Application of MFN Clauses to Dispute Settlement Provisions in BITs and its Consequences for Investor-State Arbitration

Abstract

This note provides a policy perspective to the debate of applying MFN clauses to dispute settlement provisions in BITs, and addresses some of the ramifications associated with such application. Several tribunals have had a difficult time addressing this dilemma. The paper extrapolates the very nature of dispute resolution clauses and consent to international arbitration as evinced in those clauses. This consent is binary in nature – either it is present or it is absent. Moreover, dispute settlement clauses contain conditions which must be fulfilled before consent can be construed as present, and before the tribunal can even interpret a treaty’s MFN provisions. Therefore, the paper argues, unless a dispute resolution clause explicitly provides for an MFN treatment, ratione consensus should not be modified to presume a State’s consent to a new set of conditions absent in the basic treaty. Secondly, the paper approaches MFN debate from a wider perspective. It presents that such application jeopardizes the very future of investment arbitration by fostering distrust of investor state arbitration and encouraging nations to withdraw from this mechanism. Moreover, broad interpretation of MFN clauses and treaty preambles besmirches the perception of arbitrator neutrality by incentivizing a tribunal to rule in favor of the investor at the jurisdictional stage. I address these concerns and argue that this debate must end before it further jeopardizes investor-state arbitration.