Downstream Contracts and the Protection of National Interests: A Legal Analysis in Indonesia's Industrialization Era
DOI:
https://doi.org/10.38035/gijea.v4i3.1177Keywords:
Downstream Contracts, National Interest, Industrialization, State SovereigntyAbstract
Policy of downstreaming of mining commodities in Indonesia constitutes an important foundation of national industrialization process under Article 33 paragraph (3) of the Constitution of 1945. The policy faces legal conflicts in its implementation due to the existence of the conventional form of commercial contracts based on private liberal laws. The purpose of the normative legal research is to examine the structure of downstreaming contracts and propose a legal model for the reformation of the terms of contracts to protect the national interest in an optimal manner. Statutory and conceptual analysis reveals that the existing terms of downstreaming contracts are still under the shade of the absolute foreign investment protection policy with the help of freeze and ISDS clauses. Strategic commitments like technology transfer, labor absorption in the local population, and environmental assurances become bound in flexible best-effort formulations owing to the inequity in negotiating powers and unsynchronized domestic regulations of various sectors. It is for this reason that this research strongly suggests a complete overhaul of the law involving the inclusion of public law instruments in contracts which are established on lawful reasons (Article 1320 of the Civil Code). This contract should be designed with adaptive provisions, restriction of international arbitration jurisdiction through graduated dispute resolution, and strict liability provisions such as TKDN, milestone technology transfer, environmental guarantees, and majority share divestment.
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