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Insights Distribution of Goods under Government Regulation No. 29 of 2021

Distribution of Goods under Government Regulation No. 29 of 2021

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Published on 9/16/2021 - Issue Q3/2021
 
The Indonesian government has enacted Government Regulation No. 29 of 2021 on Operation of the Trade Sector ("GR 29/2021") as one of the implementing regulations of Law No. 11 of 2020 on Job Creation ("Job Creation Law"). GR 29/2021 provides a further elaboration on the amendments to Law No. 7 of 2014, concerning Trade ("Law 7/2014") stipulated under the Job Creation Law. One of these is the distribution of goods which will be discussed further in this article.
 
Distribution of goods is also regulated under the Minister of Trade Regulation No. 22/M-DAG/PER/3/2016 of 2016 on General Requirements for the Distribution of Goods as amended by Minister of Trade Regulation No. 66 of 2019 (“MOTR 22/2016”) and Minister of Trade Regulation No. 70 of 2019 on Direct Distribution of Goods (“MOTR 70/2019”). Overall, the provisions on the distribution of goods in GR 29/2021 are mostly a reaffirmation of these regulations.
 

Indirect and direct distribution

In general, distribution of goods to consumers can be divided into 2 (two) sections, i.e. indirect and direct distribution. Indirect distribution of goods can be conducted through a distributor, agent or franchise network, while direct distri-bution of goods can be conducted through single level or multi-level direct selling.
  

Indirect Distribution  

With regard to indirect distribution, the distribution of goods to retailers can be conducted by the producer through a distributor or agent.
    

Agents are prohibited to physically transfer the goods of a producer, supplier or importer, as they only act for and on behalf of the producer, supplier or importer in marketing the goods.
  
Producers may appoint a sole distributor or sole agent to distribute goods, provided that no other distributor or agent will be appointed by the producer to distribute goods with the same type and brand in a marketing territory. GR 29/2021 stipulates that the appointment of a sole distributor must be made for a period of min. 5 (five) years and must be extended for 1 (one) time. 
  
A foreign investment company (PMA company) or foreign trade representative office may participate in distribution activities in Indonesia by appointing domestic (fully owned by Indonesian individual or legal entity) company as a distributor/sole distributor or an agent/sole agent. Such appointment must be agreed by the principal abroad.
  
The appointment as distributor/agent can be terminated before the expiration of the validity period, provided the producer appoints a new distributor/sole distributor or agent/sole agent. If no replacement is appointed, the producer is required to supply spare parts for a minimum period of 2 (two) years in order to guarantee the continuity of aftersales services to consumers. The termination of a distribution/agency agreement must be followed by a complete settlement (“clean break”) which may be signified by a written evidence that the existing distributor/agent does not object to the termination of agreement and ap-pointment of a new distributor/agent.
  
Producer, distributor and wholesaler are prohibited from distributing goods directly to consumers, save for producers which fall into the category of micro and small scale businesses and producers of goods that spoil easily or will not last for more than 7 (seven) days. 
 
GR 29/2021 also stipulates that importers are prohibited from distributing directly to retailers except for an importer being also licensed as a distributor. Furthermore, the retailer is prohibited from importing goods.

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