ABOUT TDM
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Comment
I think that, based on the Mafezini v. Spain BIT case, it is very clear that the MFN arguments work. I recall that there was a similar MFN argument raised once in a BIT case against Indonesia, but I cannot remember more. In Mafezini, the MFN provision was used to permit the claimant to escape more onerous "exhaustion of local reemedy rules" in his BIT. My intuition tells me that a tribunal may be somewhat more reluctant to use the approach in the interpretation of a substantive provision, although there is no logical reason why there should be any difference in application between substantive and procedural provisions.
The ADF v. USA tribunal recently hinted, in its award, that it was somewhat uncomfortable with the argument as applied to NAFTA Article 1105 (a minimum standard of treatment provision), although it left the possibility open that it could be convinced otherwise. One should probably read that message as saying that the tribunal doubted that there was actually a better standard of treatment available under other US BITs, rather than that the MFN theory should not be used for such an endeavour.
The practical rule of thumb is that a tribunal is likely to be conservative in its use of the MFN approach, unless the case is rather clear cut. For example, do the two performance requirement provisions clearly differ in terms of their coverage? Does one contain reservations that the other does not? The clearer the difference, the easier it will be to convince a tribunal to accept the MFN argument. One important message for people drafting their statements of claim is to ensure that the MFN obligation is somehow invoked, just in case it turns out to be relevant down the road.
As regards pre-establishment issues, my point on clarity will also govern. It the more favourable provision - which one wants to use through a MFN argument - implicitly covers pre-establishment situations, there may be a problem. On the other hand, if one provision clearly rules out pre-establishment converage while the other clearly includes it, the MFN argument has a better chance of working. Query, however, whether one could use the MFN clause in a treaty that does not in-any-way cover pre-establishment cases, to require coverage for a pre-establishment case by virtue of the "better coverage deal" in another BIT. While the MFN theory clearly works, you would probably have a jurisidctional argument develop based on the theory that the MFN provision was constrained by the overall coverage of the BIT into which it was placed. I think such a jurisdictional argument should ultimately fail, but it would be interesting.
Prof Todd Weiler
Reply by Prof Peter Muchlinski
While I agree with Prof Weiler's views, is it fair to say that in the light of the case-law MFN arguments are very clear? It seems to me to be an issue of interpretation on a case-by-case basis: what did the host and home countries parties to the BIT actually agree to?
I would be rather worried as a negotiator to discover that the narrow commitment I have made to certain investor protection rights could be widened by reference to an MFN clause in combination with the wider protection in another investment agreement negotiated separately with another home country. Hence I share Prof Weiler's conservatism on the pre-establishment issue. This is an issue of the limits ratione materiae of the BIT.
More generally, should tribunals take on the responsibility of widening treaty commitments by recourse to MFN arguments? Is it their place to do so, where the evidence of party intention is not clear cut? What would this do to the freedom to conclude different deals with different treaty partners? Could it usher in conditionality in relation to MFN?
However, there is one case in which I feel MFN would apply to widen the rights of investors: where the host country unilaterally liberalises its FDI policy to offer full pre-entry rights, or where it prohibits performance requirements for all investors, but then treats investors from, say, country A in breach of these policy norms. The investors from A do not enjoy pre-establishment or prohibition of performance requirements guarantees in the BIT between the host and their home country. Might they not be able to invoke the MFN clause to demand the better treatment that, say, US investors are guaranteed by their BIT and now by host country policy? Surely they can on the application of MFN in their own treaty without invoking the US BIT?
However, if host country policy preserves certain differences in treatment e.g. by retaining the discretion to impose performance requirements, is it legitimate for investors to demand changes in national policy on the basis of BIT provisions to which their home country is not privy? Are private investors becoming capable of altering negotiated deals between sovereign states contained in international agreements?
