[Ip-health] FT: Indonesia to terminate more than 60 bilateral investment treaties

Thiru Balasubramaniam thiru at keionline.org
Wed Mar 26 09:39:35 PDT 2014

Indonesia to terminate more than 60 bilateral investment treaties

By Ben Bland in Jakarta and Shawn Donnan in London, March 26

Indonesia <http://www.ft.com/topics/places/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

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. South Africa started to cancel some of its bilateral investment
treaties last year.

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.

Australia is fighting off a challenge from Philip Morris
the tobacco group, in relation to plain packaging rules for cigarettes,
while Germany is being challenged by Vattenfall, the Swedish energy
company, over the decision to phase out nuclear power following the
Fukushima nuclear disaster in Japan.

The EU is also engaged in a heated debate over the value of investor-state
dispute provisions as it negotiates with the US over what would be the
world's biggest ever trade and investment deal.

The European Commission this year suspended negotiations on the investment
chapter of the transatlantic deal and is poised to launch public
consultations over whether to include a dispute settlement mechanism.
Germany joined France this month in saying it would oppose the
an investor-state dispute mechanism in the transatlantic deal.

Business groups argue the arbitration mechanisms are vital to encouraging
foreign direct investment and needed to protect investors from government
expropriations and other rogue decisions against which they would otherwise
have little protection.

But that argument appears to hold diminishing sway with many governments.

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

Susilo Bambang Yudhoyono, Indonesia's president, has spoken out against the
Churchill case <http://blogs.ft.com/beyond-brics/2012/06/29/766251/>,
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

"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

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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