THE NEW DEBATE ON THE INTERPRETATION OF MFN CLAUSES IN
INVESTMENT TREATIES:PUTTING THE BRAKES ON MULTILATERALIZATION
By Simon Batifort and J. Benton Heath*
ABSTRACT
This article challenges the conventional wisdom that MFN clauses in investment treaties can
always be used to “import” substantive standards of treatment (e.g. FET). It argues that most
tribunals permitting this use of MFN clauses have relied on presumptions and have ignored
meaningful variations among clauses. It also points out that states are increasingly questioning
the conventional view, and that a recent arbitral award has firmly rejected an attempt to use an
MFN clause to import substantive standards. It concludes by sketching the terms of the new
MFN debate.
The interpretation of Most-Favored-Nation (MFN) clauses in investment treaties has
potentially enormous consequences for the scope and extent of states’ obligations concerning
the treatment of foreign investors. Yet for nearly two decades, the discussion on MFN has
been overwhelmed by the controversy sparked by the Maffezini decision,
1
regarding whether
MFN c lauses can be us ed to “impor t” dispute settlement provisions from one treaty t o
another.
2
Meanwhile, a conventional wisdom has taken hold that MFN clauses generally
may be invoked by investors to rely on standards of treatment, such as fair and equitable treat-
ment (FET), full protection and security (FPS), or protection from arbitrary or discriminatory
measures, which are absent from the applicable investment treaty or present in an allegedly
* Simon Batifort is a member of the International Arbitration Group of Curtis, Mallet-Prevost, Colt & Mosle in
New York and an Adjunct Professor at Brooklyn Law School. J. Benton Heath is an Attorney-Adviser with the
United States Department of State in Washingto n, D.C., and formerly a member of Curtis’s Interna tional
Arbitration Group. The views expressed herein are the authors’ own and do not necessarily reflect those of the
United States government, or of Curtis or its clients. While at Curtis, the authors were counsel to the respondent
in the İçkale v. Turkmenistan arbitration discussed in this article. The authors thank Julian Arato, Mathias Forteau,
Athina Fouchard Papaefstratiou, Carla M. Greenberg, Justin Jacinto, Andrew Larkin, Charles Leben, Ben Love,
Julianne Marley, Donald McRae, Gaelen Perrone, David Sloss, Christina Trahanas, Marat Umerov, Fuad
Zarbiyev, the participants in the 2017 ASIL Midyear Meeting Research Forum, and anonymous AJIL reviewers
for insightful comments.
1
See Emilio Agustín Maffezini v. The Kingdom of Spain, ICSID Case No. ARB/97/7, Decision on Objections
to Jurisdiction, paras. 43–64 (Jan. 25, 2000) [hereinafter Maffezini].
2
We use the term “importation” to refer to reliance on a Most-Favored-Nation (MFN) clause in a treaty entered
into by a given state (the basic treaty) to obtain the benefit of provisions set forth in other treaties entered into by
that state (third-party treaties). Although it is a widely used and convenient shorthand, it does not precisely reflect
the o pera ti on of MF N clauses. See Christopher Greenwood, Reflections on ‘Most Favoured Nation’ Clause s in
Bilateral Investment Treaties, in P
RACTISING VIRTUE 556, 559–61 (David D. Caron, Stephan W. Schill, Abby
Cohen Smutny & Epaminontas E. Triantafilou eds., 2015) (emphasizing that, as a matter of law, third-party
treaty provisions are neither “written into” nor “incorporated” into the basic treaty via an MFN clause) [hereinafter
Greenwood]; Zachary Douglas, The MFN Clause in Investment Arbitration: Treaty Interpretation Off the Rails , 2(1)
J. I
NT’L DISP.SETTLEMENT 97, 104–05 (2011) (similar) [hereinafter Douglas, Off the Rails].
Copyright © 2018 by The American Society of International Law
doi:10.1017/ajil.2017.77
873
CL-0320
less attractive form.
3
In line with that conventional wisdom, most tribunals have treated the
use of MFN clauses to import substantive treaty obligations as uncontroversial, or even, in the
words of one decision, as “universally agreed” and “ the very essence of an MFN provision
in a BIT.”
4
We argue that this conventional wisdom relies on a particularly strong form of “top-down”
reasoning, which imposes presumptions as to the nature or essence of MFN clauses in gene-
ral.
5
This top-down perspective obscures the variation among MFN clauses in investment
agreements and other treaties, and leads interpreters to adopt an unduly uniform approach
to the function of MFN provisions. A careful analysis of the text of specific clauses leads to a
much more nuanced picture and calls into question the prevailing view that all MFN clauses
in investment treaties were designed to import standards of treatment. By bringing our treaty-
by-treaty, “bottom-up” approach into contact with the prevailing top-down view of MFN
importation, we hope to provoke a new debate—one which drives toward a more balanced
approach to the interpretation of MFN clauses.
6
3
On the widespread agreement on the importation of standards of treatment via MFN clauses in investment
treaties, see, for example, Ieva Kalnina, White Industries v. The Republic of India: A Tale of Treaty Shopping and
Second Chances,9(4)T
RANSNAT’L DISP.MGMT. 2, 6 (2012) (stat ing that the MFN debate concerns only “the
importation through an MFN clause of dispute resolution mechanisms, whereas the importation of substantive
provisions is not at all controversial”); J. R
OMESH WEERAMANTRY,TREATY INTERPRETATIO N IN INVESTMENT
ARBITRATION 177 (2012) (observing that importation of standards of treatment is “generally accepted”) [herein-
after W
EERAMANTRY]; Scott Vesel, Clearing a Path Through a Tangled Jurisprudence: Most-Favored-Nation Clauses
and Dispute Settlement Provisions in Bilateral Investment Treaties,32Y
ALE J. INT’L L. 125, 163 (2007) (stating that
such importation “has never been seen as problematic”) [hereinafter Vesel]; Patrick Dumberry, The Importation of
‘Better’ Fair and Equitable Treatment Standard Protection Through MFN Clauses: An Analysi s of
NAFTA Article
1103, 14(1) T
RANSNAT’L DISP.MGMT. at 14 (2017) (noting that there is a “large consensus” on this use of
MFN) [hereinafter Dumberry, MFN in
NAFTA Cases]; Tomoko Ishikawa, Keeping Interpretation in Investment
Treaty Arbitration ‘on Track’: The Role of State Parties, in R
ESHAPING THE INVESTOR-STATE DISPUTE SETTLEMENT
SYSTEM 115, 129 & n. 68 (Jean E. Kalicki & Anna Joubin-Bret eds., 2015) (noting a consensus on the use of
MFN clauses to import standards of treatment).
4
Vladimir Berschader and Moïse Berschader v. The Russian Federation, SCC Case No. 080/2004, Award,
para. 179 (Apr. 21, 2006) (“[I]t is universally agreed that the very essence of an MFN provision in a BIT is to
afford to investors all material protection provided by subseque nt treaties . . . . ” ) [hereinafter Berschader]; see
also in fra Part II; Patrick Dumberry, Shopping for a Better Deal: The Use of MFN Clauses to Get ‘Better’ Fair
and Equitable Treat ment Protection,33A
RB.INT’L 1, 2 & n. 6 (2017) (reviewing arbitrations other than those
conducted under the North American Free Trade Agreement, Can.-Mex.-U.S., De c. 8, 11, 14, and 17, 32
ILM 289 & 605 (1993) [hereinafter
NAFTA] and stating that “all tribunals have so far accepted the importation
of FET protection through MFN clauses”) [hereinafter Dumberry, Shopping For a Better Deal].
5
See, e.g., Patrick Dumberry, The Importation of the FET Standard Through MFN Clauses: An Empirical Study of
BITs,32
ICSID REV. – FOREIGN INV. L.J. 116, 131, 134 (2016) (stating that “the very aim of these MFN clauses is
to apply to such [substantive] rights”) [hereinafter Dumberry, Importation]; K
ENNETH VANDEVELDE,BILATERAL
INVESTMENT TREATIES 360 (2010) (“[P]luck[ing] rights from another agreement and transport[ing] them into
this agreement . . . is precisely the function of the MFN treatment provision.”) [hereinafter V
ANDEVELDE]; José
Antonio Rivas, Application of Substantive Treaty Obligations via the Most-Favored-Nation Clause:
ICSID Case Law
Evolution, in AR
EVOLUTION IN THE INTERNATIONAL RULE OF LAW :ESSAYS IN HONOR OF DON WALLACE,JR. 433,
454 (Borzu Sabahi, Nicholas J. Birch, Ian A. Laird & José Antonio Rivas eds., 2014) (arguing that “unless oth-
erwise provided by the basic treaty, an investor may rely on the MFN clause to invoke substantive obligations of
third-party treaties”) [hereinafter Rivas]; Stephan W. Schill, Multilateralizing Investment Treaties Through Most-
Favored-Nation Clauses,27B
ERKELEY J. INT’L L. 496, 506 (2009) (adapted from STEPHAN W. SCHILL,THE
MULTILATERALIZATION OF INVESTMENT LAW (2009)) (advocating “a (rebuttable) presumption that the clauses incor-
porate more favorable treatment concerning procedure and jurisdiction relating to investor-State dispute settle-
ment just as they apply to substantive standards”) [hereinafter Schill].
6
We are presenting the “top-down” and “bottom-up” approaches not as two hermetically sealed schools of
thought, but rather as two endpoints on a continuum. In practice, individual arbitrators and commentators fre-
quently blend top-down and bottom-up elements in varying proportions in their approaches to MFN clauses. We
THE AMERICAN JOURNAL OF INTERNATIONAL LAW874 Vol. 111:4
The stakes of this debate are much higher than simply selecting the proper interpretation of
a single clause in a single dispute. For some, the use of MFN to import substantive standards
of treatment forms a key legal basis for the “multilateralization” of international investment
law.
7
On this view, MFN provisions in investment treaties “lock States into the most favor-
able level of investment protection reached at one point of time.”
8
Thus, it is argued that the
use of MFN to import other treaty provisions undermines “the understanding of BITs as an
expression of quid pro quo bargains,” and transforms them into “instruments of multilateral-
ism in international investment relations.”
9
This concept of MFN has significant consequences for the regime of investment protec-
tion. According to proponents of multilateralization, the presence of MFN clauses in treaties
limits the ability of states, fo r reasons of domestic or foreign policy, to negotiate di fferent
agreements with different treaty partners.
10
It has also been argued that broad applications
of MFN clauses by tribunals could make it difficult for states parties to investment agreements
to predict their scope of potential liability, as the “combinations and permutations” of
investment protections resulting from MFN importati on may be “impossible to foresee or
administe r. ”
11
And it is suggested that expansive applications of MFN could undermine
efforts—now underway in a variety of fora—to “rebalance” investment agreements through
renewed attention to the scope and effect of other substantive provisions.
12
Given these implications, it is important to pause before presuming that generally worded
MFN clauses were designed to reorder the matrix of substantive protections that have been
afforded in any given treaty. To be sure, some have identified benefits that may be produced
by this approach to MFN, such as the s implification of treaty negotiations,
13
and the
argue that the past two decades of arbitral practice have tilted heavily toward the top-down end of this continuum,
and we focus here on providing a counterweight. We are grateful to one of our anonymous reviewers for empha-
sizing the distinction between top-down and bottom-up approaches.
7
Schill, supra note 5, at 501–06; see also VANDEVELDE, supra note 5, at 360 (“MFN treatment provisions gen-
eralize treaty rights and thereby eliminate distinctions in the type of treatment provided to investments or investors
of different nationalities ....”); C
HRISTIAN LEATHLEY,INTERNATIONAL DISPUTE RESOLUTION IN LATIN AMERICA 18
(2007) (“BITs might mistakenly be seen as mutually exclusive treaties of a bilateral nature. The reality is that the
MFN clause has created a network, whereby BITs constitute portals, through which investors can access the high-
est common standards available.”).
8
Schill, supra note 5, at 568.
9
Id. at 504.
10
E.g., id. at 568–69; see also United Nations Conference on Trade and Development, Most-Favoured-Nation
Treatment,
UNCTAD SERIES ON ISSUES IN INTERNATIONAL INVESTMENT AGREEMENTS II, at 105 (2010) (stating that
the automatic importation of provisions from third-party treaties through MFN clauses may “create a sen se of
uniformity of standards when real variations in scope, content and intent exist for very good policy reasons”) [here-
inafter
UNCTAD MFN Report]; Rohan Perera, The Most-Favoured Nation Clause and the Maffezini Case, paras.
99–100 (UN International Law Commission [hereinafter ILC] Study Group on the MFN Clause, Working
Paper) (arguing that “a BIT repr esents clear policy objectives of safeguarding th e interests of both investors as
well as host States,” which constitutes “[a] critical factor” when deciding whether to “import more favourable pro-
cedural or substantive provisions”). The Maffezini tribunal noted this possibility in a passage that suggests some
discomfort with the implications. See Maffezini, supra note 1, para. 63 (suggesting that “elements of public policy”
should limit the operation of MFN provisions, adding that “a distinction has to be made between the legitimate
extension of rights and benefits by means of the operation of the clause . . . and disruptive treaty-shopping that
would play havoc with the policy objectives of underlying specific treaty provisions . . .”).
11
UNCTAD MFN Report, supra note 10, at 105–06.
12
See, e.g.,CatherineTiti,Most-Favoured-Nation Treatment, Survival Clauses and Reform of International
Investment Law,33J.I
NT’L ARB. 425, 427–33 (2016) [hereinafter Titi].
13
See, e.g., David D. Caron & Esmé Shirlow, Most-Favored-Nation Treatment: Substantive Protection, in
B
UILDING INTERNATIONAL INVESTMEN T LAW:THE FIRST 50 YEARS OF ICSID 399, 408–13 (Meg Kinnear,
NEW DEBATE ON THE INTERPRETATION OF MFN CLAUSES2017 875
furtherance of economic liberalization and equalization of competitive opportunities.
14
But
critics may see these perceived benefits as being offset by the costs to states in terms of pre-
dictability and stability in their treaty relations, and the concern is even raised that “a broad
MFN obligation might practically ignore the sovereign freedom of States to conclude inter-
national obligations as they see fit.”
15
These risks are compounded if broad effect is given to
MFN provisions on the basis of presumptions about the nature of such clauses, rather than on
an assessment of the intended meaning of the particular MFN clause at issue.
There is already some movement to qualify or reconsider the prevailing presumptions about
MFN clauses as they relate to the importation of standards of treatment. Some authors have
pointed out that interpreters should proceed treaty by treaty, with sensitivity to limitations
on the scope of particular MFN clause s, while avoiding generalizations about what “the”
MFN clause provides.
16
A more granular approach to the interpretation of MFN provisions
is also suggested by the report that the International Law Commission (ILC) recently issued
on the topic,which, whileexpressly reserving judgmenton theimportation of standards of treat-
ment,
17
analyzes extensively the potential implications of variations in the text of such clauses.
18
Geraldine R. Fischer, Jara Minguez Almeida, Luisa Fernanda Torres & Mairée Uran Bidegain eds., 2015) (“At the
point of negotiation, the inclusion of an MFN clause arguably reduces the burden on the negotiating parties to
review their trea ty partner’s prior treaty practice. This is because, generally sp eaking, any better protections or
concessions afforded by the treaty partner in existing treaties of the same class would be incorporated by reference
through the MFN clause.”) [hereinafter Caron & Shirlow].
14
Schill, supra note 5, at 555–56 (discussing these effects in the context of importing dispute settlement pro-
visions); see also José E. Alvarez, A BIT on Custom, 42 N.Y.U. J. I
NT’L L. & POL. 17, 55 (2009) (“MFN guarantees
of BITs and FTAs also help ensure that uniform high standards prevail at least among foreign investors, and make
attempts to discriminate among foreign investors difficult.”). With respect to the desire on the part of some nego-
tiators to ensure uniformity of standards of treatment across bilateral investment treaties, see, for example,
Kenneth J. Vandevelde, The Bilateral Investment Treaty Program of t he United States,21C
ORNELL J. INT’L L.
201, 211–13 (1988) [hereinafter Vandevelde, BIT Program].
15
UNCTAD MFN Report, supra note 10, at 105 (noting these criticisms).
16
See, e.g., Tomoko Ishikawa, Interpreting the Most-Favoured-Nation Clause in Investment Treaty Arbitration, in
R
ETHINKING INTERNATIONAL LAW AND JUSTICE 127, 130 (Charles Sampford, Spencer Zifcak & Derya Aydin Okur
eds., 2015) (challenging “the widely accepted position that an MFN clause, unless accompanied by explicit reserva-
tions and exceptions, generally allows the ‘incorporation’ of more favourable substantive provisions in third-party
treaties” and arguing that “the interpretation of an MFN clause should be guided by established rules of treaty inter-
pretation, rather than policy considerations regarding the function of ‘MFN obligations in general’”) [hereinafter
Ishikawa]; Greenwood, supra note 2, at 558–59 (arguing that “the essential question for a tribunal is not what effect
‘the MFN clause’—in a generalized and abstract sense—might have, but what this MFN clause in this particular BIT
means and, thus, what effect it has,” and emphasizing that interpreters must take into account variations not only in
the text of MFN clauses but also in context, purpose, drafting history, and practice of the parties) (emphasis in orig-
inal);Caron& Shirlow, supra note13,408–13(notingthat, eventhough it is “widelyaccepted” thatMFNclausescan
function as “substantive protection obligation[s],” such MFN claims are usually unsuccessful because of express or
implied restrictions in the wording of MFN clauses and constraints arising out of the provisions of the target treaty);
Tony Cole, The Boundaries of Most Favored Nation Treatment in International Investment Law,33M
ICH.J.INT’L L.
537, 540–41, 543 (arguing that a “teleological interpretation” of MFN clauses “as being primarily a means of elim-
inating discrimination within a given market . . . risks allowing the goal of market equalization to override the oper-
ationoftheMFNclauseitself,” andemphasizing“theneedtoattendtothespecificdetailsregardingeachMFNclause,
rather than relying for interpretative purposes on some predecided teleological conclusion”) [hereinafter Cole].
17
ILC, Final Report of the Study Group on the Most-Favored-Nation Clause, para. 80, UN Doc. A/70/10,
Annex (2015) (identifying, but not taking up, the “larger question of whether any rights contained in a treaty with
a third State, which are more beneficial to an investor, could be relied upon by such an investor by virtue of the
MFN clause”) [hereinafter ILC 2015 Report].
18
See id., paras. 161–211 (performing this analysis in the context of the Maffezini debate); id., para. 173 (cau-
tioning against making “assumptions about the nature of investment agreements or of the rights that are granted
under them”).
THE AMERICAN JOURNAL OF INTERNATIONAL LAW876 Vol. 111:4
These nascent shifts in the literature dovet ail wi th recent developments in prac tice. I n
2016, the tribunal in İçkale v. Turkmenistan held, for the first time in a published investment
treaty case,
19
that the claimant could not invoke an MFN clause to import standards of treat-
ment, basing its ruling on the particular (but by no means peculiar) wording of the clause at
issue.
20
In parallel, some states, acting as litigants, non-disputing parties, and treaty drafters,
have in several instances taken the position that certain common terms in MFN clauses—
such as “treatment” or “like circumstances”—do not necessarily permit the importation of
substantive standards from third-party treaties.
21
Taken together, these developments suggest
some discomfort with the use of MFN to rearrange the framework of substantive protection
in investment treaties, as well as an effort to steer tribunals away from generalized assumptions
about “the” MFN clause and back to a more attentive consideration of the specific provision
at issue.
We take the opportunity presented by these developments to examine more broadly the
legal foundations of the use of MFN clauses to import standards of treatment, and to critically
analyze investment treaty jurisprudence on this issue. We begin in Part I by noting the wide
variation among MFN clauses in investment treaties and their precursors, both in terms of
their text and their potential uses, and the problems that this variation poses for efforts to
develop a unified approach to thei r inte rpretation. In Part II, we observe that tribunals on
both sides of the post-Maffe zini debate have applied a partic ularly stro ng form of the top-
down approach, which relies o n a perceived dichotomy between procedure and substance,
to arrive at the conclusion that importation of standards of treatment using MFN is unprob-
lematic. In the following parts, we discuss more recent developments that may mark a turn
away from the top-down approach. Part III discusses the award rendered in 2016 in İçkale,
which rejected importation of standards of treatment after emphasizing the specific terms of
the clause at issue. And Part IV connects the turn in İçkale to trends in the practice of some
states—in their roles as litigants, non-disputing parties, and treaty drafters—which likewise
emphasize the need for close attention to the details of MFN clauses, in ways that may restrict
the ability of investors to import standards of treatment. In Part V, we conclude by suggesting
that these developments may provoke a new debate on the scope and effect of MFN clauses in
investment treaties, and we briefly sketch the terms of the new MFN debate.
I. “T
HERE IS NO SUCH THING AS THE MOST-FAVOURED-NATION CLAUSE”
The interpretation of MFN clauses has long been marked by a tension between “bottom-
up” and “top-down” approaches. The bottom-up approach is reflectedinLordMcNair’s
axiom that “there is no such thing as the most-favoured-nation clause: every treaty requires
independent examination.”
22
The top-down approach, by contrast, follows from the view
19
United Nations Conference on Trade and Development, Investor-State Dispute Settlement: Revie w of
Developments in 2016, IIA I
SSUES NOTE NO.1:INTERNATIONAL INVESTMENT AGREEMENTS (2017), UN Doc.
UNCTAD/DIAE/PCB/2017/1, n. 227 (May 2017) (“The [İçkale] tribunal’s interpretation finds no precedent
in prior reported decisions.”).
20
İçkale İnşaat Limited Şirketi v. Turkmenistan, ICSID Case No. ARB/10/24, Award (Mar. 8, 2016) (Veijo
Heiskanen (President), Carolyn Lamm, Philippe Sands) [hereinafter İçkale].
21
See infra Part IV.
22
ARNOLD DUNCAN MCNAIR,THE LAW OF TREATIES 285&n.1(1938)(emphasisinoriginal);see also id.
(“There are of course many forms of this clause, so that any attempt to generalize as to the meaning and effect
NEW DEBATE ON THE INTERPRETATION OF MFN CLAUSES2017 877
that the parties to an agreement have something in mind—a generally understood “MFN
standard”—when incorporating these provisions into their agreements.
23
This tension is
arguably bu ilt in the contemporary rules on treaty interpretation, which direct drafters t o
the “ordinary meaning” of the treaty terms in their context and in light of the treaty’s object
and purpose, but also provide that a “special meaning shall be given to a term if it is established
that the parties so intended.”
24
In the following sections, we draw out thi s tension between the variation among MFN
provisions and the tendency toward top-down approaches to MFN importation of standards
of treatment. First, we present a general overview of MFN clauses in investment treaties, not-
ing the variation both in the terms of MFN clauses and in the uses to which they have been
put. Second, we turn to key MFN cases and practice from the era preceding contemporary
investment arbitration, which influenced the tribunals that first permitted importation of
third-party treaty provisions via MFN clauses in investment treaties. We conduct a reexam-
ination of these earlier authorities and argue that they counsel greater caution in the interpre-
tation of MFN clauses than is sometimes appreciated.
A. The Various Terms and Purposes of MFN Clauses
MFN is not a customary international law standard, and it is thus effected only through
specific treaty provisions.
25
Treaty practice has resulted in an impressive variety of MFN
of the most-favoured-nation clause must be accepted with caution.”); Endre Ustor, Most-Favoured-Nation Clause,
in 3E
NCYCLOPEDIA OF PUBLIC INTERNATIONAL LAW 468 (1997) (quoting Lord McNair approvingly); ILC 2015
Report, supra note 17, para. 149 (noting that “each MFN provision must be interpreted on the basis of its
own wording and the surrounding context,” and that “there is no basis for concluding that there will be a single
interpretation of an MFN provision applicable across all investment agreements”); Institut de Droit International,
Tokyo Resolution on Investment Treaty Arbitration, Art. 12 (“Most favoured nation treatment requires interpre-
tation of the specific wording of the clause of the treaty in which it is inserted, in order to respect the intentions of
the States parties.”); P
ETER T. MUCHLINSKI,MULTINATIONAL ENTERPRISES & THE LAW 630 (2d ed. 2007) (similar);
OECD, I
NTERNATIONAL INVESTMENT LAW:ACHANGING LANDSCAPE 158 (2005 ) (simi lar) [herei nafter OECD,
C
HANGING LANDSCAPE]; Ishikawa, supra note 16, at 136 (arguing that tribunals “should base their analysis on estab-
lished rules of treaty interpretation, rather than on policy considerations concerning the function of ‘ an MFN
clause’”); Greenwood, supra note 2, at 558–59 (noting that even identically worded clauses vary sufficiently in
their context, object and purpose, or negotiating history to warrant diverging interpretations).
23
E.g., Georg Schwarzenberger, The Most-Favoured-Nation Standard in British State Practice,22BRIT.Y.B.
I
NT’L L. 96, 104 (1945) (“Though there is no such thing as the m.f.n. clause, it is equally necessary to emphasize
that there is such a thing as the m.f.n. standard. As has happened in the case of the minimum standards of inter-
national law, the m.f.n. standard owes its clarification to innumerable individual treaties by which it has been
developed. The application of the m.f.n. standard in inter-State relations depends on agreement to this effect.
Yet the m.f.n. standard and its four inherent elements are clear and definite enough to permit the determination
of controver sie s between parties to such agreements.”) (emphasis in original) [hereinafter Schwarzenberger];
Douglas, Off the Rails, supra note 2, at 99 (“‘MFN’ is a term of art in international law and treaty obligations
employing this term of art have an ancient pedigree. When state parties enter into modern investment treaties
with an MFN clause, they surely do not intend to relegate the received wisdom on the nature, scope and effect
of such clauses to the dustbin of history.”); cf. Vandevelde, BIT Program, supra note 14, at 213 (pointing out that
not all variations in drafting were meant to have material effects, and reflecting the “concern that any modification,
even the elimination of redundancy, might be interpreted as a substantive concession”).
24
Vienna Convention on the Law of Treaties, Art. 31, May 23, 1969, 1155 UNTS 331 [hereinafter Vienna
Convention]; Schill, supra note 5, at 549–50 & n. 231 (noting the “interplay” between these provisions in the
context of MFN clauses, and observing that the rules of treaty interpretation give “preponderant weight” to the
ordinary meaning of treaty terms).
25
E.g., Report of the International Law Commission on the Work of Its Thirtieth Session, Art. 7, UN Doc.
A/33/10, II(2) Y.B. I
NT’L L. COMM’N (1978) [hereinafter ILC 1978 Draft Articles].
THE AMERICAN JOURNAL OF INTERNATIONAL LAW878 Vol. 111:4
clauses in agreements relating to trade, investment, consular relations, and other matters.
26
The key feature uniting these diverse provisions is an undertaking by one treaty party to
accord treatment to the other states parties (or their nationals) that is no less favorable
than the treatment accorded to the most favored third-party state (or its nationals).
27
In investment treaties, this undertaking is sometimes phrased affirmatively and other times
in negative terms. For example, the ILC’s final 2015 report on the topic refers to the following
clauses from the Austria-Czechoslovakia and U.K.-Argentina investment treaties:
Each Contracting Party shall accord investors of the other Contracting Party treatment
no less favourable than that accorded to its own investors or investors of a third State and
their investments. . . .
Neither Contracting Party shall in its territory subject investments or returns of investors
or companies of the other Contracting Party to treatment less favourable than that which
it accords to investments or returns of its own investors or companies or to investments or
returns of nationals or companies of any third State.
28
The ILC identifies six main design elements in MFN clauses.
29
These are: (1) language that
refers “simply to ‘treatment’ accorded to the investor or the investments”;
30
(2) language
“referring to ‘all’ treatm ent”;
31
(3) language t hat relates the term “treatment” to “specific
aspects of the investment process, such as ‘management,’‘maintenance,’‘use,’ and ‘disposal’
of the investment”;
32
(4) language that connects the MFN obligation to another standard of
treatment, such as FET;
33
(5) express provisions that “MFN treatment is to be provided only
26
See,e.g.,ILC2015 Report, supranote17, para.7 (“TheCommission hadtorespect thefactthatMFN provisions
come in a variety of forms and uniformity in interpretation or application could not necessarily be expected.”);
A
NDREW NEWCOMBE &LLUÍS PARADELL,LAW AND PRACTICE OF INVESTMENT TREATIES:STANDARDS OF TREATMENT
199 (2009) (noting that this diver sity limited the ILC’s ability to codify a definitive set of principles governing
MFN clauses). On the diversity of MFN clauses even within investment treatie s, see Marie-France House &
Fabrizio Pagani, Most-Favoured-Nation Treatment in International Investment Law,3–5 (OECD Working Paper
No. 2004/2, Sept. 2004) (providing a sample of MFN clauses in investment treaties and noting that “the universe
of MFN clauses in investment treatiesis quite diverse”);OECD,C
HANGING LANDSCAPE,supra note 22, at 158 (noting
that “the formulation and application of MFN clauses varies widely among investment treaties”).
27
See, e.g., ILC 1978 Draft Articles, supra note 25, Arts. 4–5.
28
ILC 2015 Report, supra note 17, pa ras. 56–57 (quoting the Agreemen t Concerning the Promotion and
Protection of Investments (Austria-Czechoslovakia), Art. 3(1), Oct. 15, 1990, 1653 UNTS 19, and the
Agreement for the Promotion and Protection of Investments (U.K.-Arg.), Art. 3(1), Dec. 11, 1990, available
at
http://investmentpolicyhub.unc tad.org). As n oted by the ILC, both of these clauses are compounded with
an obligation to provide national treatment. See id., para. 57.
29
Id., paras. 59–65. The ILC Report refers to these as “types” of treaty obligation, but, as the report acknowl-
edges, more than one of these elements may be present in any particular MFN provision. Id. Therefore, for the
purposes of treaty interpretation, it may be more helpful to think of these as varying elements of treaty text rather
than as six ideal types.
30
Id., para. 60 (citing the Austria-Czechoslovakia bilateral investment treaty (BIT) quoted above).
31
Id., para. 61 (citing Agreement on the Reciprocal Promotion and Protection of Investments (Spain-Arg.),
Art. IV(2), Oct. 3, 1991, 1699 UNTS 187 (“In all matters governed by this Agreement, such treatment shall be no
less favourable than that accorded by each Party to investments made in its territory by investors o f a third
country.”)).
32
Id., para. 62 (citing NAFTA, supra note 4, Art. 1103(2) (“Each Party shall accord to investments of investors
of another Party treatment no less favorable than that it accords, in like circumstances, to investments of investors
of any other Party or of a non-Party with respect to the establishment, acquisition, expansion, management, con-
duct, operation, and sale or other disposition of investments.”)).
33
Id., para. 63.
NEW DEBATE ON THE INTERPRETATION OF MFN CLAUSES2017 879
to those investors or investments that are ‘in like circumstances’ or ‘in similar situations’ to
investors or investments with which a comparison is being made”;
34
and (6) express territorial
limitations.
35
These elements are not exhaustive, and a n MFN clause may include other
terms and limitations, such as express carveout s for tax treatment or treatment resulting
from participation in a customs union.
36
Claimants in investment treaty arbitrations have attempted to use MFN clauses for several
purposes, which can be grouped in two main categories. First, investors sometimes claim that
a state has breached an MFN provision, resulting in damage to the investor, by taking mea-
sure s that allegedly favo r nat ionals from other foreign countrie s.
37
This type of claim was
made in Parkerings v. Lithuania, in which the claimant argued that state authorities discrim-
inated against it in favor of another foreign investor involved in the same economic activity—
the construction and management of parking garages.
38
The Parkerings tribunal accepted in
principle that the MFN provision at issue could be applied to remedy the alleged discrimi-
nation, but ultimately decided that, on the facts, the two foreign investors were not “in like
circumstances.”
39
This application, which has been referred to as the “more traditional” use of
34
ILC 2015 Report, supra note 17, para. 64 (citing NAFTA, supra note 4, Art. 1103 (quoted above) and
Agreement C oncerning the Reciprocal Promotion and Protection of Investments (Turk.-Pak .), Art. II(2),
Mar. 16, 1995 (“Each Party shall accor d to these investments, once establ ished, treatment no less favourable
than that accorded in similar situations . . . to investments of investors of any third country . . . .”)). This require-
ment, when not expressly stated, is often said to be implied. See, e.g.,
UNCTAD MFN Report, supra note 10, at 26
(“[B]y not making a specific reference to ‘like circumstances’ or any other criteria for comparison, the Contracting
Parties do not intend to dispense with the comparative context, as it would distort the entire sense and nature of the
MFN treatment clause.”); C
AMPBELL MC LACHLAN,LAURENCE SHORE &MATTHEW WEINIGER,INTERNATIONAL
INVESTMENT ARBITRATION:SUBSTANTIVE PRINCIPLES, at para. 7.311 (2d ed. 2017) (“Many treaties do not contain
such qualifying language, yet the establishment of a qualifying class for purposes of comparison is inherent in the
MFN test.”) [hereinafter M
CLACHLAN,SHORE &WEINIGER]; Andreas R. Ziegler, Most-Favoured-Nation (MFN)
Treatment, in S
TANDARDS OF INVESTMENT PROTECTION 59, 75 (August Reinisch ed., 2008) (similar) [hereinafter
Ziegler].
35
ILC 2015 Report, supra note 17, para. 65 (quoting Agr eement on the Promotion a nd Protection of
Investments (It.-Jordan), Art. 3(1), July 21, 199 6, available at
http://investmentpolicyhub.unctad.org (“Both
Contracting Parties, within the bounds of their own territory, shall grant investments effected by, and the income
accruing to, investors of the other Contracting Party no less favourable treatment than that accorded to invest-
ments effected by, and income accruing to, its own nationals or investors of Third States.”)).
36
See, e.g., ILC 2015 Report, supra note 17, para. 66.
37
See, e.g., Caron & Shirlow, supra note 13, at 407 (“MFN clauses have also been used as substantive protection
standards in their own right, prohibiting host States from according more favorable treatment to nationals of third
States vis-à-vis the claimant protected under the base treaty. Any such finding of breach will give rise to State lia-
bility and an obligation to compensate the investor on account of the less favorable treatment it has received. While
this function of MFN clauses is overwhelmingly accepted in principle, no awards are publicly available in which an
investor has succeeded in such a claim before an
ICSID tribunal.”).
38
Parkerings-Compagniet AS v. Republic of Lithuania, ICSID Case No. ARB/05/8, Award, paras. 362–74
(Sept. 11, 2007).
39
Id., paras. 374–430; see also, e.g., Cargill, Incorporated v. United Mexican States, ICSID Case No. ARB(AF)/05/2,
Award, paras. 224–34 (Sept. 18, 2009) (rejecting the MFN claim because the claimant had failed to show that it
was in “like circumstances” w ith third-party investors that allegedly received better treatment with respect to
import permit requirements) [herei nafter Cargill]; Grand River Enterprises Six Nations, Ltd., et al. v. United
States of America,
UNCITRAL,Award,paras.156–72 (Jan. 12, 2011) (similar); Apotex Holdings Inc. and
Apotex Inc. v. United States of America,
ICSID Case No. ARB(AF)/1 2/1 (hereinafter Apotex], Award, paras.
8.59–.77 (Aug. 25, 2014) (similar).
THE AMERICAN JOURNAL OF INTERNATIONAL LAW880 Vol. 111:4
MFN,
40
is akin to a “national treatment” claim, except that the applicable comparators are
investors from third-party states rather than the host state.
41
Second, investors have attempted to use MFN clauses to effectively alter the terms of the
applicable investment treaty by referring to treaties between the respondent state and third
parties. Investors have relied on MFN provisions to: (1) expand the standards of treatment
already present in the basic treaty;
42
(2) claim the benefit of standards of treatment absent
from the basic treaty;
43
(3) circumvent defenses available to the respondent state under the
basic treaty;
44
(4) circumvent provisions relating to preconditions to international arbitration
in the basic treaty;
45
(5) expand t he scope of the state’s consent to arbitration;
46
and
(6) expand the treaty’s scope ratione materi ae
47
or ratione temporis.
48
These uses can all be
described—admittedly with a degree of imprecision—as “importation.”
49
The prevailing discourse on the interpretation of MFN clauses in investment treaties has
focused on the “importation” category. The terms of this debate largely turn on which of the
above forms of importation generally are permitted by the MFN clause, and which generally
are excluded. At times, this argument is made from an expressly top-down perspective.
50
But
even where tribunals recognize the need for a “treaty by treaty” (i.e., bottom-up) approach,
40
Meg Kinnear, A Further Update on Most-Favoured-Nation Treatment—In Search of a Constant Jurisprudence,
in C
ONTEMPORARY ISSUES IN INTERNATIONAL ARBITRATION AND MEDIATION 15, 39 (Arthur W. Rovine ed., 2010)
(referring to Parkerings and similar cases as involving “more traditional claims of MFN”) [hereinafter Kinnear]; see
also R
UDOLF DOLZER &CHRISTOPH SCHREUER,PRINCIPLES OF INTERNATIONAL INVESTMENT LAW 207 (2d. ed. 2012)
(observing that “most cases involving the MFN rule have concerned situations in which benefits granted in treaties
with third states were invoked” but that “[t]he situation is less complex, and more comparable to the issues in the
trade area, when parties to an investment treaty [dispute] do not refer to a treaty with a third party but simply argue
that nationals of third parties are treated de facto in a more favourable manner”).
41
See, e.g., Cargill, supra note 39, para. 228 (“[T]he requirement for MFN treatment tracks that of the national
treatment requirement. Accordingly, it must be demonstrated first that the Claimant, as an investor, is in ‘like
circumstances’ with the investor of another Party or of a non-Party, or that the Claimant’sinvestmentisin
‘like circumstances’ with the investment of an investor of another Party or of a non-Party. And second, it must
be shown that the treatment received by Claimant was less favourable than the treatment received by the compa-
rable investor or investment.”); ADF Group Inc. v. United States of America,
ICSID Case No. ARB(AF)/00/1,
Award, para. 157 (Jan. 9, 2003), 18(1)
ICSID REV. – FOREIGN INV. L.J. 195 (2003) (“The Investor did not sustain
its burden of proving that the U.S. measures imposed (de jure or de facto) upon ADF International, or the steel to be
supplied by it in the U.S., less favorable treatment vis-à-vis similarly situated domestic (U.S.) fabricators or the steel
to be supplied by them in the U.S.”).
42
See, for example, the Chemtura case discussed infra in Part IV.A, which involved such an attempt.
43
See, for example, the White Industries case discussed infra in Part II.B, which allows such an attempt.
44
See, e.g., CMS Gas Transmission Company v. The Argentine Republic, ICSID Case No. ARB/01/8, Award,
para. 377 (May 12, 2005) (rejecting this use of MFN).
45
See, e.g., Maffezini, supra note 1 (allowing this use of MFN).
46
See, e.g., Plama Consortium Limited v. Republic of Bulgari a, ICSID Case No. ARB/03/24, Decision on
Jurisdiction, paras. 183–227 (Feb. 8, 2005) (rejecting this use of MFN) [hereinafter Plama].
47
See, e.g., Société Générale in Respect of DR Energy Holdings Limited and Empresa Distribuidora de
Electricidad del Este, S.A. v. The Dominican Republic, LCIA Case No. UN 7927, Award on Prelimina ry
Objections to Jurisdiction, para. 41 (Sept. 19, 2008) (rejecting this use of MFN).
48
See, e.g., Técnicas Medioambientales Tecmed, S.A. v. Uni ted Mexican States, ICSID Case No.
ARB(AF)/00/2, Award, para. 69 (May 29, 2003) (rejecting this use of MFN).
49
See supra note 2.
50
See in particular the debate between Zachary Douglas and Stephan Schill on importation of dispute settle-
ment provisions, in which both authors agree that MFN clauses should be interpreted to a significant extent
(though not exclusively) by reference to “general principles.” Douglas, Off the Rails, supra note 2, at 99;
Stephan W. Schi ll, Allocating Adjudicatory Authority: Most-Favored Nation Clauses as a Basis of Jurisdiction—A
Reply to Zachary Douglas, 2 J. I
NT’L DISP.SETTLEMENT 353, 357 (2011) [hereinafter Schill, Adjudicatory Authority].
NEW DEBATE ON THE INTERPRETATION OF MFN CLAUSES2017 881
they may not practice what they preach: one study observed in 2011 that decisions on the
scope of MFN clauses depended less on the specific terms or co ntext of the treaty at is sue
than on the tribunal’s presumptions concerning the scope and effect of these clauses.
51
Indeed, we have found that it is almost always assumed that the importation of substantive
standards of treatment (uses (1) and (2), above) is permitted by the MFN clause.
52
Uses
(3)–(6) are more controversial.
The degree of consensus on this point, and the tendency toward top-down interpretative
approaches, are striking in light of the significant degree of variation among the text of MFN
clauses in investment treaties. This diversity would normally demand caution and sensitivity
to variances in meaning—an approach, in other words, that is consistent with the emphasis
on “ordinary meaning” and context in the general rules of treaty interpretation.
53
But the
debate on MFN clauses in investment treaties is heavily influenced by the view that “the
MFN standard is among the most ancient and venerable in international law,”
54
and partic-
ipants in the debate thus frequently turn to “received wisdom” as to “the nature, scope and
effect” of the MFN clause.
55
It therefore serves to turn briefly to earlier disputes over MFN
clauses in commercial treaties, culminating in the Ambatielos case, which have been influential
in cementing the view that MFN clauses in investment treaties can be presumed to allow the
importation of standards of treatment.
B. MFN Importation in the Pre-BIT Era
Prior to the advent of contemporary investment treaties, MFN clauses frequently appeared
in bilateral commercial treaties, which regulated a variety of matters between nations, usually
relating to trade, consular assistance, and the treatment of aliens.
56
These MFN clauses were
51
Julie A. Maupin, MFN-Based Jurisdiction in Investor-State Arbitration: Is There Any Hope for a Consistent
Approach?,14J.I
NT’L ECON. L. 157, 161, 179 (2011) (finding, in the context of decisions on the importation
of jurisdictional provisions, that the outcome “has depended primarily neither upon the type of MFN question
asked nor upon the specific text of the MFN clause considered” but rather on a “fundamental difference in the
burden of persuasion”: “tribunals finding in favor of MFN-based jurisdiction (the Maffezini line of cases) have
tended to allow such jurisdiction unless persuaded that the contracting state parties to the BIT actively intended
to exclude it. Tribunals reaching the opposite result (the Plama line of cases), by contrast, have tended to exclude
MFN-based jurisdiction unless persuaded that the contracting state parties specifically intended to include it.”); see
also International Law Commission, Most-Favored-Nation Clause: Report of the Working Group, para. 29,
UN Doc. A/CN.4/L.719 (July 20, 2007) (“Treaty interpretation does not take place in a vacuum. How an inter-
preter approaches an MFN clause will depend in part on how the interpreter views the nature of MFN clauses.”).
52
See supra the introduction and infra Part II. We will at times refer to these two uses of MFN clauses collec-
tively as “importation of standards of treatment” or, as a shorthand, “MFN importation.”
53
This has been emphasized in some recent cases dealing with the importation of jurisdictional provisions. See,
e.g.,
HICEE B.V. v. The Slovak Republic, UNCITRAL, PCA Case No. 2009–11, Partial Award, para. 149 (May 23,
2011) (reasoning that it would be “a fallacy to suppose that there existed some general concept that could be called
into play to determine the scope of most-favoured-nation treatment in particular cases”).
54
Vladimir Berschader and Moïse Berschader v. The Russian Federation, SCC Case No. 080/2004, para. 17
(Apr. 21, 2006) (Weiler, dissenting) (“As Professor Schwarzenberger observed approximately six decades ago, the
MFN standard is among the most ancient and venerable in international law, placing the prospective talents of
every other country’s drafter at the disposal of the parties to a treaty who agree to include such a provision in their
agreement.”).
55
Douglas, Off the Rails, supra note 2, at 99. To be clear, Douglas is cautious about over-expansive interpre-
tations of MFN provisions, and refers to this “received wisdom” to support the view that MFN clauses should not
be used to import dispute settlement provisions.
56
See, e.g., ILC 2015 Report, supra note 17, para. 11; Kenneth J. Vandevelde, A Brief History of International
Investment Agreements, 12 U.C. D
AVIS J. INT’L L. & POL’Y 157, 158–61 (2005); CLAIRE CRÉPET DAIGREMONT,LA
THE AMERICAN JOURNAL OF INTERNATIONAL LAW882 Vol. 111:4
often specifically drafted to endow the beneficiary of the clause with whatever “privileges,”
“favors,”“immunities,” or “liberties” were later granted to a third state, within a defined
sphere of activity.
57
It was argued at the time that this type of clause would accord any benefits
within the scope of the clause—such as access to new ports—that were later extended under a
new treaty to a third-party state.
58
In the 1950s, the United Kingdom, the United States, and Greece sought to use these ear-
lier forms of MFN clauses to import standards from third-party treaties in three high-profile
cases: Anglo-Iranian Oil Co., Rights of U.S. Nationals in Morocco, and Ambatielos.
59
The les-
sons of those cases on MFN for the importation of standards of treatment in investment trea-
ties are, to say the least, not clear-cut. First, it is notable that none of these decisions permitted
the claimant to obtain via MFN the benefit of a provision in a third-party treaty, although
they suggested that this application of MFN could be permissible under those treaties in other
circumstances.
60
Second, and perhaps more importantly, the MFN clauses at issue in these
cases differ substantially from those found in most contemporary investment treaties. For
example, the clause at issue in Ambatielos stated:
The Contracting Parties agree that, in all matters relating to commerce and navigation,
any privilege, favour, or immunity whatever which either Contracting Party has actually
CLAUSE DE LA NATION LA PLUS FAVORISÉE 81–100 (2015) (reviewing the origins, practice, and eventual decline of
MFN clauses in treaties relating to consular relations and the treatment of aliens).
57
See, e.g., Endre Ustor, Special Rapporteur, First Report on the Most-F avoured-Nation Clause, para. 17,
UN Doc. A/CN.4/213 (Apr. 18, 1969) (quoting Article 8 of a commercial treaty negotiated between England
and France in 1713 (“It is further agreed and concluded, as a general Rule, That all and singular the Subjects of
each Kingdom, shall, in all Countrys and Places, on both sides, have and enjoy at least the same Privileges, Libertys,
and Immunitys, as to all Dutys, Impositions, or Customs whatsoever, relating to Persons, Goods and
Merchandizes, Ships, Freight, Seamen, Navigation and Commerce; and shall have the like Favour in all things
as the Subjects of France, or any other foreign Nation, the most favour’d, have, possess and enjoy, or at any
time hereafter may have, possess or enjoy.”)). Some of these same textual elements appear centuries later in the
MFN provision of the 1947 General Agreement on Tariffs and Trade, which provides, with respect to customs
duties, charges, and related matters, that “any advantage, favour, privilege or immunity granted by any contracting
party to any product originating in or destined for any other country shall be accorded immediately and uncon-
ditionally to the like product originating in or destined for the territories of all other contracting parties.” General
Agreement on Tariffs and Trade, Art. I, Oct. 30, 1947, 55 UNTS 194.
58
Shinya Murase, The Most-Favored-Nation Treatment in Japan’s Treaty Practice During the Period 1854–1905,
70 AJIL 273, 283 (1976) (observing that MFN clauses in nineteenth-century treaties with Japan proved an obsta-
cle to the revision of that country’s agreements with the United States, because “all the benefits to be accorded to
the United States under a proposed new treaty, such as opening of more ports, would be automatically extended to
all the other powers under the MFN clauses contained in their [commercial] treaties [with Japan]. Besides, the
United States could still claim the old tariff rate under its own MFN clause unless all the other powers conceded to
the new re gime . ”); see also T
REATIES AND CONVENTIONS CONCLUDED BETWEEN J AP AN AND FOREIGN NATIONS,
T
OGETHER WITH NOTIFICATIONS ®ULATIONS MADE FROM TIME TO TIME,1854–1870 (1871) (collecting
many of the treaties discussed in Murase’s study); K
ENNETH J. VANDEVELDE,THE FIRST BILATERAL INVESTMENT
TREATIES 239–40, 261 (2017) (noting, in a similar vein, the concern among some partners to U.S. postwar com-
mercial treaties that MFN provisions would require them to extend national treatment on certain matters to var-
ious “feared” third-country investors).
59
See Anglo-Iranian Oil Co. Case (U.K. v. Iran), 1952 ICJ Rep. 93 (July 22) [hereinafter Anglo-Iranian]; Case
Concerning Rights of Nationals of the United States of America in Morocco (Fr. v. U.S.), 1952 ICJ Rep. 176
(Aug. 27) [hereinafter Rights of U.S. Nationals]; Ambatielos Case (Greece v. U.K.), 12 R
EP.INT’L ARB.AWARDS 83,
107 (Mar. 6, 1956) [hereinafter Ambatielos].
60
See Ambatielos, supra note 59, at 1 07; Rights of U.S. Nationals, supra note 59, at 190, 204; id. at 226
(Hackworth, Badawi, Levi Carneiro & Sir Benegal Rau, disse nting); Anglo-Iranian, supra note 59, at 122
(McNair, sep. op.); id. at 141 (Hackworth, dissenting); id. at 144 (Read, dissenting); id. at 157, 170 (Levi
Carneiro, dissenting).
NEW DEBATE ON THE INTERPRETATION OF MFN CLAUSES2017 883
grantedormayhereaftergranttothesubjectsorcitizensofanyotherStateshallbe
extended immediately and unconditionally to the subjects or citizens of the other
Contracting Party; it being their intention that the trade and navigation of each country
shall be placed, in all respects, by the other on the footing of the most favoured nation.
61
There is no a priori reason to presume that modern investment treaties, which use substan-
tially different language, are meant to mimic in all respects the scope and effect of these dis-
tinct treaty provisions. Investment treaties define their scope with terms such as “treatment of
investm ents” and “like circumstances,” and they generally do not contain any express lan-
guage as to their effect, other than to provide that the parties “shall” provide treatment no
less favorable (or, conversely, that they “shall not” provide less favorable treatment).
62
In con-
trast, the above-quoted provision refers to “any privilege, favour, or immunity” granted to a
third country, and specifically provides that its effect is to “extend[]” those advantages to the
beneficiary state “immediately and unconditionally.”
63
Given these substantial differences in
treaty texts, it is open to argument whether the parties to contemporary investment treaties
intended to follow in all respects the same path as these earlier agreements.
64
Third, these earlier cases give careful attention to the particular wording of the MFN clause
at issue. This is evident in particular in Ambatielos, which of t he three cases noted above
addresses the MFN clause in the greatest detail. In that case, Greece contended that it was
entitled by virtue of the above-quoted clause to invoke a provision referring to “the principles
of international law” and various other treaty provisions relating to the “administration of
justice” in treaties between the United Kingdom and third countries.
65
The Arbitral Commission rejected both of these attempts on the basis of a detailed analysis
of the particular MFN clause at issue. As to the “principles of international law” provision, the
61
Ambatielos, supra note 59, at 106; see also Rights of U.S. Nationals, supra note 59, at 190 (“The commerce with
the United States shall be on the same footing as is the commerce with . . . the most favored nation for the time
being. . . . [W]hatever indulgence, in trade or otherwise, shall be granted to any of the Christian Powers, the cit-
izens of the United States shall be equally entitled to them.”). The MFN clause at issue in Anglo-Iranian did use the
term “treatment,” but it differed in other respects from contemporary MFN clauses in investment treaties. See
Anglo-Iranian, supra note 59, at 108 (“The High Contracting Parties engage that . . . the treatment of their respec-
tive subjects, and their trade, shall also, in every respect, be placed on the footing of the treatment of the subjects
and commerce of the most-favoured nation.”).
62
See supra Part I.A. For a suggestion that MFN provisions in investment treaties thus require an assessment of
whether the extension of different treaty provisions to third parties “actually causes a damage to the investor,” see
UNCTAD MFN Report, supra note 10, at 102.
63
Ambatielos, supra note 59, at 106; see also Rights of U.S. Nationals, supra note 59, at 190 (providing that “the
citizens of the United States shall be equally entitled to” indulgences granted to certain other powers). All three
MFN clauses also contain language stating that the beneficiary of the provision shall be placed on the “same foot-
ing” with third countries. See Ambatielos, supra note 59, at 106; Rights of U.S. Nationals, supra note 59, at 190;
Anglo-Iranian, supra note 59, at 109.
64
Former officials involved in the drafting of international investment agreements have taken diverging views
on this question. Compare V
ANDEVELDE, supra note 5, at 360 (supporting the view that MFN clauses may be used
to “pluck” provisions from third-party treaties), with Alejandro Faya Rodriguez, The Most-Favored-Nation Clause
in International Investment Agreements—A Tool for Treaty Shopping?,25J.I
NT’L ARB. 89, 101–02 (2008) (“As a
general rule, the MFNC should not be used for treaty shopping purposes. The only exception would be that the
third provision relates to competitive conditions for investment; examples would be pre-establishment, transfers
and performance requirements. Almost if not all the remaining provisions normally contained in IIAs relate to
generic legal s tanda rds of protect ion and pr oced ure, which, becaus e of their nature, should not fall into the
[MFN clause].”) [hereinafter Rodriguez]. In this respect, see also infra Part IV.B (noting efforts in recent treaties
to scale back the scope and effect of MFN provisions).
65
Ambatielos, supra note 59, at 108–09.
THE AMERICAN JOURNAL OF INTERNATIONAL LAW884 Vol. 111:4
Commission found that this clause did not constitute the type of “privileges, favours and
immunities” referred to in the MFN provision, and therefore could not be invoked by virtue
of MFN.
66
Regarding the “administration of justice” provisions, the Commission deter-
mined that in principle the MFN clause was broad enough to reach such provisions, stressing
the treaty text manifesting the parties’“intention that the trade and navigation of each coun-
try shall be placed, in all respects, by the other on the footing of the most favoured nation.”
67
Nevertheless, the Commission found that the treaties invoked by Greece in fact did not con-
tain any “privileges, favours or immunities” more extensive than those set forth in the basic
treaty between Greece and the United Kingdom, and therefore the MFN clause had “no bear-
ing on the present dispute.”
68
The Arbitral Commission reached these conclusions after analyzing the text, context, and
purpose of the applicable provisions, in a manner that tracks the ordinary rules of treaty inter-
pretation. In particular, the Commission stated what has become known in MFN cases as the
princ iple of ejusdem ge neris: “[The MFN clause] can only a ttract matters belonging to the
same category of subject as that to which the clause itself relates.”
69
Although this principle
is often presented as a special rule governing the interpretation of MFN clauses, it is simply an
elaboration of the general principle embodied in the Vienna Convention that one must look
at the specific terms of a treaty provision to determine its scope and effect.
70
In the words of
one commentator, the ejusdem generis principle “does not in fact provide a rule. . . . [W]hat it
says in effect is that the scope of the MFN clause is what the MFN clause says it is.”
71
Following the landmark cases of the 1950s, efforts to establish general principles governing
the scope and effect of MFN clauses, beyond the ordinary rules of treaty interpretation, have
been largely unsuccessful. In 1978, the ILC completed a set of draft articles on MFN clauses,
which it commended to the members of the UN General Assembly for conclusion of a
treaty.
72
No conference was ever convened, and no t reaty was concluded.
73
Since 1978,
66
Id. at 108; see also S. E. K. Hulme, The Ambatielos Case,1MELB OURNE U. L. REV. 64, 70 (1957–1958 )
(“Whether a most-favoured nation clause can have the effect of assuring to its beneficiaries treatment in accordance
with the general rules of international law, the Commission expressly left undecided. It was clear that this most-
favoured-nation clause in its express terms covered only ‘any privilege, favour or immunity’.”) (emphasis in
original).
67
Ambatielos, supra note 59, at 107 (emphasis in original). Several judges had accepted the United Kingdom’s
contrary position on this point in the earlier proceeding before the International Court of Justice (ICJ) regarding
the obligation to refer the Ambatielos case to an arbitral commission. See Ambatielos Case (Greece v. U.K.), 1953
ICJ Rep. 10, 34 (May 19) (McNair, Basdevant, Klaestad & Read, dissenting). The ICJ majority did not express a
view on this point.
68
Ambatielos, supra note 59, at 109–10. One member of the Ambatielos Commission dissented on this point, as
he considered that one o f the treatie s invoked by Greece contained more favorable provisions. Id. at 129
(Spiropoulos, dissenting).
69
Ambatielos, supra note 59, at 107.
70
Vienna Convention, supra note 24, Art. 31(1); ILC 1978 Draft Articles, supra note 25, at 30 (observing that
the ejusdem generis principle “follows clearly from the general principles of treaty interpretation”). See also infra Part
II.B.4 (discussing the different formulation of the ejusdem generis principle in the Al-Warraq case).
71
Joshua P. Meltzer, Investment, in BILATERAL AND REGIONAL TRADE AGREEMENTS 215, 236 (Simon Lester &
Bryan Mercurio eds., 2009).
72
ILC 1978 Draft Articles, supra note 25, at 16.
73
See, e.g., UN General Assembly Decision 46/416 (Dec. 9, 1991) (deciding only to “bring the draft articles on
most-favoured-nation clauses, as contained in the report of the Commission on the work of its thirtieth session, to
the attention of Member States and interested intergovernmental organizations for their consideration in such
cases and to the extent as they deemed appropriate”).
NEW DEBATE ON THE INTERPRETATION OF MFN CLAUSES2017 885
the context in which MFN clauses are used has changed significantly, owing in large part to
the rise of international investment agreements.
74
As one commentator has noted, the 1978
Draft Articles “provide little insight into the questions raised in contemporary arbitrations.”
75
To the extent that they can be used as an “interpretative aid” or as “general principles” appli-
cable to MFN clauses in investment treaties, as some have argued,
76
those Draft Articles do
not purport to define the specific benefits that are covered by a given MFN clause, other than
by reference to the terms of the clause itself.
77
For advocates of the top-down approach, the foregoing history of MFN clauses supplies
examples of a continuing practice of states claiming that MFN clauses entitle them to invoke
provisions set forth in third-party treaties, and of adjudicators seeing no conceptual difficulty
with such claims. On this view, the MFN clauses incorporated into modern investment trea-
ties—however reformulated from the more ornate language of earlier trade and consular
agreements—participate in the same practice of generalizing treaty standards across bilateral
relationships.
We draw a different lesson from these historical examples. The cases of the 1950s stress
careful attention to the terms gov erning the scope and effect of MFN clauses, rather than
rel iance on preconceived no tions of the clause ’s nature or purpose. And, once we turn to
the text, we find significant differences in treaty language across space and time, both
among investment treaties and between contemporary investment agreements and their pre-
decessors. In light of this variation, we see little reason to approach MFN provisions in invest-
ment treaties with a preconceived notion of the essential purpose or nature of these
provisions. There are of co urse lessons to be learned from the efforts of courts and of the
ILC to grapple with MFN clauses. But the most important lesson is that there is no single
MFN clause; we must proceed case by case.
II. T
HE CONVENTIONAL VIEW ON MFN IMPORTATION OF STANDARDS OF TREATMENT
Contemporary investor-state tribunals, however, have tended to apply a strong presump-
tion that MFN clauses may be used to import standards of treatment. This view emerges from
the confluence of two factors. The first, as we discussed above, is the longstanding pull toward
top-down approaches to MFN clauses, which is fueled by an understandable desire for some
degree of uniformity and predictability in a field populated by bilateral rather than multilat-
eral treaties.
78
The second is a reductive schematic—which has emerged in the particular con-
text of investment treaty arbitration—that imposes a rigid distinction between importation of
“procedural” and “substantive” provisions. Together, the top-down approach and the proce-
dure/substance dichotomy have fostered what might be called a “sticky default” view on the
74
This is expressly acknowledged in the ILC 2015 Report, supra note 17, paras. 20–23.
75
Vesel, supra note 3, at 136.
76
See, e.g., Schill, Adjudicatory Authority, supra note 50, at 360–61.
77
ILC 1978 Draft Articles, supra note 25, Art. 9 (providing that the beneficiary of the MFN clause may acquire
“only those rights which fall within the limits of the subject-matter of the clause”).
78
See, e.g., Schill, Adjudicatory Authority, supra note 50, at 357 (expressing a “belief in international investment
law being a system, in which consistency, coherence, and predictability are core values,” and arguing that “the
interpretation of BITs should take into account the general principles of international law and interpret every
BIT, and every provision within those BITs, in conformity with general international law and in light of the juris-
prudence of investment treaty tribunals on comparable clauses in other BITs”).
THE AMERICAN JOURNAL OF INTERNATIONAL LAW886 Vol. 111:4
use of MFN clauses to import standards of treatment: tribunals and commentators tend to
presume that states parties to investment treaties have agreed to this use of MFN, unless the
treaty provides otherwise.
79
This apparent presumption in favor of MFN importation reflects the intuition that it is
better—and thus “more favorable”— for a treaty to contain an FET provision, or other pro-
tection, than to lack that provision. But this bypasses the quest ion whether the applicable
MFN clause allows for this possibility. As we noted above, the clauses at issue in contempo-
rary investment treaty cases do not expressly state that any third-country treaty provision that
is considered “more favorable” is automatically imported into the basic treaty and may be
invoked by a claimant in an arbitral proceeding. These provisions, instead, use terms such
as “treatment” and “in like circumstances,” which must be interpreted and applied to a
given case. As we will see, the cases dealing with importation of standards of treatment
tend to address these elements in only a cursory way, if they do so at all.
In this section, we explore the development by arbitral tribunals of this apparent presump-
tion favoring MFN importation of standards of treatment. As we demonstrate in Section A
below, the cases that set the terms of the debate regarding MFN importation did not even deal
directly with substantive provisions, but rather with the different question of importing dis-
pute resolution provisions. These cases were nevertheless influential in consolidating and
entrenching the view that MFN c lauses, by default and unless otherwise provided, allow
for importing standards of treatment. We then show in Section B that the decisions allowing
claimants to import standards of treatment have generally relied—implicitly or even explicitly
—on this supposed default rule, and generally have not turned to the text of the clause, except
to satisfy themselves that the presumption in favor of importation had not been overcome.
A. The Seeds of the Conventional Wisdom: The Dispute Settlement Cases
The conventional wisdom on MFN importation can be traced to the earliest investment
tribunal decisions concerning MFN and dispute settlement provisions. In 2000, the tribunal
in Maffezini v. Spain famously permitted an investor to use MFN to avoid a local-litigation
requirement in the Spain-Argentina BIT.
80
This was the first published investme nt treaty
case to permit the importation of treaty provisi ons, whether substantive or procedural, via
MFN. In addressing the question of importation, the Maffezini tribunal relied on the
Ambatielos case discussed earlier.
81
79
On the concept of “sticky defaults” as applied to investment treaties, see Julian Arato, The Logic of Contract in
the World of Investment Treaties,58W
ILLIAM &MARY L. REV. 351, 363 (2016) (citing Ian Ayres, Regulating
Opt-Out: An Economic Theory of Altering Rules, 121 Y
ALE L.J. 2032, 2087 (2012)) (“Sticky defaults . . . can be
contracte d around, but doing so requires more conce rted action than with ordinary defaults—typically some
requirement of clear statement or via the adoption of certain formalities in the contract.”).
80
Maffezini, supra note 1, para. 64.
81
Id., paras. 48–53; see also supra Part I.B. The Maffezini tribunal also referred to the AAPL v. Sri Lanka case,
but found it inapposite because the claimant was not invoking MFN in connection with dispute settlement pro-
visions but “only” with respect to “the liability standards.” Maffezini, supra note 1, para. 51. In AAPL, the tribunal
rejected the claimant’s attempt to use an MFN clause to circumvent provisions in the basic treaty relating to com-
pensation for losses caused by war or civil disturbance, finding that it had failed to demonstrate that the absence of
such provisions in a third-party treaty constituted more favorable treatment. The tribunal, however, accepted in
principle the role of the MFN clause as an “implied incorporation method[]” that may lead to an “extension of the
applicable legal system.” Asian Agricultural Products Ltd. (AAPL) v. Republic of Sri La nka,
ICSID Case No.
ARB/87/3, Final Award, paras. 21–22, 26(D), 43, 54 (June 27, 1990).
NEW DEBATE ON THE INTERPRETATION OF MFN CLAUSES2017 887
Four years later, the Salini v. Jordan tribunal rejected a similar atte mpt to use MFN to
attract more favorable dispute resolution procedures.
82
With respect to Ambatielos, the tribu-
nal noted that the case did not concern the importation of more favorable dispute resolution
provisions, but rather an attempt by Greece to rely via MFN on “substantive provisions” in
other treaties concerning the administration of justice.
83
In other words, the Salini tribunal
found this prior case unhelpful because it did not deal with the particular problem of import-
ing procedural or jurisdictional provisions.
Through repetition of this dichotomy between procedure and substance, the post-
Maffezini debate “reinforced the notion that investors may invoke substantive right[s]
through the MFN clause.”
84
Indeed, subsequent tribunals have reasoned that, because impor-
tation of standards of treatment is permitted, there is no reason to preclude importation of
dispute resolution provisions.
85
At the other end of the spectrum, some tribunals have rea-
soned that, even though importing standards of treatment is uncontroversial, importing dis-
pute resolution provisions is different in nature and impermissible.
86
Although these two sets
of pronouncements led to diametrically opposite conclusions, they both started from the pre-
sumption that the use of MFN clauses to import standards of treatment is unproblematic.
87
82
Salini Costru ttori S.p.A. v. Hashemite Kingdom of Jordan, ICSID Case No. ARB/02/ 13, Decision on
Jurisdiction, paras. 102–19 (Nov. 15, 2004) [hereinafter Salini].
83
Id., para. 112 (emphasis added).
84
Rivas, supra note 5, at 436.
85
See, e.g., RosInvestCo UK Ltd. v. The Russian Federation, S CC Case No. V079/2005, Award on
Jurisdiction, paras. 131–32 (Oct. 2007) (stating that, in light of the generally accepted application of MFN clauses
to substantive provisions, the clause arguably applied “even more to ‘only’ procedural protection,” that importa-
tion of treaty provisions is the “the very character and intention” of MFN clauses, and that “[i]f this effect is gen-
erally accepted in the context of substantive protection, the Tribunal sees no reason not to accept it in the context
of procedural clauses such as arbitration clauses”) [hereinafter RosInv est]; Suez, Sociedad General de Aguas de
Barcelona,S.A.,andVivendiUniversal,S.A.v.TheArgentineRepublic,
ICSID Case No. ARB/03/19,
Decision on Jurisdiction, para. 59 (Aug. 3, 2006) (“[T]he Tribunal finds no basis for distinguishing dispute set-
tlement matters from any other matters covered by a bilateral investment treaty.”) [hereinafter Suez]; Austri an
Airlines v. The Slovak Republic,
UNCITRAL, Final Award, para. 124 (Oct. 9, 2009) (finding “no conceptual rea-
son why an MFN clause should be limited to substantive guarantees”); Renta 4 S.V.S.A. et al. v. The Russian
Federation, SCC Case No. V24/2007 [hereinafter Renta 4], Separate Opinion of Charles Brower, para. 10
(Mar. 20, 2009) (“I see no reason why an issue of the incorporati on of broader consent to arbitration under
the host Sta te’s third-country investment treaties should be treated differently fro m the consistently accepted
application of MFN clauses to substantive standards of treatment. . . .”).
86
Plama, supra note 46, para. 209 (“It is one thing to add to the treatment provided in one treaty more favorable
treatment provided elsewhere. It is quite another thing to replace a procedure specifically negotiated by parties with
an entirely different mechanism.”); see also Telenor Mobile Communications A.S. v. The Republic of Hungary,
ICSID Case No. ARB/04/15, Award, para. 92 (Sept. 13, 2006) (finding that the ordinary meaning of the clause at
issue “is that the investor’s substantive rights in respect of the investments are to be treated no less favourably than
under a BIT between the host State and a third State, and there is no warrant for construing the above phrase as
importing procedural rights as well”) (emphasis in original) [hereinafter Telenor]; Daimler Financial Services AG
v. Argentine Republic,
ICSID Case No. ARB/05/1, Award, para. 219 & n. 376 (Aug. 22, 2012) (noting the “lively
debate” among public international lawyers over whether the term “treatment” should be understood to comprise
“only ‘substantive’ treaty protections, or whether it may also include ‘procedural’ ones”) [hereinafter Daimler].
87
For views on the role of presumptions in this area, see Kinnear, supra note 40, at 48 (“Whatever one’s phil-
osophical leanings are, it is clear that the presumptions and public policy exceptions in cases like Maffezini and
Plama are not found in the express language of the treaties being interpreted in those cases.”); Schill, supra note 5,
at 549 (arguing that “MFN clauses, their wording permitting, need to be understood broadly as multilateralizing
not only substantive investor rights and applying to admissibility-related issues, but equally multilateralizing arbi-
tral jurisdiction by incorporating the host State’s broader consent from its third-country investment treaties” ).
THE AMERICAN JOURNAL OF INTERNATIONAL LAW888 Vol. 111:4
Thus, one of the striking features of the post-Maffezini debate is the adoption by both sides
of a top-down approach to MFN clauses. This is particularly clear in the expressed view of
tribunals and commentators that the Ambatielos case provides a precedent for importing pro-
cedural standards via MFN,
88
or that it supports only the importation of “substantive provi-
sions.”
89
Tribunals and commentators rarely grapple with the differences in text, context, and
purpose between the MFN provisions in the investment treaties they are applying and the
clauses in Ambatielos and other earlier cases,
90
even though those differences are substantial.
91
This indifference to variation across texts may seem unusual for a debate that is all about the
interpretation of treaty clauses, but it is fully consistent with the top-down view that MFN
clauses by default share a common nature and function.
B. The Application of the Conventional Wisdom: The Standards of Treatment Cases
The post-Maffezini debate has thus given rise to a widely shared view that the essential
function of MFN clauses in investment treaties is to import treaty standards. This view, con-
sistent with the top-down approach to interpretation, has sometimes been applied without
regard to variations in treaty language. Indeed, o f the twe lve published decisions we have
identified that allowed importation of standards of treatment,
92
most fail to engage with
88
Maffezini, supra note 1, paras. 48–53; see also Schill, Adjudicatory Authority, supra note 50, at 369 & n. 61
(arguing that the Ambatielos case imposes no “strict separation” between substantive and procedural provisions).
89
See, e.g., Plama, supra note 46, paras. 215, 225 (noting that the ruling in Ambatielos “relates to provisions
concerning substantive protection in the sense of denial of justice in the domestic courts. It does not relate to the
import of dispute resolution provisions of another treaty into the basic treaty” and referring to the same conclu-
sions in Salini v. Jordan); Salini, supra note 82, para. 112; Douglas, Off the Rails, supra note 2, at 102.
90
See, e.g., Maffezini, supra note 1, paras. 48–51 (addressing the Ambatielos decision but not the underlying
treaty text in that case); Plama, supra note 46, paras. 215, 217 (similar); Salini, supra note 82, para. 117 (discussing
only the final clause of the MFN provision, which provides “that the trade and navigation of each country be
placed, in all respects, by the other on the footing of the most-favoured-nation” (emphasis in the Salini decision)).
91
See supra Part I.B.
92
MTD Equity Sdn. Bhd. and MTD Chi le S.A. v. Republic of Chile, ICSID Case No. ARB/01/7, Award
(May 25, 2004) [hereinafter MTD]; Rumeli Telekom A.S. and Telsim Mobil Telekomunikasyon Hizmetleri A.S.
v. Republic of Kazakhstan,
ICSID Case No. ARB/05/16, Award (July 29, 2008) [hereinafter Rumeli]; L.E.S.I.
S.p.A. and ASTALDI S.p.A. v. République algérienne démocratique et populaire,
ICSID Case No. ARB/05/3,
Award (Nov. 12, 2008) [hereinafter LESI]; Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic
of Pakistan,
ICSID Case No. ARB/03/29, Award (Aug. 27, 2009) [here inafter Bayindir]; ATA Construction,
Industrial and Trading Co mpany v. The Hashemi te Kingdom of Jordan,
ICSID Case No. ARB/08/2, Award
(May 18, 2010) [hereinafter ATA]; Sergei Paushok, CJSC Golden East Co mpany and CJSC Vostokneftegaz
Company v. The Government of Mongolia,
UNCITRAL, Award on Jurisdiction and Liability (Apr. 28, 2011)
[hereinafter Paushok]; White Industries Australia Limited v. The Republic of India,
UNCITRAL, Final Award
(Nov. 30, 2011) [hereinafter White Industries]; EDF International S.A., SAUR International S.A. and León
Participaciones Argentinas S.A. v. Argentine Republic,
ICSID Case No. ARB/03/23, Award (June 11, 2012) [here-
inafter EDFI]; Mr. Franck Charles Arif v. Republic of Moldova,
ICSID Case No. ARB/11/23, Award (Apr. 8,
2013) [hereinafter Arif]; OAO Tatneft v. Ukraine,
UNCITRAL, Award on the Merits (July 29, 2014) [hereinafter
Tatneft]; Hesham Talaat M. Al-Warraq v. The Republic of Indonesia,
UNCITRAL, Final Award (Dec. 15, 2014)
[hereinafter Al-Warraq]; Teinver S.A., Transportes de Cercanías S.A. and Autobuses Urbanos del Sur S.A. v. The
Argentine Republic,
ICSID Case No. ARB/09/1, Award (July 21, 2017) [hereinafter Teinver]. Another study iden-
tified fifty cases involving claims for “substantive” MFN treatment. See Caron & Shirlow, supra note 13, n. 8. That
study covered not only decisions ruling on MFN importation of standards of treatment, which is the focus of this
article, but also a number of other uses of MFN. These included decisions involving claims of breach of MFN
clauses based on allegedly discriminatory state measures, and decisions involving attempts to overcome unfavor-
able treaty provisions, both of which are discussed above in Part I.A. That study also included cases in which the
tribunal did not find it necessary under the circumstances of the case to decide on the claimant’s attempt to import
a standard of treatment via MFN. See, e.g., Occidental Exploration and Production Company v. The Republic of
NEW DEBATE ON THE INTERPRETATION OF MFN CLAUSES2017 889
the actual text of the MFN provision. The cases in this area have built on each other, and
interacted with the dispute settlement cases, in a manner that perpetuates the conventional
view regarding importation of standards of treatment. And the cases that do address the treaty
text have generally done so in a manner that reaffirms the conventional view, presuming that
importation of standards of treatment is permissible unless otherwise expressly excluded.
In the following discussion, we trace in roughly chronological fashion the development of
this jurisprudence through four main cases—MTD v. Chile, Bayindir v. Pakistan, White
Industries v. India, and Al-Warraq v. Indonesia—noting other relevant cases along the way.
1. MTD v. Chile
The first published investment treaty decision in which an MFN clause was used to import
substantive standards of treatment was the 2004 award in MTD v. Chile.
93
In that case, the
claimant relied on the MFN clause to import provisions from two third-party treaties relating
to the observance of undertakings and to the grant of permits.
94
The MFN and the FET pro-
visions were both contained in the same clause, which stated:
Investments made by investors of either Contracting Party in the territory of the other
Contracting Party shall receive treatment which is fair and equitable, and not less favour-
able than that accorded to investments made by investors of any third State.
95
Chile did not object to the claimant’s importation argument, but the tribunal nonetheless
decided to “satisfy itself” that the MFN clause could be used in this way.
96
The tribunal framed
the issue as “whether the provisions of the Croatia BIT and the Denmark BIT . . . can be con-
sidered to b e part of fair and equita ble treat ment.”
97
In a single paragraph, the tribunal
answered this question in the affirmative, stating that importation of the requested standards
was “in consonance” with the FET standard as interpreted “in the manner most conducive to
fulfill the objective of the BIT to protect investments and create c onditions favorable to
Ecuador, LCIA Case No. UN 3467, Award, para. 178 (July 1, 2004) (finding it unnecessary to rule on an attempt
to import a national treatment clause because the tribunal had already found a breach of the national treatment
clause in the basic treaty); Pantechniki S.A. Contractors & Engineers v. The Republic of Albania,
ICSID Case No.
ARB/07/21, Award, para. 86 (July 30, 2009) (noting that Albania had “avoided debate” by conceding that the
claimant could rely on fair and equitable treatment (FET) “irrespective of the presence or absence of an MFN
clause”); I mpregilo S.p.A. v. Islamic Re pu blic of Pakistan,
ICSID Case No. ARB/03/3, Decision on
Jurisdiction, para. 223 (Apr. 22, 2005) (stating that a claim based on an “umbrella” clause would fail even assum-
ing arguendo that the claimant could invoke such a clause via MFN); Waguih Elie George Siag and Clorinda
Vecchi v. The Arab Republic of Egypt,
ICSID Case No. ARB/05/15, Award, para. 464 (June 1, 2009) (having
decided in the claimants’ favor on expropriation and FET, the tribunal found that “nothing would be added to
Claimants’ claim by the invocation of the most favoured nation doctrine and the ‘umbrella clause’ of the Egypt –
Greece BIT”). These decisions do not address the justification for using MFN provisions to import standards of
treatment, and we therefore do not discuss them in this Part.
93
E.g.,YasBanifatemi,The Emerging Jurisprudence on the Most-Favoured-Nation Treatment in Investment
Arbitration, in I
NVESTMENT TREATY LAW:CURRENT ISSUES III, at 241, 248 (Andrea K. Bjorklund, Ian A. Laird
& Sergey Ripinsky eds., 2009) (stating that “[t]he only tribunal” to give effect to FET via an MFN clause was
the MTD tribunal) [hereinafter Banifatemi]. But see the earlier dictum in the Pope & Talbot case, discussed
infra Part IV.A.
94
MTD, supra note 92, para. 103.
95
See id., para. 101 (quoting Art. 3(1) of the Chile-Malaysia BIT).
96
Id., para. 100; see also Teinver, supra note 92, n. 1089 (stating that the respondent’s lack of objection in MTD
was “worth noting”).
97
MTD, supra note 92, para. 103.
THE AMERICAN JOURNAL OF INTERNATIONAL LAW890 Vol. 111:4
investments.”
98
That puzzling interpretation came under scrutiny when Chile applied for
annulment of the award , with Chile arguing that the tribunal’s reasoning on the point was
“incomprehensible.”
99
The ad hoc committee agreed with Chile that the tribunal’s reasoning
was flawed, noting that the tribunal “appears to confuse” FET and MFN.
100
Despite the perfunctory analysis and apparent confusion in that case, commentators and
practitioners writing in the years that followed frequently suggested, citing MTD, that impor-
tation of su bstantive standards via M FN was unproblematic.
101
This perception was rein-
forced by the continued dispute over incorporation via MFN of more favorable
jurisdictional provisions, which appeared to be the locus of all the MFN-related action.
The few tribunals in the years after MTD to address importation of substantive provisions
did so with little analysis, or with none at all. In the LESI case, for instance, the tribunal per-
mitted importation of an FET clause based on perfunctory analysis of the term “treatment” in
the applicable MF N provision, finding that the term extended to “all aspects of the ‘treat-
ment’ of foreign investments, including their promotion and their protection.”
102
In another
series of cases, tribunals limited their analysis to noting that the respondents’ counsel did not
object to the use of MFN to import standards of treatment.
103
2. Bayindir v. Pakistan
The next decision after MTD to address at any length the importation of substantive stan-
dards, the 2009 Bayindir v. Pakistan award, refl ects the influence of the growing conventional
98
Id., para. 104.
99
MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Republic of Chile, ICSID Case No. ARB/01/7, Decision on
Annulment, para. 63 (Mar. 21, 2007).
100
Id. However, the committee found that this error had no consequence, since the tribunal had rejected the
claims based on the provisions from third-party treaties invoked by the claimant. Id., para. 64. The ad hoc com-
mittee also offered its own view of the MFN clause, which appeared to sweep even more broadly. See id. (stating
that the MFN c lause was meant to “unconditionally” permit importation of “any more favourable treatment
extended to third State investments”).
101
See, e.g., Banifatemi, supra note 93, at 246–47 (finding no “conceptual difficulties in situations where the
better treatment sought by the investor relates to the classic substant ive protection accorded by the host State
respectively in the basic treaty and in third-party tre aties”); Dumberry, Shopping For a Better Deal, supra
note 4, at 13 (“[O]ne can only approve the reasoning of the [MTD] Tribunal on the importation of the FET clause
in this case.”); Panel Discussion, MFN Treatment – What Are Its Limits in the Investment Context?, in 1I
NVESTMENT
TREATY ARBITRATION AND INTERNATIONAL LAW 247, 248 (Todd J. Grierson Weiler ed., 2008) (Noah Rubin s:
“[T]here is relatively little debate today as to whether one can fi ll in the blanks of substantive protections in an
investment protection treaty by reference to other investment treaties that the host State has also entered into with
third States. The typical example and the one that was tried and passed off without any objection by the host State
was in MT[D] v. Chile, where the applicable Chilean treaty had no umbrella clause, and they wanted to use one.
The claimant simply stated: well, there is an MFN clause, and Chile signed all kinds of BITs that have umbrella
clauses, therefore we’re going to import that.”).
102
See LESI, supra note 92, para. 150 (authors’ translation).
103
Rumeli, supra note 92, para. 575; Tatneft, supra note 92, para. 365; see also ATA, supra note 92, n. 16 (deal-
ing with the MFN provision in a footnote, which suggests (although the respondent’s position is not recorded) that
there was no or little contest as to this use of MFN). It is not clear that the MFN provisions at issue in those cases
would have permitted importation, had the respondents contested their use in this manner. Indeed, the applicable
MFN clauses in Rumeli and ATA (and in Bayindir discussed below) were identical to the MFN clause at issue in
İçkale, where the tribunal rejected importation on the basis of the clause’s text. See infra Part III; see also Dumberry,
Importation, supra note 5, at 124 (finding the absence of objection in Rumeli “quite surprising”); Jarrod Hepburn,
Analysis: In a Recent MFN Clause Interpretation, Arbitrators Diverge from More Generous Approach Taken by Certain
Earlier Tribunals,I
NVESTMENT ARB.REP. (Mar. 15, 2016) (noting the similarity among the relevant clauses).
NEW DEBATE ON THE INTERPRETATION OF MFN CLAUSES2017 891
wisdom. By that time, numerous decisions had been rendered on the issue of importation of
dispute settlement provisions through MFN, crystallizing the procedure/substance
dichotomy.
104
In Bayindir, the claimant invoked the MFN clause in the Turkey-Pakistan BIT for two
distinct purposes: (1) to claim that Pakistan’s allegedly more favorable treatment of other con-
tractors involved in the same economic sector as the claimant breached the MFN clause—the
first category of MFN uses referred to earlier;
105
and (2) to import an FET clause that was
absent from the basic treaty.
106
In a demonstration of the reflexive approach taken by tribu-
nals when addressing importation of substantive standards, the tribunal applied two very dif-
ferent interpretive methods for each of the claimant’s MFN claims.
In addressing the first of these two MFN claims, which was based on the actual conduct of
Pakistan toward other contractors, the tribunal closely analyzed the terms of the MFN clause
and grounded its decision in those terms, in line with a bottom-up approach. The MFN
clause in the Tu rkey -Paki stan BIT is a common formula tion, providi ng that ea ch pa rty
shall accord treatment to est ablishe d investmen ts that is “no less favourable than that
accorded in similar situations ...toinvestments of investors of any third country.”
107
The
tribunal accordingly stated that it “must first assess whether Bayindir was in a ‘similar situa-
tion’ to that of other investors”; this was a “fact specific” inquiry, which “must be examined at
the level of the contractual terms and circumstances.”
108
The tribunal went on to reject this
MFN claim, finding th at it was in “ no position to proceed to any meaningful comparison
between the different situations at issue” because it did not have “sufficiently specificdata
on the terms and the performance of the different contracts involved.”
109
The claimant,
therefore, had failed to demonstrate one of the “necessary requirements” of MFN.
110
When it turned to the question of importation of an FET provision via MFN, however, the
Bayindir tribunal departed from this close textual analysis. The tribunal asserted, without dis-
cussion, that the “ordinary meaning of the words” of the MFN clause “show that the parties to
the Treaty did not intend to exclude the importation of a more favourable substantive stan-
dard of treatment, ”
111
and supported its conclusion with a reference to the MTD case.
112
The
104
See, in addition to Maffezini and Salini, Siemens A.G. v. The Argentine Republic, ICSID Case No. ARB/02/8,
Decision on Jurisdiction (Aug. 3, 2004); Plama, supra note 46; Gas Natural SDG, S.A. v. The Argentine Republic,
ICSID Case No. ARB/03/10, Decision of the Tribunal on Preliminary Questions on Jurisdiction (June 17, 2005);
Berschader,supranote4; Suez,supra note85; Telefónica S.A.v.TheArgentine Republic,
ICSID CaseNo.ARB/03/20,
Decision on Jurisdiction (May 25, 2006);National Grid Plc v. The Argentine Republic,
UNCITRAL,Decisionofthe
Tribunal on Objections to Jurisdiction (June 20, 2006); Telenor, supra note 86; RosInvest, supra note 85; Wintershall
Aktiengesellschaftv. Argentine Republic,
ICSID Case No.ARB/04/14, Award(Dec.8, 2008);Renta4, supra note85,
Award (Mar. 20, 2009); Señor Tza Yap Shum v. The Republic of Peru,
ICSID Case No. ARB/07/6, Decision on
Jurisdiction and Competence (June 19, 2009).
105
See supra Part I.A.
106
At the jurisdictional phase, the tribunal had allowed that each of these uses of MFN was prima facie per-
missible under the BIT. Bayindir Insaat Turizm Ticaret ve Sanayi A.S. v. Islamic Republic of Pakistan,
ICSID Case
No. ARB/03/29, Decision on Jurisdiction, paras. 201–32 (Nov. 14, 2005).
107
Bayindir, supra note 92, para. 386. The full clause is combined with a national treatment obligation, and
further provides that the better of national treatment and MFN treatment shall apply.
108
Id., paras. 389, 416.
109
Id., para. 417.
110
Id., para. 420.
111
Id., para. 157.
112
Id., para. 158.
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tribunal appeared to suggest that importation was further supported by the absence of any
reference to this practice in the express limitations on the MFN clause, which consisted
only of widely used exceptions for taxation and treatment arising out of participation in a
customs union.
113
This analysis reflects the application of the “sticky default,” conventional approach to
MFN. Although the tribunal referred to the “ordinary meaning” of the text, it did not attempt
to follow the kind of textual a nalysis that it applied to the claimant’s disparate-treatment
claim.
114
For example, the tribunal made no visible effort to apply the “in similar situations”
element of the MFN clause in the context of the incorporation claim, which the tribunal had
elsewhere deemed a “necessary requirement” that entailed a “fact specific” inquiry.
115
Instead,
the tribunal appeared to turn to the text only to satisfy itself that there was no express language
excluding the possibility of importation. Thus, the tribunal appears to have presumed that the
MFN clause was intended to permit importation in the first place.
3. White Industries v. India
The White Industries case, decided two years after Bayindir,reflects the consolidation of this
approach. The claimant in that case sought to incorporate an “effective means” clause from a
third-party treaty via the MFN clause in the India-Australia BIT, which provided that a party
“shall at all times treat investments in its own territory on a basis no less favourable than that
accorded to inv estments or investors of any third country.”
116
India resisted this attempt ,
arguing, inter alia, that to do so would s ubvert “the carefully negotiated balance of t he
BIT.”
117
The tribunal’s rejection of India’s argument reflects just how entrenched the conventional
view of MFN had become. The award in White Industries provided no analysis of the partic-
ular terms of the applicable MFN clause.
118
Instead, the tribunal relied upon the distinction
between procedure and substance that grew out of the post- Maffezini cases, and it married
113
See id., paras. 156–57. The tribunal also distinguished the MFN cases involving procedural provisions, stat-
ing puzzlingly that “the ejusdem generis principle that is sometimes viewed as a bar to the operation of the MFN
clause with respect to procedural rights does not come into play here and the words of the Treaty are clear.” Id.,
para. 159. That statement is confusing because the ejusdem generis principle concerns the interpretation of MFN
clauses in general, not just the importation of “procedural” provisions. See supra Part I.B.
114
Compare Bayindir, supra note 92, paras. 153–60, with id., paras. 386–90, 415–23. In a similar vein, in a case
concerning the use of an MFN clause to import dispute settlement provisions, the tribunal expressly distinguished
between a “claim for relief for an alleged breach of the MFN clause,” for which “a claimant must normally establish
the existence of a comparator and then demonstrate that such comparator has received better treatment,” and the
use of the MFN clause to import standards of treatment, for which the relevant comparison is “between the stan-
dard of treatment guaranteed to a group of investors by one treaty and the standard of treatment guaranteed to
another group of investors by another treaty.” European American Investment Bank AG v. The Slovak Republic,
UNCITRAL, PCA Case No. 2010-17, Award on Jurisdiction, para. 435 (Oct. 22, 2012). The justification for the
tribunal’s dual approach to various types of claims based on the same MFN clause cannot be easily discerned from
the text of the applicable clause, which stated: “Each Contracting Party shall accord to investors of the other
Contracting Party and to their investments treatment that is no less favourable than that which it accords to its
own investors or to investors of any third States and their investments.” Id., para. 407.
115
As discussed below, the İçkale tribunal later relied on this same element to reject im portatio n. Se e infra
Part III.
116
White Industries, supra note 92, paras. 11.1.1–.4.
117
Id., paras. 11.2.1–.2 & n. 73 (quoting CAMPBELL MCLACHLAN,LAURENCE SHORE &MATTHEW WEINIGER,
I
NTERNATIONAL INVESTMENT ARBITRATION:SUBSTANTIVE PRINCIPLES (2007)).
118
See White Industries, supra note 92, paras. 11.2.1–.9.
NEW DEBATE ON THE INTERPRETATION OF MFN CLAUSES2017 893
this distinction to a seemingly inflexible top-down conception of what the MFN clause was
designed to do. In a passage remarkable for its breadth, the tribunal stated:
Here, White is not seeking to put in issue the dispute resolution provisions of the BIT,
but is instead availing itself of the right to rely on more favourable substantive provisions
in the third-party treaty.
This does not “subvert” the negotiated balance of the BIT. Instead, it achieves exactly the
result which the parties intended by the incorporation in the BIT of an MFN clause.
119
In the absence of any express analysis of the particular MFN clause at issue, the tribunal
appears to have determined what the parties “intended by the incorporation . . . of an MFN
clause” by applying a presumption that all parties mean the same thing when they write MFN
clauses into their treaties, regardless of the specific wording.
120
Following White Industries, two other tribunals appeared to apply a similar presumption
with respect to the importation of substantive standards via MFN. In EDF International
v. Argentina, the tribunal permitted importation of an “umbrella” clause via an MFN provi-
sion that referred to “treatment” accorded by the state “[w]ithin its territory and in its mar-
itime zone,”
121
without explaining how the presence of an “umbrella” clause in another treaty
constituted such treatment.
122
The tribunal stated that the MFN clause “by its terms, incor-
porates some provisions from other conventions” and that “[t]o interpret the BIT otherwise
would effectively read the MFN language out of the treaty.”
123
In Arif v. Moldova, the tribu-
nal likewise allowed importation of an “umbrella” clause via MFN, referring to the then
widely accepted distinction between MFN importation of procedural and substantive
119
Id., paras. 11.2.3–.4.
120
Id., para. 11.2.4. For a criticism, see Ishikawa, supra note 16, at 129, 144 (arguing that the White Industries
tribunal “should have approached the MFN issue as a matter of treaty interpretation, rather than relying solely on
the substantive/procedural dichotomy”).
121
The text of the MFN clause at issue is reproduced in EDFI, supra note 92, para. 207:
Within its territory and in its maritime zone, each Contracting Party shall provide to the investors of the other
Party, with respect to their investments and activities associated with such investments, a treatment no less
favorable than that accorded to its own investors or the treatment accorded to investors of the most favored
Nation if the latter is more advantageous. For the same reason, the nationals of either of the Contracting
Parties authorized to work in the territory and in the maritime zone of the other Contractin g Party shall
be able to enjoy suitable terms for the conduct of their professional activities.
122
See id., paras. 921–37. A subsequent ad hoc committee decision found that it was not annullable error for the
tribunal to have considered the term “treatment” in an MFN clause to encompass a commitment in a treaty to
honor commitments undertaken with respect to investments. See EDF International S.A., SAUR International
S.A. and León Participaciones Argentinas S.A. v. Argentine Republic,
ICSID Case No. ARB/03/23
(Annulment Proceeding), Decision, paras. 237–39 (Feb. 5, 2016) (“If German investors in Argentina have the
benefit of a treaty provision requiring the Host State to honour commitments undertaken (or entered into) in
relation to their investment, t hen t hey are being accorded a form of treatment which is no t expressly granted
to French investors by the Argentina-France BIT. That situation falls squarely within the terms of the MFN clause.
Even if Argentina is right in arguing that MFN clauses should be subjected to an ejusdem generis limitation—as to
which, it is unnecessary for the Committee to comment—the umbrella clause is part of the same genus of provi-
sions on substantive protection of investments as the fair and equitable treatment clause and other similar provi-
sions which feature in the Argentina-France BIT.”).
123
EDFI, supra note 92, para. 933. Note, however, that the use of MFN to remedy nationality-based discrim-
ination would not necessarily be “read out of the treaty” by the contrary interpretation. See supra Part I.A.
THE AMERICAN JOURNAL OF INTERNATIONAL LAW894 Vol. 111:4
provisions.
124
The tribunal simply noted that MFN clauses apply to “substantive obligations”
(this was undisputed), that the clause in this case is “broadly drafted,” and that an umbrella
clause is “substantive” in nature.
125
4. Al-Warraq v. Indonesia
A similar presumption appears to be at work in the Al-Warraq v. Indonesia award.
126
The
claimant sought to use the MFN clause in the Organization of the Islamic Conference
Agreement on Investment (OIC Agreement) to attract an FET provision from the U.K.-
Indonesia BIT.
127
The MFN clause of that treaty provides:
The Investors of any contracting party shall enjoy, within the context of economic activ-
ity in which they have employed their investments in the territories of another contract-
ing party, a treatment not less favourable than the treatment accorded to investors
belonging to ano ther State not party to this Agreement, in the context of that ac tivity
and in respect of rights and privileges accorded to those investors.
128
This clause is notable because it is limited to treatment “within the context of economic
activity in whi ch [investors] have employed their investments”—a limitation that does not
often appear in these precise terms in other MFN clauses. The respondent argued that this
language made clear that the MFN clause applied only to discrimination among nationalities
in the context of a particular economic activity, and did not provide “carte blanche to selec-
tively import obligations from the universe of treaties signed by Indonesia.”
129
The tribunal rejected this argument. It first noted that “a number of contemporary arbitral
decisions” had recognized the ability of MFN clauses to import third-treaty FET stan-
dards.
130
The tribunal then stated its view “that the MFN clause applies to import other
clauses as long as the ejusdem generis rule applies.”
131
The ejusdem generis principle was satis-
fied in this instance, the tribunal reasoned, because both the OIC Agreement and the U.K-
Indonesia BIT shared the same purpose of protecting foreign investment, as reflected in each
treaty’s preamble.
132
Once satisfied in principle that the treaty allowed for MFN importation,
the tribunal dispensed with the clause’s “ economic activity” limitation, reasoning that, since
both the basic and target treaties governed investments in the banking sector, this language
was not an obstacle to importation.
133
This analysis is in line with a strong presumption that
MFN clauses are designed to import standards of treatment unless specific treaty text
expresses a clear intent to specifically restrict that practice.
124
Arif, supra note 92, paras. 395–96.
125
Id.
126
See Al-Warraq, supra note 92, paras. 540–55.
127
Id., para. 540. There is no FET clause in the Organization of the I slamic Conference Agreement on
Investment.
128
Id., para. 381.
129
Id., para. 397.
130
Id., para. 541.
131
Id., para. 551.
132
Id., paras. 548–51.
133
Id., para. 552.
NEW DEBATE ON THE INTERPRETATION OF MFN CLAUSES2017 895
The tribunal’s approach, however, is not necessarily in line with the interpretive tools that
the tribunal purported to apply, which might have counseled a bottom-up, rather than top-
down, approach. As originally formulated, the ejusdem generis principle, which the Al-Warraq
tribunal applied, is not satisfied simply by noting that the third-party treaty is of the same kind
as the basic treaty. Instead, as discussed earlier, the principle of ejusdem generis focuses on
whether the benefit invoked is of the same kind as that contemplated in the MFN clause.
134
Applied in this way, the ejusdem generis principle directs the interpreter not to the broad pur-
poses of the basic and target treaties, but rather to the specific terms of the MFN clause at
issue. This approach would have led the Al-Warraq tribunal to grapple with the “economic
activity” language before reaching a conclusion in principle on the ability of the MFN clause to
import other treaty standards. By tinkering with the formulation of the ejusdem generis prin-
ciple, the Al-Warraq tribunal effectively converted that principle into a method for harmo-
nizing interpretations and minimizing differences across MFN clauses.
It should be noted that not all decisions apply an entirely top-down approach to MFN
treaties, and there may be a growing counter-trend toward recognizing at least some limita-
tions on MFN importation, even where such limitations are not stated as an express carveout.
For example, in Paushok, the tribunal allowed importation of an FET provision because the
scope of the MFN clause was defined by reference to a clause in the basic treaty referring to
FET,
135
but it rejected an attempt to import “completely new substantive rights” unrelated to
FET.
136
And in Teinver, the tribunal found that an MFN clause applying to “all matters gov-
erned by this Agreement ” covered “the various rights or forms of protection contained in the
individual provisions of the Treaty. ”
137
The tribunal allowed importation of a “full protection
134
See supra Part I.B. (discussing the expression of the ejusdem generis principle in Ambatielos); see also ILC 1978
Draft Articles, supra note 25, at 21 (referring to “[t]he ejusdem generis rule, according to which no other rights can
be claimed under a most-favoured-nation clause than those falling within the limits of the subject-matter of the
clause . . .”); id. at 30 (“The essence of the rule is that the beneficiary of a most-favoured-nation clause cannot claim
from the granting State advantages of a kind other than that stipulated in the clause.”); id. Art. 9(1) (stating the
principle); ILC 2015 Report, supra note 17, paras. 15, 214 (“The central interpretative issue in respect of the MFN
clauses relates to the scope of the clause and the application of the ejusdem generis principle. That is, the scope and
nature of the benefit that can be obtained under an MFN provision depends on the interpretation of the MFN
provision itself.”); Paushok, supra note 92, para. 565 (referring to the Ambatielos case for the proposition that “the
most-favored-nation clause can only attract matters belonging to the same category of subject as that to which the
clause itself relates”); N. S
TEPHAN KINSELLA &NOAH D. RUBINS,INTERNATIONAL I NVESTMENT,POLITICAL RISK, AND
DISPUTE RESOLUTION 228 (2005) (“Variations in the express scope of MFN clause application are particularly
important, given that inves tors can only acquire by way of an MFN provision those rights ‘which fall within
the subject matter’ of the clause.’”); Ishikawa, supra note 16, at 134–35 (arguing that “there is no rule that all
matters concerning substantive protection of investors/investments automatically fall into ‘the subject-matter[’]”
of the clause and that “[t]he ejusdem generis rule equally applies to matters concerning substantive protection of
investors/investments, and therefore tribunals facing the issue of the applicability of an MFN clause in this context
need to examine whether or not such matters fall in the same category of subject to which the clause relates”).
135
The MFN clause stated: “The treatment mentioned under paragraph 1 of this Article, shall not be less favor-
able than treatment accorded to investments and activities associated with investments of its own investors or
investors of any third State.” Paushok, supra note 92, paras. 562–63. “Paragraph 1” referred to a provision stating:
“Each Contracting Party shall, in its territory, accord investments of investors of the other Contracting Party and
activities associated with investments fair and equitable treatment excluding the application of measures that might
impair the operation and disposal with investments.” Id.
136
Id., paras. 570–73. In setting the stage for its MFN analysis, the tribunal noted that prior tribunals had
diverged on the issue of importation of dispute settleme nt provisions but noted that “this issue need not be
addressed in the present case, the question relating simply to the import of substantive rights.” Id., paras. 564–65.
137
Teinver, supra note 92, para. 884.
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and security” clause because the basic treaty already contained a clause relating to the “pro-
tection” of investments, but rejected an attempt to import an “umbrella” clause given the
absence of such a clause in any form in the basic treaty.
138
Nevertheless, these decisions
did not expressly challenge the conventional view that, as a matter of principle, MFN clauses
are designed to import standards of treatment from third-party treaties.
In sum, as demonstrated in this Part, most tribunals have relied on a presumption concern-
ing the use of MFN clauses to import standards of treatment. The MTD award, which was the
first to adopt this practice, did not appear to provide a complete rationale for MFN impor-
tation, either in terms of the specific clause at issue or more generally. In the years that fol-
lowed, tribunals generally rendered decisions based on simplified distinctions between
“procedural” and “substantive” provisions, or on generic conceptions of what “the” MFN
clause is for, at the expense of any sustained consideration of the treaty text.
III. İ
ÇKALE V.TURKMENISTAN:ATURN TO THE BOTTOM-UP APPROACH?
The award in İçkale, which for the first time refused to import any substantive standard of
treatment via an MFN clause on the ground that the clause did not permit such importation,
provides an opportunity to rethink the prevailing approach to MFN clauses in invest ment
treaties.
This case arose under the Turkey-Turkmenistan BIT, and concerned alleged state conduct vis-
à-vis several construction contracts concluded between the claimant and various state entities and
state-owned companies.
139
Most of the claimant’s arguments depended on invoking a minimum
standard of investment protection, such as FET or FPS, or an “umbrella” clause, all of which were
absent from the Turkey-Turkmenistan BIT.
140
The substantive protections in the Turkey-
Turkmenistan BIT concern only expropriation and national and MFN treatment, along with
provisions relating to entry and presence in the country, and free transfers of funds.
141
The
national and MFN treatment obligations in that treaty are phrased in familiar terms:
Each Party shall accord to these investments, once established, treatment no less favour-
able than that accorded in similar situations to investments of its investors or to investors
of any third country, whichever is the most favourable.
142
The claimant sought to use thi s provision as a vehicle for importing other standards of
treatment from treaties concluded between Turkmenistan and third parties.
143
The claimant
invoked the prevailing presumption on MFN importation, relying on some of the tribunal
138
Id., paras. 866–96. In another case, the tribunal did not question the claimant’s ability in principle to use the
MFN clause to import standards of treatment, but it declined the claimant’s attempt to create a “custom-made
treaty provision” that did not appear in any third-party treaty and found that the provisions that the claimant was
invoking would in any event not change the outcome under the circumstances of the case. Garanti Koz a LLP
v. Turkmenistan,
ICSID Case No. ARB/11/20, Award, paras. 372–78, 393 (Dec. 19, 2016).
139
İçkale, supra note 20, paras. 113, 294–310.
140
See id., para. 148(ii)–(iv); Agreement Concerning the Reciprocal Promotion and Protection of Investments,
Turk.-Turkm., May 2, 1992 [hereinafter Turkey-Turkmenistan BIT].
141
See Turkey-Turmenistan BIT, supra note 140, Arts. II–IV.
142
Id. Art. II.2. The phrase “these investments” refers to investments permitted into the host state’s territory in
accordance with the preceding Article II.1.
143
İçkale, supra note 20, paras. 314–17. The claimant offered alternative theories that did not rely on MFN,
which were also rejected by the tribunal. See id., paras. 331, 333–41.
NEW DEBATE ON THE INTERPRETATION OF MFN CLAUSES2017 897
decisions discussed earlier to argue that the term “treatment” in an MFN clause covers “at
least the substantive protections provided to other foreign investors,” and that such protec-
tions could thus be “imported from another bilateral investment treaty.”
144
Accordingly, the
claimant asserted, it was entitled to invoke FET and other provisions contained in treaties
concluded between Turkmenistan and Egypt, Bahrain, and the United Kingdom.
145
Turkmenistan objected to the claimant’s attempt to use the MFN provision to obtain the
benefit of those standards of treatment. That clause, it argued, was a guarantee of non-
discrimination on the basis of nationality, analogous to a national treatment provision, and
not a vehicle for importation. The provision, in the state’s view, implied a comparative, fact-
based analysis, which considered, inter alia, whether the investors were similarly situated and
“whether the treatment accorded to the host State’s national or third State’s national was in
fact more favorable than that of the claimant.”
146
In other words, Turkmenistan argued, the
claimant invoking this provision must identify “an actual investment of an actual investor, in
an actual ‘similar situation,’ who is actually receiving the allegedly more favorable
treatment.”
147
The tribunal sided with Turkmenistan, finding that the MFN provision “ cannot be read, in
good faith, to refer to standards of investment protection included in other investment treaties
....”
148
Instead, the tribunal determined, the provision guaranteed non-discrimination,
which “requires a comparison of the factual situation” of home-state invest ors and
third-state investors.
149
Because the claimant was not alleging that it received unfavorable
treatment vis-à-vis similarl y situated investo rs of third states, its effort to invoke the MFN
provision was dismissed in its entirety.
The tribunal based this holding on a parsing of the treaty text.
150
In particular, the tribunal
determined that it was bound to give effect to the comparative language in the MFN provi-
sion, which limited the clause’s application to cases in which at least two investors of differing
nationality were “in similar situations.”
151
This language limited the provision’s application
to differences in actual treatment among investors, rather than to mere theoretical differences
created by the presence or absence of provisions in different treaties. The tribunal explained:
The standards of protection included in other investment treaties create legal rights for the
investors concerned, which may be more favorable in the sense of being additional to the
standards included in the basic treaty, but such differences between applicable legal stan-
dardscannotbesaidtoamountto“treatment accorded in similar situations,” without effec-
tively denying any meaning to the terms “similar situations.” Investors cannot be said to be
in a “similar situation” merely because they have invested in a particular State; indeed, if the
terms “in similar situations” were to be read to coincide with the territorial scope of appli-
cation of the treaty, they would not be given any meaning and would effectively become
144
Id., para. 315.
145
Id., para. 314.
146
Id., para. 321 (alterations omitted).
147
Id.
148
Id., para. 329.
149
Id., paras. 328–29.
150
See id., para. 328 (applying Article 31 of the Vienna Convention).
151
Turkey-Turkmenistan BIT, supra note 140, Art. II.2.
THE AMERICAN JOURNAL OF INTERNATIONAL LAW898 Vol. 111:4
redundant . . . . Such a reading would not be consistent with the generally accepted rules of
treaty interpretation, including the principle of effectiveness, or effet utile, which requires
that each term of a treaty provision should be given meaning and effect.
152
The tribunal’s analysis is unique in its approach to the treaty text. Indeed, as we have noted
above, MFN clauses drafted like the one at issue in İçkale had already been relied upon to
import stan dards of treatment in three prior cases—two of which apparently did not even
draw the respondent’s o bjection.
153
And, unlike earlier cases w here tribunals hav e denied
importation o f some standards based on the wording of the MFN clause (such as Paushok
and Teinver),
154
the İçkale award is the first to categorically state that a common formulation
of the clause, by its very terms, does not permit the importation of standards of treatment.
There are arguably two ways to read the İçkale award as it relates to the interpretation of
MFN clauses. The first sees the award as a significant but perhaps predictable outgrowth of
the tr end in awards like Paushok and Teinver to temper the top-down approach to MFN
clauses with a margin of sensitivity to detail and variation in texts. A second reading is that
İçkale reflects a readiness among some arbitrators to reconsider more fundamentally the top-
down approach to MFN, bracketing broad notions as to the “essence” of MFN provisions and
choosing instead to proceed with the goal of giving effect to the specific provisions of indi-
vidual MFN clauses. Either reading would suggest a recalibration away from the conventional
view of MFN and a greater role for bottom-up methods of interpretation.
IV. R
ESISTANCE TO THE USE OF MFN CLAUSES TO IMPORT STANDARDS OF TREATMENT
Once we widen the lens beyond published investment arbitral awards, we find that the shift
taken by the İçkale tribunal toward a bottom-up approach dovetails with certain trends in the
practice of states. In their capacities as l itigants, non-dispu ting parties, and trea ty drafters,
states have in several instances taken steps to encourage sensitivity to the particular terms of
MFN clauses, and to discourage the application of broad presumptions as to the nature and
effect of “the” MFN clause. As we discuss in detail below, the three states parties to the
NAFTA
have repeatedly challenged the use of MFN to borrow standards of treatment from third-party
treaties by emphasizing the particular terms of the MFN clause in the
NAFTA. And the treaty
practice in new investment agreements further indicates that some states have become uncom-
fortable with the liberal use of MFN to import substantive standards, and have sought to reas-
sert control over the interpretation of basic terms in MFN clauses.
A. The
NAFTA Cases
The states parties to the NAFTA—Canada, Mexico, and the United States—have opposed
the importation of standards o f treatment via MFN in the context of specificinvestment
152
İçkale, supra note 20, para. 329.
153
See Bayindir, supra note 92, paras. 153–60; Rumeli, supra note 92, para. 575; ATA, supra note 92, n. 16.
Subsequent to İçkale, yet another claimant reportedly managed to invoke an identically worded MFN clause to
import standards of treatment. Alison Ross, Kazakhstan Ordered to Pay for Actions of Court Bailiffs,G
LOBAL ARB.
R
EV. (Nov. 14, 2017).
154
See, e.g., Paushok, supra note 92, paras. 562–73 (allowing importation of FET provisions but not other pro-
visions); Teinver, supra note 92, paras. 866–96 (allowing importation of a full protection and security clause but
not an umbrella clause).
NEW DEBATE ON THE INTERPRETATION OF MFN CLAUSES2017 899
disputes over the interpretation of Article 1105 (Minimum Standard of Treatment). They
have done so both in their plead ings and in submissions filed under
NAFTA Article 1128,
which permits non-disputing states to make submissions to an investment tribunal on ques-
tions of interpretation. Article 1128 of the
NAFTA, allowing for submissions in arbitral pro-
ceedings by non-disputing pa rties, “helps ensure that the treaty is interpreted in a manner
consistent with the views of all treaty parties , not just the claimant and respondent
state.”
155
It has been argued that the parties’ concordant submissions and pleadings can evi-
dence “subsequent practice,” or “subsequent agreement,” which must be taken into account
pursuant to the ordinary rules of treaty interpretation.
156
Article 1103 of the NAFTA supplies two similarly worded MFN provisions, one relating to
“investors” and the other to “investments.” As an example, the latter provision states, in full:
Each Party shall accord to investments of investors of another Party treatment no less
favorable than that it accords, in like circumstances, to investments of investors of any
other Party or of a non-Party with respect to the establishment, acquisition, expansion,
management, conduct, operation, and sale or other disposition of investments.
157
In several cases, claimants have sought to rely on this provision to borrow substantive stan-
dards of treatment in treaties between a
NAFTA party and a third country. These efforts have
met with resistance from the three states parties to the
NAFTA, either in their role as respon-
dent or as non-disputing parties in arbitration proceedings, and the claimants’ attempts have
never proven successful.
158
155
Jeremy K. Sharpe, Possible Paradigmatic Changes in the Settlement of International Investment Disputes, 108
ASIL P
ROC. 193, 195–96 (2015); see also Martin Hunter & Alexei Barbuk, NAFTA Chapter 11: Procedural Aspects
of Non-disputing Party Interventions in Chapter 11 Arbitrations,3A
SPER REV.INT’L BUS.&TRA DE L. 151, 181
(2003) (“The message for Chapter 11 tribunals is th erefore loud and clear. They should be sensitive to the
vital interests of the non-disputing Parties in matters that may create persuasive if not binding authority on ques-
tions of interpretation of the
NAFTA.”); Jason Webb Yackee, Controlling the International Investment Law Agency,
53 H
ARV.INT’L L.J. 392, 434–37 (2012) (arguing for broader adoption of mechanisms that enable “informed and
effective participation” by non-disputing states).
156
E.g., Lee M. Caplan & Jeremy K. Sharpe, United States, in COMMENTARIES ON SELECTED MODEL INVESTMENT
TREATIES 755, 833 (Chester Brown ed., 2013); Anthea Roberts, Power and Persuasion in Investment Treaty
Interpretation: The Dual Roles of States, 104 AJIL 179, 219 (2010); T
ARCISIO GAZZINI,INTERPRETATION O F
INTERNATIONAL INVESTMENT TREATIES 193–95 (2016).
157
NAFTA, supra note 4, Art. 1103(2). Annex IV of the NAFTA contains three identically worded schedules of
exceptions taken by each
NAFTA party to MFN treatment. For example, the United States’ exception reads, in
part: “The United States takes an exception to Article 1103 for treatment accorded under all bilateral or multi-
lateral international agreements in force or signed prior to the date of entry into force of this Agreement. For inter-
national agreements in force or signed after the date of entry into force of this Agreement, the United States takes
an exception to Article 1103 for treatment accorded under those agreements involving: (a) aviation; (b) fisheries;
(c) maritime matters, including salvage; or (d) telecommunications transport networks and telecommunications
transport services (this exception does not apply to measures covered by Chapter Thirteen (Telecommunications)
or the production, sale or licensing of radio or television programming).” Id., Annex IV. Annex IV has not been the
subject of any
NAFTA arbitral tribunal decision. Canada has argued that its schedule “simply takes an exception for
treatment given, for example by way of regulatory measures, under a provision of a pre-
NAFTA BIT” and that
“[t]his exce ption does not open the door to ‘standard shopping’ in all BITs post-
NAFTA.” Chemtura
Corporation v. Government of Canada,
UNCITRAL [hereinafter Chemtura], C an ada ’s Rejoinder, para. 239
(July 10, 2009) [hereinafter Chemtura, Canada’s Rejoinder].
158
See Dumberry, MFN in NAFTA Cases, supra note 3, at 10, 14.
THE AMERICAN JOURNAL OF INTERNATIONAL LAW900 Vol. 111:4
1. Pope & Talbot v. Canada and Methanex v. United States
The issue of whether Article 1103 can be used to import standards of treatment from third-
party treaties arose relatively early in the history of
NAFTA arbitration, in Pope & Talbot
v. Canada. In its 2001 award on liability, the tribunal referred to the MFN clause as evidence
that Article 1105, on the minimum standard of treatment, supplied an “autonomous” stan-
dard rather than the standard of treatment under customary international law.
159
If it were
otherwise, the t ribuna l s tated, then investors could “simply” turn to the MFN clause in
NAFTA Article 1103 “for rel ief.”
160
Afewmonthslater,theNAFTA Free Trade
Commission (FTC), composed of the three states parties, issued a note of interpretation clar-
ifying that Article 1105 prescribes the minimum standard of treatment of aliens under cus-
tomary international law.
161
Following an invitation by the tribunal to comment specifically on the effect of the MFN
clause,
162
Canada and the two non-disputing parties stated their view that the MFN clause
could not override or alter the meaning of Article 1105. For its part, Canada answered that the
FTC interpretation was binding and that
NAFTA Article 1103 could not undo that interpre-
tation.
163
The same day, the United States and Mexico filed non-party submissions under
NAFTA Article 1128 agreeing that “Article 1 103 cannot be re levant to, or constitute an
issue with respect to, the interpretation of Article 1105.”
164
The United States subsequently sent to the Pope & Talbot tribunal another non-disputing
party submission, which attached a letter it had recently filed in its capacity as respondent in
the Methanex case.
165
The Methanex letter stated, with respect to Article 1103:
Methanex fundamentally misconstrues the nature of Article 1103’s provision for most-
favored-nation treatment in any event. Contrary to Methanex’s suggestion, Article 1103
addresses not the law applicable in investor-state disputes, but the actual “treatment”
accorded with respect to an investment of another Party as compared to that accorded
to other foreign-owned investments. Article 1103 is not a choice-of-law clause. Instead, it
provides that each
NAFTA Party shall accord to investors and their investments of other
NAFTA Parties “treatment no less favorable than that it accords, in like circumstances” to
investors or their investments of any other
NAFTA Par ty or non-NAFTA Party “with
respect to the establishment, acquisition, expansion, management, conduct, operation,
and sale or other disposition of investments.” Thus, Methanex errs in relying on
Article 1103 because it offers neither evidence nor argument to show that a foreign-
owned investment allegedly in like circumstances was treated by the United States
159
Pope & Talbot Inc. v. The Government of Canada, UNCITRAL [hereinafter Pope & Talbot], Award on the
Merits of Phase 2, paras. 117–18 (Apr. 10, 2001) [hereinafter Pope & Talbot 2001 Award].
160
Id., para. 117.
161
NAFTA Free Trade Commiss ion, Notes of Interpretation of Cert ain Chapter 11 Provisions, Section B
(July 31, 2001).
162
Pope & Talbot, supra note 159, Letter from the Honorable Lord Dervaird to the Parties, a t 2 (Aug. 14,
2001); Pope & Talbot, supra note 159, Letter from Honorable Lord Dervaird to the Parties (Sept. 17, 2001).
163
Pope & Talbot, supra note 159, Letter from Canada to the Tribunal, at 3 (Oct. 1, 2001).
164
Pope & Talbot, supra note 159, Sixth Submission of the United States of America, para. 2 (Oct. 2, 2001);
Pope & Talbot, supra note 159, Submission of the United Mexican States Pursuant to Article 1128 of the
NAFTA
(Oct. 1, 2001).
165
Pope & Talbot, supra note 159, Eighth Submission of the United States (Dec. 3, 2001).
NEW DEBATE ON THE INTERPRETATION OF MFN CLAUSES2017 901
more favorably than it or its U.S. investments. . . . At bottom, Methanex urges this
Tribunal to disregard the
NAFTA Parties’ binding interpretation and, instead, by virtue
of Article 1103, interpret Article 1105(1) in accordance with its own view of BIT lan-
guage, which has never been accepted by any arbitral tribunal and is contrary to the
United States’ contemporaneous statements regarding the BITs. Such a position is not
consistent with the most-favored-nation treatment obligation of Article 1103.
166
Canada also fi led a non-disputing party submission in the Methanex case, stating that
“[n]othing in the language of
NAFTA Chapter Eleven permits a Chapter Eleven tribunal
to import into Article 1105 separate and distinct obligations found in other agreements.”
167
The final award in Methanex did not address this issue.
In its subsequent award on damages, the Pope & Talbot tribunal also declined to finally rule on
the issue. Instead, the tribunal determined that Canada would havebreached
NAFTA Article 1105
even if the FTC’s interpretation were to be given effect.
168
But the position of the United States
and Canada was clear: the MFN clause in Article 1103 could not be used to circumvent the
parties’ binding interpretation of the standards of treatment set forth in Article 1105.
2. Chemtura v. Canada
The issue arose again in Chemtura v. Canada. In that case, all three
NAFTA states objected
to the claimant’s attempt to import “free-standing ” FET clauses contained in Canada’s BITs
to supplement the minimum standard of treatment set forth in
NAFTA Article 1105(1).
Canada’s submissions in this case featured an extensive discussion of the elements of the
NAFTA’s MFN provision.
169
This discussion came in reaction to what Canada perceived as
an attempt by the claimant to “set[] aside the text of Article 1103” and instead to rely “on a
broad purposive interpretation of M FN clauses generally.”
170
Cana da disagreed with that
top-down approach, emphasizing that “[t]he general purpose of MFN provisions cannot
serve to get around the specific terms of th e MFN provision” agre ed by the parties, and it
set out to interpret those specific terms.
171
First, Canada argued that the term “treatment,”
as ordinarily understood, referred to “behaviour in respect of an entity or a person,” and that
this definition did not encompass general treaty standards such as FET.
172
Canada dist in-
guished such “treatment,” which was covered by the clause, from “standards of treatment,”
166
Methanex Corpor ation v. United Stat es of America, UNCITRAL [hereinafter Methanex], Response of
Respondent United States of America t o Methanex’s Submission Concerning the
NAFTA Free Trade
Commission’s July 31, 2001 Interpretation, at 9, 11 (Oct. 26, 2001) (emphasis in original).
167
Methanex, supra note 166, Third-Party Submission of Canada Pursuant to NAFTA Article 1128, para. 11
(Feb. 8, 2002).
168
Pope & Talbot, supra note 159, Award in Respect of Damages, para. 66 (May 31, 2002). Despite this state-
ment, the tribunal reiterated its views on Article 1103 in a footnote. Id., n. 54. In contrast to its analysis of MFN,
the tribunal in Pope & Talbot emphasized the “like circumstances” requirement when dealing with the claimant’s
national treatment claim, rejecting the claim on the ground that the claimant had failed to meet that requirement.
See Pope & Talbot 2001 Award, supra note 159, paras. 73–104.
169
Chemtura, supra note 157, Canada’s Counter-Memorial, paras. 861–911 (Oct. 20, 2008) [hereinafter
Chemtura, Canada’sCounter-Memorial];Che mtura,Canada’s Rejoinder, supra note 157, paras. 234, 236,
238–41.
170
Chemtura, Canada’s Rejoinder, supra note 157, para. 232.
171
Id., para. 233.
172
Chemtura, Canada’s Counter-Memorial, supra note 169, paras. 875–76.
THE AMERICAN JOURNAL OF INTERNATIONAL LAW902 Vol. 111:4
which “may potentially or theoretically result in a more favourable treatment of an investor
from another Party or of a non-Party.”
173
Canada continued:
There must be evidence of actual, not merely hypothetical, more favourable treatment.
This does not render the MFN provision meaningless as the Claimant suggests. The
NAFTA MFN provision does not simply allow the investor to choose the language it pre-
fers from Canada’s various investment agreements. The Claimant’ s MFN case relies on a
purely theoretical argument that there exists a different more favourable standard in
Canada’spost-
NAFTA investment agreements that wou ld apply in like circumstanc es
to certain other foreign investors. In reality, no nati onal from a third country received
better treatment.
174
Canada also referred to the other textual elements of Article 1103, which it argued had also
not been met. It argued that the claimant had failed to identify any investor “in like circum-
stances,” relying instead on a mere comparison of treaty provisions.
175
Canada also pointed to
the specific wording of Article 1103—which applied to management, acquisition, sale, and
other specified activities—and noted that this language made the clause narrower than the
provisions addressed in MTD and other arbitral decisions.
176
Moreover, Canada argued that the term “treatment” in Article 1103 had to be read in the
context of Article 1101(1), which states that Chapter 11 of the
NAFTA applies to “measures
adopted or maintained by a Party,” and Article 201, which defines “measure” as including a
“law, regulation, procedure, requirement or practice.”
177
In Canada’s view, this meant that
the scope of the MFN clause was limited to an “action taken by a single
NAFTA government
in its domestic jurisdiction, ” and that a treaty between two or more states “does not fall within
the definition of measure and is not treatment for the purposes of Chapter 11.”
178
Both the United States and Mexico filed non-disputing party submissions in that case.
Mexico expressed agreement with Canada’s arguments on this issue and concluded that
“the MFN obligation under Article 1103 cannot alter the substantive content of the fair
and equitable treatment obligation under Article 1105(1).”
179
The United States emphasized
the agreement between all three
NAFTA parties on the application of the MFN clause in this
context, stating:
[A]ll three Parties later confirmed, through subsequent submissions commenting on that
interpretation, that the MFN obligation under Article 1103 did not alter the substantive
content of the fair and equitable treatment obligation under Article 1105(1).
180
173
Chemtura, Canada’s Rejoinder, supra note 157, para. 238.
174
Id., paras. 239–40.
175
Chemtura, Canada’s Counter-Memorial, supra note 169, para. 887; see also Chemtura, Canada’s Rejoinder,
supra note 157, paras. 236, 238 (arguing that the “in like circumstances” language “must be given meaning and
take into account the circumstances relevant to the treatment at issue”).
176
Chemtura,Canada’s Counter-Memorial, supra note 169, paras. 861, 867, 906; Chemtura,Canada’s
Rejoinder, supra note 157, para. 234.
177
Chemtura, Canada’s Counter-Memorial, supra note 169, paras. 875–78.
178
Id., para. 878.
179
Chemtura, supra note 157, Submission of Mexico Pursuant to Article 1128 of NAFTA, paras. 2–5 (July 31,
2009).
180
Chemtura, supra note 157, Submission of the United States of America, para. 5 (July 31, 2009).
NEW DEBATE ON THE INTERPRETATION OF MFN CLAUSES2017 903
In its award, the Chemtura tribunal noted that the NAFTA states “firmly oppose” this use of
MFN but declined to rule on the issue.
181
3. Subsequent Cases
Following Chemtura,theNAFTA parties’ views were recorded in Bilcon v. Canada,
182
Apotex v. United States,
183
and Mesa Power v. Canada,
184
though again none of the tribunals
in those cases directly ruled on the issue.
185
In Mesa Power, for instance, Canada argued as follows:
Article 1103 is not a tool through which an investor can choose the language it prefers
from Canada’s various investment agreements. To prove a breach of Article 1103, the
Claimant has the burden of providing evidence of actual—not hypothetical—treatment
of an investor of a third party to the dispute. Otherwise, it would be impossible for the
Tribunal to answer the necessary factual questions, such as whether the treatment was in
fact “more favourable” and whether it was accorded in “ like circumstances.”
186
In the same arbitration, Mexico took a similar position in a s ubmission that echoed
Canada’s arguments in Chemtura on the meaning of “treatment”:
Article 1103 applies to actual instances of
treatment accorded to one or more investors of
a third State, or their investments, which is more favorable than the treatment accorded,
in like circumstances, to the claimant or its investment. The fact that another treaty the-
oretically offers different treatment is insufficient to establish a violation of
Article 1103.
187
For its part, the United States argued in Apotex that the NAFTA parties’ repeated resistance
to the use of the MFN clause in Article 1103 to “alter the substantive content of the fair and
equitable treatment obligation under Article 1105(1)” had by this point come to reflect the
“common, concordant views of all of the States Parties.”
188
As such, this position “may be
181
Chemtura, supra note 157, Award, paras. 235–36 (Aug. 2, 2010) (“The Respondent as well as the United
States and Mexico in their Article 1128 interventions firmly oppose of the possibility of importing a FET clause
from a BIT concluded by Canada.”).
182
William Ralph Clayton, William Richard Clayton, Douglas Clayto n, Danie l Cla yton and Bilcon of
Delaware Inc. v. Government of Canada,
UNCITRAL, PCA Case No. 2009–04, Canada’s Counter-Memorial,
para. 312 (Dec. 9, 2011) (“All three
NAFTA Parties have consistently rejected this proposition . . . .”).
183
Apotex, supra note 39, Counter-Memorial on Merits and Objections to Jurisdiction of Respondent United
States of America, para. 389 (Dec. 14, 2012) [hereinafter Apotex, United States’ Counter-Memorial].
184
Mesa Power Group, LLC v. Government of Canada, UNCITRAL, PCA Case No. 2012–17 [hereinafter
Mesa P ower], Canada’s Rejoinder on the Merits, paras. 42, 152 (July 2, 2014) [hereinafter Mesa Power,
Canada’s Rejoinder]; Mesa Power, Submission of Mexico P ursuant to
NAFTA Article 1128, para. 13 (July 25,
2014) [hereinafter Mesa Power, Mexico’s Non-disputing Party Submission].
185
See, e.g., Apotex, supra note 39, Award, paras. 9.66–.71 (Aug. 25 , 2014) (finding that the provision the
claimant sought to import was not shown to be more favorable and declining to decide the broader issue of impor-
tation); Mesa Power, supra note 184, Award, paras. 400–03 (Mar. 24, 2016) (finding that Article 1103 did not
apply because the claims related to procurement, which is expressly excluded from the scope of the MFN clause in
accordance with
NAFTA Article 1108(7)). The Bilcon award does not discuss this issue.
186
Mesa Power, Canada’s Rejoinder, supra note 184, para. 42.
187
Mesa Power, Mexico’s Non-disputing Party Submission, supra note 184, para. 13 (emphasis in original).
188
Apotex, United States’ Counter-Memorial, supra note 183, para. 389.
THE AMERICAN JOURNAL OF INTERNATIONAL LAW904 Vol. 111:4
deemed the authentic interpretation of the treaty,” which must be taken into account by
NAFTA tribunals.
189
B. Limitations on MFN Clauses in Recent Investment Treaties
Beyond arbitral disputes, some states have sought to curtail the use of MFN provisions to
import standards of treatment in recently concluded treaties, drafts, and model clauses. This is
frequently accomplished by introducing language that is clearly designed to overcome any
presumption in favor of importation, or by clarif ying cer tain ba sic ter ms of the MFN
clause—such as “treatment” and “like circumstances”—in ways that expressly or implicitly
preclude importation.
For example, the MFN clause in the investment chapter of the EU-Canada
Comprehensive Economic and Trade Agreement (CETA) expressly provides that the clause
may not be used to import either dispute settlement provisions or standards of treatment:
For greater certainty, the “treatment ” referred to in paragraphs 1 and 2 does not include
procedures for the resolution of investment disputes between investors and states pro-
vided for in other international investment treaties and other trade agreements.
Substantive obligations in other international investment treaties and other trade agree-
ments do not in themselves constitute “treatment,” and thus cannot give rise to a breach
of this Article, absent measures adopted or maintained by a Party pursuant to those
obligations.
190
Similar clarification s can be found in the MFN clause of the draft EU-Japan Economic
Partnership Agreement,
191
the draft Pan-African Investment Code,
192
and the Protocol of
Cooperation and Intra-Mercosur Investment Facilitation signed in 2017.
193
189
Id.
190
Comprehensive Economic and Trade Agreement, EU-Can., 2016, Art. 8.7, available at http://data.consi-
lium .europa.eu/doc/document/ST-10973-2016-INIT/en/pdf; see a lso Dumberry, Shopping For a Better Deal,
supra note 4, at 16 (discussing the implications of the provision); Frank Hoffmeister & Gabriela Alexandru, A
First Gli mpse of Light on the Emergi ng Invisible EU Model BIT,15J.W
ORLD I NV.&TRADE 379, 387–88
(2014) (discussing the “expansive case-law” in Maffezini and Bayindir and arguing that “excluding the incorpo-
ration of other normative standards into the operation of an MFN clause is actually preserving the political free-
dom of the EU to strive for the best available standards on the basis of full reciprocity with all its treaty partners ”);
cf. E uropean Commission, Public Consultation on Modalities for Investment Protection and ISDS in TTIP
(Mar. 2014), available at
http://trade.ec.europa.eu/doclib/docs/2014/march/tradoc_152280.pdf (stating, in con-
nection with the Transatlantic Trade and Investment Partnership, that “[o]n the ‘importation of standards’ issue,
the EU seeks to clarify that MFN does not allow procedural or substantive provisions to be imported from other
agreements”).
191
Draft Economic Partnership Agreement, EU-Japan, July 2017, Art. [x4] (5), available at http://trade.ec.
europa.eu/doclib/docs/2017/july/tradoc_155710.pdf (“Substantive provisions in other international agreements
concluded by a Party with a non-Party do not in themselves constitute ‘treatment’ under this Article.”); see also
Robert Howse, Fumbling Towards Multilateralism? A First Read of the Investment Text in the Japan-EU FTA,I
NT’L
ECON.L.&POL’Y BLOG, July 7, 2017 (discussing these provisions).
192
Draft Pan-African Investment Code, Art. 7, 2016, available at http://repository.uneca.org/bitstream/han-
dle/10855/23009/b11560526.pdf?sequence=1 (“For greater certainty, the ‘treatment,’ referred to in Paragraphs 1
and 2 [the MFN provisions], d oes not include dispute settlement procedures pr ovided for in other treaties.
Substantive obligations in other treaties, do not in themselves constitute ‘treatment,’ and thus cannot give rise
to a breach of this Article.”).
193
Protocol of Cooperation and Intra-Mercosur Investment Facilitation, Art. 5.7, Apr. 7, 2017, available at
http://apc.mef.gub.uy/innovaportal/file/21186/2/protocolo-de-cooperacion-y-facilitacion-de-inversiones.pdf
NEW DEBATE ON THE INTERPRETATION OF MFN CLAUSES2017 905
It is not yet clear what effect these new clauses will have on the prevailing approach to
MFN. One leading treatise, seemingly playing down the new CETA provision, states:
In Article X.7(4) of CETA, Canada and the European Union agree that “[s]ubstantive obli-
gations in other international investment treaties and other trade agreements do not in
themselves constitute ‘treatment,’ and thus cannot give rise to a breach of this article, absent
measures adopted by a Party pursuant to such obligations.” This provision mustbe takento
be lex specialis. Asa matterofgeneral internationallaw,atreaty obligation assumedtowards a
third State may constitute treatment for the purpose of the MFN clause.
194
The reference to lex specialis in this passage is imprecise, as there is no MFN standard appli-
cable “as a matter of general international law” from which the CETA seeks to derogate.
195
It
is likely that the authors instead meant to suggest a variation of the top-down approach dis-
cussed above: that is, that the CETA provision is a specialized formulation, which, outside the
context of this specific treaty, does not alter the essential nature of the MFN standard.
196
So restated, this view raises the further question of how states would go about altering the
general presumptions about the nature of MFN treatment in investment treaties. The answer
to this question would seem to depend on whether these developments in treaty drafting are
unde rstood as specialized deviations from standard practice or a s attempts at clarification.
Some commentators have taken the latter view, referring to these recent clauses as attempts
to avoid “unintended consequences” arising from tribunal interpretations of earlier
clauses.
197
For instance, the commentary to the new Southern African Development
Community Model BIT Template states:
The Drafting Committee noted that these should be bilateral treaties and that, as such,
they should not establish unintended multilateralization through the MFN provision. . . .
The Committee also noted that the MFN provision has been very broadly, and on several
occasions unexpectedly, interpreted in arbitrations, making it very unpredictable in prac-
tice. This poses unnecessary risks for States, especially developing countries.
198
(“For greater certainty, the provisions of this Article [which includes the MFN clause] shall not apply to incorpo-
rate provisions either substantive or relating to dispute settlement not contained in the present Protocol.”)
(authors’ translation); see also id. Art. 5.6; Southern African Development Community Model Bilateral
Investment Treaty Template with Commentary, Art. 4.4, July 2012, available at
http://www.iisd.org/itn/wp-con-
tent/uploads/2012/10/sadc-model-bit-template-final.pdf (“Notwithstanding any other pr ovision of this
Agreement, the provisions of this Article shall not apply to concessions, advantages, exemptions or other measures
that may result from: (a) a bilateral investment treaty or free trade agreement [that entered into force prior to this
agreement]. . . .”) [hereinafter SADC Model BIT].
194
MCLACHLAN,SHORE &WEINIGER, supra note 34, para. 7.308.
195
As noted supra in Part I.A., the MFN standard is not a creature of customary international law and is effected
only through treaties. The principle of lex specialis presumes two applicable legal rules, and it provides that, in case
of conflict, the general rule shall give way to the specificone.See, e.g., Martti Koskenniemi, Fragmentation of
International Law, Report of the Study Group of the International Law Commission, paras. 56–87, UN Doc.
A/CN.4/L.682 (Apr. 13, 2006).
196
See supra Part I.A.
197
Titi, supra note 12, at 434 (2016) (suggesting this in the context of the EU-Canada Comprehensive and
Economic Trade Agreement (CETA)); see also Venezuela US, S.R.L. v. The Bolivarian Republic of Venezuela,
UNCITRAL, PCA Case No. 2013–34, para. 56 (July 26, 2016) (Kohen, dissenting) (arguing that the MFN clause
of the CETA illustrates “the discontent of States to the extensive interpretations of these clauses”).
198
SADC Model BIT, supra note 193, commentary to Art. 4.
THE AMERICAN JOURNAL OF INTERNATIONAL LAW906 Vol. 111:4
The new clarification in CETA and other treaties, moreover, is only one possible reaction
to what states see as overbroad or troubling interpretations of MFN clauses. For example,
certain states have imposed other te mporal or substantive limitations on MFN clauses in
their recent treaties.
199
For its part, India has si mply omitted MFN from its most r ece nt
model investment treaty.
200
India has also sent a draft joint interpretative statement to
twenty-five BIT partners in which it proposed to clarify that “th e MFN obligation is not
intended to alter the Agreement’s substantive content by, for example, permitting piecemeal
incorporation of and reliance on provisions found in other treaties, investment or other-
wise.”
201
The draft interpretative statement also sta tes t hat a breach of the MFN clause
“requires a comparison between investors and investments that are in ‘like circumstances’”
and sets forth an extensive list of factors to be used for a “fact-specific” assessment of whether
the requirement of “like circumstances” has been met.
202
By widening the frame beyond published investment arbitral awards, the foregoing discus-
sion places the MFN debate in a new light. In response to the above trends, it is not so easy to
accept, as many arbitral awards have done, the conventional wisdom that an MFN clause may
always be used to import substantive standards of treatment from other treaties. To be sure,
the parties may conclude MFN clauses that have this effect if they wish to do so. But it is
incumbent on practitioners and tribunals to be more careful in determining whether and
to what extent states have agreed to such a use of MFN in any given treaty.
V. C
ONCLUDING REMARKS ON THE TERMS OF THE NEW MFN DEBATE
The time has come to engage in a ser ious debate r egarding the use of MFN clauses to
import standards of treatment from one investment treaty to another. For too long, arbitral
199
See, e.g., Agreement for the Promotion and Reciprocal Protection of Investments, Slovk.-Iran, Art. 4.5, Jan.
19, 2016, available at
http://investmentpolicyhu b.unctad.org/Download/TreatyFile/3601 (the MFN clause
“shall not apply to . . . treatment by the Contracting Party under any bilateral or multilateral international agree-
ment in force or signed by the Contracting Party prior to the date of entry into force of this Agreement”); Treaty for
the Reciprocal Promotion and Protection of Investments, Arg.-Qatar, Art. 4(4), Nov. 6, 2016, available at
http://
investmentpolicyhub.unctad.org/Download/TreatyFile/5383 (the MFN clause “shall not apply in order to invoke
the fair and equitable treatment and the dispute settlement provisions accorded to investors of any Third State
under treaties signed by one of the Contracting Parties prior to the entry into force of this Treaty”); Free
Trade Agreement, EU-Singapore, Chapter Nine (Investment), authentic text as of May 2015, available at
http://trade.ec.e uropa.eu/docl ib/docs/2014/october/tradoc_152 844.pdf (omitting MFN treatment, except in
connection with compensation for losses owing to armed conflict, insurrection, revolution and other such circum-
stances (Art. 9.5)).
200
See Model Text for the Indian Bilateral Investment Tr eaty, Chapter II, 2015, available at https://www.
mygov.in/sites/default/files/master_image/Model%20Text%20for%20the%20Indian%20Bilateral%20In vest
ment%20Treaty.pdf. Reports suggest that this may have been in response to the tribunal’s decision to import an
“effective means” clause in White Industries. Ashutosh Ray, New Indian Model BIT on the Anvil,K
LUWER ARB.
B
LOG (Jan. 9, 2015) (predictin g that the new Indian model BIT would limit or remove the MFN clause, in
light of the state’s loss in White Industries).
201
Investment Division of the Department of Economic Affairs o f India’s Ministry of Finance, Office
Memorandum on Issuance of Joint Interpretative Statements for Indian Bilateral Investment Treaties, Note 9(2)(a),
Feb. 8, 2016, available at
http://indiainbusiness.nic.in/newdesign/upload/Consolidated_Interpretive-Statement.
pdf.
202
Id. at Note 9(3)(b). India and Bangladesh reportedly agreed to enter into a joint statement that largely mir-
rors India’s draft. Jarrod Hepburn, Unable to Unilaterally Terminate a 2011 BIT, the Government of India Persuades
Counter-party to Agree Joint Interpretive Note to Clarify BIT’s Implications,I
NVESTMENT ARB.REP. (July 17, 2017);
Douglas Thomson, India’s BIT Recast Continues,G
LOBAL ARB.REV. (July 19, 2017).
NEW DEBATE ON THE INTERPRETATION OF MFN CLAUSES2017 907
tribunals have simply assumed that this practice was permitted under the MFN clause at issue,
or have paid only limited attention to the treaty text.
203
This debate will be best served if we
bracket, for the time being, presumptions about the essential nature and function of MFN
clauses in this respect, and turn inste ad to the specific terms of the treaties in which these
clauses appear.
In these concluding remarks, we do not purport to offer our own general theory of MFN
clauses, except perhaps to recommend greater caution in the face of such theories. Rather, we
highlight some issues which should be central to the new MFN debate, and which have until
recently been obscured by the conventional wisdom. These issues include the extent to which
emerging trends in drafting should affect the interpretation of earlier treaties, the meaning of com-
mon terms in investment treaties (such as “treatment” and “similar situations”), and the recon-
sideration of the relationship between MFN clauses and the purposes of investment treaties.
A. Treaty Drafting and Treaty Interpretation
As states continue to develop more precise language on MFN in their newer treaties, tri-
bunals will have to consider to what extent these developments may affect their interpreta-
tions of earlier treaties. As noted above, it may be debated in any particular case whether the
“new generation” MFN provisions represent departures from earlier negotiating positions or
clarifications of what was always intended by earlier MFN clauses.
This debate must take into account both general arguments about the nature of iterative
treaty practice and specific arguments about individual treaty clauses. At a general level,
tribunals and commentators have already begun to grapple with the implications of the
clarifying language that has been adopted in some, but not all, more recent treaties.
204
For
instance, in the context of the “old” MFN debate, the Plama tribunal found that the insertion
in post-Maffezini treaties of language excluding the importation of dispute settlement provi-
sions via MFN reflects “a re action by States to the expansive interpretation made in the
Maffezini case” and that “[i]f such language is lacking in an MFN provision, one cannot rea-
son a contrario that the dispute resolution provisions must be deemed to be incorporated.”
205
Likewise, the tribunal in Daimler viewed such language as “signaling that the specified MFN
clauses do not, and were never intended to, reach the international dispute resolution provi-
sions of the respectively mentioned investment agreements.”
206
At a more granular level, tribunals may also have to address provisions in subsequent trea-
ties that purport to clarify preexisting agreements. For example, it has been contended that
language such as “for greater certainty” is included in later treaties to signal that the provision
is meant to clarify established meanings, rather than signal a change in direction.
207
203
See supra Part II.
204
See UNCTAD MFN Report, supra note 10, at 95 (“[T]he fact that a country has not reacted through changes
in their model treaty or new treaty drafting does not necessarily mean an implicit agreement with the broad and
furthermore inconsistent interpretations by arbitral tribunals ....”); Kinnear, supra note 40, at 52 (“[S]ome might
debate whether respondents should be held to a different standard in pre- and post-Maffezini treaties on the logic
that the concern about clarity in drafting must have become patent at some point after the Maffezini award.”).
205
Plama, supra note 46, para. 203.
206
Daimler, supra note 86, para. 276.
207
See, e.g., James Mendenhall, The Evolution of the Essential Security Exception in U.S. Trade and Investment
Agreements, in S
OVEREIGN INVESTMENT 310, 341 (Karl P. Sauvant, Lisa E. Sachs & Wouter P. F. Schmit Jongbloed
THE AMERICAN JOURNAL OF INTERNATIONAL LAW908 Vol. 111:4
The weight that tribunals give to these recent developments in treaty-making may impact
not only the outcome of individual cases, but also the ability of states to affect and reshape
overarching views of “the MFN standard.” This debate will therefore be particularly impor-
tant if tribunals continue to apply any kind of top-down approach to the interpretation of
MFN clauses.
B. Renewed Attention to Specific Treaty Terms
If interpreters bracket their presumptions and intuitions about the nature of MFN clauses
and MFN importation, they will need to pay closer attention than they have in the past to
particular terms in MFN clauses.
This reconsideration of treaty terms must begin with the scope of the term “treatment.”
Some states have expressed the view that “treatment,” as it is used in at least some investment
treaties, refers to actual measures taken vis-à-vis investors or investments, and not to “stan-
dards of treatment” afforded in other investment treaties.
208
It has been suggested that states,
when drafting the earlier-generation investment treaties, did not envision that these provi-
sions would apply to import standards of treatment but rather that they would forbid actual
discrimination through conduct by the host state—what has been described as the “tradi-
tional” use of MFN clauses.
209
One investment treaty negotiator defended a similar position
in a 2008 article, and argued that MFN clauses generally “should not be used for treaty shop-
ping purposes.”
210
This approach would have tri bunals draw a distinction between “treatment” and “stan-
dards of treatment.” As a conceptual matter, this view is consistent with a growing body of
literature that identifies general treaty standards such as FET as “standards of review” against
which certain state measures are assessed.
211
On this view, it might be argued, “treatment”
refers to the state measure under review in an FET claim, rather than the FET provision itself.
This argument remains under-explored, and there is little discussion on how the distinction
eds., 2012) (stating that the expression “for greater certainty” implies “that it merely clarifies but does not sub-
stantively change the meaning of the basic provision”).
208
See, e.g., supra Part III (discussing the respondent state’s position in İçkale), Part IV.A (discussing submis-
sions in
NAFTA cases) and Part IV.B (discussing clarifying provisions in the CETA and other treaties).
209
Suzy H. Nikièma, The Most-Favoured-Nation Clause in Investment Treaties, IISD BEST PRACTICE SERIES 21
(Feb. 2017) (“[I]t is hard to believe that, when signing BITs before 2000, states would have envisaged MFN being
used to import provisions from BITs with other countries, whether substantive or procedural rules. It is more likely
that they were referring to treatment directly granted in the host country.”); Sundaresh Menon, The Transnational
Protection of Private Rights: Issues, Challenges, and Possible Solutions, 108 ASIL P
ROC. 219, 232–33 (2015) (noting
that broad interpretations of MFN clauses that allow investors to “pick and choose” provisions from third-party
treaties may enable an investor “to construct a cause of action that might never have been in the contemplation of
the contracting states” and that “[t]he obligations of the contracting states might therefore be defined by a patch-
work of the most favorable provisions contained in a raft of treaties linked by MFN clauses— potentially under-
mining the calibrated result of inter-state negotiations”); see also supra Part I.A.
210
Rodriguez, supra note 64, at 96, 101.
211
See Rahim Moloo & Justin M. Jacinto, Standar ds of Revi ew and R ev iewin g Standards , in Y.B . INT ’L
INVESTMENT L. & POL’Y 2011 –2012, at 539, 542–43, 552 (Karl P. Sauv ant ed., 2013); Anna T. Katselas, Do
Investment Treaties Prescribe a Deferential Standard of Review?,34M
ICH.J.INT’L L. 87, 90, 117–18 (2012);
Todd J. Grierson-Weiler & Ian A. Laird, Standards of Treatment, in T
HE OXFORD HANDBOOK OF
INTERNATIONAL INVESTMENT LAW 259, 299–300 (Peter Muchlinski, Federico Ortino & Christoph Schreuer
eds., 2008); G
US VAN HARTEN,INVESTMENT TREATY ARBITRATION AND PUBLIC LAW 80–81 (2007) [hereinafter
V
AN HARTEN].
NEW DEBATE ON THE INTERPRETATION OF MFN CLAUSES2017 909
between treatment and standards might be applied to other provis ions in investment
treaties.
212
Tribunals will also have to consider more closely the other elements of MFN clauses. As
suggested by the İçkale award, one critical element for further examination will be the require-
ment that the investor be “in like circumst ances” or “in similar situations ” with a s uitable
comparator.
213
Other terms may include territorial limitations,
214
as well as clauses directing
the application of MFN provisions to speci fic activities, such as the maintenance, manage-
ment, use, and acquisition of investments.
215
These terms may be usefully treated as individual elements of a given MFN clause, but it
also will be important to understand how they operate in concert to define the clause’s scope.
The İçkale award, for its part, focused on the phrase “treatment in similar situations,” finding
that this phrase did not extend to standards of treatment in other investment treaties.
216
Thus
the terms “in similar situations” could be said to operate not only as an element that must be
212
But see Rodriguez, supra note 64, at 101–02 (objecting as a general matter to the use of MFN clauses for
treaty shopping, but suggesting that the MFN clause might address, at most, third-party treaty provisions that
relate “to competitive conditions for investment; examples would be pre-establishment, transfers and performance
requirements”).
213
İçkale, supra note 20, paras. 329, 332; see also Chemtura, Canada’s Rejoinder, supra note 157, paras. 236,
238; ILC 2015 Report, supra note 17, para. 71 (noting that these terms “seem to place some limitation upon which
investors or investments can claim the benefit of an MFN provision— suggesting perhaps that only those investors
or investments that are in ‘like circumstances’ with those of the comparator treaty can do so”); Pia Acconci, Most-
Favoured-Nation Treatment,inT
HE OXFORD HANDBOOK OF INTERNATIONAL INVESTMENT LAW, supra note 211, at
363, 365–66, 376–77 (recognizing the “restrictive” effect of the “like circumstances” language and arguing that
MFN treatment “cannot apply if only investors of the same country have invested in another country” because
“[i]n such a case there is no possibility of comparing the treatments granted by the same country to foreign inves-
tors coming from different countries”).
214
See, e.g., Beijing Urban Construction Group Co. Ltd. v. Republic of Yemen, ICSID Case No. ARB/14/30,
Decision on Jurisdict ion, paras. 116–17, 120 (May 31, 2017) (finding t hat an express limitation of the MFN
clause to treatment accorded by the state in “its territory”“tie[s] the MFN to activities that take place ‘in the ter-
ritory’ associated geographically with the investment,” and rejecting the claimant’s attempt to use that MFN pro-
vision to import dispute settlement provisions from third-party treaties); Douglas, Off the Rails, supra note 2, at
111 (“A purely textual analysis [in RosInvest] would have run into difficulties with the words ‘in its territory’ that
are to be found in each paragraph of the MFN clause. How can the host state provide more favourable treatment in
relation to the scope of an international tribunal’s jurisdiction ‘in its territory’?”). This limitation has not been
discussed in the context of standards of treatment, but, to the extent that standards of treatment are conceptualized
as “standards of review,” the same difficulties encountered by the Beijing Urban Construction tribunal could arise in
this context as well.
215
See, e.g., Chemtura, Canada’s Counter-Memorial, supra note 169, para. 861; ILC 2015 Report, supra note 17,
para. 62 ( disti nguishin g this langu age from other MFN provisions). In the context of dispute settlement, see
C
HRISTOPHER F. DUGAN,DON WALLACE ,JR., NOAH RUBINS &BORZU SAB AHI,INVESTOR-STATE ARBITRATION
416 (2008) (quoting Noah Rubins) (such clauses “are intended to cover the investment of the investor and/or
its investment vehicle, i.e. matters related to making money, and not matters related to vindicating rights through
international arbitration”), Vesel, supra note 3, n. 95 (stating that these textual limits to the scope of MFN “would
clearly preclude its application to dispute settlement mechanisms”). Also compare Hochtief AG v. The Argentine
Republic,
ICSID Case No. ARB/07/31, paras. 61–68 (Oct. 7, 2011) (Thomas, dissenting) (finding that an MFN
clause referring to the “management, exploitation, use and enjoyment” of investments was “concerned only with a
specific genus of less favourable treatments and in relation to a specific genus of investor activities,” namely “ mea-
sures” affecting the “the day-to-day management and operation of the investment,” and thus could not be invoked
to import dispute settlement provisions from third-party treaties), with Hochtief AG v. The Argentine Republic,
ICSID Case No. ARB/07/31, Decision on Jurisdiction, paras. 65–66 (Oct. 24, 2011) (holding that dispute set-
tlement was “as an aspect of the management of the investment” and therefore the MFN clause could be used to
import dispute settlement provisions).
216
İçkale, supra note 20, para. 329.
THE AMERICAN JOURNAL OF INTERNATIONAL LAW910 Vol. 111:4
satisfied in an MFN claim, but also as part of the context guiding the interpretation of the
scope of the clause as a whole.
C. MFN and the Nature of Nationality-Based Discrimination in Investment Treaties
The new MFN debate also provides an opportunity to reconsider prevailing theories about
the purpose of these clauses in investment treaties. Greater emphasis on the specific terms of
MFN clauses—such as “like circumstances” and “similar situations”—will naturally bring the
MFN analysis into closer contact with th e analysis under similarly worded “ national treat-
ment” provisions.
217
The interplay between these two standards may inform arguments as
to the overall role of “non-discrimination” provisions in i nvestment treaties, and the type
of discrimination to which these provisions are addressed.
There are at least two potential approaches to understanding “discrimination” in the con-
text of these provisions. The view of MFN clauses as instruments of multilateralization comes
with a built-in understanding of the purpose of investment treaties as a means to impose “uni-
form standards of investment protection which, in turn, allow investors from different
national origins to compete under equal competitive conditions.”
218
On this view, “ discrim-
ination” is potentially anything that imposes unequal transaction costs for investors based on
their nationality.
219
The focus of the multilateralization view on competition aligns, in this
sense, with areas of international trade jurisprudence, which emphasize “equal competitive
opportunities” without regard to the actual effects of state measures.
220
A s econd view of discrimination, which is a rguably more prevalent in the context of
national treatment claims under investment treaties, is concerned with repairing the effects
of actual discrimination on specific investments, not equalizing abstract competitive oppor-
tunities.
221
Investment tribunals dealing with national treatment claims have thus adopted an
217
See, e.g., Jürgen Kurtz, The MFN Standard and Foreign Investment: An Uneasy Fit?,5J.WORLD INV.&
T
RADE 861, 875 (2004) (noting similarities in the two standards and suggesting that OECD guidance on national
trea tment could provide “ausefulstartingpoint” for examining similar problems in MFN cases) [hereinafter
Kurtz]; ILC 2015 Report, supra note 17, para. 77 (“In the view of the Study Group, interpretations of phrases
such as ‘in like circumstances’ or ‘in similar situations’ in the context of national treatment can provide important
guidance for the interpretation of those terms in the context of MFN clauses.”).
218
Schill, supra note 5, at 500.
219
See id. at 503 (“Complemented by national treatment, the economic rationale of MFN treatment is to create
a level playing field for all foreign investors by prohibiting discrimination between investors from different home
States. It aims at enabling equal competition among investors by prohibiting the imposition of different transac-
tion costs based on the national origin of investors. Equal competition, in turn, is essential for the functioning of a
market economy that helps to allocate resources efficiently. Thus, MFN treatment reflects the crucial importance
competitive structures play for efficient investment and an efficient allocation of resources.”).
220
Cf. Appellate Body Report, Japan—Taxes on Alcoholic Beverages, WTO Doc. No. WT/DS8/AB/R, at 16
(Oct. 4, 1996) (“[I]t is irrelevant that ‘the trade effects’ of the tax differential between imported and domestic
products, as reflected in the volumes of imports, are insignificant or even nonexistent; Article III protects expec-
tations not of any particular trade volume but rather of the equal competitive relationship between imported and
domestic products.”).
221
Nicholas DiMascio & Joost Pauwelyn, Nondiscrimination in Trade and Investment Treaties: Worlds Apart or
Two Sides of the Same Coin?, 102 AJIL 48, 70–71 (2008) [hereinafter DiMascio & Pauwelyn]. On the difference
between trade and investment rules in non-discrimination and other areas, see, for example, Ziegler, supra note 34,
at 59, 86 (noting differences in the questions relating to MFN treatment in the trade and investment contexts, and
observing that the trade regime “is full of exceptions such as those relating to regional trade agreements ...and
preferences accorded to developing countries,” which “usually prevents the States from invoking dispute settle-
ment provisions or other procedural or substantive rules from FTAs or agreements on double taxation, etc, in the
WTO context”); Cole, supra note 16, at 553 (arguing that “international investme nt law by its nature has far
NEW DEBATE ON THE INTERPRETATION OF MFN CLAUSES2017 911
approach that generally rejects “the trade law emphasis on alteration of the conditions of com-
petition” and instead favors “a test that focuses on whether an alleged discrimination is effec-
tively based upon nationality rather than some other policy reason.”
222
These two views of discrimination suggest different understandings of the purpose of MFN
clauses in investment treaties, and hence raise different questions regarding MFN importa-
tion. For t he multilateralizatio n view, the key ques tion may be whether vari ations among
treaty standards do, as a general matter, impact competitive opportunities.
223
For the latter
view, however, the question arguably is whether a variance in applicable standards of treat-
ment is capable, on its own, of having an “actual impact on, or harm to, a specific investor or
investment.”
224
A closer consideration of individual MFN clauses, read in context with
accom panying national treatment provisions, could pro voke a debate as to which of these
conceptions of discrimination applies, and what consequences that has for MFN importation.
D. Between Formalism and Ideology
The new MFN debate echoes broader shifts with respect to the interpretation of invest-
ment treaties. The presumption in favor of MFN importation is consistent with a teleological
view that investment treaties are designed solely to maximize investor protection,
225
a view
that is now undergoing a sustained backlash.
226
Efforts are underway in some fora to substi-
tute the narrow focus on investment protection for a broader conception of the goals served by
greater effects upon state action than does the mere setting of tariff levels for imported products,” therefore “failing
to recognize the appropriate limits on the operation of MFN clauses within international investment law, and
interpreting them solely in accordance with predetermined teleological goals, risks seriously impacting the appro-
priate regulatory activities of states”); Kurtz, supra note 217, at 862–72 (noting differences between the contexts of
trade rules and investment rules); J
OSÉ E. ALVAREZ,THE PUBLIC INTERNATIONAL LAW REG IME GOVERNING
INTERNATIONAL INVESTMENT 34–37 (2011) (noting, in other contexts, differences between the two regimes).
222
DiMascio & Pauwelyn, supra note 221, at 75–76.
223
Some writers have raised doubts about this effect. See Greenwood, supra note 2, at 557 (questioning whether
there is a “direct effect” on competition that results solely from the uneven distribution of standards of protection
across treaties); Rodriguez, supra note 64, at 101 (similar).
224
DiMascio & Pauwelyn, supra note 221, at 70; see also UNCTAD MFN Report, supra note 10, at 102
(“Assuming MFN treatment in investment agreements, the exercise should not entail an automatic importation
but the undertaking of an assessment of whether the absence of the provision at stake actually causes a damage to
the investor, for which the measure that gave rise to the dispute would have to be characterized as breaching said
provision in the first place.”).
225
See, e.g., Part II.B.1 supra (discussing the MTD tribunal’s importation of standards of treatment based on an
interpretation “in the manner most conducive to fulfill the objective of the BIT to protect investments and create
conditions favorable to investments”).
226
See, e.g., Zachary Douglas, Nothing if Not Critical for Investment Treaty Arbitration: Occidental, Eureko and
Methanex, 22 A
RB.INT’L 27, 51 (2006) (“An interpretive approach that systematically favours the interests of one
of the disputing parties need only be articulated to be proven unsound.”); V
AN HARTEN, supra note 211, at 140
(arguing against a “presumption in favour of safeguarding the claimant against the state”); W
EERAMANTRY, supra
note 3, para. 7.24 (“A bias that unquestioningly requires interpretations to be made in favour of investors lacks the
requisite degree of impartiality and undermines the legitimacy of the investor-State dispute resolution system.”);
A
LEXANDER ORAKHELASHVILI,THE INTERPRETATION OF ACTS AND RULES IN PUBLIC INTERNATIONAL LAW 565 (2008)
(similar); Anne van Aaken, Control Mechanisms in International Investment Law, in T
HE FOUNDATIONS OF
INVESTMENT LAW 409, 422 (Zachary Douglas, Joost Pauwelyn & Jorge E. Viñuales eds., 2014) (noting tribunal
decisions on either side of this issue, and questioning whether protection of investment is really the ultimate pur-
pose of such treaties, which generally aim at other goals, such as economic cooperation, development, prosperity,
and welfare).
THE AMERICAN JOURNAL OF INTERNATIONAL LAW912 Vol. 111:4
investment treaties.
227
These counter-narratives are advanced to spark a reconsideration of
the specific provisions of investment treaties, including the substantive standards of treatment
afforded therein.
By insisting on renewed attention to the specifi c terms of MFN clauses, we suggest it is
helpful to approach this debate from a new direction. The debate over grand narratives, as
a general matter, hopes to proceed from a consideration of broad purposes to the interpreta-
tion of specific terms. The debate we have outlined here, by contrast, focuses on the details of
MFN clauses. A turn to bottom-up approaches, to the treaty text, and to the formal rules of
treaty interpretation may be particularly appropriate in times of deep ideological contestation.
This approach frees the interpret er from ha ving to rely on presumptions and received wis-
dom, without necessarily forcing him or her to embrace a competing ideology.
228
By proceed-
ing through case-by-case analysis of MFN clauses and of their role in the overall scheme of
investment protection, tribunals and commentators may ultimately contribute to a richer and
more nuanced understanding of investment treaties than could be achieved through top-
down approaches.
227
SADC Model BIT, supra note 193, commentary to preamble (enshrining in the preamble a broader set of
purposes, in order to prevent tribunals from applying “a presumption in favour of broader over narrower rights for
the investor”).
228
Cf. Robert Howse, The World Trade Organization 20 Years On,27EUR.J.INT’L L. 9, 30–33 (2017) (making
a similar point in the context of the WTO).
NEW DEBATE ON THE INTERPRETATION OF MFN CLAUSES2017 913
