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ISLAMABAD: Prime Minister Imran Khan’s Cabinet colleagues say foreign investors do not have full confidence in the judicial system of Pakistan, well-informed sources told Business Recorder.

On July 27, 2021, when the template of new BITs draft was shared with the Cabinet, some of the members, sources said, conveyed their reservations on the Board of Investment’s (BoI’s) newly-prepared template of Bilateral Investment Treaties (BITs), to be shared with other states for their feedback.

Successive governments prepared BIT templates and shared these with different countries with most of the contracting States not agreeing to the arbitration clauses.

The BoI in its summary argued that in case of non-agreement by the other State(s) the following strategy may be adopted on case-to-case basis: (i) engage the Contracting States for signing the Joint Interpretation Protocol to mitigate its harmful effects; Or (ii) engage the Contracting States in amending certain provisions like ISDS, FET, SBA, and expropriation, etc.

According to the BoI, in case if none of the two options were possible, then Pakistan would have to wait till timeline of termination as provided in the respective BIT is reached. All the non-ratified/ratified treaty partners would be offered a new BIT template for renegotiation after approval from the Cabinet.

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The new BIT template developed by BoI with the assistance of Law and Justice Division and Head of International Investments Dispute Unit, Office of Attorney General of Pakistan will be treated as negotiating text for signing the new BITs and modifying/replacing the existing/terminated BITs.

The sources said, to mitigate the risk of international arbitration in view of commercial contracts by the state agencies, Law & Justice Division may propose a framework in consultation with all the stakeholders and submit it to the Cabinet.

The sources maintained that to mitigate the risks associated with International Arbitration in the context of TIPs, BoI in consultation with M/o Foreign Affairs, M/o Finance, M/o Commerce, Law Division, International Investment Disputes Settlement, Unit of Attorney General of Pakistan office, National Security Division and any other stakeholder will devise a strategy and place the same before the Federal Cabinet within three months for its consideration.

During a discussion, some of the members fretted that the foreign investors had little confidence in the judicial system of Pakistan and asking them to opt for the same instead of international arbitration might affect their investment decisions. It was clarified that the BIT template was just the starting point of negotiations and international arbitration was included as the final option. It was observed that the finally negotiated agreement between states would be presented for approval of the Cabinet.

BoI, sources said, maintains that most of its existing clauses should be scraped as these pacts are shrinking the government’s policy space with respect to adopting measures of public interest while attracting international litigation.

A detailed study of Pakistani BITs has been carried out which indicates that out of 53 BITs signed with 48 countries, BIT with Indonesia was unilaterally terminated by Indonesia in 2016, 16 BITs are on paper only and are ineffective due to non-ratification, 23 are ratified BITs which have completed the initial duration of 10, 15 or 20 years and can be terminated by giving notice of prescribed duration and the remaining 9 ratified BITs cannot be unilaterally terminated at present. However, 9 BITs can be terminated or reformed by engaging the respective countries bilaterally.

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To deal with the existing stock of BITs and to draw a roadmap for the future BITs, BoI has prepared a strategy for reforming Pakistan’s existing and future BITs.

The BoI has proposed the following strategy to deal with the existing and future BITs: (i) all 16 un-ratified BITs may not be further processed for ratification; (ii) 23 ratified BITs which completed the initial duration of 10, 15 or 20 years may be terminated by giving 6 months/1 year notice and contracting States may be engaged bilaterally for termination of survival clause [the contracting parties shall be first offered an option of renegotiating the existing BITs on the basis of new BIT template. In case, the party does not accept, then the government will apply the option of termination of BIT] ;(iii) all the 9 contracting States, who’s BITs are not mature for termination, may be bilaterally engaged for termination of their BITs as well as survival clause prematurely.

All the non-ratified/ratified treaty partners will be offered new BIT template for re-negotiation after approval from the competent forum.

Copyright Business Recorder, 2021

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