Indonesia’s anti-trust watchdog, the Business Supervisory Competition Commission (KPPU), has ordered the French company Carrefour to sell its subsidiary PT Retailindo. Coming more than two years after Europe’s largest retailer purchased a 79% stake in its Indonesia subsidiary, the order is in addition to a US$2.6m fine. The decision has attracted criticism from investors, the business community, lawyers and almost everyone in between.
Yet such decisions are not entirely unexpected – in fact the anti-trust watchdog has an impressive track record scuttling foreign investment into the country. The bad news for Indonesia is that foreign investors’ tolerance for its opaque and often conflicting competition laws is wearing thinner by the day.
Context
In January 2008 PT Carrefour Indonesia acquired a 79% equity interest in PT Retailindo from its majority shareholders, Prime Horizon and PT Sigamartan Alfindo, for US$71.3m. The deal formed not only an important part of the company’s expansion beyond home markets in Europe but also increased its market share in Indonesia.
This market share, according to the watchdog, exceeded that which is allowed under the law. KPPU alleged that the acquisition led to monopolistic practices by the company at both upstream and downstream levels of hypermarket and supermarket operations – which it subsequently used to force unfair trading terms on its suppliers.
Carrefour was investigated for violation of Articles 17, 20, 25 and 28 of Law No 5/1999, also known as the law on monopolies and unlawful business practices. “The dominating market share has given Carrefour a strong bargaining power which has been misused to pressure suppliers to agree with their offered trading terms,” said Anna Maria Tri Anggraini, one of the KPPU’s commissioners. Yet of the alleged breaches, only Article 17 has been pursued by the KPPU, as, according to Anggraini, no government regulations explained how the statute was supposed to be implemented. This is a statement that for many, seems to typify the current state of the country’s competition laws. According to a UNCTD voluntary peer review on the country’s competition policy. “The competition law [in Indonesia] contains ambiguous language that contributes to uncertainty. It also contains language inconsistent with its own stated objectives.”
Uncertain precedent
Existing laws are seen as unnecessarily complicated, overlapping with other regulations and conflicting and contradicting with other laws. Add to this the regulatory uncertainty provided by the as-conspicuous spectre of official corruption and the result is a hostile environment. Foreign investors may soon forgo their activities on the archipelago in favour of calmer and more predictable South-East Asian markets.
“Many of the decisions made by KPPU have contradicted the capital markets regulations,” said Indra Safitri, a lawyer who specialises in consulting on M&A and capital markets transactions. “Laws governing the KPPU, competition and the capital markets all need to be harmonised to ensure legal certainty for investments into this country.”
Carrefour’s recent experience is not the first time a foreign company has run afoul of the country’s competition laws. In 2007 the KPPU fined Singapore’s sovereign investment arm Temasek Holdings US$3.8m for breaching its anti-trust laws. On this occasion, the watchdog ordered Temasek to divest the interest it held in either of the country’s largest cell phone operators.
At the time SingTel held 35% of the capital in PT Telekomsel and 41.9% of the capital in PT Indosat. Singtel sold its interest last year after its appeal against KPPU’s decision was rejected. Chris Kaster, deputy chairman for investment at the Indonesian Chamber of Commerce and Industry, said that despite what one may think of the country’s competition laws or the role KPPU plays enforcing them, the onus is on foreign investors to ensure they comply with the legislation. “Foreign investors in the future should be better informed about investment rules such as the existing negative investment list and the monopoly law, the tax law and the limited company law,” he said.
The question is, however, at what point investment will be affected. Andrew Christopher, who is a partner with Baker & McKenzie, said this is the ‘64 billion-dollar question.’ "Competition law in Indonesia is developing and therefore uncertain...while regimes in India and China aren’t always clear, foreign investment is less likely to be affected there, because they are such hot markets,” he said.
This is something the Indonesian government is well aware of. “We have made mistakes in the past and it won’t be easy to change things,” said chairman of the official Indonesia Investment Coordinating Board, Gita Wirjawan. “It won’t be a matter of days or months. But I have faith that the new laws will set the foundation for an easier and more transparent framework for foreigners doing business in Indonesia.”
Regional harmonisation
The current state of Indonesia’s competition laws mirrors that of other countries in South-East Asia. In Vietnam, the Philippines and Thailand, competition law regimes are also renowned for their vague language and ineffective and patchy enforcement.
The difficulties that this presents for foreign investors have hastened calls for the harmonisation of competition laws in the ASEAN region. But this is something more easily said than done – despite the fact that there is already a high level of convergence. “Over the last decade, competition laws have become ubiquitous and are all pretty common in terms of features,” said Baker’s Christopher. “Harmonisation is occurring and regulators won’t be looking to wind back the clock ... but there are hurdles.”
These hurdles were recognised by the ASEAN Experts Group Committee on Competition Law and Policy earlier this year. Not all member countries have competition laws – and even fewer effectively enforce them. And most governments have expressed little interest in ceding power over their ant-trust regimes to a supranational regulator, meaning uniform competition law for ASEAN may be some time away.
The fact that a dialogue regarding these issues has been established means it may not be far-fetched, but the challenge facing competition law practitioners is profound. While navigating the region’s competition law regimes, lawyers will need to stay as close to regulators across the region as they now do with their clients. ALB