PAKISTAN has entered into more than 50 bilateral investment treaties (BITs) with various countries to protect foreign investors from potential risks and to promote foreign direct investment (FDI). These treaties establish standards for fair and equitable treatment and provide mechanisms for dispute resolution in the event of contractual breaches.
Despite this extensive treaty frame-work, Pakistan has attracted only modest levels of FDI across different sectors, and has faced several costly arbitration claims before International Centre for Settlement of Investment Disputes (ICSID).
It has been often observed that foreign investors do not exhaust available remedy of local arbitration as they invariably invoke ICSID jurisdiction directly whenever a dispute or alleged contractual breach arises. Direct recourse to ICSID not only renders domestic dispute resolution provisions largely redundant, but also exposes the framework as outdated, weak and ill-equipped to take care of complex international investment disputes, thereby exposing Pakistan to significant financial, legal and reputational risks.
Pakistan’s litigation record before ICSID has been particularly poor. Out of seven major ICSID cases, the country has lost most, resulting in substantial financial liabilities for the national exchequer. Even when Pakistan has successfully defended its position, the proceedings have been protracted, expensive and deleterious to the country’s international repute.
International arbitration proceedings are highly technical in nature, while the current administrative structure lacks the capacity to handle them effectively. Agreements with foreign investors are often concluded without fully evaluating the legal implications, and under the assumption that, in the event of a dispute or breach of contract, the provisions of the local and domestic arbitration mechanisms will prevail. However, the existing domestic dispute resolution framework, governed by the Arbitration Act, is inadequate, outdated, perfunctory, and too limited in scope to address the complexities of modern foreign investment disputes.
Most of the ministries lack expertise in international commercial and contract law, and therefore rely on a few specialised legal firms. However, limited budgetary allocations, tight timelines, and hefty legal fee constrain them from hiring top-tier lawyers of eminence to mount an effective defence.
Furthermore, poor inter-departmental coordination, flawed contract management, and weak litigation strategies further complicate matters. Moreover, there is no clearly defined allocation of responsibilities as case details move among the ministry concerned, the Law and Justice Division, the Attorney-General’s office, and several other ministries. As a matter of fact, BITs are meant to attract FDI, and not to create long-running legal battles.
New BITs and all foreign investment contracts should be concluded only after thorough due diligence, broad stakeholder consultation, and careful evaluation of their potential benefits and risks. Prior to entering into major agreements, ministries should undertake comprehensive legal and economic impact assessments to avoid commitments made without adequate groundwork.
The entire dispute resolution framework should be reformed to establish a robust and specialised system that prioritises negotiation and mediation, alongside arbitration, for resolving foreign investment disputes. Provisions may also require foreign investors to exhaust available local remedies before approaching international forums, such as ICSID.
Strengthening domestic arbitration laws and institutions is essential, along with establishing a specialised and well-resourced government unit to manage international investment disputes.
Contracts with foreign investors should incorporate detailed negotiations as well as effective mediation mechanisms to encourage quick resolution of conflicts.
Shahid Ali Abbasi
Karachi
Published in Dawn, March 25th, 2026
