The Minister of Trade has issued Regulation No. 66 of 2019 ("Regulation 66") on the Amendment to Minister of Trade Regulation No. 22/M-DAG/PER/3/2016 on General Provisions for Distribution of Goods ("Regulation 22"). Regulation 66 is a long-awaited revision of Regulation 22 which has been criticized for being too rigid in regulating how goods should be sold by their manufacturers to consumers.
Under Regulation 22, except for direct sales of raw and supporting materials by manufacturers to other manufacturers, sales (whether to businesses or endconsumers) must be carried out via at least a distributor and a retailer. Distributors are not allowed to sell directly to manufacturers. Rather, they must sell through a retailer, at least. Manufacturers, other than small and medium sized ones, are not allowed to sell directly to retailers. Manufacturers may only sell their goods to other manufacturers as raw or supporting materials.
Considering that each layer of supply involves an additional margin and imposition of VAT, the above-mentioned restrictions have been criticized as too costly and therefore harmful to consumers. In the case of industrial goods such as heavy machinery, the requirements are also seen as unrealistic, considering that there is no available retailer for many products of this type. Further, this policy is also seen as contrary to the government procurement policies, which stress the need to do away with intermediaries as much as possible to cut costs.
For foreign-investment ("PMA") distribution companies, the issues with Regulation 22 have been compounded because of Ministry of Industry and Trade Regulation No. 11/M-DAG/PER/3/2006 ("Regulation 11") on registration of agents and distributors, which provides that PMA companies in trading had to appoint a local intermediary (either an agent or distributor). So, for PMA distribution companies the chain of supply had to include at least itself (as distributor), a local agent/sub-distributor and a retailer.
Regulation 66 relaxes some of the restrictions of Regulation 22. Distributors, sub-distributors, agents and sub-agents are now allowed to sell directly to manufacturers. There is no longer a requirement to sell through a retailer. So, for a local (non-PMA) distributor the flow of goods can be illustrated as follows: