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Putting the MFN Genie Back in the Bottle

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This essay underscores the importance of background understandings in general international law for interpreting brief, open-ended clauses such as most favored nation (MFN) clauses. Contrary to Simon Batifort and J. Benton Heath's claim, I suggest that often interpreters of MFN clauses cannot limit themselves to the text, context, and preparatory materials of a specific MFN clause. A common international negotiating technique, including for investment treaties, is to rely on the general background understanding of what a clause typically means in international law—its default meaning. I also argue that MFN clauses have played a surprisingly limited role in the international investment regime to date. In the main, they have functioned as a stepping stone for procedural and substantive guarantees found in third-party investment treaties. This use, and the limited role of MFN clauses in investment treaty awards, stands in sharp contrast to MFN clauses in the trade regime.

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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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1 Facundo Pérez-Aznar, The Use of Most-Favoured-Nation Clauses to Import Substantive Treaty Provisions in International Investment Agreements, 20 J. Int'l Econ. L. 777 (2018); see also Facundo Pérez-Aznar, Non-Discrimination and Most-Favoured-Nation Clauses in International Investment Law (PhD Thesis, Graduate Institute of International and Development Studies, Geneva, 2015).

4 Int'l Law Comm'n, Report of the Study Group on the “Most-Favoured Nation Clause”, UN Doc A/CN.4/L.719, at para. 34 (July 20, 2007).

5 See, e.g., Oxford English Dictionary (defining “top-down” as meaning “authoritarian; hierarchical”); Collins English Dictionary (giving examples of usage of “top-down” to include “the traditional top-down authoritarian company”; “government dictating the rules”); Steven G. Calabresi & Lucy D. Bickford, Federalism and Subsidiarity: Perspectives from U.S. Constitutional Law, 55 Nomos 123, 131 (2014) (“Federalism avoids overly centralized, top-down command and control mechanisms.”); Chris Brummer, Soft Law and the Global Financial System: Rule Making in the 21st Century 132 (2012) (contrasting ossified, top-down rule with flexible, bottom-up governance); David G. Victor, Global Warming Gridlock: Creating More Effective Strategies for Protecting the Planet 243 (2011) (arguing that climate change commitments must start bottom-up, rather than with abstract global goals).

6 Jonathan Bonnitcha et al., The Political Economy of the International Investment Regime tbl. 4.1 (2017).

7 Petros C. Mavroidis, I The Regulation of International Trade 195 (2016).

8 David D. Caron & Esmé Shirlow, Most Favoured Nation Treatment – Substantive Protection in Investment Law, in Building International Investment Law: The First 50 Years of ICSID 400 (Meg Kinnear et al. eds., 2015); Bonnitcha et al., supra note 6, tbl. 4.2.

9 Donald McRae, MFN in the GATT and WTO, 7 Asian J. WTO & Int'l Health L. & Pol'y 1, 19 (2012).

10 But cf. Schill, supra note 3, at 925 (“MFN clauses in international trade law, including under the WTO, without doubt apply to better treatment extended by the granting state through international agreements.”).

11 Mavroidis, supra note 7, at 206.

12 The MFN in the General Agreement on Trade in Services is likewise limited to “any measure covered by this Agreement.”

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