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Indonesian investments and international treaty law
Authors: Simon Butt, Luke Nottage and Brett Williams, University of Sydney
Indonesia’s new mining regulation requiring divestment of majority foreign investments is unlikely to generate many formal investor-state arbitration (ISA) claims against Indonesia, based on existing bilateral or regional FTAs, or investment treaties.
Avoidance of arbitration is primarily motivated by immediate pragmatic considerations.
A conciliatory attitude toward the new regulation is still likely where the investor’s home state desperately lacks natural resources, such as Japan. This is one explanation for the lack of (direct) ISA claims by Japanese investors, despite Japan’s growing number of investment treaties around the world. These include the investment chapter contained within the 2006 Japan–Indonesia Economic Partnership Agreement, with its heavy focus on enhancing Japan’s energy security.
But Indonesia’s new regulation could still lead to formal ISA claims, or — more likely — it could frame renegotiations with foreign investors and possibly their home states, which may well be covered by investment treaty protections. Indonesia has reportedly only been subject to three ISA proceedings under the 1965 International Centre for Settlement of Investment Disputes (ICSID) Convention, to which Australia, Japan and the UK are also party. But a British mining company (Churchill) has recently announced it intends to bring ICSID proceedings against Indonesia for an earlier incident involving one of the world’s largest potential coal coking reserves.
Indonesia is also taking very seriously a highly politicised claim filed last year by a large UK-based investor in the financially troubled Bank Century. Rafat Ali Rizvi is alleging unfair treatment by the Indonesia authorities, including the judicial system, and expropriation after the Deposit Insurance Agency forced the bank into administration in 2008. On 4 April 2012 the tribunal (chaired by a former Solicitor-General of Australia) reportedly rejected Indonesia’s application, under ICSID Rule 41(5), for the claim to be dismissed on an expedited basis as manifestly without legal merit. A key issue — whether the claimant’s investment was properly ‘granted admission’ under the Indonesia–UK bilateral investment agreement — was found to be too complex to resolve under this preliminary procedure. Nonetheless, the arbitrators are likely to re-examine this jurisdictional objection at a later stage of proceedings.
Many investment treaties concluded by Indonesia, as well as several other ASEAN states, contain provisions requiring investments to have been ‘admitted’ in specified ways. For Australian investors potentially affected by mining investment divestment regulations and considering investment treaties with Indonesia, for example, the 1993 treaty between the two countries defines an ‘investment’ to be one ‘admitted by [Indonesia] in its territory in conformity with the laws, regulations and investment policies of [Indonesia] applicable from time to time’. It applies to investments ‘granted admission in accordance with the Law No. 1 of 1967 concerning Foreign Investment or with any law amending or replacing it’. (Indonesia’s current Foreign Investment Law is Law 25 of 2007.) The 2010 ASEAN–Australia–New Zealand Free Trade Area agreement (AANZFTA) defines a ‘covered investment’ somewhat differently: one ‘admitted by the host party, subject to its relevant laws, regulations and policies’.
Such provisions may create difficulties for foreign investors considering treaty claims against Indonesia. Post-Soeharto democratisation and decentralisation have generated an extraordinarily complex set of laws and policies affecting the admission and operation of foreign investments. But if such preliminary hurdles can be overcome, Australian investors seeking compensation or a better negotiating position might argue that the new Indonesian regulations breach the following substantive protections under international treaty law.
First, one avenue may be through AANZFTA, which, for covered investments, provides ‘national treatment’, namely ‘treatment no less favourable than that [which the host state] accords, in like circumstances, to its own investors and their investments’. But footnote 33 makes this commitment subject to a Work Program, with national treatment obligations only coming into effect along with schedules of reservations permitted under Article 12 of the agreement. Australia’s 1993 investment treaty with Indonesia does not provide for national treatment, but it does include ‘most favoured nation’ provisions, allowing Australian investors to claim the benefit of protections extended by Indonesia to third countries.
Second, foreign investors might claim compensation for ‘expropriation’ or its equivalent arising from the host state’s measures. This option is provided in both the 1993 investment treaty and AANZFTA.
Third, the host state commits to extending ‘fair and equitable treatment’ to Australian investors under both the 1993 treaty and AANZFTA. Both treaties also extend other protections, which Indonesia’s new regulations may well violate, such as a requirement for the ‘transparency of laws’. Some provisions may impact on future measures as well, such as proposed restrictions on foreigners holding key management positions in human resources departments.
Lastly, while the 1993 treaty only allows Australian investors to commence ICSID arbitration, AANZFTA adds several options designed for ad hoc proceedings. The former usually provides for greater transparency in proceedings, but AANZFTA allows the host state, for example, to make public all awards and decisions rendered by a tribunal. This is important for host states, given the greater public interests involved in ISA compared to inter-firm commercial arbitration.
The international law regime does not and cannot solve all disputes, even with the increasingly sophisticated drafting of investment treaties. Widely accepted legal interpretations are still evolving and ISA disputes tend to become quite fact-intensive, generating costs and delays. But international law provides additional mutually agreed understandings aimed at balancing a host state’s interest in maintaining appropriate regulatory discretion while attracting foreign investment, with the reasonable predictability foreign investors expect — particularly in the resources sector. The ISA mechanism is important in giving traction to substantive rights. Recent developments in Indonesia therefore provide another reason to reconsider the eschewal of ISA in all of Australia’s future treaties, a change in direction announced by the Gillard Government’s Trade Policy Statement in April 2011.
Simon Butt is Senior Lecturer at the Sydney Law School and acting Director of the Centre for Asian and Pacific Law at the University of Sydney (CAPLUS).
Luke Nottage is a Professor and Associate Dean at the Sydney Law School, University of Sydney, and founding co-director of the Australian Network for Japanese Law (ANJeL).
Brett Williams is Senior Lecturer at the Sydney Law School, and Public International Economic Law Program coordinator at the Sydney Centre for International Law.
A longer version of this article, including hyperlinks to further sources, is available here on the Japanese Law and the Asia-Pacific blog. The article draws on research for Luke Nottage’s project with Micah Burch and Brett Williams, ‘Fostering a Common Culture in Cross-Border Dispute Resolution: Australia, Japan and the Asia-Pacific’, supported by the Commonwealth through the Australia-Japan Foundation, which is part of the Department of Foreign Affairs and Trade.
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Tony Judt Was Justified in His Scorn for Friedrich Hayek: Henry Farrell Is Not Aware of All Internet Traditions Department
Henry Farrell spells “Hitler” thus: “Hilter!!!!”. It is actually: “Hilter!!1!”. The “1″ is very important here…
Henry Farrell:
Judt and Hayek — Crooked Timber: A few months ago, Tyler Cowen argued that Tony Judt had been unfair to Hayek in his final book.
it doesn’t show Judt in such an overwhelmingly favorable light. He is cranky, unfair to his intellectual opponents, and he repeatedly misrepresents thinkers such as Hayek on some fairly simple points. …
One does not have to agree with Hayek’s Road to Serfdom to find this an unfair characterization:Hayek is quite explicit on this count: if you begin with welfare policies of any sort — directing individuals, taxing for social ends, engineering the outcomes of market relationships — you will end up with Hitler.
But is that actually so unfair?… I re-read Hayek’s own introduction to the US edition…. [Hayek] very explicitly claims that the paternalist welfare state is creating the conditions under which (unless the policy is changed or reversed) totalitarianism will blossom, reducing the populace (as described in the bit of Tocqueville that Hayek quotes) into a “flock of timid and industrial animals, of which government is the shepherd,” which will surely sooner or later come under the control of “any group of ruffians.”
More tersely: Welfare Statism=Inevitable Long Term Moral Decline=Hilter! ! ! !
Hayek surely had his moments of brilliant insight, but this wasn’t one of them – for all his protestations of anti-conservatism it’s a fundamentally conservative, and rather idiotic claim. I don’t think that Judt was being unfair at all.
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Technology and culture to drive East Asia’s next digital revolution
Author: Andy Yee, Hong Kong
East Asia has long been at the forefront of the hardware digital revolution, boasting some of the world’s most highly connected societies.
And with a second digital revolution under way, the region’s diverse cultures are set to find new ways of combining technology and culture.
The scale of production and distribution is staggering. There are now more than 800 exabytes of digital information in the world: every minute, there are 100,000 new tweets, 6 million Facebook views, 30 hours of video uploaded to YouTube, and 3000 photos added to Flickr.
East Asian countries are traditionally strong in hardware-driven innovations: Japan, South Korea, Taiwan and China are home to manufacturing powerhouses like Sony, Samsung and Lenovo. Collectively, these countries make close to 90 per cent of the world’s digital gadgets. The other side of the digital economy — the supply of digital content and services — attracts less attention in the region, but is already emerging as a formidable social and economic force, and will continue to grow as technology connects more and more people. The next digital revolution in East Asia will direct entrepreneurial energies toward creating new tools, content and forms of expression.
In 2002, Douglas McGray coined the term ‘Gross National Cool’ to explain how cultural exports such as Hello Kitty, Pokemon and anime fuelled Japan’s emergence as a cultural superpower during its ‘lost decade’. Former prime minister Junichiro Koizumi was one of the first to acknowledge the power of ‘Cool Japan’. Former prime minister Taro Aso went a step further and described himself as an otaku, a person who takes a keen interest in anime, video games and manga. And starting in 2008 Japan formally deployed its soft power by dispatching ‘cute ambassadors’ and appointing Doraemon as ‘anime ambassador’.
In her new book on otaku culture, cultural anthropologist Mizuko Ito explores how this participatory fan culture has flourished in the digital age because it enables fans to connect niche to niche and make an international cultural force of otherwise isolated cultural manifestations. Through fan fiction, anime music videos, fansubbing and various other remixes, fans have created rich international networks where they distribute their own content ahead of traditional media and producers.
Following the Asian financial crisis of 1998 South Korea also turned to Hallyu, or Korean wave, as an instrument of soft power. Korean pop culture first gained Asia-wide popularity thanks to the rise of satellite broadcasting. Today, Korean producers are using social media platforms like Facebook and YouTube to attract tech-savvy and culturally curious audiences in North America and Western Europe, with astounding success: in 2011, K-pop established itself as a global trend, with nearly 2.3 billion YouTube views.
Cultural power is subtle, but it may prove effective. Roh Moo-hyun, president of South Korea between 2003 and 2008, once remarked that Hallyu will someday unify the Korean Peninsula. While that may be a long-term prospect, a recent survey conducted by the Korea International Trade Association found that 80 per cent of respondents from Japan, China, Taiwan and Vietnam believed that Hallyu has positively influenced the purchase of South Korean products. In 2011, South Korean cultural exports, including films, music and TV shows, hit a record US.2 billion.
The increasingly global reach of South Korean culture has given rise to a variety of start-ups that develop creative digital tools to eliminate barriers to content distribution. These include the website viki.com, which relies on millions of volunteer users to translate acquired movies and TV dramas into multiple languages. Another website, flitto.com, aims to create a real-time translation tool for what South Korean movie stars say on social networks, and for globalising South Korean cartoons.
Taiwan is also beginning to turn its attention from hardware manufacturing to software system integration and content development. The government has set an ambitious goal of turning Taiwan into the hub of Chinese language-app creativity, with plans to produce some 20,000 app programs and train 1000 app-software specialists per year. Software innovation requires a very different mindset from hardware research because it aims to enrich people’s social experience or personal organisation, and this cannot be achieved without a deep understanding of people and culture.
This second digital revolution will be one to watch because it sits at the intersection of culture, diplomacy and technology. It will lead to new revenue streams for talented creators, and it will allow ideas and cultures to influence one another; the diversity of East Asian languages, cultures and social experiences underpins the richness of this revolution. Differences can be celebrated and more widely understood.
In the future, competition and innovation will be less about hardware than about people, cultures and social experiences — and about organising a value chain around them. Facilitating the next phase of the digital revolution — one that is based on innovation in social technologies and soft power — will be the challenge for the next generation of government and business leaders in East Asia.
Andy Yee is a policy analyst for Google in Asia Pacific. He has worked at the Political Section of the EU Delegation to China in Beijing and blogs at Global Voices Online and China Geeks.
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