KEEN to attract direct foreign investment, Pakistan is currently negotiating more than 20 bilateral investments treaties with no evidence to show that 47 already concluded ones have yielded the desired results.

The country’s laws have changed substantially to open up the domestic market for foreign investments. However, the capital spending has not come into the expected sectors.

So far, no empirical evidence has been recorded to establish a link between inflows of FDI and BITs. However, the fact is that the investment importing countries (IICs) do not rely on BITs for attracting investments.

Meaningful investment inflows are coming into Pakistan from 11 countries. The total capital inflows from these countries stood at $14.083 billion between 2000-01 and 2010-11.Over $7 billion came from USA, Hong Kong, Saudi Arabia, South Korea and Norway with whom Pakistan has no investment treaty.

The remaining $7 billion came from the six BIT countries. However, it will be hard to justify whether these treaties have any role in attracting these investments.

Further analysis shows that during the same period Pakistan received $8.382 billion FDI from other countries. However, it is not clear how much investment came from the other 36 countries, with whom Pakistan has signed investment treaties. Whatever is the case, the investment amount is meagre. The BIT does not seem to be stimulating investments.

The BITs signed with trading partners offered their investors protection, withdrawal of restrictions on capital controls, repatriation of capital profits, full currency convertibility, but did not yield any significant outcome.

The low wages or taxes also did not trigger the FDI inflows into Pakistan as the maximum share of the FDI were concentrated within highly technologically advanced countries.

China and India have received maximum FDI despite having restrictions on capital flows. So it is not signing of the BITs, but the educated labour force and technological advancement that may stimulate FDIs.

And Pakistan is lacking in these areas, which should be a major concerns for the policymakers for consideration rather spending millions of dollars on trips in negotiating these fruitless treaties. Then it is also high domestic economic growth that tends to attract foreign investment.

Studies show that the FDI flows are also not linked with the export-oriented industries or create much needed employment. In privatised units, they lead to lot of redundancies. As a result, much of the investment has been concentrated in the natural resources and services in the past one decade: oil and gas, power sector, information technology and financial services. Since 2000-01 these sectors received more than 88 per cent share of the FDI flows into Pakistan. Of these 39 per cent alone went to the telecom sector, followed by 26.22 per cent in financial services and 23.35 per cent into oil and gas sectors, respectively.

The concentration of FDI flows in these sectors did not solve Pakistan’s external sector problems. Instead, the outflows of profits, dividends and other incomes rose sharply. At the same time, foreign money bought state-owned enterprises, went into investment in real estate and some other non-productive sectors.

Besides, international investment agreements have far reaching legal and economic implications. The Board of Investment is currently negotiating investment agreements in a whimsical manner without considering their legal and economic implications. These new generation investment treaties offer investors more protections than the earlier simple treaties, including much freer access to international arbitration.

As a result of these over protection measures, the number of treaty based international arbitration has risen sharply in recent years. These treaties harbour important consequences for Pakistan.

The recent example is a third generation agreement with Kuwait, which provides a platform to the Kuwait-owned company Agility with an opportunity to sue Pakistan at the International Centre for Settlement of Investment Disputes (ICSID).

The Agility has been operating customs software for clearance of goods at Pakistan ports.

To avoid such a backlash, negotiation of these sophisticated agreements requires expertise, time and financial resources which must be justified by satisfactory FDI inflows as well.

Neither the Board of Investment has the expertise for negotiating the BITs nor the capacity to stimulate FDI inflows.

Currently, BITs provide one-sided protection to foreign investment as Pakistan remains an investment importing country.

The underlying objective of BIT is not (intended) to facilitate Pakistan’s investment abroad and notwithstanding the word ‘bilateral’ the treaties can be quite unilateral as the host country does not even have a right of action against the foreign investor under its own laws.

In sum, the future negotiations on the BIT should be linked with commitment of FDI inflows, long-term economic gains etc.

And Pakistan should also avoid sovereign responsibility for commercial faults. If it does, then Pakistan will have to accept international judicial review for its sovereign, legislative, executive and judicial acts including payment of millions of dollars in damages for all these.