The Practical Consequences of MFN Provision in BITs Andreas R' Ziegler Professor and Vice Dean , Law

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The Practical Consequences of MFN Provision in
BITsAndreas R. ZieglerProfessor and Vice Dean
, Law School, University of LausanneDirector,
LLM Program International and European Economic
and Business LawCounsel, Froriep Renggli,
Lausanne / Zurich

• 7 March 2008

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Structure

• Introduction
• Case Law
• Reactions
• Conclusions

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1 Introduction

• MFN traditional standard of IEL
• Trade Law, Intellectual Property Law,
  International Economic Law in general Relatively
  few cases, few specific discussions
• Investment Law All Decisions relating to scope
  of MFN Clause Leading Case Maffezini v. Spain
  (2000)

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Maffezini v. Spain (2000)

• BIT Spain-Argentina (with MFN Clause)
• BIT Spain Chile
• Spain gave more favorable treatment to investors
  from Chile - insofar as
• the Spain-Chile BIT did not require investors to
  spend 18 months in domestic courts prior to
  launching an international arbitration
• and Mr. Maffezini convinced a tribunal that
  Spains offer of MFN treatment to Argentine
  nationals should entitle those Argentine
  investors to the same more favorable procedural
  treatment offered to Chilean nationals under the
  Chile-Spain BIT.

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Differences in Treaty Language and Consequences

• Some MFN clauses are silent as to whether they
  are meant to apply to all provisions in the
  treaty.
• Others may state explicitly that the MFN clause
  does or does not apply to all provisions of a
  treaty, including its dispute-settlement
  provisions.
• Dispute Settlement Provision vary considerably
  (subject matter, time frames relating to
  arbitration etc.)
• Problem of Treaty-Shopping
• In particular dispute settlement

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NAFTA Article 1103 Most-Favored-Nation Treatment

• 1. Each Party shall accord to investors of
  another Party treatment no less favorable than
  that it accords, in like circumstances, to
  investors of any other Party or of a non-Party
  with respect to the establishment, acquisition,
  expansion, management, conduct, operation, and
  sale or other disposition of investments.
• 2. Each Party shall accord to investments of
  investors of another Party treatment no less
  favorable than that it accords, in like
  circumstances, to investments of investors of any
  other Party or of a non-Party with respect to the
  establishment, acquisition, expansion,
  management, conduct, operation, and sale or other
  disposition of investments.

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BIT Guyana Germany (1989) Art. 3

• Neither Contracting Party shall subject
  investments in its territory owned or controlled
  by nationals or companies of the other
  Contracting Party to treatment less favourable
  than it accords to investments of its own
  nationals or companies of any third State.
• Neither Contracting Party shall subject nationals
  or companies of the other Contracting Party, as
  regards their activity in connection with
  investments in its territory, to treatment less
  favourable than its accords to its own nationals
  or companies of any third State.
• Such treatment shall not relate, to privileges
  which either Contracting Party accords to
  nationals or companies of third States on account
  of its membership of or association with
• a customs or economic union, a common market or
  free trade area
• or other regional economic cooperation Agreements
  which have similar objections.
• The treatment granted under this Article shall
  not relate to advantages which either Contracting
  Party accords to nationals or companies of third
  States by virtue of a double taxation agreement
  or other agreements regarding matters of
  taxation.

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2. Case Law (1/2)MFN Provision covers also
dispute settlement

• Maffezini v. Spain (2000)
• Siemens v. Argentina (2004)
• Gas Natural v. Argentina (2005)
• National Grid v. Argentine Republic (2006)
• Suez, Sociedad General de Aguas de Barcelona
  S.A., and InterAguas ServiciosIntegrales del Agua
  S.A. v. Argentina (2006)
• Rosinvest v. Russia (2007)

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2. Case Law (2/2) MFN does normally not cover
dispute settlement provisions

• Salini Construttori v. Jordan (2004)
• Plama Consortium v. Bulgaria (2005)
• Telenor Mobile Communications A.S. v. Republic of
  Hungary (2006)
• Berschader v. Russia (2006)

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2006 (Dispute Settlement)

• Telenor Mobile Communications A.S. v. Republic of
  Hungary, ICSID Case No. ARB/04/15
  (Norway/Hungary). In these circumstances, to
  invoke the MFN clause to embrace the method of
  dispute resolution is to subvert the intention of
  the parties to the basic treaty, who have made it
  clear that this is not what they wish.

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2006 (Dispute Settlement)

• National Grid v. Argentine Republic
• followed Maffezini Reasoning
• a MFN clause which is silent as to whether it
  applies to dispute settlement can be assumed to
  apply to dispute settlement, thus permitting the
  claimant to access less time-consuming
  arbitration options available in other investment
  treaties.

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3. Reactions

• Legal Scholars
• Difficult to reconcile various awards
• No rule of precedent
• Some authors try to show differences in language
• E.g. Lochnie Hsu, MFN and Dispute Settlement
  When the Twain Meet, Journal of World Investment
  Trade, Vol.7, No. 1, February 2006, pp-25-37.

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Arbitrators

• Many arbitrators like the idea of extending the
  scope of MFN clauses more work
• no reason to suppose that absent some specific
  treaty language any given MFN provision should
  be more or less narrowly defined. In other words,
  MFN clauses apply to all aspects of the
  regulatory environment governed by an investment
  protection treaty, including availability of all
  means of dispute settlement. (Todd Weiler,
  Dissenting Opinion in Berschader)

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States seem to be rather reluctant to allow for a
broad scope of MFN clauses

• E.g. CAFTA Negotiations 2004
• the Most-Favored-Nation Treatment Article of
  this Agreement is expressly limited in its scope
  to matters with respect to the establishment,
  acquisition, expansion, management, conduct
  operation and sale or other dispositions of
  investments The Parties share the understanding
  and intent that this clause does not encompass
  international dispute resolution mechanisms such
  as those contained in Section C of this chapter,
  and therefore could not reasonably lead to a
  conclusion similar to that of the Maffezini
  case.
• As part of negotiating history

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Canada FIPA Practice (2004)

• Annex III now provides that MFN does not extend
  to treatment accorded under existing treaties.
• The MFN guarantee is therefore prospective.
• This ensures that foreign investors under the new
  model cannot reach back and try to obtain the
  protection afforded by previous treaties.
• This provision seeks to avoid investment treaty
  shopping the argument that MFN applies not only
  to the actual treatment of other foreign
  investors but also to the protection guaranteed
  to other foreign investors in other FIPAs

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Council of the EU Minimum Platform on Investment
for EU FTAs (Adopted 27 November 2006)

• Proposal for an amendment of the Treaty to
  provide for EC competence to negotiate investment
  proposals (Article 188C Lisbon Treaty)
• The EC proposal on MFN would apply only to the
  establishment of a foreign investment, and would
  not extend to disciplines on expropriation or
  dispute settlement, according to the proposal.

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4. Conclusion

• Scope of MFN Clause with regard to application of
  provisions of Investment Treaties is debated
• Language of clauses differs ! Interpretation can
  differ accordingly!
• Reluctance by States to extend scope
• Negotiators seek clarity through treaty history
  or language
• Specific Exceptions and Limitations