Proposal on International Trade Law:

Title: Importance to Protect the Local Investor in Electronic Commerce Market in Indonesia

Brief :

Indonesia is a huge market for electronic commerce in Southeast Asia.1 Based on the research
conducted by Temasek and Google called as “The Opportunity of Indonesia”, number of electronic
commerce in Indonesia significantly increased from 2015 to 2020.2 In 2015, there are 92 million of
internet users in Indonesia and in 2020 it predicted up to 215 million internet users.3 Thom this
numbers then in 2015, there are 18 million online buyers in Indonesia and in 2025, there are 119
million online buyers in Indonesia. In 2025, market value of electronic commerce in Indonesia will
reach $81 billion.4

Alibaba, as one of the biggest electronic commerce players in the world saw that opportunity and then
investing in Tokopedia. Tokopedia as a leading Indonesian electronic commerce company, has
received investment from Alibaba Group Holding as the lead investor around $1.1 billion funding.5
This is the first foreign direct investment conducted by Alibaba in an Indonesian company. Previously,
Alibaba had invested in Lazada Group around $1 billion and securing control in that electronic
commerce company.6 Lazada Group recognized as one of the biggest players in Indonesia, along with
Tokopedia.

The massive investment done by foreign investor to the start-up company in electronic commerce
then raising an issue about local investor protection. Since Lazada under Alibaba controls, local
investor raised an issued about protection for the local investors in electronic commerce. Andy
Boediman, one of the local players said that“ If, it’s continuous, then the local players in electronic
commerce will disappear”7. It already happen in India, when Amazon cam and all the local players
were disappear.8

The massive investment done by foreign investor in Indonesia, particularly in the electronic commerce
sector has a strong relation with the regime of foreign direct investment in Indonesia. Investment in
Indonesia regulated under Law Number 25/2007 regarding Investment.9 This law allowed the both
foreign and local investor to invest in Indonesia. This law also applied an equitable and non-

1
Tirto.id, Lazada dan Tokopedia dalam Cengkeraman Alibaba [Tokopedia and Lazada Under Alibaba’s Clench]
<https://tirto.id/lazada-dan-tokopedia-dalam-cengkeraman-alibaba-cuQz> [author’s trans]
2
Ibid
3
Ibid
4
Ibid
5
Nikkei Asian Review, Indonesia’s Tokopedia gets top investment from Alibaba
<https://asia.nikkei.com/Business/Deals/Indonesia-s-Tokopedia-gets-top-investment-from-Alibaba>
6
Bloomberg.com, Alibaba to Invest $1 Billion in Lazada to Speed Asian Drive
<https://www.bloomberg.com/news/articles/2017-06-28/alibaba-to-invest-1-billion-more-in-lazada-to-speed-
asian-drive>
7
Tirto.id, Membaca Arah Jack Ma dalam Peta E-Commerce Indonesia [ To Read Jack Ma’s Direction in
Indonesia’s E-Commerce Roadmap] <https://tirto.id/membaca-arah-jack-ma-dalam-peta-e-commerce-
indonesia-cveC>
8
Ibid
9
Undang-Undang Nomo 25 Tahun 2007 tentang Investasi [Law Number 25 of 2007 on Investment] [author’s
trans]
discriminatory treatment against country of origin. It means all the country that would invest in
Indonesia will get the same treatment from the government.

In addition, electronic commerce players in Indonesia mostly are information technology firms.In
Indonesia, we recognize the negative list of investment. This negative list provide us the list of business
sectors in Indonesia that are restricted to invest or not. It regulates under Presidential Regulation
Number 44/2016 regarding Investment Negative List. Under this list, information technology
categorized as open business sectors with certain requirement.

Under this list, the information and telecommunication then categorized into many sub-categories.
One of the categories that meet the Tokopedia and Lazada with sub-category of marketlace platform
based with investment value less then Rp 100 billion. Under this category, maximum investment can
be done by foreign investors is only 49%. However, this category does not explain, how if the
investment value is more than the threshold as mentioned above. Does the foreign investment can
be more than 49%?

The provision seem reasonable for the complaint submitted by the local investors. Next question then,
it is possible to restrict the foreign investment in the area of electronic commerce? If it’s possible, then
what mechanism that Indonesia should use without violating any international consensus? Or it’s fine
to keep the current condition by considering the national growth of economy and another factors?

This paper will find out what is the best way to keep the growth of electronic commerce in Indonesia
from the side of investment that keep the information technology company operating in Indonesia.
Decision to protect or not to protect the local investor will be based on the : international consensus
on investment, regulatory framework in Indonesia, and internal factors such as : competitiveness and
other general factors.