The Most Favored Nation Clause in the Context of Chinese BITs: A Bridge to International Adjudication of Investment Disputes? - Chapter 6 - Investment Treaty Arbitration and International Law - Volume 4
Luisa F. Torres, Special Legal Consultant at Covington & Burling LLP. She is a member of the International Arbitration Group and has experience in international investment disputes and international commercial arbitration. She is admitted to the Bars of the State of New York and the Republic of Colombia, and she is licensed as a Special Legal Consultant in the District of Columbia.
Originally from Investment Treaty Arbitration and International Law - Volume 4
There has been considerable debate over the interaction between the Most-Favored-Nation clause (MFN clause) and the dispute resolution provisions in Bilateral Investment Treaties (BITs). The issue is whether the MFN clause in a given treaty (the basic treaty) may attract a more favorable dispute-resolution provision from another treaty (the third-party or comparator treaty). In the last ten years, investors have resorted to the MFN clause to gain access to a dispute-resolution provision from a comparator treaty in at least 17 reported cases.1 But despite the extensive debate, tribunals and academics continue to struggle with the issue. There is still no consensus on how the issue is to be resolved or uniformity in the tribunals' reasoning. A recent episode of this debate is the decision in Tza Yap Shum v. Peru, the first known case dealing with the issue in the context of the Chinese BIT program.
It is often said that two schools of thought have emerged.2 One sector favors an expansive approach: absent an express prohibition in the basic treaty, an MFN clause in that treaty is capable of attracting a dispute resolution clause from a third-party treaty. The other sector endorses a restrictive approach: as a matter of principle, an MFN clause does not apply to dispute-resolution matters absent clear language in the basic treaty or other clear evidence to the contrary.
However, the most recent decisions on this issue -- Rosinvest Co. v. Russia, Renta 4 v. Russia, Tza Yap Shum v. Peru and AUA v. The Slovak Republic -- do not easily fit that pattern. While in three of these cases the tribunals did not allow the use of the MFN clause at issue to expand the scope of consent to international arbitration, they did so on narrow grounds relating to the particular provisions of the treaty at hand. The tribunals in those cases did not embrace the a priori dismissal of the effects of MFN clauses on matters of international arbitral jurisdiction, and rejected unconvincing generalizations and policy-based concerns at the heart of the first generation of cases that had taken that a priori position and had denied jurisdictional effects to an MFN clause.