Investment dispute settlement can be defined in few categories, which is the state-to-state dispute settlement, investor state dispute settlement (ISDS)and the business-to-business dispute settlement. Meanwhile, the current existing forum that can be used to settle investor state dispute (ISDS) are the international commercial arbitration forum, the International Centre for the Settlement for Investment Dispute (ICSID), and the Investment Court System (ICS). Investor State Dispute Settlement (ISDS) were commonly come from the breach of international law by the host state; therefore, it is commonly said that the existence of ISDS forum is to protect investor interest. Moreover, the protection of investor interest is based on the minimum standard of treatment of an investment activity and investor legitimate expectation. Nonetheless, the same level of proportion of protection mechanism for the state protection, because as a host state, state has the right to regulate based on the souvereignity and the public interest.
This article addresses a current issue-the quest for using a domestic raw material which regulated from the domestic regulation of of the industrial sector and the limits on such regulation by international law, in particular the investor legitimate expectation and the standard of treatment of investors and regulation ‘tantamount’ to expropriation which require compensation. The establishment of Law Number 11 of 2020 concerning Job Creation with omnibus law method. There are at least several indicators regarding the use of omnibus law, including: uncertainty and economic slowdown global and geopolitical dynamics in various parts of the world, technological change, industry 4.0, digital economy, average economic growth in the range of 5% in the last 5 years with an investment realization of approximately Rp721.3 trillion in 2018 and Rp792 trillion in 2019, overlapping regulations, low investment effectiveness, level of unemployment, the new workforce and the number of informal workers, as well as the number of Micro Companies which has a large number of development but with low productivity.
As the effect of the establishment of law number 11 of 2020, in 2021, Indonesia has just issued Government regulation number 28 on 2021 concerning Industrial Management, and Presidential Regulation number 12 on 2021 concerning the amendment of presidential regulation number 16 on 2018 concerning Government procurement of goods and services. Both regulations obliged all industry in Indonesia use the domestic raw material as the consequences of law number 11 of 2020 concerning Job Creation. In investment law, this kind of policy could lead to an indirect expropriation action by the government, because of the when investor made their investment in host country, the allocation for raw material that needed and also the use of machines for production might also come from their home state or other states. Moreover, this regulation also can cause costs within their investment activity which then caused claim for an indirect expropriation. Therefore, this issue raises a question of whether the implementation of domestic raw material application will cause an indirect expropriation based on the breach of the investor legitimate expectation.
An actions that lead to claims for indirect expropriation which conducted by the government or by certain authorities who hold power in the sector, related to government interference, or policy changes that cause losses to investors. To ensure legal certainty for the host state as well as for investors, 3 parameters of government action are set, namely the parameters of the effect of the action on the rights of investors, the character of government actions carried out based on the objectives and reasons for taking the action, as well as the principle of fairness and reciprocity in perform the action. These parameters are needed because when investors make their investment activity, they have legitimate investor expectations, so that they are protected by a minimum standard of treatment when conducting investment activities. A clause that should made by government to escape from indirect expropriation claim is by setting a grandfather clause, this clause will accommodate the need of investor to made some adjustment to the policy.
Penulis: Prof. Dr. Muchammad Zaidun, S.H., M.Si, Yuniarti, LLM dan Dr. Widhayani Dian P.
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