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Analysis: TikTok Project S controversy prompts government response

Tenggara Strategics (The Jakarta Post)
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Jakarta
Wed, July 26, 2023

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Analysis: TikTok Project S controversy prompts government response Workers sort items at Lazada Warehouse in Cimanggis, West Java, Thursday, December 17, 2020. during the “Tiga Hari Belanja Online Nasional“ (Garbolnas) that was held on December 12-14, 2020 Lazada experienced a 100% increase in sales compared to 2019 events. Bank Indonesia (BI) recorded as of September 2020 the transactions in e-commerce reached IDR 180.74 trillion lower than the value of e-commerce transactions in 2019 amounting to IDR 201 trillion. (JP/Seto Wardhana)

P

resident Joko “Jokowi” Widodo has tasked Communications and Information Minister Budi Arie Setiadi and Deputy Minister Nezar Patria with monitoring social media and electronic commerce (e-commerce) issues, including TikTok’s controversial Project S. The President plans to form a task force to manage said issues, as well as base transceiver stations and satellites, along with information and communications technology (ICT) issues in general.

TikTok is looking to introduce Project S in the hope of competing with established giants such as Shein and Amazon as e-commerce continues to be a driving force for the short-video platform. While TikTok Shop operates as an online selling platform that allows sellers to showcase and sell their products, Project S is more akin to Amazon Basics, where the company directly sells its own wares. As part of the project, TikTok parent firm ByteDance trialed a dedicated TikTok section named Trendy Beat for the United Kingdom.

The introduction of Project S adds to the concerns of Indonesian micro, small and medium enterprises (MSMEs) regarding the rise of cross-border marketplaces. Indonesia MSMEs Industry Association (AKUMANDIRI) chair Hermawati Setyorinni said the concern was further amplified by Indonesia’s lack of sufficient cross-border marketplace regulation, especially on social commerce. Currently, products sold through cross-border marketplaces are largely exempt from duties and taxes, due to generally low prices and small volume.

Cooperatives and Small and Medium Enterprises (SMEs) Minister Teten Masduki said Project S could put local MSMEs under pressure, with the TikTok initiative suspected of gathering data on products that are popular in a country and then producing similar products from China. He added that TikTok Shop has already threatened the local online retail market since most products sold by its vendors are made in China and enter the country without going through proper import processes intended to protect local products. Therefore, the minister noted that the MSMEs face stricter regulations and standards for their products.

The main threat presented by products sold through both Project S and the preexisting TikTok Shop is the potential for local MSMEs to be outcompeted on pricing. Moreover, the largely untaxed social commerce in Indonesia meant both services and their competitors did not contribute as much as more regulated economic sectors do to the Indonesian economy. Consumers are also potentially put at risk by products which would not have passed regulatory standards in more regulated sectors.

Therefore, Teten advocates for the revision of Trade Ministerial Regulation No. 50/2020 on business licensing, advertising, guidance and supervision of business actors in trading through electronic systems to protect MSMEs against negative impacts from the rise of cross-border marketplaces. The revision would include subjecting social commerce to prevailing regulations for e-commerce and setting a price floor on products sold by social commerce vendors.

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House of Representatives Commission VI member Amin AK believes protection for the MSMEs sector from potential threats such as TikTok S is crucial since it employs 97 percent of the country’s workforce, with a total of 65 million MSMEs contributing 60.3 percent of Indonesia’s gross domestic product. He also claimed that 90 percent of the total Rp 476.3 trillion (US$31.76 billion) e-commerce value recorded by Bank Indonesia, or Rp 428.67 trillion, is received by foreign producers, especially those from China.

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