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Aktif Makale Mfn Treatment And Its Scope

Yazan : Beyza Banu Özdilek [Yazarla İletişim]
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Makale Özeti
An article on Most Favoured Nation Treatment

MFN TREATMENT AND ITS SCOPE











Prepared By: BEYZA BANU ÖZDİLEK





Istanbul, 2006





















TABLE OF CONTENTS




I. Introduction
II. Definition of MFN Treatment
III. Origins of MFN Treatment
IV. ILC’s Draft Articles on MFN Clauses
V. General Principles of A Most-Favoured Nation Clause
VI. Application of the MFN clause in Investment Agreements
VII. Exceptions
  • General Exceptions
  • Country-Specific Exceptions
  • Reciprocal Subject-Specific Exceptions
  • Regional Economic Integration
VIII. Recent Cases
a. Maffezini v. Spain
b. Siemens v. Argentina
c. Salini v. Jordan
d. Plama v. Bulgaria
e. ADF v. United States of America
IX. Conclusions
BIBLIOGRAPHY











I. Introduction

Today, foreign direct investment is considered, by most countries in the world, as an important factor of growth and development. Thus, most countries, including Turkey, have amended in the last years, their investment regimes by removing certain investment barriers and by trying to create a more favourable climate for foreign investors with a view to attract foreign investment. At the same time, most countries have adopted international investment rules as part of bilateral and regional investment agreements which seek to facilitate investment transactions and to promote and protect investment flows between the parties. Among those international investment rules and obligations are the transparency, fair and equitable treatment and the principle of non-discrimination. The principle of non-discrimination is one of the fundamental elements of international investment treaties and a pre-condition to provide legal certainty in a given host country. Most-favoured nation (MFN) treatment and national treatment standards are the two aspects of the non-discrimination principle. Whereas the MFN treatment standard is often included in international investment treaties in combination with the national treatment standard, this study only focuses on the MFN treatment, without addressing the national treatment standard and the other standards included in international investment agreements.

− Section II defines the MFN treatment.
− Section III traces back to the origins of MFN treatment.
− Section IV deals with the International Law Commission’s (ILC) work on MFN clauses.
− Section V describes the general principles of MFN clauses.
− Section VI provides some examples of MFN clauses.
− Section VII describes exceptions which exclude certain areas, sectors or measures from application of MFN clauses.
− Section VIII summarizes some recent arbitral awards regarding the application of MFN clauses in investment agreements.
− Section IX provides conclusions.





II. Definition of MFN Treatment

Most-favoured nation (MFN) treatment standard applies usually in the areas of trade, investment, intellectual property, foreign exchange, diplomatic immunities and recognition of foreign judicial awards. It has been a cornerstone of trade policy for centuries and a core element of international investment agreements as of 1950s. Although it developed originally in the context of trade agreements, it is now routinely incorporated also in international investment agreements.

In a trade agreement, the most-favoured nation treatment is a standard of non-discrimination which provides that each contracting state will extend to the other any trading privileges it offers to third states. It requires each contracting state undertakes to extend to the goods of the other contracting state, treatment no less favourable than the treatment which it accords to like goods originating in any third country. Most-favoured nation treatment is one of the founding principles of the World Trade Organisation. Under the most-favoured nation treatment, WTO Members should accord the most favourable tariff and regulatory treatment given to the product of any third country at the time of import or export of like products to all WTO Members[1].

In the context of an international investment agreement, most-favoured nation treatment means that a host country must extend to investors from one foreign country the same treatment it accords to investors from any other foreign country in like cases[2]. It ensures that an investor from a country which is a party to an agreement, or its investment, would be treated by the other party “no less favourably” with respect to a given subject-matter than an investor from any third country, or its investment. The MFN standard gives investors a guarantee against certain forms of discrimination and seeks to prevent discrimination between investors from foreign countries on grounds of their nationality.

III. Origins of MFN Treatment

The use of MFN treatment can be traced back to the thirteenth century, beginning with a 1226 treaty. With this treaty, Frederick II conceded to the city of Marseilles, the privileges previously afforded to Pisa and Genoa. Although the initial use of MFN Treatment was confined to particular cities or regions, future treaties extended the treatment to other nations as a whole, as for example in a 1417 Treaty of Mercantile Intercourse between England and Flanders, which granted English ships the right to use Flemish harbours in the same way as French, Dutch, Sealanders and Scots[3]. In the seventeenth century, MFN clauses began to guarantee treatment equal to that given to any third state, which was the case in the treaty dated 16 August 1692 between Denmark and the Hanseatic League. In the nineteenth and twentieth centuries, MFN clause was included frequently in various treaties, particularly in the Friendship, Commerce, and Navigation treaties which may be deemed as the precursors to modern BITs.

The first trade treaty that included an unconditional MFN clause was the Cobden treaty dated 23 January 1860 between the United Kingdom and France[4]. Later, in March 1929, the Council of the League of Nations adopted a model MFN clause in respect of tariffs. After the Second World War, the MFN standard was reviewed in the negotiation of the Havana Charter, where Members were to undertake the obligation “to give due regard to the desirability of avoiding discrimination as between foreign investors”. Although the Havana Charter has never come into force, the inclusion of MFN clauses became a general practice in the numerous bilateral, regional and multilateral investment-related agreements which were then concluded[5].

MFN treatment is also a founding principle of the General Agreement on Tariffs for Trade (GATT). Article 1 of GATT states 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 unconditionally to the like product originating in or destined for the territories of all other contracting parties.” What is important about this clause is that it is unconditional – once a country becomes a member of the agreement, it is entitled to MFN treatment from all other members, regardless of its behaviour.

Prior to 1923, a conditional form of MFN was used particularly in the United States. Under conditional MFN in trade agreements, if a country grants a preferential tariff rate to another country, then it must extend the same rate to its MFN partners only if they pay for it with reciprocal tariff cuts. Under the unconditional MFN in GATT, no such reciprocity is required. In the form of unconditional most-favoured-nation clause, only does the clause provide for complete and continuous non-discriminatory treatment whereas under the conditional form of the clause, the beneficiary state enjoys the favoured treatment accorded to a third state only if it fulfils the same conditions under which the treatment has been accorded to third state[6] and neither party is obliged to extend the advantages which it may accord to third states unless the other party grants concessions equivalent to the concessions made by such third states.

The MFN obligation is also unconditional in the General Agreement on Trade in Services (GATS), although with some exemptions. The GATS most-favoured nation rule requires that treatment no less favourable be accorded to services and service suppliers from different sources. The idea of most-favoured nation treatment was also extended by the WTO Agreement to the area of intellectual property. The Agreement on Trade-Related Aspects of Intellectual Property (TRIPS) provides for MFN treatment for the protection of intellectual property rights and requires more advantageous conditions granted to any country should be extended, automatically and unconditionally, to all WTO Members although subject to a number of exceptions.

With regard to investment, the development of MFN became common in the 1950s with the conclusion of international investment agreements, including bilateral investment agreements and the most-favoured-nation treatment (MFN) standard has then become a common feature and a core element of international investment treaties (BITs).

IV. International Law Commission’s Draft Articles on MFN Clauses

The topic of the most-favoured nation clause was first raised in 1964 in the context of the International Law Commission’s[7] Work on the law of treaties. After considering the matter, the Commission concluded that most-favoured nation clauses must form the subject of a special study instead of being examined in the context of the general law of treaties. The Commission did not confine its studies to the domain of international trade but rather explored the major fields of application of the clause. The Commission considered that it should clarify the scope and effect of the clause as a legal institution in the context of all aspects of its practical application. At its 30th session in 1978, the Commission adopted the Draft Articles on Most-Favoured-Nation Clauses and decided to recommend to the General Assembly of the United Nations that the draft articles should be recommended to Member States with a view to the conclusion of a convention on the subject. The General Assembly invited all States, organs of the United Nations and interested international organizations to submit their written comments on the draft articles and also requested States to comment on the Commission’s recommendation regarding the conclusion of a convention on the subject. Noting the complexity of codification or progressive development of the international law on most-favoured nation clauses and considering that additional time should be given to governments for through study of the articles, the General Assembly decided to include the item in provisional agenda of future sessions. Although no convention has been concluded and no further action has been taken on the draft articles, the Commission’s work has provided a general guideline and has been used in the interpretation of MFN clauses in several judicial and arbitral cases.

ILC’s Draft Articles On Most-Favoured Nation Clauses were intended to be “without prejudice to any provision on which the granting State and the beneficiary State may otherwise agree”[8]. Therefore, the content of the treatment in each specific case is defined by the actual language of the MFN clause in question[9]. The most-favoured nation clause is described in the draft Articles as a treaty provision whereby a State (the granting State) undertakes an obligation towards another State (the beneficiary State) to accord most-favoured nation treatment in an agreed sphere of relations[10]. The most-favoured nation treatment, on the other hand, is described as treatment accorded by the granting State to the beneficiary State or to persons or things in a determined relationship with that State, not less favourable than treatment extended by the granting State to a third State or to persons or things in the same relationship with that third State[11].

The Draft Articles provide that entitlement to most favoured nation treatment derives from a treaty provision (Articles 7 and 8) and that the scope of the rights acquired under a most favoured nation provision depends on the terms of the treaty provision (Articles 9 and 10). Under Articles 11-14, if the grant of a most-favoured nation clause is subject to certain conditions, the beneficiary state only acquires the right to such treatment on compliance with those conditions[12].

V. General Principles of A Most-Favoured Nation Clause

Most-favoured nation clause is one of the most commonly used clauses in international treaties for applying the principle of non-discrimination. The principle of non-discrimination aims to ensure that when governments apply policies to manage their international and commercial transactions, the policies is applied without regard to the origin of any particular transaction. National treatment clause is another clause which is widely used in international treaties for applying the principle of non-discrimination. Most-favoured-nation clause aims to ensure that foreign products/producers or investments/investors receive equal treatment relative to that given to other foreign products/producers or investments/investors, whereas national treatment clause aims to ensure that foreign products / producers or investments/investors do not receive less favourable treatment than that given to domestic products/producers or investments/investors. A reason for using two different standards of non-discrimination and for separating them operationally is to provide flexibility for States to protect or promote their products or investments against foreign competition. National treatment standard is used for giving to foreign products an equal opportunity to compete for a share of domestic market whereas applying the MFN standard does not interfere with a State’s ability to impose measures that give a competitive advantage to domestic products/producers over their foreign competitors[13].

The most-favoured nation clause may be invoked if the third State have been extended the favours that constitute the most-favoured nation treatment foreseen in the clause. This treatment may be based upon a treaty, another agreement or a unilateral, legislative or other act or mere practice.[14] When two treaties exist one between the granting State and the beneficiary State containing the MFN clause, and the other between the granting State and a third State, it must first be determined which is the basic treaty that governs the rights of beneficiary of the most-favoured nation clause. This issue was extensively discussed in the Anglo-Iranian Oil Company case, where the International Court of Justice determined that the “basic treaty” was that containing the most-favoured nation clause. The treaty where the more favourable treatment is found is the “third-party treaty”. The Court held that:

“It is the treaty which establishes the juridical link between the beneficiary State and a third party treaty and confers upon that State the rights enjoyed by the third party. A third-party treaty, independent and isolated from the basic treaty, cannot produce any legal effect as between […] the beneficiary State and […] the granting State : it is res inter alios acta.

This discussion has practical consequences in that the subject matter to which the clause applies is established by the basic treaty and if these matters are more favourably treated in a third-party treaty, then by the operation of the clause, that treatment should be extended to the beneficiary under the basic treaty. If, however, the third party refers to a matter not dealt within the basic treaty, that matter is res inter alios acta in respect of the beneficiary of the clause[15].

Since most favoured nation standard is intended to protect beneficiaries in like circumstances, it is generally admitted that the object of the basic treaty and that of the third-party treaty must not be different in nature[16]. The rule which requires a most-favoured nation clause only attract matters belonging to the same subject matter or the same category of subject as to which the clause relates is called the ejusdem generis principle. This principle is also underlined in ILC’s Draft Articles, Article 9 of which provides beneficiary State of a MFN clause should acquire only those rights which fall within the limits of the subject matter of the MFN clause, and Article 10 of which states that the beneficiary State acquires the right to most favoured nation treatment only if the granting State extends to a third State treatment within the limits of the subject matter of the MFN clause. The ejusdem generis principle is generally recognized and affirmed by the jurisprudence of international tribunals and national courts and by diplomatic practice. Although the meaning of the rule is clear, its application is not always simple[17]. For example:

In the Ambatielos case, the Greek government, relying upon Article X (MFN clause) and article XV (National treatment) of the Treaty of Commerce and Navigation concluded by Greece and the United Kingdom in 1886 and a Declaration annexed to the Treaty of Commerce and Navigation of 1926, invoked provisions embodied in earlier treaties between the United Kingdom and third States (Denmark, Sweden and Bolivia) to claim that Ambatielos, a Greek ship-owner, had suffered a denial of justice in regard to a dispute it brought before the English courts. By its Judgments of 1 July 1952 and 19 May 1953, the International Court of Justice found that it had jurisdiction to decide whether the United Kingdom was under the obligation to submit to arbitration the difference as to the validity of Ambatielos’ claim, in so far as it was based on the Anglo-Hellenic Treaty of 1886. At the same time, the Court held that it had no jurisdiction to go into all the merits of the case. The case was subsequently submitted to a Commission of Arbitration which ultimately rejected the claim, in its Award of 6 March 1956, on the basis that the provisions contained in other Treaties invoked by the Greek government provided for “privileges, favours or immunities” no more favourable than those resulting from the national treatment clause[18]. However, the Commission of Arbitration’s decision was important since it confirmed the relevance of the ejusdem generis principle. The Commission of Arbitration held that[19]:

“The Commission does not deem it necessary to express a view on the general question as to whether the most-favoured-nation clause can never have the effect of assuring to its beneficiaries treatment in accordance with the general rules of international law, because in the present case the effect of the clause is expressly limited to "any privilege, favour or immunity which either Contracting Party has actually granted or may hereafter grant to the subjects or citizens of any other State", which would obviously not be the case if the sole object of those provisions were to guarantee to them treatment in accordance with the general rules of international law. On the other hand, the Commission holds that the most-favoured-nation clause can only attract matters belonging to the same category of subject as that to which the clause itself relates... In the Treaty of 1886 the field of application of the most-favoured nation clause is defined as including "all matters relating to commerce and navigation. It would seem that this expression has not, in itself, a strictly defined meaning. The variety of provisions contained in Treaties of commerce and navigation proves that, in practice, the meaning given to it is fairly flexible. For example, it should be noted that most of these Treaties contain provisions concerning the administration of justice. That is the case, in particular, in the Treaty of 1886 itself, Article XV, paragraph 3, of which guarantees to the subjects of the two Contracting Parties ‘free access to the Courts of Justice for the prosecution and defence of their rights’. That is also the case as regards the other Treaties referred to by the Greek Government in connexion with the application of the most-favoured-nation clause. It is true that "the administration of justice", when viewed in isolation, is a subject-matter other than "commerce and navigation", but this is not necessarily so when it is viewed in connection with the protection of the rights of traders. Protection of the rights of traders naturally finds a place among the matters dealt with by Treaties of commerce and navigation. Therefore it cannot be said that the administration of justice, in so far as it is concerned with the protection of these rights, must necessarily be excluded from the field of application of the most-favoured- nation clause, when the latter includes "all matters relating to commerce and navigation".

Decisions of national courts also testify to the general recognition of the ejusdem generis principle. In a 1913 French case, the French Court of Cassation decided whether certain procedural requirements for bringing suit as provided in a French-Swiss Convention on jurisdiction and execution of judgement applied also to German nationals as a result of a most-favoured-nation clause in a Franco-German Commercial Treaty signed at Frankfurt on 10 May 1871. The Franco-German Treaty guaranteed most-favoured-nation treatment in their commercial relations including the 'admission and treatment of subjects of the two nations'. The Court concluded that[20] “these MFN provisions pertain exclusively to the commercial relations between France and Germany, considered from the point of view of the rights under international law, and that they do not concern the rights under civil law, particularly, the rules governing jurisdiction and procedure that are applicable to any disputes that develop in commercial relations between the subjects of the two States"; and that “the most-favoured-nation clause may be invoked only if the subject of the treaty stipulating it, is the same as the particularly favourable treaty the benefit of which is claimed”.

In Lloyds Bank v. de Ricqlès and De Gaillard, the Commercial Tribunal of the Seine dismissed a claim by Lloyds Bank, which had been ordered to give security for costs, invoked Article I of the Anglo-French Convention of 28 February 1882 regulating commercial maritime relations between the two countries, as well as the status of their subjects, to benefit from the provisions of a Franco-Swiss Treaty of 15 June 1889, which gave Swiss nationals the right to sue in France without being required to give security for costs. Article 1 provided that “…each of the High Contracting Parties engages to give the other immediately and unconditionally the benefit of every favour, immunity or privilege in matters of commerce or industry which have been or may be conceded by one of the High Contracting Parties to any third nation whatsoever, whether within or beyond Europe.” The Tribunal held that a party to a convention of a general character such as the Anglo-French Convention could not claim under the MFN clause the benefits of a special convention such as the Franco-Swiss Convention, which dealt with one particular subject, namely freedom from the obligation to give security for costs.

Comparing this case with the Ambatielos Case, the International Law Commission pointed out that while the ejusdem generis rule was recognized by the two decisions there was a large difference between the liberal construction of the Arbitration Commission and the strict interpretation of the French courts. ILC stated that drafters of a most-favoured-nation clause are always confronted with the dilemma of either drafting the clause in too general terms, risking thereby the loss of its effectiveness through a rigid interpretation of the ejusdem generis rule or drafting it too explicitly, enumerating its specific domains, in which case the risk consists in the possible incompleteness of the enumeration[21].

In its Commentary to Draft Articles 9 and 10, the Commission stated that, since the effect of the MFN process is, by means of the provisions of one treaty, to attract those of another, unless this process is strictly confined to cases where there is a substantial identity between the subject matter of the two sets of clauses concerned, the result may be to impose upon the granting State obligations it never contemplated. Thus, the ejusdem generis rule follows clearly from the principle of sovereignty and independence of States which cannot be regarded as being bound beyond the obligations they have expressly undertaken[22]. The ILC, however, stated that the granting State cannot evade its obligations, unless an express reservation so provides, on the ground that the relations between itself and the third country not similar to those existing between it and the beneficiary. “It is only the subject matter of the clause which must belong to the same category, the idem genus, and not the relation between the granting State and the third State on the one hand and the relation between the granting State and the beneficiary State on the other.”[23]

It should, however, be noted that a most-favoured nation clause being part of a treaty, is evidently subject to the law of treaties and must be interpreted in accordance with the principles of treaty interpretation, as codified in the Vienna Convention on the Law of Treaties done at Vienna, on 23 May 1969. Article 31(1) of the Vienna Convention states that “a treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.”

It should also be noted that whereas the beneficiary is entitled, to the extent provided by the MFN provision under its own treaty, to claim all rights and favours extended by the granting State to the third State; the granting State and the beneficiary State can however limit, in the basic treaty, the extent of favours that can be claimed by the beneficiary. If the clause contains a restriction, the beneficiary State cannot claim any favours beyond the limits set by the clause, even if this treatment does not reach the level of the favours extended by the granting State to a third State.

VI. Application of the MFN clause in Investment Agreements

The MFN treatment, in an investment agreement, means that a host country must treat investors from one foreign country no less favourably than investors from any other foreign country and must extend to investors from one foreign country the same treatment it accords to investors from any other foreign country in like circumstances. MFN treatment also obliges a contracting party to extend to its treaty partners any benefits that it grants to any other country in any future investment agreement. In such case, the original contractual balance between the granting State and the beneficiary State is upset, since the MFN clause has added additional obligations to the granting State, without imposing any other obligations on the beneficiary State. This is called a “free rider” situation[24].

MFN clauses in investment agreements are not uniform. The wording, scope and purpose of the clauses vary. Some MFN clauses are narrow whereas others are more general. The parties to investment agreements intend to give the MFN clauses a different scope by using different wording but this does not change the basic character of a MFN clause which aims to ensure the elimination of discrimination between foreign investors.

Most investment agreements refer to “treatment no less favourable” when defining the MFN standard. Article II of the GATS and Article 10(7) of the Energy Charter Treaty are the examples of such a wording. Article 1103 of the North American Free Trade Agreement (NAFTA), while using the same terminology, includes the qualification that such treatment applies only “in like circumstances. On the other hand, Article 4(4) of the 1998 German model BIT simply provides that: “Investors of either Contracting State shall enjoy most-favoured-nation treatment in the territory of the other Contracting State in respect of the matters provided for in this Article.”

While some investment agreements apply the MFN treatment to “investments”, more recent agreements apply the treatment to both “investments” and “investors”. The Energy Charter Treaty and the BITs of the United States only grant MFN to the investment[25]. In contrast, the NAFTA and the BITs concluded by Germany, Switzerland and the United Kingdom entitle both foreign investors and their investments to MFN. In most cases, the reason for this difference is related with the definitions used in a particular agreement[26]. Some investment agreements use and define only the term “investment” and does not define or contain reference to the term “investor” as in the case the bilateral investment treaties of the United States which grant MFN only to “investment”. Another approach has been followed in the French model treaty, which gives MFN to the investors with regard to their investments. MFN is granted to investments, in most of the bilateral investment agreements concluded by Turkey as well.

A basic distinction exists between investment agreements in which the MFN clauses apply to the investments/investors after the admission of an investment in the host country’s territory and agreements in which the MFN clauses also apply to the admission and establishment of foreign investment. In the vast majority of BITs, especially in those concluded by European countries, MFN clauses do not apply at the pre-entry stage. In other words, there is an obligation to apply MFN under these treaties only afteran investment has been made. Some treaties such as the Energy Charter Treaty restrict the MFN clause explicitly to post-entry investment only. Article 10(7) of the Energy Charter Treaty is as follows:

“Each Contracting Party shall accord to Investments in its Area of Investors of other Contracting Parties, and their related activities including management, maintenance, use, enjoyment or disposal, treatment no less favourable than that which it accords to Investments of its own Investors or of the Investors of any other Contracting Party or any third state and their related activities including management, maintenance, use, enjoyment or disposal, whichever is the most favourable

Some other treaties, under which the MFN clauses do not apply to the pre-establishment stage, are usually encouraged to create favourable conditions for foreign investors and admit their investments in accordance with their domestic laws and regulations[27]. An example is:

“Each Contracting Party shall promote investments by investors of the other Contracting Party and admit such investments in accordance with its laws and regulations. It shall accord such investments fair and equitable treatment, and shall not impair by unreasonable or discriminatory measures the management, maintenance, use, enjoyment, extension, sale or liquidation of such investments.”

By contrast to the first model, recent BITs concluded by the United States and Canada apply the MFN treatment to both the establishment and subsequent treatment of foreign investors and investments. For example, Article II of the El Salvador – United States BIT provides:
“(1) With respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of covered investments, each Party shall accord treatment no less favourable than that it accords, in like situations, … to investments in its territory of nationals or companies of a third country…
(2) A Party may adopt or maintain exceptions to the obligations of paragraph 1 in the sectors or with respect to the matter specified in the Annex to this Treaty. In adopting such an exception, a Party may not require the divertissement, in whole or in part, of covered investments existing at the time the exception becomes effective.”

This approach of extending the MFN treatment to the pre-establishment stage of foreign investment has also been adopted in some regional agreements such as NAFTA, the Southern Common Market Colonia Protocol (MERCOSUR), the Canada-Chile Free Trade Agreement and the Asia-Pacific Economic Cooperation (APEC) Non-Binding Investment Principles[28]. Article 1103 of NAFTA is as follows:

“1. Each Party shall accord to investors of another Party treatment no less favourable than that it accords, in like circumstances, to 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.
2. Each Party shall accord to investments of investors of another Party treatment no less favourable than 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

Article G-03 of the Canada-Chile Free Trade Agreement is very much the same as NAFTAapplies both to the pre-establishment and post-establishment stage of a foreign investment[29]:
“(1) Each Party shall accord to investors of the other Party treatment no less favourable than that it accords, in like circumstances, to investors of any non-Party with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments.
(2) Each Party shall accord to investments of investors of the other Party treatment no less favourable than that it accords, in like circumstances, to investments of investors of any non-Party with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments.”

The US and Canadian BITslists the various operations covered and they state that the right only applies “in like circumstances”, whereas other BITs make no reference to the comparative context against which treatment is to be assessed[30]. Article 10.3 of the US-Chile Free Trade Agreement reads:
“(1) Each Party shall accord to investors of the other Party treatment no less favourable than that it accords, in like circumstances, to investors of any non-Party with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investment in its territory.
(2) Each Party shall accord to covered investments treatment no less favourable than that it accords, in like circumstances, to investments in its territory of investors of any non-Party with respect to the establishment, acquisition, expansion, management, conduct, operation and sale or other disposition of investments

In contrast, Article 3(1) and (2) of the German 1998 Model Treaty does not contain any express wording as to which areas are covered by the MFN clause:

“(1) Neither Contracting State shall subject investments in its territory owned or controlled by investors of the other Contracting State to treatment less favourable than it accords to investments of its own investors or to investments of investors of any third State.
(2) Neither Contracting State shall subject investors of the other Contracting State, as regards their activity in connection with investments in its territory, to treatment less favourable than it accords to its own investors or to investors of any third State.”

The term “like circumstances” in the US and Canadian BITsand NAFTAindicates that investors do not have to be treatedequally irrespective of their activities in a given host country. Different treatment is justified if investors are in different objective situations, such as operating in different sectors of economic activity.

While the concepts of most-favoured nation treatment and national treatment are different from each other, there may be situations in which these standards interfere with each other. For example, if the granting State grants MFN to investors from the beneficiary State and national treatment to investors from a third State, then investors from country the beneficiary State may likewise claim national treatment via the most-favoured nation clause[31].

Furthermore, a question may arise about which treatment prevails if a foreign investor can claim both national treatment and most-favoured nation treatment. Some investment agreements contain an explicit rule in this respect, entitling investors to the more favourable of the two standards of treatment. For example, Article 15(4) of the US-Singapore Free Trade Agreement reads:

“(3) Each Party shall accord to investors of the other Party treatment no less favourable than it accords, in like circumstances, to investors of any non-Party with respect to the establishment, acquisition, expansion, management, conduct, operation and sale or other disposition of investments in its territory. Each Party shall accord to covered investments treatment no less favourable than that it accords, in like circumstances, to investments in its territory of investors of any non-Party with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments. The treatment each Party shall accord under this paragraph is “most-favoured-nation treatment”.
(4) Each Party shall accord to investors of the other Party and to their covered investments the better of national treatment or most-favoured-nation treatment

Another example is Article 3(2) of the Netherlands Model BIT which provides “More particularly, each Contracting Party shall accord to such investments treatment which in any case shall not be less favourable than that accorded either to investments of its own nationals or to investments of nationals of any third State, whichever is more favourable to the national concerned.” Article II(2) of the United States – Turkey BIT also provides that “Each Party shall accord to these investments, once established, and associated activities, treatment no less favourable than that accorded in like situations to investments of its own nationals and companies or to investments of nationals and companies of any third country, whichever is most favourable Most of the other Turkish BITs also combines the MFN treatment with the national treatment and provides that the treatment which is more favourable should prevail[32].

If an investment agreement contains a rule which provides foreign investors with the more favourable of the two standards of treatment, it may be difficult to assess whether national treatment or MFN results in “better” treatment. Furthermore, it is difficult to answer whether the investor or the host State should make this assessment and whether such an assessment needs to be made in respect of an individual case, or with regard to the issue in general[33]. While national treatment could be better for an investor in respect of certain aspects of his investment activities, he may prefer MFN with regard to others. However, it is noted that it may be argued that foreign investors should not be entitled to a mixed treatment and that they have to decide whether they want to be treated like a domestic enterprise or like a foreign company[34].

VII. Exceptions
Most investment agreements contain specific exceptions which exclude certain areas, sectors or measures from application of MFN clauses. While some of these exceptions are based on reciprocity considerations, some are of a general nature which are not specifically limited to most-favoured nation clauses. Such exceptions may be categorized as follows:
a. General Exceptions
Most international investment agreements provide general exceptions to the rule of non-discrimination for public policy objectives. These include the protection of national security and public order, health and morals.
Article 24 of the Energy Charter Treaty provides that the provisions of the Treaty shall not preclude any Contracting Party from adopting or enforcing any measure necessary to protect human, animal or plant life or health. It further states that the provisions of the Treaty other than those referred to in paragraph (1) shall not be construed to prevent any Contracting Party from taking any measure which it considers necessary for the protection of its essential security interests or for the maintenance of public order. Thus, a Contracting Party is allowed to take any measure it considers necessary with regard to essential security interests and public order except measures that could affect the treaty obligations concerning expropriation and compensation for losses.

Article X (1) of the Turkey – United States BIT is as follows:

“This Treaty shall not preclude the application by either Party of measures necessary for the maintenance of public order, the fulfilment of its obligations with respect to the maintenance or restoration of international peace or security, or the protection of its own essential security interests.”

While most investment agreements do not allow contracting parties to derogate from the rule of non-discrimination for national security reasons; exceptions for public order, public health and public morals are more common in investment agreements[35]. These exceptions give contracting parties broad discretion whether to invoke the exception clauses or not. Where there is such an exception, it would be sufficient for the granting state to consider its national security interests or public order to be threatened[36]. However, these general exceptions have not been used by contracting states until now to discriminate among foreign investors from different states[37].

b. Country-Specific Exceptions
Country-specific exceptions can be applied as exceptions to a general rule or as commitments to a conditional rule[38]. The first approach applies the rule of non-discrimination as a general rule but then allows each State to compile its own negative list of exemptions regarding certain industries or measures where it will not apply the non-discrimination rule. This is the so-called “top-down approach”. The second approach, on the other hand, allow each State to compile and register its own positive list of commitments regarding certain industries or measures where it will apply the rule of non-discrimination. This is the so-called “bottom-up approach”. The bottom-up approach is used in GATS national treatment rule[39]. GATS allowed Members to select their commitments to national treatment by compiling a positive list of service sectors and where a Member does not make a market access commitment in a particular services sector, it does not have to undertake a national treatment obligation in that sector.
While the bottom-up approach is used with regard to the national treatment obligation in GATS, country-specific exceptions to most-favoured nation treatment are always taken down top-down by compiling a negative list of certain sectors or measures. At the time of entry into force of GATS, temporary country-specific exceptions were provided so as to allow Members to offer better market access to some foreign services and foreign service suppliers than to others[40]. Article II of the GATS states that, with respect to all measures covered by the Agreement, each member shall accord immediately and unconditionally to services and service suppliers of any other member treatment no less favourable than it accords to like services and service suppliers of any other country. However, a member may maintain a measure inconsistent with the foregoing, provided that such a measure is listed in and meets the conditions of the annex to the article. Members were thus able to register their own exemptions from the most-favoured nation treatment at the time of the entering into force of the GATS.
Most-favoured nation clauses in investment agreements are sometimes subject to country-specific exceptions as well. The negative list of exceptions is generally longer where an investment agreement covers pre-establishment as well as post-establishment treatment of investment. A schedule of specific reservations is generally annexed to the agreement and States undertake to grant most-favoured nation treatment in all investment stages with the exception of the reservations expressly included in this schedule. Article 1108 of NAFTA, for example, allows for an exception similar to that found in the GATS. NAFTA provides that the MFN clause does not apply to any measure that a Party adopts or maintains with respect to sectors, sub-sectors or activities, as set out in its Schedule to Annex II. The only limit is that, under no circumstances may a contracting party require an investor from another party, by reason of its nationality, to sell or otherwise dispose of an investment existing at the time the measure becomes effective[41]. NAFTA also includes MFN exceptions in connection with international agreements that contracting parties have set out in their schedules to Annex IV.

The agreements concluded by Canada and the United States since the early 1990s have also provided for exceptions to MFN treatment falling under one of the sectors or matters listed in separate annexes to the agreement. For example, Article 15.12 of the United States – Singapore Free Trade Agreement is as follows[42]:

“1. Articles 15.4(National Treatment and Most-Favoured-Nation Treatment)…do not apply to:
(a) any existing non-conforming measure that is maintained by a Party ati) the central level of government, as set out by that Party in its Scheduled to Annex 8A, (ii) a regional level of government, as set out by that Party in its Schedule to Annex 8A, or (iii) a local level of government;
(b) the continuation or prompt renewal of any non-conforming measure referred to in subparagraph (a); or
(c) an amendment to any non-conforming measure referred to in subparagraph (a) to the extent that the amendment does not decrease the conformity of the measure, as it existed immediately before the amendment, with Article 15.4, 15.8, and 15.9.
2. Articles 15.4, …do not apply to any measure that a Party adopts or maintains with respect to sectors, sub-sectors, or activities, as set out in its Schedule to Annex 8B.
3. Neither Party may, under any measure adopted after the date of entry into force of this Agreement and covered by its Schedule to Annex 8B, require an investor of the other Party, by reason of its nationality, to sell or otherwise dispose of an investment existing at the time the measure becomes effective…”

There is a separate Protocol which forms an integral part of the Turkey – US bilateral investment agreement. This Protocol also lists the exceptions to MFN treatment. Article 1 of this Protocol reads:
“1. (a) With respect to Article II(1) and (2), the United States reserves the right to limit the extent to which nationals or companies of Turkey or their investments may establish, acquire interests in, or carry on investments within U.S. territory in air transportation; ocean and coastal shipping; banking; insurance; energy and power production; use of land and natural resources; ownership in real estate; radio and television broadcasting; telephone and telegraph services; the provision of submarine cable services and satellite communications.
The United States reserves the right to limit the extent to which nationals or companies of Turkey or their investments may be eligible for government grants, insurance or loan programs. Other than with respect to ownership of real estate, the treatment accorded by the United States to investments of nationals or companies of Turkey shall be no less favourable than that accorded in like situations to investments of nationals or companies of any third country. Rights to engage in mining on the U.S. public domain shall be dependent on reciprocal rights being granted to investments of U.S. nationals or companies within the territory of Turkey.
(b) With respect to Article II(1) and (2), Turkey reserves the right to limit the extent to which nationals or companies of the United States or their investments may establish, acquire interests in, or carry on investments within Turkish territory with respect to tobacco; spirits and alcoholic beverages (except for wine and beer); the establishment, operation and broadcasting of radio and television programs; railways; ports and domestic maritime transportation; postal, telephone, telegraph, and telecommunications services; lotteries and football pools; armaments, explosives, and gun powder; public utilities (except the production of electricity); ownership of real estate by natural persons outside of municipal boundaries; insurance; banking; airports and domestic air transportation; and unincorporated retailing and service operations.
(c) Each Party agrees to notify the other Party before or on the date of entry into force of this Treaty of any laws, regulations and policies limiting the extent to which investment of nationals or companies of the other Party may within its territory establish, acquire interests in or carry on investments.”

c. Reciprocal Subject-Specific Exceptions

Some international investment agreements contain systemic exceptions which carve out particular activities, sectors, or measures entirely from the scope of the MFN treatment obligation. These exceptions are based on reciprocity considerations and are generally with respect to matters such as taxation, government procurement, subsidies and intellectual property.

For example, all investment agreements dealing with taxation matters contain an MFN exception to avoid undermining the purpose of separate, reciprocal, bilateral treaties on the avoidance of double-taxation. In other words, a contracting party is not obliged to extend to its treaty partners, via the MFN clause, any privilege or other advantage that it has granted to a third country and its investors under a bilateral agreement on the avoidance of double taxation. Contracting parties waives their taxation rights in order to avoid double taxation but this happens on a mutual basis and only if the other contracting party undertakes the same commitment[43]. For example, Article 41(3)of theAgreement between the EFTA States and Singapore is as follows: “If a Party accords special advantages to investors and their investments of any other State by virtue of an agreement for the avoidance of double taxation, it shall not be obliged to accord such advantages to investors of another Party and their investments.”

Article 3 of the Chile - Malaysia BIT provides: “The provision in this Treaty relating to treatment no less favourable than that accorded to investments of third States shall not be interpreted to oblige a Contracting Party to extend to investors of the other Contracting Party the benefits of any treatment, preference or privilege by virtue of … any international convention or agreement related totally or principally to taxation, or any national legislation related totally or partially to taxation”

Another example where separate reciprocal arrangements can take precedence over investment agreements is the area of intellectual property. In some investment agreements, the host country may condition the acquisition of an intellectual property right on the fulfilment of certain requirements, including the requirement that its own investors receive a similar level of protection in the home country of the foreign investor[44]. Some investment agreements exclude the protection of intellectual property rights, in recognition of separate obligations which parties of the agreement may have under other international intellectual property rights agreements. For example, Article 10(10) of the Energy Charter Treaty provides:

“Notwithstanding any other provision of this Article, the treatment described in paragraphs (3) and (7) shall not apply to the protection of Intellectual Property; instead, the treatment shall be as specified in the corresponding provisions of the applicable international agreements for the protection of Intellectual Property rights to which the respective Contracting Parties are parties.”

The international intellectual property rights agreements, namely the Berne Convention and the Rome Convention explicitly allow contracting parties to deviate from the MFN standard with regard to the acquisition and contents of certain intellectual property rights, namely copyrights. Under these conventions, the treatment accorded by one State to nationals of another member State is a function of the treatment accorded in that other country[45]. The WTO-TRIPS Agreement confirms this rule by stating that: “With regard to the protection of intellectual property, any advantage, favour, privilege or immunity granted by a Member to the nationals of any other country shall be accorded immediately and unconditionally to the nationals of all other Members. Exempted from this obligation are any advantage, favour, privilege or immunity accorded by a Member …granted in accordance with the provisions of the Berne Convention or the Rome Convention authorizing that the treatment accorded be a function not of national treatment but of the treatment accorded in another country…”

A foreign investor may therefore acquire and use intellectual property rights covered by the Berne Convention and the Rome Convention in a particular host country only to the extent that investors from the latter country have the same rights in return[46]. However, the MFN exception in NAFTA with regard to intellectual property is general and not limited to a reciprocity requirement. Article 1108(5) of NAFTA provides: “Articles 1102 and 1103 do not apply to any measure that is an exception to, or derogation from, the obligations under Article 1703 as specifically provided for in that Article.”

While some investment agreements exclude matters falling under GATT/WTO, some of them exclude government procurement activities, sectors controlled by state-owned enterprises, cultural industries, or subsidies. For example, NAFTA includes MFN exceptions with regard to public procurement and subsidies provided by a contracting party or a state enterprise, including government-supported loans, guarantees and insurance.

There are other investment-related issues that are usually addressed only on a bilateral basis, and thus do not lend themselves to a multilateralization via an MFN provision. These include agriculture, fisheries, and maritime, air and road transportation. They are also based on reciprocity. Mutual recognition arrangements are another example of reciprocal subject-specific exceptions. In such agreements, the contracting parties recognize the legal requirements of the other country concerning the provision of a particular service as equivalent to their own domestic requirements. Foreign investors can thus offer their services in the host country without having to obtain domestic licences or permits there,provided that they possess the equivalent licences or permits from their home countries. Professional services and financial services such as banking and insurance are the areas which are most frequently open to mutual recognition arrangements[47].

d. Regional Economic Integration

Countries worldwide seek closer regional integration through the creation of free trade areas, customs unions, economic or monetary unions, or political unions which may cover different economic activities, such as trade, services, and foreign investment. Where countries are members of regional economic integration organization (REIO), investment agreement of that countries usually include a so-called REIO clause or a REIO exception. Under a REIO exception, REIO members are exempted from the obligation to grant most-favoured nation treatment to non-members. Although preferential treatment of investors of REIO members is in conflict with the most-favoured nation principle, the international community has allowed REIO members to deviate from the MFN treatment obligation due to the potential benefits of regional integration. Without a REIO exception, the MFN clause would oblige the REIO members unilaterally to grant investors from non-member countries all the privileges deriving from REIO membership[48] and the integration policies within the REIO would be jeopardized. This would distort the mutual balance of commitments and create a “free rider” position by which non-members could benefit from all advantages accruing to members of the organization without being subject to the obligations deriving from the REIO membership[49]. Furthermore, an unconditional MFN commitment would weaken the position of a REIO. If investors of non-REIO members could unilaterally claim the advantages of the internal investment regime, including possible future liberalization steps, the host countries would loose the incentive to grant investors of REIO members reciprocal advantages[50].

Article XXIV of the GATT allows members of a free trade area or customs union to grant themselves preferential treatment, provided that the purpose of the REIO is to facilitate internal trade and the REIO does not create new trade barriers for importers from outside its territory.

Article V(1) of the GATS defines the agreement that constitutes the REIO as an agreement liberalizing trade in services, provided that it has substantial sectoral coverage, and provides for the absence or elimination of substantially all discrimination related to national treatment between or among the parties, in the sectors covered under subparagraph (a), through elimination of existing discriminatory measures, and/or prohibition of new or more discriminatory measures, either at the entry into force of that agreement or on the basis of a reasonable timeframe, except for measures permitted under Articles XI, XII, XIV and XIV bis. GATS also provides the Agreement shall not prevent any of its Members from being or becoming a party to a REIO agreement and states that such an agreement should be designed to facilitate trade between the parties to the agreement and should not, in respect of any member outside the agreement, raise the overall level of barriers to trade in services within the respective sectors or sub-sectors compared to the level applicable prior to such an agreement. GATS also includes a number of safeguards for non-REIO members which relate to transparency, reporting obligations and the protection of established service suppliers in the REIO[51].

There is no common approach towards the content of REIO clauses. Some REIO clauses provide for a complete, unconditional and open-ended REIO exception, while others like Article V of the GATS permit recourse to the REIO exception only under certain conditions. While some REIO clauses include a generic definition of a REIO, others refer to specific integration models like customs unions or free trade zones. A general definition of a REIO is included in only a small group of investment agreements. For example, Article 25(2) of the Energy Charter Treaty defines the term “Economic Integration Agreements”. Under the Energy Charter Treaty, Economic Integration Agreement is “an agreement substantially liberalizing, inter alia, trade and investment, by providing for the absence or elimination of substantially all discrimination between or among parties thereto through the elimination of existing discriminatory measures and/or the prohibition of new or more discriminatory measures, either at the entry into force of that agreement or on the basis of a reasonable time frame.” A different definition was proposed during the negotiations on the OECD draft Multilateral Agreement on Investment. Draft MAI defines the REIO as a “an organisation of sovereign states which have committed themselves to abolish in substance all barriers to investment among themselves and to which these states have transferred competence on a range of matters within the purview of this Agreement, including the authority to adopt legislation and to make decisions binding on them in respect of those matters”[52].

Most of the investment agreements, on the other hand, cover specific types of regional integration that are expressly mentioned in the agreement. For example, the Swiss model agreement covers a free trade area, a customs union or a common market. Article 3 of the German Model BITalsocontains the following exception to the MFN obligation: “Such treatment shall not relate to privileges which either Contracting State accords to investors of third States on account of its membership of, or association with, a customs or economic union, a common market or a free trade area.” Some BITs, however, extend the scope of the REIO exception to similar arrangements. For example, Article 3 of the Dutch Model BITprovides that “If a Contracting Party has accorded special advantages to nationals of any third State by virtue of agreements establishing customs unions, economic unions, monetary unions or similar institutions, or on the basis of interim agreements leading to such unions or
institutions, that Contracting Party shall not be obliged to accord such advantages to nationals of the other Contracting Party.” The United Kingdom Model BIT also refers to “any existing or future customs union or similar international agreement to which either of the Contracting Parties is or may become a party” while The French Model BIT refers to a free trade area, a customs union, a common market or any other form of regional economic organization.

Most investment agreements stipulates that a relevant contracting party shall not be obliged to accordadvantages by virtue of REIOs to investors of the other contracting party For example, Article 4(4) of the Swiss model agreement states that “if a contracting party accords special advantages to investors of any third state by virtue of an agreement establishing a free trade area, a customs union or a common market, it shall not be obliged to accord such advantages to investors of the other contracting party.”

Article 25(1) of the Energy Charter Treaty provides that the provisions of the Treaty shall not be so construed as to oblige a contracting party which is party to an economic integration agreement to extend, by means of most-favoured-nation treatment, to another contracting party which is not a party to that Integration Agreement, any preferential treatment applicable between the parties to that Integration Agreement as a result of their being parties thereto. Contrary to Article V of the GATS, investment agreements do not contain any requirements or any other safeguards for countries and investors not belonging to a REIO.

The Chile - Malaysia BIT provides:

“The provision in this Treaty relating to treatment no less favourable than that accorded to investments of third States shall not be interpreted to oblige a Contracting Party to extend to investors of the other Contracting Party the benefits of any treatment, preference or privilege by virtue of (a) any customs union, free trade area, common market or monetary union, or any similar international convention or other forms of regional cooperation, present or future, of which any of the Contracting Parties might become a party…”

VIII. Recent Cases

There have been several cases brought before the International Center for Settlement of Investment Disputes (ICSID) which have addressed the application of MFN treatment to the dispute settlement mechanisms and the questions of jurisdiction. Before analysing some of the recent cases, it should be reiterated that the applicability of MFN clauses to dispute settlement mechanisms is chiefly determined by the language of those clauses. Some clauses explicitly include or exclude dispute settlement within their scope whereas some clauses are more general in their wording and leaves considerable scope to argue competing interpretations.[53]

For example, Article 3(3) of the U.K. Model BIT states that “for the avoidance of doubt it is confirmed that the [MFN] treatment provided for in paragraphs (1) and (2) above shall apply to the provisions of Articles 1 to 11 of this Agreement.” Since this includes the dispute settlement procedures in Article 8 of the BIT, it has been expressly stated here by the contacting parties that the MFN clause extends to dispute settlement.

Equally, where the parties have expressly excluded dispute settlement from the scope of an MFN clause, the wording of the treaty is again clear and must be given effect. For example, Article 1103(2) of NAFTA provides that “Each Party shall accord to investments of investors of another Party treatment no less favourable than 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.” Dispute settlement, not being part of this enumeration, is excluded from the scope of the MFN clause.[54] Article 5 of the U.S. Draft Model FTAA of November 2003 contains a similar wording and is also accompanied by a footnote 13 stating that “The parties note the recent decision of the arbitration tribunal in Maffezini … which found an unusually broad most-favoured nation clause in an Argentina – Spain agreement to encompass international dispute resolution procedures… By contrast, the Most-favoured-nation Article of this Agreement is expressly limited in its scope to matters with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments. The parties share the understanding and intent that this clause does not encompass international dispute resolution mechanisms … and therefore could not reasonably lead to a conclusion similar to that of the Maffezini case.”[55]

However, in most investment treaties, the MFN clause is broadly phrased and is silent on the question whether the MFN treatment includes only substantive rules for the protection of investments or extends to other protections such as dispute settlement[56]. For example, Article 3 of the 1998 German Model BIT reads:

“(1) Neither Contracting State shall subject investments in its territory owned or controlled by investors of the other Contracting State to treatment less favourable than it accords to investments of its own investors or to investments of investors of any third State.
(2) Neither Contracting State shall subject investors of the other Contracting State, as regards their activity in connection with investments in its territory, to treatment less favourable than it accords to its own investors or to investors of any third State.”

A problem arises where the contracting parties have neither expressly excluded dispute resolution mechanisms nor clarified their intention of including such mechanisms in the protection that is accorded to the beneficiaries of the clause.[57] In such situations, the intention of the parties should be interpreted in accordance with the Vienna Convention on the Law of Treaties. Article 31 of the Vienna Convention provides that a treaty ‘‘shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose’’ The ICSID tribunals have approached the interpretation of MFN provisions in accordance with this general rule. However, this treaty interpretation principles may sometimes conflict with each other. For example, it can be argued, “in the ordinary textual meaning of a broadly-phrased MFN clause”, that the MFN clause applies without limitation to all treatment of investments, including dispute settlement mechanisms. On the other hand, where the basic treaty contains its own dispute settlement procedures, it can also be argued, “in the context for an MFN clause”, that MFN clause is not applicable to dispute settlement mechanisms since such mechanisms were specifically negotiated between the contracting parties and that it could not reasonably be interpreted as the parties intended to override such mechanisms by an MFN clause in the basic treaty and some other dispute settlement mechanisms in an investment treaty entered into between the host state and a third nation. It can also be argued “in the light of an MFN clause’s object and purpose”, that MFN clause is applicable to dispute settlement mechanisms since the purpose of an MFN clause is to prevent discrimination against nationals of different countries.[58]

Several recent ICSID decisions have brought these competing principles into sharp focus. However, it is noted that these decisions have not been unanimous neither in their results nor in their analytic methodology[59]. The more recent cases “appear to indicate an increased focus by tribunals upon the specific text of the treaty as the most authoritative expression of the contracting parties’ intentions, with less emphasis being placed upon the broader object and purpose of BITs to protect international investors and their investments”[60].

a. Maffezini v. Spain

The Case of Emilio Augustin Maffezini v. Kingdom of Spain[61] concerned a dispute arising out of the treatment allegedly received by the Argentine investor Emilio Agustin Maffezini from Spanish entities, in connection with his investment in an enterprise for the production and distribution of chemical products in the Spanish province of Galicia. The claimant submitted his claims to arbitration before the 18-month period required by the 1991 BIT signed between Argentina and Spain expired[62]. Spain objected to the tribunal’s jurisdiction and competence since the Claimant had failed to comply with the exhaustion of local remedies requirement set forth in the Argentine-Spain BIT. However, the Claimant argued that the MFN clause in the Argentine-Spain BIT would allow him to invoke the “more favourable” provisions of the 1991 BIT between Chile and Spain.

Article X of the Argentina and Spain BIT was as follows:

“1. Disputes which arise within the terms of this Agreement concerning an investment between an investor of one Contracting Party and the other Contracting Party shall, if possible, be settled amicably by the parties to the dispute.
2. If the dispute cannot thus be settled within six months following the date on which the dispute has been raised by either party, it shall be submitted to the competent tribunal of the Contracting Party in whose territory the investment was made.
3. The dispute may be submitted to international arbitration in any of the following circumstances:
a) at the request of one of the parties to the dispute, if no decision has been rendered on the merits of the claim after the expiration of a period of eighteen months from the date on which the proceedings referred to in paragraph 2 of this Article have been initiated, or if such decision has been rendered, but the dispute between the parties continues;
b) if both parties to the dispute agree thereto.”

The claimant failed to meet the conditions of this Article precedent to international arbitration but argued that jurisdiction could be based upon the MFN provision contained in Article IV(2) of the Argentina – Spain BIT which provides:

“In all matters subject to this Agreement, this treatment shall not be less favourable than that extended by each Party to the investments made in its territory by investors of a third country.”

Since Article 10(2) of the Chile-Spain Bilateral Investment Treaty, imposes no such condition precedent to international arbitration as imposed by Article X of the Argentina and Spain BIT, the Claimant argued that Chilean investors in Spain are treated more favourably than Argentine investors in Spain and that the most favoured nation clause in the Argentine-Spain BIT gives him the option to submit the dispute to arbitration without prior referral to domestic courts.

The Tribunal referred to the ejusdem generis principle and the reasoning found in the Ambatielos case and stated that: “Notwithstanding the fact that the basic treaty containing the clause does not refer expressly to dispute settlement as covered by the most favoured nation clause, the Tribunal considers that there are good reasons to conclude that today dispute settlement arrangements are inextricably related to the protection of foreign investors, as they are also related to the protection of rights of traders under treaties of commerce. Consular jurisdiction in the past, like other forms of extraterritorial jurisdiction, were considered essential for the protection of rights of traders and, hence, were regarded not merely as procedural devices but as arrangements designed to better protect the rights of such persons abroad. It follows that such arrangements, even if not strictly a part of the material aspect of the trade and investment policy pursued by treaties of commerce and navigation, were essential for the adequate protection of the rights they sought to guarantee.
International arbitration and other dispute settlement arrangements have replaced these older and frequently abusive practices of the past. These modern developments are essential, however, to the protection of the rights envisaged under the pertinent treaties; they are closely linked to the material aspects of the treatment accorded …

Having examined the language of the MFN clause providing for a more favourable treatment regarding “all matters”, the Tribunal concluded that:

“From the above considerations it can be concluded that if a third-party treaty contains provisions for the settlement of disputes that are more favourable to the protection of the investor’s rights and interests than those in the basic treaty, such provisions may be extended to the beneficiary of the most favoured nation clause as they are fully compatible with the ejusdem generis principle…”

In rendering its decision, the Tribunal also referred to Spain’s BIT practice with other states, finding that the majority of these treaties provided for arbitration with more favourable conditions. Thus, the Tribunal in Maffezini case choose to look to intention rather than form and concluded that the aim of MFN clauses includes dispute settlement mechanisms since rules relating to jurisdiction are a significant source of discrimination[63].

However, the Tribunal emphasised that this operation of the most-favoured nation clause does have some ‘‘important limits’’ arising from ‘‘public policy considerations’’. The Tribunal stated that the beneficiary of the MFN clause should not be able to override public policy considerations that the contracting parties might not have envisaged as fundamental conditions for their acceptance of the agreement in question and went on as follows:

“…Here it is possible to envisage a number of situations not present in the instant case. First, if one contracting party has conditioned its consent to arbitration on the exhaustion of local remedies, which the ICSID Convention allows, this requirement could not be bypassed by invoking the most favoured nation clause in relation to a third-party agreement that does not contain this element since the stipulated condition reflects a fundamental rule of international law. Second, if the parties have agreed to a dispute settlement arrangement which includes the so-called fork in the road, that is, a choice between submission to domestic courts or to international arbitration, and where the choice once made becomes final and irreversible, this stipulation cannot be bypassed by invoking the clause. This conclusion is compelled by the consideration that it would upset the finality of arrangements that many countries deem important as a matter of public policy. Third, if the agreement provides for a particular arbitration forum, such as ICSID, for example, this option cannot be changed by invoking the clause, in order to refer the dispute to a different system of arbitration. Finally, if the parties have agreed to a highly institutionalised system of arbitration that incorporates precise rules of procedure, which is the case, for example, with regard to the North America Free Trade Agreement and similar arrangements, it is clear that neither of these mechanisms could be altered by the operation of the clause because these very specific provisions reflect the precise will of the contracting parties. Other elements of public policy limiting the operation of the clause will no doubt be identified by the parties or tribunals. It is clear, in any event, that a distinction has to be made between the legitimate extension of rights and benefits by means of the operation of the clause, on the one hand, and disruptive treaty-shopping that would play havoc with the policy objectives of underlying specific treaty provisions, on the other hand.”

The justification of limitations of the Maffezini decision were unclear: in particular, it was not apparent from the decision how the tribunal arrived at its list of exceptions; what other exceptions might exist; or how the Tribunal’s reasoning would apply to more narrowly-worded MFN clauses.[64] These public policy limitations have given rise to a degree of confusion in later cases.

b. Siemens v. Argentina

In Siemens AG v The Argentine Republic, the facts were similar to those of the Maffezini case. The German claimant had failed to meet a condition precedent to international arbitration under the Argentina-Germany BIT that required prior submission of the dispute to the Argentine courts. The claimant argued that, by virtue of the MFN provisions of that BIT, and with reference to the absence of any such condition precedent in the Argentina-Chile BIT, the ICSID tribunal nevertheless had jurisdiction to determine the dispute. The claimant relied upon the Maffezini decision, even though the MFN provision contained within the Argentina-Germany BIT were not as wide as the provision in issue in the Maffezini case. The MFN clause in Article 3 of the Argentina-Germany BIT was as follows:
“(1) Neither Contracting Party shall subject investments in its territory by or with the participation of nationals or companies of the other Contracting Party to treatment less favourable than it accords to investments of its own nationals or companies or to investments of nationals or companies of any third State.
(2) Neither Contracting Party shall subject nationals or companies of the other Contracting Party, as regards their activity in connection with investments in its territory, to treatment less favourable than it accords to its own nationals or companies or to nationals or companies of any third State.”

The tribunal analysed the text of the MFN provision in Article 3 of the treaty, which extended most-favoured nation protection to the “treatment” of “investments” and “activities related to investments”. Finding that: (1) “the term ‘treatment’ is neither qualified nor described except by the expression ‘not less favourable’”; (2) “the term ‘activities’ is equally general”; and (3) “the need for exceptions confirms the generality of the meaning of treatment of activities”, the Siemens Tribunal concluded that, based on the context of the treaty and its plain wording, the MFN clause could not be limited merely to the exploitation and management of investments and the “the term ‘treatment’ and the phrase “activities related to investments” are sufficiently wide to include dispute settlement. The Tribunal decided that: “The basic BIT, together with so many other treaties of investment protection, has a distinctive feature special dispute settlement mechanisms not normally open to visitors. Access to these mechanisms is part of the protection offered under the BIT. It is part of the treatment of foreign investors and of the advantages accessible through a MFN clause.”

The Tribunal held that none of the public policy exceptions described in the Maffezini case applied, particularly as other BITs entered into by Argentina around the same time as the Argentina-Germany BIT contained no requirement to submit disputes to the domestic courts. Thus, the Tribunal added a guideline to the scope of the application of public policy exception of the Maffezini tribunal and stated that “the Tribunal would consider an indication of a policy by the Respondent if a certain requirement has been consistently included in similar treaties.” Although Argentina argued that the relevant dispute resolution provisions of the Argentina- Germany BIT had been specially negotiated and must not therefore be subject to amendment by virtue of the MFN clause, the Tribunal rejected this argument by stating that “...the purpose of the MFN clause is to eliminate the effect of specially negotiated provisions unless they have been excepted. It complements the undertaking of each State Party to the Treaty not to apply measures discriminatory to investments under Article 2 of the BIT.”

The Siemens decision adopted the wide statements of principle made in the Maffezini case and applied them in the context of a more narrowly drafted MFN provision[65]. An author states that “this offered claimants the possibility of using MFN clauses to establish jurisdiction in BIT arbitrations by reference to the more generous dispute resolution provisions of other treaties, even in the absence of any clear indication that the MFN clause concerned was intended to override the specific dispute resolution provisions of the basic treaty”[66]. The Salini and Plama decisions reached opposite conclusions to Maffezini and Siemens cases and have indicated a substantial change in direction from the relatively expansive approach which had been adopted in the said cases[67].

c. Salini v. Jordan

Salini Costruttori S.p.A. and Italstrade S.p.A. v. The Hashemite Kingdom of Jordan case related to the amount owed to the Italian claimants for works done under a contract for dam construction in Jordan. The claim was brought before an ICSID tribunal under the dispute resolution provisions of the Italy-Jordan BIT. Jordan objected to the Tribunal’s jurisdiction on the basis that the Italy – Jordan BIT, on which the Claimants relied, required parties to resort to any dispute resolution provisions they may have in their contract. In this case, the contract between the parties provided for arbitration only as a last resort and within the express consent of the Council of Ministers of Jordan, which was not obtained. The claimants countered by asserting that an MFN clause in the Italy-Jordan BIT entitled them to invoke more favourable dispute settlement arrangements in other BITs signed by Jordan.

The Tribunal, having found that the relevant contract was entered into with the Claimants by an entity of the State, concluded that it had no jurisdiction over the contractual dispute between the parties which must be resolved in accordance with the provision of the contract. The Tribunal stated:
“The current Tribunal shares the concerns that have been expressed in numerous quarters with regard to the solution adopted in the Maffezini case. Its fear is that the precautions taken by authors of the award may in practice prove difficult to apply, thereby adding more uncertainties to the risk of “treaty shopping.” The Tribunal also observes that bilateral investment treaties carry varying provisions that address this issue. Some of those treaties provide expressly that the most-favoured-nation treatment extends to the provisions relating to settlement of disputes. This is the case with some investment treaties concluded by the United Kingdom. In other treaties, the MFN clause does not contain such a provision, but refers to “all rights” contained in the agreement, or to “all matters” subject to the agreement. This was the situation in the Ambatielos and Maffezini cases... The Tribunal observes that the circumstances of this case are different. Indeed, Article 3 of the BIT between Italy and Jordan does not include any provision extending its scope of application to dispute settlement. It does not envisage “all rights or all matters covered by the agreement.” Furthermore, the Claimants have submitted nothing from which it might be established that the common intention of the Parties was to have the most-favoured-nation clause apply to dispute settlement. Quite on the contrary, the intention as expressed in Article 9(2) of the BIT was to exclude from ICSID jurisdiction contractual disputes between an investor and an entity of a State Party in order that such disputes might be settled in accordance with the procedures set forth in the investment agreements. Lastly, the Claimants have not cited any practice in Jordan or Italy in support of their claims. From this, the Tribunal concludes that Article 3 of the BIT does not apply insofar as dispute settlement clauses are concerned. Therefore the disputes foreseen in Article 9(1) of the BIT concluded between Jordan and Italy must be settled in accordance with the said Article. In the event that, as in this case, the dispute is between a foreign investor and an entity of the Jordanian State, the contractual disputes between them must, in accordance with Article 9(2), be settled under the procedure set forth in the investment agreement. The Tribunal has no jurisdiction to entertain them.”

The Salini tribunal appeared to place the burden of proof on a claimant to prove matters of treaty practice by the host state. Furthermore, the Tribunal expressed concerns about the workability of the general approach adopted by the Maffezini tribunal, with particular reference to the public policy-related exceptions described in that case.

d. Plama v. Bulgaria

In Plama Consortium Limited v. Republic of Bulgaria, the Cypriot claimant sought to establish the ICSID tribunal’s jurisdiction over its dispute with Bulgaria with reference both to the Energy Charter Treaty and the Bulgaria-Cyprus BIT. The case arose out of a Cypriot investor’s purchase of a Bulgarian company, Nova Plama, which owned an oil refinery in Bulgaria. The claimant alleged that the Bulgarian Government and other public authorities in Bulgaria deliberately created difficulties for Nova Plama, and refused or unreasonably delayed the adoption of adequate corrective measures, thus causing material damage to the operations of the refinery. The Claimant asserted the 1987 Bulgaria-Cyprus BIT for ICSID jurisdiction but the arbitration clause contained in the Bulgaria-Cyprus BIT was limited to ad hoc UNCITRAL arbitration of disputes. “with regard to the amount of compensation” due to an investor only after the merits of the investor’s claims had first been adjudicated “through the regular administrative and legal procedures of Bulgaria. Seeking to overcome this jurisdictional barrier, the Claimant sought to rely upon the MFN provision set out in Article 3 of the Bulgaria-Cyprus BIT which provides: ‘‘Each Contracting Party shall apply to the investments in its territory by investors of the other Contracting Party a treatment which is not less favourable than that accorded to investments by investors of third states.’’

Relying on Maffezini, the Claimant argued that the scope of the MFN clause extended to all treatment including dispute settlement, and that by operation of the MFN clause, the dispute resolution provisions of other BITs signed by Bulgaria, such as the Bulgaria-Finland BIT which provides for ICSID arbitration of a broader class of investment disputes, were imported into the Bulgaria-Cyprus BIT. However, the Tribunal stated that “It is one thing to add to the treatment provided in one treaty more favourable treatment provided elsewhere. It is quite another thing to replace a procedure specifically negotiated by parties with an entirely different mechanism.”

The Tribunal observed that the Bulgaria-Cyprus BIT had been entered into at a time when Bulgaria had favoured BITs with limited protections for foreign investors and with very limited dispute resolution provisions. Indeed, subsequent negotiations between the contracting states had demonstrated that they had not intended the MFN provision to extend to incorporating more generous dispute resolution procedures from Bulgaria’s more recent BITs.
The Tribunal also stated that: “It is a well-established principle, both in domestic and international law, that such an agreement should be clear and unambiguous.” In Plama case, based on the wording of the Bulgaria-Cyprus BIT and the negotiations between the contracting parties, the Tribunal found that the parties’ intentions in this regard is not clear and unambiguous. The tribunal also remarked that: ‘‘dispute resolution provisions in a specific treaty have been negotiated with a view to resolving disputes under that treaty. Contracting states cannot be presumed to have agreed that those provisions can be enlarged by incorporating dispute resolution provisions from other treaties negotiated in an entirely different context’’.

Turning to the Maffezini case, the tribunal made reference to the apparent objective in Maffezini of harmonising dispute settlement arrangements through the application of MFN clauses. The tribunal observed that it cannot be the presumed intention of contracting states that investors should have the option, by way of an MFN clause, to pick and choose dispute resolution provisions from the various BITs that they have concluded. Such a chaotic situation would be plainly counterproductive to harmonisation. Furthermore, the Tribunal stated that it was puzzled as to what the origin of the public policy-considerations and concluded as follows:

“...the principle with multiple exceptions as stated by the tribunal in the Maffezini case should instead be a different principle with one, single exception: an MFN provision in a basic treaty does not incorporate by reference dispute settlement provisions in whole or in part set forth in another treaty, unless the MFN provision in the basic treaty leaves no doubt that the Contracting Parties intended to incorporate them.”

The Plama decision thus broadly followed the approach taken in Salini and reversed the general approach taken in the Maffezini case. An author notes that, if the Tribunal agreed with the general approach taken in the Maffezini case, “it could have rejected the claimant’s arguments on the basis of one of the public policy-related exceptions to the general rule identified in that case. Instead, it went much further by reversing the general rule. In so doing, it reasserted the overriding importance of ascertaining the intention of the parties whenever examining the scope of any MFN clause, with primary reference to the wording of the clause itself as opposed to the broader object and purpose of BITs generally.”[68]

e. ADF v. United States of America

In the ADF v. United States case, the claimant alleged a breach of NAFTA Article 1103, the MFN treatment clause. According to the Tribunal, ADF’s Article 1103 claim was an attempt to mitigate the impact of the NAFTA Free Trade Commission’s Interpretation[69] on the Article 1105 claim. The Tribunal did not find that U.S. measures are inconsistent with the requirements of NAFTA Article 1105 as construed in the FTC Interpretation and denied the ADF’s claim concerning Article 1103, founding that the MFN article is inapplicable since the case involved government procurement which constitutes an exception to MFN treatment pursuant to NAFTA Article 1108(7)(a).

IX. Conclusions

It could easily be seen that the recent decisions examined above differ from each other. While this difference could be explained by different facts of the cases, this explanation may not be satisfactory as a matter of treaty interpretation. Decisions of ICSID tribunals are not binding in other ICSID cases. Thus, we now look forward to seeing whether a consensus would be reached among the ICSID tribunals in respect of the application of MFN clauses to dispute settlement mechanisms.
















BIBLIOGRAPHY

JENNINGS, Sir Robert – WATTS, Sir Arthur; Oppenheim’s International Law, Ninth Edition, Volume 1, Peace, Longman



TİRYAKİOĞLU, Bilgin; Doğrudan Yabancı Yatırımların Uluslararası Hukukta Korunması, Dayınlarlı, Ankara – 2003



FIETTA; Stephen; Most Favoured Nation Treatment And Dispute Resolution Under Bilateral Investment Treaties: A Turning Point?
http://www.lw.com/resource/publications/_pdf/pub1395_1.pdf


FREYER; Dana H. – HERLIHY, David; Most Favored-Nation Treatment And Dispute Settlement In Investment Arbitration: Just How “Favored” Is “Most-Favored”?
http://www.skadden.com/content/Publications/Publications1098_0.pdf


GAILLARD, Emmanuel; Establishing Jurisdiction Through a Most-Favored Nation Clause, New York Law Journal, Volume 233 – No.105, International Arbitration Law, June 2, 2005

http://www.nylj.com



SCHOLZ; Katja; Having Your Pie... And Eating it with One Chopstick – Most Favoured Nation Clauses and Procedural Rights, Policy papers On Transnational Economic Law; No:5/2004

http://www2.jura.uni-halle.de/telc/PolicyPaper5.pdf



WEILER; Todd; NAFTA Investment Arbitration and the Growth of International Economic Law
http://www.dundee.ac.uk/cepmlp/journal/html/vol12/article12-4.pdf

Most-Favoured Nation Treatment, UNCTAD Series on issues in international investment agreement, United Nations, New York and Geneva, 1999
http://www.unctad.org/en/docs/psiteiitd10v3.en.pdf

World Trade Organization, WT/WGTI/W/118, Working Group On The Relationship Between Trade and Investment, Non-Discrimination, Most-Favoured-Nation Treatment and National Treatment, Note By the Secretariat, 4 June 2002
http://www.docsonline.wto.org/GEN_highLightBottom.asp?qu-non%2Ddiscrimination

The REIO Exception in MFN Treatment Clauses; Unctad Series on International Investment Policies for Development, United Nations, New York and Geneva, 2004
http://www.unctad.org/en/docs/iteiit20047_en.pdf

Most Favoured Nation Treatment In International Investment Law; OECD Directorate For Financial and Enterprise Affairs; Working Papers On International Investment, Number 2004/2
http://www.oecd.org/dataoecd/21/37/33773085.pdf

Relationships Between International Investment Agreements; OECD Directorate For Financial and Enterprise Affairs; Working Papers On International Investment, Number 2004/1, May 2004
http://www.oecd.org/dataoecd/8/43/31784519.pdf

Application of the MFN-clause in investment treaties: Replies to two questions

http://www.transnational-dispute-management.com/samples/freearticles/tv1-2-article47a.htm

Towards Multilateral Investment Rules? Key Issues In Post-Doha Agenda; Commonwealth Business Council
http://www.cpahq.org/uploadstore/docs/21.pdf

Draft Articles On Most-Favoured-Nation Clauses

http://untreaty.un.org/ilc/texts/instruments/english/draft%20articles/1_3_1978.pdf


Fourt Report on the most-favoured-nation clause, A/CN.4/266, by Mr. Endre Ustor, Special Rapporteur -draft articles (article 6-8) with commentaries, Yearbook of the International Law Commission: 1973. vol.II
http://www.un.org/law/ilc/index.htm

Most-Favoured-Nation Treatment Principle

http://www.meti.go.jp/english/report/data/gCT9901e.html

ICSID CASES

http://www.worldbank.org/icsid/cases/awards.htm


[1] Most-Favoured-Nation Treatment Principle, page 1.

[2]UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT, UNCTAD Series on issues in international investment agreements, Most-Favoured-Nation Treatment, UNCTAD/ITE/IIT/10 (Vol. III), UNITED NATIONS New York and Geneva, 1999, page 5.


[3] FREYER; Dana H. – HERLIHY, David; Most Favoured-Nation Treatment And Dispute Settlement In Investment Arbitration: Just How “Favoured” Is “Most-Favoured”?, page 59.

[4]UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT, UNCTAD Series on issues in international investment agreements, Most-Favoured-Nation Treatment, UNCTAD/ITE/IIT/10 (Vol. III), UNITED NATIONS New York and Geneva, 1999, page 17.

[5] Relationships Between International Investment Agreements; OECD Directorate For Financial and Enterprise Affairs; Working Papers On International Investment, Number 2004/1, May 2004, page 3.


[6] JENNINGS, Sir Robert – WATTS, Sir Arthur; Oppenheim’s International Law, Ninth Edition, Volume 1, Peace, Longman, page 1330.



[7] International Law Commission was established in 1947 to promote the progressive development of international law and its codification. The Commission is composed of 34 Members and meets annually. Most of its work involves the preparation of drafts on topics of international law.

[8] Draft Articles On Most-Favoured Nation Clauses, Article 29.

[9] Most Favoured Nation Treatment In International Investment Law; OECD Directorate For Financial and Enterprise Affairs; Working Papers On International Investment, Number 2004/2, page 9.

[10] Draft Articles On Most-Favoured Nation Clauses, Article 4.

[11] Draft Articles On Most-Favoured Nation Clauses, Article 5.

[12] JENNINGS, Sir Robert – WATTS, Sir Arthur; Oppenheim’s International Law, Ninth Edition, Volume 1, Peace, Longman, page 1328.


[13] World Trade Organization, WT/WGTI/W/118, Working Group On The Relationship Between Trade and Investment, Non-Discrimination, Most-Favoured-Nation Treatment and National Treatment, Note By the Secretariat, 4 June 2002, page 5.

[14] Most Favoured Nation Treatment In International Investment Law; OECD Directorate For Financial and Enterprise Affairs; Working Papers On International Investment, Number 2004/2, page 9.

[15] ICSID Case No.ARB/97/7, Emilio Agustin Maffezini v. The Kingdom Of Spain, Decision of the Tribunal on Objections To Jurisdiction, January 25, 2000, page 16.

[16] GAILLARD, Emmanuel; Establishing Jurisdiction Through a Most-Favoured Nation Clause, New York Law Journal, Volume 233 – No.105, International Arbitration Law, June 2, 2005.


[17] Fourth report on the most-favoured-nation clause, by Mr. Endre Ustor, Special Rapporteur, Extract from the Yearbook of the International Law Commission: 1973. vol. II, page 102.

[18] Most Favoured Nation Treatment In International Investment Law; OECD Directorate For Financial and Enterprise Affairs; Working Papers On International Investment, Number 2004/2, page 10.

[19]Fourth report on the most-favoured-nation clause, by Mr. Endre Ustor, Special Rapporteur, Extract from the Yearbook of the International Law Commission: 1973. vol. II, page 103.


[20] Most Favoured Nation Treatment In International Investment Law; OECD Directorate For Financial and Enterprise Affairs; Working Papers On International Investment, Number 2004/2, page 11.

[21] Fourth report on the most-favoured-nation clause, by Mr. Endre Ustor, Special Rapporteur, Extract from the Yearbook of the International Law Commission: 1973. vol.II, page 104.

[22] Ibid, page 106.

[23] Ibid, page 108.

[24] Most-Favoured Nation Treatment, UNCTAD Series on issues in international investment agreement, United Nations, New York and Geneva, 1999, page 9.

[25] Most-Favoured Nation Treatment, UNCTAD Series on issues in international investment agreement, United Nations, New York and Geneva, 1999, page 11.

[26] World Trade Organization, WT/WGTI/W/118, Working Group On The Relationship Between Trade and Investment, Non-Discrimination, Most-Favoured-Nation Treatment and National Treatment, Note By the Secretariat, 4 June 2002, page 13.


[27] Ibid, page 11.

[28]Most-Favoured Nation Treatment, UNCTAD Series on issues in international investment agreement, United Nations, New York and Geneva, 1999, page 19.

[29] Most Favoured Nation Treatment In International Investment Law; OECD Directorate For Financial and Enterprise Affairs; Working Papers On International Investment, Number 2004/2, page 5.

[30] Ibid, page 4.

[31] Most-Favoured Nation Treatment, UNCTAD Series on issues in international investment agreement, United Nations, New York and Geneva, 1999, page 31.

[32] For example, the Turkish BITs with Cuba, Ukraine, Croatia, Lithuania, Bulgaria and Macedonia. TİRYAKİOĞLU, Bilgin; Doğrudan Yabancı Yatırımların Uluslararası Hukukta Korunması, Dayınlarlı, Ankara – 2003, page 175.


[33] Most-Favoured Nation Treatment, UNCTAD Series on issues in international investment agreement, United Nations, New York and Geneva, 1999, page 32.

[34] Ibid, page 32.

[35] Ibid, page 15-16.

[36] Ibid, page 17.

[37] Ibid, page 2.

[38] World Trade Organization, WT/WGTI/W/118, Working Group On The Relationship Between Trade and Investment, Non-Discrimination, Most-Favoured-Nation Treatment and National Treatment, Note By the Secretariat, 4 June 2002, page 4.

[39] Towards Multilateral Investment Rules? Key Issues In Post-Doha Agenda; Commonwealth Business Council, page 6-7.


[40] Ibid, page 8.

[41] Most-Favoured Nation Treatment, UNCTAD Series on issues in international investment agreement, United Nations, New York and Geneva, 1999, page 25.

[42] Most Favoured Nation Treatment In International Investment Law; OECD Directorate For Financial and Enterprise Affairs; Working Papers On International Investment, Number 2004/2, page 7.


[43] Most-Favoured Nation Treatment, UNCTAD Series on issues in international investment agreement, United Nations, New York and Geneva, 1999, page 18.

[44] Ibid, page 18.

[45] Ibid, page 19.

[46] Ibid, page 19.

[47] Ibid, page 22-23.

[48] Ibid, page 20.

[49]The REIO Exception in MFN Treatment Clauses; Unctad Series on International Investment Policies for Development, United Nations, New York and Geneva, 2004, page 6.

[50] Ibid, page 6.

[51] Ibid, page 42.

[52] Ibid, page 45.

[53] FREYER; Dana H. – HERLIHY, David; Most Favoured-Nation Treatment And Dispute Settlement In Investment Arbitration: Just How “Favoured” Is “Most-Favoured”?, page 60.


[54] GAILLARD, Emmanuel; Establishing Jurisdiction Through a Most-Favoured Nation Clause, New York Law Journal, Volume 233 – No.105, International Arbitration Law, June 2, 2005.

[55] Ibid

[56] FREYER; Dana H. – HERLIHY, David; Most Favoured-Nation Treatment And Dispute Settlement In Investment Arbitration: Just How “Favoured” Is “Most-Favoured”?, page 60.

[57] GAILLARD, Emmanuel; Establishing Jurisdiction Through a Most-Favoured Nation Clause, New York Law Journal, Volume 233 – No.105, International Arbitration Law, June 2, 2005.

[58] FREYER; Dana H. – HERLIHY, David; Most Favoured-Nation Treatment And Dispute Settlement In Investment Arbitration: Just How “Favoured” Is “Most-Favoured”?, page 62.

[59] Ibid, page 61.

[60] FIETTA; Stephen; Most Favoured Nation Treatment And Dispute Resolution Under Bilateral Investment Treaties: A Turning Point?, page 132.

[61] ICSID Case No.ARB/97/7, decision of January 25, 2000.

[62] Application of the MFN-clause in investment treaties: Replies to two questions, page 2.



[63] SCHOLZ; Katja; Having Your Pie... And Eating it with One Chopstick – Most Favoured Nation Clauses and Procedural Rights, Policy papers On Trans-national Economic Law; No:5/2004, page 3.



[64] FREYER; Dana H. – HERLIHY, David; Most Favoured-Nation Treatment And Dispute Settlement In Investment Arbitration: Just How “Favoured” Is “Most-Favoured”?, page 67.

[65] FIETTA; Stephen; Most Favoured Nation Treatment And Dispute Resolution Under Bilateral Investment Treaties: A Turning Point?, page 135.

[66] Ibid, page 135.

[67] Ibid, page 131.

[68] Ibid, page 137.

[69]NAFTA Article 2001 provides for the creation of the Free Trade Commission which is composed of one representative from each NAFTA government. NAFTA Article 1132(2) provides that the Commission may issue interpretations of the NAFTA text that shall be binding upon a tribunal hearing an investment claim. In accordance with this provision, the Commission interpreted the NAFTA Article 1105 on July 31, 2001. (WEILER; Todd; NAFTA Investment Arbitration and the Growth of International Economic Law, page 180).
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