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Exchange of Notes between the Government of Canada and the Government of the Islamic Republic of Pakistan constituting an Agreement relating to Foreign Investment Insurance [1976] CATSer 5 (24 February 1976)

E101497 - CTS 1976 No. 15

EXCHANGE OF NOTES BETWEEN THE GOVERNMENT OF CANADA AND THE GOVERNMENT OF THE ISLAMIC REPUBLIC OF PAKISTAN CONSTITUTING AN AGREEMENT RELATING TO FOREIGN INVESTMENT INSURANCE

I

The Secretary of State for External Affairs of Canada to the Minister of State for Defense and Foreign Affairs of the Islamic Republic of Pakistan

OTTAWA, February 24, 1976

No. FLA-137

His Excellency Aziz Ahmed,
Minister of State for Defence and Foreign Affairs
of the Islamic Republic of Pakistan

Excellency,

I have the honour to refer to discussions which have recently taken place between representatives of our two Governments relating to investments in the Islamic Republic of Pakistan which would further the development of economic relations between Canada and the Islamic Republic of Pakistan, and to insurance of such investments by the Government of Canada, through its agent the Export Development Corporation. I also have the honour to confirm the following understandings reached as a result of those discussions:

1. In the event of a payment by the Export Development Corporation under a contract of insurance for any loss by reason of:

(a) war, riot, insurrection, revolution or rebellion in the Islamic Republic of Pakistan;

(b) the arbitrary seizure, expropriation, confiscation or deprivation of use of any property by a Government, or agency thereof, in the Islamic Republic of Pakistan;

(c) any action by a Government, or agency thereof, in the Islamic Republic of Pakistan, other than action of the kind described in sub-paragraph (b) that deprives the investor of any right in, or in connection with, an investment; and

(d) any action by a Government, or agency thereof, in the Islamic Republic of Pakistan, that prohibits or restricts transfer of any money or removal of any property from that country;

the said Corporation, hereinafter called the "Insuring Agency" shall be authorized by the Government of the Islamic Republic of Pakistan to exercise the rights having devolved on it by law or having been assigned to it by the predecessor in title.

2. But to the extent that the laws of the Islamic Republic of Pakistan partially or wholly invalidate the acquisition of any interests in any property within its national territory by the Insuring Agency, the Government of the Islamic Republic of Pakistan shall permit the investor and the Insuring Agency to make appropriate arrangements pursuant to which such interests are transferred to an entity permitted to own such interests under the laws of the Islamic Republic of Pakistan.

3. The Insuring Agency shall assert no greater rights than those of the transferring investor under the laws of the Islamic Republic of Pakistan with respect to any interest transferred or succeeded to as contemplated in paragraph 1. The Government of Canada does, however, reserve its right to assert a claim in its sovereign capacity in the event of a denial of justice or other question of state responsibility as defined in international law.

4. Should the said Insuring Agency acquire, under investment insurance contracts, amounts and credits of the lawful currency of the Government of the Islamic Republic of Pakistan, the said Government of the Islamic Republic of Pakistan shall accord to those funds treatment no different than that which it would accord if such funds were to remain with the investor, and such funds shall be freely available to the Government of Canada to meet its expenditures in the national territory of the Islamic Republic of Pakistan.

5. This Agreement shall apply only with respect to insured investments in projects or activities approved in writing by the Government of the Islamic Republic of Pakistan.

6. Differences between the two Governments concerning the interpretation and application of provisions of this Agreement or any claim arising out of investments insured in accordance with this Agreement, against either of the two Governments, which in the opinion of the other presents a question of public international law shall be settled, in so far as possible, through negotiations between the Governments. If such differences cannot be resolved within a period of three months following the request for such negotiations, it shall be submitted, at the request of either Government, to an ad hoc tribunal for settlement in accordance with applicable principles and rules of public international law. The arbitral tribunal shall consist of three members and shall be established as follows: each Government shall appoint one arbitrator; a third member, who shall act as Chairman, shall be appointed by the other two members. The Chairman shall not be a national of either country. The arbitrators shall be appointed within two months and the Chairman within three months of the date of receipt of either Government's request for arbitration. If the foregoing time limits are not met, either Government may, in the absence of any other agreement, request the President of the International Court of Justice to make the necessary appointment or appointments and both Governments agree to accept such appointment or appointments. The arbitral tribunal shall decide by majority vote. Its decision shall be binding and definitive. Each of the Governments shall pay the expense of its member and its representation in the proceedings before the arbitral tribunal; expenses of the Chairman and other costs shall be paid in equal parts by the two Governments. The arbitral tribunal may adopt other regulations concerning costs. In all other matters, the arbitral tribunal shall regulate its own procedures. Only the respective Governments may request arbitral procedure and participate in it.

I have the honour to propose that, if the foregoing is acceptable to your Government, this Note, which is authentic in English and French, and your reply to that effect shall constitute an Agreement between our two Governments which shall enter into force on the date of your reply. This Agreement shall continue in force until terminated by either Government on six months' notice in writing to the other. In the event of termination, the provisions of the Agreement shall continue to apply, in respect of insurance contracts issued by the Government of Canada while the Agreement was in force, for the duration of these contracts; provided that in no case shall the Agreement continue to apply to such contracts for a period longer than 15 years after the termination of this Agreement.

It is understood that the diplomatic note EC(I)-22/35/74 of August 3, 1975, addressed by the Ministry of Foreign Affairs of the Islamic Republic of Pakistan to the Canadian Embassy in Islamabad, and the Embassy's note 556 of December 16, 1975, in answer, the texts of which are attached hereto, shall be considered to be annexed to this Agreement.

Accept, Excellency, the renewed assurance of my highest consideration.

Allan J. MacEachen

Secretary of State for External Affairs

ANNEX

II

The Ministry of Foreign Affairs of the Islamic Republic of Pakistan to the Embassy of Canada

ISLAMABAD, August 2, 1975

No. EC(I)-22/35/74

The Embassy of Canada in Pakistan,
Islamabad

The Ministry of Foreign Affairs presents its compliments to the Embassy of Canada, Islamabad, and with reference to their Note No. 392 dated October 9, 1974 and correspondence resting with this Ministry's Note of even number dated October 23, 1974, has the honour to state that the authorities concerned, who were consulted in the matter, have furnished their comments which are reproduced below: -

"Article 4 of the draft agreement entitles the Export Development Corporation of Canada to collect insurance premia in rupees in Pakistan and these rupees would become available to the Canadian Government to meet its local expenses. This would mean a loss of inward remittance to Pakistan. Similarly, if a Canadian firm in Pakistan collects war risk damages in rupees from the Government of Pakistan these rupees become virtually converted to Canadian dollars if the agreement between the firm and the Export Development Corporation of Canada provides that such rupees be given to the Corporation".

2. It has, therefore, been proposed by the authorities concerned that article 4 of the draft agreement may be deleted.

3. This Ministry shall be grateful if the aforesaid comments are conveyed to the authorities concerned in Canada and their reactions intimated to this Ministry in order to further examine the draft agreement.

4. The Ministry avails itself of this opportunity to renew to the Embassy the assurances of its highest consideration.

A. A.

ANNEX

III

The Embassy of Canada to the Ministry of Foreign Affairs of the Islamic Republic of Pakistan

ISLAMABAD, December 17, 1975

Note No. 556

His Excellency Aziz Ahmed,
Minister of State for Defence and Foreign Affairs
of the Islamic Republic of Pakistan

The Canadian Embassy presents its compliments to the Ministry of Foreign Affairs and has the honour to refer to the Ministry's Note number EC (I)-22/35/74 concerning the proposed Pakistan-Canada foreign investment insurance agreement.

The Canadian Government considers that Article 4 of the draft has been misunderstood by the Ministry in certain respects. In the first place, the EDC does not collect premia for its insurance contracts in rupees in Pakistan. Such payments are made direct to the EDC in Canadian dollars by a Canadian company seeking insurance for an overseas investment. This is, in other words, a transaction which takes place in Canada between Canadian companies and the Canadian Government.

Secondly, there is no intent under the terms of the Article to convert any local currency into foreign exchange. In the event that amounts of local currency come into the hands of the EDC as a result of its exercise, under Article 1, of the rights of an investor to whom the EDC has paid a claim, Article 4 allows the Government of Canada to make use of this local currency within the host country as it sees fit.

The Ministry would appear correct in assuming that, if this money were used for local costs of the Canadian Embassy in Pakistan, there would be a corresponding decrease in remittances in Canada dollars to the Embassy. However, the Canadian Government doubts that an investment insurance agreement would be of much value to the Government (EDC) unless it allowed the EDC, and in consequence the Canadian Government as proprietor of the EDC, to make use of funds to which it falls heir. Any compensation due to EDC as a result of the subrogation of rights of the insured would be subject to the normal laws of Pakistan applying to foreign investors. The Canadian Government would, therefore, be of the view that Article 4 is an integral part of the agreement.

The Embassy would be grateful for an early report on the Ministry's reaction to the Canadian Government's views on Article 4 in view of the proposed visit of Prime Minister Bhutto to Canada in February.

The Canadian Embassy avails itself of this opportunity to renew to the Ministry of Foreign Affairs the assurances of its highest consideration.

K.W.M.

IV

The Minister of State for Defence and Foreign Affairs of the Islamic Republic of Pakistan to the Secretary of State for External Affairs of Canada

OTTAWA, February 24, 1976

The Honourable Allan J. MacEachen,
Secretary of State for External Affairs,
Ottawa

Sir,

I have the honour to refer to your Note FLA-137 of February 24, 1976, proposing the terms of an Agreement between the Government of the Islamic Republic of Pakistan and the Government of Canada relating to Canadian investments in Pakistan insured by the Government of Canada through its agent, the Export Development Corporation.

I have the further honour to inform you that these terms are acceptable to my Government and to confirm that it accepts your proposal that your Note authentic in English and French, and this reply shall constitute an Agreement between our two Governments which shall enter into effect as of the date of this reply.

Accept, Sir, the renewed assurance of my highest consideration.

Aziz Ahmed