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Most of BITs to be scrapped

Business Recorder | 25 March 2021

Most of BITs to be scrapped

by Mushtaq Ghumman

ISLAMABAD : Pakistan has reportedly decided to scrap most of its existing Bilateral Investment Treaties (BITs) as these pacts are shrinking the government’s policy space with respect to adopting measures of public interest while attracting international litigation, sources close to the Chairman BoI told Business Recorder.

Under section 9(m) of Board/4f Investment Ordinance, 2001, the BoI is mandated to negotiate and finalize agreements for protection and promotion of investments/Bilateral Investment Treaties (BITs) with other countries. Till date Pakistan has concluded 53 BITs with 48 countries.

Bilateral Investment Treaty is a primary source to define the rights and obligations of the signatory states and their investors. BITs were considered as tools for attracting FDI through provision of investment protection and facilitation to the foreign investors. Pakistan is the pioneer of BITs 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 the decline and BITs terminations have continued to rise.

Majority of Pakistani BITs contain standard provisions relating to expropriation, Fair and Equitable Treatment (FET), National Treatment (NT), Most Favoured Nation (MFN), 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 ISDS have exposed the State of Pakistan to international arbitration.

Till date, seven cases have been lodged by foreign investors in International Centre for Settlement of Investment Disputes (ICSID) and three in Permanent Court of Arbitration (PCA), thus exposing the State of Pakistan to payment of billions of dollars compensation.

Majority of developing countries, due to heavy cost of BITs are now reforming their BIT regime. Present BITs status and strategies of some of the developing countries like. Argentina, Brazil and Ecuador, India, Indonesia and South Africa have also been examined.

India is terminating all its BITs phase-wise ; and engaging the BIT partners for new treaties. They prepared a new BIT template by modifying several provisions specifically ISDS, FET, expropriation, Joint Interpretation and Denial of Benefits. India has faced/facing 25 ISDS cases.

Provision 3.1.3 of Pakistan Investment Policy 2013 provides, "The BoI will develop a model text with the assistance of Law & Justice Division, and that model BIT 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 BITs, developed a new BIT template with the active assistance of Law & Justice Division and head of International Investments Dispute Unit, Office of Attorney General of Pakistan

A detailed study of Pakistani BITs has been carried out - out of 53 BITs signed with 48 countries, BIT with Indonesia was unilaterally terminated by Indonesia in 2016, 16 BITs are signed only and are ineffective due to non-ratification, 23 are ratified BITs, which have completed the initial duration of 10, 15 or 20 years and can be terminated by giving notice of prescribed duration and the remaining 9 ratified BITs cannot be unilaterally terminated at present. However, 9 BITs can be terminated or reformed by engaging the respective countries bilaterally.

To deal with the existing stock of BITs and to draw a roadmap for the future BITs, BoI prepared a strategy for reforming Pakistan’s existing and future BITs.

The BoI has proposed the following strategy to deal with the existing and future BITs : (i) 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 6 months/1-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 9 contracting States, who’s BITs are not mature for termination, may be bilaterally engaged for termination of their BITs as well as survival clause prematurely.

The sources said, in case of non agreement by the other state(s), the following strategy may be adopted on case to case basis (a) contracting States should be engaged for signing the Joint Interpretation Protocol to mitigate its harmful effects or ; (b) engage the contracting States in amending certain provisions like ISDS, FET, SBA, and expropriation, etc, or (c) 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 competent forum. The new BIT template, developed by BoI with the assistance of Law Division and head of International Investments Dispute Unit, Office of Attorney General of Pakistan will be approved as negotiating text for signing the new BITs and modifying/replacing the existing/terminated BITs.

 source: Business Recorder