Academic journal article Journal of Legal, Ethical and Regulatory Issues

Bilateral Investment Treaties (Bits) in Indonesia: A Paradigm Shift, Issues and Challenges

Academic journal article Journal of Legal, Ethical and Regulatory Issues

Bilateral Investment Treaties (Bits) in Indonesia: A Paradigm Shift, Issues and Challenges

Article excerpt


Any government strongly believes that the best means to attract the foreign capital and to avoid the conflicts with foreign investors in international arbitration tribunals is to enter into bilateral Investment Treaties (BITs) with the investor countries. Indonesia also understands this fact and it had signed over sixty BITs with several nations. But recently Indonesia decided to terminate all its BITs in order to review their provisions before renewal. A few investments experts have criticized Indonesia's decision to end all the existing BITs and view this decision as not investor-friendly or perceive Indonesia as nationalistic and being unreasonable to recall or terminate all its BITs in one instance. On the other hand, a few countries have called Indonesian move as "a brave decision" since most of the "western BITs" were aggressive and only protected corporate interests. (Freehills, 2015; Oegroseno, 2014; Price, 2016; McKanzie, 2017) Indonesians, however, do not want this decision to be seen as a nationalistic or a jingoistic attitude but a desire to be fair and honest in dealing with matters (Budidjaja, 2013)

Indonesia had signed bilateral investment treaties (BITs) with 52 states including Australia, Belgium, China, Denmark, Egypt, France, India, Italy, Malaysia, the Netherlands, Syria, Thailand, South Korea, the United Kingdom, Germany, Turkey, Singapore, Russia and many others. Most of the BITs have been in force as of their respective date until the announcement came not to renew these BITs and terminate them to sign each BIT afresh.

Historically speaking, all BITs of Indonesia with developed countries were signed during a time when Indonesia was neither a stable democracy nor a member of G20; a few of them were actually signed during the Cold War; they were signed when China and Korea were not global economic players and Asia had not become a global economic hub and the Indonesian economy was not USD 1.2 trillion That was the time when Indonesia was under the spell of the Dutch-led Intergovernmental Group on Indonesia (IGGI). It was a time when "foreign investment" was same as Western investment (David, 2016). In such a state of affairs, many of the Indonesia's BITs were intended to protect foreign investors' investments in Indonesia and did not provide any protection to the Indonesian investment in the home countries of the investors. In other words, the BITs had no reciprocity; Indonesia was just a one-way street, a place to play, not a player.

In the 21st century, the world economy is changing which has affected the nature of Indonesian economy as well and so has come the Indonesian decision to "terminate" all the BITs and renegotiate most of them. ASEAN has a big promise to establish a regional economic partnership; therefore it was a wise decision to ask most European powers to re-negotiate their treaties and agreements with the developing nations like Indonesia in order to continue their partnership. It was therefore quite rational for Indonesia to end its BITs upon their conclusion. Indonesia was not terminating all BITs unilaterally or illegally; it intends to discontinue the BITs in accordance with their terms agreed upon. Indonesia is thus allowing its bilateral treaties lapse in order to negotiate better ones. After announcing the termination it's BIT with Netherlands (Freehills, 2017), Indonesia has also given notice to Hungary, France, Italy and Singapore among others that BITs with those countries shall not be renewed.

The question that Indonesia now faces is whether it needs a template for a standard BIT or it should negotiate each BIT individually without any consistent approach and without considering its domestic legal system. What Indonesia needs is a BIT template that is compatible to its national interests as well as the international law. It should identify and terminate all unfair investment practices by making strong laws against multinationals or laying provisions of international adjudications to the international tribunals like The International Centre for the Settlement of Investment Disputes (ICSID) or the Investor State Dispute Settlement (ISDS) platforms to report all kinds of unfair trade practices imposed on Indonesia by the developed nations. …

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