More than 70 civil society organizations have urged member states of the Regional Comprehensive Economic Partnership (RCEP) to maintain the exclusion of the Investor-State Dispute Settlement (ISDS) mechanism in the review of the agreement. They argue that the mechanism, which allows investors to sue governments, could constrain governments’ ability to implement policies on the environment, energy, and natural resource management.
The call was made at a public forum titled Challenges of a Just Energy Transition in International Trade and Investment Agreements at the Faculty of Law, University of Indonesia (UI), on Wednesday (12 August). The forum took place alongside the 14th RCEP Joint Committee Meeting, held on 11–12 August in Manila, the Philippines.
The General Review of the RCEP is scheduled to begin in 2027. During the process, member states will discuss a number of provisions in the agreement, including efforts to strengthen supply chain resilience and green trade.
ISDS has drawn attention because it allows foreign investors to sue governments when policies are considered detrimental to their investment interests. The mechanism is currently not included in the investment chapter of the RCEP.
However, the RCEP contains a commitment to begin discussions on ISDS within two years after the agreement entered into force. As a result, the possibility of reintroducing the mechanism has become a concern ahead of the 2027 review.
Civil society groups’ concerns have emerged alongside Southeast Asia’s growing position as a destination for investment in global energy supply chains. The region’s abundance of minerals needed for clean energy technologies has made ASEAN increasingly attractive to investors, particularly from China, Japan, and South Korea.
This growing investment is considered likely to accelerate natural resource exploitation and energy privatization. Transnational Institute (TNI) researcher Rachmi Hertanti said ISDS could give multinational corporations greater bargaining power when dealing with government policies.
“Billion-dollar claims hinder the realization of a just energy transition because of potential compensation payments to investors and their impact on countries’ fiscal capacity. ISDS claims have become a direct challenge to governments’ ability to take climate action, including fulfilling national net-zero commitments, exercising sovereignty over natural resources, protecting the environment, ensuring public access to affordable energy, and maintaining fiscal capacity to finance the transition,” Rachmi said.
Risk of Burdening Public Finances
The potentially enormous value of ISDS claims is another concern. Based on a number of cases examined, Australia and the Philippines are among the countries considered particularly exposed to financial burdens if investment disputes arise in connection with energy transition policies.
Claims brought by mining, oil, and gas companies could potentially erode public budgets and climate financing. In one case, compensation was reportedly equivalent to as much as 11.5% of national gross domestic product (GDP), as occurred in the ConocoPhillips v. Venezuela dispute.
Chien Yen Goh of the Third World Network said compensation payments resulting from ISDS could force governments to divert budgets that should otherwise be allocated to public interests. This could potentially widen fiscal deficits, undermine debt sustainability, and reduce fiscal space for environmental and sustainable development agendas.
Olisias Gultom, Coordinator of the Indonesian Economic Justice Coalition (MKE), also called for changes in the global and national context to be taken into account when determining the future direction of the RCEP. He said the economic interests of communities should remain the primary basis for trade and investment agreements.
“RCEP and AANZFTA have been in force for several years, and during this period the global and national contexts have changed significantly. Economic justice for the people must remain a core pillar that is upheld and prioritized above corporate profit-seeking interests. The Investor-State Dispute Settlement (ISDS) mechanism must be halted and removed from both RCEP and AANZFTA, because Indonesia and Australia in particular have proven overwhelmed in addressing these challenges,” Olisias said.
Coal as a Vulnerable Sector
ISDS is also closely linked to efforts to reduce coal use. Civil society groups noted that around 257 coal-fired power plants worldwide still have economically viable operating lifetimes and could be affected by coal phase-out policies, as some are partially owned by foreign investors.
Of this number, approximately 192 plants, or 75%, are reportedly protected by at least one ISDS agreement. In RCEP countries, the coverage reaches 88% of foreign-owned coal-fired power capacity in Indonesia, 71% in China, 85% in Vietnam, 30% in the Philippines, and 86% in Australia.
Meliana Lumbantoruan, Deputy Director of Publish What You Pay (PWYP) Indonesia, said this situation could make it more difficult for Indonesia to tighten coal policies as it pursues its net-zero target.
“As Indonesia navigates the complex transition away from coal and works to meet its net-zero commitment, the government cannot allow ISDS to become a silent veto over our climate policies,” Meliana said.
She said the high proportion of foreign-owned coal capacity covered by investment agreements means that policies aimed at restricting operations, tightening emissions standards, or phasing out coal could potentially trigger costly claims.
Meliana also argued that a just energy transition should not force governments to pay twice: first to finance the shift toward clean energy and then to compensate fossil fuel investors for stranded assets.
“The public has the right to understand these potential costs before RCEP governments decide the future of ISDS. Therefore, the RCEP General Review must not reopen the door to ISDS. Indonesia must preserve its policy space to phase out coal, protect public finances, and invest in a just energy transition,” Meliana said.
Masayoshi Iyoda of 350.org Japan added that coal and fossil fuel companies could use ISDS mechanisms to challenge government policies. According to him, communities already bear the costs of fossil fuel use through energy bills, subsidies, and the impacts of climate change, and should not be burdened again with payments to companies through investment disputes.
Mining and Environmental Protection Under Scrutiny
The risks associated with ISDS are also considered to extend to mining and environmental protection. Civil society groups highlighted several cases in which mining permits that had previously been revoked on environmental or Indigenous rights grounds were eventually reinstated following threats of ISDS claims.
Adam Wolfenden of the Pacific Network on Globalization (PANG), Fiji, said the mechanism could make governments more vulnerable when adopting environmental protection policies. One sector of concern is deep-sea mining, which remains an emerging industry with significant risks.
According to Adam, introducing ISDS into the sector could strengthen investors’ position while exposing Pacific governments to potentially massive claims if their policies were deemed inconsistent with commitments made to investors.
In the minerals sector, ASEAN countries are currently seeking to increase the value added from their natural resources through domestic processing. The objective is to prevent the region from remaining merely a supplier of raw materials to the global green technology industry.
Joseph Purugganan of Focus on the Global South Philippines said governments need policy space to determine industrial policies that are aligned with national development needs. He questioned whether the extraction of critical minerals in ASEAN genuinely supports the region’s energy transition or instead primarily serves the needs of developed countries.
“ASEAN is at the center of the global race for critical minerals to support what is being called the green energy transition. But the key question is whether this mineral extraction is actually supporting the transition of developed countries rather than the transition within the region itself. Governments need policy space to pursue green industrial policies that benefit workers and their national development objectives. Therefore, in the best interests of the Philippines, the country should oppose any effort to introduce ISDS provisions into RCEP or new trade and investment agreements,” Joseph said.
Clean Energy Also at Stake
Civil society groups also highlighted the potential impact of ISDS on public services, particularly the energy sector. One concern involves long-term electricity purchase agreements under take-or-pay schemes, which guarantee purchases from companies.
Meanwhile, governments may use Feed-in Tariffs (FiTs) to encourage renewable energy development. However, similar policies in some countries have previously been used as the basis for claims by foreign investors under investment agreements.
This situation is feared to constrain governments’ ability to ensure that communities have access to clean and affordable energy.
Yulo A. Lao Jr. of Public Services International (PSI) Asia Pacific said opposition to ISDS is not merely about investment interests. He argued that the issue also concerns democracy, workers’ rights, environmental protection, and governments’ ability to provide public services.
“Workers are united in opposing ISDS because democracy must come before corporate power. No government should face billion-dollar claims simply for protecting workers, communities, the climate, or public services, including clean and affordable energy. PSI will continue to build global worker solidarity to challenge ISDS and safeguard the policy space needed to achieve justice, equality, and quality public services for all,” Yulo concluded.
Source: Media Indonesia