A REPORT that a minister of state has quietly initialled the Bilateral Investment Treaty with the United States, whose draft Pakistan has been rejecting since 2006 because certain clauses were seen not in Pakistan’s interest, has neither been confirmed nor denied at top-level even after a month, giving an impression that there is something fishy.

The treaty was initialled by Saleem Mandviwala, the minister of state and chairman of Board of Investment, on March 9 during a stopover in Washington on his way home from Canada. Actually he had gone there to attend a four-day international exhibition and conference of mineral exploration experts. However, at the end of the day it is the content of the treaty that matters, not how it was initialled or signed.

The foreign office and the commerce ministry are conspicuously displeased, rather angry, with the BOI chief for not taking them on board over the Bilateral Investment Treaty (BIT) and also for accepting ‘harsh conditions’. Commerce ministry appears confused and wants to know what does initialling mean in legal sense as opposed to actual signing. Normally, there are three stages in signing a treaty. First, the treaty is just initialled; second, it is approved by the cabinet; and third, the ratification instrument is signed by the president.

The only explanation given by the BOI officials so far is that the document has not been made public because the matter is ‘sensitive’. Being sensitive hardly warrants keeping it a secret and beyond public attention. The reason why Mandviwala did so in ‘a hurry’ was, as the BOI officials say, that Washington had fixed March 31 the deadline for accepting or rejecting the treaty in its previous template of 2004.

How more harsh the new template which was to come into effect from April 1 is, is not known. So, opting for the old template, which Pakistan has already rejected, is hardly an act of prudence and in the interest of the country.

Pakistan had never reconciled with the 2004 model for its highly pro-investor tilt. Ex-president Pervez Musharraf, who initially favoured the BIT, had refused to accept it after getting convinced of its lethal nature as explained to him by the then attorney-general, Makhdoom Ali Khan. The latter had fought the country’s first lawsuit under a BIT (Switzerland-Pakistan BIT) in 2001 filed by SGS and was able to get it settled in favour of Pakistan and save the country from a financial disaster.

Musharraf later issued a directive to members of his secretariat that no BIT would be signed by Pakistan until the attorney-general’s office was consulted and all other government stakeholders were taken on board. It was because of this resistance on A-G’s part that the US ambassador Anne W. Patterson had stated in 2007 while learning about his resignation: “We will not be sorry to see Khan go, as he blocked further negotiations on the bilateral investment treaty over concerns about investor-state arbitration and other issues.” According to Khan, there were many clauses in the Treaty which were against the interests of Pakistan.

On December 28, Saleem Mandviwalla, in an effort to silence media criticism, e-mailed a statement to a business daily of Karachi, saying: “Every thing was done with the cabinet approval and the US government agreed to all our terms which we had tabled in 2008.” He insists that “nothing had been done out of order or in a hurry… there is no pressure from any quarter to do this treaty, but both countries want this treaty in their own interest.”

He claimed that no laws of Pakistan or rules were violated in any way. “We followed the same procedure what we do for every treaty that we have signed in the last three years and the latest one was with Germany.” Under law, the board can negotiate and finalise agreements for promotion of investment with other countries but not initial them without cabinet’s approval.

The BoI also issued letters to the stakeholders, informing them that “the draft text was agreed during the face-to-face discussions with the US team at Washington on March 9 in the light of the reservations expressed by the stakeholders during the meeting held on February 28 and March 6, 2012. The unresolved issues have been taken out of the text. These related to transparency and financial services, claims on behalf of an enterprise and investment agreement.

According to BOI officials, concluding a BIT is crucial for further negotiations to conclude a bilateral free trade agreement or preferential trade agreement with US. Originally, Pakistan was seeking an FTA with the US but the latter insisted on conclusion of a BIT as a first step. While this was also the expectation of several key Pakistani negotiators, it is doubtful whether it was actually the US position. USTR official notes: “Since Musharraf had vested so much political capital into the possibility of a PTA, we couldn’t openly state that we found it practically impossible to get through in Washington, so we played along.” (Comment at a seminar on Pakistan’s BIT programme, Johns Hopkins School of Advanced International Studies’ South Asia Programme, May 11, 2009.)

The basic objectives of a BIT, as outlined by the USTR on its website, is to protect American investment in countries where investor’s rights are not already protected through existing agreements and to encourage the adoption by the host countries of market-oriented domestic policies.

In September last year, academics from 30 universities across eleven western countries signed a statement expressing concern that the international investment regime is hampering the ability of developing country governments to act in the public interest. The statement drew particular attention to investor-state arbitration. In numerous cases, it said, tribunals constituted under these treaties “have prioritised the protection of the property and economic interests of transnational corporations over the right to regulate of states and the right to self-determination of peoples.”

So far, Pakistan has signed about 50 treaties but all of them have failed to affect any significant rise in foreign investment. The problem is that investments do not come because of a BIT. Brazil has signed no BIT with any country but it remains the leading recipient of FDI in Latin America. Major determinants of investment flow are macroeconomic factors, political stability and having a large and growing GDP.