Rights for people, rules for corporations: the case of Indonesia
In Indonesia, US-based mining companies succeeded to roll back new laws that were meant to boost the country’s economic development and protect its forests. This is the level of impact that investment treaties can have on social, environmental and economic development and rights. Why? Because of the ‘Investor-to-State Dispute Settlement’ (ISDS) clauses that are included in many such treaties.
For many developing countries, natural resources are an important asset to increase their fiscal revenue and income, and to reduce poverty. The extraction and processing of raw materials creates domestic jobs and the livelihoods of many poor people depend on these activities. However, to ensure that natural resources will contribute to a country's economic development, relevant policies need to be in place. First, such policies should guarantee that the governments of resource-rich countries obtain a 'fair share' of the revenue of natural resource exploitation, instead of all profits flowing abroad with the mining companies. Secondly, governments face the task of implementing a strategic industrial plan that can help to escape the 'dependency curse', which often goes together with the extraction and export of unprocessed raw materials.
In Indonesia, as in many other countries, investment treaties with ISDS have been used by foreign companies as a powerful tool to prevent exactly these two government responsibilities. ISDS has proven to be a powerful tool to challenge and stop laws that protect the environment and to prevent host countries from sharing in the profits of the extractive industries.
In 1999, the Indonesian government passed a new Forestry Law (4/1999). While the old law from 1967 had focused mainly on timber management, this new law for the first time included policies aimed at forest conservation. Importantly, in response to the devastating environmental impacts of mining activities, the new law forbade open-pit mining in protected forest areas. International mining companies that were already operating in these protected areas immediately inundated the government of Indonesia with legal threats and substantive compensation claims. The government's response was to relax the law, allowing mining companies that had been granted contracts prior to 1999 to continue their open-pit operations in protected forest areas.
Indonesian government hoped to create jobs for own people
Ten years later, a similar situation occurred. The government passed the Mineral and Coal Mining Law (4/2009), aimed at reducing the country's dependency on exports of raw materials and instead encouraging the development of a national processing industry for natural resources. The new law ordered all holders of mining permits to build mineral refinery plants within 5 years. By obliging mining companies to refine and process minerals inside the country prior to export, the government hoped to increase Indonesia's income from extractive industries and to create jobs for the Indonesian workforce.
In December 2013, a more detailed rule for mineral processing prior to export was issued. The Minister of Finance estimated that this would increase state revenues from US$4.9 billion to US$9 billion in just two years. However, only one month later, the Indonesian government already issued two law amendments that watered down the obligations for mining companies. The minimum threshold of mineral concentration for export was decreased (e.g. in the case of iron ore from 90% to 58%) and the obligation to build mineral processing capacities was postponed.
Foreign mining companies threatening to sue Indonesia
These amendments were issued following intense lobbying by two mining companies: Free-port Indonesia and Newmont Mining Corporation*. The first operates in Indonesia's east-ernmost province Papua and is a subsidiary of the US-based Freeport-McMoRan Inc. The second produces approximately 300,000 tonnes of copper concentrate annually in Indonesia. However, for these international heavy-weights, the amendments were not good enough.
In 2014, Newmont filed a case against Indonesia at the International Centre for the Settlement of Investment Disputes. Newmont claimed that the government's plans violated the BIT between Indonesia and the Netherlands. The Netherlands came into the picture because Newmont had set up a so-called 'letterbox company' in the country, which enabled the company to use ISDS against countries with which the Netherlands have a BIT. Dutch BITs have a reputation for being among the most investor-friendly treaties in the world and are therefore often abused by foreign companies and rich individuals who own such letterbox companies.
On 25 August 2014, Newmont withdrew its case but only after it had reached an agreement with the Indonesian government that gave the company special exemptions from the 2009 mining law. Although the terms of the agreement were not disclosed, it has been reported that the export tax that Newmont is required to pay was decreased from 25% to 7.5% . In 2017, instead of sticking to the intention of the 2009 law to ban all export of raw and only partly processed minerals, the Indonesian government issued a regulation that up to today allows the export of partly processed minerals – all to the benefit of the mining giants.
*In 2016, Newmont was acquired by the Indonesian oil and gas company PT Medco Energi Internasional.
This case was highlighted as part of the
'Rights for People, Rules for Corporations – Stop ISDS' campaign week of 14-18 October 2019
Background on the 'Rights for People, Rules for Corporations - Stop ISDS' campaign
Indonesia for Global Justice (IGJ) published the following report in collaboration with Transnational Institute, Both ENDS en SOMO in Octber 2019:
Also see the case of Paraguay
Read more about this subject
Indigenous communities in Paraguay saw their attempts to regain their ancestral lands thwarted by German investors. In Indonesia, US-based mining companies succeeded to roll back new laws that were meant to boost the country’s economic development and protect its forests. This is the level of impact that investment treaties can have on social, environmental and economic development and rights. Why? Because of the ‘Investor-to-State Dispute Settlement’ clauses that are included in many such treaties.
Investment treaties must be inclusive, sustainable and fair. That means that they must not put the interests of companies before those of people and their living environment.
Publication / 23 May 2023
Publication / 7 July 2022
News / 26 June 2020
Countries could be facing a wave of cases from transnational corporations suing governments over actions taken to respond to the Covid pandemic using a system known as investor-state dispute settlement, or ISDS. Cases could arise from actions that many governments have taken to save lives, stem the pandemic, protect jobs, counter economic disaster and ensure peoples' basic needs are met. Threats of cases have already been made in Peru over the suspension of charging on toll roads, and law firms are actively advising corporations of the options open to them. 630 organisations from across the world, representing hundreds of millions of people, are calling on governments in an open letter to urgently take action to shut down this threat. The letter below is published today.
News / 11 October 2019
Indigenous communities in Paraguay saw their attempts to regain their ancestral lands thwarted by German investors. This is the level of impact that investment treaties can have on social, environmental and economic development and rights. Why? Because of the ‘Investor-to-State Dispute Settlement’ (ISDS) clauses that are included in many such treaties.
Publication / 30 October 2023
News / 26 January 2017
From 24-28 January 2017, the second round of negotiations towards a Comprehensive Economic Partnership Agreement (CEPA) takes place between the EU and Indonesia. The proposed agreement covers far-reaching liberalisation and deregulation that can have severe impacts on society, people and the environment. Civil society organisations, including Both ENDS, released a statement to express their concern and call upon the negotiators to halt the process and fully assess the potential environmental and social impacts of the agreement.
Publication / 21 September 2015
Publication / 4 April 2019
News / 14 October 2016
Both ENDS will join the protest against trade treaties TTIP, CETA and TiSA on Saturday October 22nd in Amsterdam. These treaties will have negative impacts, not only in the Netherlands and Europe, but also - and maybe even more so - in developing countries.
Press release / 23 May 2023
On 23 May, the Netherlands celebrates 60 years of bilateral investment treaties (BITs). The first BIT was signed with Tunisia in 1963. These treaties were intended to make an important contribution to protecting foreign investments by Dutch companies. A study by SOMO, Both ENDS and the Transnational Institute (TNI), however, shows that in practice they mainly give multinationals a powerful instrument that has far-reaching consequences people and the environment worldwide.
News / 19 June 2018
Today, Both ENDS sent a letter, signed by various civil society organisations, to Sigrid Kaag (Dutch Minister of Aid & Trade) reminding her of an important deadline and to urge her to terminate the Bilateral Investment Treaty (BIT) that exists between the Netherlands and Burkina Faso. The treaty, which can be very harmful for a poor country such as Burkina Faso, will automatically be renewed for the next 15 years if it is not terminated before July 1st this year.
Publication / 10 March 2016
Publication / 19 September 2016
Publication / 12 November 2020
Publication / 12 April 2022
Event / 22 February 2022, 16:00 - 17:30
What is the EU-Mercosur association treaty and why is it controversial? What could be the implications of the treaty for people and their livelihoods both in EU and Mercosur countries? For more information about these and other issues, see our new publication and join our interactive webinar next week!
News / 21 January 2019
Today an alliance of more than 150 organisations, trade unions and social movements in countries across Europe is launching a joint programme against unfair trade and investment agreements, and especially against the controversial Investor-to-State-Dispute-Settlement (ISDS) mechanism. Under ISDS, investors can bring complaints against states whose social and environmental legislation pose a threat to their profits.
External link / 31 May 2018
For several years now, Both ENDS has been drawing attention to the downsides of existing Bilateral Investment Treaties (BITs) between the Netherlands and countries in the Global South. In 2017, an important step was taken, when Uganda decided to terminate its BIT with the Netherlands, as advised by Both ENDS and our local partner SEATINI.