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BIT Optimistic

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Just days after the new government took office in the country delegates from the US government are busy lobbying Pakistani ministers and bureaucracy for an early signing of a proposed bilateral investment treaty between the two countries. An article titled “BIT skewed?” appeared in these columns July 19, 2013, highlighting that “the interests of current and prospective US investors to Pakistan would be better protected with a BIT in place”.

At the time, BR Research also observed that the rationale being considered by Pakistani legislators for granting the wish of their US counterparts was that the BIT may pave the way for a bilateral trade agreement between the two countries. A trade deal would be much more advantageous to Pakistani businesses as it would ensure market access, which has been long promised but as yet undelivered to Americas front-line ally.

The skepticism expressed by BR Research about this expectation has now been reiterated by a research paper compiled by the Pakistan Business Council (PBC). Its note on Pak-US bilateral investment treaty has pointed out that there is no significant correlation between the US investment treaties and trade treaties.

Citing data obtained from the Office of the US Trade Representative, the PBC highlighted that the US government signed 41 investment treaties with other countries since 1982. In majority of these cases, it did not go on to ink a deal on trade.

Additionally, Trade and Investment Framework Agreements (TIFA) have been signed with six other countries, but none of these matured into a bilateral trade agreement. To date, no bilateral trade agreement has ever been initiated with 26 of these countries.

Even the efficacy of BIT for boosting investment flows appears dubious at the best. According to a 2012-study by the Third World Network, “there is no clear relationship between inflow of FDI and BIT agreements.” PBC has also pointed out that “as a requirement under Article 11 of the 2012 US Model Bilateral Investment Treaty the US will necessarily have to be informed of any legislative changes” in Pakistan before this country can enact that legislation.

While Pakistan would likely receive similar rights, it is pertinent to note that its bargaining position is much weaker than that of the US. Also, in case of disputes reaching a court of arbitration, costs are exorbitantly high (average $8 million per case) and judges are not bound by case law precedence.

Lastly, even as Pakistani government appears to be on the verge of inking a deal with its US counterpart, no portion of the proposed agreement has been made public to date. Domestic businesses and their representative associations and chambers have also not been consulted.

Even the existing platform for such negotiations which was created through the signing of a TIFA between the two countries in June 2003 has not been activated as yet. The government of Pakistan must not pen an agreement with such far-reaching consequences and apparently limited gains without thorough consultation with private sector and legal experts.

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