Regulation 31/2023 has regulated the following provisions:

“(1). In carrying out PMSE activities, PPMSE must play an active role in:

1. provide equal business opportunities for Merchants; and
2. keep the price of Goods and/or Services free from price manipulation practices either directly or indirectly.

• PPMSE must make efforts to supervise, prevent, and overcome all forms of unfair business competition practices and/or price manipulation practices either directly or indirectly as outlined in standard operating procedures.
• In maintaining healthy business competition as referred to in paragraph (2), PPMSE must ensure:
  1. there is no connection or interconnection between Electronic Systems used as PMSE facilities and Electronic Systems used outside PMSE facilities; and
  2. there is no misuse of user data control to be utilized by PPMSE and/or affiliated companies in its Electronic System.
• In the event of allegations of unfair business competition between traders and/or price manipulation practices either directly or indirectly, PPMSE must coordinate with institutions handling business competition within 3 (three) working days from the discovery of allegations and/or reports received by PPMSE.”

In Article 32 Minister of Trade Regulation 31/2023, the Government also urges Business Actors to prioritize domestic products, which regulates as follows:

“(1) In conducting PMSE, Business Actors are required to assist Government programs, in the form of:

1. prioritizing Trade in Goods and/or Services produced domestically;
2. increase the competitiveness of domestically produced goods and/or services; and

3. Domestic PPMSE must provide facilities for promotion space for domestically produced goods and/or services.

• In addition to domestic PPMSE as referred to in paragraph (1) point c, foreign PPMSE must provide facilities for the promotion of domestically produced goods and/or services.”

Trading through electronic systems is generally allowed, while still in accordance with the rules and regulations of the law in Indonesia. However, if the purpose is to trade online, the initial license is for the Electronic Trading System (PMSE) license. In this case, TikTok’s initial license is only to operate as a social media and is registered as an Electronic System Provider (PSE) at the Ministry of Communication and Information, so it cannot conduct online commerce through the TikTok application but can only be used as a platform for the promotion of goods to be traded because TikTok has not received a PMSE permit from the Ministry of Trade. If TikTok Shop wants to be made into a platform for online commerce, then TikTok as a social media and TikTok Shop as e-commerce must be separated, and TikTok Shop must register permission as a PSE, so that between the two cannot be combined into one platform as social-commerce.

Previously, the use of social media for online trade transactions had not been regulated in Indonesian legal regulations, so there was still a legal vacuum. Therefore, the President of Indonesia, Mr. Joko Widodo, immediately held a meeting with a number of Ministers to sign the revision of Minister of Trade Regulation 50/2020. From these revisions, the issuance and ratification of Minister of Trade Regulation 31/2023 and repealing Minister of Trade Regulation 50/2020, which regulates provisions regarding online trade, one of which is that the Government only allows social media as a means of promotion and not for direct transactions, and also the Government prohibits social media platforms from concurrently as e-commerce as stipulated in Article 21 paragraphs (2) and (3) of Minister of Trade Regulation 31/2023 which reads:

“(2) PPMSE with a Marketplace and/or Social-Commerce business model is prohibited from acting as a producer in accordance with the provisions of laws and regulations in the field of distribution of goods.

• PPMSE with Social-Commerce business model is prohibited from facilitating payment transactions on its Electronic System.”

This is done to prevent misuse of personal data for business purposes so that the algorithm cannot be all mastered. In addition, the Government will also set a minimum import transaction regulated in Article 19 of Minister of Trade Regulation 31/2023 which reads:

“(1). PPMSE that carries out cross-border PMSE activities, must apply a minimum price of goods in its Electronic System for Merchants who sell finished goods directly from abroad to Indonesia.

• The minimum Goods Price as referred to in paragraph (1) is Freight on Board (FOB) USD 100 (one hundred United States Dollars) per unit.
• In the event that the price of goods as referred to in paragraph (2) is notified in a different currency, conversion shall be carried out using the exchange rate determined by the minister who organizes government affairs in the field of state finance.
• Goods with prices below the minimum price of goods as referred to in paragraph

(2) that are allowed to enter directly through PPMSE that carry out cross-country PMSE activities, determined by the Minister based on the results of a coordination meeting at the ministerial level/heads of relevant non-ministerial government institutions.”

And also Article 20 of Minister of Trade Regulation 31/2023 which regulates as follows:

“Every cross-border PMSE must comply with the provisions of laws and regulations governing export or import and laws and regulations in the field of information and electronic transactions.”

Related rules in promoting goods are explained in Article 9 of Law 8/1999 which reads:

“(1) Business actors are prohibited from offering, promoting, advertising goods and/or services incorrectly, and/or as if:

1. the goods have met and/or have discounts, special prices, certain quality standards, certain styles or fashions, certain characteristics, history or certain uses;
2. the goods are in good condition and/or new;
3. The goods and/or services have obtained and/or have sponsorship, approval, certain equipment, certain benefits, work characteristics or certain accessories;
4. The goods and/or services are made by companies that have sponsorship, approval or affiliation;
5. such goods and/or services are available;
6. the goods do not contain hidden defects;
7. the goods are completeness of certain goods;
8. the goods come from a specific region;
9. directly or indirectly denigrate other goods and/or services;
10. use excessive words, such as safe, harmless, does not contain risks or side effects without complete description;
11. offer something that contains uncertain

• Goods and/or services as referred to in paragraph (1) are prohibited from being
• Business actors who violate paragraph (1) are prohibited from continuing to offer, promote, and advertise these goods and/or services.”

C.    Conclusion

Judging from the explanation above, the presence of TikTok Shop as an e-commerce incorporated into the TikTok platform as a social media has both positive and negative impacts. The positive impact is that it really helps online MSME sales and people who buy goods on TikTok Shop at relatively cheaper and more efficient prices because consumers do not need to come to the store. However, the negative impact is that there are also many offline MSMEs that are threatened with bankruptcy because they are less competitive in terms of price. This is because online MSMEs that sell goods through TikTok Shop import goods and set cheaper prices below market prices, resulting in significant price differences that can damage market prices. With these problems

arising, the Government immediately made a policy by issuing Minister of Trade Regulation 31/2023 related to rules on social-commerce. The government insists that social media platforms and e-commerce must be separated, because basically social media can only be used for promotional means and not for direct transactions. The government will also set a minimum import transaction of USD 100. Moreover, since the beginning of the TikTok application entering Indonesia, TikTok only registered a permit as a PSE to the Ministry of Communication and Information and did not register a permit as a PMSE to the Ministry of Trade. Thus, if TikTok Shop wants to maintain its existence, there must be a separation between TikTok as social media and TikTok Shop as e-commerce, and also TikTok Shop must register a PMSE license with the Ministry of Trade to become a legal e-commerce platform.

References :

• https://www.presidenri.go.id/siaran-pers/revisi-permendag-50-2020-pemerintah-atur- medsos-hanya-fasilitasi-promosi-bukan-transaksi/
• https://www.djkn.kemenkeu.go.id/artikel/baca/15814/Memanfaatkan-E-Commerce- Dengan-Benar.html
• https://money.kompas.com/read/2023/09/28/211722726/pedagang-tanah-abang- keluhkan-harga-di-tiktok-shop-jauh-lebih-murah-ini-kata?page=all

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