Cabinet explores intl best practices

In response to past disputes and international legal challenges faced by Pakistan, cabinet members are advocating for a comprehensive study of global best practices to instil confidence in investors regarding the security of their investments in the country. This move comes in light of previous legal conflicts between foreign companies and the Pakistani government, which arose after these companies were denied projects in the country following investigations by local anti-corruption watchdogs.

One notable case is that of Reko Diq, which ended up in international courts, compelling Pakistan to seek out-of-court settlements to initiate work on the project and avoid multibillion-dollar penalties. The recent cabinet discussions centred on negotiations with Gulf Cooperation Council (GCC) countries regarding a free trade agreement (FTA), a crucial component of which was discussed during a meeting in Saudi Arabia.

The Board of Investment (BoI) presented its perspective during the cabinet meeting, underlining the need for a graduated approach to dispute settlement, where domestic forums are given the initial opportunity for resolution. Furthermore, a proposal was put forth to engage international legal experts while simultaneously enhancing national capacity. Cabinet members engaged in a lively debate on the matter, with one member suggesting that legal experts’ support should be available to every ministry/division dealing with international agreements and investments.

The Law & Justice Division shared insights from 2013, indicating that a cell had been established in the office of the Attorney General for Pakistan to handle international cases. However, due to a lack of expertise and human resources, it faced challenges in delivering effectively. The discussion brought to light the need for global financial reassurance, with some members advocating for improved dispute resolution mechanisms where domestic resolution can be relied upon.

Suggestions included hiring international legal consultants promptly and avoiding delays in the finalisation of Bilateral Investment Treaties (BITs). Some members expressed concerns about the feasibility of engaging and compensating international legal experts due to financial and foreign exchange constraints. However, there was a consensus among most members that foreign investors would be reluctant to invest in Pakistan if they felt their investments were not secure.

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The cabinet discussions emphasised allowing investors the freedom to choose between domestic dispute settlement forums and international dispute resolution forums, including the International Centre for Settlement of Investment Disputes (ICSID). Specific articles on compensation for losses were recommended, with final provisions including an indefinite period for BITs, excluding sunset and survival clauses.

The BoI informed the cabinet that the final draft sent by Saudi Arabia and the State of Qatar had been circulated among relevant ministries and departments, along with a comparison matrix highlighting key divergences from Pakistan’s Model BIT template. Stakeholder comments were shared with the cabinet, and the attorney general’s office agreed in principle to the text, pending approval from the Federal Cabinet.

Highlighting the features of the agreement, a graduated approach in investor-state dispute settlement (ISDS) was preferred to serve the long-term purpose. The Private Power & Infrastructure Board (PPIB) suggested appropriate qualifiers and amendments to the language, while the Ministry of Foreign Affairs recommended introducing a shareholding threshold for indirect investment and defining a timeframe for domestic legal remedies.

The Secretary of the Board of Investment stated that the federal minister for BOI initiated negotiations on a Bilateral Investment Treaty (BIT) with Saudi Arabia in March 2023. The signing of the BIT was deemed a significant aspect of the Economic Pillar. To minimise future risks for Pakistan, the BOI developed the Model BIT template, which has received approval from the Federal Cabinet.

Published in The Express Tribune, December 17^th, 2023.

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