Indonesia to end 60+ bilateral investment treaties

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sudirman-statue-jakartaIndonesia is planning to terminate more than 60 bilateral investment treaties that allow disgruntled foreign investors to bypass local courts and seek compensation in international tribunals, amid a growing global backlash against such provisions, the Financial Times reported.

Development campaigners say that some multinational companies are exploiting bilateral investment treaties, which are meant to protect foreign investors, to circumvent national regulations and bully developing countries. But concerns over the so-called investor-state dispute settlement mechanisms that have for decades been a fixture of investment treaties are also growing in the developed world.

Indonesia is facing a billion-dollar lawsuit from UK-listed Churchill Mining under the terms of one such treaty, in addition to several unrelated threats of costly litigation from international companies unhappy with a new mining law.

Susilo Bambang Yudhoyono, Indonesia’s president, has spoken out against the Churchill case, saying he does not want multinational companies to “pressure developing countries like Indonesia”.

Craig Tevendale, a lawyer at Herbert Smith Freehills in London who specialises in international arbitration, said Indonesia’s cancellation of the treaties was “likely to be seen as a backward step” by investors already worried about weak investor protections in the country.

“There is a perception among developing economies, in particular those with strong extractive industries, that the treaty-based system tends to favour foreign investors,” he said. “But the renunciation of these treaties removes a key protection that investors consider when they are looking at country risk.”

The Netherlands was one of the first countries to be told by Indonesia that its bilateral investment treaty was being terminated from July 2015, as part of a plan to end all 67 such agreements with nations such as China, France, Singapore and the UK when they are up for renewal.

Under a “sunset clause”, the provisions of these treaties will continue to apply to existing investors for an extended period from the termination date, 15 years in the case of the Netherlands.

Mahendra Siregar, chairman of Indonesia’s investment co-ordination agency, said the government’s aim was not to weaken investor protection but to ensure there was consistency between local and international laws and regulations.

“Many of these agreements were signed decades ago, while along the way many new laws and regulations have been issued related to investment,” he said. “For the time being, we are drafting the new template for the investment treaties so we can introduce it to our counterparts soon, hopefully this year.”

Riza Damanik, executive director of Indonesia for Global Justice, a campaign group, said he hoped the government would draw up new investment treaties that are more equitable.

“There is a new modus operandi of foreign investors using these treaties to threaten weak governments,” he said. “We do not want it like this. We want dignity. Indonesia is an independent country and we have the sovereignty to regulate our country including foreign investment, especially when it comes to protecting natural resources.”

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Reading Time: 2 minutes

Indonesia is planning to terminate more than 60 bilateral investment treaties that allow disgruntled foreign investors to bypass local courts and seek compensation in international tribunals, amid a growing global backlash against such provisions, the Financial Times reported.

Reading Time: 2 minutes

sudirman-statue-jakartaIndonesia is planning to terminate more than 60 bilateral investment treaties that allow disgruntled foreign investors to bypass local courts and seek compensation in international tribunals, amid a growing global backlash against such provisions, the Financial Times reported.

Development campaigners say that some multinational companies are exploiting bilateral investment treaties, which are meant to protect foreign investors, to circumvent national regulations and bully developing countries. But concerns over the so-called investor-state dispute settlement mechanisms that have for decades been a fixture of investment treaties are also growing in the developed world.

Indonesia is facing a billion-dollar lawsuit from UK-listed Churchill Mining under the terms of one such treaty, in addition to several unrelated threats of costly litigation from international companies unhappy with a new mining law.

Susilo Bambang Yudhoyono, Indonesia’s president, has spoken out against the Churchill case, saying he does not want multinational companies to “pressure developing countries like Indonesia”.

Craig Tevendale, a lawyer at Herbert Smith Freehills in London who specialises in international arbitration, said Indonesia’s cancellation of the treaties was “likely to be seen as a backward step” by investors already worried about weak investor protections in the country.

“There is a perception among developing economies, in particular those with strong extractive industries, that the treaty-based system tends to favour foreign investors,” he said. “But the renunciation of these treaties removes a key protection that investors consider when they are looking at country risk.”

The Netherlands was one of the first countries to be told by Indonesia that its bilateral investment treaty was being terminated from July 2015, as part of a plan to end all 67 such agreements with nations such as China, France, Singapore and the UK when they are up for renewal.

Under a “sunset clause”, the provisions of these treaties will continue to apply to existing investors for an extended period from the termination date, 15 years in the case of the Netherlands.

Mahendra Siregar, chairman of Indonesia’s investment co-ordination agency, said the government’s aim was not to weaken investor protection but to ensure there was consistency between local and international laws and regulations.

“Many of these agreements were signed decades ago, while along the way many new laws and regulations have been issued related to investment,” he said. “For the time being, we are drafting the new template for the investment treaties so we can introduce it to our counterparts soon, hopefully this year.”

Riza Damanik, executive director of Indonesia for Global Justice, a campaign group, said he hoped the government would draw up new investment treaties that are more equitable.

“There is a new modus operandi of foreign investors using these treaties to threaten weak governments,” he said. “We do not want it like this. We want dignity. Indonesia is an independent country and we have the sovereignty to regulate our country including foreign investment, especially when it comes to protecting natural resources.”

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