In today’s dynamic global investment landscape, characterised by rapid technological advancements and interconnected economies, foreign direct investment (FDI) has become a critical engine for economic growth and development.
FDI in its general sense relates to an investor, company or government from one country investing in a business or corporation in another country. This investment is assisted by the intention to establish a lasting interest in the other country, which could be in the form of outright expansion of business to the new region or simply buying a substantial stake in a foreign business. In Pakistan’s context, an example of the largest FDI in Pakistan is the China-Pakistan Economic Corridor, a long-term strategic investment by China in Pakistan under the Belt-Road Initiative, mainly infrastructure-driven. Originally valued at $46 billion, the value of CPEC projects was worth $62 billion as of 2020 and is expected to increase on a tremendous ratio up until the time of completion.
However, attracting and retaining FDI requires more than just competitive markets and attractive incentives. Investors invest large sums of money and hope to minimize risks associated with the investment. These investors increasingly seek trust, security, and efficient legal frameworks which suggest investors legal certainty and assurance that their rights will be protected under a transparent and fair legal system. The perception of the rule of law in a country, therefore, contributes greatly to the overall risk assessment by foreign investors. Therefore, the effectiveness of the host state’s dispute-resolution framework acts as either a deterrent or a force of attraction to potential foreign investors.
Economic growth cannot be separated from the role of investment in Pakistan.
Developing a strong legal eco-system with the incorporation of alternative dispute resolution (ADR) mechanisms, such as Arbitration, Mediation or Adjudication unlocks a parallel pathway to the conventional court systems for resolving investment disputes. This parallel pathway leads to faster dispensation of disputes without going through the hassle of court proceedings; presents itself as an impartial option, making it more attractive for foreign investors who might otherwise be deterred by the potential danger of bias; adds a layer of specialization to particularly benefit complex commercial disputes where the parties may prefer a more tailored approach and lastly, it offers investors confidentiality if privacy is what they seek in their disputes.
Investment disputes caught in the fish-wire of traditional courts may face delays due to formality issues, open appeals, appeals and reconsideration, which may mean that the course of the settlement process, can be tortuous and take a very long time, such as years or decades, not to mention the emergence of various interventions or resistance from third parties: all of these factors entail the resolution to become increasingly complex and lengthy. In an arbitration, the parties are free to choose arbitrators who they believe have the knowledge, experience and adequate background on the issues in dispute. The parties may also determine the choice of law to resolve the problem, process, and venue for the arbitration. The shift from a traditional court set-up towards arbitration, particularly for investment disputes, sets a promising precedent for investors in Pakistan and projects a less cumbersome process when disputes emerge.
The link between FDI and ADR has been enshrined in a few international Charters as well that support investment rights. Article 11 (2a) of the Association of Southeast Asian Nations(ASEAN) Comprehensive Investment Agreement calls for fair and equitable treatment a requires each Member State not to deny justice in any legal or administrative proceedings following the principle of due process. This principle is a standard in international investment law that ensures investors are treated fairly and not subjected to arbitrary or discriminatory practices. This statement acts as a two-edged sword: in terms of FDI, it calls for a level playing field for foreign investors, thereby promoting a favourable investment climate, enhancing investor confidence, as they are assured of fair treatment in the host country and encouraging more FDI inflows, contributing to the economic growth of the member states and in terms of ADR, Article 11 (2a) reinforces the importance of due process in resolving disputes, which is a fundamental aspect of ADR, reiterates that justice should not denied in any legal or administrative proceedings, thereby upholding the integrity of the ADR process and encourages the use of ADR mechanisms for dispute resolution, as they are often more efficient and cost-effective than traditional court proceedings.
The government can play an integral role in increasing FDI through ADR: awareness campaigns which target the agreement governing the investment treaty may be useful as they can discuss the incorporation of arbitration as the selected method to resolve investment disputes. Of course, on the flip side, this requires a local cadre of skilled arbitrators in Pakistan who can effectively resolve such disputes. This need can be catered to by accreditation and certification bodies, such as the Chartered Institute of Arbitrators Pakistan Branch, who impart a diverse range of training in ADR. This training instils the required skills and competencies for ADR practitioners, preparing them to effectively resolve investment disputes in Pakistan. The Government of Pakistan ratified the International Convention for the Settlement of Disputes (ICSID) in 1966 to anticipate the occurrence of a dispute between national parties with foreign parties in the field of capital investment, signifying the state’s commitment to attract and retain foreign investment.
However, Pakistan’s ICSID membership has been questioned previously in instances such as the notorious Riko Dig dispute. This case has raised concerns about the benefits of ICSID membership for Pakistan, as the decision has had significant financial implications for the country. The government approach can be orchestrated in a different direction with a general promotion of a more impartial environment in the courts for foreign investors.
The next proactive involvement required by the government is the institutionalization of ADR. In bilateral investment treaties, the government’s integration of mediation centres can be a cost-effective stepping stone before resorting to ICSID. Mediation before resorting to ICSID is also a meaningful way to preserve relationships between foreign investors and concerned domestic parties. The integration of Mediation into the country’s legal framework signifies a progressive step towards enhancing the ease of doing business, which would not only streamline the resolution of potential disputes in the realm of foreign investment but also further bolster investor confidence by ensuring a fair, efficient, and cost-effective legal recourse, thereby making Pakistan an increasingly attractive destination for foreign direct investment.
Economic growth cannot be separated from the role of investment in Pakistan, and investment is correlated with the legal certainty and sense of security investors are seeking in terms of their investment. This sense of certainty and security can be instilled by developing a strong framework of ADR in the country. Efforts to create a conducive investment climate are becoming increasingly necessary to remember that to attract investment, Pakistan is faced with the challenge of an increasingly large and complex nature. Incorporating ADR into our traditional legal system is a need of the time as ADR not only reinforces FDI but also leads to safeguarding domestic direct investment, therefore weaving the web for a boost in Pakistan’s GDP.
The writer is a civil engineer-turned-English Barrister. He is the founding Chair of the Chartered Institute of Arbitrators Pakistan Branch and the Country Representative for the Dispute Resolution Board Foundation.
Investment Meets Resolution
19
0
14.01.2024
In today’s dynamic global investment landscape, characterised by rapid technological advancements and interconnected economies, foreign direct investment (FDI) has become a critical engine for economic growth and development.
FDI in its general sense relates to an investor, company or government from one country investing in a business or corporation in another country. This investment is assisted by the intention to establish a lasting interest in the other country, which could be in the form of outright expansion of business to the new region or simply buying a substantial stake in a foreign business. In Pakistan’s context, an example of the largest FDI in Pakistan is the China-Pakistan Economic Corridor, a long-term strategic investment by China in Pakistan under the Belt-Road Initiative, mainly infrastructure-driven. Originally valued at $46 billion, the value of CPEC projects was worth $62 billion as of 2020 and is expected to increase on a tremendous ratio up until the time of completion.
However, attracting and retaining FDI requires more than just competitive markets and attractive incentives. Investors invest large sums of money and hope to minimize risks associated with the investment. These investors increasingly seek trust, security, and efficient legal frameworks which suggest investors legal certainty and assurance that their rights will be protected under a transparent and fair legal system. The perception of the rule of law in a country, therefore, contributes greatly to the overall risk assessment by foreign investors. Therefore, the effectiveness of the host state’s dispute-resolution framework acts as either a deterrent or a force of attraction to potential foreign investors.
Economic growth cannot be separated from the role of investment in Pakistan.
Developing a strong legal eco-system with the incorporation of alternative dispute resolution (ADR) mechanisms, such as Arbitration, Mediation or Adjudication unlocks a parallel pathway to the conventional court systems........
© Daily Times
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