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The Standard of Most-Favored-Nation Treatment in Investor-State Dispute Settlement Practice

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Handbook of International Investment Law and Policy

Abstract

Based on perceived national interests, States may discriminate among investors. Most-favored-nation (MFN) treatment seeks to mitigate the effects of such discrimination. An MFN clause in an investment treaty gives qualifying investors the right to claim favorable treatment given by the States hosting their investments to other foreign nationals. As a consequence, MFN treatment encourages competition among foreign investors by promoting equal investment opportunity free of preferential treatment standards.

The right to MFN treatment can be triggered by laws or administrative acts, but the most common source of claims is entitlements in outside investment treaties. The right to claim outside treatment in this way unsettles treatment standards in base treaties and extends the reach of standards of investor and investment protection in third-party treaties. One consequence of this dynamic has been greater harmonization of investment treaty protections.

The historically vague expression of MFN treatment in treaties has effectively shifted interpretive authority from the State party to treaties to private arbitrators. Meanwhile, different expressions of MFN treatment in treaties and the lack of binding precedent in investment arbitration have enabled arbitral tribunals to interpret similar MFN provisions differently. The extension of MFN treatment to dispute resolution provisions has been especially controversial and has encouraged some States to include limits and exceptions to the scope of MFN treatment in new and revised treaties.

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Notes

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  50. 50.

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    While these two general approaches commonly frame the terms of the debate among commentators, there are other ways to conceptualize the issue. Rather than emphasize the effect of favorable procedures on the dispute resolution clause in the basic treaty, the focus might instead be on whether an MFN clause can itself serve as a title to jurisdiction. The root issue would then be whether MFN treatment can empower an investor to accept a host state’s consent to arbitration in a third-party treaty. See Shill S (2015) Maffezini v. Plama: reflections on the jurisprudential schism in the application of most-favored-nation clauses to matters of dispute settlement. Most-favored-nation treatment: substantive protection. In: Kinnear M, Fischer GR, et al (eds) Building international investment law: the first 50 years of ICSID. Kluwer, Alphen aan den Rijn pp 255–256

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  65. 65.

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Authors and Affiliations

  1. Rikkyo University, Tokyo, Japan

    James M. Claxton

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  1. James M. Claxton
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Correspondence to James M. Claxton .

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Editors and Affiliations

  1. School of Law, City University of Hong Kong, Kowloon, Hong Kong

    Julien Chaisse

  2. School of Business and Law, University of Portsmouth, Portsmouth, UK

    Leïla Choukroune

  3. Institute of Malaysian and International Studies, National University of Malaysia, Bangi, Selangor, Malaysia

    Sufian Jusoh

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Claxton, J.M. (2021). The Standard of Most-Favored-Nation Treatment in Investor-State Dispute Settlement Practice. In: Chaisse, J., Choukroune, L., Jusoh, S. (eds) Handbook of International Investment Law and Policy. Springer, Singapore. https://doi.org/10.1007/978-981-13-3615-7_8

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