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Stumbling blocks: Investment treaty with US

July 19, 2013

TALKS towards a Bilateral Investment Treaty with the United States are starting again. It is worth bearing in mind that this effort has been going on for almost a decade and that past negotiations have run aground on more than one occasion. The terms demanded by the US for the resolution of disputes are so stringent and bypass all domestic channels for arbitration so completely that this has become the main impediment in the negotiations. Unfortunately, this time there is an added disadvantage to the Pakistani position that the last government, in its closing days, had already initialled a draft of the treaty which gave some space to local dispute resolution mechanisms but still kept international arbitration as the ultimate forum for appeal. This agreement ran into criticism at home and the government was accused of ‘selling’ Pakistan’s interests abroad.

So it is a positive sign that both countries have once again agreed to resume talks on BIT. Pakistan already has bilateral investment treaties with 47 other countries, and almost all of them provide for the international arbitration of disputes. It is an unfortunate fact that many of these agreements were signed without careful vetting, and in almost all cases the initial draft was always placed on the table by the counterparty, not Pakistan. A number of expensive lawsuits have arisen as a result, burdening the state with high costs of litigation at international forums. This time it is very important that the draft be thoroughly scrutinised and that space be reserved for domestic institutions to serve as the first port of call for dispute resolution. But it is equally important that emotional tirades of ‘selling’ the country’s interests be avoided, and the need for foreign investors to have recourse to international arbitration be acknowledged. At the end, it would be a good thing for Pakistan to eventually have a BIT with the US, and finding the path to this outcome should be the first guiding principle in the talks ahead.