Originally from Investment Arbitration Decisions

In investment treaties, states undertake to promote and protect investments made by investors of the other states party to the treaty, and usually provide foreign investors with the means to enforce these protections through international arbitration. China1 has been a major actor in the spread of investment treaties, concluding over 120 of them to date. But while Chinese investment treaties offer foreign investors broad substantive protections, many of them fail to provide investors with effective access to international arbitration to enforce these protections. In particular, until the late 1990s, Chinese investment treaties only permitted arbitration of disputes over the amount of compensation for expropriation, generally before an ad hoc arbitral tribunal. This restriction has been abandoned in Chinese investment treaties concluded since the late 1990s, but it still leaves dozens of toothless treaties and, as a result, relatively limited treaty coverage of one of the world’s most important investment destinations, and of an increasing amount of outbound investment.

Given China’s importance on the international investment scene, and the undoubted protections offered to investors by investment treaties allowing broad and effective access to arbitration, it is natural for investors to explore if there is a way around the restrictions in Chinese investment treaties. One possible solution for investors – and perhaps the only one once a dispute has arisen – lies in the most-favoured-nation (MFN) clauses contained in most Chinese investment treaties. The idea is that an investor covered by a treaty with an MFN provision but without an effective arbitration clause may be able to use that promise of MFN treatment to secure the benefit of more favourable dispute resolution terms found in another treaty, and then sue the host state under that more favourable dispute mechanism. 

In this article we consider the opportunities and obstacles involved in reliance by investors, in this way, on MFN provisions in Chinese investment treaties to enhance their access to international arbitration. We begin with an overview of China’s investment treaty programme (I), before examining, in the light of recent arbitral decisions, the relationship between MFN and dispute resolution provisions in investment treaties generally (II). Drawing upon these observations, we look more specifically at how MFN clauses might improve an investor’s dispute resolution entitlements under Chinese investment treaties (III).