IISD.org 6
IISD Best Practices Series: The Most-Favoured-Nation Clause in Investment Treaties
Moreover, although MFN clauses generally protect investors and their investments, some BITs limit the beneit of MFN treatment to “investments” without extending it to “investors.”
16
Finally, regardless of the way in which the MFN clause is written, investment treaties systematically provide for exceptions.
3.2 Exceptions to the Application of MFN
Traditionally, two types of MFN-speciic exceptions are systematically provided in investment treaties and chapters. First, as with the WTO, they respond to the need to take account of the existence of areas of economic
integration, which are by deinition incompatible with MFN. They then cover double taxation treaties.
Exceptions of this type are typically formulated as follows:
17
This treatment does not extend, however, to the privileges that one Contracting Party grants to the nationals or companies of a third State, by virtue of its participation in or association with a free trade
area, customs union, common market or any other form of regional economic organization.
Treatment granted under this article is not applied to taxes and iscal deductions and exemptions granted by one of the Contracting Parties to the investors of a third State under a double taxation or other tax-
related agreement. [Unoicial translation]
The result of these exceptions is that investors protected by the treaty cannot use MFN to claim treatment more favourable than that granted by the host country to investors from third countries as part of an economic
integration area or on the basis of a double taxation treaty.
These two categories of exception relect the types of risks considered by the signatory states at the time the BIT is made in the event of the limitless application of MFN. These include the accidental multilateralization of
trade or tax preferences granted to privileged members of an economic integration area or to strategic economic partners.
Some BITs speciically exclude certain sectors from the scope of MFN, namely “aviation, isheries, maritime matters, including salvage.”
18
Other BITs add speciic exceptions, such as “any arrangements for facilitating small scale frontier trade in border area,”
19
or “matters related to the acquisition of land property.”
20
It is, therefore, quite possible for signatory countries to provide speciic exceptions to meet their national investment policies.
Finally, it is interesting to note the growing inclusion in BITs, and especially investment chapters, of a general exception based on the general exception in Article XX of the WTO GATT. This type of exception is a priori
applicable to MFN. But the scope of these clauses and their precise impact on the scope of MFN and national treatment largely depends on the way in which they are formulated, and the fact is that there are many variants.
3.3 The Temporal Scope of MFN
