Legal Protection of Local Enterprises in Free Trade: Reconciling Trade Commitments, Competition Law, and MSME Empowerment in Indonesia

Abstract

Indonesia's participation in the World Trade Organization and in regional and bilateral free trade agreements has opened its markets to imports, foreign investment, and cross-border digital commerce. Liberalisation creates opportunities but also exposes local enterprises, particularly micro, small, and medium enterprises (MSMEs), to competitive pressures from foreign firms with greater capital, technology, and distribution networks. This article examines how Indonesian law protects local enterprises in the context of free trade, what challenges limit the effectiveness of this protection, and how the state can balance market openness with the protection of national economic interests. Using normative legal research with statutory, conceptual, and case approaches, the study analyses the 1945 Constitution, the Competition Law, the Trade Law, the MSME Law as amended by the Job Creation legislation, trade remedy regulations, the Ministry of Trade's 2023 e-commerce regulation, and competition enforcement against digital platforms, together with international trade law and scholarship on development and competition. The findings show that Indonesian law offers four layers of protection: competition law against anticompetitive conduct, trade remedies against unfair or injurious imports, affirmative empowerment of MSMEs, and market-conduct regulation of digital commerce. Effectiveness, however, is limited by unequal bargaining power, institutional capacity constraints, low legal literacy among local enterprises, policy inconsistency in import regulation, and the constraints of international commitments. The article proposes a commitment-compatible protection framework that relies on non-discriminatory competition enforcement, rule-based trade remedies, capacity-building empowerment, and platform governance, rather than discriminatory protectionism that would breach trade obligations.