When a state grants MFN and/or national treatment to a treaty partner, this means it needs to treat investors from the partner state no less favourably than it treats investors in like circumstances from other states or domestic investors. From an environmental perspective, it will be important to ensure that states retain the right to distinguish environmentally sound investments from those investments and operations that will or may potentially harm the environment. For example, to encourage the production of renewable energy, states may want to treat it more favourably than fossil fuel production. Similarly, a state might wish to regulate one operation more heavily—and therefore less favourably—than another similar operation because it is situated in an environmentally sensitive area.
In trade law, GATT specifies that discrimination is only prohibited between “like products.” Being prudent, some recent investment agreements, analogous to GATT, have begun explicitly clarifying that discrimination is only prohibited when it is between investors or investments in “like circumstances” or “like situations.” In order to provide additional guidance, parties could incorporate language and criteria to clarify what constitutes “like circumstances” or “like situations.” If applied properly, these criteria should avoid situations in which two investments with different environmental impacts are found to be in “like circumstances,” and therefore cannot be legally treated differently.
States may also choose to omit MFN obligations from the agreement altogether. Several agreements do this, not so much for environmental reasons, but rather to avoid allowing investors to import provisions from other BITs that the parties never intended to apply between them (see Section 5.4.2.2).
Option 1:Clarifying that only investments in “like” circumstances are subject to obligations on non-discrimination
This formulation allows states to avoid situations in which two investments with different environmental impacts cannot be legally treated differently.
Examples
“Neither Contracting Party shall in its territory subject investments or returns of investors of the other Contracting Party to treatment less favourable than that which it accords, in like circumstances, to investments or returns of its own investors or to investments or returns of investors of any third State.” (emphasis added) (Mexico-United Kingdom BIT, Art. 4, para. 1)
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Option 2:Explicit guidance on what constitutes “like circumstances,” including location of the investment or its environmental impact
Contributes additional clarity and predictability to the provisions described above
Examples
“For greater certainty, references to ‘like circumstances’ in paragraph 1 of this Article requires an overall examination on a case by case basis of all the circumstances of an investment including, inter alia:
a) its effects on third persons and the local community;
b) its effects on the local regional or national environment, including the cumulative effects of all investments within a jurisdiction on the environment;
c) the sector the investor is in;
d) the aim of the measure concerned;
e) the regulatory process generally applied in relation to the measure concerned; and
f) other factors directly relating to the investment or investor in relation to the measure concerned;
and the examination shall not be limited to or be biased towards any one factor.” (Investment Agreement for the COMESA Common Investment Area, Article 17.2)
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Examples
“For greater certainty, whether treatment is accorded in “like circumstances” under Article [X] (National Treatment) or Article [X] (Most-Favoured-Nation Treatment) depends on the totality of the circumstances, including whether the relevant treatment distinguishes between investors or investments on the basis of legitimate public welfare objectives.” (TPP, Chapter 9 footnote 14)
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Option 3:Omit MFN provisions
MFN provisions are not usually omitted for environmental reasons per se—more to avoid importing provisions from other BITs and international law (see below)
Examples
Several recent BITs do not include MFN provisions: The ASEAN–Australia–New Zealand Free Trade Agreement (AANZFTA); the Jordan–Singapore BIT and the Indian Model BIT.
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