Strict Cross Border Regulations Critically Needed to Protect Local MSMEs

TEMPO.CO, Jakarta - The absence of strict cross border trade regulation has caused tough price wars, putting pressure on local MSMEs.

The Covid-19 outbreak has accustomed us to various new habits, from the way we pray to the way we shop. Fulfilling everyday needs through online platforms has been a natural behaviour since the pandemic started. The trend is not only happening in Indonesia, but also in the Asia-Pacific Region as the biggest market of the industry. It is believed that people might continue ordering online out of fear of a pandemic blowback or might have been used to the previous lifestyle during lockdowns.

The pandemic has supercharged digital adoption and fueled dramatic growth for e-commerce platforms. In Indonesia, for example, the number of e-commerce users is predicted to reach 212.2 million users by 2023, growing 9.8%. It is undeniable that the e-commerce phenomenon boosts Indonesian economic growth and helps the micro, small, and medium enterprises (MSMEs) to survive during the pandemic.

Unfortunately, Indonesia has not created a strict regulation to control cross border transactions. The absence of the government's arrangement regulating cross border transactions will further jeopardize the local businesses.

According to the Chairman of the Indonesian MSMEs Association (Akumindo), Ikhsan Ingratubun, there is no further policy to revise Regulation of the Minister of Trade of the Republic of Indonesia Number 50 Year 2020 regarding Provisions on Business License, Advertising, Mentoring, and Supervision of Business Players in Trade through Electronic System. “What does the government do to protect local enterprises?” Ikhsan stated.

Tough price competition becomes one of the disadvantages that local enterprises need to face due to the absence of cross border regulations. The foreign traders can sell products at a very low price. “They can split the import consignment to avoid the import duty. It makes it difficult for local businesses to compete with them. That’s where the domestic e-commerce and cross border idiom come from,” said Ikhsan.

Domestic e-commerce platforms do not do the splitting mechanism. They import goods from Indonesia Customs and all sellers are domestics, which both contribute to the state’s income. Unlike cross border e-commerce platforms, there is an act of splitting or breaking up the purchase of imported goods so that they are free from import duties. In addition, the practice also impacts official distributors who sell their goods with official permission and pay tax as regulated. Their products are also recorded in accordance with the actual products which follow all customs duties and regulations.

Ikhsan said, despite the free trade system signed by Indonesia, the foreign goods will still need to be strictly regulated to maintain a fair level playing field. Thus, both online or offline imports can make a significant contribution to the country’s economy.

INFO TEMPO