Indonesia’s recent announcement that it will terminate the Bilateral Investment Treaty (BIT) with the Netherlands calls for renewed evaluation by foreign investors of available investment protection. Though the termination coincides with when the BIT expires on 1 July 2015, the impact of the termination is limited for investments covered by the BIT and made or restructured prior to that date. For these investments a “sunset period” of 15 years applies so that investors can in fact continue to rely on the Dutch-Indonesian BIT until 2030. Investors whose investment runs beyond 2030 should timely consider alternative options for investment protection after 1 July 2030. For foreign investments in Indonesia made or restructured after 1 July 2015, the impact of the termination of the BIT may be far-reaching as these investments will not be covered by the BIT. We will soon be publishing a Legal Alert on possible alternative options for investment protection.
Besides the termination of its BIT with the Netherlands, Indonesia has also announced its intention to terminate other of its investment treaties. Although the reasons for terminating the BIT have not been reported, Indonesia’s decision can be seen in the larger context of the ongoing re-evaluation of the utility of BITs and especially the dispute resolution provisions they contain.
On a European level, the continuing public debate on this issue and the reported announcement by the German government of its intention to push for an exclusion of investor-state dispute settlement (ISDS) from the Transatlantic Trade and Investment Partnership with the USA (TTIP) led to an online public consultation on investment protection and ISDS in the TTIP being launched on 27 March 2014. The consultation relates to possible approaches to investment protection and ISDS in the TTIP, covering questions such as the right to regulate, the fair and equitable treatment for investors and on transparency. The public consultation runs until 21 June 2014.
Foreign investors who have invested or who are envisaging investments in certain countries should realise that investor-state arbitration may in due course no longer be a viable dispute resolution method. In general, the provisions of a terminated BIT will continue to apply only to investments made prior to the date of termination of the BIT, and a sunset period clause may limit that period to a certain number of years. After that period expires, investor-state arbitration will no longer be available to investors as a dispute resolution method. Committing resources to foreign investments may then potentially be at a higher risk than expected. Possible alternative options for investment protection should be carefully taken into account.