Industry Self-Regulation Not Automatically a Cartel
Regulations created by industry associations before the government issues official rules cannot automatically be categorised as cartel practices. In many cases, standards implemented earlier by associations are later adopted or become the basis for the government in formulating policy.
Director of the Center for Law and Good Governance Studies at the Faculty of Law, University of Indonesia (CLGS FH UI), Hari Prasetiyo, stated that this process is known as the concept of norming, where practices or standards that develop within an industry become a reference in the formation of norms by the government.
“In many government policies, the standards set by the government are actually based on regulations previously established by industry associations. This is known as the concept of norming. Thus, an industry association that regulates itself before the government makes rules cannot automatically be considered to be operating a cartel,” Hari said during a Focus Group Discussion (FGD) entitled ‘Cartels and Government Intervention in Addressing Market Failures: A Study on the Setting of Tariffs and Quotas by the Government and Industry’ organised by CLGS FH UI recently.
According to Hari, the assessment of alleged cartels needs to consider the context, reasons, and objectives of the business actors’ actions, especially if the regulation is related to a regulator’s policy or aims to address market failure. He assessed that actions by business actors emerging within the framework of a regulator’s policy should not be immediately equated with cartel agreements made independently to gain profit.
“KPPU often views cartel actions as per se illegal without looking at the background. In fact, in several cases, judges have considered the reasons and objectives behind the actions of business actors who were actually implementing government policy,” Hari said. He noted that industry needs regulation to protect consumers, but compliance with regulator policies or directives should not create a risk of being prosecuted as a cartel.
This issue was evident in the policy on maximum interest rate limits or economic benefits for online lending. The Financial Services Authority (OJK) encouraged rate restrictions to protect the public from high interest while giving the Indonesian Fintech Lending Association (AFPI) a role in industry regulation. On the other hand, the Business Competition Supervisory Commission (KPPU) viewed the agreement on interest rate limits as a form of price fixing that could violate Article 5 of Law Number 5 of 1999 concerning the Prohibition of Monopolistic Practices and Unfair Business Competition.
A similar difference in approach previously emerged in the policy on the early culling of chickens involving the Ministry of Agriculture. That policy was initially considered a cartel practice before receiving a different assessment at the judicial level.
The Head of the Master of Law Study Programme at FH UI, Ratih Lestarini, said government intervention becomes a necessity when market failure occurs. However, the boundaries of authority between sector regulators and business competition law enforcement agencies need to be clarified.
“We must firmly distinguish between pure coordination for cartel profit and actions by business actors that arise from regulator directives for the public interest. This regulatory uncertainty confuses business actors and disrupts the investment climate,” Ratih said in her written remarks.
Faculty of Law lecturer at Hasanuddin University, Dian Utami Mas Bakar, also highlighted the importance of the legality principle in government intervention. She said informal directives or regulator stances that have not been formalised in regulations can create legal uncertainty for business actors. Dian also stressed the need for the principle of proportionality in the process of imposing sanctions on business actors.
Meanwhile, Dendry, a supervisor from the OJK’s Consumer Protection and Supervision of Financing Institutions, Venture Capital Companies, Microfinance Institutions, and Other Financial Services Institutions division, explained that the cap on online lending interest rates is part of an effort to correct market failure and eradicate illegal online loans. He said industry supervision also utilises the role of associations as Semi-Self Regulatory Organisations as stipulated in Article 126 of the Financial Sector Development and Strengthening Law (P2SK). The OJK also has a memorandum of understanding with KPPU to align policies.
Director of Consumer Empowerment at the Directorate General of Consumer Protection and Trade Order of the Ministry of Trade, Immanuel Tarigan Sibero, said state intervention through standardisation, quota setting, or price stabilisation may be needed when market and distribution failures occur.
“State intervention for price stabilisation is very different from horizontal cartel agreements between business actors. Therefore, harmonisation and division of roles between regulatory agencies and law enforcement agencies such as KPPU is key to maintaining trade order,” Immanuel said.
Chair of the Daily Board of the Indonesian Consumers Foundation (YLKI), Niti Emiliana, added that setting upper limits on prices or loan interest rates can essentially benefit consumers. Tariff or price limits can also serve as a signal for the public to distinguish between legal and illegal business actors.
The FGD concluded that alleged cartels cannot be assessed solely with a per se illegal approach. The impact, objectives, and benefits of a policy for the public interest must also be considered. This approach is deemed consistent with Article 3 letter a of Law Number 5 of 1999, which places public interest and the improvement of national economic efficiency as part of efforts to enhance welfare.