The Interpretation and Application of the Most-Favored-Nation Clause in Investment Arbitration

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The open access publication of this book has been published with the support of the Swiss National Science Foundation.

In The Interpretation and Application of the Most-Favored-Nation Clause in Investment Arbitration, Dr. Anqi Wang provides suggestions for MFN drafting in future international investment agreements (IIAs), as well as for MFN application by investor-state dispute settlement (ISDS) tribunals in case of ambiguity. Dr. Wang conducts a systemic review of MFN clause in history and maps all the relevant ISDS cases. She argues that ISDS tribunals should interpret the MFN clause according to the treaty text on a case-by-case basis, and that tribunals should also consider state consent as the foundation for the jurisdiction of international adjudication, current IIA reform, and essential treaty interpretive principles.
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Anqi Wang, Ph.D. (2021), University of Bern, is a research fellow at the World Trade Institute. Her research focuses on the reform of international investment regime and dispute settlement. She has published articles on international investment arbitration and investment policy.
Series Editor
Thomas Cottier, World Trade Institute and University of Ottawa

Editorial Board
Marc Bungenberg, Saarland University/ University of Lausanne
Mira Burri, World Trade Institute and University of Lucerne
Manfred Elsig, World Trade Institute
Ilaria Espa, Università della Svizzera italiana
Joseph Francois, World Trade Institute
Henning Grosse Ruse-Khan, King’s College - University of Cambridge
Michael Hahn, World Trade Institute
Markus Krajewski, University of Erlangen-Nuremberg
Rosa Lastra, Queen Mary University of London
Luca Rubini, Burmingham University
Debra Steger, University of Ottawa
Peter van den Bossche, World Trade Institute
Acknowledgements

Abbreviations

Introduction

1History of the  mfn  Clause in International Law
 1 The Evolution of the mfn Clause in International Trade Law
 1.1 The Genesis of the  mfn  Clause in the Middle Ages: From the 11th to the 16th Century

 1.2 The Appearance of Conditional and Unconditional  mfn  Clauses: The 18th and 19th Centuries

 1.3 The Status of the  mfn  Clause during an Unstable Period for World Trade: The 20th Century Onward


 2 Incorporation and Development of the mfn Clause in International Investment Law
 2.1 The  mfn  Clause in the Colonial Era

 2.2 The  mfn  Clause in the Post-colonial Era

 2.3 The  mfn  Clause in the Global Era

 2.4 The  mfn  Clause in the Rebalancing Era


 3 Codification Efforts by the International Law Commission

 4 Conclusion


2Interpretation of the  mfn  Clause
 1 Customary International Law
 1.1 The Expressio Unius est Exclusio Alterius Principle

 1.2 The Ejusdem Generis Principle

 1.3 The Contemporaneity Principle


 2 Articles 31 and 32 of the vclt
 2.1 Article 31 of the  vclt  as Containing the Core Principles of Treaty Interpretation
 2.1.1 Should Interpreters Follow the Textual or Teleological Approach to Treaty Interpretation?

 2.1.2 Subsequent Agreements and Practices
 2.1.2.1  Subsequent Agreements
 2.1.2.1.1 Joint Interpretation Authorized by Treaty Texts as Subsequent Agreements

 2.1.2.1.2 Other Forms of Joint Interpretation

 2.1.2.1.3 Non-disputing Party Submissions


 2.1.2.2 Subsequent Practices


 2.1.3 Good Faith Principle


 2.2 Article 32 of the  vclt  as Containing Supplementary Methods of Treaty Interpretation


 3 The Role of Arbitral Precedents

 4 Conclusion


3Applying the  mfn  Clause for Higher Substantive Treatment
 1 The Scope of Treatment Covered by mfn Clauses in iia s
 1.1 The Beneficiary of  mfn  Treatment (Ratione Personae)

 1.2 The Temporal Dimension of  mfn  Treatment (Ratione Temporis)
 1.2.1 The Temporal Scope of the mfn Clause
 1.2.1.1  Prospective Formulation of  mfn  Clauses

 1.2.1.2 Pre/Post-establishment Approaches to  mfn  Clauses


 1.2.2 The Temporal Scope of Treaties
 1.2.2.1  Ratione Temporis and the Basic Treaty

 1.2.2.2 Ratione Temporis and the Third-Party Treaty


 1.3 The Subject Matter of  mfn  Treatment (Ratione Materiae)

 1.4 Exceptions to  mfn  Clauses


 2  mfn Clauses and Substantive Treatment
 2.1 De Facto Breaches of  mfn  Clauses
 2.1.1 “In Like Circumstances”

 2.1.2 “Less Favorable Treatment”

 2.1.3 Burden of Proof

 2.1.4 Discriminatory Intent


 2.2 Invoking an mfn Clause in Pursuit of Obtaining a Higher Standard of Protection
 2.2.1 The Incorporation of Fair and Equitable Treatment ( fet ) Clauses

 2.2.2 The Incorporation of Full Protection and Security Clauses

 2.2.3 The Incorporation of Expropriation Clauses

 2.2.4 The Incorporation of Umbrella Clauses

 2.2.5 The Incorporation of Other Substantive Treatment


 3 Concluding Remarks


4Applying the  mfn  Clause to Avoid Procedural Preconditons
 1 The Discussion Started by the Maffezini Case

 2 Exhaustion of Local Remedies and Dispute Settlement Provisions
 2.1 Exhaustion of Local Remedies?

 2.2 Jurisdiction or Admissibility?
 2.2.1 Requiring Remedies to Be Pursued in Local Courts as an Issue of Admissibility
 2.2.1.1 The Failure by Tribunals to Properly Apply the Ejusdem Generis Principle

 2.2.1.2 Public Policy Considerations

 2.2.1.3 Neglect to Consider the Precise Formulation of Dispute Settlement Clauses


 2.2.2 Requiring Remedies to Be Pursued in Local Courts as an Issue of Jurisdiction


 3 What Constitutes “More Favorable” Treatment?
 3.1 The Approach Considering Domestic Court as Less Favorable

 3.2 “Fork-in-the-Road” Requirements

 3.3 The Risk of Treaty-shopping: The Siemens Approach


 4 Conclusion


5Applying the  mfn  Clause to Avoid Jurisdictional Obstacles
 1 State Consent in Investment Arbitration

 2 Cases Where Tribunals Refused to Establish Jurisdiction via the Application of an mfn Clause
 2.1 Application of  mfn  Clause to Establish Jurisdiction Ratione Personae
 2.1.1 Broadening the Definition of “Investment”

 2.1.2 Avoiding Legality Requirements


 2.2 Bypassing Limitations Contained in Dispute Settlement Provisions

 2.3 Replacing Dispute Settlement Provisions in a Basic Treaty

 2.4 Applying the Basic Treaty Retroactively


 3 Cases Where Tribunals Established Jurisdiction via the Application of an mfn Clause
 3.1 Bypassing Limitations Contained in Arbitration Provisions

 3.2 Replacing the Chosen Forum for Dispute Settlement

 3.3 Manufacturing Jurisdiction through an Application of an  mfn  Clause


 4 Can Jurisdiction Be Founded on the Basis of an mfn Clause?
 4.1 Limitation of the Traditional Interpretive Methods

 4.2 The Incorrect Application of the Ejusdem Generis Principle

 4.3 Are the ilc Guiding Principles a Way Out?


 5 Concluding Remarks


6Conclusion
 1 Current Drafting Trends in Relation to mfn Clauses
 1.1 Marginalization of the  mfn  Clause
 1.1.1 Soft Commitments

 1.1.2 The Total Absence of an mfn Clause


 1.2 Refinement of the  mfn  Clause
 1.2.1 Retraining mfn Clause From Substantive Obligations

 1.2.2 Clarifying “in Like Circumstances”

 1.2.3 Excluding Investor-State Dispute Mechanism From mfn Treatment


 2 A More Balanced Approach to mfn Interpretation


Bibliography

Table of Materials

Index

The book will appeal to international law practitioners interested in investment arbitration jurisprudence, as well as international investment law practitioners interested in international investment agreement (IIA) reform and international investment policies.
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