Last update: Wed, 18 Jan 2017 11pm
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BIT skewed?

The trouble in dealing with rich and powerful friends is that your interests are often not completely aligned with theirs. The relationship between the United States of America and its front-line ally in the War against Terror; Pakistan fits this description well.

The most recent manifestation of this imbalance has been made evident by the formers push for the early signing of a Bilateral Investment Treaty (BIT) between the two countries. While the interests of current and prospective US investors to Pakistan would be better protected with a BIT in place; Pakistani businesses would benefit a lot more if the two countries hammer out an agreement on trade instead of investments.

Historically, the US has been a major market for Pakistani exporters, accounting for at least a fifth of total international sales of this countrys products. However, in recent years, exports to the US (as a % of total exports) have been on a declining trend, Pakistan has consistently maintained a trade surplus against her.

Evidently, Pakistans exporters can access the US market at preferential terms, the competitiveness of their goods would improve and they may be able to boost exports to that market.

But while Pakistani officials and the private sector have lobbied hard for GSP-Plus status from the EU; little effort has been made to secure preferential terms in North America. This lack of effort is all the more suspect, considering ample cooperation between Pakistan and US in other spheres.

Against this backdrop, recent moves towards a BIT between the two countries appear to be taking the politically skewed relationship further in the favour of US; only this time it would economically skewed in the favour of US.

When any developing country signs such a treaty, it effectively agrees to give up some of its judicial sovereignty in the hopes of attracting higher investment inflows.

Finance Minister Ishaq Dars public reaction to the proposed BIT has been lukewarm at best, so far. Perhaps he is aware of the short end of the stick received by Pakistan in earlier BITs with other countries. His refusal to offer any timeline for the conclusion of negotiations to this end may also have been motivated by the declining trend of US investments in the country.

Investment flows from USA have been dwindling, just like inbound investments from most other parts of the world. But the key thing to note is that even as percentage of total FDI inflows, FDIs from the US has also declined noticeably.

The new government has the unenviable task of enacting policy changes, countering terrorism and improving the countrys image abroad to revive the interest of international investors. However, it would be much better for the countrys long-term interests to actually address these political and economic risks, than to enter agreements that function as patchwork.