Competition Law: Consumer Experience in Indonesia

Competition Law: Consumer Experience in Indonesia Indah Suksmaningsih Indonesian Consumer Organization Jl. Pancoran Barat VII No. 1 Duren Tiga Jakarta Selatan, 12760, INDONESIA Advocacy and Capacity on Competition Policy and Law in Mekong Countries 23-24 April 2004, Hanoi, Vietnam

Indonesia Population : 211,000,000 No. of island: 16,766 Coast line: 880,000 km No. of provinces: 33 • Neighboring countries: • Malaysia • Papua New Guinea • The Philippines • East Timor • Australia • Brunei

The Indonesian Constitution of 1945 • Envisaged a democratic economic system • Article 33 states: “1. The economy shall be organized as a common endeavor based upon the principles of the family system. • 2. Sectors of production which are important for the country and effect the life of the people shall be controlled by the state. • 3. The land, the waters and the natural riches contained therein shall be controlled by the State and exploited to the greatest benefit of the people”.

Introduction • Economic practices in Indonesia had been contrary to the spirit of the constitution • Law no. 5 of 1999 concerning prohibition of monopolistic practices and unfair business competition, was launched to ensure effective business competition • The introduction of competition law did not automatically result in an improvement in conditions for consumers

Outline • Consumer experience BEFORE the introduction of Competition law • Consumer experience AFTERthe introduction of Competition Law • Obstacles to effective implementation of Competition Law • Necessary conditions for implementation of Competition Law • Is Competition Law the way to go?

Before Competition Law • Dominance in sectors of the economy by individuals and certain families • Control of huge conglomerates by individuals and certain families. These conglomerates dominated various business branches from initial production through to sales in related industries. This was indicative of inequitable distribution of development results. • Economic progress in Indonesia was enjoyed by certain groups of people • Availability, quality and price controlled by dominant market players

Before Competition Law • Political elite involved in business and the creation of monopolies • The “abuse of power” was apparent at every level: whoever, whenever, wherever! • Corruption, Collusion and Nepotism Increase in Political Power of Elite Increase in Economic Power of Elite

After Competition Law Commission for the Supervision of Business Competition (KPPU): Established in July 1999 as an independent institution to supervise the implementation of Law no. 5 of 1999 Since its establishment the KPPU has received 144 cases and an additional 8 cases which were initiated by the KPPU. The KPPU has given 22 rulings since its establishment. 4 of these rulings were appealed by the companies. In 3 of the 4 appeals the court found that there had been “procedural violations” and set aside the rulings of the KPPU. The court never considered the substance of the cases.

After Competition Law Commission for the Supervision of Business Competition (KPPU): The other 18 rulings of the KPPU were accepted by the corporations at stake. In the case of the Airline Rates War the KPPU suceeded in changing the policy relating to ceiling prices so that the ceiling price is now determined by the government rather than the association of Airline providers. The commission is hampered by lack of adequate infrastructure, funding and human resources KPPU needs to be seen as taking action against violations if potential violators are to be deterred

After Competition Law Airline Rates War: Minister of Transport decree based on up and down corridors to be obeyed by airline operators in fixing the rate Unfair business competition in ticket sales for the Jakarta-Surabaya route - prices dropped from Rp. 600,000 to as low as Rp. 333,000. PT Garuda has a dominant position in Indonesian Airline markets KPPU sent a letter to the Minister of Communication and Transportation to stop tariff fixing made by INACA (Airline Providers Association) as it considered the tariff should be set by the Minister for Transportation

After Competition Law • Airline Rates War: • The result of KPPUs ruling: • ACCESS • - Number of domestic passengers: • in 2000 = 7.6 million in 2003 = 15.3 million • Number of fleet: • In 2000 = 148  In 2003 = 244 • Operation fleet: • In 2000 = 122 In 2003 = 192

After Competition Law • Airline Rates War: • The result of KPPUs ruling: • AVAILABILITY • Number of Airline companies: • From 1950 to 1971 = 5  After 2000 = 20 • Quantity of aircrafts: • 2000 = 122  2003 192 • -Number of daily flights, Jakarta-Surabaya: • 2000 = 24 flights (5 companies)  2003 = 46 flights (9 companies)

After Competition Law • Airline Rates War: • The result of KPPUs ruling: • AFFORDABILITY • Price, Jakarta-Surabaya • 2000 = Rp 600,000  2003 = Rp 250,000 – 300,000 • -Price, Jakarta-Medan • 2000 = Rp 700,000  2003 = Rp 460,000 • -Price, Jakarta-Solo • 2000 = Rp 460,000  2003 = Rp 270,000

After Competition Law Competition in the Sugar Industry: Sugar manufacture and distribution was previously state controlled with tariffs to support local sugar farmers Opening the market up to competition resulted in significant rises in the domestic price of sugar Competition policies and open market practices also resulted in crisis in access to sugar for consumers living on islands other than Sumatra and Java

Obstacles to Implementation • Insufficient political will to reform - It is important to consider the background to the enactment of the law. In Indonesia the introduction of anti-monopoly law was pushed by external factors, particularly pressure from the IMF. - The law was not developed as recognition for and understanding of the need for such law. - As a result the law lacks strong support in the political arena

Obstacles to Implementation • Decentralization - Political power distributed regionally. Our experience in Indonesia has been that decision makers at a regional level do not understand the policies behind the competition law. - At a regional level policies exist whereby government contracts are only awarded to local contractors - Other such requirements exist which require competitors entering the local market to obtain approval from local associations

Obstacles to Implementation • Lack of understanding of competition law on the part of government officials and judges -Regulations published by state officials which are contrary to principles of business competition (ie: decree to taxi companies which amounts to price -fixing) -Judges delivering decisions without consideration for principles of business competition as specified in the law

Obstacles to Implementation • Powerful companies - Business actors involved in monopoly practices are usually from big companies that have government backing - The KPPU is under pressure when monitoring and reviewing business practices as it is exposed to suits against it from these big companies

Obstacles to Implementation • Weak position of consumers - Lack of education of consumers in competition policies and laws. Lack of research and educational materials to produce proof of benefits of such law to consumers - Consumers are still reluctant to question government and industry practices. Without an understanding of competition law they are not likely to stand up against unfair competition practices

Conditions necessary for Implementation • Conducive Business Culture - In Indonesia as a hangover from corruption, collusion and nepotism there is a tendency for businesses to seek unfair advantage and quick profits - Unfair methods will likely remain a part of the business culture of Indonesia for a while yet - A switch to a new culture of respect for the law is required if competition principles are to be adopted amongst the business community

Conditions necessary for Implementation • Determining which sectors government involvement - Each nation has specific characteristics which determine what industries require state intervention - In Indonesia many consumers are living below the poverty line hence a concentration on access to basic needs such as rice, sugar and salt is imperative - Need explicitly identified indicators to be used in determining when a particular sector no longer requires government intervention

Conditions necessary for Implementation • Inventory of national laws that contradict principles of competition law - Competition law is new and there is a need to identify contrary laws and then move towards harmonizing these with principles of competition law - In Indonesia we see that this role is best carried out by KPPU as it possesses both a law making and judicial function in that it can make regulations and issue guidelines related to competition

Conditions necessary for Implementation In Indonesia specifically: • KPPU needs judges who really understand the anti-monopoly law • There needs to be better co-operation with police, the Supreme Court and the Ministry of Justice and Human Rights • A special anti-trust court should be established by the KPPU

Conditions necessary for Implementation • Inventory of cases handled by Competition Authority • Empowering community participation in monitoring of unfair competition • NGOs and Public monitoring of Competition Authority • Need for studies into competition issues • Education of consumers, businesses government officials and judicial officers

Is Competition Law the Way to Go? • Dilemma of determining whether inefficient monopolies created as a result of corruption, collusion and nepotism should be made to change behind a protective wall wiped out by foreign competition • Both competition and consumer law are new to Indonesia and are not known or understood by much of Indonesian Society • Research over time is required to determine whether competition law has resulted in overall benefits to consumers

Is Competition Law the Way to Go? • In assessing the viability distinction needs to be made between basic needs and non-essential products and services • At this stage based on consumer experience in Indonesia there needs to be exemptions made for industries that supply the basic needs of countries consumers.

Is Competition Law the Way to Go? • The Indonesian consumer experience demonstrates that competition law does not automatically guarantee an improvement in conditions. • Much rests upon effective administration, education of government officials and an informed judiciary. • These are preconditions to ensuring that competition law is implemented and those breaching such law are brought to account.

Conclusion • From a consumer organizations perspective it is better to start the process towards enactment of competition law now as in time implementation problems can be addressed. Learning from Indonesian experience its better to have competition law from the beginning. In time one can recognise what is the good and bad for the country. • From YLKI studies competition also gives benefits to the consumer.

Conclusion • The KPPU, after learning from the research of YLKI and other parties, introduced a new scheme for Indonesia called “Regulated Competition” a change from the previous strategy called “Free Competition” because in practice actually “Free Competition” = “Anarchist competition”

Competition Law: Consumer Experience in Indonesia