Cross Border Cartel in International Trade: An Indonesia Case

Study

Ria Setyawati, Iman Prihandono and Dian Purnama Anugerah

Law Faculty of Universitas Airlangga

Keywords: Cross-Border, Cartel, Trade, Unfair Competition, WTO.

Abstract: International trade law is based on several basic principles, these are the fairness and transparency principles.

Fairness principles ensures that all WTO members obtain similar treatment. Likewise, the transparency

principles aim at providing predictability to interests group in international trade. However, trade may be

distorted by an unfair practice. The exchange of goods may sometime be controlled by a limited number of

goods producers/suppliers. International traders may control the amount of exported or imported goods to

another countries. With this ability, international traders may have the ability to control the price and

availability of product in a particular market. The Indonesian fair competition law prohibits cartel practices.

Unfortunately, there are issues in a cross-border cartel practices. This article examines how cross-border cartel

practices may occur in international trade activities that will disturb Indonesian market. Further, it also

examines legal problems in tackling cross-border cartel practices. It argues that jurisdiction is the most

problematic issue that need to be resolved. Cooperation between Indonesia and its major trading partners may

prevent cross-border cartel.

1 INTRODUCTION

In order to receive the maximum income,

undertakings tend to make a lot of strategies to

conduct their business. One of the strategies is to

make business agreement with other undertaking,

including its competitors. To avoid unfair business

practices, agreements made by undertakings should

be in line with the Law Number 5 Year 1999

regarding prohibition of monopolistic practices and

unfair business competition (hereinafter referred to as

Indonesia Competition Law). One type of agreements

prohibited by Indonesia Competition Law is cartel

agreement.

Until today, Business Competition Supervisory

Commission (Komisi Pengawas Persaingan Usaha,

hereinafter referred to KPPU), has settled some cases

of cartel activity. Some of them are cartel activity on

importation product for food. Until 2018, KPPU has

not yet settled any cross-border cartel activity. The

absence of KPPU settlement on cross-border cartel

does not mean that there was no cross-border cartel

activity in Indonesia. The cross-border cartel activity

could have happened with some difficulties to

apprehend and settle the case.

2 CARTELS AND POTENTIAL

CROSS-BORDER CARTELS IN

INDONESIA

Legal Economic Dictionary ELIPS defines cartel as

conspiracy or alliance among some producers of

similar products in attempt to control production,

price, and selling to gain the monopolistic position

(Usman, 2011). Cartel is also defined as syndicate

which is a written agreement among some similar

producers to rule and control things, such as price,

marketing area, and others in order to suppress

competition and/or to benefit the business

competition (Purba, 2014). Cartel agreement IN

Article 11 Indonesia Competition Law is an

agreement made by undertakings to control the price,

supplies, or marketing strategies to suppress or even

to negate the competition. Komisi Pengawas

Persaingan Usaha (The Business Competition

Supervisory Commission, hereinafter referred to as

KPPU) succeeded to enforce the Article 11 of

Indonesia Competition Law in order to settle some

cartel case that involved domestic undertakings.

In Article 11 of Law No. 5 Year 1999, cartel can

be conducted through price, production, and

Setyawati, R., Prihandono, I. and Anugerah, D.

Cross Border Cartel in International Trade: An Indonesia Case Study.

DOI: 10.5220/0010050600870094

In Proceedings of the International Law Conference (iN-LAC 2018) - Law, Technology and the Imperative of Change in the 21st Century, pages 87-94

ISBN: 978-989-758-482-4

marketing area. Price cartel is conducted by cartelist

through determining price of goods and/or services.

Production cartel is the form of cartel that control the

product supply by agreeing both quantity and quality

of the goods and/or services among the cartelists. The

other form of cartel is by determining market

strategies including the marketing area.

There are damages of cartel agreements:

1. The occurrence of monopolistic practices by the

cartelists caused macro result in inefficiency of

resource allocation. Therefore, it can lead to

deadweight loss which usually caused by policy

to restrict production by the monopolists to keep

the high price (Nugroho, 2015).

2. Consumers will lack of choice, price, quality, and

proper goods and/or services (Nugroho, 2015).

If there are only few undertakings that dominate

the market in the industry, they will tend to escalate

price and to restrict production. That actionis taken to

avoid unbenefited competition of each undertaking,

so that it can increase the benefit, distribute marketing

area, and determine the price. In practice, this type of

action is manifested in the form of association. As the

member of an association, undertaking can make

agreement regarding the price, marketing area, or

production level which later can lead to monopolistic

practice and unfair business. Those kind of business

practices can harm the consumers because the lack of

product quantity in the market. It can also lead to

significant price changes of the product. Cartel

practice gives the opportunity to undertakings to

unfairly increase the price and creates barrier for

potential competitors to enter the market. While for

consumers, this practice can cause lack of product

choices of goods and/or services in the market.

Another example of cartel practice is when the

supplier set up a single selling agent to by all of the

output with an agreed price and to make arrangements

to market the products with coordination. Other form

is when the supplier make an agreement with

determining the same price to all of its products so

that it can eliminate price competition and use

product differentiation strategy to dominate the

market. The more comprehensive form of cartel is

application. Not only the same selling price and joint

marketing, but also limiting the amount of production

including quota system for each supplier and

adjusting coordinated capacity whether reducing the

over-capacity or expanding capacity based on

coordination. Cartels are usually done for the purpose

of utilizing the mutual market forces of the suppliers

to gain monopoly profits as well as to defend against

existing competition (Nugroho, 2015).

Cross-border cartel has no specificity in terms of

meaning. When it is connected to international

market, the cartel which was originally a domestic

anti-competitive activity would turn into a

transnational anti-competitive action that can harm a

particular country. Cross-border cartel conducted by

undertaking in a particular country that can cause

negative impact to other undertaking in other country

and even affect cross-border consumers.

Cross-border, according to Oxford Dictionary

defined as “Passing, occurring, or performed across a

border between two countries”. In a broader meaning

according Cambridge Dictionary, cross-border is

defined as action between different countries, or

involving people from different countries. When it is

associated with legal practice, cross-border can be

understood as something that goes beyond the

jurisdiction of a country, relating to other countries.

Cross-border cartel has the same meaning with the

regular cartel. The different scope of area in cross-

border cartel is different jurisdictions of the cartelists.

It can also be defined as an anti-competitive action

conducted by undertaking from a country or

undertakings from different countries to control the

amount of production and the price so that it can

affect the market outside the origin of undertakings.

The types of cross-border cartel are the same with the

regular/domestic cartel. The only thing that

differentiate cross-border cartel from domestic cartel

is the international dimension involved in its cartel

activity. The activity of cross-border cartel, it can

contribute negative impacts to the relationship among

countries whether direct or indirect. This can also

affect the fair competition occurred in the global

market and negate the competitiveness of other

competitors which not incorporated in the cartel.

Cross-border cartel involves export and import of

goods and/or services. In other words, cross-border

cartel can also understood as export cartel. Export

cartel usually happens in developing countries with

weak law enforcement and protection of business

competition law (Hufbauer, 2008). Export cartelists

usually choose other countries so that it cannot

jeopardize their country of origin. Another reason to

conduct cross-border cartel is to gain maximum

benefit from product distribution of goods and/or

services in the larger geographic scope of market and

to eliminate the competition. The cross-border

cartelists are fully aware that the competition

authority will find difficulties to apprehend them.

strongly encourage authors to use this document for

the preparation of the camera-ready. Please follow the

instructions closely in order to make the volume look

as uniform as possible (Moore and Lopes, 1999).

iN-LAC 2018 - International Law Conference 2018

2.1 The Cases of Importation of Food

Cartel in Indonesia

Several cases of food cartel which indicated

involvement of cross-border undertakings have been

handled by KPPU. For example, cartel on garlic

importation, and cartel on beef importation.

Cartel is more than just activity conducted by

undertakings. In some events, cartel can be facilitated

by regulations issued by the government. The policies

related to import quota and permit issued by the

government for importers can open opportunities for

affiliated undertakings either openly or discreetly to

practice cartel. Food cartel activity which involved

import aspect can enable licensed domestic

undertakings as importers of specific product, such as

garlic from China, or beef from Australia. The

importers have great opportunity to make cartel

agreement with the undertaking from the food

country of origin. Two cases that are appropriate to

be cross-border cartel laboratory are cartel on garlic

and beef.

2.1.1 Garlic Cartel Case

The import control policy is the mandate of Law

Number 13 Year 2010 on Horticulture. As it is stated

on Article 88, import can be conducted when

domestic product is not sufficient. Therefore, this law

followed by Regulation of Ministry of Agriculture

No. 60 Year 2012 and Regulation of Ministry of

Trade No. 60 Year 2012. Garlic supply in Indonesia

is lower than other countries such as China. China can

produce 20 tons garlic per hectare, meanwhile

Indonesia can only produce 5 tons per hectare.

Meanwhile, garlic as the number one horticulture

products, currently could not meet the domestic

market. KPPU decided 19 undertakings as guilty by

conducted cartel (KPPU decision No. 05/KPPU-

I/2013, page: 283). Cartel activity conducted by those

19 undertakings were declared violate the Article 11

about Cartel, Article 19c about Supply Restriction,

and Article 24 about Conspiracy of Indonesia

Competition Law. They were allegedly made

agreement to agree on garlic price.

Because of that cartel practice, the price of garlic

was increasing simultaneously in November 2012 to

March 2013.Those 19 undertakings are affiliated in

three different groups. Each groups of undertakings

coordinately set up the domestic garlic supply by

setting up the import period of each group. Therefore,

that action violated Article 19 of Indonesia

Competition Law regarding behavior on market

control. Besides those 19 undertakings, Minister of

Trade, Directorate General of Foreign Trade in

Ministry of Trade, and The Head of Quarantine

Agency of the Ministry of Agriculture were also

reported. The Directorate General of Foreign Trade

had issued the prolongation of Import Permission

Letter not transparently and discriminatively. The

permit was not in accordance with its regulation of

Minister of Trade No. 30/M-DAG/PER5/2012.

KPPU Investigators categorized the action of those

undertakings as a form of conspiracy with Ministry of

Trade to obstruct production and/or distribution of

goods and/or services from Group I undertakings so

that it violated the Article 24 of Indonesia

Competition Law regarding abuse of dominant

position.

In the interview with Head of KPPU Office in

Surabaya, Dendy Sutrisno, and Vice Chairman of

KPPU Commissioner, Sarkawi Rauf, stated that from

dozens of garlic importers can be grouped in to three

groups of undertakings. Each group dominated fifty

percent garlic import from China to Indonesia. The

few numbers of garlic importers in Indonesia not only

can create potentially cartelized oligopoly market but

also open the opportunity for them to coordinate with

cross-border undertakings. The coordination of garlic

importers and exporters from its country of origin can

possibly create cartel. If only three percent garlic

demands are from domestic agriculture and almost

ninety percent garlic demands in Indonesia imported

from China (KPPU, 2017), then China has to provide

approximately 480,000 tons per year (Rauf, 2017).

This condition is enough to make the undertakings as

the controller of supply and price in the market.

2.1.2 Beef Cartel Case

In the same way as the garlic, food policy on beef self-

sufficiency also generates polemic. Beef-Buffalo

Meat Self-Sufficiency Program in 2014 encouraged

the government to restrict beef and/or beef offal

gradually from 2010 to 2014. The import beef

restriction, in the contrary, caused beef scarcity in the

market. There were about 20-30 per cent of supply

shortage which caused the price to increase to about

30 per cent (KPPU, 2013).

Moreover, this condition created an opportunity to

associated undertakings to double their profit with

setting up the price. The KPPU Decision No.

10/KPPU-I/2015 on the alleged cartel practices on

imported cattle trade in Jakarta, Bogor, Depok,

Tangerang, and Bekasi (Jabodetabek) 2013-2015,

stated that 32 (thirty two) of reported suspects were

proven legally and convincingly as guilty of violating

Article 11 and Article 19c of Indonesia Competition

Cross Border Cartel in International Trade: An Indonesia Case Study

Law (KPPU decision No. 10/KPPU-I/2015, page:

957). The member KPPU assembly found the facts

about the deal agreed and facilitated by Indonesia

Beef Producers Association (APFINDO) through a

series of meetings that ultimately demonstrate the

similarities of the actions of the Reported Party, the

rescheduling sales categorized as containment of

imported beef cattle in the Greater Jakarta

(Jabodetabek) area and/ or marketing arrangements

that result in an unfair price increase that is

detrimental to the public interest. The act of supply

containment conducted by the Reported Party

uniformly by not realizing the amount of cattle import

quota which has been set by the Government.

Another beef cartel case was apprehended in 2016

in North Sumatera. The findings by KPPU in North

Sumatera is almost the same with the case happened

in Jabodetabek area that the local beef supply was too

low so the price was high in the market. Thus, the

government allocated the cattle import quota from

Australia. This cattle import quota from Australia

encouraged the occurrence of cartel practices

conducted by beef importers.

In the imported beef cartel cases settled by the

KPPU, it never dragged the exporters or the

undertakings from the country of origin. Whereas if it

refers to legislation regulating livestock and animal

health, it will only provide a narrow opportunity for

other countries to export beef to Indonesia. The

Article 59 of Law Number 18 Year 2009 regarding

livestock and animal health, used country based

approaching for livestock. If it is for beef, so only

countries which considered livestock disease free

based on the regulations set by the government can

only export beef to Indonesia. This regulation is only

applied for Australia to fulfill the needs in domestic

market. The policy using country-based as its

approach gives bigger opportunity for Indonesian

importers to conduct such agreements with Australian

beef exporters. This situation also induce cartel

practice, this is because there are only a limited

numbers of importers. Once again, in order to

maintain a high selling price of beef to consumers,

these importers tend to control the supply of beef to

the market. They tend to stop supply when there is a

high demand, and supply when the demand is low.

The worse scenario is when the exporter of beef

in Australia is linked or connected to the importer of

beef in Indonesia. Indeed, it is not difficult for an

Australian company to establish a subsidiary

company or an affiliation company in Indonesia. In

this situation a cross border cartel is more likely to

occurs, this is because the exporter and importer is

actually a single entity. This entity has more power to

control supply and to maintain the price.

Both garlic and beef cartel cases have the

similarities, which are the existence of import quota

which give the opportunity to conduct cartel instead,

there were only few undertakings in that field of

business, involving foreign undertakings, market

controlling that led to price control, and also give

disadvantageous to the society with restricting the

supply and increasing the price.

A similar situation also may take place in other

product like salt and garlic. A huge proportion of

imported salt is originally from Australia. Likewise,

China is the main exporter of garlic to Indonesia. The

limited source of import of beef, garlic and salt has

been causing a number of problems. The most serious

problem is the rise of price, and the scarcity of

product in the market. There is a strong indication that

this problem is caused by CROSS BORDER

CARTEL.

2.2 The Intersection between

International Trade Law and Fair

Competition Law

One of the main principles of international trade law

adopted into the WTO Agreement is fairness. This

principle implies that the benefits derived from

international trade should be felt equally among all

international trade actors. It is also preventing the

partial process in the rules and procedures of the

multilateral trading system, resulted by diverse

interests and bargaining power of each country. In

principle, fairness focuses on the extent of trade

actors respect each other’s autonomy, engage

willingly in reciprocal exchange of benefits and equal

distribution of rights and obligations that constitute in

the WTO trading system (Stern, 2010).

In addition, another principle in international

trade is non-discrimination. It means that any

regulations issued by the state to set the conduct of

international trade actors should be treated equally,

regardless of the origin of the country and its

products. In some cases there are exceptions, but this

basic principle of non-discrimination is considered

the heart of the current world trade system in the

matter of protectionist trade policies caused by

market distortion. The importance of eliminating

discrimination is reflected in the Preamble of WTO

Agreement, where the elimination of discriminatory

treatment in international trade relations is identified

as one of the main objectives of WTO (Bossche,

2005).

iN-LAC 2018 - International Law Conference 2018

Another principle that is equally important in

international trade law regimes is transparency. This

principle encourages countries to use transparent

instruments in drafting and operating trade policies.

Transparency principle has three extensive sets of

meaning: (1) the legal instruments governing

international trade are known, clear and

comprehensible to the trade actors; (2) the objectives

and purposes of the treaty are reflected adequately in

its text; and (3) the objectives and purposes of the

treaty are respected and achieved sufficiently in its

application and implementation (International Trade

Centre, 2010). This principle also encourages the

realization of predictability, an indispensable

condition in business processes. Providing security

and predictability to the rule-oriented multilateral

trading system reflects under Article 3.2 Dispute

Settlement Understanding (DSU) as in the interest of

the stability, legal certainty, consistency, and an

increased persuasive power of the reports, it is

required by the function of the dispute settlement

system to provide security and predictability (Weiss,

2003).

The above three principles, namely fairness, non-

discrimination and transparency are further set forth

in some of the more specific norms in the WTO

Agreement. This norm is the provision of Most

Favoured Nations (MFN) and National Treatment

(NT). Under the terms of the MFN, each WTO state

member shall accord equal treatment to all other

WTO member states. When a WTO member grants

certain favourable treatment to one country shall

grant the same favourable treatment to all WTO

members (Bossche, 2005). MFN obligation is not

only concerning any advantages granted to other

WTO members, but also any advantages to all other

countries including non-WTO members (Bossche,

2005).

Article I.1 General Agreement on Tariffs and

Trade (GATT) regulates that any advantages,

favours, privileges or immunities granted in one

country, shall immediately and unconditionally be

offered to the like-products of all WTO members. In

short, the scope of advantages, favours, privileges or

immunities granted are: (1) custom duties, other

charges on imports and exports and other customs

matters; (2) internal taxes; and (3) internal regulation

affecting the sale, distribution and use of products.

Furthermore, the term ‘immediately’ means that there

must be no delay in extending any advantage granted

to all WTO members (Mitsuo Matsushita, 2006).

While the term ‘unconditionally’ means that it is not

limited by or subject to any conditions such as

requirement of compensation (Mitsuo Matsushita,

2006), asking something in return or paying for the

advantage (Bossche, 2005).

While NT requires all WTO members to treat

foreign products and/or services not less favourably

than the treatment of like domestic products and/or

services. It means that states shall provide equal

treatment in sales, taxation and regulation of imported

goods/services and domestic goods/services

(Bossche, 2005). The provision of NT is set forth in

Article III GATT implies that no law, regulations or

taxation condition may adversely differentiate the

conditions of competition between like foreign and

domestic products in the domestic market (Mitsuo

Matsushita, 2006). This article has purpose to limit

national protective measures to border controls and

secures equality of opportunity for imported products

to be competed with domestic products (Mitsuo

Matsushita, 2006). Article III.1 regulates the scope of

NT application: (1) internal taxes and charges; (2)

laws, regulations and requirements affecting the

internal sale, offering for sale, purchase,

transportation, distribution or use of products; and (3)

internal quantitative regulations requiring the

mixture, processing or use of products in specified

amounts or proportions.

In relation to transparency, the WTO Agreement

encourages state members to use tariff barriers to

control the flow of goods and services. Similarly, any

regulatory changes should be accessible and

understandable by international trade actors to avoid

misunderstanding as it is reflected under the preamble

of WTO Agreement that in pursuing the objectives,

WTO members enter into reciprocal and mutually

advantageous arrangements directed to the

substantial reduction of tariffs and other barriers to

trade.

One of the basic purposes of GATT is to reduce

and bind tariffs by put it in Schedule of Concession.

Article II.1(a) of GATT is established to protect the

tariff bindings, obligating WTO members to accord

tariff treatment no less favourable than that provided

in their Schedules. While Article II.1(b) regulates that

there must be no ordinary customs duties and all other

duties in excess of those notified in the submitted

schedule (Bossche, 2005). Other instruments such as

quotas and import licenses (non-tariff barriers) are

still allowed but not recommended because they are

often be changeable and unpredictable in both time

and quantity. Tariff remains important trade barriers

because most developing-country members still

apply high custom duties because it can increase the

economic development. Moreover, in very

competitive markets between neighbouring countries,

Cross Border Cartel in International Trade: An Indonesia Case Study

a very low duty may still constitute a barrier

(Bossche, 2005).

From these two provisions, in principle

international trade in the WTO regime encourages the

creation of fair business competition. The MFN

principle, for example, prevents a country from

providing convenience, facilities or enjoyment to one

or more specific countries (privileges). This action

will lead to unhealthy trade competition because

countries are gathered in exclusive groups. This

situation can affect the supply of goods/services and

ultimately will affect the price.

Likewise, NT is intended to prevent the state from

protecting the goods/services of domestic production.

If foreign goods/services have been granted access to

entry into the market of a country, then it should be

treated equally with local products. Protection of

local products may result in lower supply of goods of

better quality at competitive prices. Therefore, the

principle of transparency encourages countries to

make protection through tariff mechanisms, this

mechanism is considered to encourage more positive

competition among producers of goods/services to be

more efficient and provide quality products.

Unfortunately, the above principles and norms in

the WTO Agreement do not always prevent the

occurrence of violations. Some conditions such as

scarcity of goods/services are exploited by

international trade actors for profit. With its ability to

know the position of supply and demand in a

particular market, producers can take unfair action

and distort international trade.

Herein lies the intersection between international

trade law and fair competition law. International trade

aims to improve prosperity through the process of

production and exchange of goods and services

between countries, whereas fair competition law aims

to ensure the process of exchange of goods and

services provides maximum benefits to consumers

widely.

However, international trade actors can often take

advantage more than they should (rent seeking), by

exploiting weaknesses in international trade

regulations. Among the examples of this condition is

by utilizing the scarcity of a particular

product/service, either because the amount is small,

or because of its special nature.

In some industries/sectors, providers of certain

goods/services are very limited in number in the

world. Due to differences in climate and geographical

conditions, some natural resource products are

produced more efficiently in some countries. Some

advanced technology and production methods (know-

how) are only owned by business actors from certain

countries only. Likewise the products of long and

complicated research such as medicines and plant

seeds are owned by only a few countries. Thus

business actors in these countries have the potential

to control and manage the time and amount of supply

of certain products/services.

Another condition that triggers unfair business

competition is from the demand side itself. Because

the number of population, culture and knowledge of

the people in certain countries so that the need for

increasing certain products. Unfortunately, the high

demand for certain products is not balanced by the

acceleration of domestic production. So the steps

taken are often temporary just to meet the demand by

importing. At some point, if long-term measures to

prepare domestic producers are not taken, it can lead

to dependence on imports. The high demand and

dependence on imports can be utilized by business

actors both in the level of domestic and foreign.

Some may regard international trade law as

unlikely to be intersected with competition law, that

is, because both work on different levels.

International trade law regulates countries at the

international level, and competition law regulates

business actors at the national level. But this opinion

may not be entirely correct.

First, international trade law governs the

behaviour of the state to be more open in international

trade. Yet international traders remain producers,

exporters and importers, who are actually business

actors themselves. Second, business activities of

business actors can be done cross-border. Business

actors can make direct investments in other countries,

establish subsidiaries, conduct production processes

and carry out export and import activities. Thus

business actors are now multi-national, not only

subject to the national law of their country, but also

on international law.

Two reasons above shows the ability of business

actors at the same time affecting international trade

and business competition as well. Business actors

from the same country for example can control the

state of supply and demand of goods products in two

different countries. For example, rare drug

manufacturers in certain countries limit their supply

to countries in dire need of such drugs. Or this

company establishes a subsidiary in a particular

country as importer of its own products. Thus, it can

affect the price in the market.

To conclude, the objective of international trade

law is to liberalize international trade by reducing

barriers so as to improve prosperity. However, this

situation cannot be realized if there is unfair business

competition practices. Unhealthy competition will

iN-LAC 2018 - International Law Conference 2018

distort trade and reduce the expected benefits arise,

maybe even the opposite it will negatively affect the

welfare.

2.2.1 Ideas Facing Cross Border Cartel

Based on the practices, cross border cartel tends to

occur in products imported under quota regulation.

GATT Article XI.1 prohibits quotas, import and

export licenses or other measures that restrict trade

other than duties, taxes, and other charges. But there

are three exceptions to the prohibition on quotas and

other measures: (1) in preventing or relieving critical

shortages of foodstuffs or other products essential to

the exporting (Article XI.2(a)); (2) in related to the

application of standards/regulations for the

classification, grading or marketing of commodities

in international trade (Article XI.2(b)); (3) import

restrictions on any agricultural or fisheries product,

imported in any form necessary to the enforcement of

governmental measures (Article XI.2(c)). Another

exception is contained in Article XII GATT that

allows restriction to safeguard balance of payment,

additional exceptions in Article XX (General

Exceptions) and XXI (Security Exceptions) GATT

(Mitsuo Matsushita, 2006).

Instead of using tariff, the Indonesian government

tends to use quota regime on food and agriculture

products. This is the situation true in the importation

of cattle and meat products, garlic and salt. In the

importation of beef for instance, the origin of beef is

from Australia. The largest amount of beef/meat is

imported from this country, with only a small amount

from the US and Japan. Thus, the source of import is

limited to one source. This situation may induce cartel

practice, the producers of meat products in Australia

may set their quantity of export in order to maintain

price. If they do not control the quantity, the price

may fall.

On the other side, the number of beef importers in

Indonesia is also limited. These importers must

compete to get an import licenses from the

government. The provision of import license is

regulated under Agreement on Import Licensing

Procedures which established to minimize the impact

of the procedural aspects of licensing that is permitted

under GATT. Under Article 1.3, this rule shall be

neutral in application and administered in a fair and

equitable manner.

Every year the government issues a regulation on

import quota. This regulation sets the quantity of

import allowed within a year. A number of importers

enter into a bidding process. After an assessment

process, the government announces the bid winner,

the successful bidder will be granted with import

license.

2.2.2 Preventing Cross Border Cartel

Based on the above assumption, there are a number

of ways to prevent cross border cartel. First, to import

from various number of countries. Second, to use

tariff measures instead of quota. Third, to have a

stronger corporate law on the disclosure of affiliation

and/or beneficiary owners.

Having more sources of import would more likely

to prevent cross border cartel. Producers from

different countries may compete to offer lower price.

Likewise, having different sources of import will

stabilize the continuity of supply. In this matter, the

government realized that with using country-based

policy can narrow down the imported beef market.

Therefore, in 2016, the government changed its

approach from country-based to zone-based which

regulated in Government Regulation (PP) Number 4

Year 2016. The zone-based approach gave

opportunities to other countries to export their beef to

Indonesia. Application of this regulation in 2017 gave

the opportunity to India and New Zealand to export

their beef to Indonesia. This change hopefully can

create barrier for both domestic and foreign

undertakings to conduct any cartel practices.

The government should also consider to change

its import regulation from quota to tariff. The use of

quota regime will only benefit a limited group of

importers who hold import license. Likewise, the

government may not be able to control the supply of

products in the market, because the supply is

controlled by these importers. On the other hand, by

using tariff barriers the government has a full control

on the number of product which will enter into

Indonesian market. The only difficult task for the

government is to set an appropriate tariff. The

government should balance the need of consumers for

affordable food, and to protect local food producers.

Finally, the government may also use corporate

law to prevent cross border cartel. The exporters and

importers should not be linked or affiliated as single

business entity. The government should have a

regulation for Indonesian importers to disclose their

affiliation with foreign exporters.

3 CONCLUSIONS

There are some aspects that cross-border cartel

practices may occur in international trade activities,

first, a huge proportion of imported product is

Cross Border Cartel in International Trade: An Indonesia Case Study

handling by a few undertakings (from host country or

from the country of origin of the product). Second,

the regulation regarding imported product not in line

with competition law.

The legal problems in tackling cross-border cartel

practices are the lack of adherence to the principles of

trade international law, namely fairness, non-

discrimination, and transparency.

Since the law enforcement for cross border cartel

is weak, prevention efforts are needed. First, to import

from various number of countries. Second, to use

tariff measures instead of quota. Third, to have a

stronger corporate law on the disclosure of affiliation

and/or beneficiary owners.

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iN-LAC 2018 - International Law Conference 2018