By MAKARIM & TAIRA S.

A. INTRODUCTION

With the passing on April 20, 1999 of Law No. 8 of 1999 on Consumer Protection (the "Law"), Indonesia (and Indonesian consumers) gained its (and their) first comprehensive law devoted to protecting the rights of and promoting the recourses available to, users of both goods and services. The Law, which became effective on April 20, 2000, is a significant step forward not only in trying to curb unfair business practices which cause loss to consumers but also in laying a framework for the raising of general awareness on consumer protection issues. By raising the consciousness of business agents and forcing them to adopt a more honest and responsible attitude, it is hoped that the quality of the goods or services will be raised, thereby ensuring the health, security and safety of all consumers.

This treatment of consumer protection as a moral or ethical issue is reflected by the stated principles and aims of the Law and, more particularly, in the quite detailed statement of the consumer's and the business agent's respective rights and obligations. For example, the consumer has the right (among others) to obtain goods or services in accordance with their stated condition, to clear and honest information on the condition of the goods or service, to be served correctly, honestly and without discrimination and to obtain compensation or a refund if the goods or services do not conform to the agreement. The business agent on the other hand has the obligation (among others) to provide clear, correct and honest information, to guarantee the quality of goods and services based on prevailing standards, to provide an opportunity for consumers to test or try goods or services and to provide compensation or a refund for losses caused or failure to comply with guaranteed conditions or quality.

This Memorandum is intended only to give a brief flavour of the Law and some of the issues raised and concerns held in respect thereof. Although not without its critics and sceptics, there are also those who believe the Law heralds the advent of consumer awareness and protection and also provide, by way of "class action" suits, a strong avenue of recourse against recalcitrant business agents.

After looking at the particular restrictions and prohibitions which are imposed upon businesses, this Makarim & Taira S. Memorandum attempts to summarize the other important areas of the Law relating to the institutions being created to enforce the Law and promote consumer awareness, the specific sanctions imposed for violations of the Law and some other relevant provisions. Finally, we shall briefly comment on some of the criticisms of the Law, its potential shortcomings and its perceived deficiencies.

B. PROHIBITED ACTIONS

Chapter IV of the Law details a multitude of actions, activities, inactions and circumstances which are prohibited. These include, among others, the following:

  1. Producing goods or providing services which:
    1. do not conform to standards or laws, label statements, actual measurements, described or guaranteed quality, composition, efficacy or description, or promised or advertised benefits;
    2. do not mention the expiration date or period of best use of the goods;
    3. are not "halal" when they are stated to be so;
    4. do not give certain specified details about the goods (e.g. name, size, weight, use directions, side effects, etc.) in the Indonesian language (if required by law); or
    5. in the case of goods, are damaged or flawed without specifying such condition.
  1. Offering, promoting or advertising goods or services falsely as if they:
    1. had discounts, special prices or certain characteristics, had obtained or had sponsors, certain profits or certain working characteristics or accessories;
    2. were available, did not contain a hidden flaw, hailed from certain areas, were complementary to other goods or denigrated other goods;
    3. were harmless or without side effects or promised certain things when, in fact, this was not the case.
  1. Offering, promoting, advertising or making incorrect or misleading statements about:
    1. the price or usefulness of, or the condition/right/compensation regarding, particular goods or services;
    2. offered discounts, attractive prizes or the hazards of using the goods or services.
  1. In sales or auctions, cheating or misleading customers by:
    1. stating that goods or services fulfilled certain quality standards or had no hidden flaws;
    2. not intending to sell the goods or services offered but rather other goods or services;
    3. raising prices or fees prior to conducting the sale.
  1. Offering, promoting or advertising goods or services:
    1. stating that goods or services fulfilled certain quality standards or had no hidden flaws;
    2. by offering free prizes if these are not so awarded as promised.

In addition to the above prohibited activities, the Law also forbids or regulates certain actions relating to the following areas:

  1. advertising agents producing misleading, incorrect or exploitative advertisements;
  2. the offer, promotion or advertising of medicines, food supplements, health equipment or health services by promising certain prizes;
  3. offering goods or services intended to be traded with prizes given through a lottery;
  4. offering goods or services by advance order; and
  5. coercion or other sales methods which may be disturbing to consumers.

The prohibited activities described above should not limit or curtail the effect of the "Advertising Code of Ethics and Practice" which has been prepared by the Association of Indonesian Advertisers. Food manufacturers should also be aware of the specific requirements contained in Government Regulation No. 69 of 1999 on Food Labels and Advertisements.

C. STANDARD CLAUSES

"Standard clauses" which are imposed unilaterally upon a consumer in a document or agreement are prohibited if they contain certain provisions or try to transfer the liability of the business agent. Prohibited provisions include those which state that:

  1. the business agent can reject the return of purchased goods or the refund of money paid for purchased goods;
  2. the consumer has granted a proxy to the business agent to conduct all unilateral acts relating to goods being purchased in installments;
  3. matters relating to proving loss of use of the goods (or utilization of services) purchased are regulated;
  4. the business agent can reduce the services or assets which are the objects of the transaction;
  5. the customer must comply with new supplementary or further regulations made unilaterally by the business agent;
  6. the customer authorizes the business agent to mortgage, pawn or encumber goods being purchased in installments.

Any standard clause must be clearly printed, easy to see and easy to understand. Standard clauses breaching the Law must be amended (although no time period for this is given).

D. LIABILITY OF BUSINESSES AND CONSUMER RECOURSE

Having seen the prohibited activities of business agents and the restrictions on standard clauses, not to mention the general obligations incumbent upon businesses in conducting their business operations, it is necessary to see what liability may be incurred by the business agent for violating the Law and, importantly, how the consumer may, directly or indirectly, have recourse against the business agent.

  1. Liability of Business Agents

    The basic principle contained in the Law is that a business agent is strictly liable and must provide compensation for damage, contamination and/or losses sustained by consumers as a result of using the goods or services produced or provided. The compensation may be by way of cash refund, replacement of goods or as otherwise regulated by law. However, the Law now states that such compensation (which does not rule out criminal liability) must be made within 7 days.

    An important part of the Law is the allocation of liability on specific business sectors. For example:

    1. an advertising agency is responsible for its advertisements and all consequences brought about by its advertisements;
    2. an importer is responsible as the manufacturer or foreign service provider if the products/services are not imported/provided by an agent or representative;
    3. a business agent selling goods or services to another business agent is responsible for paying compensation if the other business agent sells or provides the goods or services without change or is not aware that a change has been introduced by the business agent or that the goods or services do not comply with specifications; and
    4. a business agent whose goods are used for less than 1 year must provide spare parts or after-sales service and fulfill the product guarantee as agreed upon.

    Exemption from liability is possible in certain specific circumstances including, among others, where the claim arises after the relevant expiry date for claims or if there is no such date, after 4 years.

    As a general rule, it is the obligation of the business agent to prove that he is not violating the law or that he didn't cause the damage concerned.

  1. Consumer Recourse

    One of the most important features of the Law is the prominence given to the possibility for out-of-court settlement of disputes. Accordingly, consumers may sue a business agent through the Consumer Dispute Settlement Agency (see Section E.2 below) or through the courts. Any choice of dispute resolution mechanism should be made voluntarily so it is assumed that a business cannot preclude a consumer from recourse to non-court resolution. It is also implied that court and non-court settlement cannot be commenced simultaneously by the same consumer.

    Of even more importance so far as the settlement of disputes is concerned is the express ability of a consumer to file a "class action". Although such actions are not unknown under Indonesian law (they exist, for example, under Law No. 32 of 2009 on the Environment), the previous situation did not allow such organizations as the Indonesian Consumers Foundation (YLKI) to initiate lawsuits on behalf of consumer groups. Now, relevant institutions (see Section E below) will be empowered to assist consumers in filing class action lawsuits. Article 46 of the Law specifically permits lawsuits to be filed by:

    1. disadvantaged consumers or their heirs;
    2. a group of consumers sharing a common interest;
    3. an NGO whose aim is to protect consumers; or
    4. the government or governmental agency (in the event of major actions).

      Notwithstanding the ability to raise class actions, consumers are still encouraged to resolve their disputes with business agents by way of out-of-court settlements.

E. INSTITUTIONS AND GOVERNMENTAL RESPONSIBILITIES

Another notable aspect of the Law is the acceptance and promotion of the role of governmental and non-governmental institutions in both championing the cause of the consumer and in fostering and supervising consumer education. These will now be studied in further detail.

  1. National Consumer Protection Agency ("BPKN")

    The BPKN, which reports to the President, has been established to develop consumer protection in Indonesia. It will:

    1. provide suggestions and recommendations to the government to enable a consumer protection policy to be formed;
    2. undertake research/study on consumer protection law;
    3. conduct research on goods and/or services which affect consumer safety;
    4. bolster the development of relevant NGO's;
    5. disseminate information and receive complaints on and support campaigns and undertake surveys regarding, consumer protection.
    6. The BPKN will have between 15 and 25 members who must fulfil certain criteria as set out in the Law. Members hold office for a renewable term of 3 years. Pursuant to Government Regulation No. 57 of 2001, members of the BPKN are appointed and dismissed by the President whilst the Chairman and Vice-Chairman are appointed by the members.

  1. Consumer Dispute Settlement Agency ("BPSK")

    The BPSK holds a number of duties and functions. Among others, the BPSK will:

    1. handle and settle consumer disputes through mediation, conciliation or arbitration;
    2. provide consultancy services on consumer protection;
    3. oversee standard clauses;
    4. receive complaints from consumers, summon suspects and witnesses, conduct investigations, hire investigators, obtain evidence, determine consumer losses, arrive at and notify parties of decisions/verdicts on consumer protection violations and impose administrative sanctions.

      It is intended that there will eventually be a BPSK in every district (second – level region) in Indonesia. Initially, there will only be 10 or so such agencies. The Law (and one of its implementing regulations, namely Decree of the Minister of Trade No. 13/M-DAG/PER/3/2010) has further provisions on the structure of the BPSK's, the criteria for membership and requirements as to the decisions of the BPSK council which handle and settle consumer disputes. Decisions of the council may be appealed to the District Court and then to the Supreme Court.

  1. Non – Governmental Organizations ("NGO's")

    The Law (and one of its implementing regulations, namely Decree of the Minister of Industry and Trade No. 302/MPP/Kep/10/2001, as amended by Decree No. 302/MPP/KEP/10/2001) specifically recognizes the role and function of NGO's which promote consumer protection and which fulfil certain requirements. It is contemplated the NGO's will:

    1. disseminate information to enhance awareness of consumer issues;
    2. provide advice to consumers and cooperate with government agencies; and
    3. assist consumers to fight for their rights and supervise the implementation of consumer protection.

      The implementing regulation requires such NGO's to register with the Government and apply for a registration certificate or 'TDLPK'. The NGO needs to file reports of its activities and is subject to certain sanctions for failure to do so.

  1. Governmental Responsibilities

    It is noteworthy that the Law and its primary implementing regulation, Government Regulation No. 58 of 2001 on the Nurturing and Supervision of the Implementation of Consumer Protection, place great emphasis on the role and responsibility of the government in fostering and supervising consumer protection. It is incumbent on the government and the Minister of Industry and Trade to foster consumer protection by creating a business climate, ensuring the growth of business – customer relationships and developing NGO's to enhance consumer protection. There is also provision for supervision in such areas as standard production quality, labels, advertisements, testing, standard clauses and after sales servicing.

    So far as supervision is concerned, responsibility is shared among the government, the community and NGO's. The Minister of Industry and Trade is responsible for ensuring that the supervision itself does not break prevailing laws and harm consumers.

F. SANCTIONS

The Law stipulates administrative and criminal sanctions for violations of the Law.

The administrative sanctions include the payment of compensation of up to Rp. 200 million. This will be regulated further.

Criminal prosecution may be brought against violators with possible fines of up to Rp. 2 billion and prison sentences of up to 5 years, depending on the relevant provision(s) breached. Additional sanctions may also be imposed in the form of, among others, confiscation of goods, payment of compensation, injunctive relief and the revocation of business licenses.

G. COMMENTARY

Whilst the groundbreaking features, noble intent and manifest significance of the Law is not doubted, there have been concerns raised not only on some aspects of the Law itself but, more vocally, on the questions which still remain concerning the enforcement of the Law. Noted below are comments on a few of the Law's potential shortcomings and perceived deficiencies.

  1. Enforcement

    Although the BPSK is given apparent power to deliver verdicts and impose sanctions in respect of breaches of the Law, the impact of this institution will only be positive if it is given the backing and financial support that it needs. There have been concerns expressed that either the sanctions meted out will not be significant enough to lead to a permanent change in business practice or that the BPSK itself will just not be able, for one reason or another, to enforce its judgments. Criticisms have already been made concerning the handling of the "Ajinomoto case".

    Further concern is apparent with respect to the "localization" of enforcement, i.e. that with local dispute settlement agencies rather than one national agency hearing disputes, the possibility of undue interference or outside pressure may be overwhelming. In addition, with local members hearing disputes involving powerful local businesses, the chances of there being conflicts of interest will be significantly increased.

    It is not surprising that another concern in respect of enforcement of the Law surrounds the ability to appeal to the Courts. As with the Bankruptcy Law, this will be a critical area in how the Law is perceived and whether consumers will feel they have a chance of ever successfully doing battle with a big business. Given the vagaries and uncertainties of Indonesia's court system, there remain significant concerns as to whether implementation of the Law may become held up or even halted by the judicial process.

  2. Definitions and Terms

    Prior to any enforcement of a violation of the Law it has to be determined that a prohibited activity has been carried out. This may be easy to prove in certain circumstances where, for example, the weight of the contents is different to the weight stated on the label. However, it is more difficult where, for example, it has to be proved that an advertisement is "exploitative", a side effect was caused by the relevant product in question or that a product was damaged at the time of manufacture rather than at the time of initial use.

  3. Funding and Political Pressure

    Apart from the cynical observation that the government may have been paying only lip-service to the movement for greater consumer protection, it is clear that in order to educate a widespread population, undertake research and disseminate information, financial resources and other support will need to be both long-term and substantial. It is a worry of certain interested parties that (to take an analogy from a factory) the physical structure will be erected but there will be no equipment or labour to actually carry out the business. It is certainly the case that there has been more pressing items on the government's agenda in the months since the Law became effective.

    One of the legacies of previous Indonesian governments has been the inordinate influence that large businesses have had over government departments, their decrees and regulations and the implementation and enforcement thereof. Pressure from interested parties to protect their existing lucrative business practices at the expense of the consumer will presumably continue relatively unabated.

  4. Education

    It will inevitably be the case that the vast majority of violations of the Law will be made by small, local businessmen taking advantage of uneducated, less sophisticated consumers. It is these kinds of situation, where the consumer most requires protection, that protection will be hardest to come across. Although the educational aims of the Law are laudable, it will be hard to penetrate the vast rural areas where many of the most flagrant violations will occur, particularly if the nearest consumer protection agency is many miles away and the violator is a small and itinerant retailer. It is to be hoped that NGO's will play a prominent part in addressing the difficulties of penetrating rural areas.

  5. Unrealistic Time Requirements

    Again, although the intent of the Law and its drafters is to be applauded, there has been some skepticism as to whether some of the timeframes in the Law are realistic.

    For example, Article 56 of the Law requires a business agent to implement the decision of the BPSK within 7 working days from receipt of the decision. However, the business agent has 14 days in which to file an objection to the decision. Article 58 then goes on to require the District Court to make a decision on the objection within 21 days, another timeframe which has raised the eyebrows of cynical observers.

The above discussion is only intended to be a brief summary of the Law on Consumer Protection and should not be relief upon as legal advice or as a substitute for detailed advice in any particular case. We shall be pleased to advise further on particular aspects of the Law as well as to give assistance generally in respect of trade, investment or other corporate or commercial matters.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.