Introduction mfn most favoured nation clause best practices en

IISD.org 1 IISD Best Practices Series: The Most-Favoured-Nation Clause in Investment Treaties

1.0 Introduction

Most-favoured nation MFN is now a both common and controversial clause in investment treaties. It has been the object of difering and unexpected interpretations by treaty-based arbitral tribunals. Initially, the application of MFN in investment treaties did not raise much debate. Since 2000, however, with Mafezini v. Spain , 1 an original interpretation of MFN led to a seismic shift in international investment law: the possibility for investors protected under a bilateral investment treaty BIT to import more favourable provisions from a third-party BIT made by their host state. This trend then accelerated and led to many criticisms, crystallized in one essential point: the latitude given to foreign investors to bring together elements from various treaties made by the host state and to custom tailor a treaty, ignoring the bilateral character of the commitments made by two states in the context of speciic negotiations. The controversies around MFN raise fundamental questions in the context of current changes in the international investment law and arbitration regime. They require an examination of the content and scope of this clause in order to ind solutions that strike a better balance of the rights and obligations involved without compromising current reforms towards a more balanced regime that is a vector of sustainable development. After reviewing the deinition and background of the MFN clause Section 2, this study will conduct a typology of investment treaties Section 3 and then an analysis of the difering interpretations by the tribunals of several key issues Section 4. The issues surrounding certain interpretations of the MFN clause Section 5 and the reactions of states in their recent treaties Section 6 will be reviewed in order to draw lessons for states Section 7. 1 Emilio Agustín Maffezini v. The Kingdom of Spain, ICSID, ARB977, Decision on Jurisdiction, January 25, 2000. Retrieved from http: www.italaw.comsitesdefaultfilescase-documentsita0479.pdf IISD.org 2 IISD Best Practices Series: The Most-Favoured-Nation Clause in Investment Treaties

2.0 Definition and Background of the MFN Clause