Cost and Benefit Analysis of BIT from the Legal Perspective of Indirect Expropriation Provision The Case of Indonesia

10.2478/bjlp-2023-00000202

Abstract

This article is a critique of bilateral investment treaties (BITs) concluded by Indonesia amidst a nationwide accepted legal doctrine that BITs could promote the increase of foreign direct investment (FDI) flows into the country. Using cost and benefit analysis, however, this study reveals that such doctrine is not supported by the evidence. In contrast, the legal risk borne by the state from broad interpretation due to the unclear legal formulation of indirect expropriation and related provisions is inevitable. In addition, the monetary cost of treaty-making, arbitration cost, and compensation cost for breached provision provide worrisome pressure on the state’s budget. This article suggests two policy options either terminating all BITs or reconstructing BITs provisions hence only stipulating provisions of promotion and facilitation of investments. BIT models of peer countries could be taken into consideration for the reconstruction of BIT to minimize the cost and maximize the economic benefit of BIT for Indonesia.