ISLAMABAD, March 4: Pakistan and the United States have agreed in principle to seek arbitration in investment related disputes through any international forum in the proposed Bilateral Investment Treaty (BIT) likely to be signed in May.

Informed sources told Dawn here on Friday that both the countries have given up their conditions to have multiple choices for dispute resolution at various world forums including the International Centre for Settlement of Investment Disputes (ICSID), Washington, United Nations Commission on International Trade Law (UNCITRAL), Vienna (Austria) and the International Chamber of Commerce (ICC), Paris.

Pakistan, the sources said, was most likely to accept arbitration in ICSID because of the involvement of the World Bank which in case of a final decision, becomes the implementing authority. "The un-bias role of the World Bank regarding disputes resolution could be helpful for us if Pakistan decides to have the involvement of ICSID," he said.

There have been two major rounds of talks earlier held between the officials of the United States and Pakistan to discuss and sign BIT. The last round was held in London in February and the final round would be held in Islamabad to conclude the issue over which the Bush administration was said to be quite favourable. "Pakistan is likely to get some unique favours in the proposed BIT that have not been offered to many countries who signed this BIT with the United States," a source added.

However, the sources said, Pakistan has declined to accept the signing of BIT with retrospective effect to cover the investment made by the US investors in the past. The new draft of the proposed bilateral investment agreement has been prepared by Prime Minister's Advisor on legal affairs Syed Sharifuddin Pirzada, vetted by the law ministry and approved by the cabinet division.

The draft has been tabled in the National Assembly and was likely to be approved by the both houses of the parliament soon, authorising the government to sign the investment treaty with the United States.

The sources said one of the clauses of the draft was that there will be no involvement of lower courts to hear investment related issues. Now only the High Court would be authorized to hear such cases with one final appeal in the Supreme Court if the issue was mutually agreed between the two sides.

Pakistan government wanted that foreign investors should first exhaust remedies in local courts before seeking any international arbitration. "But I do not think the Americans would accept the involvement of the Pakistani courts as not being independent and want Islamabad to finally choose a single international forum for investment related dispute resolutions" an other source said.

Pakistan wanted the US government "not" to consider construction and service contracts as part of the proposed investment agreement as both these sectors did not bring in any tangible investment. Pakistan proposed to exclude them from the definition of investment.

Similarly, the sources said Pakistan wanted that the State should not be liable for any breach committed by one of the parties to an investment/contract agreement signed by an investor of either contracting party with any individual.

Pakistan has also proposed that transfers relating to covered investment may be made (for Pakistan) in a usable currency at the inter-bank rate of exchange prevailing at the time of transfer. Covered investment has been defined to include investments made prior to the signing of agreement which, Pakistan maintained, needed to be excluded from BIT.

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).

The 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 in replacement of 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 party concerned.