MFN-Clauses in Investment Agreements and Developing Countries | The Daily Star
12:00 AM, July 28, 2020 / LAST MODIFIED: 09:45 AM, July 28, 2020

MFN-Clauses in Investment Agreements and Developing Countries

Since the emergence of International Investment Agreements (IIAs) in 1960s, IIA regime has gone through a myriad of changes in terms of impetus and implication. With regard to number the IIA regime has grown, continuing to do so albeit to a lesser degree. Whereas, the impact has evolved unanticipatedly with Investor-State Dispute Settlement (ISDS) claims and their capacious, at times contradictory decisions. The inclusion of Most Favoured Nation (MFN) treatment in IIAs followed its inferences in the backdrop of international trade; however in the context of IIAs, it has evolved differently. As early treaties didnot grant National Treatment (NT) systematically, the inclusion of MFN clause was generalised in order to ensure that the host States while not granting NT would accord the beneficiary foreign investor a treatment that is no less favourable than what it accords to a third State and its foreign investors. With the jurisdictional award in Maffeziniv Spain(2000) witnessing an unexpected application of MFN treatment in IIAs, a controversy espoused that has so far not found an end coupled with inconsistent decisions by arbitral tribunals.

Dr. Tanjina Sharmin, Lecturer at Faculty of Law, Monash University, in her book titled "Application of Most-Favoured-Nation-Clauses by Investor-State Arbitral Tribunals: Implications for the Developing Countries" examines the causes of such debates, traveling back to the root of the problem and recommending solutions based on the skeleton of clear and expressed intention of IIA parties.

The first chapter of the book introduces the readers with MFN and its implications added with the background and context of issues relating to MFN. The second chapter delves into history of MFN and discusses its origin, history and development with a focus on the drafting trends of MFN clause in first generation IIAs. The third chapter of the book allows readers to have an insight in the interpretation of MFN spinning on the existence of a set of uniform principles applicable to MFN clause in light of the 1969 Vienna Convention on the Law of Treaties(VCLT) and the 1978 ILC Draft Articles on MFN. A combined reading of the first three chapters will enable the readers to understand the intricacy of application and interpretation of MFN clause by arbitral tribunals. In terms of evolution, the author argued that initially the state parties intended to procure specific advantage through MFN clause in IIAs not importing any more favourable treatment standard from other IIAs. As such, the interpretation of MFN cannot be preconceived and cannot bypass any IIA provision.

Chapter four to six which are central to the book embrace a more doctrinal approach evaluating sixty-onearbitral decisions pertaining to substantive, procedural and jurisdictional issues of MFN. Appraising contrasting views of the tribunals, the author in chapter four rebuts the conventional view on MFN's unhindered power to 'multilateralise'substantive benefits. In chapter five, she portrays how arbitral decisions applying MFN to bypass procedural rudiments indicates a pro-investor bias against host-states. In chapter seven, the author highlights the repercussions of applying MFN to bypass consent of IIA party states conferring jurisdiction. A combined reading of these three chapters enables the readers to contextualise the mandatory language in which IIAs are drafted to consider procedural prerequisite and jurisdictional matters ousting the ambit of MFN to override them.

The book's focus on developing countries' experience in the backdrop of a pro-investor application of MFN till date will significantly guide investment hubs like Bangladesh  to draft MFN clause while concluding investment agreements in a way that caters the national interest of the state as well as an ascertained interpretation of MFN in ISDS mechanism.


The reviewer is a student of LLM, University of Dhaka.


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