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The Fictions and Realities of MFN Clauses in International Investment Agreements

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In an article published concurrently in the Journal of International Economic Law, I reach many of the same conclusions as Simon Batifort and J. Benton Heath regarding the use of most favored nation (MFN) clauses to import substantive provisions from other treaties. However, although our conclusions are similar, our reasoning differs in several important respects. In my view, the reasons why MFN clauses cannot be used to import treaty provisions have more to do with the nature of these clauses than their specific text. MFN clauses are primary rules that require performing a comparison and determining whether there is a breach of the provision, and this produces legal effects that run against any attempt at importation. In addition, it is not possible or desirable to interpret MFN clauses in isolation from general international law. Stephan Schill is also correct that Batifort and Heath cannot disclaim the normative implications of their effort to shift the debate over MFN clauses. But Schill confuses the legal effects of MFN clauses with a policy consideration (multilateralization) and misreads the interpretative background that must be considered when applying MFN clauses. Schill also mistakes multilateralization via arbitral interpretations of MFN clauses for true multilateralism, which is the product of states working together in multilateral fora. That distinction matters, too, for Schill's solution might provoke a state-led backlash that will undermine the very multilateralism he seeks to promote.

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This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted re-use, distribution, and reproduction in any medium, provided the original work is properly cited.
References
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4 Batifort & Heath, supra note 2, at 886; see also id. at 877–78, 882, and 886.

5 Pérez-Aznar, supra note 1, at 788–89.

6 Id.

7 Int'l Law Comm'n, Study Group on the Most-Favoured-Nation Clause, Final Report, UN Doc. A/CN.4/L.852, at 19, para. 77 (2015).

8 Id. at 791–95.

9 Int'l Law Comm'n, Draft Articles on Most-Favoured-Nation Clauses, 2 Y.B. Int'l L. Comm'n 16, 71, art. 27 cmt. paras. 2 and 4 (1978).

10 ADF Group Inc. v. U.S., ICSID Case No. ARB(AF)/00/1, Award, paras. 194–97 (Jan. 9, 2003).

11 Pérez-Aznar, supra note 1, at 801–03.

12 Id. at 889, 908.

13 Schill, supra note 3, at 923.

14 Id. See also id. at 917, 922.

15 Batifort & Heath, supra note 2, at 874.

16 Id. at 916.

17 Id. at 909.

18 Schill, supra note 3, at 916.

19 Schill may have changed his views as regards importation through MFN clauses. See id. at 914, n.5. Cf. Stephan W. Schill, The Multilateralization of International Investment Law 123 (2009) (“An investor covered by a BIT with an MFN clause can, therefore, invoke the benefits granted to third-party nationals by another BIT of the host State and directly import them into its relationship with the host State.”); id. at 143 (“Importing more favorable substantive conditions granted in third-country BITs comports with the economic rationale of MFN clauses.”).

20 See, e.g., Schill, supra note 3, at 922.

21 John H. Jackson, The World Trading System 158 (1997).

22 Maffezini v. Spain, ICSID Case No. ARB/97/7, Decision on Objections to Jurisdiction, para. 62 (Jan. 25, 2000).

23 Okezic Chukwumerije, Intrepreting Most-Favoured-Nation Clauses in Investment Treaty Arbitrations, 8 J.World Inv. &Trade 597, 611 (2007).

25 Meg Kinnear, A Further Update on Most-Favoured-Nation Treatment—In Search of a Constant Jurisprudence, in Contemporary Issues in International Arbitration and Mediation 15, 17 (Arthur W. Rovine ed., 2010).

26 Schill, supra note 3, at 934.

27 Id. at 935.

28 Georg Schwarzenberger, The Most-Favoured-Nation Standard in British State Practice, 22 British Y.B. Int'l L. 96, 104 (1945).

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