December 03, 2007	Monday	Ziqa’ad 22, 1428

WHAT secretary of Pakistan’s Board of Investment stated mid-November about the future of the US-Pakistan bilateral investment treaty is no different from what other senior officials concerned had been saying during the last two years or what even President Musharraf plainly said on the eve of President Bush’s visit to Pakistan in 2006.

Mushtaq Malik was at pains to say that after a long-drawn exercise of negotiations spread over more than three years, the US now appeared unwilling to sign the bilateral treaty. Why the US has assumed this posture was also answered by him. It’s so because Pakistan was unwilling to accept the terms –– the harsh terms –– that the US puts premium on.

An intriguing aspect of how the Americans conduct their dialogue with the developing countries –– which are too eager to conclude a free trade agreement with it under an illusion that it will sky-rocket their exports –– is the negotiating fatigue which they deliberately employ. Keeping pace with the complex mode of negotiations puts a great strain on under-resourced officials and ministries of a government like Pakistan who often have little access to necessary information.

Pakistan, Mr Malik said, has been informed that the United States is not keen to sign the BIT with it because its ‘socio-political fundamentals’ were not right for such a treaty or a free trade agreement (FTA), meaning the US does nott stand to gain from it the way it desires.

But “if we grant these concessions to the United States, we will have to offer the same to 48 other countries with whom Pakistan had signed (or is in the process of signing) this treaty (or FTA),” said Mr Malik. The fact remains that in case of certain countries, the US deems it necessary to conclude a BIT before going for an FTA.

The beauty of America’s snub is that the treaty is neither being signed nor being abandoned, although there is little doubt that its fate has been sealed. Instead, the reports are that the US is more keen on concluding a similar BIT (and later an FTA) with India at the earliest. But the latter is reluctant because of the harsh terms.

Pakistan is supposed to officially reply to the US but since the attorney-general (who is to look at legal aspects of the whole matter again) is too busy at the moment, so it may not do so in near future.

Negotiations with Washington on the investment treaty, which from the very outset has been a non-starter, have been quite problematic. Speculation about its making satisfactory headway has been on-again and off-again during this period. Only five months ago, acting US Ambassador Peter Bodde had told a Pakistani TV network that some headway in mutual investment agreement has been made but a fortnight later an English daily reported that the treaty talks were “in doldrums.” When President George Bush visited Pakistan in March 2006, there were all indications that a signing ceremony was part of his itinerary but it was later cancelled and its reason, as described by General Musharraf himself, was presence of some provisions in the draft text which were “highly objectionable” and needed to be re-negotiated.

After the visit, the then US Trade Representative (USTR) Susan Schwab met Pakistan’s Commerce Minister Humayun Akhtar Khan first in August and then in Cairns (Australia) in September to discuss the treaty’s progress. Apparently, there was no breakthrough on the contentious issues. But little is known if the controversial provisions, which mostly related to security of investment and intellectual property rights, were re-opened to a fresh round of discussion or not.

Then, in April, Assistant US Trade Representative (AUSTR) Douglas A. Hartwick met Humayun Akhtar in Islamabad and later in October co-chaired the second meeting of the US-Pakistan Trade and Investment Framework Agreement (TIFA) Council in Islamabad. This council is the forum for sorting out each other’s complaints or demands. Since October 2006, neither any talks have taken place over the BIT, nor had any delegations visited each other’s country. There prevails an eerie status quo over the matter.

This year, the BIT was not in focus but bilateral discussion on key trade and investment issues did take place between the senior officials of the two sides. In September, the so-called ‘strategic dialogues’ were held at the foreign office between the US Deputy Secretary of State John Negroponte and Pakistani officials. Later, sub-groups were formed to sort out solution of issues like money laundering, intellectual property rights, investment guarantees, Reconstruction Opportunity Zones in FATA and data exclusivity on pharmaceutical products.

In 2005, the US had given its ‘final text’ of the proposed BIT and insisted that Islamabad endorse it without any hesitation or amendment. The text included a “confidentiality agreement.” Pakistan objected to it and stressed that it should be made open so that the investors have no apprehensions about it. Then, there was a clause about “pre-establishment phase of investment” according to which if a US investor suffers a loss when he is still in the process of establishing his business in Pakistan, he would have to be compensated through a court of law.

Many BITs contain a clause under which if a dispute cannot be settled amicably and procedures for settlement have not yet been agreed to within a specified period, they can be referred, for example, to the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) or the UN Commission on International Trade Law (UNCITRAL). Nafta lets unhappy investors choose between the two. Both recourses, however, represent the privatisation of commercial justice.

Pakistan is reluctant to accept the ICSID as a forum for dispute resolution or arbitration, which the US favours, but would agree to the UNICITRAL for this purpose. Earlier, the attorney-general of Pakistan and other legal experts had cautioned Islamabad against rushing into signing bilateral investment treaties (BITs) with foreign countries (the US in particular) for these can create ‘painful’ legal implications.

Americans want intellectual property rights to be part of the treaty as they are too unhappy over the inadequacy of IPR protection in Pakistan. The US Trade Representative’s annual report has been placing Pakistan each year, since 1989, on Priority Watch List or “Special 301” for piracy and counterfeit problems. The establishment of Pakistan Intellectual Property Organisation (PIPRO), though admired, has not satisfied the US authorities and the US copyright industry remains disappointed.

However, American authorities are now less outspoken because of Pakistan’s lead role in the ‘war on terror’ and have asked the USTR to discontinue further investigations into the ‘rampant’ copyright violations until this phase of relationship is over.

Resumption of negotiations over the bilateral investment treaty shall not take place until Pakistan agrees to have stiff enforcement of IPRs and the resolution of investment disputes the way the US desires, as major clauses of the treaty. Another harsh term to be included is readiness to pay damages to US companies for their “future” investment in case there was an infringement of IPRs and unilateral cancellation of licences.

According to law ministry officials, US insists that either Islamabad pay immediate compensation to the affected US firms or the World Bank’s ICSID should pay the compensation and treat the amount as a loan to Pakistan. The US also wants protection of its current investments in various sectors of the Pakistani economy but Pakistan feels that protection and guarantees, if any, can be provided to the investment which comes in after the BIT has been signed.

Experience tells us that the bilateral investment treaties of American initiative often seek following concessions and guarantees from the developing country partner: (1) Every sector of the economy is to be opened to foreign investment. These include health, education, electricity, water and even prisons. (2) ‘National treatment’ is to be accorded to American companies. National treatment, a WTO term, means equal treatment. (3) US investors will enjoy same privileges as offered to local or any other foreign companies. (4) Expectation of earnings by US businesses must be guaranteed. (5) Compensations to US firms when they do not earn what they expect. (6) US businesses to be protected against any kind of expropriation.

Since WTO’s multilateralism has so far failed to deliver as much as many corporations would want, the US and other western governments, on their behalf, are increasingly turning to bilateralism. These negotiations are being used strategically to advance not only US corporate interests, but also the US administration’s broader foreign policy and geopolitical goals.