Revisiting Essential Security Interest Clause of The Bilateral Investment Treaty To Protect Indonesian Strategic Industries

Indonesia’s growing dependence on Foreign Direct Investment (FDI) to develop strategic industries and infrastructure such as basic metals, mining, and transportation raises concerns over sovereignty and regulatory freedom. While Bilateral Investment Treaties (BITs) encourage and protect FDI, they may restrict the host state’s ability to regulate to some extent. Essential Security Interest (ESI) is a very sensitive area where the interest of investors and the host state may collide. Despite its potential importance, the ESI clause in Indonesia's BITs and ISDS proceedings remains underutilized. This study examines how Indonesia can invoke the ESI exception to protect strategic industries from adverse foreign influence through its actions. Using a normative juridical method supported by a comparative approach, this research analyzes international agreements, arbitral awards from ICSID and the PCA, as well as secondary law sources. The comparative analysis explores interpretations of self-judging and non-self-judging ESI clauses in various BITs. This study finds that, when ESI clauses are properly drafted and invoked, they can provide a strong legal basis for safeguarding strategic industries of a host state in ISDS. Strengthening and utilizing ESI clause in more Indonesian BITs could enhance national security protection while maintaining a favorable investment climate.