Beyond BITs: Pakistan’s Quest for Sovereignty and Sustainable Development (Talha Ilyas Sheikh & Murtaza Mustansir)

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Pakistan, the fifth most populous country, is home to a young and rapidly urbanizing population[1]. 64% of its people are under the age of 30[2]. Strategically, it connects South Asia, Central Asia, and the Middle East. According to a recent estimate, by 2075, the country’s economy is projected to become the sixth largest[3] in the world. With bold targets like Vision 2025 and its Investment Policy 2023, the nation aims to be in the top ten global economies by 2047. A Special Investment Facilitation Council (SIFC), co-chaired by civil and military leadership, has been newly established to rekindle the economy. Pakistan, therefore, offers immense potential for investors across various sectors, being an untapped and underutilized market. This post explores the country’s evolving investment arbitration landscape, which presents a promising future with its forward-looking approach, including the termination of existing old-generation BITs and the potential for significant growth and development.

Legal Framework for International and Investment Arbitration In Pakistan

Pakistan officially incorporated the New York Convention (NYC)[4] into local law through the 2011 Act[5], making the foreign arbitral awards directly enforceable in the High Courts. The recognition and enforcement of foreign awards may now only be refused under the specific grounds enumerated in NYC[6]. The country ratified the ICSID Convention on October 15, 1966, and its provisions were subsequently enforced through the Arbitration (International Investment Disputes) Act 2011. Under this Act, ICSID awards are directly registered in the state and enforced as judgments and decrees of the High Court.

Pakistan has taken proactive steps to attract and safeguard foreign investments. The Foreign Private Investment Act of 1976, which treats foreign and domestic investors equally, is a testament to the country’s investor-friendly policies. It facilitates the repatriation of profits and capital while safeguarding investments from expropriation. The recent Foreign Investment (Protection and Promotion) Act, 2022[7], further enhances these protections by providing “qualified investments” exceeding USD 500 million or, as notified, immunity from retrospective taxation and exemptions from duties. The establishment of an Investment Ombudsman to handle grievances under this Act demonstrates Pakistan’s commitment to investor protection.

The judicial approach towards arbitration has evolved significantly over the years. The superior judiciary has taken a “Pro- Enforcement Bias,” as seen in the recent Taisei[8] case, where the Supreme Court of Pakistan (SC) reaffirmed the country’s commitment to the NYC and the principle of minimal judicial interference in arbitration proceedings. Similarly, the High Courts regularly recognize and enforce foreign arbitral awards under the NYC Act, as seen in the recent China Water[9] and Tradhol [10] rulings. This reflects a consistent pro-arbitration stance taken by the courts in recognizing and enforcing foreign arbitral awards. Systematic and procedural loopholes, the lack of a high-quality pool of neutral arbitrators, and the absence of institutional arbitration, however, remain significant obstacles to an effective and efficient arbitration regime.

Bilateral Investment Treaties (BITs)

Pakistan has signed 53 BITs with 47 countries, out of which 31 are still in force[11]. The world’s first-ever BIT was signed between Pakistan and Germany on November 25, 1959.[12] This reflects the state’s early vision of promoting inter-state direct investments and dispute resolution mechanisms. The country signed its last BIT with Bahrain a decade ago, on March 18, 2014[13], indicating a shift in policy. There is no BIT between Pakistan and the USA. Although negotiations for a BIT with the United States have been ongoing since 2004, no agreement has been reached. There is, however, a Trade and Investment Framework Agreement (TIFA)between the two nations.[14]

BITs have historically been linked to promoting foreign direct investments (FDI). The country, however, is currently reevaluating its BIT strategy after experiencing significant economic setbacks due to multi-billion-dollar awards from tribunals in the notable Reko Diq[15] and Karkey[16] cases. These matters highlighted financial and legal weaknesses within the country’s existing BIT framework, emphasizing the need to revisit BITs to balance investor rights and state sovereignty.

Terminating BITs a Sensible Solution?

Pakistan’s BITs are considered more investor-friendly and provide limited protections for state sovereignty. Earlier, Pakistan resolved to terminate 23 BITs,[17]which had completed their initial duration, and chose not to ratify 16 signed BITs yet to enter into force. For the nine remaining BITs that cannot currently be unilaterally terminated, the state planned to negotiate Joint Interpretation Protocols to address ISDS, Fair and Equitable Treatment (FET), and expropriation clauses. Although there are ongoing concerns about the impact on FDI, experiences from other countries suggest a more nuanced relationship between BIT terminations and investment flows.

Terminating BITs has long been a common occurrence in the world of international investment. Several nations have terminated BITs in recent years. The experiences of these nations indicate that the termination of BITs does not invariably result in a decrease in FDI. Increased investment flows were observed in many of these nations, casting doubt on the widely held notion that BITs are necessary to draw in foreign capital.[18]

For instance, Ecuador experienced a dramatic 420 percent increase in FDI from Uruguay after terminating its BIT with that country. Likewise, Bolivia’s FDI stock increased by 61 percent after ending its BITs. South Africa and Indonesia also experienced a rise in their FDI stock after terminating their BITs.[19]

India’s case study on BITs reveals mixed impacts on FDI. Adverse awards, such as the White Industries[20] case, prompted India to recalibrate its BITs, leading to the adoption of the 2015 Model BIT and terminating BITs with 68 countries, accompanied by notices for renegotiation. The study reveals that in 2023, India recorded a 24%[21] decline in equity inflows from FDI[22]. This trend, however, reversed, and India documented a 45% increase in FDI inflows from April to September 2024[23]. This shows that FDI is not entirely dependent on the existence of BITs; other key factors are also involved.

What Can Pakistan Learn from This?

Terminating BITs may initially seem like a setback for attracting foreign investment, but other countries’ examples indicate that the effect on FDI might not be as damaging as anticipated. One key takeaway from these examples is that many factors affect investment flows. Factors like a nation’s sovereign debt rating, overall economic stability, infrastructure quality, ease of doing business, and political environment are much more crucial in drawing FDI. The termination of BITs in the examples given above coincided with improvements in their sovereign debt ratings, bolstering investor confidence and increased FDI inflows.

For Pakistan, terminating BITs might not necessarily signal a drop in FDI. Through the improvement of elements that affect FDI, like political stability, business-friendly regulations, and infrastructure advancement, the country can still attract foreign investors without relying on the protection of BITs. Moreover, as outlined in its new BIT strategy, the country’s efforts to create a more robust and transparent investment climate will also be crucial in shaping investor perceptions.

Investors vs Pakistan

Since 2001, twelve reported ISDS claims have been lodged against the state.[24] Disputes have often arisen from claims of expropriation, violations of FET standards, and discriminatory practices. The most notable case is the Tethyan Copper Company Pty Limited v. Pakistan[25] (Reko Diq case) under the ICSID framework. The investor brought the claim before the tribunal, and it resulted in the country facing awarded damages exceeding $6 billion due to its alleged breach of the Australia-Pakistan BIT. A claim was separately taken to an ICC Tribunal, which also gave an award totaling the nation’s liability to 11 Billion, representing about 2 percent of its GDP or 40 percent of its cash reserves in foreign currency[26].

In Reko Diq, a deeper understanding of international law was crucial for settling the matter domestically rather than providing an opportunity for the investor to proceed with international arbitration. A critical element the SC overlooked was the impact on Indigenous communities, particularly the Baloch people. The United Nations Declaration on the Rights of Indigenous Peoples[27] recognizes the inherent rights of indigenous peoples to use their lands and engage in decision-making processes that affect their territories. Had the SC considered this, it could have been integral in pursuing an amicable resolution that balanced both national sovereignty and the rights of Indigenous peoples. The Reko Diq matter was ultimately settledbetween the investor and the state, whereby a 50:50 share distribution was established between Barrick Gold Corporation (the investor), Pakistan’s State-Owned Enterprises (SOEs), and the Balochistan government.[28]This case highlights the immense stakes in investment arbitration, which led to one of the most significant arbitration awards against Pakistan. This underscores the need for stronger frameworks to balance sovereignty and investor obligations.

In another significant case, a Turkish construction company, Bayindir, was contracted to construct a highway in Pakistan. The dispute arose in 2003 when the government terminated the contract after citing poor performance. Bayindir filed a claim[29] before ICSID under the Turkey-Pakistan BIT, alleging unfair treatment and expropriation. In 2009, the tribunal dismissed Bayindir’s claims, ruling that the National Highway Authority (NHA)’s actions were permissible under the contract. At the time, many viewed the case as resolved. However, after a decade, Bayindir initiated a second arbitration in 2021 under the BIT and the Organisation of Islamic Cooperation (OIC) Treaty (Bayındır(II)[30]). This subsequent arbitration focuses on the nation’s post-award conduct and adherence to international obligations. In November 2024, ICSID affirmed its jurisdiction over Bayindir II and is now adjudicating the compensation owed to the company.[31] The central question in Bayindir is whether indirect expropriation occurred. This has historically produced significant problems for the country, as was previously indicated. Renegotiating BITs makes sense now to shield the state against claims and international proceedings that could result in using taxpayer funds for compensation.

     Recommendations and The Path Ahead

The cases above show that unclear BITs and a lack of domestic resolution mechanisms led to excessive damages, highlighting the need for domestic dispute settlement clauses. The country, therefore, should adopt a calculated and measured approach to balance investor protection with sovereignty while ensuring a smooth flow of FDI. Any knee-jerk reactions that could harm FDI must be avoided. Urgent steps needed are:

  1. Model BIT

First, the country must finalize its Model BIT, which has been pending for many years. This Model BIT should then guide the critical renegotiation of existing outdated BITs. The Model BIT must incorporate essential elements to boost investor confidence while protecting national interests. For example, the preamble should clearly state that the general BIT objective of protection and promotion of investments is to be achieved in a manner consistent with the protection of health, safety, the environment, and other key public policy objectives of contracting parties. Furthermore, the definitions of “investment” and “investor” must also be improved. The BITs should only protect investments that directly contribute to the host state’s development, and investors must require robust economic links to the home country to prevent misuse.[32] Future BITs should also require the exhaustion of local remedies within a specific timeframe before escalating disputes to international arbitration, as India did in its 2015 model BIT. A multi-tiered dispute resolution clause requiring mediation to be mandatory before arbitration should be adopted to promote early resolution and reduce expenses.

  1. Establishing an Effective Dispute Resolution Mechanism

In addition to strengthening its BIT framework, the country should create a neutral and effective complaints and dispute resolution mechanism. The Board of Investment (BOI)[33] has proposed establishing a dedicated cell to handle investor grievances and engage with government departments. BOI is also considering creating an ADR Centre, which could provide an in-country platform for resolving investment-related disputes before escalating them to international arbitration bodies[34]. While these initiatives are still under consideration, the BOI must carefully assess its role in these mechanisms. The BOI should act as a commanding authority to address investor complaints rather than merely functioning as a mediator. By proactively managing investor concerns and collaborating with government departments, the BOI could nurture an environment of cooperation and compromise. This would be far more appealing to foreign investors, who may be skeptical of the BOI’s neutrality if it were to act as a mediator.  It is equally vital for the SIFC and BOI to coordinate their efforts to prevent confusion that could hinder attracting and protecting FDI.

  1. Pakistan International ADR Centre (PIAC)

Instead of housing an ADR Centre within the BOI, Pakistan should consider establishing an autonomous investment and commercial arbitration center, which would operate independently but still be government-backed. This institution could host a panel of local and international arbitrators/neutrals, providing investors with a neutral and expert platform for resolving disputes. Following the model of successful arbitration institutions in countries like Singapore, Hong Kong, and Dubai, the country can offer a more attractive alternative to international arbitration by ensuring that disputes are resolved cost-effectively and promptly within its territory. Moreover, Pakistan could become the region’s new international arbitration hub, considering its strategic location.

  1. Modernizing Arbitration Laws

Creating an international center should go hand in hand with modernizing the country’s arbitration laws. Parliament must enact the Arbitration Act 2024 as soon as possible to align the domestic arbitration framework with UNCITRAL Model Law[35]. The Supreme Court, in the Qatar Lubricants [36] case, by taking a “pro-arbitration approach,” underscored the economic benefits of arbitration and “making the country an attractive destination for foreign investment.”  The Apex Court further noted that the draft bill for the new Arbitration Act aims to modernize the outdated framework. The Court urged its swift enactment to provide the people with an effective and contemporary dispute resolution mechanism. This necessary enactment strengthening domestic arbitration will further enhance investor confidence and promote FDI, given that the arbitration framework in the country follows global best practices, particularly since all the other necessary legislation supporting international arbitration is in place.

  1. Sustainable and Inclusive Investment

Finally, the country should promote a more equitable and advantageous relationship between investors and local communities. The United Nations’ 2030 Agenda for Sustainable Development advocates for the inclusion of Indigenous peoples’ contributions in national policy-making. The nation must adopt a more sustainable and inclusive approach to foreign investment. This would lead to more durable and efficient resolutions to conflicts concerning foreign investment, which will protect the rights of Indigenous peoples and uphold the sovereignty of the state.

Conclusion

Pakistan has already taken steps towards rebuilding investor confidence and strengthening its legal frameworks. The experiences of other countries demonstrate that terminating BITs does not necessarily deter investment if backed by a solid plan. To achieve smoother and increased FDI, Pakistan should review and update its existing BITs, establish effective domestic dispute resolution mechanisms, modernize arbitration laws, implement comprehensive training programs for stakeholders, and adopt a more sustainable and inclusive approach to foreign investment. Lessons learned from cases like Reko Diq and Bayindir emphasize the importance of balancing international commitments with national sovereignty while ensuring transparency. By cultivating a stable and investor-friendly environment, Pakistan can unlock sustainable economic growth and reaffirm its commitment to global investment and national development.


Bibliography

Books, Reports, and Articles

  • Nigel Blackaby, Constantine Partasides & Alan Redfern, Redfern and Hunter on International Arbitration.
  • Ahmad Ali Ghouri & Nida Mahmood, Deciphering Pakistan’s Foreign Investment Policy: A Review of Pakistani BITs, 13 J. World Investment & Trade 812 (2012).
  • Shreyas Jayasimha & Abhimanyu George Jain, The 2015 Indian Model BIT (2018), available at https://papers.ssrn.com/abstract=3853343.

 

Websites and Online Articles

Treaties and Declarations

  • United Nations Declaration on the Rights of Indigenous Peoples, G.A. Res. 61/295, U.N. Doc. A/RES/61/295 (Sept. 13, 2007).

Legislation and Policy Documents

  • Draft Arbitration Bill 2024, handed over by the Law and Justice Commission of Pakistan to the Ministry of Law and Justice in May 2024.
  • Recognition and Enforcement (Arbitration Agreement and Foreign Arbitral) Act, 2011.

Case Law

  • Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan (I), ICSID Case No. ARB/03/29.
  • Bayındır İnşaat Turizm Ticaret ve Sanayi A.Ş. v. Islamic Republic of Pakistan (II), ICSID Case No. ARB/21/48.
  • Taisei Corporation v. A.M. Construction Company (Pvt.) Ltd., (2024 SCMR 640).
  • Tradhol International S.A. v. Shakarganj Ltd (P L D 2023 Lahore 621)
  • China International Water and Electric Corporation (CWE) P.R. China v. National Highway Authority, (2023 CLD 1400).
  • Karkey Karadeniz Elektrik Uretim A.S. v. the Islamic Republic of Pakistan, ICSID Case Database, available at https://icsid.worldbank.org/cases/case-database.
  • Tethyan Copper Company Pty Limited v. Islamic Republic of Pakistan, ICSID Case No. ARB/12/1.
  • Kausar Rana Resources (Private) Limited, etc v. Qatar Lubricants Company W.L.L. (QALCO), etc. (2025 SCP 4)

[1] Pakistan Population (2024) – Worldometer, https://www.worldometers.info/world-population/pakistan-population/

[2]Pakistan National Human Development Report, UNDP, https://www.undp.org/pakistan/publications/pakistan-national-human-development-report

[3] Marcus Lu, Ranked: The Top Economies in the World (1980‒2075), Visual Capitalist (2023), https://www.visualcapitalist.com/top-economies-in-the-world-1980-2075/

[4] Signed on 30-12-1958. Ratified on 14-07-2005.

[5]Recognition and Enforcement (Arbitration Agreement and Foreign Arbitral) Act, 2011. Earlier, NYC was enforced in 2005 through a temporary Ordinance.

[6] United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Article V, 10 June 1958, available at https://uncitral.un.org.

[7] The Act of 2022 was enacted specifically to provide legal cover to the Reko Diq Project, and it was the first investment to qualify under the Act of 2022. Turkmenistan pushes for FIPPA protection of TAPI gas pipeline investment, https://www.thenews.com.pk/print/1127865-turkmenistan-pushes-for-fippa-protection-of-tapi-gas-pipeline-investment

[8]Taisei Corporation v. A.M. Construction Company (Pvt.) Ltd., (2024 SCMR 640).

[9] China International Water and Electric Corporation (CWE) P.R. China v. National Highway Authority, (2023 CLD 1400): In this matter, a foreign Arbitral award was challenged by the National High Authority (NHA) under the Local Arbitration Act, 1940, on the grounds of misconduct. Separate objections were also filed by NHA on the execution proceedings initiated by CWE for recognition and enforcement of the Award u/s 6 of the NYC Act. The Islamabad High Court dismissed the objections and appeal for setting aside the Award, recognizing and enforcing an award of Rs. 3,435,255,571.32, etc, against a state-owned Authority.

[10] Tradhol International S.A. v. Shakarganj Ltd (P L D 2023 Lahore 621): In this matter, Tradhol, a foreign Company filed an application before the Lahore High Court under the NYC Act for the recognition and enforcement of foreign Arbitral Award by a LCIA tribunal. Shakarganj, a Pakistani Company filed objections on the grounds under Article V1(a) and V1(b) of NYC. The High Court dismissed the objections and recognized the foreign arbitral award, and proceeded to execute it as a judgment and decree of the court.

[11] International Investment Agreements Navigator | UNCTAD Investment Policy Hub, https://investmentpolicy.unctad.org/international-investment-agreements/countries/160/pakistan

[12] coming into force on April 28, 1962. This BIT is still in force. A new BIT has sgined between the parties on 01-12-2009, but not in force.

[13] Ibid 11.

[14] Pakistan, United States Department of State, https://www.state.gov/reports/2024-investment-climate-statements/pakistan/

[15] Discussed in detail in the Investors vs Pakistan section.

[16] Karkey Karadeniz Elektrik Uretim A.S., a Turkish company, was awarded $1.2 billion by ICSID against Pakistan for wrongful termination of a rental power project contract. Search Cases | ICSID, https://icsid.worldbank.org/cases/case-database

[17] Pakistan terminates 23 BITs – Investment Treaty News, https://www.iisd.org/itn/en/2021/10/07/pakistan-terminates-23-bits/

[18] The absence of a standard framework for reporting FDI statistics between nations makes it difficult to collect and analyse bilateral FDI statistics. Depending on the time period (fiscal or calendar year), stocks or flows, and typically various reporting delays, countries report in local currency or U.S. dollars. Frequently, national agencies only share statistics from large investment partners. The currency in which they were recorded is still used for data. U.S. dollars are used to report data for Indonesia from national agencies. U.S. dollars are used to report the raw data from national authorities for Bolivia and Ecuador. Local currency was used to report South Africa’s raw statistics from national agencies. Both local currencies and US dollars are used by India to report values. GDP deflators from the International Monetary Fund’s “Gross Domestic Product, Deflator,” World Economic Outlook, October 2017, were used to adjust all statistics for inflation. Avalibale at: https://www.imf.org/external/pubs/ft/weo/2017/02/weodata/index.aspx

[19] Ibid n18. South Africa saw a 10 percent rise in its FDI stock after terminating 20 BITs. Indonesia’s FDI stock increased by 5 percent after announcing the termination of its 67 BITs in 2014.

[20] White Industries, an Australian mining company, brought a claim under India-Australia BIT alleging breach of treaty protections. The tribunal awarded White Industries AUD 4.10 million.

[21] Business Standard, FDI Equity Inflows Decreased by 24% to $20.48 Bn in Apr-Sep 2023: Data, (2023), https://www.business-standard.com/economy/news/fdi-equity-inflows-decreased-by-24-to-20-48-bn-in-apr-sep-2023-data-123112100929_1.html

[22] Shreyas Jayasimha & Abhimanyu George Jain, The 2015 Indian Model BIT, (2018), https://papers.ssrn.com/abstract=3853343

[23] Business Standard, FDI Inflows Increase 45% to $29.79 Billion during Apr-Sep Quarter, (2024), https://www.business-standard.com/finance/news/fdi-inflows-increase-45-to-29-79-billion-during-apr-sep-quarter-124120100419_1.html (last visited Dec 9, 2024).

 

[24] UNCTAD, Investment Dispute Settlement Navigator: Pakistan, available at https://investmentpolicy.unctad.org/investment-dispute-settlement

[25] Tethyan Copper Company Pty Limited v. Islamic Republic of Pakistan (ICSID Case No. ARB/12/1)

[26] Ousted Pakistani Leader Was Challenging Investment Treaties That Give Corporations Excessive Power, Inequality.org, https://inequality.org/article/pakistan-khan-investment-treaties/ (last visited Dec 13, 2024).

[27] United Nations Declaration on the Rights of Indigenous Peoples, G.A. Res. 61/295, U.N. Doc. A/RES/61/295 (Sept. 13, 2007).

[28] Why Barrick Gold Remains Interested in Pakistan’s Reko Diq Reserves, https://thediplomat.com/2024/06/why-barrick-gold-remains-interested-in-pakistans-reko-diq-reserves/

[29] Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan (I)(ICSID Case No. ARB/03/29)

[30] Bayındır İnşaat Turizm Ticaret ve Sanayi A.Ş. v. Islamic Republic of Pakistan (II)(ICSID Case No. ARB/21/48)

[31] Why Barrick Gold Remains Interested in Pakistan’s Reko Diq Reserves, https://thediplomat.com/2024/06/why-barrick-gold-remains-interested-in-pakistans-reko-diq-reserves/

 

[32] Ahmad Ali Ghouri & Nida Mahmood, Deciphering Pakistan’s Foreign Investment Policy: A Review of Pakistani BITs, The Journal of World Investment & Trade 812 (2012): A comprehensive study reviewing Pakistani BITs  available here.

[33] BOI was established with broad-based responsibilities of promoting investment in all economic sectors and facilitating local and foreign investors. It acts as a focal point of contact for existing and prospective investors, both domestic and foreign, to provide them with all necessary information and assistance in coordination with other Government Departments/Agencies at the Federal and Provincial levels. BOI assists companies and investors who are investing or intend to invest in Pakistan as well as facilitates the implementation and operation of their projects. The wide range of services provided by BOI also include providing information on the opportunities for investment and facilitating companies that are looking for joint ventures.

[34]  https://invest.gov.pk/sites/default/files/inline-files/BOI%20as%20an%20organization.pdf

 

[35] In May 2024, the Law and Justice Commission of Pakistan (LJCP) handed over the draft Arbitration Bill, 2024 (“new Act”), to the Ministry of Law and Justice (MLJ).  The Federal Government has also approved the bill.

[36] Kausar Rana Resources (Private) Limited, etc v. Qatar Lubricants Company W.L.L. (QALCO), etc. (2025 SCP 4)

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