Social-Commerce in the Wake of Minister of Trade Regulation Number 31 of 2023
Legal Brief
Overview of Social-Commerce in Indonesia
Over the past few years, online retail has witnessed substantial expansion, characterized by robust consumer demand and an expanded product offering.This surge in online shopping began in 2019, driven by the necessity for consumers to adapt their purchasing behavior during the COVID- 19 pandemic. Statistical data indicates that in 2022, a noteworthy 79% of the Millennial and Gen Z demographic in Indonesia engaged in online shopping activities.
The landscape of e-commerce in Indonesia has evolved significantly, extending beyond dedicated e-commerce platforms to include social media channels such as Instagram and TikTok. Data from 2022 reveals a remarkable surge in the Gross Merchandise Volume of transactions on TikTok Shop in Southeast Asia, amounting to a staggering US$4.4 billion, approximately equivalent to IDR 66.7 trillion. This phenomenon is known as social commerce.
CNBC, TikTok Shop, a rising threat to Shopee and Lazada in Southeast Asia, 2023
To encourage sustainable e-commerce development in Indonesia, the Government of Indonesia issued Government Regulation Number 80 of 2019on Trade Through Electronic Systems. This was further regulated by the Minister of Trade Regulation Number 50 of 2020 on the Licensing, Advertising, Guidance, and Supervision of Business Operators in Electronic Trading Systems. Nonetheless, despite the existence of prior regulations governing e-commerce, concerns remain towards the growing field of social commerce.
IND Research Institute, Indonesia Gen Z Report 2022, IDN Media, 2022, pg. 58.
From E-Commerce to Social-Commerce
Previous Regulations
Considerations for the Issuance of MoT Reg. 31/2023
• Urgent need for standardized product regulations within the e-commerce sector;
• Unfair trading practices conducted by foreign enterprises;
• Small and medium-sized enterprises and domestic products struggle to compete; and
• The e-commerce ecosystem lacks equitable competition, and new business models pose potential disruption.
Ministry of Trade, Zulhas Resmi Berlakukan Permendag 31/2023, 2023
The enactment of MoT Reg. 31/2023 was conducted to reconfigure regulations concerning business permits, advertising, guidance, and supervision of electronic commerce operators. Such purposes was backed with the following principles:
• Supporting the empowerment of micro, small, and medium-sized enterprises, as well as electronic commerce operators within the country;
• Consumer protection efforts;
• Promotion of the development of electronic commerce; and
• Adapting to dynamic technological advancements.
In light of these developments, the Indonesian Government has introduced regulations to support the development of electronic commerce through the Minister of Trade Regulation of the Republic of Indonesia Number 31 of 2023 on Licensing, Advertising, Guidance, and Supervision of Business Operators in Electronic Trading Systems(“MoT Reg. 31/2023”).
Preamble of MoT Reg. 31/2023
Preamble of MoT Reg. 31/2023
Reasoning for the Enactment of MoT Reg. 31/2023
Social-Commerce Issues
E-Commerce and Social Commerce: The Basics
MoT Reg. 31/2023 refers to e-commerce as Trade Through Electronic System (Perdagangan
Melalui Sistem Elektronikor “PMSE”). PMSE itself is defined as
the trade of goods and/or services that are transacted through a series of applications and/or electronic procedures.Art. 1 (2) MoT 31/2023
Business Actors
Art. 1 jo. Art. 2 MoT Reg 31/2023
PPMSE Business Model
Art. 2 MoT Reg 31/2023
In accordance with Indonesian regulations, e-commerce or PMSE refers to the overall trade of goods and/or services that are conducted through electronic means.
This differs from Social-Commerce, which refers toa category of PPMSE or provider of e-commerce.
Differentiating E-Commerce and Social- Commerce
Domestic Business Actors
International Business Actors
Domestic PPMSE Business Models
Online Retail Marketplace
Online Classifieds Price Comparison Platforms
Daily Deals Social-Commerce
Domestic Merchants
Domestic Provider of Electronic Trading
or Penyelenggara Perdagangan Melalui Sistem Elektronik(“PPMSE”) is a business entity that offers electronic communication facilities used for trade transactions
Domestic Intermediary Services Provider
or Penyelenggara Sarana Perantara(“PSP”) is a business entity that offers electronic communication facilities, apart from telecommunications providers, which solely function as intermediaries in electronic communication between senders and recipients.
International Merchants International PPMSE International PSP
What is E-Commerce?
PPMSE Business Models in accordance with MoT Reg. 31/2023
PPMSE Business Models
Online Retail
Refers to a merchant that conducts e- commerce (PMSE) through means such as a website or commercial application that is created, managed, and/or owned independently.
Art. 1 (12) MoT Reg. 31/2023
Marketplace
A provider of facilities in which some or all of the transaction processes are within an electronic system, such as a commercial website or application, as a platform for merchants to post offers for goods and/or services.
Art. 1 (13) MoT Reg. 31/2023
Online Classified Ads
A means to operate an electronic system, such as a website or application, for commercial purposes, which brings together sellers and buyers where the entire transaction process occurs outside of the website or application.
Art. 1 (14) MoT Reg. 31/2023
Price Comparison Platform A means to operate an electronic system, such as a website or application, for commercial purposes that displays price comparisons for goods and/or services sold on other websites or applications.
Art. 1 (15) MoT Reg. 31/2023
Daily Deals
A means to operate an electronic system, such as a website or application, for commercial purposes involving the sale of discount coupons and/or other convenience facilities that can be used as a payment method by consumers to make purchases.
Art. 1 (16) MoT Reg. 31/2023
Social-Commerce
Social-Commerce is a social media platform that provides specific features, menus, and/or facilities that enable merchants to post offers for goods and/or services. Social media in MoT Reg. 31/2023 refers to a website or application that allows users to create and share content or engage in social networking.
Art. 1 (17) and (18) MoT Reg. 31/2023
It is interesting to note that, while MoT Reg. 31/2023 has brought forward six categories of PPMSEs, the treatment on licensing, advertisement, and monitoring towards each category is generally not distinguished. Exceptions are as follows:
According to Article 29 MoT Reg. 31/2023, PPMSE should not display ads conflicting with prevailing regulations and must remove such ads when
The varying treatment can be attributed to the distinct nature of
Online Retail, where
Specifically for Marketplace and/or Social-Commerce, there are restrictions towards their business
Social Commerce based on MoT Reg. No. 31/2023
The classification of domestic PPMSE business models in MoT Reg. 31/2023, which includes Social-Commerce, is completely new. Previously, there was no such categorization in MoT Reg. 50/2020. Thus, the treatment of all PPMSE business models was completely the same.
There were no particular limitations on Social-Commerce.
With the enactment of MoT Reg. 31/2023, MoT Reg. 50/2020 is revoked and is no longer applicable. MoT Reg. 31/2023 shall apply starting for the date of issuance. MoT Reg. 31/2023 was issued on 25 September 2023.
What’s Different?
Art. 66 MoT Reg. 31/2023
Limitations of Social Commerce
1. PPMSE with Marketplace and/or Social-Commerce business models are prohibited from acting as producers in accordance with the provisions of the laws and regulations in the field of goods distribution
2. PPMSE with a Social-Commerce business model are prohibited from facilitating payment transactions on their electronic systems.
Art. 21 (2) and (3) MoT Reg. 31/2023
The Case of TikTok
After MoT Reg. 31/2023 enters into force, Article 21 (2) and (3) MoT Reg. 31/2023
would be applicable towards Social-Commerce business models such as TikTok
Shop. Consequently, TikTok Shop is now prohibited from facilitating payment
transactions – their platform may only advertise goods and/or services. Payment
transactions for goods and/or services advertised through TikTok may only be
conducted through other platforms.
Positive List for Buying and Selling Goods from Abroad
Art. 19 (1) and (2) MoT 31/2023
Minimum Goods Prices
PPMSEs engaged in cross-border PMSE activities are required to enforce a minimum product price (equivalent to Freight on Board USD 100 per unit) on its electronic system for merchants. This applies specifically to the sale of
finished goods imported directly from overseas to Indonesia.
Art. 19 (3) MoT 31/2023
Exchange Rate Value
In the event that the price of goods is stated in a different currency, The conversion is carried out using the exchange rate value determined by the Minister of Finance.
Art. 19 (4) MoT 31/2023
List of Goods Below the Minimum Price
Goods with prices below the minimum product price, which are allowed to enter directly through PPMSE conducting cross-border PMSE activities, shall be determined by the Minister of Trade based on the results of coordination meetings at the ministerial/head level of relevant non- ministerial government agencies.
Art. 57 MoT 31/2023
Administrative Sanctions
PPMSEs found to be in contravention of these regulations may face
administrative penalties, including receiving written warnings or
experiencing temporary suspension.
As per the Minister of Trade's statement, there is ongoing collaboration with other Government ministries, including the Ministry of Cooperatives and Small and Medium Enterprises and the Ministry of Agriculture, to jointly develop a positive list.
Tempo, Segera Tetapkan Positive List Barang Impor, Zulhas Bakal Rapat dengan Kementerian Terkait, 2023
Sanctions for Social-Commerce that Still Sells Services
1. PPMSEs with Marketplace and/or Social-Commerce business models are prohibited from acting as producers in accordance with the provisions of the laws and regulations in the field of goods distribution.
2. PPMSEs with Social-Commerce business model are prohibited from facilitating payment transactions on their electronic systems.
Art. 21 (2) and (3) MoT Reg. 31/2023
Art. 50 (1) dan (2) MoT Reg. 31/2023 PPMSE may be subject to administrative sanctions by the MoT, which includes:
Written Warning Included in the priority monitoring list Blacklisted
Temporary blocking of domestic PPMSE services and/or foreign PPMSE by the relevant authorities
Revocation of Business License
Limitations of Social Commerce
The Minister of Trade delegates the authority to impose administrative sanctions to the Director General of Consumer Protection and Orderly Commerce. The authority to impose administrative sanctions in the form of written warnings is carried out by the Directorate General of Consumer Protection and Orderly Commerce.
Art. 50 (3) and (4) MoT Reg. 31/2023
Sanction Imposition
Administrative Sanctions
Prohibition of Buying and Selling on Social Commerce, What’s Next?
Art. 13 (2) MoT 31/2023
The Role of PPMSE in Achieving an Environment of Healthy Competition
PPMSEs are required to take proactive measures to detect, prevent, and address any instances of unfair competitive practices or price manipulation, whether explicitly or implicitly mentioned in their standard operating procedures.
Art. 13 (3) MoT 31/2023
To foster a fair business environment, PPMSEs must guarantee: (i) there are no links or connections between the electronic systems employed within PMSE facilities and electronic systems external to PMSE facilities; and (ii) there is no inappropriate use of user data control, which may be employed by PPMSEs and/or its associated companies within the system.
Art. 13 (4) MoT 31/2023
If there is an accusation of unfair business competition, - whether involving traders or price manipulation practices, either directly or indirectly, PPMSE is obliged to collaborate with the relevant business competition oversight authority (i.e., Indonesia Competition Commission) within three working days from the moment the suspicion or reports are identified or received by PPMSE.
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Additionally, there is a need to optimize the supervision and guidance for PMSE implementation, especially in areas like the monitoring of electronic advertising, as stipulated in
Article 31 of MoT 31/2023. What’s Next?
We will continue to follow the developments on this topic and provide additional information as it becomes available. If you have any questions on this topic, please contact:
Adnan
[email protected]
Tariq Hidayat Pangestu [email protected] Thea Mutiara Khalifa [email protected]
This publication has been prepared by AHRP for educational and informational purposes only. The information contained in this publication is not intended and should not be construed as legal advice. Due to the rapidly changing nature of law, AHRP makes no warranty or guarantee concerning the accuracy or completeness of this content. You should consult with an attorney to review the current status of the law and how it applies to your circumstances before deciding to take any action.
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