Lexology | March 26 2014
Indonesia terminates its Bilateral Investment Treaty (BIT) with the Netherlands from 1 July 2015 and may terminate all of its BITs
Simon Nesbitt , Daniel E. González, Markus Burgstaller, Jonathan Leach, Jonathan T. Stoel and Laurent Gouiffes
Indonesia, Netherlands, Singapore
Indonesia has decided to terminate its Bilateral Investment Treaty (BIT) with the Netherlands, pursuant to a statement issued by the Dutch Embassy in Jakarta on 21 March 2014. The termination will be effective from 1 July 2015. However, because of a "sunset" provision in the BIT, its protections will extend for existing investments of investors until 1 July 2030.
Indonesian Vice President Boediono confirmed Indonesia’s decision at a summit in The Hague on 23 March 2014. He pledged that "Indonesia will create a new bilateral investment agreement that will be adjusted to recent developments", though Indonesia has not yet presented details on any proposed new investment treaty framework. "The Indonesian Government has also mentioned that it intends to terminate all of its 67 bilateral investment treaties," according to the Dutch Embassy in Jakarta. However, it is not yet apparent whether Indonesia will indeed choose to terminate additional BITs.
Indonesia has not yet given reasons for its decision. Commentators have speculated that the move may be connected with certain unfavourable decisions against the country in existing BIT claims by foreign investors. For example, Churchill Mining of the UK has recently overcome Indonesia’s challenges to the jurisdiction of an arbitral tribunal. Its claims for damages of over USD 1 billion excluding interest will therefore proceed to the merits stage. This decision was heavily criticised in Indonesia.
While certain countries have terminated individual BITs, termination of all BITs would be unprecedented. South Africa recently decided to review all of its BITs, to terminate its BITs with certain EU countries, and to consider a new investment policy that eliminates recourse to international arbitration and certain substantive investment protections. Further, certain Latin American countries, such as Argentina, Ecuador and Venezuela have also taken steps to curtail their international investment protection regimes.
A termination of additional BITs by Indonesia would ironically come at a time when many of Indonesia’s neighbours such as Singapore, Malaysia, Vietnam, Australia and New Zealand are negotiating the Trans-Pacific Partnership Agreement, a 12-country multilateral trade and investment treaty which it is understood will likely include an Investment Chapter providing for recourse to arbitration. Even if Indonesia chose to terminate additional BITs, the ASEAN Comprehensive Investment Agreement would still subject Indonesia to significant investment protection obligations for investors from ASEAN countries such as, for example, Singapore, Malaysia and Vietnam.