Graphics firms urge House to ban vertical integration

JAKARTA (JP): The Association of Indonesian Graphics Companies (PPGI) has urged the House of Representatives to prohibit the practice of vertical integration in the country's industrial sectors.

The association's chairman Fauzi Lubis urged a House commission currently deliberating the antimonopoly bill to make vertical integration unlawful on the grounds that the practice had eaten up many small downstream businesses.

"There should be a clause which strictly forbids the practice of dominating an industry from upstream to downstream, be it by a company or a business group," Fauzi told the commission on Friday.

He said many producers of paper products, most of which are small and medium-scale enterprises, had collapsed because they could no longer compete with large-scale producers working in upstream and downstream industries.

PT Indah Kiat of the Sinar Mas Group dominates the paper industry from upstream to downstream, he said.

Indah Kiat owns industrial forests and makes products ranging from wood pulp to notebooks, envelopes, computer paper, photocopy paper and other stationery products.

Sinar Mas subsidiaries PT Pindo Deli and PT Paper Onward Utama currently dominate the tissue paper industry, he added.

The two companies produce their own pulp and have mills which manufacture toilet paper rolls and facial tissues, he explained.

"The emergence of large players in the industry has placed small and medium-sized producers at an unfair disadvantage," he said.

The companies then sell their products to linked companies operating downstream at prices below those quoted by other producers.

This makes the group's downstream products cheaper, forcing competitors out of business.

"The large groups sell at lower prices than small companies not because they are more efficient, but because they are intent on wiping out their competitors by using predatory pricing policies," Fauzi said.

Once the competition is obliterated, prices are quickly raised, he said, adding: "They are currently not considered guilty of dumping their products on the market under any domestic law."

Fauzi said the House should also forbid companies from exporting upstream products at prices below prevailing domestic market prices because of the practice's propensity to trigger unhealthy competition.

He said that small and medium-scale producers were unable to compete on these terms because their raw material costs were higher, adding that the end result was that they were squeezed out of the export market.

Fauzi said the association agreed with the House proposal to limit market share to 30 percent and to establish a monitoring commission to evaluate implementation of the antimonopoly law.

The association also agreed that the law should be backed up with criminal and financial penalties which take affect after a six months transition period has been observed. (das)