Most-Favored-Nation Clause in the Practice of Establishing the Jurisdiction of the International Center for the Settlement of Investment Disputes (ICSID)

Based on the analysis of arbitration practice and doctrine, the author identifies the principles of interpretation of the most-favored-nation clause in order to resolve the issue of the jurisdiction of the International Center for the Settlement of Investment Disputes (ICSID) by arbitration. The author concludes that the arbitration should be guided not only by the principle of literal interpretation of the international investment agreement and, in case of uncertainty, establish the intention of the contracting states to apply the most-favored-nation clause to the process of resolving investment disputes, but also take into account the public policy of the contracting states.

Investment arbitration and the MFN conundrum: The long and winding road from Maffezini to Içkale

Interpretation of the most-favored nation clause in investment treaty arbitration has been sparking debates for the better part of two decades. The paper examines the issue from the perspective of two opposing ends-a broad stance of the seminal decision in Maffezini Case and a recent more restrictive approach undertaken by the arbitral tribunal in Içkale decision, in order to paint in broad strokes the outlines of a balancing act mechanism in interpretation that author puts forward.

CHINESE PUZZLE: ANATOMY OF THE (INVISIBLE) BELT AND ROAD INVESTMENT TREATY1

This article makes a major contribution to the emerging Belt and Road Initiative scholarship (and international economic law) by highlighting that (i) China’s existing investment treaty network along the Belt and Road is dated, (ii) many or most of those treaties include Most Favored Nation provisions, (iii) these treaties have hitherto been subject to a static three generations analysis which does not reflect the reality, and (iv) there is significant authority supporting the use of the Most Favoured Nation provisions by Chinese investors to upgrade the Belt and Road Initiative investment treaty network. This article demonstrates that an investment treaty for the Belt and Road Initiative already exists via the Most Favored Nation clause present in China’s bilateral investment treaties. Moreover, the article further identifies that China’s treaty network is unique (by being so extensive) and assesses the potential for investment claims in light of Belt and Road Initiative jurisdictions past involvements in Investor–State Dispute Settlement, and by doing so, the article sheds a new light on the predicted increased use of such procedure by Chinese investors.

Most-Favored-Nation Clauses

A most-favored-nation clause (MFNC) is a specific treaty provision “whereby a State [the granting State] undertakes an obligation towards another State [the beneficiary State] to accord most-favored treatment in an agreed sphere of relations” (Article 4 of the draft on most-favored-nation clauses adopted by the International Law Commission at its thirtieth session in 1978). The general purpose of a MFNC is to grant most favored treatment (MFNT) within spheres of relations generally connected to areas of bilateral or multilateral intergovernmental cooperation varying in scope. MFNT is a standard of treatment accorded by the granting state to the beneficiary state, or to persons or things in a determined relationship with that state; this means that MFNT could also be employed to benefit persons or things that have an identified link with the beneficiary state (for example, citizenship or product origin) and not only in reciprocal interstate relationships. The International Law Commission (ILC) points out that MFNT involves granting treatment not less favorable than treatment extended by the granting state to a third state or to persons or things in the same relationship with that third state; the ILC prefers the wording “not less favorable” to the alternative “equal treatment” because it is the phrase commonly used in MFNCs and because MFNCs cannot prevent the granting state from bestowing on the beneficiary state additional advantages to those applied to the most-favored third state. In sum, the purpose of MFNCs is to maintain fundamental equality among all the states concerned in the relevant fields. On the other hand, even if MFNT could theoretically arise from the unilateral conduct of states, whether or not based on reciprocity or on nonbinding instruments (as political agreements), conventional MFNCs inserted in international treaties have become the most effective tool to ensure MFNT and its reciprocal extension to all parties since unilateral clauses granting such treatment are, if in use at all, rather exceptional nowadays.

Bilateral Treaties and The Most-Favored-Nation Clause: The Myth of Trade Liberalization in the Nineteenth Century

Textbook accounts of the Anglo-French trade agreement of 1860 argue that it heralded the beginning of a liberal trading order. This alleged success holds much interest from a modern policy point of view, for it rested on bilateral negotiations and most-favored-nation clauses. With the help of new data on international trade (the RICardo database), the authors provide empirical evidence and find that the treaty and subsequent network of MFN trade agreements coincided with the end of a period of unilateral liberalization across the world. They also find that it did not contribute to expanding trade at all. This is contrary to a deeply rooted belief among economists, economic historians, and political scientists. The authors draw a number of policy lessons that run counter to the conventional wisdom and raise skepticism toward the ability of bilateralism and MFN arrangements to promote trade liberalization.