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Triyana Yohanes, et.
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LEGALITY: JURNAL ILMIAH HUKUM
Journal homepage: http://w.
id/index.
php/legality The WTO Non-Discrimination Principle and Its Impact on Developing IndonesiaAos Investment Triyana Yohanes1*.
Aloysius Wisnubroto2.
Theresia Anita Christiani3.
Untung Setyardi4.
Hajed A.
Alotaibi5 1,2,3,4Faculty of Law.
Universitas Atma Jaya Yogyakarta.
Sleman.
Yogyakarta, 55281.
Indonesia 5Department of Sharia and Law.
College of Sharia and Law.
Majmaah, 11952.
Saudi Arabia *Corresponding author: y.
triyana@uajy.
Article Abstract Keywords:
Domestic Investment.
Foreign Direct Investment.
Non-Discrimination Principle.
WTO.
This research discusses the application of the WTO non-discrimination principle to improve the global economy.
However, this application is not without several negative consequences affecting Indonesia.
Many domestic investors, particularly small and medium enterprises (SME.
, have gone bankrupt due to their inability to compete with large foreign investors.
The exclusion of many domestic investors and the failure to achieve the goal of making Indonesian domestic investment the main investment in the countryAos economy, following the application of the WTO non-discrimination principle based on Law No.
25 of 2007, prompted this research to be conducted.
With a normative juridical approach, data in the form of the TRIMs Agreement.
Law No.
25 of 2007, and expert opinions were collected through library research, then analysed using qualitative methods.
The results indicate that the application of the WTO non-discrimination principle in Indonesia has resulted in equal treatment between foreign investment and Indonesian domestic investment, rendering many domestic investors, particularly SMEs, unable to compete with large foreign investors and bankrupt.
This hampers efforts to make Indonesian domestic investment the main investment in IndonesiaAos economy.
a developing country.
Indonesia should leverage the exceptional provisions in the WTO Agreement to limit the application of the principle of non-discrimination necessary to protect domestic investment and its economic interests, including its economic system.
This study compares the policies of Saudi Arabia and China, which, in implementing investment liberalisation based on the WTO Agreement, impose restrictions to protect their national economic interests.
Article History Received: Jun 9, 2025.
Reviewed: Jun 18, 2025.
Accepted: Sep 12, 2025.
Published: Sep 13, 2025.
Copyright A2025 by Author.
This work is licensed under a Creative Commons Attribution-Share Alike 4.
0 International License.
All writings published in this journal are personal views of the authors and do not represent the views of this journal and the author's affiliated institutions.
INTRODUCTION
As a World Trade Organization (WTO) member.
Indonesia applies the principle of non-discrimination in investment regulations based on Law No.
25 of 2007.
This ISSN (Prin.
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The WTO non-discrimination principle consists of the Most Favoured-Nations (MFN) and National Treatment principles (Ananda & Ramlan, 2.
The MFN principle requires each WTO member to treat all WTO members equally, while the National Treatment principle states that equal treatment by all WTO members is mandatory for imported products and domestic products, as well as foreign economic actors and domestic economic actors (Son & Vang-Phu.
In the application of the principle of non-discrimination in the investment sector, all exceptions regulated under GATT 1994 apply, such as general exceptions based on Article XX and exceptions based on national security based on Article XXI (Hasyim et al.
, 2.
The application of the non-discrimination principle based on the Investment Law No.
25 of 2007 revokes the discriminatory principle based on the former investment The previous regulation outlined a distinct treatment for Foreign Direct Investment (FDI) and Indonesian domestic investment, both of which are regulated under different laws.
The different treatment and regulations are intended to protect and maximise the role of Indonesian domestic investment, given that, in IndonesiaAos economic development program.
Indonesian domestic investment must be placed as the main investment, while FDI is complementary.
Following the enactment of Investment Law No.
25 of 2025, inconsistent treatment between FDI and Indonesian domestic investment resulting from the application of the WTO non-discrimination principleAithe national treatmentAi should not exist.
The implementation of the WTO non-discrimination principle, therefore, should bring more foreign investors to Indonesia (Grace, 2.
The enactment of Law No.
6 of 2023 concerning Job Creation .
he 2023 Job Creation La.
, which facilitates investment, is also expected to attract more foreign investors to invest in the country (Aditya.
, & Al-Fatih.
, 2.
The recent Indonesia-United States of America (USA) trade agreement, involving negotiations between President Donald Trump and President Prabowo Subianto, is expected to eliminate barriers to digital trade, services, and investment, increase investment liberalisation, and facilitate the entry of foreign investment in Indonesia (Dhika Priambodo, 2.
Economic liberalisation is often associated with a capitalist economic system, but it does not align with the Pancasila-based economic system of the country.
In the sugar import case involving Tom Lembong, prioritising a capitalist economic system was one of the judge's considerations in sentencing Tom Lembong to prison (Sari, 2.
The application of liberalisation of investment through the implementation of the WTO principles (Ezzerouali.
, & Sholahuddin.
, 2.
, the enactment of the 2023 Job Creation Law, and the recent USAAeIndonesia trade agreement, will pose a threat to small and medium-sized enterprises (SME.
, which represent the majority of Indonesian economic actors, and competing with large and modern FDI will be quite ISSN (Prin.
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The factors contributing to this difficulty include limited capital, restricted access to modern technology, being outpriced by imported products, inconsistent quality standards, and limitations in marketing.
These hurdles may slow down attempts to make the countryAos domestic investment the main capital in the Indonesian economy.
Since the enactment of the 2007 Investment Law, which implements the principle of non-discrimination, foreign capital has consistently dominated the Indonesian economy until the end of 2024.
Investment realisation data shows that of the total investment in Indonesia from January to December 2024 of IDR 1,174.
2 trillion, the total Foreign Direct Investment (FDI) was 52.
5% (IDR 900.
2 trillio.
domestic direct investment (IDR 814.
0 trillio.
(Indonesian Ministry of Investment.
In 2020, the ratio of FDI to domestic direct investment was 50.
25% and 75%, respectively (Luluk & Octavia, 2.
This indicates that Indonesia's dependence on FDI increased by 2024.
Indonesia's economic dependence on FDI has also been triggered by the bankruptcy of several local Indonesian companies and the displacement of several Indonesian SMEs due to competition from foreign companies.
Between 2022 and 2024, 60 domestic textile companies in Indonesia were affected.
Thirty-four companies closed and ceased operations, and the rest were forced to implement efficiency measures, reduce staff numbers, and relocate (Ivani S, 2.
According to 2023 data, numerous domestic companies went bankrupt, and many Indonesian SMEs transitioned from producing goods to selling goods for foreign companies' products (Rizaldi, 2.
These facts highlight the importance of examining the impact of applying the principle of non-discrimination on efforts to make Indonesian domestic investment the main investment in the Indonesian economy, as well as strategies to mitigate the negative consequences.
Various studies on investment law regulations in Indonesia have been conducted, including three research works entitled Legal Protection for Indonesian Investors in Joint Venture Companies (Welfin, 2.
Comparison of Capital Investment Laws and Investment in Indonesia and China (Reky Yuliansyah et , 2.
, and Reassessing Saudi Arabia's Foreign Investment Laws: from Protectionism to Liberalization (Alotaibi et al.
, 2.
These existing studies examine the legal protection for investors and compare studies of Indonesian investment law with those of other countries.
However, this study differs from previous studies in that it focuses on the impact of applying the WTO non-discrimination principle on efforts to develop Indonesian domestic investment and the policies the Indonesian government should adopt in response to this impact.
This study investigates the following problems: .
What is the impact of the implementation of the WTO non-discrimination principle on efforts to make Indonesian domestic investment the main investment in the Indonesian economy? .
ISSN (Prin.
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September 2025, 513-534 How should Indonesia overcome the negative impact of the implementation of the WTO non-discrimination principle on efforts to develop Indonesian domestic investment and make domestic investment the main investment in Indonesia's economy? This research aims to explore the application of the WTO nondiscrimination principle in investment regulations in Indonesia, thereby supporting efforts to make domestic investment the primary driver of economic activities in Indonesia, ultimately achieving economic independence.
This research is paramount to support the achievement of IndonesiaAos Long-Term Development Plan 2025-2045.
Good and appropriate investment regulations and policies are needed to support the achievement of the vision of IndonesiaAos Long-Term Development Plan 2025-2045: "Indonesia Emas.
" This vision covers the idea of making Indonesia an independent, united, developed, sovereign and sustainable country (PSPPR UGM, 2.
The research has found that the protection of SMEs, efforts to make Indonesian domestic investment the main investment in IndonesiaAos economy, efforts to achieve economic independence and the protection of the Pancasila economic system should be included in the list of Indonesia's national economic interests.
Investments related to these areas can be explicitly regulated in deviation from the WTO principle of nondiscrimination.
This special regulation can be implemented by leveraging the exceptional provisions of the WTO agreements, including provisions specifically tailored for developing countries.
This specific regulation must be in accordance with the WTO agreement to prevent a repeat of the dispute over chicken meat products between Indonesia and Brazil, where the WTO Panel declared that Indonesia had violated the principle of national treatment (Mufida, 2.
METHODS
This research is a normative or doctrinal legal study based on the examination of positive legal norms, employing both statutory and conceptual approaches (Al-Fatih, , 2.
This research used primary legal materials as secondary data, such as the General Agreement on Tariff and Trade 1994, the Trade Related Investment Measures (TRIM.
Agreement, the 2009 ASEAN Comprehensive Investment Agreement.
Indonesian Law No.
25 of 2007 and Indonesian Presidential Regulation No.
10 of 2021 concerning Investment Sector in conjunction with Presidential Regulation No.
49 of 2021 concerning Amendment to Presidential Regulation No.
10 of 2021.
These data were also sourced from secondary legal materials, including previous research results, law books, expert opinions, and tertiary legal materials obtained from newspapers, magazines and websites.
Data were collected through literature studies and analysed qualitatively, descriptively, and comparatively.
We compiled and described the research data systematically before comparing them to assess data A conclusion was drawn deductively using a reasoning pattern called a ISSN (Prin.
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RESULTS AND DISCUSSION
Global Investment Policy: Trends.
Challenges and Opportunities Investment can be defined as the activity of putting money or goods into a project or company to make a profit (Dewi, 2.
Investment is often linked to various business activities (Sabowo & Saryana, 2.
Cross-border investment activities have now grown rapidly and require better regulatory frameworks to ensure the development of International Investment Law.
Freya Baetens opines that international trade law and international investment law are two central pillars of international economic lawAithe segment of public international law governing economic relations (Baetens, 2.
Currently, there are some international treaties on investment.
Julian Arato said that fair and equitable treatment is one of the most common investment treaty standards (Arato, 2.
For example, the General Agreement on Tariffs and Trade, 1947 and its successor, the WTO Agreement, regulate investment based on the equal treatment principle, such as the MFN principle and National Treatment.
Based on the MFN principle, all WTO members must treat all WTO members equally (Sutrisno.
Then, based on the National Treatment principle.
WTO members are required to provide equal treatment between imported products and domestic products.
This principle is intended to harmonise trade, ensuring no discriminatory treatment takes place (Ananda & Ramlan, 2.
The investment sector within the WTO framework is regulated under the Agreement on Investment Measures (TRIMS).
In the context of investment.
MFN means that a host country treats investors from one foreign country no less favourably than it treats investors from any other foreign country (Thalib, 2.
TRIMs do not explicitly regulate the principle of national treatment.
Still.
Article II of TRIMs states that any form of action that is considered inconsistent with the National Treatment Principle is inconsistent with Article i:4 GATT, which states that "treatment no less favorable" is mandatory in the National Treatment Principle (Thalib, 2.
The TRIMS Agreement is primarily intended to support the implementation of free trade.
The primary concern of TRIMS is to guarantee that all forms of policies, regulations, provisions, and practices in the investment sector do not cause disruptions in the worldAos free trade (Neha, 2.
Therefore, the WTO Agreement prohibits all forms of trade restrictions in the form of investment policies that may hamper free trade (Hasyim et al.
, 2.
The TRIMs Agreement recognises that specific investment measures can have restrictive and distorting effects on trade.
The Agreement states that no member shall apply any measure prohibited by Article i of GATT 1994 (National Treatmen.
or ISSN (Prin.
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September 2025, 513-534 Article XI of GATT 1994 .
uantitative restriction.
In other words, this agreement prohibits every WTO member from making discriminatory investment policies between FDI and domestic investment.
Additionally, based on the prohibition of quantitative restrictions.
WTO member countries are also prohibited from limiting the amount of investment, including the limitation of FDI.
The implementation of the WTO Agreement has liberalised the trade and investment policies of WTO member countries.
In addition to individual countries, the WTO principle of non-discrimination in investment arrangements is also applied in regional investment arrangements, including those within the Association of Southeast Asian Nations (ASEAN).
The more recent AEC Blueprint 2025 provides details about how to achieve a more open and liberal ASEAN international portfolio investment flows (Kusuma.
In the investment sector.
ASEAN member countries have signed a multilateral agreement, namely the ASEAN Comprehensive Investment Agreement of 2009 (Sutanto, 2.
The principle of non-discrimination is applied in the agreement.
Article 5 of the Agreement regulates the principle of national treatment, requiring equal treatment between domestic investment of each ASEAN member country and investment originating from other ASEAN member countries.
Furthermore.
Article 6 regulates the principle of MFN, stipulating the obligation to provide equal treatment to all investments from all ASEAN member countries.
Investment liberalisation is now also applied in countries that previously adopted a mercantilist and protectionist economic system.
Investment regulations in Saudi Arabia and the People's Republic of China (PRC) serve as an example.
Saudi Arabia used to be a country that adopted a mercantilist trading system, namely a protectionist economic system in which the State holds control over the country's economic life.
1997, a Ministerial Decree was issued to anticipate that privatisation would open up business opportunities and free investment in Saudi Arabia by boosting the efficiency of the national economy and its competitive ability to meet the challenges of regional and international competition (Alotaibi et al.
, 2.
Saudi ArabiaAos Vision 2030 set out an ambitious plan to expand private sector growth as a percentage of the KingdomAos overall gross domestic product (GDP) from an initial 48% to 65%.
The privatisation policy can be regarded as the application of liberal principles, including in the investment sector, where the private sector is given freedom to engage in economic activities, including investment.
However.
Saudi ArabiaAos policies show that the government has not relinquished its control over the institutions selected for privatisation (Alotaibi et al.
, 2.
For example, there are still religious restrictions on the types of investment that are permitted, effectively imposing a de facto moratorium on the rights of foreigners, both individuals and legal entities, to buy or own shares in Saudi companies (Alotaibi et al.
, 2.
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September 2025, 513-534 In addition to the obstacles to privatisation, key provisions of the new Foreign Investment Law still leave many of the issues that have hampered foreign investment in the past unresolved.
Regarding jurisdiction and investment policy, the Saudi government has historically had the authority to determine how investor rights are balanced with broader factors, including sovereign authority, policies, and Sharia requirements (Alotaibi et al.
, 2.
The description above indicates that Saudi Arabia's investment policy is currently encouraging foreign investment, despite the restrictions on the application of WTO principles, including the non-discrimination principle.
terms of restrictions on foreign investment.
Saudi Arabia is stricter, in accordance with the interests of the state .
he Kingdo.
and Sharia Law.
The PeopleAos Republic of China (PRC) is a country that previously implemented a structured system in its investment policy and is now implementing investment The PRC implemented a communist economic system when the communist regime under President Mao Zedong came to power in 1949.
Mao Zedong implemented an economic policy based on socialism and communism (Dorn, 2.
Several parts of the PRC Constitution make it clear that socialism remains the central pillar of the Chinese state (Dorn, 2.
PRC's membership in the WTO since 2001 encouraged China to implement liberalisation in its economic activities.
Some authors argue that China's economic system has transitioned from a planned economy to a market economy, exhibiting the characteristics of a liberal economic system (Reky Yuliansyah et al.
, 2.
The PRC's market economy policy also encompasses the investment sector, one of the key pillars of economic activity.
The primary legal basis for foreign investment and investment in the PRC is the Law of the PRC on Foreign Investment, which was promulgated in 2019.
Article 1 is formulated in accordance with the Constitution of the PRC in an effort to further expand openness, actively promote foreign investment, protect the legitimate rights and interests of foreign investors, standardise foreign investment management, promote the formation of a new pattern of comprehensive openness, and promote the healthy development of a socialist market economy.
Despite the freedom of foreign investment, the PRC implements a selective investment policy, focusing on strategic sectors and industries deemed essential for national development (Reky Yuliansyah et al.
, 2.
Thus, in terms of foreign investment regulations, the PRC continues to implement protective policies to safeguard its national economy, including its domestic capital.
Restrictions on foreign investment implemented by Saudi Arabia and PRC are justified in some instances based on the WTO Agreement, particularly in Article XX .
eneral exception.
and Article XXI .
xceptions for national securit.
of GATT 1994.
Restrictions on foreign investment, such as those implemented by Saudi Arabia and the PRC, are applicable in Indonesia, particularly those related to the interests of public morality, the national economic system, development, and the national economy.
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September 2025, 513-534 IndonesiaAos Investment Policy The Indonesian government's policy on investment has evolved over time in response to the ruling regime.
During the Old Order .
Indonesia restricted access to foreign influence in the Indonesian economy, particularly that of liberalcapitalist countries.
This policy was reflected in President Soekarno's statement addressed to advanced industrial countries: "Go to hell with your aids" (Lukman Sulistiyawan, 2.
In its economic life.
Indonesia relied on domestic economic strength, including domestic investment.
Indonesia's investment policy underwent changes following the transition from the Old Order regime to the New Order regime, and President Soekarno was replaced by President Soeharto.
Under the New Order government .
, the Indonesian government was open to foreign investment, although there were In this case, the Indonesian government implemented different legal regulations between foreign investment and domestic investment (Soedijana et al.
Thus, although open to foreign investment, the New Order government still imposed restrictions on foreign investment and treated foreign investment differently from domestic investment to protect IndonesiaAos economic interests.
In Indonesia's economic development policy during the New Order government, domestic investment became the main investment, while FDI was complementary.
This policy can be concluded from the principle of being based on the capabilities and abilities of the Indonesian people, but does not rule out the possibility of using the potential of foreign investment, as stated in the considerations and general explanation of Law No.
1 of 1967.
After the New Order ended in 1988 and was replaced by the Reformation Order.
Indonesia changed its investment policy.
The Indonesian government, through the enactment of the Investment Law No.
25 of 2007, changed its policy to be very open to foreign investment and treated foreign investment the same as domestic investment.
Under the Investment Law No.
27 of 2007.
Indonesia, a member state of the WTO, based on Indonesia's ratification of the WTO Agreement through Law No.
7 of 1994 (Brazzy Upoyo & Ariananto Waluyo Adi, 2.
, liberalised investment in accordance with the principles of WTO free trade.
As an implementation of Indonesia's ratification of the WTO Agreement.
Indonesia has updated various laws and regulations governing the economic and trade sector, including those related to the investment sector, in accordance with the WTO Agreement.
Investment Law No.
25 of 2007 represents an investment regulation that has been adjusted to comply with the WTO agreement, particularly the TRIMS Agreement.
This adjustment can be concluded from the general explanation of the 2007 Investment Law, which, among other things, states that the world economy is characterised by the existence of trade blocs, common markets and free trade agreements that Indonesia has participated in, including the WTO Agreement.
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September 2025, 513-534 With the enactment of the Investment Law No.
25 of 2007.
Indonesia has renewed its investment policy.
Previously, foreign investment was regulated under a different law from domestic investment.
Since the enactment of Investment Law No.
25 of 2007, both foreign and domestic investment have been regulated under a single Based on Investment Law No.
25 of 2007, all investments.
FDI and domestic investment are equally treated, with no discrimination between FDI and Indonesian domestic investment (Brazzy Upoyo & Ariananto Waluyo Adi, 2.
In principle, all business fields are open to foreign investment activities, except for those that are declared closed and open with requirements.
Business fields that are closed to foreign investment include .
production of weapons, gunpowder, explosives and war equipment, and .
business fields that are explicitly declared closed by law.
The government, based on Presidential Regulation No.
10 of 2021 concerning Investment Sector in conjunction with Presidential Regulation No.
49 of 2021 concerning the Amendment to Presidential Regulation No.
10 of 2021, determines business fields closed to foreign investment based on criteria of health, culture, environment, national defence and security, and other national interests.
The criteria and requirements for business fields that are closed and open with requirements, and the list of business fields that are closed and open with requirements, are each regulated by Presidential Regulation No, 10 of 2021 concerning Investment Sector in conjunction with Presidential Regulation No.
49 of 2021.
Based on Investment Law No.
25 of 2007, investment in Indonesia is organised based on the principles of legal certainty, openness, accountability, equal treatment and no distinction of country of origin, togetherness, efficiency with justice, sustainability, environmental insight, independence, balance between progress, and national economic unity.
Based on Investment Law No.
25 of 2007, investment is defined as all forms of investment activities, both by domestic investors and foreign investors, to conduct business in the territory of the Republic of Indonesia.
Domestic investment is an investment activity to conduct business in the Republic of Indonesia by domestic investors using domestic capital.
Domestic investment can take place as a business entity, non-legal entity, or individual business, in compliance with the provisions of laws and regulations.
Foreign investment is an activity of investing capital to conduct business in the territory of the Republic of Indonesia conducted by foreign investors, either using foreign capital entirely or in partnership with domestic investors.
Foreign investment must be in the form of a limited liability company based on Indonesian law and domiciled within the territory of Indonesia unless otherwise specified by law.
Investment liberalisation and protection of foreign investment activities in Indonesia are also supported by the Indonesia Omnibus Law .
he 2023 Job Creation La.
, which opens wider access for investors to invest in Indonesia (RAS.
Suroso.
, 2.
Following the enactment of the 2023 Job Creation Law, the ISSN (Prin.
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September 2025, 513-534 Indonesian Government has made efforts to simplify and accelerate the business licensing process.
The 2023 Job Creation Law also aims to overcome overlapping laws and regulations that hinder investment.
The 2023 Job Creation Law regulates the improvement of the investment ecosystem and ease of doing business (Hernawati.
In July 2025.
Indonesia and the USA also reached an agreement on international trade tariffs between the two countries.
One of the agreements was to eliminate barriers to digital trade, the services sector, and investment.
Indonesia has committed to addressing obstacles affecting digital trade, the services sector, and investment.
The joint statement between Indonesia and the USA also asserts that Indonesia will continue to be open to foreign investment, including from the USA (Indonesia, 2.
In other words.
Indonesia will facilitate and eliminate barriers to foreign investment entering Indonesia.
The Indonesia-USA agreement will also apply to all WTO members due to the non-discrimination principle of MFN.
The Indonesia-USA trade agreement will support IndonesiaAos liberal international investment policies.
Impact of The Implementation of The WTOAos Non-Discrimination Principle The presence of FDI in Indonesia can have various positive impacts on the Indonesian economy (Welfin, 2.
FDI can significantly contribute to development by transferring asset, management, and also technology to encourage growth and improvement of the country's economy (Feby Artharini, 2.
The implementation of the WTO non-discrimination principle, as outlined in Investment Law No.
25 of 2007, is expected to boost investment in Indonesia and attract more foreign investment into the country.
Increasing the amount of investment in a country will lead to improvements in the country's economy (Brazzy Upoyo & Ariananto Waluyo Adi, 2.
In practice, investment statistics in Indonesia from the time the 2007 Investment Law came into effect until 2024 show an increasing trend.
For example, in the first three years after the enactment of Investment Law No.
25 of 2007, specifically in 2010, the amount of foreign investment in Indonesia showed a significant increase.
The AuEkonomi NeracaAy Daily on May 3, 2010, published a statement by the Head of the Investment Coordinating Board, who reported that investment realisation in Indonesia showed an upward trend.
For example, throughout the first quarter of 2010, the figure rose to IDR 42.
1 trillion, representing a 24.
6% increase compared to the same period in 2009, which was IDR 33.
8 trillion.
Then, in 2024, statistical data also showed an increase in investment in Indonesia.
Investment realisation data shows that of the total investment in Indonesia from January to December 2024 of IDR 1,174.
2 trillion, the total FDI is 52.
5% (IDR 900.
2 trillio.
5% for Domestic Direct Investment (IDR 814.
0 trillio.
(Indonesian Ministry of Investment, 2.
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September 2025, 513-534 and investment, leading to growth in Gross Domestic Product and market expansion.
Generally, increased investment is expected to significantly contribute to the development of the Indonesian economy.
For Indonesian domestic SMEs, the application of the principle of nondiscrimination in the investment sector is expected to encourage enterprises to enhance their competitiveness by improving quality, efficiency, and independence, thereby allowing them to maintain their existence, develop, and benefit from the WTO's free trade.
Thus, the competitive ability of Indonesian domestic investment in competing with FDI is expected to keep growing.
With many foreign investors from developed countries entering Indonesia, it is also expected that technology will be transferred from abroad to Indonesia.
Foreign investment is one of the channels that facilitate technology transfer.
Low literacy in modern technology is one of the contributing factors to the low economic competitiveness of developing countries, including Indonesia.
Therefore, it is essential to foster improvements in modern technology skills within domestic companies in Indonesia through the transfer of technology from foreign companies investing in Indonesia.
Sornarajah said that foreign investment involves the transfer of tangible or intangible assets from one country to another for their use in the country concerned to generate wealth under the total or partial control of the owner of the assets (Sornarajah, 2.
Big foreign companies that invest in Indonesia generally introduce their technology to Indonesia as part of their investment.
With the presence of foreign investors who bring their technology to Indonesia, the opportunity for technology transfer to Indonesia will be even greater.
Technology transfer should increase the competitiveness of domestic Indonesian companies, especially in competing with foreign investors.
Besides the positive impacts, the application of the WTO non-discrimination principle in Indonesian investment regulations also has several adverse effects on the Indonesian economy.
Investment liberalisation as applied through the nondiscrimination principle outlined in the 2007 Investment Law has led to free competition among investors in Indonesia.
The investment policies based on liberal economic principles appear to favour the interests of large investors, who generally come from developed countries.
On the other hand, small and medium investors, who make up the majority in Indonesia, will be disadvantaged because they cannot compete with stronger and larger investors from abroad.
This obstacle has the potential to eliminate and close Indonesian domestic companies due to their inefficiency and incapability to compete.
Owing to the implementation of the principle of non-discrimination, there is no longer any special treatment and protection for Indonesian domestic investors, leaving many incapable Indonesian investors .
bankrupt and their businesses The data and media reports in the last three years have revealed a significant ISSN (Prin.
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September 2025, 513-534 number of Indonesian domestic investor companies that have gone bankrupt and been This bankruptcy has resulted from companiesAo incapability of competing with larger companies from abroad and imported products from other countries.
One of IndonesiaAos domestic business sectors that went bankrupt is the textile Many domestic industries in Indonesia went bankrupt because they were unable to compete with textile products from foreign investors.
According to the General Chairperson of the Indonesian Filament Fiber and Yarn Producers Association, from 2022 to 2024, of 60 domestic textile companies in Indonesia that were affected, 34 companies closed and stopped operating, while the rest were forced to carry out efficiency, reduce the number of employees and relocate (Ivani S, 2.
It was further stated that the textile industry is an end-to-end industry that involves numerous parties, so the collapse of the textile industry will have a significant impact on several related industries (Ivani S, 2.
In addition, their failure to compete with foreign companies, the Indonesian Ministry of Cooperatives and SMEs sees that this bankruptcy also results from the local businesses incapability of competing with imported products.
Many imported products are sold at lower prices than those produced by Indonesian SMEs, rendering them less competitive in the Indonesian market (Rahman H & Gideon, 2.
October 5, 2023, the Indonesian Minister of Cooperatives and SMEs reported that twenty-two million Indonesian SMEs were unable to compete with imported products, despite their efforts to sell their products online (Maharso, 2.
Such failure to compete with imported products is caused by the fact that production in local SMEs only involves non-sophisticated production tools under simple business models.
The recent bankruptcy of Indonesian domestic investment companies, mainly due to competition from foreign companies, has led to an increase in FDI dominance.
mentioned above, the ratio of FDI to Indonesian domestic investment in 2024 was 5% (FDI) to 47.
5% .
omestic investmen.
(Indonesian Ministry of Investment.
Meanwhile, the comparison ratio of FDI and Indonesian domestic investment in 2020 was 50.
25% (FDI) and 49.
75% .
omestic investmen.
, respectively (Luluk & Octavia, 2.
Apart from such negative impacts, the application of the WTO principle of nondiscrimination, which is more closely aligned with the liberal economy in some instances, does not seem to be in line with the nature of the Indonesian economic system, which upholds togetherness and cooperativeness.
The basis of the Indonesian economic system is regulated in Article 27, paragraph .
and Article 33, paragraphs .
, .
of 1945 IndonesiaAos Constitution.
The articles of the 1945 Constitution elaborate on the Pancasila principles, the formulation of which is stipulated in the Preamble to the 1945 Constitution.
In other words, the Indonesian economic system mirrors the Pancasila economic system, which differs from the liberal and structured economic systems.
Emil Salim breaks down the ISSN (Prin.
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Market economic system with planning elements, .
the principle of harmony, where Indonesia adheres to the concept of economic democracy with the principle of balanced life, including the balance between individual and community interests, .
democracy, in which an economic system is aimed at the interests of the people, and .
humanity, in which an economic system allows for the development of humanitarian elements (Salim, 2.
To date, the adjustment of regulations and legal policies in the economic sector in Indonesia in accordance with the WTO Agreement has often impacted the uniformity between Indonesian economic legal regulations and the Pancasila economic system, given that the WTO Agreement adheres to the principles of economic liberalism (Dharmajala, 2.
This adjustment has brought the Indonesian economic system closer to a liberal economic system.
Some criticise that the implementation of the WTO Agreement has turned the practice of Indonesian economic life into a liberal mode, as implied in the Adam SmithAos classical economic theory.
Considering these recent developments, an evaluation of the implementation of the WTO non-discrimination principle in Indonesian investment law is necessary.
Under no circumstances must the implementation of the non-discrimination principle marginalise Indonesian investors, hinder efforts to achieve economic independence by making Indonesian domestic investment the main component of the Indonesian economy, and alter the Indonesian economic system.
Overcoming the Negative Impacts Before the enactment of Investment Law No.
25 of 2007, the Indonesian government treated FDI differently from Indonesian domestic investment, in which protective treatment was given to Indonesian domestic investment.
Now, based on Investment Law No.
25 of 2007, the Indonesian government treats all investments equally based on the WTO non-discrimination principle.
All investors can access the same opportunity to compete freely and with no longer any differential treatment between FDI and Indonesian domestic investment.
The non-discrimination principle applied to regulate Indonesian investment, however, seems to favour large companies, particularly those from developed countries, which are often represented by multinational corporations.
On the contrary, companies with small and medium investments suffer simply because they are incapable of competing with larger companies.
Moreover, protection similar to that provided under the previous Indonesian investment policy for these companies is no longer guaranteed.
The application of the principle of non-discrimination through Investment Law No.
25 of 2007 has caused losses to some Indonesian domestic companies, particularly SMEs.
Many local Indonesian companies lack the capability to compete with larger foreign companies, leading to bankruptcy (Prakoso, 2.
, as mentioned earlier.
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This situation is inconsistent with the early idea, which has become the bible for economists and international relations specialists, that FDI flows will increase prosperity for everyone (Schultz & Dupont, 2.
As mentioned above, the FDI is dominant in Indonesian investment, indicating that IndonesiaAos economy remains dependent on FDI.
Economic independence is associated with a country's ability to set priorities and establish rules, create frameworks, and foster an economic environment that provides opportunities for all citizens to achieve prosperity (Karim, 2.
The dominance of FDI and Indonesia's economic dependence on foreign investors is an obstacle to achieving economic independence and economic sovereignty.
This issue represents the failure to foster economic independence and make domestic investment the main investment in the The dominance of FDI in the Indonesian economy has triggered some economic losses in Indonesia, since most profit go to foreign investors.
FDI and foreign companies in Indonesia seem to give access to foreign parties to exploit Indonesia's economy and natural resources.
Foreign investors have the capability to influence the Indonesian government's economic and political policies through large foreign Given its economic dependency on foreign direct investment (FDI).
Indonesia needs to increase its domestic economic investment to reduce its reliance on FDI.
This issue can be portrayed as economic colonisation.
The application of the non-discrimination principle in Indonesian investment regulations currently appears to be more of an instrument that accommodates the interests of liberal capitalist developed countries, thereby transforming the Indonesian economic system into a liberal capitalist one.
This issue must be addressed by implementing economic policy in Indonesia.
previously mentioned, unless Indonesia's economic policy implementation stops overly prioritising capitalism and keeps adhering to the Pancasila economic system, decision-makers could face criminal penalties.
For instance, in the sugar import corruption case involving Indonesia's Minister of Trade from 2015 to 2016.
Tom Lembong, the policy prioritised capitalism.
The judge sentenced Tom Lembong to prison (Prasetyo, 2.
Although he was later released from prison after receiving a prosecutorial pardon from the President, this case shows that prioritising the liberal capitalist economic system and ruling out the Pancasila economic system from economic policy-making is a violation of Indonesian law.
Therefore, implementing WTO free trade principles is acceptable as long as it does not involve changing the existing economic system to a liberal-capitalist one and ruling out the Pancasila.
Post-World War II liberalism, or neoliberalism, allows for government intervention to limit private freedom in conducting economic activities, thereby ISSN (Prin.
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Therefore, implementing the non-discrimination principle in the investment sector will require the government to actively conduct supervision and intervene in case of injustice or disruption to the Indonesian public interest.
The application of the WTO non-discrimination principle, as regulated by Investment Law No.
25 of 2007, must be followed by policies that protect national economic interests, including the protection of domestic investment, particularly SMEs (Angga Putra Pratama, 2.
Limitations on the implementation of the WTO non-discrimination principle should be established to protect more fundamental interests, including guaranteeing justice and protecting the weak.
Although such limitations may be seen as violating WTO Law, the provisions of the limitations can be justified if they are related to more fundamental legal provisions that allow for the fulfilment of human rights and justice (Chhachhar et al.
, 2.
International Law recognises the right of states to regulate investments that affect the public interest (Long & Anh, 2.
The policy of exceptions to the application of the WTO non-discrimination principle to protect domestic investment, particularly SMEs, must be in accordance with the provisions of WTO law.
In the WTO dispute.
Indonesia was found to have violated the principle of national treatment by the WTO Panel in a dispute over the import of chicken products from Brazil, because Indonesia lacked a legitimate reason under WTO law (WTO, 2.
The WTO provides various exceptions to its principles, which Indonesia can utilise in implementing its economic policies, including In this case, the Indonesian Government must implement as much as possible the preferential rights of developing countries members of the WTO.
To promote fair global free trade, the WTO offers special and preferential treatment to benefit developing countries and the least developed countries (LDC.
(Yohanes, 2.
This clause seeks to address the specific demands and protect the interests of developing countries and LDCs in economic competition with developed countries within the framework of free trade (Van den Bossche & Zdouc, 2.
Indonesia is a developing country that is implementing an economic development program to improve the economic welfare of its people, and as such, it is entitled to special treatment for developing countries under the WTO Agreement.
Based on these special rights, developing countries may temporarily deviate from or, in some instances, limit the application of WTO principles to protect their economies in the context of global free market competition and in the process of implementing their economic development.
In accordance with one of the objectives of the WTO, namely to create free world trade that benefits developing countries, the WTO regulates various special treatments that are beneficial to developing countries members of the WTO.
This special ISSN (Prin.
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Special treatment for developing WTO member countries is regulated in almost all WTO agreements, including the TRIMs Agreement (Hasyim et al.
, 2.
Based on TRIMs, special treatment of developing countries members of the WTO is regulated in the Preamble and Article 4.
In the preamble of the TRIMs, it is stated, among other things, that in facilitating international cross-border investment to increase the economic growth of all trading partners, the interests of developing country members, including their development interests and financial capabilities, are taken into account.
Based on this provision.
WTO member countries, particularly developing countries, can take deviant actions if the implementation of WTO principles hinders their economic growth, including any implementation that causes the country's dependence on foreign investment.
Based on Article 4 of the TRIMS, developing country members of the WTO may in certain circumstances deviate from the provisions of Article i and XI of GATT Article i of GATT 1994 regulates the principle of national treatment, while Article XI of GATT 1994 governs the prohibition of quantitative restrictions.
This can be interpreted that in certain circumstances developing countries can treat foreign investment differently from domestic investment and impose quantitative restrictions to protect their domestic investment.
Article 4 further asserts that the deviation measures can be temporary in accordance with the provisions of Article XVi of the GATT 1994.
Based on the provisions of paragraphs .
of Article XVi of the GATT 1994, developing countries, especially countries with low living standards, are allowed to take deviation measures against WTO principles in the context of implementing their economic development to improve the living standard of their Therefore, to mitigate the negative impacts of implementing the WTO nondiscrimination principle in the investment sector, the Indonesian government should utilise the special provisions of the WTO agreements to safeguard the economic interests of developing countries.
The implementation of this principle in the investment sector must not harm Indonesia's economic interests, including domestic The Indonesian government needs to implement protective policies to safeguard domestic investment, particularly for Indonesian SMEs, to the extent permitted under the WTO Agreement (Hasyim et al.
, 2.
The government must implement the right policies to facilitate investment and support the success of its economic development program.
As a sovereign independent country.
Indonesia has the right to regulate and control how investment enters and operates in Indonesia.
However, the implementation of the right to control must not be in the form of arbitrary actions against foreign investors in Indonesia (Dewanto, 2.
ISSN (Prin.
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The presence of foreign investors must be directed to become agents of development in Indonesia, preventing FDI from being used as a tool for the exploitation of Indonesia's economic and natural resources by foreign companies.
Through the regulations made, the Indonesian Government must be able to control FDI to achieve Indonesia's national development goals and not erode Indonesia's economic sovereignty.
Currently, policies on foreign investment restrictions and protection of domestic investment are needed considering that Indonesia has been independent for almost 90 years, while IndonesiaAos economy remains dependent on FDI.
Such policies are crucial, as Indonesia has not yet achieved its target of becoming a developed and independent country in accordance with the development programs it has implemented.
The slogan of Indonesia's long-term development program for 2005-2025: AuIndonesia is developed, independent, just and prosperous,Ay has not been adequately achieved due to its economic dependence on developed countries.
Indonesia has launched a long-term development program, 2025-2045, based on Law No.
59 of 2024.
With the slogan AuIndonesia EmasAy, at the end of the development program in 2045.
Indonesia expects to rank among the 10 most developed countries To achieve this milestone, appropriate economic regulations, particularly those related to investment, are required.
Regulations in the field of investment must be able to increase Indonesia's economic independence and create justice for all economic actors (Rochman, 2.
Justice is the main goal of law (Aqilah, 2.
John Rawls' theory of justice in the sense of fairness that guarantees equality of opportunity is an important principle, but in some cases, inequality should be acceptable if a problem can only be resolved by this inequality, which should benefit all (Audard.
Catherine .
Forse, 2.
In other words, social benefits are not restricted to those with more opportunities.
The weak and less fortunate must also perceive such benefits (Aqilah, 2.
Therefore, in the application of the non-discrimination principle in investment regulations, special treatments to protect the weak are vital to ensure that small and weak investment actors will also have access to profits and fairness in competing with larger investment actors.
CONCLUSION
The application of the WTO non-discrimination principle based on Indonesian Law No.
25 of 2007 has resulted in investment liberalisation and the elimination of differential treatment between FDI and Indonesian domestic investment which is intended to protect Indonesian domestic investors, particularly SMEs.
The bankruptcy of several Indonesian domestic investor companies and the increasing dominance of ISSN (Prin.
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The WTO non-discrimination principle in investment regulations in Indonesia should be applied with due regard for Indonesia's national economic interests.
These national economic interests include the implementation of the Pancasila economic system, the protection of domestic investment, particularly that of Indonesian SMEs, the achievement of development goals, and efforts to achieve economic independence by making domestic investment the main capital for the Indonesian economy.
Concrete and adequate regulations on the limitations of the WTO non-discrimination principle are necessary to protect Indonesian economic interests.
These regulations can be inserted in the Investment Law by amending Law No.
25 of 2007 or based on a Presidential Regulation.
Indonesia can implement these limitations based on WTO special provisions for developing countries, the exceptions provided by the WTO Agreement, and the WTO principle of fairness.
This research is limited to analysing the impact of the non-discrimination principle on efforts to make domestic investment the main capital in the Indonesian economy and addressing its negative consequences.
Further research is needed on the concrete forms of regulation that the Indonesian government should implement to increase and develop Indonesian domestic investment, enabling it to compete with large investors from developed countries, reach international markets, and gain benefits from WTO free trade.
Appropriate investment policies are needed to foster the realisation of a united, sovereign, developed and sustainable Indonesia through the Indonesian Long-Term Development Program 2025 Ae 2045.
ACKNOWLEDGMENTS
The Authors would like to express their sincere gratitude to the Institute for Research and Community Services and Faculty of Law (Research Assignment Letter No 0734/IV.
2/2024.
November 16, 2.
of Universitas Atma Jaya Yogyakarta for providing support for this research.
REFERENCES