Pakistan is among dozens of countries with whom the United States is seeking to sign, or has already signed, a bilateral investment treaty (BIT) as part of a calculated strategy to bypass the WTO where it finds little hope of any agreement on investment and other Singapore issues being clinched in the foreseeable future.
Alan P. Larson, an under-secretary of state and a key adviser to Colin Powell, who was in Islamabad last week, was quite frank to outline pre-conditions that Pakistan must meet if it was to avail itself of the US offer of an investment treaty. A key condition, as in the case of other countries, is adoption of a "strong" intellectual property law and an equally "strong" enforcement procedure.
The use of word "strong" here means the IPR law that Islamabad should enact must be 'TRIPs-plus'. In other words, it means the law in question should go beyond the scope of what the WTO could offer to American corporations in case revised TRIPs was finally adopted in Geneva and implemented in Pakistan.
However, it is not the failure of the WTO alone to complete negotiations under Doha mandate and conclude several pending agreements that the US is trying to cash on. It is in fact a greedy attempt to extract maximum concessions from weak developing countries by taking the route of bilateral or sub-regional agreements.
According to Larson, the US multinationals are inclined to invest in Pakistan's budding 'knowledge' economy and the pharmaceutical sector and these are the areas where intellectual property rights matter most.
The two countries are already pursuing negotiations on the proposed investment treaty under a Trade and Investment Framework Agreement (TIFA) which is a forum for discussing matters relating to trade and investment.
The next meeting is scheduled to take place in Washington on September 30 and the commerce ministry officials are getting ready for the crucial talks ahead with the USTR functionaries.
There is a euphoric mood among the Pakistani officials and politicians over an assumption that the investment treaty (BIT) will open floodgates of much-sought foreign investment from America.
They would not like to think much about the possible risks such a BIT may entail. But the experience of other developing countries tells us that there has been no impact of BITs on FDI and there is no evidence that their adoption has actually encouraged FDI flows to the developing countries.
However, as desired by the US, Islamabad has, at last, prepared an IPR regime called Pakistan Intellectual Property Rights Organisation (PIPRO). But the Americans have yet to clear it.
But before it happens, a dispute has erupted between the ministries of commerce and industries as to who should administer it because patents are not granted without bribes in Pakistan and too much easy money is involved in it.
When the feud aggravated, PIPRO was handed over to the cabinet division by the erstwhile premier Zafarullah Jamali. Now commerce ministry wants it back before the Washington meeting.
It may be recalled that the US government has placed Pakistan on the "Special 301" Watch List since 1989 owing to inadequate protection of the intellectual property and incidence of widespread piracy, especially of copyrighted materials.
Americans estimated a loss of $82 million in 2003 on account of violations of CD and DVD patents in general. Karachi's Rainbow Centre market is a major source of out flaw of pirated CDs to several countries.
Pakistan had promulgated a patent law in 2000 that protects both process patents and product patents in accordance with the WTO obligations. But Americans say that an amendment to that law in 2002 has weakened it.
Washington has concluded bilateral investment treaties (BITs) with a large number of countries and several free trade agreements (FTAs) including special rules on investment, as well as IPRs, with Australia, Jordan, Singapore, Chile, Morocco and the Central American countries.
There are ongoing negotiations with Bahrain, the Southern African Customs Union, Thailand, Panama and four Andean countries (Bolivia, Ecuador, Peru and Colombia). Powerful corporations actively lobby for standards that erode the flexibilities left by the TRIPs Agreement.
Developing countries are usually too keen to attract foreign investment, whatever the conditions, under the belief that this is the only way out to get rid of under-development. This is a common feature among almost all the countries visible for the last fifteen years.
The US began incorporating provisions on intellectual property in its bilateral investment treaty programmes during the 1980s and at the same time it was pushing for the negotiation of what became the WTO Agreement on Trade Related Intellectual Property Rights (TRIPs). It even forced, it is worth recalling, advanced developing countries like South Korea and Brazil to bilaterally negotiate higher standards of IPR protection.
After signing the North American Free Trade Agreement (NAFTA), in 1995, the US came up with an ambitious idea of creating a whole series of regional free trade areas to accelerate the globalization agenda.
It began talks on concluding a Free Trade Area of the Americas (FTAA). But soon it found that its ambitious programme was being met with considerable resistance.
However, in case of FTAs, it went ahead with talks with more than 20 states and some have already been signed. America's example was followed by the European Union, Australia, Canada and the Asia-Pacific bloc, etc.
Usually, the bilateral investment treaties (BITs) of American initiative contain following concessions and guarantees on behalf of 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' to be accorded to American companies. (3) US investors to enjoy same privileges as 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.
A study conducted by Prof. Carlos M. Corea, an expert on IPR and an activist, says the BITs or free and regional trade agreements (FTAs, RTAs) actually allow developed countries to influence the domestic political economy of developing countries and advance the interests of their corporations in the latter's markets.
The establishment of BITs has a strategic value for developed countries. Though not all investment agreements ensure market access - to the extent that pre-establishment rights are not recognised - they provide broad post-establishment rights, including, in some cases, the possibility of directly bringing complaints against host states and obtaining compensation.
The US has been steadfast in its commercial interests in the FTAs, securing commitments from the partner (developing) country that exceed any commitments the US is able to get through the WTO. The European Union is playing a similar game.
The race is on between the two major powers on who can capture developing country markets faster. Covering all areas - intellectual property, agriculture, services, manufacturing, investment and even government procurement - the US has negotiated very strongly for its multinational companies.
In case of agriculture, although the US is one of the biggest contributors to low world prices of major commodities, it is an aggressive negotiator in BITs or FTAs, demanding extremely low or zero tariffs on commodities and regulatory changes in agriculture schemes.
In case of intellectual property, the US typically demands monopoly rights of patents up to 20 years. It also demands provisions that limit governments from enacting laws that promote cheap generics and issuing compulsory licences to combat epidemics.
Such licensing allows rapid and cheap distribution of drugs in times of crisis. In country after country, the US has targeted IPR laws and forced governments to adopt WTO-plus commitments thereby violating the WTO declaration that recognizes the right of governments to regulate such laws in the interest of public health. In the Australia-US FTA, Australia is fighting to preserve its Pharmaceutical Benefits Scheme (PBS) which the US Congress might find objectionable.
An important feature in the US approach towards international investment agreements (IlAs) is investor-state dispute settlement. Under these rules (incorporated in NAFTA, in many bilateral investment treaties and in the most recent US FTAs), investors can sue host country governments for an alleged breach of IIA rules and obligations.
As a result of such a suit under NAFTA, Mexico was ordered to pay around $16.7 million to an American company (Methalclad Corp) because Mexico's local administration prohibited the company to build a toxic-waste dump in the area.
These examples show the kind of benefits and risks Pakistan may have to experience once a bilateral investment treaty under the TIFA is formally signed and put into effect.