Frequently Asked Questions Concerning Law Number 5 Year 1999

Part one: The Role of Law Number 5 Year 1999

What is Business Competition Law?
Business Competition Law is Law Number 5 Year 1999 concerning prohibition of monopolistic practices and unfair business competition. This law aimed for maintaining the competitive market from the influence of the agreement and the conspiracy that tended to reduce and or eliminate the competition. The main interest from business competition law is to promoting competition and reinforce the sovereignty of the consumer.

What is the meaning of promoting competition?
The background thingking of  Law Number 5 Year 1999 is the competition is good, so this law must be implemented effectively. Business actors have business opportunity in fair business competition climate by compete base on the performance or achievement, not base on the strategy to murder the competitors. Business actors are protected from the unfair competition by the dominant business actor or the dominant group of  business actor. Law Number 5 Year 1999  is not aimed for limiting the movement space. This law prevented abuse of the dominant position, not banned the dominant position.

What is the meaning of reinforce the sovereignty of consumer?
Law Number 5 Year 1999 create the business ethically culture from the consumer interests side. The company is not limit the consumer choice and not determine the high price. Consumers have a lot of choices, better quality of the goods and service, and normal price. Those are the expansion role of the business actors in undertaking the business activity and increasing welfare of the society where the interests of business in harmony with the interests of the public.

What are the sources of unfair business competition?
Fair business competition can be distorted by the agreemen between company that limit and or eliminate the competition; the business activity that limit and or eliminate the competition; abuse of market power and or abuse of dominant position and the government policy that is not in line with fair business competition.

Who is the subject of Law Number 5 Year 1999?
The subject of Law Number 5 Year 1999 are business actors, government and the other side that involved in the business activity. In principle, business actors shall be any individual or business entity, either incorporated or not incorporated as legal entity, established and domiciled or conducting activities within the jurisdictionof the Republic of Indonesia, either independently or jointly base on agreement,  conducting various business activities in the economic field  (Law Number 5 Year 1999, Article 1 point 5).

Part two:  The Term of Law Number 5 Year 1999

What are the meaning of  monopoly and monopolistic practices?
Monopoly shall be the control over the production and or marketing of goods and or over the utilization of certain services by one business actor or by one group of business actors. Monopolistic practices shall be the centralization of economic power by one or more business actors, resulting in the control of  the production and or marketing of certain goods  and or services thus resulting in unfair business competition and potentially harmful to the interests of the public. So, anyone might monopoly but might not practice monopoli.

What is dominant position?
Dominant position shall be a situation in which a business actor has no substantial competitor in the relevant market in relation to the market segment controlled, or a business actor has the strongest position among its competitors in the relevant market in relation to financial capacity, access capacity to supply or sales, and the capability to adjust supply or demand of certain goods or services.

What are the meaning of monopsoni and oligopsoni?
Monopsoni is the controlling of the purchase or acceptance of good supplies and or the service by one business actor. If the controlling of the purchase or acceptance of good supplies and or the service done by several business actors or several group of business actors.

Part three:  Conspiracy Prohibition by Law Number 5 Year 1999

What is the conspiracy?
Conspiracy or business conspiracy shall be a form of cooperation carried out by one business actor with another with the intention of controlling the relevant market in the interest of the conspiring business actors.

Conspiracy is the activity that was banned and could take the form of:

• Arranged and or determined the winner of the tender.
• Conspiring with other parties to obtain information regarding the business activities of their competitors classified as company secrets which may result in unfair business competition.
• Conspiring with other parties in order to impede the production and or marketing of goods and or services of their competitors with the aim of causing the goods and or services offered or supplied to the relevant market to become less, either in quantity, quality or in timeliness required.

How is the regulation about the conspiracy in Law Number 5 Year 1999?

Conspiracy is regulated in Article 22, Law Number 5 Year 1999. This article state:
“Business actors shall be prohibited from enteringinto conspiracies with other parties in order to determine awardees of tenders which may result in unfair business competition.”

What kinds of conspiracies in tender?

1. Horizontal conspiracy: conspiracy happened between business actor or supplier of goods or service and the competitor.
2. Vertical conspiracy:  conspiracy happened between one or several business actors or supplier of goods and service and the committee of the tender or the user of goods and services or the owner with the work giver.
3. Horizontal and vertical conspiracy:  conspiracy between committee of tender or the user of goods and services or the owner or the work giver and business actors or the supplier of goods or service. This conspiracy could involve two or three sides that were involved in the process of the tender.

What are indicators of conspiracy in tender?
The indication of conspiracy in tender can be paid attention from:

1. The tender that closed or not transparent and was not announced widely, so as involve the business actors that interested and filled the qualification could not join it.
2. Discriminatory tender and couldn’t be followed by all business actors with same competence.
3. The tender with the condition and the technical specification or the certain make of business actors so as impede the other business actors to joint in the tender.

The information about tender can be read in the guide book of article 22 concerning prohibition of  conspiracy in the tender.

What kind of the sanctions of conspiracy in the tender?
KPPU shall be authorized to impose sanctions in the form of  administrative  measures againts business actors, this sanctions may be in the following forms: stipulation declaring agreements; stipulation of  compensation payment; imposition of a minimum fine of Rp 1,000,000,000,- (one billion rupiah) and a maximum fine of Rp 25,000,000,000,- (twenty five billion rupiah).

Part Four:  Business Competition Policy

What the meaning of competition policy?
The competition policy was the structure from the law of a country where the government had the authority to put a competition in sectors of economics. In line with this matter then each anti competition behaviour will be restricted with the existence of the competition policy.

In the competition law in a country, was appointed the banned and permitted for the business actors in accordance with the business competition law (in Indonesia, in force Law Number 5 Year 1999 concerning prohibition of monopolistic practices and unfair business competition.

What is the important role of Law No. 5/1999 in upholding the competition policy?
The government policy that out of tune with Law No.5/1999 tended to cause the inefficiency occurred in various sectors of economics. The policy source of Government that did not parallel yet be with business competition Law, among other are the Government policy that was not supported by the clear legislation regulation or the policy that out of tone with Law No 5/1999.

In principle, there are three criteria about the policy that out of tune with Law No. 5 /1999 that are:

Firstly, the policy group that gave bigger space to the business actor that had dominant position or the certain business actor. This Government policy tended created entry barrier for business actor competitor. As a result, the abuse of the dominant position behavior by the business actor emerged.
This emerged among other in the case of the BMAD Carbon Black application.

Secondly was the government policy that facilitated the emergence of agreement between the business actors that explicitly were incompatible with Law of No 5/1999. For example the partnership program in the poultry farm industry that showed the closed agreement.

Thirdly was the policy that was the form of Government intervention in the proceeding market mechanism. Seen from the aspect of the competition, this was the decline, because of the preventing the working of market mechanism in this sector that could give many benefits for the community. The market that was released to compete was believed could give many profits and the role of the Government was needed to actualized it. But in the certain case, the competition could be successful well if the Government did not intervene. Moreover if the intervention that occurred tended to benefit a small number of business actors that scooped up the big profit.
This emerged among other in the form of trade arrangement or the regulation that limiting number of player who was involved.

Generally could be concluded that the lack of internalization of business competition values in Government policy resulted by the low level of competition value understanding, especially Law No 5/1999. Beside, also resulting from too much intervention from Government into the market, the formulation of the legislation regulation that did not pay attention to the law hierarchy, the law assurance, the harmonization with other regulation, as well as Government policy that was not synergy with the policy that support of the climate of business competition.

The next effect of these conditions was the nonexistence of Indonesian industrial competitiveness in a long term manner in international economic arena. Several typical characters that emerged in the policy could be recognized easily as out of tune with Law No.5/1999. And there among other were tended to distortion the market mechanism that was the most effective mechanism towards economic efficiency, the opportunity to new economics interest emerged, pushed the emergence of the market power of business actor that hold dominant position et cetera.

Why did KPPU conduct the policy harmonization?
The policy harmonization program was being KPPU’s program aimed to develop good co-operation between KPPU, government agency, and other agency that became the regulator in the economics sector. So as the process of internalization of the competition values in each policy that was dismissed by the government agency and other regulator’s agency went well.

KPPU’s suggestion and consideration towards the policy that was related to the monopoly practice and unhealthy business competition was one of the harmonization activities. And it played very significant role for competition values to be accommodated in the Government policy. This consideration suggestion was the follow-up to results of several KPPU activities including Government policy evaluation, research, monitoring of consideration suggestion, the case handling and monitoring of business actor.

If paid attention to the development that occurred, then the process of policy harmonization was going on well. This matter could be seen from the positive response came from Government and other regulator’s agency towards several suggestions and consideration that were given by KPPU. To created internalization of the competition for values in each policy that was dismissed by the government in economics sector.

What was done by KPPU to conduct the policy harmonization?
KPPU conducted the evaluation of government policy, the compilation of the implementation guide, and the study of Law No. 5/1999. The policy evaluation was part of the harmonization activity that aimed to evaluate the government policy that had the connection with Law No. 5/1999 in its implementation, as well as giving consideration suggestion to the Government.

Where is the source of giving of the suggestion and consideration to the government come from?
The giving activity of the consideration suggestion to the Government was the KPPU’s follow-up action towards several findings from other KPPU activity that was related to the Government policy. The activity that could become the source of the consideration suggestion to the Government among other are monitoring of business actor, the case handling, the study of industry sector and the trade and evaluation of the Government policy.

Part Four:  BUSINESS COMPETITION LAW ENFORCEMENT

What kind of activity that was forbidden based on Law No.5/1999?

Prohibited Agreement
Law No.5/1999 prohibits each form of agreement that could result the monopoly practice and unhealthy business competition and the kind of agreement were as follows:

1	The agreement in Horizontal Relations was the agreement between the business actor and other, with explanation as follows:
	a	have purpose and or result the production control, the marketing, the purchase and or acceptance of goods or service supplies that included the same price fixing, and or the production arrangement, and or marketing together.
	b	to divide marketing territory or the market allocation of goods and or service.
	c	to conduct purchase and supplies arrangement so as caused the monopoly practice and or unhealthy business competition.
	d	to coordinating the bargaining price in goods and/or service procurement or the project contract.
2	The agreement of anti competition in vertical relations
	a	determined different price to input that was controlled to raise the competitor’s cost
	b	The restriction on the purchase of input for the lower company that was not integrated with goods supplied with different number and or the quality so as caused the significant loss.
3	Predator Behavior
		The agreement with business actor’s competitor to determines the price under the cost with aim of removing the competitor.
4	Resale Price Maintenance (RPM)
		The agreement to determine re-selling price from goods and or service that was accepted that was limiting and eliminated competition.
5	The “Boycotting” agreement
	a	The agreement with the aim of obstructing the business actor to conduct the same business activity, both for domestic market and foreign market goal.
	b	Together refused to sell and or buy as well as accept supplies of every goods and or the service from the other business actor so as:
		1. damaging or could be suspected of causing a loss to the other business actor;
		2. restricted other business actor in selling or buying every goods and or the service from the relevant market.
6		The agreement with other party with the condition (The Special/Closed Agreement)
		The Agreement that will only supply or won’t supply again goods and or service if the distributor will not distribute its competitor’s product and or the factory will not give its goods to other outlets that compete with it.
7		The agreement to formed “Trust”
		The co-operation by forming the combination of company, by protect  and maintain permanently the viability of each company or its member’s company, that aimed in controlling the production and or the marketing on goods and or service.
8		The agreement from the Purchase Side or “Oligopsoni “
		Jointly to controlled the purchase or acceptance of supplies in order to be able to control the price of goods and or service in the relevant market.
9		The agreement with the Other Side in Foreign
		The agreement with other side in foreign that contained the provisions that could result the monopoly practice and or the unhealthy business competition occurred.

Prohibited activities

Law No. 5/1999 prohibit every kind of activity caused monopoly practices and unfair business competition. Those kinds of activities are:
1. Discriminatory practices towards certain business actors.
2. Anti-competition practices concerned with vertical integration.

a	Fix different price to supply goods or services to integrated companies that may result in the loss of competitors.
b	Supply goods with different quality, that may result in eliminated of competitors didn’t integrated in downstream sector because get supply with lower quality and or cause higher price so it make lower profit to business competitors which do not integrated.
c	Limiting or eliminating sales of goods and or services to business competitors which do not integrated so they can’t buy or sale to competitors which do not integrated.

3. Abuse of dominant position, monopolistic position, and monopsony.
4. Predatory conduct

a	Fix the price under production cost, in order to eliminating or ruining the business of their competitors in the relevant market.
b	Supply goods and or services in order to eliminating or ruining the business of their competitors in the relevant market.

5. Conspiracy

a	Arrange and or determine awardees of tender.
b	Conspiring with other parties to obtain information regarding the business activities of their competitors classified as company secrets.
c	Conspiring with other parties in order to impede the production and or marketing of goods and or services of their competitors with the aim of causing the goods and or services offered or supplied to the relevant market to become less, either in quantity, quality, or in timeliness required.

How KPPU Handle A Case?

Violation Indication
If one of the party get significant loss because of activities and or agreements prohibited in Law No. 5/1999, or there is information about one or a group of business actors or company become victim or involved in unfair business competition, so the allegation can accused to KPPU.
Accusation can also be sent for loss because of law or regulation (including District Regulation) that violated against principle of fair business competition.

Report
First report can do via oral (spoken), direct, or phone. Report or accusation must do in official (formal) way, those are written in Indonesian and submit to Subdirectorate of Report Handling, Secretariat of KPPU.

Report or accusation must completed with:
1. Letters and or documents with supporting information.
2. Reporter’s identity as name and address.

Written report accepted by Subdirectorate of Report Handling, Secretariat of KPPU will follow up by Secretariat of KPPU to check its completeness. If accepted report is incomplete or unclear, so Secretariat’s staffs will ask Reporter Party to complete and or give additional information needed.
Process of Case Handling

In this case, KPPU guarantee the secret of Reporter’s identity.

Secretariat of KPPU will follow up report according to Commission Regulation No. 1 Year 2006. As 30 working days from report accepted, Secretariat do filing to deliver in hearing. Furthermore, Commission will decide whether the report needs investigation or not.

To get enough proofs, Commission Assembly have the authority to call business actors and other parties – who alleged being the person who know about the violation – to give explanation and or supporting proofs. All investigated parties have to fulfill all Commission Assembly’s requests. If needed, Commission Assembly can ask for policemen’s help to present certain parties. Violation of this duty can caused in criminal investigation by investigating officers.

According to acquired proofs, Commission Assembly decided there is any violation or not. If there is a violation, they issued order and or sanction to business actors who legally and valid proven against Law No. 5/1999.

Result of investigation sent in KPPU’s Decision read in an open assembly.

KPPU’s Decision
If business actors proven against Law No. 5/1999 do not implement KPPU’s Decision, although they do not submit an appeal to District Court – so KPPU can through forced decision implementation, with do an execution via District Court. If needed, KPPU can hand over the case to investigating officers, to process as valid law.

Part Five: BUSINESS COMPETITION AND ITS ADVANTAGE FOR PEOPLE

What is advantage of Validation of Law No. 5/1999?
- Consumers or customers will not become victim of producers’ position as “price taker” anymore.

• Various products and price make consumers easy to take choice.
• Efficiency of nature resources allocation.
• Consumers will not deceived by high price and poor quality, that commonly happen in monopoly market.
• Consumers’ needs can be fulfilled because producers improve their quality and services.
• Make ideal goods’ price and services, in quality or production cost.
• Open the market so there are more chances for business actors.
• Create innovation in company.

How is consumer position concerned with Law No. 5/1999?
Consumers’ interest is one aspect of business competition’s aim (public interest), because the realization of business competition will create efficiency, so consumers get advantage from that efficiency, including low price and good quality. This will increase people (consumers) welfare. Definition of consumers in Law No. 5/1999 is “Every user and or utilizer of goods and or services, both for personal use as well as for the interests of other people” (Article 1 item 15).

How do consumer protection and its form in Law No. 5/1999?

Generally, consumer protection set in Article 4 until 29 Law No. 5/1999, but specifically arranged in these articles:

1. Article 5 (1) about Price Fixing
   “Business actors shall be prohibited from entering into agreements with their business competitors to fix the price of certain goods and or services payable by consumers or customers on the same relevant market.”
2. Article 14 about Vertical Integration
   “Business actors shall be prohibited from entering into agreements with other business actors with the intention of controlling the production of several goods which are products included in the production chain of certain related goods and or services where each product link is the end product of the production process or of further processing, either in one direct link or indirect link, which may potentially result in unfair business competition and or be harmful to society.”
3. Article 19 about Market Control
   “Business actors shall be prohibited from engaging in one or more activities, either individually or jointly with other business actors, which may result in monopolistic practices and or unfair business competition, in the following forms:
   a. reject and or impede certain other business actors from conducting the same business activities in the relevant market; or
   b. bar consumers or customers of their competitors from engaging in a business relationship with such business competitors; or
   c. forming a border of the distribution and or selling of goods and or services in the relevant market; or
   d. conduct discrimination practice on certain business actors.
4. Article 25 part (1) about Dominant Position

Business actors shall be prohibited from using dominant position either directly or indirectly to:

1. determine the conditions of trading with the intention of preventing and or barring consumers from obtaining competitive goods and or services, both in terms of price and quality; or
2. limiting markets and technology development; or
3. bar other potential business actors from entering the relevant market

The form of consumer protection in the Law Number 5 Year 1999 is freedom to choose competitive goods and or services by price and quality and the freedom to relate with other business actors.

What do consumers get from the fair business competition climate?

The consumer freedom to choose goods and or services and to relate with business actors will be create by supporting market situation that guarantee the same business opportunity for all business actors.

If the business actors has monopoly right or dominant position in producing and distributing services and or goods, there is a big chances the consumer will lost their right to choose goods and or services product. The Law Number 5 Year 1999 could give sanction to the business actors that misused their dominant position and using their monopoly right or their market power, which leads to unfair business competition or vanish consumer freedom to get goods or services that competing in the market.

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Small Business in Law Number 5 Year 1999

Who is small business actor?
Small business actor is they whom define in the Law Number 5 Year 1999 about small business actors based on Law number 20 year 2008 concerning Micro Business, Small, & Medium

How about the position of small business actor in Law Number 5 Year 1999?

Small business actor is an exception in Law Number 5 Year 1999 (Article 50 part h)
There are no small business actor’s criteria that explain in this exception, but the exception is regarding for business protection. However theoretically, small business naturally not include in the scope of policy and business competition law.

What is the reason of small business actor exception in Law Number 5 Year 1999?

The small business actor being an exception in Law Number 5 Year 1999, because they have no power to conduct prohibited action or prohibited agreement that break the Law Number 5 Year 1999. Besides, when small business actor does the prohibition, the effect will be insignificant on economic situation.

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