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Federal cabinet defers BIT strategy

Business Recorder - 3 April 2021

Federal cabinet defers BIT strategy
By Zaheer Abbasi

The federal cabinet said to have deferred bilateral investment treaty (BIT) strategy for Pakistan proposed by the Board of Investment (BOI) to draw a roadmap for the future bilateral investment treaties. The proposal was on the agenda of the cabinet meeting presided over by Prime Minister Imran Khan on Thursday; however, an official on condition of anonymity, said that that no such agenda came up during the meeting.

Sources said that the BOI in the proposal stated that it is mandated to negotiate and finalise agreements for protection and promotion of investments/BITs with other countries and till date, Pakistan has concluded 53 BITs with 48 countries.

Pakistan is the pioneer of BIT, and the first ever BIT was signed between Pakistan and Germany in 1959. However, presently due to rising trend in investor state dispute settlement (ISDS) cases, the signing of new BITs is on decline and BITs terminations continued to rise, it added.

Majority of Pakistani BITs contain standard provisions relating to expropriation, fair and equitable treatment (FET), national treatment (NT), most favourite nation (MEN), investor state dispute settlement (ISDS) and prohibition of performance requirements – thus, shrinking the policy space for the government to adopt any measure of public interest.

Provisions relating to ISDN have exposed the state of Pakistan to international arbitration. Till date, seven cases were lodged by foreign investors in Interactional Centre for Settlement of Investment Disputes (ICSID) and three in the permanent court of arbitration (PCA), thus, exposing the state of Pakistan for billions of dollars compensation.

Pakistan investment policy 2013 provides that the BOI will develop a model text with the assistance of Law and Justice Division and that model BOT will replace the existing BIT template to possible extent while all new BITs will be negotiated on new template.

The BOI has thus, accordingly stopped negotiating BOTs, developed a new BOT template with the active assistance of Law and Justice Division and head of international investment dispute unit and Office of Attorney General of Pakistan.

A detailed study of Pakistani BITs has been carried out and out of 53 BIT signed with 48 countries, one BIT with Indonesia has already unilaterally terminated by Indonesia in 2016, while 16 BITs are signed only and are ineffective due to non-ratification and 23 ratified BITs, which have completed their initial duration of 10, 15 or 20 years, can be terminated by giving notice of prescribed duration.

The BOI continued that the remaining nine ratified BITs can be terminated or reformed by engaging the respective countries bilaterally. And to deal with the existing stock of BITs and to draw a roadmap for the future BITs, the BOI prepared a strategy for reforming Pakistan’s existing and future BITs.

Subsequently, a summary for the cabinet was accordingly prepared and circulated among the relevant ministries, departments, and provincial governments for their views/comments. In view of the global practices in the developing countries and in the light of comments from the stakeholders, a strategy to deal with the existing BITs has been proposed to the federal cabinet.

The BOI has proposed that all 16 un-ratified BITs may not be further processed for ratification; (ii) 23 ratified BITS; which completed the initial duration of 10, 15 or 20 years may be terminated by giving six months, one year notice and contracting States may be engaged bilaterally for termination of survival clause the contracting parties shall be first offered an option of renegotiating the existing BITS on the basis of new BIT template.

In case, the party does not accept, then the government will apply the option of termination of BIT; (iii) all the nine contracting States, whose BITs are not mature for termination, may be bilaterally engaged for termination of their BITs as well as survival clause prematurely.

In case of non-agreement by the other states; the strategy may be adopted on a case to case basis, which includes; (i) engage the contracting States for signing the joint interpretation protocol to mitigate its harmful effects; (ii) engage the contracting States in amending certain provisions such as ISDS, FET, SBA, and expropriation etc, or (iii) Pakistan may wait till timeline of termination as provided in the respective BIT is reached.

All the non-ratified/ratified treaty partners will be offered new BIT template for re-negotiation after approval from the Cabinet. The new BIT template developed by the BOI with the assistance of Law and Justice Division and head of International Investments Dispute Unit, Office of Attorney General of Pakistan may be approved as negotiating text for signing the new BITS and modifying/replacing the existing/terminated BITs.

 source: Business Recorder