ISLAMABAD, Nov 24: The United States has linked the signing of the Free Trade Agreement (FTA) with the Bilateral Investment Treaty (BIT) and is not prepared to accommodate Pakistan’s reservations over the issue.
Informed sources told Dawn here on Thursday that the final round of talks between the two countries will be held in January 2006 to conclude the much sought-after BIT that has now been linked with the signing of the proposed FTA between Pakistan and the United States.
Pakistan has been given the final text of the BIT duly approved by the US Congress and the Bush Administration did not want any change in it. Islamabad, sources said, was told that it was a “final text” and Pakistan will have to accept it as was accepted by Singapore, Uruguay and couple of other countries.
The US has proposed a “confidentiality agreement” in the proposed BIT text, which Pakistan argued needed to be changed and that it should be made open so that the investors should not have apprehensions about it.
There was a clause introduced in the final text by the US government that talked about “pre-establishment phase of investment” which Pakistan wanted to be excluded.
According to the proposed clause, if any problem arises for the US investor even when he is in the process of establishing his business in Pakistan, he should be compensated through a court of law. Pakistan pleaded when the business has not been set up, how could any US investor be allowed to seek any compensation and that it was an unjust provision which should be deleted from the final text.
Over and above Pakistan was being asked to accept additional 20-page procedure for dispute resolution other than the one to be brought into the notice of the Washington-based International Centre for Settlement of Disputes (ICSID) to deal with arbitration clause in case of a dispute between the US investor, any Pakistani government agency, any individual company or a businessman. Pakistan maintained that it would not accept any “additional measure” being forced by the Americans.
“The Bush government is applying NAFTA standards to sign BIT with Pakistan and this is very very unfavourable to us”, a source said adding that Canada and Mexico were heavily suffering by signing their BITs with the United States due to a number of harsh clauses.
These harsh clauses, sources said, have now been included in the proposed BIT text to sign it with Pakistan. “Due to these clauses the United States has won all the cases against Canada and Mexico and as a result both the countries are facing huge financial losses”, another source said adding that the United States generally carves the BIT with any country in such a manner that in case of an arbitration, interest of the US investors are always well protected.
Pakistan had been asking by the United States to sign the proposed BIT by dropping its demand that in case of an arbitration only ICSID should be approached for a decision.
Pakistan was “reluctant” to accept the US demand regarding dispute resolution mechanism and said some other international forums, other than ICSID, should also be considered.
Sources said the Bush Administration has urged both India and Pakistan to sign their respective BITs with the United States to reap the benefits of having increased US investment in their countries. The Indian government, which was earlier hesitating to sign the BIT reportedly due to various harsh clauses proposed by Washington, was now willing to go for the treaty.
However, source said that Islamabad continued to insist that the proposed treaty be made flexible and that unilateral clauses being proposed should be avoided to have some workable bilateral investment treaty.
At one stage, the government was been advised by its legal experts to momentarily discontinue negotiations with foreign countries including the United States on BIT to avoid painful “legal implications”.
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 specially 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.
Negotiations, which were lately held both in London and Islamabad, remained inconclusive due to the persistent US demand that in case of any arbitration the US investors should be allowed to approach the Washington-based ICSID).
But Pakistan while agreeing to have an arbitration clause, called for dispute resolution also 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.
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 Brotha hydro project, which was joint venture 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 pend the issue of early signing of BITs with different countries”, a source said.