Indonesia: Competition Commission issues first decision under law governing large and small business cooperation

In brief

In February 2022, the Indonesian Competition Commission (Indonesian acronym "KPPU") issued the first decision of this type on the cooperation  between PT Pos (Persero) ("PT Pos"), the state-owned postal and package delivery company, and Agenpos, its small business partner, under a separate law governing such activities.

This case suggests that the KPPU is becoming more active in enforcing against prohibited conduct to protect small businesses. Large scale companies that partner with small businesses should be mindful that they may now come under closer KPPU scrutiny. The KPPU may impose administrative sanctions in the form of revocation of business licenses and/or a fine with a maximum amount of IDR 10 billion (around USD 700,000 at current exchange rates).


Contents

In February 2022, the Indonesian Competition Commission (Indonesian acronym "KPPU") issued the first decision of this type on the cooperation  between PT Pos (Persero) ("PT Pos"), the state-owned postal and package delivery company, and Agenpos, its small business partner, under a separate law governing such activities.

This case suggests that the KPPU is becoming more active in enforcing against prohibited conduct to protect small businesses. Large scale companies that partner with small businesses should be mindful that they may now come under closer KPPU scrutiny. The KPPU may impose administrative sanctions in the form of revocation of business licenses and/or a fine with a maximum amount of IDR 10 billion (around USD 700,000 at current exchange rates).

Key takeaways

The relevant conduct relates to PT Pos' unilateral change in the agency fee payable to Agenpos, for the marketing of its postal products. While investigators found that PT Pos "dominates" Agenpos, a micro company, in their cooperation relationship, the KPPU found that there was no legal violation and that no administrative sanction was applicable.

Despite having had the authority to also supervise cooperation activities between large companies and small businesses since 2008, under Law No. 20 of 2008 on Micro, Small and Medium Enterprises, as amended by the Omnibus Law ("Law 20/2008"), this is the first such decision issued by the competition regulator.

The KPPU is starting another investigation, against PT Sinar Ternak Sejahtera, a chicken breeder, regarding its cooperation with small chicken farmers.

In more detail

Authority to examine cooperation cases

Law 20/2008 provides that cooperation activities should be supervised by an institution created and mandated to supervise business competition activities. In Indonesia, business competition activities are supervised by KPPU. This is further regulated through Government Regulation No. 7 of 2021 on Convenience, Protection and Empowerment of Cooperatives and Micro, Small and Medium Enterprises, which explicitly mentions KPPU as the supervisor for cooperation activities. As such, KPPU has the authority to supervise cooperation activities between (i) micro, small and medium business actors, and large business actors, and/or (ii) micro and small business actors, and medium business actors.

As the supervisor, KPPU has the authority to impose administrative sanctions for violations of the regulated cooperation activities based on its own initiative or based on any report it receives. If KPPU receives a report, it should conduct a preliminary inspection to determine whether the reported activities violate the relevant regulations. If KPPU finds that the reported activities violate the regulations, it should give three written warnings to the reported party to fix its cooperation activities. If the reported party does not fix its activities based on the warning, the KPPU will conduct further examination.

Case

The present case is between PT Pos, which is the reported party, and the Owner/Manager of Agenpos, its business partners, in Indonesia. Based on this business relationship, Agenpos receives special rights to provide courier, financial, retail cargo, postal insurance and sales of stamps services, as well as to market philatelic goods, seals, and other postal goods owned by PT Pos. In turn, Agenpos receives a fee, without receiving ownership rights of PT Pos's goods and services.

PT Pos was accused of violating Article 35 (1) of Law 20/2008, which provides that "large enterprises are prohibited from owning and/or dominating micro, small, and/or medium enterprises as their business partners in partnership relationship implementation". In the present case, PT Pos was accused of dominating Agenpos due to the unilateral decision made without prior consultation with Agenpos on the fee received by Agenpos for postal services it provides to PT Pos.

The investigator argued that in the cooperation relationship, PT Pos should have informed Agenpos that it intended to change the fee amount. However, based on the parties' business relationship, KPPU classified the relationship between PT Pos and Agenpos as an agency cooperation relationship, with PT Pos as the principal and Agenpos as the agent. Agency is defined as cooperation where large/medium businesses grant special rights to small/micro businesses to market goods and services.

This decision is also supported by the definition under Ministry of Trade regulations, which provide that an agent is a company acting as an intermediary for and on behalf of a principal based on an agreement to do marketing without moving the physical rights of the goods and/or services owned/dominated by the principal. This definition is in accordance with the business relationship of the parties in the present case, where Agenpos has the rights to provide goods and services owned by PT Pos, without having ownership rights to the goods and services.

Based on the above, KPPU decided that PT Pos, as the principal and owner of the merchandise (for which Agenpos is its agent) may unilaterally decide on the agency fee payable to Agenpos in accordance with the market dynamics. KPPU recommended the following actions: (i) PT Pos to create a communication channel for Agenpos to provide its opinions on the cooperation relationship and (ii) PT Pos to communicate to Agenpos any amendment to the agreement between the parties, including the fee received by Agenpos. However, KPPU decided not to impose an administrative penalty. KPPU has mandated the board of commissioners of PT Pos to supervise the implementation of these recommendations and provide a report to KPPU six months after the issuance of the decision.

 

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