ISLAMABAD, May 19: Law officers have advised the government to temporarily halt negotiations with foreign countries on Bilateral Investment Treaties (BITs) to avoid painful “legal implications”. Informed sources told Dawn that legal experts of the government, including the Attorney General of Pakistan, wanted the government to focus more on improving law and order and the overall investment climate first.

Otherwise, rushing into investment agreements might turn out to be problematic later, they said. They wanted the government to go slow especially 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.

The sources said that the negotiations conducted by a four-member American delegation from May 10 to 12 to finalize a BIT between the two countries remained inconclusive due to their persistent demand that in case of any arbitration the US investors should be allowed to approach the Washington-based International Centre for Settlement of Disputes (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 there was no agreement as both sides continued to differ with each other on dispute resolution mechanism for the US investors,” a source said. The American delegation comprised the representatives of state, treasury and commerce departments besides a US trade representative.

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 centre 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 put off the early signing of BITs with different countries”, another source added.

He said foreign countries including the United States and Germany were seeking huge legal protection for their investors in Pakistan before signing treaty and were stick to 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. The new draft of the proposed bilateral investment agreement had 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 had also been tabled in the National Assembly.

Pakistan had been maintaining 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 because they consider them not independent and want Islamabad to finally choose a single international forum for investment related dispute resolutions,” another 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 needed to be excluded for signing 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.