MFN Clause Research Articles

The use of MFN clauses in investment arbitration: the problem of importation

Abstract The nature of most-favoured-nation clauses (MFN clauses) is a constant source of debate and controversy. While the traditional position has been that they allow an investor to import provisions from another International Investment Agreement (IIA)—a practice that has been defined by some as ‘importation’1—there is a new trend that considers this a misuse of MFN clauses. This article endorses the latter position and will explain that the practice of importation derives from a misinterpretation of MFN clauses contained in IIAs. This error involves requesting a remedy for the specific performance of the MFN clause without first having claimed its breach. The claimant asks an arbitral tribunal simply to enforce the MFN clause by granting him the same provisions conferred to another investor. However, in this exercise, the investor forgets that, in order for an arbitral tribunal to order such a remedy, it must first be proven that such an obligation exists and was breached by the host state.

Industry price guarantees for publicly funded medicines: learning from Project NextGen for pandemics and beyond.

The affordability of publicly funded medicines has been a longstanding concern. In 2023, the Biden administration took several steps on this front, including incorporation of a price constraint in an agreement between the US Biomedical Advanced Research and Development Authority (BARDA) and Regeneron Pharmaceuticals, Inc. to develop a new COVID-19 monoclonal antibody. The agreement included a 'Most Favored Nation' (MFN) clause in which Regeneron agreed that the US commercial list price of certain products developed using BARDA funding would not exceed their retail price in comparable global markets. The Administration for Strategic Preparedness and Response (ASPR) included similar language in subsequent agreements, with a promise that this would become a new standard. Even beyond the preparedness context, government funders and purchasers might consider incorporating similar clauses in future contracts, especially given that the Regeneron agreement and its progeny have been praised as 'groundbreaking.' Yet a closer look reveals cause for skepticism. Regeneron's MFN clause includes several loopholes related to covered purchasers and reference countries, prices, and conditions. We describe agreement terms that can make the difference between legally meaningful price constraints and mere window dressing. Our critical analysis offers important lessons for future efforts to improve the affordability of medical technology developed with public funds.

Research on Anti-monopoly Regulation of the MFN Clause on Internet Platforms

With the continuous development of electronic information technology, internet companies are playing an increasingly important role in the business field. This evolution has not only catalyzed shifts in business models and transaction habits but has also introduced novel practices, such as the integration of Most-Favored-Nation clauses (MFN clauses) that were formerly exclusive to traditional business domains. Currently, MFN clauses are widely used in commercial activities between internet platform companies, which require high attention from antitrust enforcement agencies. Through a comprehensive analysis of existing literature and research, this study aims to shed light on the similarities and differences between these two types of MFN clauses, offering valuable insights into the evolving landscape of business practices within the digital age. In addition, the article also uses case analysis to examine two typical cases in foreign jurisdictions, demonstrating the regulatory approaches of the extraterritorial judiciary towards MFN clauses within internet platforms. Based on the analysis, the conclusion of this paper is that the for collusive MFN clause, the illegal per se doctrine should be applied for exclusive MFN clause, the principle of reasonableness should be applied, taking account of both the effects on restricting and promoting competition.

국제투자규범에서 유효수단 조항의 고찰

The International Investment Agreement (IIA) provides to investment and investor protection of contracting party’s obligations. It stipulates that if an investment and investor are damaged in violation of IIA’s protection clause, they will be subject to Investor-State Dispute Settlement (ISDS). Among the IIA's contracting party’s obligations, it does not provide for direct regulation of the conduct in judicial court of host countries.
 Regulations on the conduct of judicial courts are generally included in the category of ‘denial of justice’ in customary international law under the IIA’s ‘Minimum Standard of Treatment’ clause. It is established in the ISDS precedent. Recently, this is included in IIA's illegal indirect expropriation. The ISDS arbitral tribunal formed the legal principle of judicial expropriation. Judicial expropriation deals with deprivation of investment asset, indirect expropriation, and judicial procedures and substantive judgments.
 Regarding the conducts of the judicial authorities, it is regulated by the US model BIT and the Energy Charter Treaty (ECT) of the effective means clause of Article 12(10).
 The effective means clause provision be limited to the IIA. It was introduced as a US Model BIT policy in the 1980’s, and is regulated in a number of US BIT’s concluded by this model BIT. And, like the US model BIT, ECT also includes provisions on the receiving country's effective means clause for investor’s claims and rights enforcement.
 First, this paper examines the background of the introduction of the effective means clause in the IIA. Examining the legislative background can look into the criteria for interpreting provisions.
 Second, the specific types of violations of the provisions of effective means in ISDS arbitration cases were reviewed.
 Third, the relationship between the effective means clause of the IIA and judicial refusal was reviewed.
 In the case of the ISDS arbitration award, the violation of the ‘denial justice’ of the minimum standard treatment clause and the effective means clause was raised at the same time. The effective means clause is more flexible in interpretation and application than a denial justice. The effective means clause does not require the ‘Exhaustion of Local Remedies’ Rule. In the ISDS case of White vs. India, there is a case in which the MFN clause was invoked and an effective means clause was application. The effective means clause can be a useful guide for interpreting the access to justice clause in the Korea-Japan BIT and the Korea-China-Japan BIT.

MFN in BITs: The Deconstruction of State Consent to Dispute Settlement?

In international law, all tribunals, whether arbitral or judicial, are of attributed jurisdiction. The attribution of this jurisdiction is based on state consent and is limited by the terms thereof. Yet, the rigours of state consent to investment dispute settlement have been eroded through the broad interpretation of most-favoured nation clauses (or MFN clauses) by investment tribunals. The question addressed by the present article is whether an investment treaty’s MFN clause may be used to alter the terms of state consent to international arbitration by incorporating a more favourable dispute settlement clause contained in a third treaty. Its conclusion is that, where an MFN clause merely refers to “treatment” and “all matters”, an investor cannot rely thereon in order to avoid the conditions attached by a state to its standing offer to arbitrate. In any way, MFN clauses encompass treatment accorded within a contracting party’s territory, and international arbitration lies by definition outside of a state’s territory and control.

Concentrix Service Netherlands S.V.: Most Favoured Nation Clause in India’s Double Taxation Avoidance Agreements

In this article, the author reviews the legal provisions and relevant court decisions relating to the most favoured nation clause in India’s double taxation avoidance agreements (DTAAs). He traces the origin and evolution of this clause in India’s DTAAs and discusses an important dispute that arose in the application of this clause and the position of the courts on the issue. He concludes that even though some courts have decided the issue relating to invocation of MFN clause in favour of the residents of other contracting states, the position is far from settled.

Research on the Applicability of the MFN Clause in BITs in the Dispute Settlement Procedure

There is no doubt that the MFN clause in BITs applies to substantive matters, but there are great differences on the application of procedural matters. This paper first expounds the MFN clause in BITs, then discusses the dispute over the application of the MFN clause in dispute settlement, and finally makes an evaluation on the dispute.

The Development of Most-favored-nation Treatment——From Substance to Procedure

MFN treatment in international investment law is implemented by the host country to foreign investors, the treatment is 
 not less than treatment already given or will give the third countries investors. More and more investors sought to take advantage 
 of the general provisions of MFN clause in bilateral investment treaties in an attempt to enjoy more favorable treatment for dispute 
 settlement in third treaties. This paper expounds on the basis of cases to analyze whether MFN clause could be applied to the 
 dispute settlement procedure or MFN treatment could extend to procedural rights.

What the Economic Literature Says About MFN Clauses in the Online Travel Industry

What the Economic Literature Says About MFN Clauses in the Online Travel Industry

Vertical Restraints after Generics and Budapest Bank

This paper considers the implications of Generics and Budapest Bank for the legal treatment of vertical restraints (in particular in the context of the ongoing review of the Block Exemption Regulation). The analysis focuses on two of the main justifications for vertical restraints, namely brand protection and the fight against free riding. The logic underpinning Generics and Budapest Bank suggests that, insofar as they are capable of producing pro-competitive effects, vertical restraints aimed at preserving a firm's brand image and/or at addressing free riding concerns are not restrictive of competition by object. The lessons of experience and economic analysis lead to the same conclusion. Three main conclusions follow. First, there seems to be little support for the treatment of MFN clauses as hardcore restrictions. A case-by-case approach seems more suited to their nature, purpose and potential effects. Second, clauses typically found in online selective distribution agreements, including online marketplace and price comparison site bans, should not be treated differently from other restraints having the same object (brand protection). Third, the case law on RPM is a rara avis.

Universal Scale Tipping towards Balance-Applying the MFN Clauses in China-related Investment Arbitration: A New Haven School Reading

The extension of MFN clauses to dispute settlement under BITs is one of the most controversial areas in investment treaty law. Currently, the area is divided into two streams of case law. The award in Tze Yap Shum v Peru and other recent Chinese investment arbitral awards did not side the Maffezini stream. The question on which stream works the best for China is complicated and essentially a balancing exercise. This article examines the question from a Chinese perspective and adopts the analytical framework of the New Haven School. It identifies the issue of comparability of more preferential treatment as the key criterion in determining the question. It reviews the previous case law and assesses the economic, social and cultural factors shaping the Chinese investment policy. From there, the article seeks to discover if the current law helps fulfil China’s policy goals and proposes recommendations accordingly.

Imperfection of the World Trade Organization as a Hazard for International Business

This paper examines the negative impact of the paralysis observed in the World Trade Organization (WTO) functioning on international business. We provide an overview of the loopholes in the WTO rules and principles which became serious threats for the multilateral trading system. Our research identifies important loopholes in the MFN clause, DSB and Appellate Body. We bring clarity that the paralysis observed in the WTO functioning is a consequence of these factors. The deviations and exceptions of the WTO rules permit the WTO members to compete “unfairly”. China is among the economies which are the most efficient in this respect. We term China’s behaviour on the global market as “economic factitious disorder”. It can be explained as permanently maintaining the status of a developing country by China and using preferences for LDCs despite a really high level of economic development. These findings indicate that the WTO lacks the mechanism to react and to prevent such abuses. They were not envisaged by the WTO creators, which suggests the need of the WTO reform. We contribute to international business research and the international organizations literature by identifying the causes of the paralysis of the WTO functioning.

House Judiciary Inquiry into Competition in Digital Markets: Statement of Herbert Hovenkamp

House Judiciary Inquiry into Competition in Digital Markets: Statement of Herbert Hovenkamp

Antitrust Regulation against MFN Clauses in the Internet Platform Economy

Signing most-favored-nation clauses on prices between private entities on Internet platforms is a commercial practice that has emerged in recent years. It is also an essential concern of Draft Anti-Monopoly Law（expert opinion）which proposes an innovative provision regarding monopoly agreements between Internet platform operators. Looking beyond the borders, both the United States and the European Union have made the regulation of Platform MFN clauses an important issue. In this new era, when regulatory innovation in the new economy has become a trend of law development, in view of the reality that problems are widespread but solutions are lacking, it is necessary to explore the regulatory path of MFN clauses in an innovative way. From the perspectives of basic structure and economic motivation, there are big differences between basic MFN clauses in the traditional market and PMFN clauses in the Internet market. Although both contain “most-favored-nation” treatment requirements, the latter involves a wider range of subjects and more complicated legal relations, and may have commissions, in addition, platforms become contracting parties in PMFN, all of which make economic analyses in specific cases very different. Through economic analysis, it can be found that the rationality of MFN clauses is reflected in their effects of promoting competition, including prevention of price discrimination, reduction of free-riding problem on the platform, prevention of hold-up question and delay, and reduction of transaction costs. At the same time, their effects of restricting competition, such as reduction of price uncertainty, promotion of horizontal collusion, market foreclosure and softening of competition, will increase the risks in market competition. Making a comprehensive survey and review on relevant regulatory practices in the United States and the European Union over the past half century, it can be concluded that although the two jurisdictions have their own characteristics in aspects of legal basis, regulatory content, procedure, and final result, they have a consensus on at least four sides: both focus on analyzing economic effects, both tend to define these behaviors as vertical restrictions, both distinguish between agent distribution and wholesale distribution models, and both pay close attention to platform supervision in the digital economy. Following regulatory recommendations can be summarized: First, it is advisable to define types of monopolistic behaviors MFN clauses may constitute under current law. Second, the competition effects in a case should be examined through economic analysis. Last but not least, platform supervision must be reformed in the Internet platform economy.

International economic law and the quest for universality

AbstractThe quest for universality in international economic law has met many obstacles. This article begins from the proposition that there are various ways to conceive of universality in international law, for example whether the rules are accepted widely among states (omnipresence) or whether they are broadly coherent (generality). Homing in on trade and investment law, the article assesses how each of these areas has functioned as a testing ground for these different conceptions. An in-built quasi-universality characterizes international trade law with the WTO as a seemingly centralized universal institution. Such universality, however, has often been achieved through differentiation of rights and obligations (e.g., the Enabling Clause and regional trade agreements). In investment law, attempts at universalization through the construction of centralized institutions have failed. Nevertheless, certain common standards have emerged in this fragmented regime. There is also a debate around the use of the MFN clause as a universalizing tool and renewed efforts to universalize investment law are afoot. More generally, it is clear that there is little appetite for codification of international economic law, and that states wish to control its content through the conclusion of treaties. In the final analysis, this article asks whether it is time to conceive of universality differently, and particularly whether equity and collective preferences should be a more central part of the quest.

THE URGENCY OF INTERNATIONAL INVESTMENT AGREEMENTS (IIA) AND INVESTOR-STATE DISPUTE SETTLEMENT (ISDS) FOR INDONESIA

In recent years, there has been an increasing number of claims through investor state dispute settle - ment (ISDS) proposed by foreign investors to the host states. This has prompted some states review their international investment agreements (IIA) and their ISDS clauses. Indonesia has terminated many of its Bilateral Investment Treaties (BIT) as well. The research questions are 1) How is the urg - ency of IIA and ISDS for Indonesia; and 2) What kind of IIA and ISDS format that Indonesia should ma k e to balance the state’s and foreign investor’s interest. The analysis results conclude that the existence of IIA and ISDS remains urgent for Indonesia, but it takes change s in terms of format like the new models made by many other host states. They involve redefinition of multi-interpretative terms and the exhaustion of local remedies. In addition, the non-automatic and mutual agreement ISDS arbitrati on which excludes the MFN clause should also provide the state's flexibility to protect the people’s prosperity through non-discriminati ng regulations. Keywords: IIA; ISDS; foreign investment

Pitting the MFN Genie Back in the Bottle

This essay underscores the importance of background understandings in general international law for interpreting brief, open-ended clauses such as MFN clauses. Contrary to Batifort and 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.

Most Favoured Nations Clauses in BITs – What is Their Real Purpose (and Their Real Effect)? – 3rd Annual EFILA Lecture

The author examines the origins of the MFN and its real purpose and real effect in investment treaty arbitration. It is argued that the MFN clause is first and foremost a guarantee to the investor of non-discrimination. He emphasizes the need to interpret a specific MFN clause in the specific context of the bits involved. He calls for a nuanced approach on the application of the MFN clause, rather than the broad generalizations, which in recent years have tended to dominate this area of debate.

The Influence of MFN Clause on International Investment Dispute Settlement Procedure to Investor's Home Country

The purpose of the MFN clause in the International Investment Treaty is to promote the interests of the parties, not to derogate from their interests. From the perspective of the investor's home country, the MFN clause to expand the international arbitration practice applicable to the international investment dispute settlement procedure has the advantages and disadvantages of the investor's home country, and the overall situation is more harm than good. Which will seriously affects the investor's home country's own understanding of the obligations under the investment treaty, and thus inevitably affect the investor's home country on their own contract in the international law of the legitimacy of the judgments and expectations.

Introduction to the Symposium on Simon Batifort and J. Benton Heath, “The New Debate on the Interpretation of MFN Clauses in Investment Treaties: Putting the Brakes on Multilateralization”

Introduction to the Symposium on Simon Batifort and J. Benton Heath, “The New Debate on the Interpretation of MFN Clauses in Investment Treaties: Putting the Brakes on Multilateralization” - Volume 112