Jakarta learns from TikTok Shop ban

Jakarta learns from TikTok Shop ban

With the emergence of digitalisation, the dynamics of competition in e-commerce have drastically shifted. This shift has also introduced "social commerce", commonly known as "s-commerce" as a new phenomenon in Indonesia's digital economy.

S-commerce combines the advantages of e-commerce and social media, enabling interactions and transactions between customers and merchants within a single platform.

In Indonesia, TikTok Shop has steadily expanded its presence within the competitive online shopping sector over the past two years, a market primarily dominated by platforms such as Tokopedia, Shopee, and Lazada. It is worth noting that there are 125 million active TikTok users in Indonesia, including 6 million sellers and content creators who utilise TikTok Shop for revenue generation by selling their products on the platform. However, this new trend in S-commerce has sparked a debate, leading to the shutdown of TikTok Shop on Oct 4, although it was later confirmed to be a "temporary" measure.

The ban was triggered by protests from SME actors, especially those at Tanah Abang who claimed to be disadvantaged by unfair competition in the market, taking into account e-commerce, specifically s-commerce such as TikTok Shop.

TikTok Shop -- a new online market platform -- has the ability to dominate and affect market prices as most goods sold on the platform are imported and sold at relatively low prices. Some local sellers have reported to be experiencing a daily revenue drop of more than 80% in recent months. To address this issue, the government this year enacted Ministerial Regulation No.31, which governs the rules on social media also engaging in e-commerce. The Joko Widodo government has also imposed price controls by setting the minimum price for imported goods to be sold, which is US$100 (3,523 baht), to avoid predatory pricing.

Yet, the debate on whether so-called "s-commerce" like TikTok Shop should be allowed is just the tip of the iceberg. There are still unaddressed concerns related to monopolistic practices and unfair competition that have yet to be resolved by Indonesian antitrust laws and the new ministerial regulation.

It is important to understand that the issue related to e-commerce is not merely about technological advances; it should be discussed in terms of new market dynamics -- where algorithms and data are utilised as tools and strategies to identify and influence consumer behaviour and to control the market.

With so-called "s-commerce", these strategies can be implemented even more easily as user data, behaviours, and personal information are already recorded in databases. This can lead to "self-preferencing" and "exclusionary" actions that put competitors at a disadvantage while consumers face a potential threat of personal data abuse.

It is also crucial to note that e-commerce presents a heightened risk of a monopoly that finally culminates in unfair competition. A glaring example is Google's abuse of its dominant position as a search engine to engage in self-preferencing or favouritism toward its own shopping services over other platforms, making its products more prominently featured. In this regard, the General Court of the European Union imposed a substantial fine of €2.4 billion on Google.

Another case study involves Alibaba, which was found to have violated China's antitrust law by restricting merchants from offering their products on alternative online shopping platforms. These exclusionary actions not only stifled competition within the e-commerce sector, but also had adverse effects on innovation within the digital economy and consumer interests. As a result, Alibaba was fined $2.8 billion early this year.

These cases emphasise how the ongoing development of e-commerce can foster monopolies and unfair competition, potentially jeopardising other competitors, especially Indonesian SME actors who are still adapting to the new digital economy regime and its transformation.

Further, regulations concerning anti-monopoly practices and market competition in Indonesia have been governed by Indonesian legislation -- Law No.5 passed in 1999; this law is severely outdated as it cannot keep up with digital business, having remained unchanged for over 20 years.

Having said that, the Indonesian government urgently needs to amend the 1999 antitrust law, introduce provisions to prevent predatory pricing, self-preferencing, and exclusionary practices, and strengthen the regulations outlined in Ministerial Regulation No.31 Year of 2023.

A new antitrust law should also address concerns related to personal data protection, as well as provisions related to competition and consumer protection in Free Trade Agreements (FTAs), which have already been ratified by the Indonesian government.

In conclusion, the "temporary" shutdown of TikTok Shop has delivered a significant lesson to Indonesia.

Firstly, we learn that there are a lot of aspects that have not yet been addressed by the current antitrust law, and therefore, the development of digital transformation should be the driving force for the Indonesian government to revise it. Should platforms like TikTok Shop continue to operate in Indonesia, robust antitrust laws are necessary to address new and intricate challenges, along with potential threats associated with digitalisation.

Secondly, the case of TikTok Shop confirms how digital literacy and digital readiness, especially among SME actors in Indonesia, remain a principal concern for the government. To tackle this, it is essential to address fundamental issues, particularly concerning digital infrastructure and equitable access to digitalisation.

Therefore, cooperation among different government agencies and ministries, the public sector, and business actors is vital to address this multidimensional challenge.

Ulfah Aulia is a research assistant working at an international economic think tank based in Jakarta, Indonesia. Her research interests include trade policy, international trade, international economic law, international law, and development issues.

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