THE CHALLENGES OF MICRO, SMALL AND MEDIUM ENTERPRISES IN INDONESIA IN THE ERA OF THE ASEAN ECONOMIC COMMUNITY

Article Info Abstrak Received : 26/01/2021 Approved: 18/04/2021 DOI: 10.24815/sklj.v5i1.19695 This study analyzes the challenges of Indonesian MSMEs under Law No. 20 of 2008 concerning Micro, Small and Medium Enterprises in the era of AEC 20152020 and the readiness of MSMEs under Law No.11 of 2020 concerning Job Creation (the Omnibus Law) in facing the era of AEC 2025. It adopted a normative legal research and found that MSMEs faced many challenges in the AEC era under the MSMEs Law. However, the amendment of this Law by the Omnibus Law constitutes a better strategy to improve and develop the Indonesian MSMEs to be ready in facing the AEC 2025.


I. INTRODUCTION
Association of South East Asian Nations (ASEAN) was formed on August 8, 1967 by five countries, namely the Philippines, Indonesia, Malaysia, Singapore and Thailand. A more political nuance was marked by the birth of the Declaration of ASEAN Concord or Bali Concord I in the 1st ASEAN Summit in Bali on February 24, 1976. In this Declaration, the ASEAN leaders were determined to make ASEAN as a region of peace, neutrality and free from big state intervention outside the Southeast Asian region. 1 At the beginning of its formation, ASEAN was indeed more aimed at responding to the Cold War and anticipating the threat of communism in the Southeast Asian region. Since the establishment of ASEAN as a regional organization in 1967, 2 the ASEAN member states have put economic cooperation as one of the main agendas that need to be developed. Initially, economic cooperation was focused on preferential trade, joint ventures, and complementation schemes between the member states and private parties in the ASEAN region, such as the ASEAN Industrial Projects Plan (1976), Preferential Trading Arrangement (1977 and Enhanced Preferential Trading arrangement (1987). 3 In the 80s and 90s, when countries in various parts of the world began to make efforts to remove economic barriers, the ASEAN member states recognize that the best way to cooperate is to mutually open their economies, in order to create regional economic integration.
The idea of economic cooperation became more solid when the leaders of the countries in the Southeast Asia region committed themselves to form the ASEAN Economic Community (AEC). The AEC is one of the three pillars of the ASEAN Community which was formally formed at the 9th Summit (Summit) in Bali which gave birth to the ASEAN Concord II Declaration (Bali Concord II).
The other two pillars are the ASEAN Political-Security Community and the ASEAN Socio-Cultural Community. At the 13th ASEAN Summit, which was held in Singapore on 20 November 2007, the leaders of ASEAN countries signed the AEC Blueprint. The establishment of the AEC is aimed at forming a single market and production base in ASEAN by 2015. Thus, barriers to the flow of capital, goods, services, investment, and skilled labor will be trimmed. There are several special sectors that experience priority in this liberalization, namely the food sector, the agricultural sector and the forestry sector. 4 In 2015, ASEAN member states agreed to the ASEAN Economic Community Blueprint 2025.
The MEA Blueprint 2025 will be built on the AEC 2015 Blueprint which consists of five interrelated and mutually reinforcing characteristics, namely: (a) a full integrated economy; (b) a competitive, innovative, and dynamic ASEAN; (c) an increase connectivity and sectoral cooperation; (d) a strong, inclusive, and oriented ASEAN community centered; and (e) global ASEAN. The AEC 2015 aims to improve the welfare of ASEAN which has the characteristics of a single market and production base, a more dynamic and competitive ASEAN region, has equal development, and accelerates economic integration in the ASEAN region and with regions outside ASEAN. The AEC 2025 is a continuation of the AEC 2015, and aims to make ASEAN economies more integrated and cohesive; competitive and dynamic; increased connectivity and sectoral cooperation; resilient, inclusive, communityoriented and centered; and global ASEAN. The scope of ASEAN economic cooperation includes ASEAN economic cooperation in the fields of industry, trade, investment, services and transportation, telecommunications, tourism, and finance. In addition, this cooperation covers the fields of agriculture and forestry, energy and minerals, as well as micro, small and medium enterprises (MSMEs). 5 Micro, Small and Medium Enterprises (MSMEs) are one of the targets and focuses of the ASEAN Economic Community (AEC) in creating economic stability and development in the ASEAN region. In Indonesia, the MSMEs are the most strategic national economic sector and involve the lives of many people so that they become the backbone of the national economy. The MSMEs are also the largest group of economic actors in the Indonesian economy and have proven to be the key to safeguarding the national economy. The resilience of MSMEs has been tested when Indonesia was hit by the crisis in 1997-1998. The MSMEs have contributed 57% to national GDP with a labor absorption rate of around 97% 4. The important role of MSMEs is one of the important milestones for Indonesia in facing competition at the ASEAN level in the era of AEC. 6 In November 2020, Indonesia enacted a new law, namely Law No.11 of 2020 concerning Job Creation. This Law is an effort to create work through efforts to facilitate, protect, and empower micro, small and medium enterprises to increase the investment ecosystem and facilitate business. In addition, this Law aims to allow more. foreign capital to enter Indonesia and to cut the bureaucracy that was previously complicated and inefficient. 7 Since Indonesia just enacted this Law in the era of AEC, this study aims to analyze the readiness of Indonesian MSMEs and to find out the efficiency of the Law No.11 of 2020 concerning Job Creation in governing the MSMEs in the era of AEC. Based on these explanations, this study specifically posits two questions, namely: developing the quality of human resources, increasing effectiveness and coordination between government agencies both at the central and regional levels. 12 The AEC 2015 was built on 4 (four) pillars, namely: (i) ASEAN as a single market and production base, (ii) ASEAN as a region with high economic competitiveness, (iii) ASEAN as an equitable and balanced economic development area, and (iv) ASEAN as a region that is fully integrated with the global economy. In realizing Pillar 1, ASEAN has signed the ASEAN Trade in Goods Agreement (ATIGA), the ASEAN Framework Agreement on Services (AFAS), and the ASEAN Comprehensive Investment Agreement (ACIA) to ensure the free flow of goods, services and investment in the ASEAN region. In addition, ASEAN also has an agreement on a Mutual Recognition Arrangement (MRA) that aims to facilitate the movement of skilled workers. To be able to compete in the AEC 2015, an increase of production in quantity must be balanced by the increase of quality and innovation. Therefore, Pillar 2 of the foundation of AEC 2015, "areas with economic competitiveness" was to be achieved through various collaborations in the fields of competition policy, consumer protection, intellectual property rights, infrastructure development, taxation and ecommerce. Furthermore, Pillar 3 was to be achieved by the development of SMEs, and to realize it, the ASEAN Framework on Equitable Economic Development (AFEED) was agreed in 2011. 13

ASEAN Economic Community
The AEC 2025 is a continuation of the AEC 2015 that aims to make ASEAN economies more integrated and cohesive; competitive and dynamic; increased connectivity and sectoral cooperation;  (iv) strengthening the role of SMEs; (v) narrowing the development gap. 16 As for the Good Regulatory Practice (GRP) in ASEAN, it refers to processes, systems, tools, and methods to improve regulatory quality. The ASEAN Work Plan for Implementing the GRP aims at mapping and sequencing possible areas for the ASEAN GRP for the next 10 years at the general and sectoral levels and focuses on: (i) the GRP at the political level; (ii) strengthening various c. Medium enterprise is a business unit that has net assets of more than Rp.500,000,000.00 (five hundred million Rupiah) up to a maximum amount of Rp.10,000,000,000.00 (ten billion Rupiah), exclusive of land and building of their place of business or maximum annual sales proceeds of more than Rp.2,500,000,000.00 (two billion and five hundred million Rupiah) up to a maximum amount of Rp.50,000,000,000.00 (fifty billion Rupiah).

ASEAN Approaches to Micro, Small and Medium Enterprises
Since 2016 regions. In addition, it is hoped that IBSC facilitators will be able to assist and guide SMEs in using and accessing the ASEAN SME Academy, so that SMEs can gain insight and skills in efforts to increase the capacity of SMEs through the ASEAN SME Academy. 21

Indonesia Policy Review on SME and Entrepreneurship
Indonesia Policy Review on SME and Entrepreneurship, a policy review program for the  2) together with the Regional Government carry out trade promotion activities (Article 14 (2)); 3) together with the Regional Government to facilitate business development in the fields of production and processing, marketing, human resources, and design and technology (Article 16 (1)); 4) compile a Government Regulation concerning the development procedure, priority, intensity and period of business development in question (Article 16 (3)); 5) together with the Local Government to provide financing for Micro and Small Enterprises (Article 2l). In this case the Government, Regional Government, and the business world can provide grants, seek foreign assistance, and seek other legal and non-binding sources of financing for Micro and Small Enterprises (Article 2l (4) MSMEs have several potential strengths for the development in the future, namely: 1) source of employment. The role of small industries in the absorption of labor should be taken into account. It is estimated that it can absorb up to 50% of the available workforce.
2) sources of new entrepreneurship. The existence of small and medium enterprises has been proven to support the growth and development of new entrepreneurs.
3) a unique market business segment that carries out simple and flexible management against market changes. However, weaknesses are often also an inhibiting factor and problems for Micro Enterprises.
In this regard, there are 2 factors, namely: 1) Internal factors, which are classic problems of MSMEs, include: a) Limited human resource capabilities, b) The constraints in marketing products. Most of the small industry entrepreneurs prioritize the production aspect, while the marketing functions are less able to access it, especially in market information and market networks, c) The tendency of consumers who do not trust the quality of small industry products. d) Constraints on business capital. Most of the small industries utilize their own capital in a relatively small amount.
2) External factors are problems that arise from the developer and supervisor of MSMEs. For example, the solutions given are not right on target. There is no monitoring and overlapping programs.
Out of the two factors, there is a gap between internal and external factors, namely financial supports from banks. State-owned enterprises and other supporting financial institutions are ready to provide credit, but they find difficulties to select the MSMEs to be given such credits. This is because of various conditions that must be met by the MSMEs. On the other hand, the MSMEs also have difficulty finding and determine which institutions can help with their limitations. This circumstance is still ongoing even though various efforts have been made to facilitate the MSMEs to get financial supports (credits). 29 It can be deduced that even though the MSMEs Law has mandated various supports for the MSMEs, they remain face many difficulties in improving their business. Similarly, although MSMEs are one of the targets and focuses of the AEC in creating economic stability and development in the ASEAN region, most of the Indonesian MSMEs remain to face many challenges, especially regarding the quality of their goods or productions. This is because most of the quality of Indonesian MSMEs products has not met the standards because of several factors which have been explained previously.
In short, the Indonesian MSMEs products below standards because of domestic production costs are very expensive so that the MSMEs are unable to create production efficiency. In addition, the lack of knowledge of MSMEs owners in producing quality goods or services. To facilitate MSMEs to start business, the new Law prescribes that micro businesses are still exempted from business licensing fees and small businesses are given a business permit fee relief.

The readiness of Indonesian
These facilities are regulated by article 12 (1) (b) of the new Law. In addition, a single permit and the licensing procedure is simplified through Online Single Submission (OSS). Furthermore, the role of the Central Government, Regional Government, State-owned Enterprises, large national and foreign businesses in providing financing for micro and small businesses will not be changed. Last but not least, access to data is more varied, larger, and easier. 30 To facilitate the management of MSMEs, the new Law simplifies tax administration and as well as tax and customs incentives for micro and small enterprises. The new Law also provides legal and service assistance for micro and small enterprises. In addition, trainings and assistances relating to the use of financial accounting systems / applications are provided for micro and small businesses.
Furthermore, employment wage for micro and small enterprises are based on an agreement between the entrepreneurs and their workers. Moreover, protection for MSMEs is guaranteed so that they are not controlled or owned by large businesses. Last but not least, an increase of business opportunity for MSME products in the supply chain partnerships. 31 To facilitate the development of MSMEs, the new Law regulates that the MSMEs business activities can use as a guarantee in accessing business financing credits. In addition, the registration process for Intellectual Property Rights (IPR) of MSMEs is easier and simplified. MSMEs are facilitated when importing raw and industrial auxiliary materials as well as exporting their products.
An allocation special allocation funds to support empowerment and development activities of MSMEs is also provided. To expand the MSMEs market and promote their products, they are given opportunities to use the rest areas of highways and public infrastructures such as terminals, airports, ports, train stations and others. In addition, the new Law also contains provisions regarding the incubation of the creation and growth of new businesses, as well as to strengthen the capacity of startups. Last but not least, an assistance to increase the capacity of micro, small and medium enterprises is provided, so that they are able to access sources of financing supports. 32 30 Ratih Waseso and Yudho Winarto, Sederet kemudahan UMKM dalam UU Cipta Kerja dari perizinan hingga perluas pasar, https://nasional.kontan.co.id/news/sederet-kemudahan-umkm-dalam-uu-cipta-kerja-dariperizinan-hingga-perluas-pasar, Accessed on 25 January 2021. 31 Ibid. 32 Ibid.