Identifier
Created
Classification
Origin
09ISLAMABAD140
2009-01-22 12:16:00
UNCLASSIFIED
Embassy Islamabad
Cable title:  

GOP CONTINUES TO PUSH FOR BIT

Tags:  EINV EFIN ETRD PGOV PREL PG PK 
pdf how-to read a cable
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ZNR UUUUU ZZH
R 221216Z JAN 09
FM AMEMBASSY ISLAMABAD
TO RUEHC/SECSTATE WASHDC 1117
INFO RUEHBUL/AMEMBASSY KABUL 9678
RUEHNE/AMEMBASSY NEW DELHI 4314
RUEHKP/AMCONSUL KARACHI 0911
RUEHLH/AMCONSUL LAHORE 6633
RUEHPW/AMCONSUL PESHAWAR 5510
RUEAIIA/CIA WASHDC
RHMFISS/CDR USCENTCOM MACDILL AFB FL
RHWSMRC/USCINCCENT MACDILL AFB FL
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
UNCLAS SECTION 01 OF 03 ISLAMABAD 000140 

SIPDIS

E.O. 12958: N/A
TAGS: EINV EFIN ETRD PGOV PREL PG PK
SUBJECT: GOP CONTINUES TO PUSH FOR BIT

REF: 2008 ISLAMABAD 3933

UNCLAS SECTION 01 OF 03 ISLAMABAD 000140

SIPDIS

E.O. 12958: N/A
TAGS: EINV EFIN ETRD PGOV PREL PG PK
SUBJECT: GOP CONTINUES TO PUSH FOR BIT

REF: 2008 ISLAMABAD 3933


1. (SBU) Summary. Minister Saleem Mandviwalla, Chairman of
the GOP Board of Investment, insists the GOP has the
political will to finalize the U.S.-Pakistan Bilateral
Investment Treaty (BIT) and that President Zardari and Prime
Minister Gilani had recently agreed the BIT should go forward
as soon as negotiations can be arranged. Mandviwalla gave
Post an internal GOP document characterizing U.S.-GOP
differences on the BIT, which should be helpful in
formulating USG responses. See below for relevant portions
of the text. End summary.

--------------
A BIT ABOUT THE BIT
--------------


2. (SBU) ComCouns and EconOff met January 15 with Minister
Saleem Mandviwalla, Chairman of the GOP Board of
Investment,and Board of Investment Director Raania Ahsan.
Mandviwalla, who took office in October 2008 and previously
worked in the private sector, was very eager to discuss
potential for U.S.-Pakistani business partnerships and
private U.S. investment in Pakistan. He agreed that
finalizing a BIT would be an important step towards
increasing bilateral business exchanges.


3. (SBU) Mandviwalla said he had spoken recently with
President Zardari and Prime Minister Gilani about a BIT, and
that they all agreed it should be concluded. He gave Econoff
an internal GOP note regarding the five points on which the
GOP and U.S. had not reached agreement when BIT talks stalled
in October 2006.


4. (SBU) Mandviwalla also expressed concern that the
Reconstruction Opportunity Zones (ROZs) will not attract
investors without extensive incentives because of security
concerns and lenders who presently are hesitant to extend
credit.

--------------
A NOTABLE NOTE
--------------


5. (SBU) The GOP document comments on five points on which
the U.S. and GOP have disagreed during previous BIT
negotiations (reftel). The verbatim text regarding these
disputes is as follows:

Begin text.
Note on Bilateral Investment Treaty Between Pakistan and
USA...Five Outstanding Issues under Negotiation:

--Transparency provisions under Article 11(2) and Article
20(6),briefly, requiring the publication in advance of any

proposed or to be adopted laws, rules, regulations, etc.,
regarding the matters pertaining to the Treaty and similarly
any regulation of general application relating to the
financial services that is proposed to be adopted.

Proposal: Transparency standards are practically difficult to
achieve, e.g. with SROs (Statutory Regulatory Orders).
Therefore, BIT language should not be mandatory but
discretionary. There is substantial agreement: USA
recognises the genuine difficulties with Ordinances and SROs.
Language of BIT should be exhortatory or it should be
clarified that transparency requirements must be interpreted
in the context of the state of development of each party.

--Scope of Treaty: The language of the draft is considered
vague and ambiguous and described as "open ended." With
reference to Article 2 of the draft, the level of protection
provided under the treaty would be far greater than that
required under International Law as illustrated by the right
to claim a denial of justice for example. Under law, the
investor is required to meet a higher threshold of denial of
justice to show "obvious futility." Furthermore, the
retroactive effect of the agreement would provide protection
to all investments and disputes including those that existed
prior to the coming into effect of this treaty. Pakistan
insists that the agreement should be prospective in effect.


ISLAMABAD 00000140 002 OF 003


Proposal: GOP is of the view that expressions should be
clearly and concisely defined and meanings stated explicitly
so that a future BIT tribunal does not interpret the words in
a manner contrary to what was intended by Pakistan.
Requirements under the treaty should be at parity with
requirements under public international law. The agreement
by the USA that the BIT shall not have retro-active
application needs to be clarified in the Shared Understanding
as do concerns pertaining to a number of provisions that
create ambiguity.

--Claim on behalf of an enterprise: Article 24(1)(b) allows
a US investor to file a claim on behalf of the entire
enterprise regardless of the proportion of his share. Under
international law, only direct loss is recoverable and a
person cannot assert claim against his or her own State and
likewise BIT protection conferred on a US citizen or entity
should not extend to citizens or entities of third countries
or even of Pakistan (unless the entity is a juridical person,
majority owned or controlled by a US citizen or entity).

Proposal: Under international law, only a direct loss is
recoverable and a person cannot assert claim against his or
her own State and likewise BIT protection conferred on a US
citizen or entity should not extend to citizens or entities
of third countries or even of Pakistan (unless the entity is
a juridical person, majority owned or controlled by a US
citizen or entity). There is substantial agreement on this
issue as Pakistan's position is consistent with the USA's
interpretation of like provisions in NAFTA as submitted by
the USA in GAMI Investments, Inc. v. Mexico. Pakistan is
awaiting an amendment to the draft of the Shared
Understanding from the USA.

--Investment Agreement: Article 24(1) requires the host-state
to observe any private obligations it has entered into in
regard to covered investments. Such a provision makes a
contractual or obligatory breach simultaneously a breach of
the investment treaty. Thus, failure by an investor (whether
corporate or individual) that is a party to an investment
will result in a complaint against the country, in addition
to any complaints regarding the contractual breach. The
result of this dual obligation is that the government, in
addition to the enterprise, is held responsible for the
insolvency of the multinational partnerships and which will
inevitably result in mega million dollar awards that the GOP
will not be able to defend or afford.

Proposal: Pakistan does not accept that every breach of
contract by the State or its Agency should be a breach of the
BIT. Pakistan accepts responsibility for its sovereign acts
in the exercise of sovereign power. Otherwise, contractual
breaches should be remedied through the contractual dispute
resolution mechanism provided in the investment agreement.

--Additional Rules regarding the arbitration procedure
contained in Section B of the draft treaty: whereby Pakistan
has maintained its old position that the additional rules are
superfluous in view of GOP's acceptance of international
arbitration.

Proposal: USA should respond to Pakistan's queries and
comments. ICSID remedy should be sole remedy unless barred
by ICSID itself, as in the case of dual nationals and
pre-establishment claims.
End text.


6. (SBU) The Note also contains the following comments on
"Other Substantive Issues:"

Begin text.
-- Pakistan and its Agencies face serious capacity
constraints in complying with the standards imposed by the
BIT.
-- More favorable provisions of the US BIT may be
incorporated into other BITs through an MFN clause in those
other BITs.
--Shared Understanding: As public international law is in
flux, therefore it is imperative that the parties' intentions
be clearly specified and Shared Understanding be stated to be
an agreement as contemplated under Article 31(3) of the
Vienna Convention on the Law of Treaties 1969 to ensure that

ISLAMABAD 00000140 003 OF 003


it prevails over the BIT.
End text.


7. (SBU) Comment: With many new faces in the GOP since the
last round of BIT negotiations, it is not clear who will
actually be in charge of the negotiations. The Board of
Investment has always been involved in the process, but the
lead was taken over by then Attorney General Makhdoom Khan in

2006. Mandviwalla's enthusiasm marks him a clear BIT
advocate and keeping him in the loop will help the U.S. move
negotiations forward. The relatively new Minster of
Investment, Waqar Ahmad Khan, also strongly favors concluding
the BIT.


8. (SBU) Mandviwalla may not have been fully aware of
critical language regarding the U.S. However, the Note sets
out GOP positions on the BIT quite clearly and may be helpful
to U.S. negotiators.

PATTERSON