Many decisions rendered by international arbitral tribunals suggest that an investor whose rights against the host state are governed by one agreement with an MFN clause can search the universe of treaties to which the host state is party, identify more favourable clauses and protections in those other treaties, and use the MFN provision to replace or supplement the protections of the agreement.25 Allowing foreign investors to isolate, extract and import more favourable provisions from other treaties can broaden states’ obligations, undoing what may have been the results of hard-fought negotiations between the host and home country, and nullifying what might have been purposeful limits in the agreement. This is important from an environmental perspective because treaty language has evolved greatly over the past few years in a view to avoid the loss of the space needed to regulate, but that progress can be reversed through the MFN clause if provisions from older treaties are allowed to be imported.
As a reaction, some states have considered adding clarifications or carve-outs to MFN obligations. They have done this in two ways. Some treaties clarify that provisions in other investment agreements do not constitute “treatment” that could be considered more favourable and in violation of the MFN provision. Other treaties expressly exclude all (past) investment agreements from the scope of MFN.26
Option 1:MFN with clarifications to avoid unintended importation of investor advantages granted in pre-existing (or future) investment treaties
May prevent unintended “ratcheting-up” of the agreements by importing more favourable provisions from other agreements. CETA text provided here finishes with “absent measures adopted by a Party pursuant to such obligations.” We have not included this part of the clause; in our view it is unclear.
Examples
“For greater certainty, the ‘treatment’ referred to in Paragraph [X] does not include investor-to-state dispute settlement procedures provided for in other international investment treaties and other trade agreements. Substantive obligations in other international investment treaties and other trade agreements do not in themselves constitute ‘treatment’, and thus cannot give rise to a breach of this article …” (CETA, Article 8.7(4))
How Commonly Used
Examples
”For greater certainty, the ‘treatment’ referred to in paragraphs 1 and 2 does not include international dispute resolution procedures or mechanism, such as those included in Section 3, provided for in any other bilateral, regional and/or international agreements. Substantive obligations in such agreements do not in themselves constitute ‘treatment’ and thus cannot be taken into account when assessing a breach of this Article. Measures by a Party pursuant to those substantive obligations shall be considered treatment.” (EU – Vietnam FTA, Chapter 8, Chapter II (Investment), Article 4.6)
How Commonly Used
Examples
“It is understood that the most favoured nation treatment referred to in this article does not extend to the provisions on the settlement of disputes included in other international agreements related to investment concluded by the relevant Contracting Party.” (Egypt – Mauritius BIT, Article 5.4)
(Note that this formulation would not bar the import of substantive guarantees in previous agreements such as FET or indirect expropriation.)
How Commonly Used
For some other options, see UNCTAD’s Investment Policy Framework for Sustainable Development (2015), pp. 96–97 (Policy Options for IIAs, Section 4.2).
Option 2:MFN with carve-outs and limitations for specified trade and/or investment treaties
May prevent unintended “ratcheting-up” of the agreements by importing more favourable provisions relating to certain rights and obligations.
Examples
“ … This paragraph [MFN obligation] shall not apply to investment agreements entered into by Member States with non-Member States prior to the entry into force of this Agreement. …
Nothing in paragraph [X] of this Article [MFN obligation] shall oblige a Member State to extend to COMESA investors the benefits of any treatment, preference or privilege resulting from: any customs union, free trade area, common market or monetary union, or any similar international convention or other forms of regional preferential arrangements, present or future, of which any of the Member States is or may become a party; …” (Investment Agreement for the COMESA Common Investment Area, Article 19)
How Commonly Used
Examples
“Article [X] [MFN] shall not apply to treatment accorded under all bilateral or multilateral International agreements in force or signed prior to the date of entry into of this Agreement.
Article [X] [MFN] shall not apply to treatment by a Party pursuant to any existing or future bilateral or multilateral agreement:
(a) establishing, strengthening or expanding a free trade area or customs union;
(b) relating to:
(i) aviation;
(ii) fisheries;
(iii) maritime matters, including salvage.
For greater certainty, Article [X] [MFN] shall not apply to any current or future foreign aid programme to promote economic development, whether under a bilateral agreement, or pursuant to a multilateral arrangement or agreement, such as the OECD Agreement on Export Credits.” (Canada Model FIPA. Annex III)
How Commonly Used
Examples
“[The commitment to MFN treatment] shall not be construed so as to oblige a Party to extend to investors of the other Party and covered investments any preferential treatment resulting from its membership of:
(a) any customs union, free trade area, monetary union, similar international agreement leading to such union or free trade area, or other forms of regional economic cooperation;
(b) any international agreement or arrangement for facilitating small scale trade in border areas; or
(c) any bilateral and multilateral international agreements involving aviation, fishery and maritime matters including salvage.” (China – Korea FTA, Article 12.4(2))
How Commonly Used
Examples
“Paragraphs [X] [on MFN treatment] shall not apply to the following sectors:
- Communication services, except for Postal services … and Telecommunication services … ;
- Cultural, Sports and Recreational services;
- Fishery and aquaculture;
- Forestry and hunting;
- Mining, including oil and gas.
Paragraph [above] shall not be construed to oblige a Party to extend to the investors of the other Party or their investments the benefit of any treatment granted pursuant to any bilateral, regional and/or international agreements that entered into force before the entry into force of this Agreement.” (EU – Vietnam FTA, Articles 4.3, 4.4)
How Commonly Used
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For example, see Maffezini v. Kingdom of Spain, Decision on Jurisdiction, ICSID Case No. ARB 97/7, 5 ICSID Rep. 396 (2002); AWG Group Ltd v. The Argentine Republic, Decision on Jurisdiction, UNCITRAL; Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan, Decision on Jurisdiction, ICSID Case No. ARB/03/29.
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Government of Canada. (2004). Model Foreign Investment and Promotion Agreement [hereinafter Canadian Model FIPA]. Retrieved from: http://www.italaw.com/documents/Canadian2004-FIPA-model-en.pdf. Also see most BITs negotiated by Canada.