APEC-UNCTAD REGIONAL TRAINING COURSE ON THE

CORE ELEMENTS OF INTERNATIONAL INVESTMENT

AGREEMENTS IN THE APEC REGION

Presentations
Kuala Lumpur, Malaysia
15-19 June 2009

Produced for:
Asia Pacific Economic Cooperation Secretariat
35 Heng Mui Keng Terrace
Singapore 119616
Tel: (65) 68919 600 Fax: (65) 68919 690
Email: info@apec.org
Website: www.apec.org
2009 APEC Secretariat
APEC#209-CT-01.5

Objectandpurpose
Statemeasures
deiure ordefacto

APECUNCTADRegionalTrainingCourse

MostFavoredNationTreatment
Alejandro FayaRodrguez
Consultant,Counselloratlaw,MJur,MPP
ProfessorofInternationalLawonForeignInvestment
KualaLumpur,June2009

Legalqualifications
Relativestandard:casebycasecomparison
Ejusdem generis:attractssamecategory matters
Similarobjectivesituations
Discriminationbyreasonofnationality

Negotiationapproaches:basiccoverage
Elemento

Efecto

Preestablishment

Grants access rights.It applies to the establishment,

expansion and acquisiton.

Postestablishment

Oncethe investment is madeunder the law.Applies to

activities such asthe administration,use,operation,
administration and disposal.

Investment

The protection is restricted (e.g.Chinaand Australia).

Investment/investor

The protection coversboth vehicles (common practice).

Like circumstances

Part of the normalfunctioning of the MFNclause,

whether included or not.

Exceptions

They differ depending on the pre or porstestablishment

approach.There aregeneraland specific exceptions.

establishmentofequalityofcompetitive
opportunitiesbetweeninvestorsfromdifferent
foreig countries UNCTADPINKBOOK1999

avoidseconomicdistortionsthatwouldoccur
throughselectivecountrybycountryliberalisation
OECD2005

InternationalLawCommission
...atreatyprovisionwherebyaStateundertakesan
obligationtowardsanotherStatetoaccordmostfavored
treatmentinanagreedsphereofrelationships...
MFNtreatmentbeingsuch:

...treatmentaccordedbythegrantingStatetothe
beneficiaryState,ortopersonsorthingsinadetermined
relationshipwiththatState,notlessfavorablethattreatment
extendedbythegrantingStatetoathirdStateortopersons
orthingsinthesamerelationshipwiththatthirdState.

NAFTAarticle1103
1.EachPartyshallaccordtoinvestorsofanotherPartytreatmentnolessfavorable
thanthatitaccords,inlikecircumstances,toinvestorsofany otherPartyorofa
nonPartywithrespecttothe establishment,acquisition,expansion,
management,conduct,operation,andsaleorotherdispositionofinvestments.
2.EachPartyshallaccordtoinvestmentsofinvestorsofanotherPartytreatment
nolessfavorablethanthatitaccords,inlikecircumstances,toinvestmentsof
investorsofanyotherPartyorofanonPartywithrespecttothe establishment,
acquisition,expansion, management,conduct,operation,andsaleorother
disposition ofinvestments.

Exceptions

MexicoUKBIT(2007)
Preestablishment

ARTICLE2
AdmissionofInvestments
EachContractingPartyshalladmitinvestmentsinaccordancewithitslawsandregulations.

ARTICLE4
NationalTreatmentandMostFavouredNationProvision
NeitherContractingPartyshallinitsterritorysubjectinvestmentsorreturnsofnationalsor
companiesoftheotherContractingPartyto treatmentlessfavourable thanthatwhichitaccords,
inlikecircumstances,toinvestmentsorreturnsofitsownnationalsorcompaniesortoinvestments
orreturnsofnationalsorcompaniesofanythirdState.
NeitherContractingPartyshallinitsterritorysubjectnationalsorcompaniesoftheother
ContractingParty,asregardsthemanagement,maintenance,use,enjoymentordisposaloftheir
investments, totreatmentlessfavourable thanthatwhichitaccords,inlikecircumstances,toits
ownnationalsorcompaniesortonationalsorcompaniesofanythirdState.

CanadaModelBIT(2004)
Article9ReservationsandExceptions
1. Articles3,4,6and7shallnotapplyto:
(a)anyexistingnonconformingmeasurethatismaintainedby
(i)aPartyatthenationallevel,assetoutinitsScheduleto AnnexI,or
(ii)asubnationalgovernment;
(b)
(c)
2.Articles3,4,6and7shallnotapplytoanymeasurethataPartyadoptsormaintains
withrespecttosectors,subsectorsoractivities,assetoutin itsscheduletoAnnexII.
3.Article4shallnotapplytotreatmentaccordedbyaPartypursuanttoagreements,or
withrespecttosectors,setoutinitsscheduletoAnnexIII.
4. Inrespectofintellectualpropertyrights,aPartymayderogatefromArticles3and4ina
mannerthatisconsistentwiththeWTOAgreement.
5.TheprovisionsofArticles3,4and6ofthisAgreementshallnotapplyto:
(a)procurementbyaPartyorstateenterprise;
(b)subsidiesorgrantsprovidedbyaPartyorastateenterprise,includinggovernment
supportedloans,guaranteesandinsurance.
6..
7.TheprovisionsofArticle4ofthisAgreementshallnotapplytofinancialservices.

EFFECTSOUGHT

CASES

Existingandfuturemeasures
Internationalagreements
Intellectualpropertyrights
Governmentprocurement
Subsidies
Postestablishment

RegionalEconomicIntegrationOrganizations(REIO):e.g.
freetradeareas,customsormonetaryunions,labormarkets
Taxation: Internationalagreementsand/ordomesticlaw

Jurisprudence
Notreallyaboutcompetitiveconditionsor
materialtreatment
Instead,aboutgettingridofprovisionsofthe
basictreatyoralteringitsproceduralor
substantivecontent(treatyshopping)inthe
contextofaparticularclaim

EFFECTSOUGHT

RESULT

Overrideaproceduralprerequisitefor
thesubmissionofaclaimtoarbitration

Maffezini vSpain,Siemens,GasNatural,
Suez,NationalGrid,Wintershall v
Argentina.

Overrideaproceduralprerequisiteforthe Mostlyallowed(exceptforWintershall v
submissionofaclaimtoarbitration
Argentina)

Alterthejurisdictionalthreshold

Plama vBulgary,Salini vJordan,Telenor

MobilevHungary,RosInvestCo vRussia,
Berschader vRussia.

Alterthejurisdictionalthreshold

Mostlydenied(exceptforRosInvestCo v
Russia)

Benefitfrombroader oradditional
substantivecontent

AAPLvSriLanka,ADFvUnitedStates,
Bayindir vPakistan,MTDEquityvChile.

Benefitfromadditionalsubstantive
content.

AltertheBITs timedimension

Tecmed vMexico,MCIvEcuador.

Allowedwhentheeffectisadditive.
Deniedwhenthethirdbenefitis
hypothetical

AltertheBITs timedimension

Denied

Overrideageneralemergencyexception
clause

CMSvArgentina.

Overrideageneralemergencyexception
clause

Denied

Changethestandardofcompensation
forexpropriation

CMEvCzechRepublic.

Changethestandardofcompensationfor Allowed
expropriation

Argumentsforanexpansiveapproach

Argumentsforanexpansiveapproach

BITs objective(preamble)
MTDEquity,GasNatural,Suez

Principleofexpressio unius est exclusio alterius

MTDEquity,Suez,NaturalGrid,RosInvestCo

MFNclausebroadwording
Maffezini,Suez,NaturalGrid

Plainapplication
CME,Camuzzi,Bayindir,RosInvestCo

Relationbetweendisputesettlementand
protectionaffordedtoforeigninvestors
Maffezini,Siemens,GasNatural,Suez,NaturalGrid

Negotiationcontext
Maffezini,NaturalGrid

Argumentsforarestrictiveapproach
Lackofevidenceofalessfavorabletreatment
AAPL,ADF,Plama

Argumentsforarestrictiveapproach
Intentofthepartiesasdeducedfromareasonable
interpretation
Salini,Plama,Berschader,Wintershall

Importanceofspecificnegotiatedarrangements
Tecmed,MCI

Necessityofanunambiguousconsentto
arbitration
Plama,Berschader,Telenor,Wintershall

Risksoftreatyshopping
Saini,Plama,Telenor,Wintershall

Argumentsforarestrictiveapproach
Intentofthepartiesasdeducedfromareasonable
interpretation
Salini,Plama,Berschader,Wintershall

Necessityofanunambiguousconsentto
arbitration
Plama,Berschader,Telenor,Wintershall

Ejusdem generisprinciple
CMS

Ejusdem generisprinciple
CMS

Thedebate procedure
Positiveapproach:theMFNclausedoesextendto
proceduralaspects,unlessthebasictreatyleaves
nodoubtthattheContractingPartiesintendedto
excludethem
Negativeapproach:theMFNclausedoesnot
extendtoproceduralaspects,unlessthebasic
treatyleavesnodoubtthattheContractingParties
intendedtoincludethem

Thedebate substance

Thedebate substance

YettoseehowtheMFNclausemaymodifythesubstantivecontent
Siemensapproach
Tecmed approach
mattersrelatingtotheapplicationovertimeoftheAgreement, whichinvolve
morethetimedimensionofapplicationofitssubstantiveprovisionsratherthan
mattersofprocedureorjurisdiction,duetotheirsignificanceandimportance,goto
thecoreofmattersthatmustbedeemedtobespecificallynegotiatedbythe
ContractingParties.Thesearedeterminingfactorsfortheiracceptanceofthe
Agreement,astheyaredirectlylinkedtotheidentificationofthesubstantive
protectionregimeapplicabletotheforeigninvestorand,particularly,tothegeneral
(nationalorinternational)legalcontextwithinwhichsuchregimeoperates,aswell
astotheaccessoftheforeigninvestortothesubstantiveprovisionsofsuchregime.
Theirapplicationcannotthereforebeimpairedbytheprinciplecontainedinthe
mostfavorednationclause.

thepurposeoftheMFNclauseistoeliminatetheeffectof
speciallynegotiatedprovisions unlesstheyhavebeen
excepted

Isthatso???

Risksconcerns

Risksconcerns

Whenconcludingamultilateralorbilateralinvestmenttreatywithspecific
disputeresolutionprovisions,statescannotbeexpectedtoleavethoseprovisions
tofuture(partial)replacement bydifferentdisputeresolutionprovisionsthrough
theoperationofanMFNprovision,unlesstheStateshaveexplicitlyagreed
ThepresentTribunalfailstoseehowharmonizationofdisputesettlement
provisionscanbeachievedbyrelianceontheMFNprovision.Rather,thebasketof
treatment andselfadaptationofanMFNprovision inrelationtodispute
settlementprovisions(asallegedbytheClaimant)hasaseffectthataninvestorhas
theoptiontopickandchooseprovisionsfromthevariousBITs. Ifthatweretrue,a
hoststatewhichhasnotspecificallyagreedtheretocanbeconfrontedwithalarge
numberofpermutationsofdisputesettlementprovisionsfromthe variousBITs
whichithasconcluded.Suchachaoticsituationactuallycounterproductiveto
harmonizationcannotbethepresumedintentofContractingParties.
Plama vBulgary

Literature
GiventheabsenceofameetingofmindsbetweeninvestorandhostState,
consenthastobeconstructedfromthestandingconsentgivenby theStateby
treaty,andthesubsequentconsentgivenbytheinvestoratthetimetheclaimis
submittedtoarbitration.Inthosecircumstances, itisparticularlyimportantto
construetheambitoftheStatesconsentstrictly.AsthediscussioninChapter3
abovehasshown,(DisputeResolutionProvisions)thebalancestruckininvestment
treatiesbetweenthevariousdisputesettlementoptionsisoften thesubjectof
carefulnegotiationbetweentheStateParties,selectingfromarangeofdifferent
techniques.Itisnottobepresumedthatthiscanbedisruptedbyaninvestor
selectingatwillfromanassortedmenuofotheroptionsprovidedinother
treaties,negotiatedwithotherStatePartiesandinothercircumstances.
Moreover,itisinanyeventnotpossibletoimplyahierarchyoffavour todispute
settlementprovisions.Theclausesthemselvesdonotdothis,anditwouldbe
invidiousforinternationaltribunalstobefinding(intheabsenceof
specificevidence)thathostStateadjudicationoftreatyrightswasnecessarily
inferiortointernationalarbitration.Thesamepointcouldbemadewithevenmore
forceinthecaseofacomparisonbetweenICSIDandotherformsofarbitration
whichtheStatePartiesmayhavespecifiedinparticularinvestmenttreaties.The
result,willbethattheMostFavoured Nationclausewillnotapplytoinvestment
treaties disputesettlementprovisions,savewheretheStatesexpresslyso
provide.
Campbell,Shore&Weiniger (2007)

theeffectofthewideinterpretationoftheMFNclauseistoexposethe
hostStatetotreatyshoppingbytheinvestoramonganindeterminate
numberoftreaties tofindadisputeresolutionclausewideenoughtocover
adisputethatwouldfalloutsidethedisputeresolutionclauseinthebase
treaty,andeventhentherewouldbequestionsastowhetherthe investor
couldselectthoseelementsofthewiderdisputeresolutionthat wereaptfor
itspurposeanddiscardthosethatwerenot.
thewideinterpretationalsogeneratesbothuncertaintyandinstability
inthatatonemomentthelimitationinthebasicBITisoperativeandatthe
nextmomentitisoverriddenbyawiderdisputeresolutionclauseinanew
BITenteredintobythehostState.
Telenor v

Hungary

Literature
thecriticalissueisnottodeterminewhetherproceduralissues arepart
oftheprotectiontoinvestment,orifsubstantiveprovisionsof third
treatiesmayheightenthelevelofprotectionofthebasictreaty,asthey
mayofcoursewhatmattersistheintentofthepartiesandareasonable
andcorrectinterpretation.
Thefactthataninvestorhastoexhaustlocalremediesandotherhasnot
to,hastofulfillproceduralrequirementsoruseaparticularforumnot
applicabletoanother,ormayonlybringinternationalclaimswhereas
anotherinvestorcansettlecontractualclaims,doesnotfallintothe
discriminatorytreatmenttheMFNCisabout.Andneitherdoesitwhenan
investorhasanationaltreatmentorfairandequitableright,apparently
narrowerthanthatofathirdinvestor,orwhenaninvestoriscovered
againstindirectexpropriationwhereasanotherinvestoriscoveredonly
againstdirectexpropriation.Thosearejustdifferentrules,arisingfrom
differenttreaties,fromdifferentnegotiations.
FayaRodrguez (2008)

Toconsider
Generallyspeaking,istreatyshopping athandwiththeobject
andpurposeoftheMFNclause?
AreequalityofcompetitiveconditionscontainedinotherBITs?Or
inStatemeasuresandconduct?
Exanteassessment?Objectivetestofdamage?
Genericclauseversus specificarrangement?Pastagreementversus
presentagreement?
IstheMFNclausesupposedtooperateinthecontextofthe
remainingprovisionsofequalforceandvalue?

Conclusions
TheMFNclausecontinuestobeanessentialelement
ofBITs.Itspurposeistoofferequalityofcompetitive
conditions,linkedtomaterialtreatment
Languagematters!Needtorefinelegaltechniqueand
beprecise
Outofthebasicoperationalcoverage,thereisno
evidencethatcountriespursuedifferentobjectives
whenincludinganMFNclause,nomattervariationsin
language

Conclusions
From the jurisprudence,we could reconcile some
of the decisions byan effect test.However,the
legalreasonings arequitecontradictory

Thanks!

There is afairconcern asto the manner many

tribunals have applied the MFNstandard

afaya@afrconsulting.com.mx
afayardz@gmail.com

States areadvised to ponder any risks and

concerns and take actions,both regarding
existing and future BITs