Pakistan-US differences over BIT persists

Dawn (Karachi), 19 August 2005

Pakistan-US differences over BIT persists

By Ihtashamul Haque

ISLAMABAD, Aug 18 : Pakistan has asked the United States to sign the proposed Bilateral Investment Treaty (BIT) by dropping its demand that in case of an arbitration only the Washington based International Centre for Settlement of Disputes (ICSID) should be approached for a decision.

Informed sources told Dawn on Thursday that Pakistan was “reluctant” to accept the US demand and said some other international forums, other than ICSID, should also be considered.

A high level delegation to be led by Commerce Minister Humayun Akhtar Khan is expected to leave for Washington next month to negotiate the issue of signing BIT between the two countries.

Sources said the Bush Administration has urged both India and Pakistan to sign their respective BITs with the United States to reap the benefits of having increased US investment in their countries. The Indian government, which was hesitant to sign the BIT reportedly due to various harsh clauses proposed by Washington, was now willing to go for the treaty especially after the recent visit of Prime Minister Manmohan Singh to the United States.

However, the sources said that Islamabad continued to insist that the proposed treaty be made “flexible” and that unilateral clauses being proposed should be avoided to have some workable bilateral investment treaty.

Earlier, the government had been advised by its legal experts to momentarily discontinue negotiations on BITs with foreign countries including the United States to avoid painful “legal implications”.

Legal experts of the government, including the Attorney General of Pakistan, asked the government to focus more on improving law and order and the overall investment climate first. Rushing into investment agreements might turn out to be problematic, they said.

They wanted the government to go slow specially on signing BITs with the United States, Germany, Ukraine and some other countries. A number of foreign countries have demanded that the proposed BITs must include arbitration clause to allow foreign investors to seek justice in international forums in case of litigation.

Negotiations which were lately held both in London and Islamabad remained inconclusive due to the persistent US demand that in case of any arbitration the US investors should be allowed to approach the Washington-based ICSID.

But Pakistan while agreeing to have an arbitration clause, called for dispute resolution in the United Nations Commission on International Trade Law (UNICITRAL), Vienna (Austria).

Unfortunately, both sides so far failed to thrash out agreement because of differences on dispute resolution mechanism for the US investors.

The sources said that claims worth over $850 million had been filed in Pakistani courts by foreign investors which were still to be decided. These cases were filed mainly by a consortium of Ghazi Broth hydro project which was joint venture of Pakistan, Italy and Germany, SGS company and M/s Baynder of Turkey.

“It appears that there are more claims than investment made by these companies, therefore the government has been requested to shelve the issue of early signing of BITs with different countries,” a source said.

He said foreign countries including the United States and Germany were seeking huge legal protection for their investors in Pakistan and were against to sign any treaty unless Pakistan was ready to accept their demands.

Pakistan has also declined to accept the signing of BIT with retrospective effect to cover the investment made by the US investors in the past.

Pakistan had been maintaining that foreign investors should first exhaust local courts option before seeking any international arbitration. “But I do not think the Americans would accept the involvement of the Pakistani courts for being not independent and want Islamabad to finally choose a single international forum for investment related dispute resolutions,” another source said.

Pakistan also proposed that in the case of Most Favoured Nation (MFN), an umbrella clause or a dispute resolution mechanism provided in another BIT should not be imported into the proposed BIT through the Article 4 route [Article 4 - Most favoured -Nation Treatment].

Sources said Pakistan has agreed that it was inappropriate to encourage bilateral investment by weakening or reducing the protections afforded in domestic labour laws. However, it proposed an alternative clause Article 13, (relates to Investment and labour in the proposed BIT) which ensures that each party shall not waive, or otherwise derogate from, such (labour) laws in a manner that weakens or reduces adherence to the ILO Conventions ratified by the concerned party.

source: Dawn