Originally from Investment Treaty Arbitration and International Law - Volume 4

This paper discusses the potential impact of recent most favored nation treatment (MFN) jurisprudence upon investor-State arbitration under investment treaties concluded by the People's Republic of China (China). It argues that as a result of conflicting approaches by different tribunals, coupled with the specific terms of most Chinese investment treaties, the recent cases will not lead to an expansion of jurisdiction under the MFN provisions of Chinese investment treaties.

I. RECENT MFN JURISPRUDENCE

A most favored nation clause is a provision in a treaty (often referred to as the "basic treaty") whereby a State confers the right upon the beneficiary to avail itself of more favorable treatment accorded by the granting State to others in an agreed sphere of relations.1 An MFN clause is found in most bilateral and multilateral investment treaties. A number of tribunals have addressed the question whether an investor can use such clause to invoke the investor-State dispute resolution provisions contained in an investment treaty concluded between the host State and a third country.2 The following discussion focuses on four recent cases dealing with that question: RosInvest v. Russia,3 Renta 4 v. Russia,4 Tza Yap Shum v. Peru5 and Austrian Airlines v. Slovak Republic.6 The four cases were based on bilateral investment treaties (BITs) which contained a dispute resolution clause limiting arbitration to the amount of compensation for expropriation, similar to clauses found in many Chinese BITs. The main issue considered by the tribunals was whether their jurisdiction under the BITs could be expanded through the MFN clause to encompass the question whether expropriation or other treaty violations had occurred.