Pakistan’s BIT Dilemma: Understanding Why a ‘Model’ BIT may not be the Best Approach, by Nida Mahmood

Pakistan is on its way to develop its own ‘Model’ Bilateral Investment Treaty (BITs) as the standard international investment treaty to seek and attract more foreign investment.[1] Such ‘Model’ investment treaties usually contain blanket and comprehensive provisions to cater to the diverse relationships that a State may have with other potential capital exporting States and in this way, a standard-form contract-like treaty is perpetuated to achieve a harmony in terms of obligations that a State is prepared to undertake as regards investments to and from its territory. 

From where I see it, such an approach may not be the best approach for a developing or rather crippling economy like Pakistan that does not have the international stature to dictate its terms on a standard form basis to the rest of the world, especially to economies that are in a stronger bargaining position. This is because this approach has the potential to render Pakistan’s Model Investment Treaty to a mere set of lowest common terms agreeable to almost all trading and investing partners that Pakistan has including, China, the United States of America, Turkey, and now recently even India. In this way, although we may have a harmony of obligations vis-à-vis our trading and investing partners, we will nonetheless lose the realm of negotiation within the context of our bilateral past and relationship with each country and hence lose our potential to impose certain checks and balances that may be possible in a Bilateral Treaty but not in a Model treaty designed to encompass and serve all.

Countries like Canada which do have a model investment treaty are at a stage of development where they can dictate the common terms on which to send and receive investment and which need not be the lowest agreeable terms considering the kind of investment climate that Canada has to offer. However, a volatile and instable Pakistan will be made to agree to most favorable provisions from the investors’ point of view and will not be in the economic position to negotiate any provisions that safeguard its own national interests. In short, Pakistan would not be in a position to negotiate on a mutually beneficial basis if it were to develop a model investment treaty as a blanket cover for all.

As it is, the bilateral treaties that Pakistan had signed earlier do not reflect a mutually negotiated picture either and come across more like a template of sort which was put up for signature. They sound similar and do little for Pakistan when examined closely as they echo most favorable provisions for investors and none for the prosperity of people of Pakistan. I reckon that such template like BITs ought to be avoided and if BITs are to be entered into at all, they should reflect a mutually negotiated picture for otherwise the whole idea of them being ‘bilateral’ loses its appeal and meaning.

Bilateral treaties should be negotiated with States with whom Pakistan does have a negotiation stand point and a mutual trading and investment relationship that need be safeguarded. This would enable Pakistan to have a voice at the negotiation table. Furthermore, in the new-age of investment law and practice, use of innovative and balanced provisions should be adopted after careful reflection and homework on the proposed drafts. Needless to suggest that BITs should be debated in an open public forum and all stakeholders be taken on board before they are signed.

In particular, Pakistan must insist on including the ‘National Minimum Standard of Protection for Host States’ which I suggested in my paper titled, “Democratizing Investment Laws: Ensuring Minimum Standards for Host States”[2], based on which the host States make it an obligation to protect their national industry and investors on a minimum level so that a level playing field in true sense of the term can prevail in the economy without them being in breach of any fair and equitable standard or non-discrimination standard contained in a BIT.

I, therefore, reiterate my stance that a State has a duty to protect its own citizens against the abuses of foreign firms and to avoid their unhealthy market domination that forces local industry to shutdown. This duty is entrenched in the very notion of social contract theories of Locke and Rousseau as per which a State derives its entire legitimacy to govern its subjects by ensuring their safety and protection. The National Minimum Standard of Protection is thus a translation of that very notion and the incorporation of this standard in the BIT would allow host States to fulfill their democratic mandate based on social contract towards their citizens and would encourage survival of local industry and investors which is the basis of any strong and stable economy.

[2] Journal of World Investment and Trade, Vol. 14.1, pp. 79-113.