Have ICSID Tribunals Fallen in Error in Interpreting Most Favored Nation Clauses
Published 17 May 2023
According to the International Law Commission’s (ILC’s) Articles on Most Favored Nation Clauses (MFNC), “MFN treatment” is a treatment, which is no less favorable in comparison, granted by a state to persons or things in a determined relationship with that state. MFNC allows more disadvantaged states to obtain rights they would otherwise not receive during treaty negotiations. The principle of non-discrimination, however, does not prohibit states from providing privileged treatment to one state to the exclusion of others.
A study of ICSID cases indicates investment tribunals have innovated, adopting varying legal approaches and justifications to determine issues relating to MFNC. These approaches, particularly refusing to expand and alter various obligations in the basic treaty, have diluted the impact and meaning of MFNC, stripping them of their capacity to achieve their intended objective. In fact, a perusal of the case law establishes:
- tribunals have not created state consent to jurisdiction through MFNC so it undermines sovereignty;
- tribunals justifiably have declined extension or alteration of state consent to jurisdiction ratione temporis and ratione personae;
- tribunals have not improperly waived preconditions to DSM clauses (DSMC) in investment treaties; and
- tribunals have justifiably extended the substantive provisions of investment treaties.