The BITs bit at the other SAARC

Prior to the official Saarc Summit held in Kathmandu, the city witnessed a People’s Saarc that brought more than a hundred South Asian civil society organisations to deliberate in about 80 sessions spread over three days on issues of democracy, peace and social justice. A session that caught my attention was on “Bilateral Investment Treaties (BITs) in South Asia: Investor Protection Clauses and their Impact on Policy Space”. In the scramble to attract foreign capital inflows, the recipient countries outcompete one another in offering a better climate for doing business. The world has moved from the traditional foreign direct investment inflows, from multinationals to investment treaties, at multilateral and bilateral levels. Some large countries from the Third World like China and India are also joining the club of investing countries. BITs are more common in the developing countries as many among them find entry into multilateral agreements a difficult road to tread. Pakistan has signed some 48 BITs, not all of them in force. The flurry of investments announced recently between China and Pakistan have not been accompanied by much information in public space. A BIT between the two countries was signed in 1989, but it found no mention in the news coming out of the recent high-level meetings in China. Similarly, a BIT between the US and Pakistan has been under negotiation since 2004.



The bit discussed about BITs at the People’s Saarc related to investor state dispute settlement mechanisms. Now these mechanisms are not just about the well-known issues of protection against expropriation, most favoured nation treatment or national treatment. These do not pose a serious challenge any more under the prevalent neoliberal economic order. What the speakers at the session at the People’s Saarc brought out was the very serious issue of the autonomy of national policy making. After a BIT has come into effect, any policy change of the host government or a piece of legislation affecting the profits of the investor can trigger arbitration proceedings against the country. These proceedings can be quite arbitrary and the mechanisms are extralegal, i.e., beyond the national courts. What exactly happens in these tribunals remains shrouded in secrecy? Legal costs run into millions of dollars and large sums have to be paid as compensation. The number of these cases has been increasing. Of the 568 known cases, 57 per cent were against the developing countries. There are eight cases against Pakistan.

There are a number of secret tribunals, the least secretive of them being the World Bank-sponsored International Centre for the Settlement of Investment Disputes (ICSID). This alternative dispute resolution mechanism is pro-investor. It only allows investors to sue the host government, not vice versa. If the country defaults in paying the compensation awarded, its assets abroad can be frozen. Reportedly, the US negotiators in the case of the BIT with Pakistan are pressing for settlement of investment disputes in the US courts as well as protection of US companies of a third country origin. In case of any proposed change in investment related policies and laws, the US has to be notified in advance.

Instead of the polluter pays principle, these dispute settlement mechanisms may end up favouring the polluter, as happened in the famous Enron case in India. In our case, for example, the waste management company in Lahore can sue the government if a policy is devised to deal with any environmental hazards caused by the operations of that very company. The Indian government is reviewing its BITs. The worrying bit about us is that we are not sticklers for the fine print.

Published in The Express Tribune, November 29^th, 2014.

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