Foreign Investment Laws in Pakistan: Legal Protection, Arbitration, and Investor Confidence

Abstract

Foreign investment has been perceived to be very crucial in the economic growth, transfer of technology and creation of employment in Pakistan. To entice and keep foreign capital, Pakistan has come up with a legal framework that provides substantive guarantees to the foreign investors such as guaranties against expropriation, repatriation of profits, and international arbitrations to resolve disputes. All these safeguards are incorporated in domestic investment regulations, bilateral investment agreements as well as international arbitration agreements that Pakistan has signed. This formal legal architecture has however not led to investor confidence by foreign investors as there is uncertainty in the regulation, some inconsistency in enforcement, political risk and complex investor-state arbitration history of Pakistan. This article critically discusses the foreign investment laws in Pakistan with the focus on the scope of legal protection given to foreign investors and the efficacy of such laws, the importance of international arbitration in the settlement of the investment disputes and the overall influence of the same on the investor confidence. It claims that though the investment protection regime in Pakistan has been good in the formal sense and has been mostly in compliance with the international standards, weaknesses in domestic regulatory governance, institutional coordination, and post-award compliance have compromised its credibility. The article also shows that the experience of investor-state dispute settlement in Pakistan has resulted in a clash between investor protection and regulatory autonomy, which have shaped the current policy decisions and treaty practice. Placing the foreign investment regime of Pakistan in comparative and international perspectives of law of investment, this study helps note the disparity between law and reality of investment. It concludes by stating that to restore and maintain investor confidence not only do legal safeguards and effective arbitration regimes have to be put in place, but that regulation is predictable, governance clear, and does investment policy make sense.