After South Africa, Indonesia takes a brave decision to terminate its Bilateral Investment Treaty with the Netherlands

Last week, the Indonesian government announced that it will terminate its Bilateral Investment Treaty (BIT) with the Netherlands. With this move, Indonesia joins the growing number of countries concerned about the excessive corporate rights enshrined in investment agreements. Indonesia’s decision should be followed up with a broad debate on the need to review the increasingly controversial current investment protection framework, both in Indonesia and in the Netherlands, say Dutch and Indonesian civil society organisations IGJ, Both ENDS, SOMO and TNI.

Indonesia’s move to cancel its investment treaty with the Netherlands comes as the country faces a rising number of treaty-based investment cases, with transnational companies claiming hundreds of millions of dollars in ‘damages’.

BITs contain far-reaching investment protections, backed up by an increasingly controversial dispute settlement procedure (ISDS) that allows transnational corporations to directly sue sovereign states over actions and policies that might affect the profitability of their investments. Indonesia has been challenged over measures to address the Asian financial crisis, and over an act against mining companies in order to protect the environment. Under threat of debilitating investment claims, payable, if awarded, out of public money, Indonesia has seen itself forced to change or repeal regulatory measures. In the most recent, highly controversial treaty-based arbitration case, Churchill Mining is suing the Indonesian government to the tune of 1 to 2 billion dollars.

Public interest versus corporate rights

IGJ, Both ENDS, SOMO and TNI applaud Indonesia’s decision to terminate its Dutch BIT. Also, they are calling on both the Dutch and the Indonesian governments to review their approach of investment treaties to re-balance investor protections with wider social and environmental public interest considerations.

“The cancellation of the Netherlands-Indonesia BIT by the Government of Indonesia deserves appreciation. The BIT cancellation should be followed by efforts to critically review the privileges of foreign investors in Indonesia and to promptly restore the rights of the people and the environment vis-à-vis foreign direct investment” says M. Riza Damanik, Executive Director of the Indonesian NGO Indonesia for Global Justice. “Indonesia’s move to cancel its BIT with the Netherlands should fuel a transparent debate about the cancellation of Indonesia’s other 66 BITs in light of our country’s experience to date with debilitating investment claims.”

Indonesia follows in the footsteps of South Africa, which cancelled its BIT with the Netherlands last year. South Africa based its decision to cancel all its BITs on an assessment that BIT protections were incompatible with South Africa’s national development objectives. The BITs/ISDS framework can significantly inhibit the ability of states to protect their environment from mining companies or shield their economies from harmful financial flows. At the same time, there is no evidence that BITs lead to more investment in partner countries.

Alternatives

Several countries, including for example Ecuador and Bolivia, are exploring alternative models for ensuring investor confidence that rely on national legal systems instead of international arbitration and contain more flexibility to accommodate national development goals. Dutch BITs are among the most aggressive in the world.

“Unfortunately, the Netherlands have shown little sign of sharing Indonesia’s legitimate concerns. The Netherlands continue to conclude BITs with similar far-reaching protections based on its model BIT and including ISDS, with third parties. The Netherlands actively advocate similar controversial rights and protections in EU trade and investment treaties under negotiation, including those with Canada, Japan, China and the US”, says Roeline Knottnerus from TNI and SOMO.

Strong symbol

With international investment lawyers actively urging foreign investors to sue host states for expropriation damages, which can include regulatory measures taken in the public interest, Indonesia rightly identifies ISDS in investment treaties as a growing liability. Cancellation of the BIT with the Netherlands as the first investment treaty containing the increasingly controversial ISDS mechanism is highly symbolic. At the same time, termination of the Indonesia-Netherlands BIT does not mean that Indonesia is safe from future treaty-based investment claims originating from the Netherlands: the BIT contains a so-called survival clause that means investments originating from before the treaty’s official termination date of 1 July 2015 continue to enjoy full treaty protection for another 15 years.

The Dutch government has indicated it regrets Indonesia’s decision. But civil society organisations urge the Netherlands to take more note of growing discontent worldwide with the current BITs/ISDS framework. Burghard Ilge from Both ENDS: “We call on the Dutch authorities to take note of the growing critique of the current investment protection framework and review their position – in recognition of the fact that developed countries are by no means insulated from similar risks to policy space and public budgets if the current level of investment protection reinforced by ISDS is included in these treaties.“

About IGJ: Indonesia for Global Justice(opens in new window) (IGJ) is Indonesian-based organization who works mainly on trade and investment issues. Being established in 2001, IGJ has main focus on WTO, ASEAN, Free Trade Agreements, BITs, and G20.

About Both ENDS: Both ENDS(opens in new window) , with more than 100 southern CSO partners, promotes sustainable solutions for environmental and poverty-related issues, development and its connections with international policy on land, water and capital flows.

About TNI: The Transnational Institute(opens in new window) (TNI) was founded in 1974 as the international programme of the Washington DC-based Institute for Policy Studies. For more than 30 years, TNI’s history has been entwined with the history of global social movements and their struggle for economic, social and environmental justice.