Five years after the expiry of the 2005 Singapore-Indonesia bilateral investment treaty, the two countries announced on 9 March 2021 that their new BIT – the Singapore-Indonesia Agreement on the Promotion and Protection of Investment (the Treaty) – has come into force.

The importance of the Singapore-Indonesia economic relationship cannot be overstated. 

  • Singapore’s number one source of FDI is Indonesia.
  • In 2020, Indonesia received almost US$10bn in FDI from Singapore – representing more than approximately 30 percent of Indonesia’s total FDI.
  • In addition, many foreign investors have, in recent years, structured their investments into Indonesia through Singapore.

The Treaty contains important international law protections to investors from both countries, which are essential to mitigate risk, especially in challenging legal environments. However, this Treaty, like an increasing number of modern bilateral investment treaties (BITs), includes various conditions that an investor must satisfy to be entitled to protection, and carve-outs that disentitle an investor from protection.

  • Qualifications to fair and equitable treatment (FET). The FET clause in the Treaty (Article 3) contains two express caveats: (a) it is confined to “customary international law” requirements, noting that the standard does not create additional substantive rights beyond those in customary international law; and (b) it includes a qualification that the “mere fact” that any State action may be “inconsistent with an investor’s expectations does not constitute a breach” of the Treaty, “even if there is loss or damage to the investment as a result”.
  • A modified most-favoured-nation (MFN) provision. The Treaty includes a provision (Article 5) aiming to protect an investor and its investment from treatment that is less favourable than the treatment a State gives to similar investors from any third state (MFN treatment). However, the Treaty includes an important modification: the MFN provision does not oblige a State to extend any benefit resulting from other BITs to which that State is party.
  • An investor is required to carry out business activities in the home country. The Treaty requires a corporate investor incorporated in Singapore or Indonesia (as the case may be) to be an “enterprise of [that] Party”. This means that the entity needs to be: (a) “constituted or organized under the law of [that] Party”; and (b) importantly, be “carrying out business activities there” (see Article 1 of the Treaty). In addition, Article 36(1) of the Treaty includes a denial of benefits clause, meaning that the Treaty’s investment protections would not be extended to an enterprise “with no substantive business operations” in either Singapore or Indonesia (as the case may be).
  • An investor holding dual-nationality can only bring a claim if her Singaporean or Indonesian nationality is her “dominant and effective nationality”. An “investor” under the Treaty includes “a natural person who, under the law of a Party, is a national of that Party” (Article 1). A footnote to that provision provides that “if a natural person possesses dual nationality, she or he shall be deemed to possess exclusively the nationality of the Party of her or his dominant and effective nationality” (emphasis added). This seeks to remove an investor’s ability to rely on secondary citizenship – in the absence of anything more – as a means of bringing a claim against the host country.
  • An investment is required to be admitted in accordance with the laws of the host country. Article 2(1) of the Treaty provides that an investment needs to be “admitted according to the laws, regulations, and national policies of [the host country], and, where applicable, specifically approved in writing by the competent authority of [the host country]”. This provision potentially allows a host country to rely on alleged illegality of an investment as a defence in a dispute under the Treaty.
  • Matters of taxation. The Treaty does not apply to “matters of taxation” (Article 2(3)(d)). But Article 43 clarifies that an investor could bring an ISDS claim in relation to taxation measures to the extent that such measures constitute expropriation.
  • Investor-State dispute settlement (ISDS). The Treaty includes an ISDS provision that enables an investor to submit a dispute to arbitration either under the ICSID Convention or the UNCITRAL Rules (Article 17). Investors seeking to bring investment protection claims under the Treaty are subject to a one-year cooling off period. A dispute may be submitted for resolution – including via ICSID or UNCITRAL arbitration – only if the dispute “cannot be resolved within 1 year from the date of delivery of the written request for consultations”. This “cooling-off” period is significantly longer than that commonly found in other BITs, which usually range between three to six months.