Fri, 29 Sep 2000

The impact of antitrust law

By Destivano Wibowo

JAKARTA (JP): The 1999 law on monopoly and unfair business competition is now effective, and will mostly affect the trade and industry sectors.

Relations between manufacturers and distributors, and that between distributors and retailers in Indonesia, will also be greatly influenced.

Most manufacturers and distributors in Indonesia often wish to restrict resale methods, but these restrictions raise some major issues under the law. Current practices here show frequent practices now banned under the law among manufacturing companies, such as territorial or geographical restrictions.

Such restrictions from a manufacturer limits the area in which the distributor can sell. The manufacturers usually demand that each distributor develops and satisfies demand for its products only in a certain location and its distributor is banned from selling its products outside of the area.

The aim is to protect small distributors' market -- which sounds harmless except that it contains potential antitrust risk, as it negates competition among distributors selling the same brand from the same manufactures.

Such an arrangement is now banned under Article 15 of the law. But any manufacturer wishing to avoid this restriction can still have some sort of "geographical" arrangement by imposing "areas of primary responsibility".

Under this concept, the distributor is required to do his best in satisfying consumer demand for the manufacturer's products in the area of primary responsibility, but distributors can still sell the products outside the area.

The second common type in distributor arrangements is the tie- in arrangement. Manufactures producing more than one product may seek to tie the sales of one product with that of another. This practice is common among manufacturers with sufficient market power, forcing the buyer to take a second product as a condition of obtaining the desired goods. This aims to boost the sale of slower-moving items.

But in some cases, consumers find themselves stuck with goods they do not need. This could reduce competition, and is thus also banned under Article 15.

The third common type of distributor agreements is vertical price fixing. This is an agreement whereby a seller and a buyer agree with respect to the price at which the buyer will resell.

Price fixing can also involve discounted prices and is also banned if tied to the following conditions: (a) that the party receiving goods must agree to buy other goods from the supplying business actor; or (b) that party shall not buy the same or similar goods from competing business actors.

Meanwhile a "suggested retail price" or "recommended retail price" from manufacturers is not considered price fixing as it does not entail obligations to comply.

Can a manufacture order its distributor against selling other products made by its competitor? Yes, as long as the manufacturer does not require the distributor to resell at a specified price level or give discounts.

But if the manufacturer requests the distributor to sell at a certain price level, then the distributor cannot be banned from selling other manufacturer's competitor products.

These alternative solutions, however, can create problems if the seller or manufacturer is dominant or has a significant market share.

In such cases Article 19 of the law would apply; such arrangements would be subject to review by the Business Competition Supervisory Commission.

Distributor arrangements can create problems if the business actors are insensitive to the issues of antitrust laws. Business parties dealing in the above arrangements should restructure their activities in line with the law. By identifying the legal restrictions, problems can be avoided.

The writer is the secretary-general of the Association of Anti Trust Lawyers and works with the Lubis Ganie Surowidjojo law firm in Jakarta.