Andika Putra, Intern Staff at ASEAN Studies Center UGM

The establishment of ASEAN Community aims to improve the welfare of all ASEAN member states to be able to compete in regional and global scope. Furthermore, higher levels of investment between ASEAN member states will increase the number of disputes arising between private investors and governments in South East Asia. To settle this issues, ASEAN Comprehensive Investment Agreement (ACIA) was signed by ASEAN Member on 2009, which regulated about the investment protection and investor-state dispute settlement mechanism. On the one hand, the parties may settle their dispute through Alternative Dispute Resolution. On the other hand, ACIA allow the investor to submit a claim to the courts of disputing Member State, or even submit their claim to the arbitration institution, such as International Centre for Settlement of Investment Dispute (ICSID), UNCITRAL Arbitration Rules, Regional Centre for Arbitration at Kuala Lumpur or any other regional center for arbitration in ASEAN that agreed by the disputing parties. This article will discuss about the role of ICSID in ASEAN Economic Community.

What is ICSID and why choose ICSID?

Arbitration under the International Centre for Settlement of Investment Disputes (ICSID), or the ICSID Additional Facility Rules (Additional Facility Rules) is a profitable choice for investors, since founded in 1965, ICSID has significant experience handling a dispute over investment. As of October 1, 2015, ICSID had registered 539 cases under the ICSID Convention and Additional Facility Rules. Forty-two (42) of these cases (8%) involved a State Party from the South & East Asia & the Pacific (SEAP) Region (Chart 1).

There are some advantages offer by the ICSID, the first is neutral and self-contained system, as detailed in Chapter 5 of ICSID Convention provides that the arbitration law of the places of arbitration, wherever it may be, has no impact whatsoever on the proceedings. Second, as in other international arbitration, ICSID hearing generally is private, however as a result of the 2006 ICSID amendment, it is possible for non-parties and NGO to observe the hearing process and publish the decision. Third, ICSID provides a transparent cost structure and keeps its administrative fees relatively low, and the last, it remains true that most of ICSID awards have been either successfully settled or voluntarily executed by the parties, this success may be due to ICSID being an organ of the world bank, and the perception that failure to respect and ICSID award would have indirect political consequences in terms of credibility with the world bank.

Chart 1: Geographic Distribution of All Cases Registered under the ICSID Convention and Additional Facility Rules (click on picture to enlarge)

The Role of ICSID in Investor-State Dispute Settlement in ASEAN

To resolve the dispute through ICSID, both of the host country and the investor’s country of origin are parties to the Washington Convention. However, Laos, Myanmar, Thailand and Vietnam did not ratify this convention. For the cases involving these countries, ICSID Additional Facility Rules is possible to be used by the parties. ACIA allows arbitration based on Additional Facility Rules when one of the host country or the country of origin of the investor is a member of the Washington Convention. However, if both of the disputing parties are not the parties in Washington Convention, they cannot submit their claim to the ICISD. For example, the dispute between the Governments of Myanmar and Thailand investors, will not be handled by the ICSID, because both of parties did not ratify the Washington Convention.

In conclusion, ASEAN as a regional organization in South East Asia was enacted ASEAN Comprehensive Investment Agreement, it is good momentum for the investor and ASEAN Member States to develop the South East Asia region, because ASEAN has provided the investment protection and dispute settlement mechanism. However, we have to optimize the role of ICSID as one of the remarkable institution, who have good reputation and good experience in investment dispute settlement. However, ICSID Arbitration is not the best option in every situation.  In fact, there are some ASEAN Member who has not ratify the Washington Convention yet, it will be the challenges in the future, because the role ICSID is very important in investment dispute settlement. Even, there are some other arbitration institution, in this case ICSID will be the alternative solution to settle the investment dispute in ASEAN. Therefore, the ratification of Washington Convention for the rest member of ASEAN will be good idea for the investment protection in ASEAN.

Ahmad Rizky Mardhatillah Umar (Researcher at ASEAN Studies Center UGM) studies Politics with Research Methods at the University of Sheffield, UK. 

Muhammad Rosyidin’s article in the October-December 2015 edition of Strategic Review provides an insight into contemporary Indonesian foreign policy. Rosyidin argues that Indonesia needs to embrace the concept of “niche diplomacy” as the way forward, with our foreign policy focusing on a single international issue in order to make its voice heard.

Despite the article’s convincing argument for Indonesia’s improvement in its international performance, I believe it missed one important point: foreign policy doctrine. While the nation needs to embrace improvement in its diplomatic agenda, first it has to address what it actually wants in global politics. To that end, this article examines the current foreign policy doctrine of President Joko Widodo.

Unclear direction?

There is some confusion among international relations observers when looking at Indonesia’s current foreign policy. Since taking office, President Joko’s administration has delivered strong nationalist rhetoric on the global stage, a reversal from the pragmatist approach of the previous administration of President Susilo Bambang Yudhoyono.

In a speech at the Asian-African Conference this year, President Joko called for radical reform of international institutions such as the United Nations, the International Monetary Fund, and the World Bank. He said considers those institutions “obsolete” and a better global architecture is needed to develop Asian and African countries.

Many international relations scholars share the optimism of this speech. It reminds us of the rhetoric used by former President Soekarno to lead Asian African countries, at that time, calling for independence and the end of colonialism. Observers such as Hikmahanto Juwana, for example, optimistically said that Jokowi’s strong position on his foreign policy approach reflected a need to make Indonesia more visible in international politics (The Jakarta Post, 25/6).

However, several policies taken by the Jokowi administration, as well as statements from ministers, show that the President lacks a consistent, strong foreign policy doctrine in dealing with contemporary global issues.

In October, at a meeting with US President Barrack Obama, Jokowi declared Indonesia’s interest in joining the US-led Trans-Pacific Partnership (TPP) agreement. It is unclear whether this statement was serious or not, but declaring such an interest in the presence of the US President was inconsistent with a speech he made several months previously that was more negative on the TPP, something that was picked up on by the Indonesian media.

President Joko’s approach to regional politics is also vague. Taking an unclear position at several Association of Southeast Asian Nations (Asean) ministerial meetings (most recently at a meeting of Asean defense ministers, he seems to be relegating Asean unity to the sidelines. One example is the statement to the press that China’s growing involvement in South China Sea should be taken to an international arbitration forum. This position reflects inconsistency with Indonesia’s previous stance of not taking sides in the dispute.

Indonesia seems to place bilateral meetings as the priority in conducting foreign policy, but tends to be very selfish in responding to regional issues (such as the South China Sea) rather than maintaining Asean unity.  Although his speeches at several regional forums (such as the G-20 and Asean summits) delivered strong rhetoric, follow-ups have yet to be seen.

It is important for us, before moving on to Rosyidin’s “niche diplomacy” to be clear on Indonesia’s position. How can Indonesia deal with the prevailing global architecture? Understanding the changing concept of foreign policy and the need for a consistent doctrine would be a good starting point.

Changing architecture

So what is at stake? From a foreign policy perspective, it seems that Indonesia has yet to develop a clear, strong doctrine that guides its foreign policy at all ministerial levels. While Foreign Minister Retno LP Marsudi, at her first press briefing in November 2014, mentioned a shift to “Pro-People Diplomacy,” a more strategic derivation of this approach has yet to be formulated.

It is important to bear in our mind that foreign policy nowadays is not merely related to the Ministry of Foreign Affairs. Since international politics has developed and reached across various sectors and actors, the concept of foreign policy should be broadened. It now comprises multi-sectoral approaches (involving economics, environment, energy, and many other ministerial bodies) and is connected with many actors other than representatives of the state, such as business actors and international non-government organizations (NGOs). Foreign policy requires a more strategic framework to deal with a diverse range of issues.

Asean is a prime example, bringing together many sectors as foreign policy actors. For example, it now deals with education, sport, and maritime as well as defense or economic issues that belong to specific ministerial bodies. Therefore, Asean is no longer a club for the foreign affairs elite in Pejambon, but should also involve related ministers.

It is also visible that foreign policy stakeholders are not only state officials. Multinational corporations and NGOs use the international sphere as a place for negotiation. The Asean People’s Forum is a good example of how non-state actors participate in the regional decision-making process, challenging the state’s orthodox position as the unitary actor in international politics.

This shifting concept of foreign policy implies the importance of stronger policy coordination, particularly when Indonesia has to deal with regional issues. It is here that Jokowi’s foreign policy lacks a comprehensive doctrine. Overlapping statements from different ministers in Indonesian or foreign media reflects our confusion when dealing with complex global/regional issues.

This problem needs to be resolved. The lack of a foreign policy doctrine can prevent Indonesia taking a leading position in the upcoming Asean Economic Community (AEC), where we are expected to act as a stabilizing hand in the region as the biggest member state. On a global level, this confusion can also put Indonesia in a vulnerable position in the power politics between the United States and China

President Joko needs to formulate two important things to solve this problem.

Firstly, a specific foreign policy roadmap that comprises all ministerial elements dealing with global issues. He should formulate this concept through a relevant analysis of world politics and its approach to engagement, as well as a multi-sectoral analysis and approach to deal with global issues.

Secondly, he needs to formulate guidelines for each ministerial body to deal with global issues that often intersect various ministerial sectors. It is in this case that we need guidelines to welcome the AEC at the end of 2015, both for particular ministerial bodies and local government. Improving policy coordination is also important to ensure Indonesia’s position in Asean does not overlap other ministerial/local government business.

In this regard, appointing foreign policy advisors/special staff will be important to formulate a concise, comprehensive foreign policy. It is likely that foreign policy will only become more complex in the future; therefore, building a strong, comprehensive foreign policy doctrine is a vital, immediate task for President Joko and his administration.

This article was originally published by Strategic Review Indonesia

25th ASEAN Summit, Myanmar. Photo Credits: Strait Times

Dr. Avery Poole
Lecturer at the School of Social and Political Sciences, the University of Melbourne and 2013 Visiting Fellow at ASEAN Studies Center, Universitas Gadjah Mada

Under President Joko “Jokowi” Widodo, Indonesia appears less oriented toward the Association of Southeast Asian Nations (ASEAN). While this may true, the explanation is more nuanced than proposed by many regional analyses. Many observers see Jokowi as more inward looking than his predecessor, Susilo Bambang Yudhoyono, and point to his lack of foreign policy experience. I would argue that Jokowi is, in fact, not less oriented than Yudhoyono to Indonesia’s foreign relations as a policy priority; rather, he approaches it differently, for reasons that reflect a distinct approach to contemporary East Asia.

Indonesia under Jokowi is less oriented towards multilateralism in general. Yudhoyono emphasised Indonesia’s role in international organisations, including the G20 (in which Indonesia is the only Southeast Asian member), the World Trade Organisation and the United Nations. He also sought to advanceIndonesia’s role in regional forums, including ASEAN, the Asia-Pacific Economic Cooperation and the Bali Democracy Forum. His Foreign Minister, Marty Natalegawa, pointed to the importance of Indonesian diplomacy in “high-level forums” to address challenges that require international cooperation (such as food security, natural disasters and transnational crime).

In contrast, Jokowi criticised the UN, World Bank, International Monetary Fund and Asian Development Bank at the Asian-African Conference in April this year, for failing to deliver solutions for global economic woes.

Jokowi, in fact, appears to see greater value in Indonesia’s bilateral relations than in multilateralism. He and Foreign Minister Retno Marsudi have indicated that they will concentrate on strategic bilateral relationships that benefit the Indonesian people. While it is to be expected that political leaders would emphasise national interests and benefits to citizens, it is notable that multilateralism – assumed by many to be the preferred setting for international cooperation in the interests of mutual gains and addressing common challenges – is no longer depicted as the means to that end. For example, while the current government regards trade as facilitating Indonesia’s economic growth, it does not appear to see ASEAN as the preferred forum in which to pursue beneficial trade arrangements.

Analysts such as Felix Utama Kosasih have expressed concern that Indonesia will suffer from its lack of commitment to the ASEAN Economic Community (AEC). A recent editorial in The Jakarta Post argued that unwillingness to prepare for the AEC “will greatly impact the effectiveness of economic integrity. In the end it will be Indonesia itself that has to pay the price for its reluctance to accept reality.” Certainly the AEC could create the potential for gains through freer trade and investment among ASEAN member states. But it is not at all certain that it will actually form a “bloc” with a combined population and GDP of approximately 620 million and $4.7 trillion. It is therefore not clear that deprioritising the AEC will be harmful to Indonesia’s economic interests. In fact, Jokowi’s state visits early in his presidency to Japan and China – Indonesia’s largest and second largest export markets respectively – reflect the importance of states outside ASEAN to Indonesia’s economy.

Of course, it is not only economic relations that shape Indonesia’s evolving approach to ASEAN. There is a general frustration among some key officials with ASEAN’s inability to provide substantive outcomes and benefits for Indonesia – and there were rumblings about this in influential quarters long before Jokowi took office.

In 2009, the executive director of the Centre for Strategic and International Studies, Rizal Sukma, wrote an oft-cited piece in The Jakarta Post arguing that Indonesia needs a “post-ASEAN foreign policy”. Indonesia has always, he wrote, been “forced into compromise”, and its initiatives on human rights, democracy and peacekeeping have “fallen on deaf ears” or been ridiculed. In late 2014, he argued that ASEAN is now just a cornerstone – no longer the cornerstone – of Indonesia’s foreign policy.

Should Jokowi be concerned about possible damage to Indonesia’s reputation as a regional and global player by a move away from ASEAN? It could be argued that it will demonstrate that he has a distinct foreign policy strategy. He also may feel a political need to respond to the nationalist sentiment that was highlighted during the presidential race against Prabowo Subianto in 2014. But Jokowi’s deprioritisation of ASEAN is not just driven by domestic political concerns. He also seems less concerned with satisfying the expectations of other states.

As a major regional power, Indonesia is expected to play a central role in engaging in regional dialogue and addressing common challenges. It has traditionally been seen as the default leader of ASEAN, particularly because it has the largest population, land mass and GDP (in absolute terms). But as Dr Evi Fitriani recently noted (in a podcast for Indonesia at Melbourne), Jokowi’s government seems less concerned with the expectations of foreign countries, and with wanting to be seen as a “good citizen”.

Jokowi has been depicted in regional news media as tending towards nationalism, but the image of him as simply “inward-looking” is inaccurate. Rather, his administration has moved away from liberal internationalism in its foreign policy. For example, he is more reticent about the notion that Indonesia might facilitate a resolution in ASEAN dialogue to the South China Sea disputes, claiming: “that is a problem for other countries”.

Instead, Jokowi emphasises the idea of Indonesia as a “global maritime fulcrum” and seeks to strengthen bilateral ties with other states in the Indian Ocean, such as India and South Africa. Rather than lacking interest in foreign policy, Jokowi is forging his own path. This raises concerns about the future of ASEAN, but it is not yet clear whether it is particularly problematic for Indonesia.

This piece was previously published at Indonesia at Melbourne website: http://indonesiaatmelbourne.unimelb.edu.au/is-jokowi-turning-his-back-on-asean/