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Towards greater integration Legal and policy directions of Chinese investments in Pakistan on the advent of the silk road economic belt

Article (Accepted Version)

httpsrosussexacuk

Ghouri Ahmad (2015) Towards greater integration Legal and policy directions of Chinese investments in Pakistan on the advent of the silk road economic belt The Chinese Journal of Comparative Law 4 (1) pp 36-68 ISSN 2050-4802

This version is available from Sussex Research Online httpsrosussexacukideprint57384

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Towards Greater Integration Legal and PolicyDirections of Chinese Investments in Pakistanon the Advent of the Silk Road Economic Belt

Ahmad Ghouri

A B S T R A C T

Pakistan has an enduring friendship with China and the two countries have long-standing economic ties There is an existing strong investment flow between the twocountries but the new Chinese Silk Road Economic Belt (SREB) initiative and its off-shoot ChinandashPakistan Economic Corridor (CPEC) will substantially increase the flowof Chinese investments in Pakistan In the auspices of the SREB China will finance itscompanies to build a comprehensive regional transportation network in order to stim-ulate economic growth and social development The SREB Action Plan has a moreviable strategy for long-term development as compared with the existing regional eco-nomic integration and development models and the CPEC will undoubtedly createnumerous opportunities for the two countries A scrutiny of the Chinese policies toinvest in Pakistan and the prevalent strong bilateral regime for investment promotionand protection suggest that ChinandashPakistan investment relations reflect a movetowards much deeper economic integration However the various legal and policy ori-entations of these Chinese projects reveal serious challenges in reaching the overallvision harnessing it with the intended objectives and enhancing the legitimacy of itsimplementation strategies There is a need for proactive solutions for the transnationalproblems that the CPEC and the SREB are going to generateK E Y W O R D S Silk Road Economic Belt ChinandashPakistan Economic Corridor bilateralinvestment treaty free trade agreement special economic zone

I N T R O D U C T I O NThe ChinandashPakistan friendship is frequently described as lsquoall-weatherrsquo lsquoironrsquo andlsquodeeper than the Arabian Sea and higher than the Himalayasrsquo1 After the landmark

Ahmad Ghouri Lecturer in Commercial Law Sussex Law School University of Sussex Freeman BuildingFalmer Brighton BN1 9QE UK Tel thorn44 1273 877710 Email aaghourisussexacuk I would like tothank Jo Bridgeman Edward Guntrip and the reviewers of the Chinese Journal of Comparative Law for theirvaluable comments on earlier drafts of this article

1 See eg Laurence Vandewalle lsquoPakistan and China lsquoIron Brothersrsquo Foreverrsquo European Parliament PolicyDepartment Directorate-General for External Policies (EU Parliament Think Tank June 2015) Iftikhar ALodhi lsquoPakistan Perceptions and Responses of an All-Weather Friendrsquo in SD Muni and Tan Tai Yong(ed) A Resurgent China South Asian Perspectives (Routledge 2012) 176

VC The Author (2015) Published by Oxford University Press All rights reservedFor Permissions please email journalspermissionsoupcom

1

The Chinese Journal of Comparative Law 2015 0 1ndash33doi 101093cjclcxv019Article

ChinandashPakistan Boundary Agreement in 19632 the two countries have strengthenedtheir friendship and cooperation with several joint agreements memorandums ofunderstanding and joint declarations covering a wide variety of areas including tradecommerce investment energy transport and defence3 Although the first formaltrade agreement was signed already in 19634 the contemporary ChinandashPakistantrade regime started with the conclusion of a preferential trade arrangement (PTA)in November 20035 In April 2005 the two countries concluded an Agreement onthe Early Harvest Programme which was intended to provide the working frame-work for the conclusion of a formal and all-encompassing ChinandashPakistan FreeTrade Agreement (FTA)6 On its implementation on 1 January 2006 the moredetailed Early Harvest Programme abolished the earlier trade-only PTA7

The two countries quickly concluded the FTA in November 2006 which tookeffect in July 20078 In February 2009 the Agreement on Trade in Services was con-cluded in accordance with the policy framework set out in Article 83 of ChinandashPakistan FTA9 There is a strong perception that the establishment of a comprehen-sive ChinandashPakistan free trade area has brought more opportunities for businessenterprises of the two countries10 However a study conducted by the PakistanBusiness Council in 2013 concluded that despite great potential Pakistan has not yetachieved the full benefits from its FTA with China11 Although bilateral tradebetween China and Pakistan has shown rapid growth increasing from US $69

2 The text of the ChinandashPakistan Boundary Agreement was signed on 2 March 1963 The Agreement for-mally delimited boundary between Chinarsquos Sinkiang and Pakistanrsquos Kashmir

3 See the description of ChinandashPakistan Bilateral Relations on the official website of the Consulate-Generalof the Peoplersquos Republic of China in Karachi lthttpkarachichineseconsulateorgengzbgxt263901htmgt accessed 29 September 2015 For historical developments of the ChinandashPakistan traderelations see eg Samina Shabir and Reema Kazmi lsquoEconomic Effects of the Recently Signed Pak-ChinaFree Trade Agreementrsquo Special Edition (September 2007) Lahore J Economics 173 Xu Wang lsquoSino-Pakistan Economic and Trade Relations Status Quo and Challengesrsquo in Rong Wang and Cuiping Zhu(eds) Annual Report on the Development of International Relations in the Indian Ocean Region (2014)(Springer 2015) 97ndash130 See also Jafar Riaz Kataria and Anum Naveed lsquoPakistan-China Social andEconomic Relationsrsquo (2014) 29(2) South Asian Studies 395 Khawar Ghumman lsquoPML-N Puts All ItsMoUs in Chinese Basketrsquo The Dawn News (13 April 2015)

4 Shabir and Kazmi (n 3) 1765 Preferential Trade Arrangement between the Peoplersquos Republic of China and the Islamic Republic of

Pakistan 3 November 2003 See Wang (n 3) 1106 See Agreement on the Early Harvest Programme for the Free Trade Agreement between the

Government of the Peoplersquos Republic of China and the Government of the Islamic Republic of Pakistan(signed on 5 April 2005) (ChinandashPakistan Early Harvest Programme)

7 Ibid art 48 Free Trade Agreement between the Government of the Peoplersquos Republic of China and the Government

of the Islamic Republic of Pakistan (done at Islamabad on 24 November 2006 and entered into effect on1 July 2007) (ChinandashPakistan FTA)

9 Agreement on Trade in Services between the Government of the Peoplersquos Republic of China and theGovernment of the Islamic Republic of Pakistan (signed on 21 February 2009 and entered into force inOctober 2009)

10 See eg Wang (n 3) 118 Hamid Mahmood and Muhammad Sabir Trade Facilitation and ConnectivityPerspective from China-Pakistan Economic Corridor and Free Trade Agreement (FTA) Working PaperForum for Research in Empirical International Trade (27 September 2014)

11 Pakistan Business Council Preliminary Study on Pakistan and China Trade Partnership Post FTA TradeStudy (2013) lthttpwwwpbcorgpkassetspdf21-Oct_Pakistan_China_Trade_Study_2013pdfgtaccessed 29 September 2015 However this outcome of ChinandashPakistan FTA (n 8) is not exceptional as

2 Towards Greater Integration

billion in 2007 to US $16 billion in 2014 with an annual growth of about 153 percent12 Chinese imports from Pakistan are far less than its exports to Pakistan13

Negotiations on the second stage of implementation of the ChinandashPakistan FTA arecurrently in progress14

In July 2013 during Prime Minister Sharifrsquos first official visit to China the twocountries signed a memorandum of understanding on the ChinandashPakistan EconomicCorridor (CPEC) The CPEC is part of President Xirsquos Chinese Silk Road EconomicBelt (SREB) initiative with the eventual aim to enhance the connectivity of Pakistanand China with all regional countries in Asia and Central Asia The CPEC furtherstrengthens the two countriesrsquo friendship and aims at a major overhaul of infrastruc-ture including rail roads pipelines ports and fibre optic networks in a bid to easethe energy crisis and increase Chinese investments in Pakistan15 During PrimeMinister Sharifrsquos visit to Beijing in November 2014 Chinese companies and bankspledged US $456 billion in energy and infrastructure projects related to theCPEC16

The most important feature of the CPEC plan is that the pledged money will notbe a loan to Pakistan but rather pure investment through Chinese companies thatwill operate the projects as profit-making entities17 The Chinese government andstate-owned commercial banks will instead loan funds to Chinese companies thatwill invest in infrastructure projects in Pakistan as commercial ventures18 The SilkRoad Fund Company Limited (SRFCL) a fund management company includingthe China Exim Bank and the China Development Bank was established in China inDecember 2014 to extend investment and financing support to CPEC projects TheSRFCL had initial funds of US $10 billion which have now been raised to US $40billion According to Reuters there will be around US $338 billion investments invarious energy projects and US $118 billion in infrastructure projects19

This is a huge commitment by the Chinese government which provides a promis-ing opportunity for Pakistan to resolve its chronic energy shortage and develop itsfailing infrastructure There is no doubt that Chinese investments will acceleratePakistanrsquos growth20 In addition to serving Chinarsquos strategic and energy security

the same has also been the case with other FTAs See Kazim Alam lsquoPakistanrsquos FTAs Have Borne NoFruit So Farrsquo Express Tribune (10 August 2015)

12 Chinese Ministry of Commerce (MOFCOM) Fourth Meeting of the Negotiations in the Second Stage ofChina-Pakistan Free Trade Area Held in Beijing Press Release (8 April 2015)

13 Pakistan Business Council (n 11)14 MOFCOM (n 12)15 See eg Finance Minister Ishaq Darrsquos Keynote Address on Future of Pakistan Economy at Investment

Conference Islamabadrsquo (28 October 2014) lthttpwwwpakistanmission-unorginvestment_conferencepdfgt accessed 29 September 2015 Aarish U Khan lsquoPak-China Economic CorridorThe Hopes and Realityrsquo Spotlight Institute of Regional Studies (January 2015)

16 See eg lsquoChina Commits $456 Billion for Economic Corridor with Pakistanrsquo Reuters (21 November2014)

17 See eg lsquoChina Coming up with Investment Not Loans Asif (Khawaja Mohammad) Federal Minister forWater and Powerrsquo Express Tribune (10 September 2014)

18 Ibid19 lsquoChina Commits $456 Billionrsquo (n 16)20 See eg Shahid Yusuf Can Chinese FDI Accelerate Pakistanrsquos Growth Growth Dialogue George

Washington University Working Paper (February 2013)

Towards Greater Integration 3

interests these investments will benefit China in competing for the more profitableparts of the supply chains where Chinese companies will ultimately have to find newavenues for some of the low value-adding processing activities21 These new andexisting investments require an efficient legal framework The two countries con-cluded a bilateral investment treaty (BIT) in 198922 The ChinandashPakistan BIT is stillin force although the more recent ChinandashPakistan FTA has a comprehensivechapter on investment23 The existing bilateral legal framework for Chinese invest-ments in Pakistan is therefore composed of both of these treaties

The key question is this how should we map out the ChinandashPakistan investmentrelations historically as well as in the context of recent SREB and CPEC develop-ments The Indian perspective on the ChinandashPakistan relationship in which Indiahas openly opposed the CPEC considering it to be a strategic defence alliance tar-geted against India24 the existing menace of terrorism and its headways to Xinjiang-Uyghur separatism and more generally concerns over the rise of Chinese economicand political power from some corners of the globe have had much to say about theinvestment relations between China and Pakistan President Xirsquos SREB initiative istruly remarkable in this broader context and it is likely to bring positive social andeconomic change in the entire region The SREB has created a new wave of Chineseinvestments in the entire region and it will likely counter the existing problemsamong others of terrorism and separatism through economic development

In the context of the CPEC and the renewed Chinese commitment to boostinvestments in Pakistan this article primarily analyses the legal regime both nationaland bilateral of Chinese investments in Pakistan The first part gives a detailed analy-sis of the Chinese CPEC initiative in the broader SREB context This analysis isbroadly framed on the legal and policy orientations of the SREB as compared to theexisting regional integration models and global development strategies This partalso highlights some of the most important issues that require immediate attentionby both China and Pakistan for successful implementation of the CPEC specificallyas well as of the SREB generally The second part of the article gives a detaileddescription of the existing domestic legal regime in Pakistan for investment promo-tion and protection and its implications for Chinese investors and investments Thethird part analyses and compares the provisions of the FTA and the BIT that thetwo countries have concluded The objective is to inform the existing and futureChinese investors in Pakistan of their legal rights potential risks and available rem-edies in case of loss or harm to their investments caused by their host The fourthpart concludes the analysis confirming that although the SREB and the CPEC creategreat economic development opportunities in the region and reflect a move towards

21 Ibid22 Agreement between the Government of the Peoplersquos Republic of China and the Government of the

Islamic Republic of Pakistan on the Reciprocal Encouragement and Protection of Investment (signed on12 February 1989 entered into force on 3 September 1990) (ChinandashPakistan BIT)

23 ChinandashPakistan FTA (n 8) ch IX24 The Indian External Affairs Minister Sushma Swarajrsquos statement that Indian prime minister has strongly

opposed ChinandashPakistan Economic Corridor (CPEC) project during his meeting with President Xi isreported by all major media outlets in Pakistan See eg lsquoCPEC ldquounacceptablerdquo to India Modi Tells ChinarsquoGeo News (2 June 2015) See also Zafar Zulqurnain Sahi lsquoIndiarsquos Unhealthy Obsession with China-Pakistan Economic Corridorrsquo Express Tribune (2 June 2015)


much deeper economic integration various legal and policy orientations of theseprojects reveal serious challenges to vindicate the overall vision harnessing the visionwith intended objectives and enhancing the legitimacy of its implementation strat-egies There is a need for proactive solutions for the transnational problems that theCPEC and the SREB are going to generate

A N O V E R V I E W O F T H E S R E B I N I T I A T I V E T H E D A W N O F A N E W E R AO F R E G I O N A L E C O N O M I C I N T E G R A T I O N

Chinese strategists have been advocating that China should reach out to the westthrough Central Asia and to the greater Middle East through Pakistan25 PresidentXi seized the idea and announced the SREB initiative in various statements startingwith his speech in Kazakhstan in September 201326 In a later speech at theIndonesian Parliament in October 2013 he introduced the idea of the twenty-firstcentury Maritime Silk Road to promote maritime cooperation and also proposed theestablishment of the Asian Infrastructure Investment Bank27 In November 2013 theCentral Committee of the Communist Party of China set the facilitation and con-struction of the SREB and Maritime Silk Road as a primary milestone in pursuit ofits regional economic policy to accelerate the interconnection of infrastructureamong neighbouring countries28 In March 2014 Premier Li stressed the need toaccelerate the construction of the lsquoBelt and Roadrsquo in the governmentrsquos work report29

The report also promoted balanced development of the BangladeshndashChinandashIndiandashMyanmar Economic Corridor and the ChinandashPakistan Economic Corridor30

After authorization by the State Council in March 2015 the first more coherentand comprehensive vision and roadmap of the SREB has now emerged as an lsquoActionPlanrsquo issued by the National Development and Reform Commission in the Ministryof Foreign Affairs and Ministry of Commerce of the Peoplersquos Republic of China31

The Action Plan explains that the SREB lsquoaims to promote the connectivity of AsianEuropean and African continents and their adjacent seas establish and strengthenpartnerships among the countries along the Belt and Road set up all-dimensionalmulti-tiered and composite connectivity networks and realize diversified

25 See eg Wang Jisi lsquoMarching Westwardsrsquo The Rebalancing of Chinarsquos Geostrategyrsquo International andStrategic Studies Report Center for International and Strategic Studies No 73 (7 October 2012) For someanalysis of Wang Jisi see Andrew C Kuchins lsquoWhy Washington Needs to Integrate the New Silk Roadwith the Pivot to Asiarsquo (2013) 16 Asia Policy ltfirst pagegt

26 See eg lsquoChronology of Chinarsquos ldquoBelt and Roadrdquo Initiativesrsquo Xinhua (5 February 2015)27 Ibid In January 2014 21 Asian countries willing to join the Asian Infrastructure Investment Bank (AIIB)

as founding members signed the Memorandum of Understanding on Establishing AIIB As of 13 April2015 there are 47 Prospective Founding Members (PFM) and 10 countries have applied for PFM HongKong joins the delegation of China in the negotiations Belgium Canada and Ukraine are consideringjoining the AIIB Colombia Japan and the USA have no immediate intention to participate North Koreaand Taiwan were rejected by China to join as a PFM See lthttpaiibankorgyatouhang_02htmlgtaccessed 29 September 2015

28 lsquoChronology of Chinarsquos ldquoBelt and Roadrdquo Initiativesrsquo (n 26)29 Li Keqiang Report on the Work of the Government Delivered at the Second Session of the Twelfth National

Peoples Congress (5 March 2014) 1730 Ibid31 lsquoVision and Actions on Jointly Building Belt and Roadrsquo Xinhua (29 March 2015) lthttpwwwglobalti

mescncontent914373shtmlgt accessed 29 September 2015


oupspm7
Highlight
Please provide the first page number for the article in this footnote

independent balanced and sustainable development in these countriesrsquo32 The terri-torial reach of the SREB is explained as lsquobringing together China Central AsiaRussia and Europe (the Baltic) linking China with the Persian Gulf and theMediterranean Sea through Central Asia and West Asia and connecting China withSoutheast Asia South Asia and the Indian Oceanrsquo33 The Maritime Silk Road lsquoisdesigned to go from Chinarsquos coast to Europe through the South China Sea and theIndian Ocean in one route and from Chinarsquos coast through the South China Sea tothe South Pacific in the otherrsquo34

The detailed vision set out in the Action Plan is truly remarkable andunprecedented and will effectively transform the entire region both economicallyand socially The Chinese government has strived to bolster the legitimacy of thisvision in accordance with international law The Action Plan insists that the SREBinitiative is in line with the purposes and principles of the UN Charter as it upholdsthe five fundamental principles of international engagement namely respect for sov-ereignty and territorial integrity non-aggression non-interference in internal affairsequality and mutual benefit and peaceful coexistence35 The Action Plan explainsthat the SREBrsquos legal and functional modus operandi is based on the lsquomarket opera-tionrsquo The SREB lsquowill abide by market rules and international norms give play to thedecisive role of the market in resource allocation and the primary role of enterprisesand let the governments perform their due functionsrsquo36

There are two likely benefits of this modus operandi First the market-basedapproach is well suited for this sort of consortium where participating States havemany differences in their government systems social structures and legal ideolo-gies37 This approach is different from for example the European approach formembership and further expansion of the European Union (EU)38 The EUrsquosapproach is based on imposing political and social conditions for States willing tojoin the EU39 Although the lsquoEuropean valuesrsquo required from its prospective mem-bers are highly desirable for any State or society40 States in the SREB area do notnecessarily share the same political philosophy and are at different levels of theirvalue internalization processes41 Second the lsquotrade not aidrsquo approach is definitely a

32 Ibid33 Ibid34 Ibid35 Ibid36 Ibid37 See eg Imtiaz Gul lsquoPakistan China and the Economic Corridorrsquo Express Tribune (18 March 2015)38 The Treaty on the European Union [2012] OJ C326 art 49 (TEU) read with art 2 provides that any

European country may apply for membership if it respects the democratic values of the EU and is com-mitted to promoting them

39 Ibid40 TEU (n 39) art 2 reads lsquoThe Union is founded on the values of respect for human dignity freedom

democracy equality the rule of law and respect for human rights including the rights of persons belong-ing to minorities These values are common to the Member States in a society in which pluralism non-discrimination tolerance justice solidarity and equality between women and men prevailrsquo

41 Here I would like to direct the reader to my earlier work where in the context of lsquoAsian valuesrsquo I haveargued that countries that have likely followed the same path for value internalisation process may stillstand at different levels of economic and social development Therefore it is difficult to determine mini-mum value standards for the developing countries See Ahmad Ghouri lsquoDetermining Hierarchy between


more reliable long-term goal for regional development42 The US approach of devel-opment assistance for example43 has not worked to a satisfactory extent44 The USaid program has mainly addressed the strategic needs set by the US policy makersfor a given time and has not focused on long-term development goals45 Over thepast several decades Pakistan has received billions of dollars in development assis-tance from the USA but this has failed to achieve any substantial and long-term eco-nomic goals46

The Chinese vision of making long-term and commercially viable investmentsthrough commercial enterprises instead of advancing loans and aids will benefitboth China and recipient countries Instead of giving loans and aids to foreign gov-ernments which are susceptible to corruption and inefficiency47 China will loanfunds to its own companies to carry out the development goals set out in collabora-tion with the SREB partner countries This will increase the global competitivenessof Chinese companies stimulate growth in the SREB area and create wealth48 Asthe Action Plan suggests this action will lsquopromote mutually beneficial cooperation toa new high and in new formsrsquo49 which will surely reflect lsquonew models of internationalcooperation and global governancersquo to achieve the common ideals through economicand social development and inject new positive energy into world peace anddevelopment50

Chinese commentators have listed various reasons for their insistence on therevival of the SREB area Shuchun Wang and Qingsong Wan for example have

Conflicting Treaties Are There Vertical Rules in the Horizontal Systemrsquo (2012) 2(2) Asian J Intl Law235

42 See eg Tim Worstall lsquoTrade Not Aid Is What Improves Life in the Third Worldrsquo The Telegraph (22 May2012) Mustapha Nabli lsquoTrade Not Aid Is the Key to Developmentrsquo Daily Star (10 November 2005)Yoweri K Museveni lsquoWe Want Trade Not Aidrsquo Wall Street Journal (6 November 2003) For classicalviews on lsquotrade not aidrsquo see Covey T Oliver lsquoTrade Not Aid Myth or Realityrsquo (1971) 8(3) Houston LRev 458 AP Thirlwall lsquoWhen Is Trade More Valuable Than Aidrsquo (1976) 13(1) J Development Studies35 For a possible spill-over effect of the Chinese lsquotrade not aidrsquo strategy see Philip Hsiaopong Liu lsquoHowChinarsquos ldquoTrade Not Aidrdquo Strategy Became Construed As Charitable Help Deconstructing theldquoTouchingrdquo Idyll of Li Lirsquos Investment in Africarsquo (2011) 12(2) J Identity Culture and Politics An Afro-Asian Dialogue 1

43 For an overview of the US Aid program see Curt Tarnoff and Marian Leonardo Lawson Foreign Aid AnIntroduction to US Programs and Policy CRS Report for Congress (20 April 2012)

44 See eg Gorik Ooms lsquoStop Development Assistance Globalize Social Protectionrsquo (2010) 5(1) Yale J IntlAffairs 150

45 Eg the top recipients of US aid in 2012 were Israel Afghanistan Pakistan Iraq and Egypt Tarnoff andLawson (n 44) have noted that these countries of choice reflect lsquolong-standing aid commitments to Israeland Egypt and the strategic significance of Afghanistan Pakistan and Iraqrsquo These countries are definitelynot the poorest in the world deserving the highest attention and levels of aid from the USA stretchingbeyond its neighbourhood where countries such as Bolivia Colombia and Venezuela are touching uponthe highest levels of poverty in the world

46 S Akbar Zaidi Who Benefits from US Aid to Pakistan Carnegie Endowment for International PeacemdashPolicy Outlook (21 September 2011)

47 See eg Alberto Alesina and Beatrice Weder lsquoDo Corrupt Governments Receive Less Foreign Aidrsquo(2002) 92(4) Am Econ Rev 1126 Mike Patton lsquoForeign Aid Money Down A Rat Holersquo Forbes (28January 2013) Martyn Brown lsquoFury As Foreign Aid Goes to Top 10 Most Corrupt Nationsrsquo Express (24April 2015)

48 See eg Yusuf (n 21) 6ndash749 lsquoVision and Actions on Jointly Building Belt and Roadrsquo (n 32)50 Ibid


explained a mix of economic and political reasons for the SREB project51 They viewthe SREB as the Chinese response to the 2008 economic crisis in which China ishoping to develop regional economic cooperation with all of its neighbouring coun-tries in order to re-ignite economic growth52 Unfortunately however the trade andinvestment debate surrounding the SREB coincides with growing global power poli-tics and regional security challenges53 The SREB initiative is already viewed as ablueprint for Chinarsquos strategy to become a comprehensive global power54 The grow-ing Chinese power has incited researchers to draw parallels between Chinese and USpolitical and economic interests55

The regional security issues arising from the situation in the South China Seahave been viewed as a pretext for the USA to use the situation to its own advantageby persuading its allies and partners in the region to form a Trans-Pacific Partnership(TPP)56 The Chinese SREB initiative is commonly perceived as a response to theTPP which will open new trade routes reducing Chinarsquos dependence on the SouthChina Sea57 Although there is a serious view that China and the USA are competingfor strategic advantage in the region58 there is a more convincing broader prospecton the lsquocommon narrativersquo between the two59 Kevin Rudd a former two-time primeminister of Australia led a study on the possibilities and impacts of a new ChinandashUSstrategic relationship and concluded that although the two countries have recentlydiverged on many aspects of their foreign policy a common strategic framework forChinandashUS relations would offer many advantages60 The promotion of a ChinandashUS

51 Shuchun Wang and Qingsong Wan lsquoThe Silk Road Economic Belt and The EEU Rivals or Partnersrsquo(2014) 15 (3) Central Asia and the Caucasus Journal of Social and Political Studies lthttpwwwca-corgonline2014journal_engcac-0301shtmlgt accessed 29 September 2015

52 Ibid53 In his 2015 State of the Union address President Obama stated lsquoBut as we speak China wants to write

the rules for the worldrsquos fastest-growing region That would put our workers and our businesses at a dis-advantage Why would we let that happen We should write those rules We should level the playing fieldThatrsquos why Irsquom asking both parties to give me trade promotion authority to protect American workerswith strong new trade deals from Asia to Europe that arenrsquot just free but are also fair Itrsquos the right thingto dorsquo See eg Roger C Altman and Richard N Haass lsquoWhy the Trans-Pacific Partnership Mattersrsquo NewYork Times (3 April 2015)

54 See eg Xue Li and Xu Yanzhou lsquoHow China Can Perfect Its ldquoSilk Roadrdquo Strategy The Challenges FacingChinarsquos Silk Road Strategymdashand How to Overcome Themrsquo The Diplomat (9 April 2015)

55 See eg John P Tuman and Shirali Majid lsquoThe Political Economy of Chinese Foreign Direct Investmentin Developing Areasrsquo (2015) Foreign Policy Analysis lthttponlinelibrarywileycomdoi101111fpa12092abstractgt accessed 29 September 2015

56 The Trans-Pacific Partnership (TTP) is a US led regional trade and investment liberalization and regula-tory treaty As of 2014 12 countries throughout the Asia-Pacific region have participated in negotiationson the TPP namely Australia Brunei Canada Chile Japan Malaysia Mexico New Zealand PeruSingapore the United States and Vietnam Negotiations were originally meant to conclude in 2012 butcontentious issues such as agriculture intellectual property services and investments caused significantroadblocks October 5 2015 the US Secretary of State John Kerry announced the conclusion of negotia-tion however the official text of the treaty is yet to be released

57 Wang and Wan (n 53)58 See eg Simon Denyer lsquoChina Promotes ldquoAsia-Pacific Dreamrdquo to Counter US PivotrsquoWashington Post

(11 November 2014)59 See eg Kevin Rudd The Future of US-China Relations under Xi Jinping Toward a New Framework of

Constructive Realism for a Common Purpose Summary Report US-China 21 Belfer Center for Scienceand International Affairs Harvard Kennedy School (April 2015)

60 Ibid


common strategic framework will give confidence to the SREB participating coun-tries that currently feel they have been placed in a position where they need to picksides with either China or the USA

What the SREB means for Pakistan is considerably different from other participat-ing countries not only strategically but also legally Xue Li and Xu Yanzhou haveidentified four categories of the SREB area countries (i) small- and medium-sizedcountries (ii) countries that have territorial disputes with China (iii) countries thatare sub-regional powers and (iv) countries that could potentially act as lsquopivot Statesrsquo(meaning they are reliable partners for China and reach a certain threshold ofnational power)61 According to Li and Yanzhou countries in this last group are thekey to Chinese SREB strategy62 In my view Pakistan is likely to be part of the groupof pivot States keeping in view the close defence and economic ties between the twocountries Traditionally ChinandashPakistan relations have been viewed in the context oftheir shared history of rivalry with India63 The deep rooted defence and strategicties between the two nations do not suggest otherwise particularly given that Indiahas previously tested its military muscles against both nations This joint strategicdefence aspect of ChinandashPakistan relations is repeatedly voiced by India Recentlyfor example India expressed concerns over Chinese investment to build GwadarPort which is located in Balochistan province of Pakistan and form an integral partChinarsquos Maritime Silk Road64 suggesting that the Gwadar Port will be used byChina for military purposes despite both China and Pakistan insisting that the proj-ect is purely commercial65 However despite some existing scepticism many com-mentators view Chinese trade and investment agreements with its neighbouringnations as primarily driven by geopolitical concerns where such agreements aremeant to demonstrate that the rise of China will be a peaceful one66

There is more to say about the ChinandashPakistan relationship than the Indian con-text especially when China is gradually normalizing its relations with India and trying

61 Li and Yanzhou (n 56)62 Li and Yanzhou have identified four categories of Silk Road Economic Belt (SREB) area countries small-

and medium-sized countries countries that have territorial disputes with China countries that aresub-regional powers and countries that could potentially act as lsquopivot statesrsquo (meaning they are reliablepartners for China and reach a certain threshold of national power) According to Li and Yanzhou coun-tries in this last group are the key to Chinese SREB strategy See Li and Yanzhou (n 56) In my viewPakistan is likely to be part of the pivot states group keeping in view the close defence and economic tiesbetween the two countries

63 See eg Asifa Jahangir Pakistan-China Strategic Partnership Challenges and Prospects Changing Dynamics inPak-China Bilateral Relations after 911 (Lap Lambert Academic Publishing 2013)

64 lsquoVision and Actions on Jointly Building Belt and Roadrsquo (n 32) On the Maritime Silk Road see egZiangqian Gong lsquoBuilding of the New Maritime Silk Road Its Constraints and Prospectsrsquo (2014) 7(1)Journal of East Asia amp Intl L 235

65 See eg Ziad Haider lsquoBaluchis Beijing and Pakistanrsquos Gwadar Portrsquo (2005) 6(1) Georgetown J Intl Affairs95

66 See eg Axel Berger Investment Rules in Chinese Preferential Trade and Investment Agreements Is ChinaFollowing the Global Trend towards Comprehensive Agreements Discussion Paper German DevelopmentInstitute (July 2013) Barry Buzan lsquoChina in International Society Is ldquoPeaceful Riserdquo Possiblersquo (2010)3(1) Chinese J Intl Politics 5 Zheng Bijian lsquoChinarsquos ldquoPeaceful Riserdquo to Great-Power Statusrsquo ForeignAffairs (October 2005)


to form a more balanced policy regarding these two neighbours67 The evolvingBRICS (Brazil Russia India China and South Africa) consortium is an examplewhere the five participating countries have concluded an agreement establishing theNew Development Bank (NDB)68 In 2003 China and India established a jointstudy group to examine the potential for economic engagement between the twocountries In October 2007 the joint task force finalized its report on the feasibilityof a ChinandashIndia Regional Trading Arrangement (RTA)69 Compared to PakistanChinarsquos trade and investment relationship with India has not grown as rapidly Thepace of the ChinandashIndia RTA negotiations has been slow although the two countriesconcluded a BIT in 200770 which they agreed to apply retrospectively to coverinvestments made before and after its coming into force71 There is no doubt thatshades of shared historical rivalry with India are present in the ChinandashPakistanrelationship and that China has realized that its economic prospects are tied to bothof these nations72 During his visit to India in September 2014 President Xiannounced US $20 billion of investments in Indiarsquos infrastructure over five years73

Nevertheless the Indian context in the ChinandashPakistan relationship gives interestinginsights and some of the Indian concerns regarding the CPEC may also be legiti-mate In order to successfully implement the SREB Action Plan both China andPakistan need to devise a collective strategy to address these concerns

Pakistan still enjoys a special place in the SREB as Chinese Foreign MinisterWang Yi observed lsquoIf comparing this ldquoOne Belt and One Roadrdquo initiative to a sym-phony that is participated by all countries and produces benefits to all participantsthen China-Pakistan Economic Corridor is the glorious melody in the chapter one ofthis symphonyrsquo74 Ejaz Hussain Zhang Yuan and Ghulam Ali have observed that theCPEC is not only a land or rail connectivity passage between the two countries butit is indeed a comprehensive concept that encompasses economic and strategic inte-gration between the two countries in the long run75 In spite of the economic andgeopolitical importance of the CPEC for the two nations and for the overall successof the SREB a number of issues surround this project Aarish Khan for example hashighlighted that the security situation in Pakistan political unrest administrative

67 Eg China has gradually distanced itself from the ongoing Kashmir issue saying that it is a bilateral disputebetween Pakistan and India requiring a bilateral solution For an overview of Chinarsquos changing positionson the Kashmir issue see John W Garver lsquoChinarsquos Kashmir Policiesrsquo (2004) 3(1) India Review 1 See alsoSheikh M Arif lsquoA History of Sino-Indian Relations From Conflict to Cooperationrsquo (2013) 1(4) Intl JPolitical Science amp Development 129

68 See lsquoSixth Brics Summit Fortaleza Declaration 15 July 2014rsquo (2014) 20(3) Law amp Business Rev of theAmericas 483

69 See MOFCOM China FTA Network ChinandashIndia Regional Trade Arrangement Joint Feasibility Study(2007)

70 Agreement between the Government of the Republic of India and the Government of the PeoplersquosRepublic of China for the Promotion and Protection of Investments done on 21 November 2006entered into force 1 August 2007 (ChinandashIndia BIT)

71 Chinandash-India BIT (n 72) art 2 lsquoScope of the Agreementrsquo72 See eg Andrew Small The China-Pakistan Axis Asiarsquos New Geopolitics (Oxford University Press 2015)73 See eg Harsh V Pant lsquoWhy Xi Jinpingrsquos Visit to India Is Significantrsquo BBC (16 September 2014)74 lsquoChinese FM China-Pakistan Brotherhood Will Never Go Rustyrsquo Xinhua (13 February 2015)75 Ejaz Hussain Zhang Yuan and Dr Ghulam Ali lsquoChina-Pakistan Economic Corridorrsquo Daily Times (4 April

2015)


issues and the skill level of the Pakistani workforce are going to pose major chal-lenges for implementation of the CPEC76 However on a broader legal and policylevel the following challenges will face the CPEC and the SREB projects in the com-ing years

TransparencyGiven the overwhelming importance of the CPEC for the people of both countriesboth governments have been repeatedly blamed for a lack of transparency in theirdealings The CPEC includes US $59 billion for road projects and US $37 billionfor railway projects along with a multi-billion dollars worth of coal wind solar andhydro energy projects but both governments have been reluctant to disclose themaps for the roads and the railways to be built77 There is a degree of dissatisfactionin Pakistan over the Sharif governmentrsquos handling of the controversy related to theoriginal route and the changes made by the government to favour personal or politi-cal interests instead of real development and public interests78 Husain for examplehas lamented that the existing secrecy over the CPEC has turned it into a labyrinth79

Transparency will bring legitimacy for the CPEC which includes not only roads butalso a variety of social infrastructure in Balochistan and other areas aligned with thecorridor80 Commentators from Pakistan have noted that transparency would ensurethat the conversation between China and Pakistan remains focused on the countryrsquosnational interests as opposed to the parochial interests of a few81 Likewise IreneChan has criticized China for not having effectively opened its grand connectivityideas for public discussion in the SREB countries in order to generate feedback anddevise better understanding of the regional needs82 The continuous lack of transpar-ency and open public discussion is likely to increase the publicrsquos existing mistrust inthe projects

Fair distribution of benefitsThe ChinandashPakistan economic exchange should be transformed by distributive jus-tice so that the poor remain the priority83 The fair distribution of the benefits withinsociety of the returns of improved trade and foreign investment are by no meansautomatically assured84 For example studies from Latin American countries haveshown that increased trade has not resulted in lsquototal developmentrsquo of their societieswhich is the only kind that really counts and includes social and civic developmentmodern innovation and improvement as well as purely economic growth85

76 Kahn (n 16) 1677 Khurram Husain lsquoAnalysis China-Pakistan Corridor or Labyrinthrsquo The Dawn News (18 February 2015)78 See eg Khawar Ghumman lsquoEconomists Call for More Transparency on Corridor Projectsrsquo Dawn News

(20 April 2015)79 Husain (n 79)80 See eg Gul (n 38)81 See eg lsquoCorridor Furorersquo Dawn News (Editorial) (5 February 2015)82 Irene Chan lsquoChinarsquos Maritime Silk Road The Politics of Routesrsquo RSIS Commentary No 051 (12 March

2015)83 Hussain Yuan and Ali (n 77)84 Oliver (n 43) 46185 Ibid


Although a regional market is a great initiative the primary basis for developmentrests in an increased exchange of goods and services within the economy itself86

Senge Sering for example has observed that despite the existence of PTAs FTAsand Early Harvest Programmes local populations along the existing ChinandashPakistanroad links such as the Karakoram Corridor have failed to derive the expected bene-fits87 The SREB Action Plan is based on lsquomarket operationrsquo and it assigns primaryrole to enterprises88 In regard to governance the Action Plan merely states lsquoLet thegovernments perform their due functionsrsquo89 Although the Action Plan states that theSREB is a lsquosystematic projectrsquo and aims to lsquointegrate the development strategiesrsquo ofthe SREB area countries the absence of a detailed vision on total developmentin the mainstream SREB agenda is worrying If the rules of development are notaimed at achieving total development the legitimacy of the system will be cast indoubt

Implementation of labour standardsThe rubrics of the CPEC are gradually emerging although there is no concise policystatement or detailed action plan announced by either government For example astatement on the official website of Pakistan Ministry of Planning Development andReform reads lsquoCPEC will integrate all provincial capitals into the economic meshwhich would help in consolidation at national level and it will also contribute toregional integration harmony and economic developmentrsquo90 The Pakistan Board ofInvestment has released a document on President Xirsquos visit which sheds some lighton the governmentrsquos vision as to how the CPEC will help local populations91 Thebasic idea appears to be that special economic zones (SEZs) will be establishedalongside the CPEC which will create jobs and contribute to the socio-economicdevelopment in the SEZs areas92 The Special Economic Zones Act 2012 (SEZsAct) was promulgated to facilitate the development of industrial infrastructure inPakistan through public-private partnership and also by private developers alone93

This law provides many business incentives including allowing for the duty-freeimport of machinery and equipment for developers and enterprises established inSEZs94

Some SEZs already exist in Pakistan95 and the overall SEZs policy looks positiveA study spanning 30 years of global SEZs practice has revealed the positive impactsof SEZs on a countryrsquos economy but it has criticized the poor working conditionsexploitation of women workers and poor implementation of environmental

86 Ibid87 Senge H Sering Expansion of the Karakoram Corridor Implications and Prospects IDSA Occasional Paper

No 27 (September 2012) 2088 lsquoVision and Actions on Jointly Building Belt and Roadrsquo (n 32)89 Ibid90 See CPEC lthttpwwwpcgovpkgt accessed 29 September 201591 The undated document of 56 pages is entitled lsquoPakndashChina Economic Corridorrsquo (on file with the author)92 Ibid93 Special Economic Zones Act (No XX) of 2012 (SEZs Act)94 Ibid ss 34ndash795 Eg in Khairpur Korangi Creek and Bin Qasim


standards in the SEZs96 The SEZs Act provides for the application of all existinglabour laws to the SEZs97 however no special provisions have been made for theenforcement of those laws in the SEZs specifically In view of the existing poorimplementation records generally the SEZs Act could have suggested a special moni-toring and enforcement mechanism of labour standards in SEZs The SEZs lawappears to have created everything special for the business communitymdashfrom specialland registration to tax regimesmdashsilence on the labour and environment standards isdisquieting and harmful for the overall legitimacy of the CPEC

New models of global governanceAccording to the Action Plan the SREB is an endeavour to lsquoseek new models ofinternational cooperation and global governancersquo which is intended to lsquoinject newpositive energy into world peace and developmentrsquo98 Before the SREB initiativeChina had mainly used bilateral arrangements to invest in other countries Theseinvestments have so far been mainly executed by State-owned corporations whichaccording to Javier Solana do not often adhere to international best practices99 Theemphasis on new models of global governance in the SREB Action Plan clearly indi-cates that China is now moving towards replacing bilateral arrangements with multi-lateral processes Although China must have a greater role in global governancecommensurate to its economic success it must also ensure that its corporationsmeet international standards of corporate governance and social responsibility

There is no compelling evidence of wrongdoing by Chinese companies abroadhowever absence of corporate governance and social responsibility agendas in theactions plan will attract criticism For example Andrew Kuchins has contended thatsince Chinese companies are unconstrained by legislation such as the US ForeignCorrupt Practices Act of 1977 or shareholder reporting they lsquowill continue to linethe pockets of local regional and national officials in Central Asia to strengthen theiraccess to the regionrsquos mineral and hydrocarbon resources and will build more transitinfrastructure to ship these goods to the Chinese marketrsquo100 Although President Xirsquoscrackdown on corruption and his recent lsquofour comprehensivesrsquo send strong signals tothe world that he seriously means to solve the menace of corruption at home101

there is more to be done to ensure best practices by Chinese companies abroad inorder to both develop goodwill and prevent future malpractices

This is particularly important when dealing with countries such as Pakistan whichranks among the most corrupt countries in the world102 Since most of the Chinesebusiness with Pakistan is based on the lsquotrade-not-aidrsquo model and the Pakistani

96 See World Bank Group Special Economic Zones Performance Lessons Learned and Implications for ZoneDevelopment (April 2008)

97 SEZs Act (n 95) s 3098 lsquoVision and Actions on Jointly Building Belt and Roadrsquo (n 32)99 Javier Solana lsquoChina and Global Governancersquo Project Syndicate (30 March 2015)

100 Kuchins (n 26)101 See eg Zheng Yongnian lsquoChina Needs a Strong Leader Like Ximdashbut the Rule of Law Like Singaporersquo

World Post (19 April 2015)102 See eg Ram Mashru lsquoPakistan As Corrupt As Ever Pakistanrsquos Corruption Problem Remains Serious

and a Major Impediment to Good Governancersquo The Diplomat (8 January 2014)


government will not have direct access to the funds which is usually the case withforeign aid103 Chinese legislation targeting foreign corrupt practices of both individ-uals and companies will be a welcome step It is encouraging that the SREB ActionPlan requires Chinese companies to take social responsibility in protecting local bio-diversity and eco-environment since there is a lot more that can be done to enhancethe legitimacy of the SREB initiative Domestic legislation in China to mitigate theproblems of a transnational nature such as laws remedying foreign torts includingenvironmental labour and human rights protection clauses in the new free tradeand investment agreements should also be considered to ensure the rule of law inChinese business abroad

Legal transformationChina is using a huge cache of its foreign exchange reserves to fund investmentsabroad which will strategically disperse its industries in line with its changing domes-tic comparative advantage and enable it to acquire overseas assets104 In responsecountries such as Pakistan are depending heavily on Chinese investments for growthand development105 However there is an increasing worry of over-domination byChina in its neighbouring economies in the pretext of investments For exampleKuchins has noted that increasing Chinese domination of the Mongolian economyhas stirred the Parliament in Ulaanbaatar to pass legislation requiring prior legislativeapproval of foreign investments over US $70 million106 In contrast when morecountries strive to make their investment environment more attractive to a wider setof bidders the government of Pakistan has facilitated this action by handing overdevelopment projects to Chinese companies and bypassing the internationalcompetitive bidding process107 Although ChinandashPakistan relations are based onlong-standing mutual trust both China and Pakistan should ensure that large-scaleChinese investments in Pakistan are aimed at improving governance ensuringtransparent and effective rule of law and strengthening property rights If this is notdone Chinarsquos economic presence is likely to be viewed as a dominating device in thelonger run which may push the SREB partners away If Chinese foreign investmentsare not aligned with these objectives reviving the network of regional transitcorridors may not achieve its potential

The Chinese government needs to pay careful attention to these concerns inorder to forge the broader legitimacy of the SREB and the CPEC projects and tomake them a realistic and efficient tool for sustainable development in the region Asis clear from the above discussions these concerns may not be applicable to all

103 See eg Azeem Ibrahim US Aid to Pakistan US Taxpayers Have Funded Pakistani Corruption BelferCenter Discussion Paper no 2009-06 International Security Program Harvard Kennedy School (July2009)

104 See eg Yusuf (n 21) 10105 See eg Khawar Ghumman lsquoPML-N Puts All Its MoUs in Chinese Basketrsquo The Dawn News (13 April

2015)106 Kuchins (n 26)107 See eg Khaleeq Kiani lsquoChinese Firms to Get Contracts for Two CPEC Projectsrsquo Dawn News (13 August

2015) Iftikhar Alam lsquoRules Being Bypassed to Facilitate China Investmentrsquo The Nation (26 August2014)


SREB partners in the same way and may require a pragmatic approach dependingupon the internal political and legal conditions in a SREB partner State However aclear and coherent statement of policy on these issues by the Chinese governmentis required to mitigate potential damage in the execution of the SREB ActionPlan Such policy will not only legitimize the overall SREB vision but will alsoharness the vision with intended objectives and will initiate a new era of regionaldevelopment

L E G A L F R A M E W O R K F O R C H I N E S E I N V E S T M E N T S I N P A K I S T A NChina has recently made several changes in its outward investment policy clearlyindicating a shift towards the industrialized country approach of free movement ofinvestment capital108 This shift is illustrated by the actions undertaken by the rele-vant bodies to implement the governmentrsquos lsquogo-globalrsquo policy109 For example theState Administration of Foreign Exchange (SAFE) lifted restrictions on the amountof foreign exchange that is available annually to domestic investorsrsquo outbound invest-ments and announced in 2009 that Chinese firms can seek financing from multiplesources The Ministry of Commerce simplified and shortened the approval proce-dures in 2009 and the National Development Reform Commission reiterated in2011 its desire to decentralize the outward investment approval decision process110

In addition to increasing the Chinese companiesrsquo share in the global marketplacethese regulatory changes will facilitate the implementation of the CPEC and otherSREB projects

Over three hundred Chinese companies are actively doing business in Pakistanand the existing volume of Chinese investments in Pakistan is about US $1 billion111

Chinese investments in Pakistan have flowed in multiple sectors and have taken sev-eral forms Chinese private companies for example have entered Pakistan throughthe compulsory licensing regime put in place in Pakistan for a particular sector (forexample in the telecom sector China Mobile Pakistan or Zong) and through jointventures with local business partners for consumer products business (for examplejoint venture of the Haier Group and the Ruba Group Hair Pakistan) The invest-ments of Chinese State-owned companies in Pakistan have ranged from jointdefence productions (for example joint production of military jets)112 to miningand infrastructure development113 Most of the infrastructure development projects

108 See eg Peter J Buckley Foreign Direct Investment China and the World Economy (Palgrave Macmillan2009) For the evolution of different patterns of Chinese outward investments see Nargiza SalidjanovalsquoGoing Out An Overview of Chinarsquos Outward Foreign Direct Investmentrsquo USCC Staff Research Report(30 March 2011) 4ndash5

109 See eg Duncan Freeman Chinarsquos Outward Investment Institutions Constraints and Challenges BICCSAsia Paper no 7(4) (12 May 2013)

110 Ibid111 See eg Danial Khan lsquoWorking Together to Strengthen China-Pakistan Relationsrsquo lthttp

wwwcctvcomgt accessed 29 September 2015112 See eg Syed Fazl-e-Haider lsquoPakistan and China Prove Powerful Combination in Aviationrsquo The National

(25 November 2013)113 See eg Kataria and Naveed (n 3) 404ndash8 For an overview of outward investments by Chinese State-

owned companies see Freemann (n 112)


are conducted through build operate and transfer (BOT) arrangements114 There isno existing research showing different levels of Chinese investment in Pakistan divid-ing the volumes of investment between private companies and Chinese State-ownedcompanies The trend is mixed but clearly a majority of Chinese investments inPakistan are made by State-owned companies

The volume of Chinese investments in Pakistan is going to increase tremendouslyfollowing the implementation of the CPEC The stakes are high with multiple legaland policy implications for these investments concerning both countries Althoughinvestments in Pakistan made by some Chinese State-owned companies may havestrategic ambitions these investments will be financed by the Chinese State-ownedbanks and are expected to make profits just like other commercial enterprises115

According to Li and Yanzhou an unprofitable investment made by a Chinese State-owned company which turns into a bad debt is a serious violation of the Chineseprinciples of foreign exchange reserves management116 The longer-term commit-ments usually required in the BOT arrangements for infrastructure and energy-related projects are always susceptible to an array of challenges and a pre-definedand concrete legal framework is necessary to cushion against political and policy tur-moil Although Pakistanrsquos friendship with China has been perhaps the only consis-tent element in the countryrsquos foreign policy throughout its history a solid domesticregime on foreign investment governance is imperative to satisfy both the legitimacy(that is through proper implementation of domestic validating rules and procedures)and success (that is through the proper definition and allocation of rights andresponsibilities) of foreign investments

Additionally the two countries have special arrangements to facilitate the flow ofinvestments A company named the PakistanndashChina Investment Company Limited(PCICL) was established as a development finance institution (DFI) for the promo-tion of trade investment and economic growth of Pakistan117 The PCICL wasincorporated in Pakistan as a non-banking finance company (NBFC)118 with anauthorized capital of US $200 million and was formally launched in December 2007The company is a joint venture with equal equity contribution by the Governmentof Pakistan (GOP) and the China Development Bank (CDB) which is a ChineseState-owned bank The main objective of the PCICL is to invest in the financial sec-tor and infrastructure projects119 According to the information provided on its offi-cial website the PCICL aims to become a hub for investment activity and add valueto sectors such as industry agriculture services information and technology manu-facturing real estate and infrastructure The PCICL also aims to offer conventionaland innovative solutions to investors and projects through a full range of investment

114 See eg Syed Irfan Raza lsquoBids Invited for Pak-China Economic Corridor Projectrsquo Dawn News (24December 2014) For detailed analysis of the government administrative procedures for build operateand transfer (BOT) contracts in Pakistan see S Mubin and A Ghaffar lsquoBOT Contracts Applicability inPakistan for Infrastructure Developmentrsquo (2008) 3 Pakistan J Engineering amp Applied Sciences 33

115 Salidjanova (n 111) 6116 Li and Yanzhou (n 56)117 See lthttpswwwpakchinainvestcomgt accessed 29 September 2015118 See Companies Ordinance (No XLVII) of 1984 ss 282 A and 282 B Non-Banking Finance Companies

(Establishment and Regulation) Rules 2003119 PakistanndashChina Investment Company Limited (PCICL) Financial Statement (2013) 6


banking services The CPEC-related projects that are based on joint venturesbetween Chinese and Pakistani companies can be conveniently financed through thePCICL120

In view of its particular character and mandate the PCICL will operate as a spe-cial vehiclemdashthat is a DFImdashto transport Chinese investments in Pakistan Howeverthere are potential legal uncertainties with regard to the joint venture DFIs Theinternational practice is that DFIs are based in the country where the investmentsare coming from rather than in the country where the investments are being madeand are tied to the interest of home country firms121 The joint venture structure ofthe PCICL is entirely different both legally and operationally from the investorsrsquohome country-based DFIs122 Perhaps the idea behind joint venture DFIs is to makethem more bilateral rather than home country driven A few other bilateral DFIsexist in Pakistan which are also established as joint ventures between the GOP andother friendly countries123 Although these joint venture companies are dubbed asDFIs the term DFI is not defined in Pakistani law Essentially the PCICL remainsan NBFC incorporated under Pakistani company law124 From the international lawperspective the PCICL kind of DFIs would likely be classified as foreign investmentscovered under a typical bilateral investment treaty Since the PCICL has been cre-ated with equal equity contribution by the GOP and the CBD it is unclear if theCPEC projects will also be financed through the same arrangements

Overall Pakistan has a relatively open foreign investment regime125 The PakistanBoard of Investment (BOI) announced a fairly detailed foreign investment policy in2013126 With an attractive taxation regime and financial exchange and remittanceregulations Pakistan is one of the most favourable regulatory regimes for foreigninvestors The existing laws on the protection of property are also fairly comprehen-sive and balanced The right to own property is established in the Constitution ofPakistan127 Although there is no constitutional maximum limit to property owner-ship the Constitution authorizes Parliament to place limits upon ownership128 Inregard to the protection of property rights Article 24 of the Constitution provides

bull No person shall be deprived of his property save in accordance with law

120 See eg Khaleeq Kiani lsquoPak-China Investment Company to Be Revivedrsquo Dawn News (6 September2014)

121 Christian Kingombe Isabella Massa and Dirk Willem te Velde Overseas Development InstituteComparing Development Finance Institutions Literature Review (20 January 2011) ix

122 Ibid123 A list of development financial investments (DFIs) is available at lthttpwwwsbporgpkecibmem

bershtmgt accessed 29 September 2015124 State Bank of Pakistan Financial Stability Review (2007ndash8) 181125 Shahid Yousaf Can Chinese FDI Accelerate Pakistanrsquos Growth Growth Dialogue George Washington

University Working Paper (February 2013)126 The policy can be found on the Pakistan Board of Investment (BOI) website lthttpboigovpk

Homeaspxgt accessed 29 September 2015 (Pakistan Investment Policy 2013)127 Constitution of Pakistan 1973 (as modified up to 28 February 2012) arts 22 and 23 It may be noted

that art 22 which gives the right to own property is limited to citizens only whereas art 23 which dealswith the protection of property rights has general application

128 Constitution of Pakistan (n 130) art 253


bull No property shall be compulsorily acquired or taken possession of save for a pub-

lic purpose and save by the authority of law which provides for compensation

therefor and either fixes the amount of compensation or specifies the principles on

and the manner in which compensation is to be determined and given

Article 24(3) of the Constitution further provides a fairly reasonable list of publicpurposes that may give rise to the taking of property Article 173 of the Constitutionspecifically empowers the executive authorities of the federal and provincial govern-ments to acquire properties within their respective territories However Article24(4) states that the adequacy of compensation paid on the expropriation by govern-ments cannot be called in question in any court in Pakistan This may be viewed as aviolation of due process of law However the law specifically dealing with the protec-tion of foreign investmentsmdashthat is Foreign Private Investment (Promotion ampProtection) Act 1976 (FPIA)mdashprovides rules on the calculation of compensation129

This law is applicable to lsquoforeign private investmentrsquo covering investments made ingoods and services130 The law provides that foreign investment shall not be acquiredexcept under the due process of law131 and also states the following three elementsof the due process of law132

bull payment of adequate compensation

bull in the currency of the country of origin of investors and

bull specification of the principles on and the manner in which compensation is to be

determined and given

The FPIA also provides for the protection of agreements between a foreign investor orcreditor and any person in Pakistan in the event that the government decides to takeover or acquire a foreign investment in the publicrsquos interest133 The law further prohib-its discrimination against foreign investments and accords them no less favourabletreatment in the application of laws rules and regulations generally134 and particularlyrequires equal treatment of foreign and national investors for taxation purposes135

These provisions cover both contractual and regulatory matters The law also clarifiesthat its provisions are not in derogation of protection to foreign investment under aBIT136 therefore any additional or more stringent protections offered to foreigninvestors under a BIT would override the provisions of this law

The Protection of Economic Reforms Act of 1992 (PERA) safeguards foreign-owned industrial or commercial property against acquisition by the government137

129 Foreign Private Investment (Promotion and Protection) Act (No XLII) of 1976 (FPIA)130 Ibid s 2131 Ibid s 5 para 2132 Ibid133 FPIA (n 132) s 5 para 1134 Ibid s 9 See also Pakistan Investment Policy 2013 (n 129) para 312 15135 FPIA (n 132) s 8136 Ibid s 1137 Protection of Economic Reforms Act (No XII) of 1992 s 8 (PERA)


This law also legitimizes the privatization process and prohibits the retaking ofprivatized property or enterprise lsquofor any reason whatsoeverrsquo138 Additionally PERApreserves financial obligations incurred by the government with respect to privatizedindustries or enterprises139 It would be fair to conclude that these laws create a levelplaying field between foreign investors and local competitors at the post-entry stageand meet the international law standards of treatment of foreign investmentsHowever since no Pakistani court has yet deliberate on these laws it is uncertain ifthe courts will interpret these provisions in accordance with international law

One issue with these two laws is that neither of them provides procedures fortheir judicial enforcement and dispute resolution Article 199 of the Constitution ofPakistan would fill this gap which empowers the High Courts to entertain casesconcerning the infringement of legal rights140 An act in violation of law by govern-ment officials can be remedied by the High Courts where no other appropriate rem-edy is provided by law However despite fairly stringent provisions of the FPIA orPERA no foreign investor has so far approached the Pakistani High Courts allegingviolation of their rights under these laws although cases brought at internationalarbitration by foreign investors include claims of expropriation against the GOP141

Whereas at least one foreign investor has also claimed before an international arbi-tration tribunal that the GOP has accorded less favourable treatment compared tolocal and other international investors142

Although the Pakistan BOI publicizes that foreign investments are protected bythe 1976 and 1992 laws143 it is not surprising that foreign investors have not yetbrought legal actions in Pakistani courts on the bases of these laws and have insteadpreferred to bring BIT claims before supra-national arbitration tribunals Pakistanicourts have a poor reputation and an atrocious record when it comes to the enforce-ment of foreign investorsrsquo rights144 In addition to making good laws in accordancewith international standards there is a need to build trust in the Pakistan legal sys-tem in order to attract more foreign investments Adequate enforcement mecha-nisms and a concrete strategy of Pakistani courts from a clear line of decided caseswould boost investor confidence In particular this would attract medium- andsmall-size investors who would not be willing or able to take their disputes to costlyinternational arbitration

138 Ibid s 7139 Ibid s 10140 Constitution of Pakistan 1973 (n 130) art 199141 See eg Bayindir Insaat Turizm Ticaret Ve Sanayi AS v Islamic Republic of Pakistan ICSID Case No ARB

0329 Final Award (27 August 2009) paras 97(iv) 113 115 395 424ndash39 (Bayindir) Impregilo SpA vIslamic Republic of Pakistan ICSID Case No ARB033 Decision on Jurisdiction (22 April 2005) paras34(4) 55 56 272 and 274 SGS Societe Generale de Surveillance SA v Islamic Republic of Pakistan ICSIDCase No ARB0113 Decision of the Tribunal on Objections to Jurisdiction (6 August 2003) para 35Tethyan Copper Company Pty Limited v Islamic Republic of Pakistan ICSID Case No ARB121Decision on Claimantrsquos Request for Provisional Measures (13 December 2012) paras 52 64

142 Bayindir (n 144) paras 97(iii) 149 386ndash90143 Pakistan Investment Policy 2013 (n 129) paras 311 312 15144 See eg Ikram Ullah lsquoReko Diq Case Another Intervention from Supreme Court of Pakistanrsquo (2014)

17(6) Intl Arbitration L Rev 61 Umer Akram Chaudhry lsquoPakistani Court Interference in ArbitrationProceedingsmdashYet Againrsquo Kluwer Arbitration Blog (27 February 2012)


Arbitration as we know has become a popular system for the resolution of dis-putes between commercial parties as well disputes between commercial parties andgovernment bodies Even disputes arising from within a business enterprise such asemployment and labour disputes145 and ownerndashparticipant disputes146 are nowincreasingly decided through arbitration In Pakistan arbitration in such lsquointra-enterprise disputesrsquo is possible147 but there are only a few existing examples148 Thisis mainly because the arbitration law in Pakistan has not kept pace with the needs ofthe business community There is no formal institution in Pakistan to provide admin-istrative support to arbitrate intra-enterprise or enterprise-to-enterprise disputes Anarbitration institute was proposed in 2009 but the proposal could not pass the legis-lative process149

The current arbitration law in Pakistan dates from 1940150 which prescribes rulesfor arbitration with or without the intervention of a court151 The 1940 law appliesto both domestic and international commercial arbitrations however the rules todistinguish between these two types of arbitrations are problematic152 The law alsoallows a degree of uncertainty regarding the enforcement of foreign arbitration agree-ments and awards153 In 2010 a new item was inserted in the legislative list of theConstitution of Pakistan authorizing the Pakistani federal government to make lawson international treaties and international arbitration154 The difficulties regardingthe enforcement of international commercial arbitration agreements and awards arenow almost certainly resolved by the Recognition and Enforcement (ArbitrationAgreements and Foreign Arbitral Awards) Act 2011 which implements the NewYork Convention in Pakistan155 Some recent cases decided by Pakistani courtsunder this new law also suggest that courts are now willing to enforce foreign arbitra-tion agreements between private parties more aptly than before156

Pakistani law does not distinguish between purely private disputes and public-private disputes However courts are very sensitive to this distinction and are shy of

145 See eg Jean R Sternlight lsquoCreeping Mandatory Arbitration Is It Justrsquo (2004) 57 Stanford L Rev 1631Christopher Bovis lsquoLabor Arbitration As an Industrial Relations Dispute Settlement Procedure inWorld Labor Marketsrsquo (1994) 45(3) Labor L J 147

146 Hal S Scott and Leslie N Silverman lsquoStockholder Adoption of Mandatory Individual Arbitration forStockholder Disputesrsquo (2013) 36 Harvard J L amp Public Policy 1187 lsquoNotes Arbitration As a Means ofSettling Disputes within Close Corporationsrsquo (1963) 63(2) Columbia L Rev 267

147 See Companies Ordinance (n 121) part IX148 For trends in arbitration on labour related disputes see Riffat Bawa and Waqar Hashmi lsquoLabor

Unionization in Pakistan History and Trendsrsquo (2010) 2(2) Pakistaniaat A Journal of Pakistan Studies78 81

149 See Arbitration Bill 2009 Part V For some analysis of the Arbitration Bill see Ahmad Ghouri Law andPractice of International Arbitration and Enforcement of Foreign Arbitral Awards in Pakistan (Springer2012) 3ndash4

150 Arbitration Act (No X) of 1940151 Ghouri (n 152) 5-6152 Ibid 11ndash19153 Ibid154 Constitution of Pakistan 1973 (n 130) Fourth Schedule part I item 32155 Ghouri (n 152) 39ndash42 Convention on Recognition and Enforcement of Foreign Arbitral Awards 7

ILM 1046 (1968)156 Ibid See also Fal Oil Company Ltd v Pakistan State Oil Company Ltd 2014 Pakistan Legal Decisions

(Sindh) 427 Abdullah v Messrs CNAN Group SPA 2014 Pakistan Legal Decisions (Sindh) 349


enforcing arbitration agreements between private parties and government bodies157

Although Pakistan has also implemented the International Convention for the Settle-ment of Investment Disputes (ICSID Convention) through domestic legislation158

courts have struggled to distinguish the international investment arbitration frominternational commercial arbitration159 Recently a few commercial arbitrationawards rendered by ad hoc tribunals composed of local arbitrators have beenreported in Pakistan160 The new law on SEZs which will have direct implicationsfor the execution of the CPEC and the SREB policy agendas also makes provisionsfor arbitration as an alternate system for dispute resolution161 In the absence of anestablished institute to provide dispute resolution and arbitration services growth ofdomestic commercial arbitration as a suitable alternative to litigation will remain dor-mant Since the CPEC has brought the two countries closer than ever it would bepertinent to establish a ChinandashPakistan arbitration centre at the roundabouts of theCPEC to serve the existing and future needs of the business community

With regard to the protection of intellectual property (IP) Pakistan became partyto the World Trade Organizationrsquos (WTO) Agreement on Trade-RelatedIntellectual Property Rights (TRIPs Agreement) on 1 January 1995162 The corre-sponding domestic legislation at that time was outdated163 The first copyright lawswere enacted in 1962164 but recent legislation on patents trademarks and the layoutdesigns of integrated circuits and registered designs have comprehensively updatedthe Pakistani IP regime165 The Intellectual Property Organization (IPO) of Pakistanwas created in 2005166 and is tasked with the integrated management of all types ofintellectual property and enforcement coordination167 Now Pakistan has a fairlymodern intellectual property regime but there are still issues related to efficientenforcement The 2012 IPO legislation has facilitated the establishment of special

157 This is evident from the consolidated judgment of the Pakistan Supreme Court in several cases filedagainst and by Tethyan in Pakistani courts on the Rico Diq mining licence dispute The consolidatedjudgement and detailed decision was reported as Maulana Abdul Haque Baloch v Government ofBalochistan 2013 Pakistan Legal Decisions (Supreme Court) 641 See also (2012) Supreme CourtMonthly Review 402

158 Arbitration (International Investment Disputes) Act (No IX) of 2011 For some analysis of this Act seeGhouri (n 152) 44ndash7

159 Lakhra Power Generation Company Limited (LPGCL) v Karadeniz Powership Kaya Bey 2014 CorporateLaw Decisions (Sindh) 337

160 See eg Wi-Tribe Limited v Telecard Limited Award of 7 January 2010 2010 Corporate Law Decision 500(Justice (R) Saiduzzaman Siddiqui Chairman Justice (R) Nasir Aslam Zahid and Justice (R) GHMalik)

161 SEZs Act (n 95) s 39162 Agreement on Trade Related Intellectual Property Rights 1869 UNTS 299 (1994)163 The regime was based on the Patent Act of 1911 and the Trademarks Act of 1940 which Pakistan inher-

ited from the British India164 Copyright Ordinance (No XXXIV) of 1962165 Patents Ordinance of 2000 Trade Marks Ordinance of 2001 Registered Layout-Designs of Integrated

Circuits Ordinance of 2000 Registered Designs Ordinance of 2000166 An Ordinance to Provide for the Establishment of the Intellectual Property Organization of Pakistan

(No XXI) of 2005 Subsequently the Intellectual Property Organization of Pakistan Act of 2012167 Intellectual Property Organization of Pakistan Act (n 169) s 13


Intellectual Property Tribunals with the power for trial and prosecution of offencesbut the Tribunals are yet to be established168

The Pakistani domestic legal regime for foreign investments is based on both con-stitutional guarantees and statutory protections These legal provisions are fairlyextensive and cover all of the important aspects of foreign investment includingstandards of treatment and payment of compensation for expropriation ThePakistani government is keen to attract foreign investments and has put in placegood incentives for investors This existing combination of a legal and policy frame-work provides strong foundations for the implementation of the CPEC projects andother investments by Chinese companies The PCICL can provide an institutionalbase and financial conduit for joint ventures between Chinese companies andPakistani counterparts However certain weaknesses exist such as poor enforcementof legal rights by Pakistani courts and the absence of an arbitration institution to pro-vide an alternative dispute resolution mechanism to formal litigation in courts

C H I N A ndash P A K I S T A N B I L A T E R A L I N V E S T M E N T R E G I M EPakistan has a good network of BITs in place and 47 of them are currently inforce169 Pakistanrsquos BIT regime began in the 1950s and in fact the first-ever con-temporary BIT was signed between Pakistan and Germany in 1959170 Recentlyhowever Pakistan has taken a cautious approach in signing BITs For examplePakistan has refused to sign a BIT with the USA although the USA is so far the larg-est investor in Pakistan171 The Board of Investment Ordinance 2001 has mandatedthe Pakistan BOI to negotiate and conclude BITs172 The BOI has so far signed fouragreements and is also developing its own model BIT in order to modernizePakistanrsquos BIT regime173

The ChinandashPakistan BIT was signed in 1989 and came into force in September1990174 Article 13 of the BIT provides that it can be terminated after 10 years fromthe date of coming into force by either contracting party with a notice to the otherparty and the termination will take effect one year after service of notice of termina-tion by either party Since no notice of termination has been served the BIT remainsin force The ChinandashPakistan FTA175 which has been in force since July 2007 alsoincludes a comprehensive chapter on investments176 Since both the BIT and FTA

168 Ibid ss 15ndash19169 Pakistan Investment Policy 2013 (n 129) para 313 15170 See eg Ahmad Ghouri and Nida Mahmood lsquoDeciphering Pakistanrsquos Foreign Investment Policy A

Review of Pakistani BITsrsquo (2012) 13 J World Investment amp Trade 812171 Office of the United States Trade Representative Executive Office of the President United States

Pakistan Begin Bilateral Investment Treaty Negotiations Press Statement (28 September 2004) See egShahbaz Rana lsquoWhy (Not) So Serious US Keen to Revive Bilateral Investment Treatyrsquo Express Tribune(1 August 2013) Mehtab Haider lsquoPakistan Refuses to Accept US Model on Investment Treatyrsquo TheNews (13 March 2015) lsquoPakistan Rejects US Draft of Investment Treatyrsquo Pakistan Today (13 March2015)

172 Board of Investment Ordinance of 2001 s 9173 Amin Ahmed lsquoNew Bilateral Investment Treaty Modelrsquo The Dawn News (2 March 2015)174 ChinandashPakistan BIT (n 23)175 ChinandashPakistan FTA (n 8)176 Ibid ch IX


are simultaneously in force the overlap of their respective provisions creates a degreeof anxiety regarding the convergences and divergences of the standards of protectionavailable to investors under both instruments It is also important to note that theFTA has no retrospective application177 and investments entered before its entryinto force are likely to be governed by the BIT provisions178 Likewise investmentsmade after the entry into force of the FTA can be governed by the FTA the BIT oreither of them subject to the fulfilment of the respective criteria set out in these twotreaties

When both the FTA and the BIT deal with the same subject matter (that isinvestments although the FTA also deals with trade) it would be appropriate tocompare their respective provisions in order to attain a clearer view of the standardsof investment protection provided by the two instruments The comparison will alsoreveal if the FTA has enlarged or restricted the scope of BIT provisionsAdditionally Article 31 of the Vienna Convention on the Law of Treaties requiresevery treaty and each treaty clause to be interpreted in accordance with its ordinarymeaning to be given to the terms of the treaty in their context and in the light of itsobject and purpose179 It is therefore important to discuss the particular languageused in different clauses of both the BIT and the FTA and its implications for invest-ors and their investments This will help the Chinese and Pakistani investors seekingto rely on these treaties to better understand their rights and reducing the risk ofinvestment disputes

The ChinandashPakistan BIT follows a standard format The preamble sets forth theprimary objectives as lsquoto encourage protect and create favourable conditions forinvestments by investorsrsquo moving between party states This language is differentfrom some other BITs for example when their preambles associate the need to pro-mote and protect foreign investments lsquowith the aim to foster the economic prosper-ityrsquo of contracting sates180 This latter type of objectives can possibly mean that inorder for an investment to be protected under a BIT it must have contributed to thedevelopment of the host State InvestorndashState arbitration tribunals have interpretedthis kind of BIT preamble in conjunction with the preamble to the ICSIDConvention to apply this threshold for the protected investment under BITs181

However given the various type of language used in BIT preambles and due to the

177 Ibid art 81178 There is a degree of uncertainty surrounding the issue if under VCLT (n 182) art 59 a new treaty deal-

ing with the same subject matter between the same parties impliedly terminates the earlier treaty or theparties required to specifically give notice of termination of the earlier treaty under VCLT art 65However international courts and tribunals have rejected the view of implied termination of treaties andclarified that a notice of termination is a compulsory requirement See Ahmad Ghouri Interaction andConflict of Treaties in Investment Arbitration (Kluwer Law International 2015) 164ndash8

179 Vienna Convention on the Law of Treaties 1155 UNTS 331 (1969) (VCLT)180 Agreement between the Swiss Confederation and the Republic of Uzbekistan on the Promotion and

Reciprocal Protection of Investments (signed on 16 April 1993 entered into force on 05 November1993) See also Romak SA v The Republic of Uzbekistan UNCITRAL ndash PCA Case No AA280 Award26 November 2009) para 181

181 See my analysis on this in Ghouri (n 181) 141ndash3 The most famous investorndashState reported cases thatapplied this threshold are Salini Costruttori SpA and Italstrade SpA v Morocco ICSID Case No ARB004 Decision on Jurisdiction (23 July 2001) and Malaysian Historical Salvors Sdn Bhd v Malaysia ICSIDCase No ARB0510 Award on Jurisdiction (17 May 2007) (Malaysian Historical Salvors)


imprecise meaning of the concept of lsquocontribution to the host statersquos developmentrsquothis requirement for protected investments has remained controversial182

The ChinandashPakistan FTA has more detailed objectives listed in its preambleincluding the following

[T]his Agreement should be implemented with a view toward raising the stand-ard of living creating new job opportunities and promoting sustainable develop-ment in a manner consistent with environmental protection and conservation183

This preamble statement clearly lists the objectives in plain and neat language stat-ing precisely what the contracting parties intend to achieve through the implementa-tion of the FTA Although as will be discussed in more detail below the FTAdefines the term investment broadly as lsquoevery kind of assetrsquo184 this broad definitionshould be interpreted in light of the general objectives set forth in the preamble Inpractice this could mean that any conceivable investment in financial or businessterms made by Chinese investors in Pakistan or vice versa will not amount to pro-tected investment within the meaning of the FTA unless it meets the specific objec-tive conditions listed in the preamble

Both the BIT and the FTA define lsquoinvestmentrsquo as lsquoevery kind of assetrsquo invested asinvestment in accordance with the laws and regulations of the contracting parties185

For the purposes of clarity both instruments provide a near identical non-exclusivelist as examples of possible investments including moveable and immoveable prop-erty shares and other form of interest in companies claims to money or performanceintellectual property rights and government concessions186 These definitions effec-tively cover both direct and portfolio investments However the BIT and the FTAtake different approaches to define the term lsquoinvestorrsquo The BIT gives two differentdefinitions for Chinese and Pakistani investors A Pakistani investor includes anylsquophysical personrsquo who is a national of Pakistan or a company incorporated in PakistanWhereas a Chinese investor can be any lsquonatural personrsquo who is Chinese national orlsquoeconomic entitiesrsquo established in China having Chinese domicile187

This is an interesting distinction For example the PCICL which was discussedabove may be treated as neither a natural person who is a Chinese citizen nor aneconomic entity established and domiciled in China and may not amount to aninvestor according to this definition However given their wider definitions of theterm lsquoinvestmentrsquo the PCICL is likely to qualify as an investment under both theBIT and the FTA In terms of the application of protections to both investors and

182 Eg the Malaysian Historical Salvors (n 184) The Award of Jurisdiction was subsequently annulled by anad hoc Annulment Committee See Malaysian Historical Salvors Sdn Bhd v Malaysia ICSID Case NoARB0510 Decision on the Application for Annulment (16 April 2009) See also Victor Pey Casado etFondation lsquoPresidente Allendersquo c Republique du Chili ICSID Case No ARB982 Sentence arbitrale (8May 2008) Omar E Garcıa-Bolıvar lsquoDefining an ICSID Investment Why Economic DevelopmentShould be the Core Elementrsquo Investment Treaty News (13 April 2012)

183 ChinandashPakistan FTA (n 8) preamble para 5184 Ibid art 46185 ChinandashPakistan BIT (n 23) art 1(a) ChinandashPakistan FTA (n 8) art 46(1)186 ChinandashPakistan BIT (n 23) art 1(a) IndashV ChinandashPakistan FTA (n 8) art 46 (1) (a) to (e)187 ChinandashPakistan BIT (n 23) art 1(b)


investments the FTA clearly states that its protections apply equally to both invest-ments and investors188 This is different from the BITrsquos approach which states thatlsquoinvestments and activities associated with investments of investorsrsquo are protected189

The BITrsquos distinction between Chinese and Pakistani investors appears to beunnecessary and misleading and the FTA eliminates this distinction by providingonly one definition for investors belonging to both countries The FTA definesinvestors as both lsquonatural personsrsquo who are citizens and lsquolegal entitiesrsquo constitutedand have seats in a contracting party This is a simple and better approach whichcovers all forms of business enterprises

Both the BIT and the FTA subject the admission of investment by party States totheir respective laws and regulations190 This necessarily means that all CPEC proj-ects will have to go through the domestic validation procedures If no specific valida-tion procedures are required by Pakistani law for a particular type of investment atthe time of its entry the validity of investment will be judged in view of its conform-ity with local laws191 An interesting comparison can be made between the defini-tions of investor and investment in the BIT and the FTA with that found in theFPIA The FPIA conflates the terms investors and investment and instead of defin-ing investor it uses the term lsquoforeign capitalrsquo denoting it as an investment made by aforeigner in an lsquoindustrial undertakingrsquo in Pakistan

bull in the form of foreign exchange imported machinery and equipment or

bull in any other form which the Federal Government lsquomay approve for the purposersquo192

The law defines lsquoforeign private investmentrsquo as an lsquoinvestment in foreign capital by aperson who is not a citizen of Pakistan or who being a citizen of Pakistan is also thecitizen of any other country or by a company incorporated outside Pakistan but doesnot include investment by a foreign Government or agency of foreign Governmentrsquo193

It is clear that the law does not extend its protections to investors and protects onlyinvestments The law further limits the lsquoindustrial undertakingsrsquo to such establishmentsengaged in the production of goods or services or extractive business lsquoas may be speci-fied in this behalf by the Federal Governmentrsquo194 The obvious limitation with lsquoas maybe specifiedrsquo and lsquomay approve for the purposersquo is that the law does not cover invest-ments that have not been specified and approved by the federal government This isperhaps the reason why Pakistan did not set forth any domestic laws or regulationsproviding for a specific definition of investment in the Bayindir case195 These provi-sions of the FPIA should be amended to align them with the investment treaties

188 ChinandashPakistan FTA (n 8) art 47(2)189 ChinandashPakistan BIT (n 23) art 3(1)190 Ibid art 2 ChinandashPakistan (n 8) art 47(1)191 Bayindir (n 144) paras 109 31192 FPIA (n 132) art 2(a)193 Ibid art 2(b)194 Ibid art 2(c)195 Bayindir (n 144) paras 108 31 It is noteworthy that although several investment treaty claims have

been brought against Pakistan Bayindir is the only case in which a detailed and publicly available finalaward has been rendered by an investorndashState arbitration tribunal


In term of protections the BIT requires lsquoequitable treatmentrsquo and lsquoprotection inthe territory of other contracting partyrsquo196 This is not the language usually used inmost contemporary BITs which require lsquofair and equitable treatmentrsquo (FET) andlsquofull protection and securityrsquo197 The basic idea of FET is to bring the application oflsquogood faithrsquo and lsquorule of lawrsquo to the investorndashState relationship198 FET also works asan overarching principle to fill any gaps left by specific standards of protection setout by particular treaty clauses199 The different factors that emerge from decisionsof investment tribunals as forming part of the FET standard comprise the obligationto act transparently and grant due process to refrain from taking arbitrary or discrim-inatory measures from exercising coercion or from frustrating the investorrsquos reason-able expectations with respect to the legal framework affecting the investment200

The use of lsquoequitable treatmentrsquo instead of lsquofair and equitable treatmentrsquo merelyreflects the evolutionary phase through which the standard has passed201 and theapplication of lsquoequitable treatmentrsquo without the prefix of lsquofairrsquo may bring the sameresults as FET because fairness is always a precondition in any legal relationship

Similarly the omission of the prefix lsquofullrsquo and the post-fix lsquoand securityrsquo is likely tobe of lesser significance because the lsquofull protection and securityrsquo standard by itselfdoes not place a state under an obligation to provide absolute protection202

However the FTA uses the fuller expression lsquofair and equitable treatmentrsquo203 andrequires lsquoconstant protection of and securityrsquo for both investors and investments204

The word lsquoconstantrsquo in place of lsquofullrsquo for the protection and security is sensiblebecause the addition of lsquofullrsquo does not obligate contracting parties to provide absoluteprotection205 whereas consistency of the applicable protection should be a necessarycondition

The BIT does not have the lsquonational treatmentrsquo provision which is meant to cre-ate a level playing field between the Chinese investors and local competitors TheBITrsquos lsquono less favourablersquo treatment provision is limited to the most-favoured-nation(MFN) treatment which ensures level playing field between investors from the BITparties and investors coming from third states206 The lsquono less favourablersquo standardgenerally requires a host State at the time of implementation of its rules and regula-tions to (i) place foreign investors in a comparable setting as local competitors (ii)treat them as favourably as the local competitors and (iii) if treatment of the foreign

196 ChinandashPakistan BIT (n 23) art 3(1)197 See eg Rudolf Dolzer and Christoph Schreuer Principles of International Investment Law

(2nd edn Oxford University Press 2012) 130ndash2198 Ibid 132ndash4199 Ibid200 Bayindir (n 144) paras 178 50201 See eg Fair and Equitable Treatment (1999) UN Publication Sales No E99IID15 UNCTADITE

IIT11 (Vol III) 29ndash31202 Dolzer and Schreuer (n 201) 161203 ChinandashPakistan FTA (n 8) art 48(1)204 Ibid art 47(2)205 See eg AAPL v Sri Lanka ICSID Case No ARB873 Award (27 June 1990) para 48 Wena Hotels Ltd

v Arab Republic of Egypt ICSID Case No ARB984 Award (8 December 2000) para 84206 ChinandashPakistan BIT (n 23) art 3(2) See eg Noah Rubins and N Stephan Kinsella International

Investment Political Risk and Dispute Resolution A Practitionerrsquos Guide (Oceana Publications 2005)225ndash6


investor is less favourable than that of local competitors justify as to why the foreigninvestor has been given the different treatment207 The FTA however covers bothnational treatment and MFN treatment208 Since both national treatment and MFNtreatment standards require a comparison between a claimant foreign investor andanother local or foreign investor investorndashState arbitration tribunals assess whetherthe claimant was in a lsquosimilar situationrsquo to that of other investors209 Once a claimhas passed the lsquosimilar situationrsquo test tribunals then inquire whether the claimantinvestor was granted less favourable treatment than other investors210 Claimantinvestor has the responsibility to identify appropriate comparators who were in asimilar situation and also the burden to prove that the host State treated those com-parators more favourably211

Both the BIT and the FTA have the so-called Regional Economic IntegrationOrganization (REIO) exception to the MFN treatment212 The REIO exception inboth treaties cover customs unions free trade zones and special taxation regimes213

The FTA includes an additional REIO exception for small-scale trade in borderareas214 The existence of an REIO depends on many factors such as mere politicalcommitments or formal and legally binding obligations to dismantle market accessobstacles for investors or investments coming from states forming part of anREIO215 The exact characteristics of an REIO are not fully established but it con-notes a multilateral consortium with some kind of institutional setup216 The practi-cal effect of an REIO exception to MFN treatment in an investment treaty (a BIT oran investment chapter in a bilateral FTA) is that any investment concessions or otherfavourable treatment allowed by party States to investors or investments comingfrom their REIO partners will not be available as comparators to prove violation ofMFN treatment under the investment treaty

Both the BIT and the FTA include provisions on expropriation217 Although theFTArsquos expropriation clause has used a negative construction in comparison to theBIT (that is lsquo[n]either Party shall expropriatersquo in the FTA as compared to lsquo[e]itherContracting Party may expropriatersquo in the BIT) the conditions imposed forexpropriation in both the BIT and the FTA are the same218 These conditions are inline with the international rules and allow expropriation only on the bases of publicinterest under domestic legal procedures without discrimination and on payment

207 Dolzer and Schreuer (n 201) 199208 ChinandashPakistan FTA (n 8) art 48 clauses (2) and (3)209 Bayindir (n 144) paras 389 114210 Ibid paras 390 114211 Ibid paras 419 122212 ChinandashPakistan BIT (n 23) art 3(3) ChinandashPakistan FTA (n 8) art 48(4) On Regional Economic

Integration Organization (REIO) clauses see eg lsquoThe REIO Exception in MFN Treatment ClausesrsquoUNCTAD Series on International Investment Policies for Development United Nations (New Yorkand Geneva 2004)

213 ChinandashPakistan BIT (n 23) art 3(3) ChinandashPakistan FTA (n 8) art 48(4)214 ChinandashPakistan FTA (n 8) art 48 (4)(c)215 See lsquoThe REIO Exception in MFN Treatment Clausesrsquo (n 216) 11216 Ibid217 ChinandashPakistan BIT (n 23) art 4 ChinandashPakistan FTA (n 8) art 49218 ChinandashPakistan BIT (n 23) art 4 ChinandashPakistan FTA (n 8) art 49


of compensation219 Instead of the requirement of lsquoprompt adequate and effectiversquocompensation220 the BIT requires calculation of compensation in accordance withthe laws of host State paid in convertible currencies and without unreasonabledelay221 The FTA uses slightly different language and requires the compensation tobe made lsquowithout delay be effectively realisable and freely transferablersquo222

However where the BIT requires the calculation of compensation in accordancewith the laws of host State the FTA provides that the value of an expropriated prop-erty lsquoshall be determined in accordance with the generally recognised principles ofvaluationrsquo223 Since there is no single method for valuation of claims in internationalinvestment law this FTA provision may produce unexpected outcomes224 The FTAfurther provides that compensation shall be equivalent to the value of expropriatedinvestments immediately before the expropriation or when the impending expropria-tion becomes public knowledge whichever is earlier225 This compensation does notcover the loss of the business opportunity and future profits In case of delay in thepayment of compensation the FTA requires payment of interest lsquoat a normal com-mercial ratersquo for the period between expropriation and the actual payment of com-pensation226 It goes without saying that the reference to the lsquonormal commercialratersquo for the calculation of interest on unpaid compensation is susceptible to morethan one interpretation

Pertinent to the BITrsquos provision that compensation will be calculated in accord-ance with the laws of the host State the BIT has required unsatisfied investors tomove the competent domestic court of the host State to review whether the amountof compensation is in accordance with the applicable domestic laws227 There is noequivalent provision in the FTA Both the BIT and the FTA have a force majeureclause228 Both force majeure clauses are identical and cover loss arising from warstate of emergency insurrection and riots however the clause in the FTA clarifiesthat it applies to both investors and their investments and requires as opposed toonly MFN treatment in the BIT both national and MFN treatment in regard to res-titution indemnification compensation and other settlement229 Similarly both theBIT and the FTA have near identical clauses on the free transfer of fund guaran-tee230 however the provision in the FTA extends this guarantee to the

219 ChinandashPakistan BIT (n 23) art 4 ChinandashPakistan FTA (n 8) art 49 See eg Andrew Newcombe andLluıs Paradell Law and Practice of Investment Treaties Standards of Treatment (Kluwer Law International2009) 369ndash77

220 See eg Peter D Isakoff lsquoDefining the Scope of Indirect Expropriation for International Investmentsrsquo(2013) 3(2) Global Business Law Revw 189 191

221 ChinandashPakistan BIT (n 23) art 4(2)222 ChinandashPakistan FTA (n 8) art 49(2)223 Ibid art 49(2)224 Eg if the compensation will be calculated on the bases on discounted cash flow fairfull market value

andor will include future lost profits225 ChinandashPakistan FTA (n 8) art 49(2)226 Ibid art 49 (2)227 ChinandashPakistan BIT (n 23) art 4(3)228 Ibid art 4(4) ChinandashPakistan FTA (n 8) art 50229 ChinandashPakistan FTA (n 8) art 50230 ChinandashPakistan BIT (n 23) art 5 ChinandashPakistan FTA (n 8) art 51


compensation paid to an investor against expropriation or force majeure231 Both theBIT and the FTA have subrogation clauses by which the rights and claims of invest-ors can be assigned to and exercised by their respective home states or a designatedagency232

Both treaties have provisions on the settlement of disputes between the partyStates as well as between an investor and a party State In both treaties the firstmeans for dispute resolution between party States is consultation through diplomaticchannels233 If consultations fail to resolve the dispute within six months disputesbetween party States will be resolved through an ad hoc arbitration tribunal consist-ing of three members where each party will appoint one arbitrator and the twoappointed arbitrators will appoint the third arbitrator who will preside over the tribu-nal234 The ad hoc tribunal shall decide the dispute in accordance with the provisionsof the respective treaties (the BIT or the FTA) and principles of international lawrecognized by both parties235 The requirement of principles of international lawlsquorecognized by both partiesrsquo is very subjective and can create friction in the absenceof specific criteria to determine if a principle is recognized by both parties This kindof subjective provision is likely to allow an arbitration tribunal to exercise value judg-ment in determining the application of applicable principles of international law andmay serve as a tool for balancing private rights against the publicrsquos interest and thehost Statersquos right to regulate The tribunal shall reach its award on the basis of amajority vote and this award will be final and binding upon the parties236

The investorndashState dispute resolution provision in the BIT has a very narrowscope237 It is restricted to disputes involving the amount of compensation for expro-priation and does not cover any other violations of the standards of treatment pro-vided in the BIT An investor can file a complaint with a competent authority of theexpropriating State to challenge the amount of compensation paid for expropriationIf such a complaint is not resolved within a year the investor can take the dispute tothe competent domestic court of the host State or to an international arbitral tribu-nal238 The BIT does not provide any details on the formation and procedures of theinternational arbitral tribunal or the law such a tribunal will apply

As compared to the BIT the FTA contains a more detailed clause on investorndashState dispute resolution239 The FTA extends the application of the investorndashStatedispute resolution provision to lsquoany legal disputersquo that is lsquoin connection with aninvestmentrsquo240 The first step for dispute resolution is negotiations between disputingparties and if negotiations do not resolve the dispute within six months the investorcan choose to take the dispute to the domestic court of the host State or to

231 ChinandashPakistan FTA (n 8) art 51(2)232 ChinandashPakistan BIT (n 23) art 7 ChinandashPakistan FTA (n 8) art 52233 ChinandashPakistan BIT (n 23) art 9(1) ChinandashPakistan FTA (n 8) art 53(1)234 ChinandashPakistan BIT (n 23) art 9 ChinandashPakistan FTA (n 8) art 53235 ChinandashPakistan BIT (n 23) art 9(5) ChinandashPakistan FTA (n 8) art 53(5)236 ChinandashPakistan BIT (n 23) art 9(5) ChinandashPakistan FTA (n 8) art 53(6)237 ChinandashPakistan BIT (n 23) art 10238 Ibid239 ChinandashPakistan FTA (n 8) art 54240 Ibid art 54(1)


International Centre for Settlement of Investment Disputes (ICSID)241 The choiceof ICSID is subject to any domestic administrative review procedures specified bythe laws and regulations of the host State242 The FTA further provides that oncethe investor has submitted the dispute to the competent domestic court of the hostState or to ICSID the choice of the forum shall be final243 This is an interesting pro-vision as typical investorndashState dispute resolution provisions in investment treatiesallow parallel proceedings before domestic courts of host States and internationalarbitration244 By limiting the investorsrsquo choice to only one of these at a time theFTA has effectively pre-empted possible conflicting outcomes from the two separatedecision-making bodies The choice of ICSID in the FTA as the only forum for inter-national arbitration appears to be unnecessarily restrictive However since there isno similar arbitration centre present in the region ICSID appears to be the only sen-sible option

The FTA further requires that the arbitration award shall be based on the domes-tic law of the host State including rules on the conflict of laws the provisions of theFTA and the lsquouniversally accepted principles of international lawrsquo245 The applicationof universally accepted principles of international law is meant to ensure that theinvestorsrsquo rights are protected in accordance with the most civilized standards oftreatment that exist in international law although they may not have formed part ofthe FTA or have not been legislated domestically by the party States This is also insharp contrast with the earlier-mentioned BITrsquos requirement of principles of interna-tional law recognized by party States Although what would be universally acceptableprinciples of international law is also highly subjective it reflects a move away fromthe individual or regional notions of international law principles and towards themain stream universalism

The FTA also contains an lsquoumbrella clausersquo requiring contracting States toobserve the commitments they have made with investors of the other party in regardto their investments246 This provision serves to bring independent contracts madeby a party State with investors from another party State under the umbrella of theFTArsquos protections A breach of such contract will be treated as a breach of the FTAallowing investors to use the dispute resolution provisions of the FTA

The combination of the FTA and the BIT provide the most modern and compre-hensive bilateral regime for the protection of Chinese investments in Pakistan The

241 Ibid art 54(2)242 Ibid art 54(2) (b)243 Ibid art 54244 See eg Agreement between the Government of the Australia and the Government of the Islamic

Republic of Pakistan on the Reciprocal Encouragement and Protection of Investment (entered intoforce on 14 October 1998) arts 13 and 14 Agreement between the Government of the UnitedKingdom and the Government of the Islamic Republic of Pakistan on the Reciprocal Encouragementand Protection of Investment (entered into force on 30 November 1994) art 8 The FTArsquos restriction iscomparable with the investorndashState dispute resolution provision in the Pakistanndash-Japan BIT which doesnot allow investors to initiate international arbitration until the final judicial settlement of dispute bydomestic court of the host state See Agreement between the Government of Japan and theGovernment of the Islamic Republic of Pakistan on the Reciprocal Encouragement and Protection ofInvestment (entered into force on 29 May 2002) art 10(3)

245 ChinandashPakistan FTA (n 8) art 54(3)246 Ibid art 55(2)


standards of protection are in line with the international rules however since bothtreaties subject the creation of investments to domestic laws of the host State theCPEC projects will have to go through the domestic validation procedures in orderto qualify as investments within the scope of protections offered by the treatiesAlthough there is a need to create local arbitration institution the FTA and the BITcreate a bilateral investment regime befitting the deep-rooted economic ties betweenthe two countries

C O N C L U S I O N SThe detailed SREB Action Plan has clarified that the SREB is intended to guide theentire region into a new era of cooperation and economic development The broaderlegitimacy of the project is ensured through the cautious commitment that the SREBrules of engagement will follow the principles of international law The commitmentto a balanced development of the different parts of the SREB involving both long-time friends such as Pakistan and yet to be tested partners such as India shows theChinese governmentrsquos commitment to take particular perceptions and viewpoints ofall stakeholders on board This could effectively mean that different parts of theSREB will evolve at a different pace depending on the particular partners requiring acontinued commitment of the Chinese government to the project However wherethe SREB has a larger regional impact its offspring the SPEC has special impor-tance for both Pakistan and China and both countries need to develop a collectivestrategy to address Indian concerns in order to enhance the greater legitimacy andintegrity of the project

The SREBrsquos market-based approach to regional integration is quite innovativeand is well suited for regional partners that have many differences in their govern-ment systems social structures and legal ideologies The SREB initiative is based oneconomic development through trade instead of aid and long-term investmentsthrough commercial enterprises and it clearly has the potential to bring more sus-tainable development These innovative approaches reflect new models of interna-tional cooperation and global governance to achieve common ideals The SREB willenable partner countries to learn from each otherrsquos experiences and to devise collec-tive strategies to fulfil mutual economic and development needs The increasedregional economic integration and interdependency will promote mutual trust andthe ability to produce a collective response to global economic challenges

Where the SREB initiative is largely conducive to the economic needs of partici-pating states there are a number of issues that need to be addressed in order to earnthe broader socio-legal cogency In the context of the CPEC for example there is aneed to bring more transparency and public debate to ensure the fair distribution ofbenefits of the project and proper enforcement of labour standards and to have effec-tive laws and procedures in place to pre-empt corrupt practices of corporate and gov-ernment officials The reference to social responsibility of corporations in the SREBAction Plan is a good initiative however effective laws and procedures for theenforcement of this cross-border corporate responsibility need to be incorporatedinto the domestic legal systems Overall the relations among all SREB partnersshould be based on mutual trust ensuring that the large-scale Chinese investmentsset a path to improve governance transparency and the effective rule of law and


strengthened property rights If this is not done Chinarsquos economic presence is likelyto be viewed as a dominating device in the longer run

Investments by Chinese companies in Pakistan cover a variety of sectors and willadapt to different legal and transactional formats suitable to the kind of investmentsmade depending upon whether the investor is a private or a state-owned companyand the nature of the projects The CPEC will bring a new wave of Chinese invest-ment in Pakistan and a solid domestic regime of foreign investment governance isimperative to satisfy both the legitimacy (that is through proper implementation ofdomestic validating rules and procedures) and success (that is through proper defi-nition and allocation of rights and responsibilities) of foreign investments Pakistanhas well-defined and fairly modern national investment laws that provide adequateprotection to foreign investors The Pakistani law requires expropriation to followthe due process of law and against the payment of adequate compensation In thecase of expropriation the rights of third parties and creditors are protected under thelaw The law requires non-discrimination and no less favourable treatment to foreigninvestors The reacquisition of privatized government companies is expressly prohib-ited even for a public purpose The higher courts in Pakistan are competent to enter-tain and enforce any breaches of these laws however there is a need to build theconfidence of foreign investors in the domestic courts

Other forms of dispute resolution such as arbitration are also available to foreigninvestors under the Pakistani laws although there is no established arbitration insti-tute in Pakistan to provide administrative support to disputing parties willing to arbi-trate The recent cases decided by Pakistani courts suggest that courts are nowwilling to enforce foreign arbitration agreements between private parties more aptlythan before The new legislation implementing the New York Convention and theICSID Convention in Pakistan have brought certainty to the enforcement of arbitralawards in Pakistan However in anticipation of a rapid increase in the volume ofChinese investments in Pakistan after the implementation of the CPEC and also tofacilitate existing investments the two countries should consider establishing a jointarbitration centre Pakistan also has a modern IP regime in place but the enforce-ment infrastructure has not yet been created which will potentially discourage someforeign investors

The two countries have put a fairly strong bilateral investment regime in placewith the BIT and a chapter on investments in the FTA The BIT and the FTA havemany similar provisions however the language used in the FTA reflects the mostrecent jurisprudence of investor protection For example the FTA uses the fullerexpression of lsquofair and equitable treatmentrsquo in comparison to the BIT which merelyrequires lsquoequitable treatmentrsquo The FTA has also covered gaps in the BITrsquos provisionson the treatment of investors for example by providing both national treatment andMFN treatment as opposed to the BITrsquos only MFN treatment There is also signifi-cant variation in the language of provisions on expropriation where a negative con-struction in the FTA appears to discourage expropriation The FTA also requires thecalculation of compensation for expropriation in accordance with lsquogenerally recog-nised principles of valuationrsquo as opposed to the BIT which allows calculation accord-ing to the domestic laws of the host State However the reference to lsquogenerallyrecognised principles of valuationrsquo in the FTA is subject to interpretation as there is


no standard or unified principle of calculation of compensation in international lawThe same problem may arise with respect to the FTArsquos provision on interest on theunpaid compensation which requires the calculation of interest at a lsquonormal com-mercial ratersquo

Compared to the BIT the FTA has more extensive and modern provisions oninvestorndashState dispute settlements covering any legal dispute in connection with aninvestment The FTA allows a dispute to proceed directly to international arbitrationwithout requiring exhaustion of local remedies However the FTA does not allowparallel proceedings before domestic courts and international arbitration preventingpossibly opposing outcomes from the two different avenues The choice of ICSID asan arbitration centre is both restrictive and unwieldy as the two countries shouldendeavour to develop local capacities and create regional centres for internationalarbitration

Overall the SREB initiative has great potential for the entire region and will bringthe participating countries closer than ever It provides a great opportunity for theparticipating countries to resolve their existing differences and join hands with Chinato strive for the total development of the entire region The earlier-mentioned chal-lenges regardless if they are purely political or legal in their nature are certainlymanageable A careful re-evaluation of the SREB Action Plan is required in order toreflect the awareness of these challenges and to display a broader vision and determi-nation to address them The Chinese lsquogo globalrsquo policy will remain unrewarding bothsocially and economically in the long run if Chinese domestic legal structures are nottuned to cope with the problems of a global and transnational nature Building trans-national roads and infrastructures must go hand in hand with the development ofsophisticated and effective rights enforcement mechanisms at both the national andtransnational levels


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Towards Greater Integration Legal and PolicyDirections of Chinese Investments in Pakistanon the Advent of the Silk Road Economic Belt

Ahmad Ghouri

A B S T R A C T

Pakistan has an enduring friendship with China and the two countries have long-standing economic ties There is an existing strong investment flow between the twocountries but the new Chinese Silk Road Economic Belt (SREB) initiative and its off-shoot ChinandashPakistan Economic Corridor (CPEC) will substantially increase the flowof Chinese investments in Pakistan In the auspices of the SREB China will finance itscompanies to build a comprehensive regional transportation network in order to stim-ulate economic growth and social development The SREB Action Plan has a moreviable strategy for long-term development as compared with the existing regional eco-nomic integration and development models and the CPEC will undoubtedly createnumerous opportunities for the two countries A scrutiny of the Chinese policies toinvest in Pakistan and the prevalent strong bilateral regime for investment promotionand protection suggest that ChinandashPakistan investment relations reflect a movetowards much deeper economic integration However the various legal and policy ori-entations of these Chinese projects reveal serious challenges in reaching the overallvision harnessing it with the intended objectives and enhancing the legitimacy of itsimplementation strategies There is a need for proactive solutions for the transnationalproblems that the CPEC and the SREB are going to generateK E Y W O R D S Silk Road Economic Belt ChinandashPakistan Economic Corridor bilateralinvestment treaty free trade agreement special economic zone

I N T R O D U C T I O NThe ChinandashPakistan friendship is frequently described as lsquoall-weatherrsquo lsquoironrsquo andlsquodeeper than the Arabian Sea and higher than the Himalayasrsquo1 After the landmark

Ahmad Ghouri Lecturer in Commercial Law Sussex Law School University of Sussex Freeman BuildingFalmer Brighton BN1 9QE UK Tel thorn44 1273 877710 Email aaghourisussexacuk I would like tothank Jo Bridgeman Edward Guntrip and the reviewers of the Chinese Journal of Comparative Law for theirvaluable comments on earlier drafts of this article

1 See eg Laurence Vandewalle lsquoPakistan and China lsquoIron Brothersrsquo Foreverrsquo European Parliament PolicyDepartment Directorate-General for External Policies (EU Parliament Think Tank June 2015) Iftikhar ALodhi lsquoPakistan Perceptions and Responses of an All-Weather Friendrsquo in SD Muni and Tan Tai Yong(ed) A Resurgent China South Asian Perspectives (Routledge 2012) 176

VC The Author (2015) Published by Oxford University Press All rights reservedFor Permissions please email journalspermissionsoupcom

1

The Chinese Journal of Comparative Law 2015 0 1ndash33doi 101093cjclcxv019Article

















































oupspm7
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2015)






















































































































































































































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60 Ibid




















2015)






















































































































































































































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60 Ibid




















2015)






















































































































































































































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cxv019-FN57

cxv019-FN58

cxv019-FN59

cxv019-FN60

cxv019-FN61

cxv019-FN62

cxv019-FN63

cxv019-FN64

cxv019-FN65

cxv019-FN66

cxv019-FN67

cxv019-FN68

cxv019-FN69

cxv019-FN70

cxv019-FN71

cxv019-FN72

cxv019-FN73

cxv019-FN74

cxv019-FN75

cxv019-FN76

cxv019-FN77

cxv019-FN78

cxv019-FN79

cxv019-FN80

cxv019-FN81

cxv019-FN82

cxv019-FN83

cxv019-FN84

cxv019-FN85

cxv019-FN86

cxv019-FN87

cxv019-FN88

cxv019-FN89

cxv019-FN90

cxv019-FN91

cxv019-FN92

cxv019-FN93

cxv019-FN94

cxv019-FN95

cxv019-FN96

cxv019-FN97

cxv019-FN98

cxv019-FN99

cxv019-FN100

cxv019-FN101

cxv019-FN102

cxv019-FN103

cxv019-FN104

cxv019-FN105

cxv019-FN106

cxv019-FN107

cxv019-FN108

cxv019-FN109

cxv019-FN110

cxv019-FN111

cxv019-FN112

cxv019-FN113

cxv019-FN114

cxv019-FN115

cxv019-FN116

cxv019-FN117

cxv019-FN118

cxv019-FN119

cxv019-FN120

cxv019-FN121

cxv019-FN122

cxv019-FN123

cxv019-FN124

cxv019-FN125

cxv019-FN126

cxv019-FN127

cxv019-FN128

cxv019-FN129

cxv019-FN130

cxv019-FN131

cxv019-FN132

cxv019-FN133

cxv019-FN134

cxv019-FN135

cxv019-FN136

cxv019-FN137

cxv019-FN138

cxv019-FN139

cxv019-FN140

cxv019-FN141

cxv019-FN142

cxv019-FN143

cxv019-FN144

cxv019-FN145

cxv019-FN146

cxv019-FN147

cxv019-FN148

cxv019-FN149

cxv019-FN150

cxv019-FN151

cxv019-FN152

cxv019-FN153

cxv019-FN154

cxv019-FN155

cxv019-FN156

cxv019-FN157

cxv019-FN158

cxv019-FN159

cxv019-FN160

cxv019-FN161

cxv019-FN162

cxv019-FN163

cxv019-FN164

cxv019-FN165

cxv019-FN166

cxv019-FN167

cxv019-FN168

cxv019-FN169

cxv019-FN170

cxv019-FN171

cxv019-FN172

cxv019-FN173

cxv019-FN174

cxv019-FN175

cxv019-FN176

cxv019-FN177

cxv019-FN178

cxv019-FN179

cxv019-FN180

cxv019-FN181

cxv019-FN182

cxv019-FN183

cxv019-FN184

cxv019-FN185

cxv019-FN186

cxv019-FN187

cxv019-FN188

cxv019-FN189

cxv019-FN190

cxv019-FN191

cxv019-FN192

cxv019-FN193

cxv019-FN194

cxv019-FN195

cxv019-FN196

cxv019-FN197

cxv019-FN198

cxv019-FN199

cxv019-FN200

cxv019-FN201

cxv019-FN202

cxv019-FN203

cxv019-FN204

cxv019-FN205

cxv019-FN206

cxv019-FN207

cxv019-FN208

cxv019-FN209

cxv019-FN210

cxv019-FN211

cxv019-FN212

cxv019-FN213

cxv019-FN214

cxv019-FN215

cxv019-FN216

cxv019-FN217

cxv019-FN218

cxv019-FN219

cxv019-FN220

cxv019-FN221

cxv019-FN222

cxv019-FN223

cxv019-FN224

cxv019-FN225

cxv019-FN226

cxv019-FN227

cxv019-FN228

cxv019-FN229

cxv019-FN230

cxv019-FN231

cxv019-FN232

cxv019-FN233

cxv019-FN234

cxv019-FN235

cxv019-FN236

cxv019-FN237

cxv019-FN238

cxv019-FN239

cxv019-FN240

cxv019-FN241

cxv019-FN242

cxv019-FN243

cxv019-FN244

cxv019-FN245

cxv019-FN246



















2015)






















































































































































































































cxv019-COR1

cxv019-FN1

cxv019-FN2

cxv019-FN3

cxv019-FN4

cxv019-FN5

cxv019-FN6

cxv019-FN7

cxv019-FN8

cxv019-FN9

cxv019-FN10

cxv019-FN11

cxv019-FN12

cxv019-FN13

cxv019-FN14

cxv019-FN15

cxv019-FN16

cxv019-FN17

cxv019-FN18

cxv019-FN19

cxv019-FN20

cxv019-FN21

cxv019-FN22

cxv019-FN23

cxv019-FN24

cxv019-FN25

cxv019-FN26

cxv019-FN27

cxv019-FN28

cxv019-FN29

cxv019-FN30

cxv019-FN31

cxv019-FN32

cxv019-FN33

cxv019-FN34

cxv019-FN35

cxv019-FN36

cxv019-FN37

cxv019-FN38

cxv019-FN39

cxv019-FN40

cxv019-FN41

cxv019-FN42

cxv019-FN43

cxv019-FN44

cxv019-FN45

cxv019-FN46

cxv019-FN47

cxv019-FN48

cxv019-FN49

cxv019-FN50

cxv019-FN51

cxv019-FN52

cxv019-FN53

cxv019-FN54

cxv019-FN55

cxv019-FN56

cxv019-FN57

cxv019-FN58

cxv019-FN59

cxv019-FN60

cxv019-FN61

cxv019-FN62

cxv019-FN63

cxv019-FN64

cxv019-FN65

cxv019-FN66

cxv019-FN67

cxv019-FN68

cxv019-FN69

cxv019-FN70

cxv019-FN71

cxv019-FN72

cxv019-FN73

cxv019-FN74

cxv019-FN75

cxv019-FN76

cxv019-FN77

cxv019-FN78

cxv019-FN79

cxv019-FN80

cxv019-FN81

cxv019-FN82

cxv019-FN83

cxv019-FN84

cxv019-FN85

cxv019-FN86

cxv019-FN87

cxv019-FN88

cxv019-FN89

cxv019-FN90

cxv019-FN91

cxv019-FN92

cxv019-FN93

cxv019-FN94

cxv019-FN95

cxv019-FN96

cxv019-FN97

cxv019-FN98

cxv019-FN99

cxv019-FN100

cxv019-FN101

cxv019-FN102

cxv019-FN103

cxv019-FN104

cxv019-FN105

cxv019-FN106

cxv019-FN107

cxv019-FN108

cxv019-FN109

cxv019-FN110

cxv019-FN111

cxv019-FN112

cxv019-FN113

cxv019-FN114

cxv019-FN115

cxv019-FN116

cxv019-FN117

cxv019-FN118

cxv019-FN119

cxv019-FN120

cxv019-FN121

cxv019-FN122

cxv019-FN123

cxv019-FN124

cxv019-FN125

cxv019-FN126

cxv019-FN127

cxv019-FN128

cxv019-FN129

cxv019-FN130

cxv019-FN131

cxv019-FN132

cxv019-FN133

cxv019-FN134

cxv019-FN135

cxv019-FN136

cxv019-FN137

cxv019-FN138

cxv019-FN139

cxv019-FN140

cxv019-FN141

cxv019-FN142

cxv019-FN143

cxv019-FN144

cxv019-FN145

cxv019-FN146

cxv019-FN147

cxv019-FN148

cxv019-FN149

cxv019-FN150

cxv019-FN151

cxv019-FN152

cxv019-FN153

cxv019-FN154

cxv019-FN155

cxv019-FN156

cxv019-FN157

cxv019-FN158

cxv019-FN159

cxv019-FN160

cxv019-FN161

cxv019-FN162

cxv019-FN163

cxv019-FN164

cxv019-FN165

cxv019-FN166

cxv019-FN167

cxv019-FN168

cxv019-FN169

cxv019-FN170

cxv019-FN171

cxv019-FN172

cxv019-FN173

cxv019-FN174

cxv019-FN175

cxv019-FN176

cxv019-FN177

cxv019-FN178

cxv019-FN179

cxv019-FN180

cxv019-FN181

cxv019-FN182

cxv019-FN183

cxv019-FN184

cxv019-FN185

cxv019-FN186

cxv019-FN187

cxv019-FN188

cxv019-FN189

cxv019-FN190

cxv019-FN191

cxv019-FN192

cxv019-FN193

cxv019-FN194

cxv019-FN195

cxv019-FN196

cxv019-FN197

cxv019-FN198

cxv019-FN199

cxv019-FN200

cxv019-FN201

cxv019-FN202

cxv019-FN203

cxv019-FN204

cxv019-FN205

cxv019-FN206

cxv019-FN207

cxv019-FN208

cxv019-FN209

cxv019-FN210

cxv019-FN211

cxv019-FN212

cxv019-FN213

cxv019-FN214

cxv019-FN215

cxv019-FN216

cxv019-FN217

cxv019-FN218

cxv019-FN219

cxv019-FN220

cxv019-FN221

cxv019-FN222

cxv019-FN223

cxv019-FN224

cxv019-FN225

cxv019-FN226

cxv019-FN227

cxv019-FN228

cxv019-FN229

cxv019-FN230

cxv019-FN231

cxv019-FN232

cxv019-FN233

cxv019-FN234

cxv019-FN235

cxv019-FN236

cxv019-FN237

cxv019-FN238

cxv019-FN239

cxv019-FN240

cxv019-FN241

cxv019-FN242

cxv019-FN243

cxv019-FN244

cxv019-FN245

cxv019-FN246





















































































































































































































cxv019-COR1

cxv019-FN1

cxv019-FN2

cxv019-FN3

cxv019-FN4

cxv019-FN5

cxv019-FN6

cxv019-FN7

cxv019-FN8

cxv019-FN9

cxv019-FN10

cxv019-FN11

cxv019-FN12

cxv019-FN13

cxv019-FN14

cxv019-FN15

cxv019-FN16

cxv019-FN17

cxv019-FN18

cxv019-FN19

cxv019-FN20

cxv019-FN21

cxv019-FN22

cxv019-FN23

cxv019-FN24

cxv019-FN25

cxv019-FN26

cxv019-FN27

cxv019-FN28

cxv019-FN29

cxv019-FN30

cxv019-FN31

cxv019-FN32

cxv019-FN33

cxv019-FN34

cxv019-FN35

cxv019-FN36

cxv019-FN37

cxv019-FN38

cxv019-FN39

cxv019-FN40

cxv019-FN41

cxv019-FN42

cxv019-FN43

cxv019-FN44

cxv019-FN45

cxv019-FN46

cxv019-FN47

cxv019-FN48

cxv019-FN49

cxv019-FN50

cxv019-FN51

cxv019-FN52

cxv019-FN53

cxv019-FN54

cxv019-FN55

cxv019-FN56

cxv019-FN57

cxv019-FN58

cxv019-FN59

cxv019-FN60

cxv019-FN61

cxv019-FN62

cxv019-FN63

cxv019-FN64

cxv019-FN65

cxv019-FN66

cxv019-FN67

cxv019-FN68

cxv019-FN69

cxv019-FN70

cxv019-FN71

cxv019-FN72

cxv019-FN73

cxv019-FN74

cxv019-FN75

cxv019-FN76

cxv019-FN77

cxv019-FN78

cxv019-FN79

cxv019-FN80

cxv019-FN81

cxv019-FN82

cxv019-FN83

cxv019-FN84

cxv019-FN85

cxv019-FN86

cxv019-FN87

cxv019-FN88

cxv019-FN89

cxv019-FN90

cxv019-FN91

cxv019-FN92

cxv019-FN93

cxv019-FN94

cxv019-FN95

cxv019-FN96

cxv019-FN97

cxv019-FN98

cxv019-FN99

cxv019-FN100

cxv019-FN101

cxv019-FN102

cxv019-FN103

cxv019-FN104

cxv019-FN105

cxv019-FN106

cxv019-FN107

cxv019-FN108

cxv019-FN109

cxv019-FN110

cxv019-FN111

cxv019-FN112

cxv019-FN113

cxv019-FN114

cxv019-FN115

cxv019-FN116

cxv019-FN117

cxv019-FN118

cxv019-FN119

cxv019-FN120

cxv019-FN121

cxv019-FN122

cxv019-FN123

cxv019-FN124

cxv019-FN125

cxv019-FN126

cxv019-FN127

cxv019-FN128

cxv019-FN129

cxv019-FN130

cxv019-FN131

cxv019-FN132

cxv019-FN133

cxv019-FN134

cxv019-FN135

cxv019-FN136

cxv019-FN137

cxv019-FN138

cxv019-FN139

cxv019-FN140

cxv019-FN141

cxv019-FN142

cxv019-FN143

cxv019-FN144

cxv019-FN145

cxv019-FN146

cxv019-FN147

cxv019-FN148

cxv019-FN149

cxv019-FN150

cxv019-FN151

cxv019-FN152

cxv019-FN153

cxv019-FN154

cxv019-FN155

cxv019-FN156

cxv019-FN157

cxv019-FN158

cxv019-FN159

cxv019-FN160

cxv019-FN161

cxv019-FN162

cxv019-FN163

cxv019-FN164

cxv019-FN165

cxv019-FN166

cxv019-FN167

cxv019-FN168

cxv019-FN169

cxv019-FN170

cxv019-FN171

cxv019-FN172

cxv019-FN173

cxv019-FN174

cxv019-FN175

cxv019-FN176

cxv019-FN177

cxv019-FN178

cxv019-FN179

cxv019-FN180

cxv019-FN181

cxv019-FN182

cxv019-FN183

cxv019-FN184

cxv019-FN185

cxv019-FN186

cxv019-FN187

cxv019-FN188

cxv019-FN189

cxv019-FN190

cxv019-FN191

cxv019-FN192

cxv019-FN193

cxv019-FN194

cxv019-FN195

cxv019-FN196

cxv019-FN197

cxv019-FN198

cxv019-FN199

cxv019-FN200

cxv019-FN201

cxv019-FN202

cxv019-FN203

cxv019-FN204

cxv019-FN205

cxv019-FN206

cxv019-FN207

cxv019-FN208

cxv019-FN209

cxv019-FN210

cxv019-FN211

cxv019-FN212

cxv019-FN213

cxv019-FN214

cxv019-FN215

cxv019-FN216

cxv019-FN217

cxv019-FN218

cxv019-FN219

cxv019-FN220

cxv019-FN221

cxv019-FN222

cxv019-FN223

cxv019-FN224

cxv019-FN225

cxv019-FN226

cxv019-FN227

cxv019-FN228

cxv019-FN229

cxv019-FN230

cxv019-FN231

cxv019-FN232

cxv019-FN233

cxv019-FN234

cxv019-FN235

cxv019-FN236

cxv019-FN237

cxv019-FN238

cxv019-FN239

cxv019-FN240

cxv019-FN241

cxv019-FN242

cxv019-FN243

cxv019-FN244

cxv019-FN245

cxv019-FN246

towards greater integration? legal and policy directions ...sro.sussex.ac.uk/id/eprint/57384/1/final...

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