China-Pakistan Economic Corridor: A New Frontier for Investment Treaty Disputes?

November 02, 2017

China’s One Belt One Road initiative (“OBOR Initiative”) provides promising and lucrative opportunities for foreign investors to invest in large-scale infrastructure projects across Asia, the Middle East, Africa, and Europe. One of the most notable partnerships to arise out of the OBOR Initiative is the China-Pakistan Economic Corridor (“CPEC”). China and Pakistan have been working on the CPEC since 2013. CPEC is considered to be a pioneer project under the OBOR Initiative and is meant to serve as a model for other states to which the OBOR Initiative will be expanded. In total, China is set to invest more than US$55 billion in Pakistan, building power plants, roads, and railways across the country1. The two countries have executed around 51 cooperation agreements, mostly for the construction of energy and transportation infrastructure in Pakistan2. At a recent CPEC review meeting, Pakistan’s Planning Minister indicated that many of the “early harvest projects” (i.e., projects with a relatively short construction period) will be completed by the end of 20173. The CPEC initiative, undoubtedly, has become the largest regional and international construction project and offers tremendous investment opportunities for domestic and foreign companies.

As with all foreign direct investment, there may be risks associated with CPEC investments. The political risk, for example, associated with CEPC investments is heightened in light of the impending elections in Pakistan and the recent ouster in July 2017 of Pakistani Prime Minister Nawaz Sharif on corruption-related allegations. It might be that at least some of the CPEC projects are covered by the growing probe and face scrutiny, investigation, and review, which may result in delays. Further, national elections are scheduled to be held in the summer of 2018. If the ruling party loses, it is unclear how the change of parties may affect the CPEC project. Pakistani political parties diverge greatly on many issues relating to the planning and implementation of the corridor, which may cause considerable delay and disruption to many projects under construction. China, however, has publicly announced that Sharif’s departure would not affect the CPEC project, having received assurances from the Pakistani government that its investments in CPEC would not be disrupted.5

Investors evaluating investments in the CPEC initiative should carefully consider the associated risks and review the protections afforded to their foreign investments in Pakistan under international law. There are important protections investors should always look to secure by ensuring their investment is protected under bilateral investment treaties (BITs) and fair trade agreements (FTAs) prior to making an investment. These protections are broad in nature, such as: (a) fair and equitable treatment, which guarantees protection against measures that breach investors’ legitimate expectations or amount to arbitrary or discriminatory conduct by the host State; (b) requiring the host State to provide treatment no less favorable than that afforded to its own nationals; (c) requiring the host State to provide treatment no less favorable than that afforded to other foreign investors; (d) protections against expropriation, which consist of the obligation to compensate foreign investors in the event the host State nationalizes or takes over foreign investments; and (e) guarantees of full protection and security, to ensure legal and physical protection of foreign investors’ investments in the host State.

Table 1. Protections afforded by the China-Pakistan BIT and FTA

1. China-Pakistan BIT (30/09/1990)
Fair and Equitable treatment: Yes
National Treatment: No
Most-favored nation treatment: Yes (with exceptions)
No expropriation without full compensation: Yes
Protection and security: Yes

2. China-Pakistan FTA (01/07/2007)
Fair and Equitable treatment: Yes
National Treatment: Yes
Most-favored nation treatment: No
No expropriation without full compensation: Yes
Protection and security: Yes

Chinese investors in Pakistan, for example, should review these protections under international law, especially those afforded under the China-Pakistan BIT and China-Pakistan FTA, as they structure (or restructure) their investments in Pakistan. Such treaty planning would ensure that their investments are adequately protected under international law and that a recourse to investment treaty dispute settlement mechanism is available, in case such foreign investments are jeopardized in Pakistan.


1) H. Sender and K. Stacey, China takes ‘project of the century’ to Pakistan, Financial Times (May 17, 2017).
2) M. Haider and I. Haider, Economic corridor in focus as Pakistan, China sign 51 MoUs, Dawn (April 20, 2015).
3) M. Arshad, Review meeting for CPEC: Early Harvest projects to be completed this year, (June, 13 2017).
4)  S. I. Raza, ‘CPEC could become another East India Company’, Dawn (October 18, 2016).
5) Nawaz Sharif's disqualification will not affect CPEC: China, Times of India (July 29, 2017).


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