Pakistan prepares to eliminate ISDS from its Bilateral Investment Treaties

April 8, 2021: Pakistan’s Board of Investment has prepared a strategy to withdraw from all inhibiting clauses in the 53 Bilateral Investment Treaties the country has with 48 countries, including Australia.

The major concerns are provisions related to investor-state dispute settlement (ISDS). These shrink the policy space for the government to adopt measures in the public interest.

So far, seven ISDS cases have been lodged by foreign investors at the International Centre for Settlement of Investment Disputes (ICSID) and three in the Permanent Court of Arbitration (PCA), exposing Pakistan to claims of billions of dollars in compensation.

Just one case, by the Australian subsidiary of Tethyan Corporation, was awarded US$5.8 billion in compensation in 2019. Pakistan is disputing this award.

Pakistan decided to review the entire BIT situation in 2013, and to develop a new model BIT.

Of the 53 BITs signed with 48 countries, the one with Indonesia was unilaterally terminated by Indonesia in 2016, while 16 BITs are signed only and not ratified, and 23 ratified BITs, which have completed their initial term, can be terminated by giving the prescribed notice.

The Board of Investment has now recommended the following strategy to the government:

  • all 16 un-ratified BITs will not be ratified;
  • 23 ratified BITS which have completed their initial period of 10, 15 or 20 years will be terminated with six months or one year’s notice and the contracting States asked to terminate the period for residual ISDS claims;
  • if a contracting State does not accept, then the government will apply the option to terminate the BIT;
  • all 9 contracting States whose BITs are not mature for termination will be asked to prematurely terminate their BITs as well as the right to residual claims.
  • All the non-ratified/ratified treaty partners will be offered the new BIT template for re-negotiation after it is approved by the Cabinet.

The Cabinet is yet to consider and approve this strategy.