Pakistan has decided to continue its bilateral investment treaties with the European Community (EC) and South Asian countries which pose no risk of investor state dispute. The government has also decided to engage with the Malaysian side to add, amend and modify certain provisions relating to the definition of investment. Sources told the Express Tribune that the government has approved a strategy for Treaties with Investment Provisions (TIPs) to avoid the risk of legal dispute in international courts.
In the past, the government of Pakistan had to face legal battles in international courts for different cases including Rekodiq, in which the investors had used TIPS under bilateral investment treaties signed with different countries. In order to avoid this risk in the future, the government has decided to avoid future bilateral investment treaties (BITs) and has also cancelled agreements already signed with different countries which posed a serious threat of legal action. Earlier, the cabinet was informed that foreign investors have filed 10 cases so far in different international arbitral forums under TIPs.
It was also informed that there are 23 BITs with different countries which can be cancelled in order to avoid international arbitration with foreign firms on commercial contracts. Pakistan had to pay billions of dollars in compensation to settle these legal cases. The Board of Investment (BOI) had informed the cabinet that there were nine other BITs, however, they could be terminated or reformed by engaging the respective countries on a bilateral basis. A move the government has decided to discuss with the respective countries.
There are 16 other treaties the government did not ratify to avoid financial exposure in case foreign firms file cases in international courts due to litigation in commercial contracts with Pakistan. Following such a situation, the cabinet has directed the BOI to prepare a strategy for TIPs. In a recent meeting, the BOI informed the cabinet that in accordance with Rule 20(13) of Rules of Business, the cabinet division had forwarded a decision taken in the cabinet meeting held on July 27, 2021, where the federal cabinet had approved the strategy presented by the BOI to deal with the existing and future BITS, TIPS and the commercial contracts of state agencies with foreign investors.
The cabinet directed the BOI to devise a strategy in consultation with the Ministry of Foreign Affairs, Ministry of Finance, Ministry of Commerce, Law Division and the National Security Division to mitigate the risks associated with international arbitration in the context of TIPs. For this purpose, BOI reviewed and undertook research of all the TIPs in detail and devised a strategy. To solicit the input of the relevant stakeholder ministries/divisions, a meeting was convened on October 26, 2021, to finalise the strategy for the seven TIPs on which Pakistan was signatory.
In light of the discussions with the stakeholder ministries/divisions, the BOI had proposed a strategy to the federal cabinet. It was proposed that the BOI may engage the Malaysian side, with the Ministry of Commerce taking the lead. In addition, the ministry for negotiating Free Trade Agreements (FTAs) will be consulted to add, amend and modify certain provisions relating to the definition of investment provisions. They also discussed the ‘Cooperation Agreement between the European Community and Pakistan on Partnership and Development’. The cabinet noted that there was no risk of investor-state dispute using this TIP. Likewise, they also discussed an agreement on the South Asian Free Trade Area (SAFTA).
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