Most-favoured Nation Clause Research Articles

China and Shanghai Cooperation Organization: Reconsideration and Improvement of Multilateralizing Effect of Most Favored Nation Clause in BIT

Since the Maffezini case, debates upon the application of the Most-Favored-Nation (MFN) clause have never stopped. Research from the perspective of the Shanghai Cooperation Organization (SCO) can test the way for further advancement of this issue. The analysis on the international investment arbitration cases involving the SCO states may shed some light on the crucial point on dispute. At present, the bilateral investment treaties (BIT) between China and other states of the SCO are in an urgent need of renewal in order to meet the interests of deepening investment cooperation. Problems of fragmentation of the interpretation method and of unpredictability of the interpretation conclusion of the MFN clauses manifested in international investment disputes involving SCO states will provide concrete preventative suggestions on the updating of the wording of MFN clauses. Under SCO framework, the multilateral effect of the MFN clause can play a model role for other regional integration organizations to build an integrated and multilateral investment treatment system in the fragmented and bilateralism-based framework of international investment law, and in fact promote investment facilitation for regional organizations.

Reevaluating the Most Favored-Nation Treatment: Addressing Challenges in Modern Trade

As global trade continues to evolve, the foundational principles that govern international commerce are increasingly scrutinized. The Most Favored-Nation (MFN) principle, a cornerstone of the World Trade Organization (WTO), was designed to foster fairness by mandating equal trade concessions for all members, thereby ensuring non-discriminatory trading behaviors. This research paper focused on the challenges of the Most Favored-Nation (MFN) principle within the World Trade Organization (WTO), a clause that mandates equal trade concessions for all members, ensuring non-discrimination. The research question investigates whether the MFN principle effectively promotes fairness in international trade or if it unintentionally exacerbates economic inequalities, particularly for developing countries. Findings reveal that MFN clauses often reduce market competition and lead to higher prices, while also disadvantaging developing countries that struggle to compete with developed nations. The paper underscores the need for MFN principle reform, such as advocating for differential pricing strategies for enhancing economic competition, setting exceptions for the poorest countries to implement tailored trade policies, and empowering these nations to challenge unfair practices by richer countries. These reforms aim to create a fairer and more balanced global trade system that supports inclusive economic growth for the whole world.

African Continental Free Trade Agreement's Conditional Most Favoured Nation: A Necessary Compromise?

AbstractThe inception of the African Continental Free Trade Agreement (AfCFTA) constitutes a major advancement in Africa's economic integration process. Diverging from what appears to be the norm in contemporary trade treaties, the agreement adopts a conditional Most Favoured Nation (MFN) clause hinged on the principle of reciprocity. Without the promise to reciprocate preferential treatment, the beneficiary state does not assume the right to demand MFN treatment. In broader discussions, this feature has been criticized for possessing the tendency to restrict trade. However, examining it in the context of Africa's trade paradigm, this paper argues that the non-automaticity of the AfCFTA's MFN clause is a cardinal feature safeguarding its existence.

Uniform versus discriminatory tariffs when competition mode is endogenous

AbstractWe examine the welfare implications of two tariff regimes when firms have a forward‐looking view on trade policy. Discriminatory tariffs lead to Cournot competition, whereas uniform tariffs lead to diverse competition modes. If exporters are identical in production costs, all the trading countries are better off under the uniform rather than discriminatory tariff regime, which suggests a possibility that countries reach an agreement on the most‐favored nation (MFN) as a preferred tariff regime. For asymmetric costs among exporters; however, the competition mode determined endogenously under the uniform tariffs does matter for the welfare comparison. If Cournot competition emerges, then each country's preference is consistent with conventional wisdom. That is, the importing country and high‐cost exporters prefer a discriminatory tariff while low‐cost exporters have a uniform tariff regime. However, if the uniform regime leads to either Bertrand or asymmetric competition mode, then the cost gap between exporters would be the determinant factor. Only when the cost gap is sufficiently small, the uniform tariff, required by the MFN clause of the World Trade Organization, can be beneficial to all trading countries.

The legal aspects of hotel rate parity

This research note delineates the conflict of hotel rate parity and key clauses of competition laws in both Europe and the U.S. We trace the origin of hotel rate parity to the principle of most favored nation (MFN) in international trade agreements. We show that rate parity challenges two pillars of competition law. Under rate parity agreements, it is travel intermediaries—not hotels—that demand rate parity, which comes down to the dominance of travel intermediaries over small and independent hotels. The courts view MFN status as a hindrance to competition and therefore in violation of competition law. The trend and message in Europe are clear: the clause is most likely to be judged as not complying with EU competition law and its national equivalents. In the U.S. though, a lack of case decisions precludes us from reaching any conclusion about the fate of the MFN clause.

Opening Pandora’s Box: Strict Liability Under Unqualified Extended War Clauses in International Investment Law

There has been a growing interest in the extent to which international investment law imposes an obligation on the state to compensate for losses arising from an armed conflict. This contribution explores the prevalence of war clauses that hold the state liable to pay compensation for war losses without the investor needing to prove fault. The contribution considers a recent case against Syria in which an investor was permitted to rely on such a war clause in another treaty through the most favoured nation (MFN) clause. The contribution finds that MFN clauses substantially increase the number of investors who can rely on unqualified extended war clauses. It considers unqualified extended war clauses and the extent to which other investors can rely on them through an MFN clause in Cameroon, Syria and Yemen. It then considers the role that the BRICS countries can play in bringing about the necessary reforms to unqualified extended war clauses. It argues that these reforms are urgently needed as these states emerging from armed conflict can scarcely afford to meet their people’s most essential developmental needs, let alone virtually unlimited liability to foreign investors.

The Dilemma of Consent to International Arbitration in Investment Agreements without a Forum

Abstract This monograph addresses the sometimes overlooked yet fundamental principle that consent to international arbitration is forum-specific, and explores its significance and practical consequences in investment arbitration. This monograph contends that if there is no arbitral forum mentioned in the relevant dispute settlement provision of an investment agreement, the forum specified therein becomes unavailable for some reason, or a subsequent agreement on a forum is required between the parties to the dispute, there is only consent “in principle” to international arbitration in the investment agreement. Such expression of “consent” is unenforceable and ineffective, which means that a foreign investor would not be entitled to unilaterally initiate an investment claim against the host State under said agreement absent a subsequent agreement between the foreign investor and the host State on an arbitral forum. This monograph also shows that there is an explicit requirement of a forum-specific consent in the arbitral rules of the often-used arbitral institutions. In addition, the most-favored nation clause in investment agreements could not be applied to overcome the lack of forum in dispute settlement provisions. Finally, this monograph proposes possible avenues to tackle the absence of an agreed-upon forum in an investor-State dispute settlement provision, draws some conclusions and warns against the dangerous consequences of ignoring this basic principle.

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.

Consutel Group SpA in liquidazione v People’s Democratic Republic of Algeria: Umbrella Clauses and Breaches of Contract by Public Entities

The Consutel v Algeria (Consutel) Award (only available in French) is the latest investment award dealing with the substantive nature of umbrella clauses.3 Despite their controversial nature, umbrella clauses have emerged as robust instruments for protecting investments under State contracts.4 Through precedents, the unpredictability in the utilisation of the umbrella clause through the most-favoured nation (MFN) provision has been observed.5 If utilised, the MFN clause allows the claimant investor to import even an open-worded umbrella clause from any treaty signed by that respondent country.6 It must be noted that individual contracts do not fall under the protection of investment treaties. In Consutel, the Tribunal considered that a breach of specific undertakings covered by an umbrella clause will give rise to a substantive breach of a bilateral investment treaty (BIT).7 Importantly, the Tribunal rejected the Respondent’s argument that umbrella clauses are procedural in nature and hence cannot be imported through the MFN clause. This is because MFN clauses do not represent a unique standard of behaviour but rather provide a means of protecting contractual and similar undertakings.

Do State Bans of Most-Favored-Nation Contract Clauses Restrain Price Growth? Evidence From Hospital Prices.

Most-favored-nation (MFN) contract clauses have recently garnered attention from both Congress and state legislatures looking for ways to curtail market power abuses in health care and rein in prices. In health care, a typical MFN contract clause is stipulated by the insurer and requires a health care provider to grant the insurer the lowest (i.e., the most-favored) price among the insurers it contracts with. As of August 2020, 20 states restrict the use of MFN clauses in health care contracts (19 states ban their use in at least some health care contracts), with 8 states prohibiting their use between 2010 and 2016. Using event study and difference-in-differences research designs, we compared prices for a standardized hospital admission in states that banned MFN clauses between 2010 and 2016 with standardized hospital admission prices in states without MFN bans. Our results show that bans on MFN clauses reduced hospital price growth in metropolitan statistical areas (MSAs) with highly concentrated insurer markets. Specifically, we found that mean hospital prices in MSAs with highly concentrated insurer markets would have been $472 (2.8%) lower in 2016 had the MSAs been in states that banned MFN clauses in 2010. In 2016, the population in our sample that resided in MSAs with highly concentrated insurer markets was just under 75 million (23% of the US population). Hence, banning MFN clauses in all MSAs in our sample with highly concentrated insurer markets in 2010 would have generated savings on hospital expenditures in the range of $2.4 billion per year. Our empirical findings suggest banning MFN clauses between insurers and providers in highly concentrated insurer markets would improve competition and lead to lower prices and expenditures.

Itisaluna and Others v Iraq: The OIC Agreement Conundrum: Consent to ICSID Arbitration and the MFN Clauses Saga

In an Award dated 3 April 2020 (Itisaluna Award), the Tribunal analyzed whether the most favoured nation (MFN) clause in article 8 of the Organization of Islamic Co-operation (OIC) Agreement allows a foreign investor to import a provision permitting access to International Centre for the Settlement of Investment Disputes (ICSID) arbitration from bilateral investment treaties (BITs) concluded between Iraq and third countries. In this Award, the Tribunal dismissed the Claimants’ attempts to use the MFN clause in the OIC Agreement to import Iraq’s consent to ICSID arbitration from other BITs. The Tribunal declined jurisdiction on the ground that the OIC Agreement does not establish clear consent to ICSID arbitration. The Tribunal majority’s approach was subject to a dissent by arbitrator Peter, who was of the view that the Tribunal had jurisdiction on the ground that the general consent to arbitration in article 17 of the OIC Agreement could extend to...

MOST-FAVORED NATION TREATMENT CLAUSE IN INVESTMENT ARBITRATION

Bilateral and regional investment agreements have proliferated in the last decade and new ones are still being negotiated. Most-Favored-Nation (MFN) clauses link investment agreements by ensuring that the parties to one treaty provide treatment no less favorable than the treatment they provide under other treaties in areas covered by the clause. MFN clauses have thus become a significant instrument of economic liberalization in the investment area. Moreover, by giving the investors of all the parties benefiting from a country’s MFN clause the right, in similar circumstances, to treatment no less favorable than a country’s closest or most influential partners can negotiate on the matters the clause covers, MFN avoids economic distortions that would occur through more selective country-by-country liberalization. Such a treatment may result from the implementation of treaties, legislative or administrative acts of the country and also by mere practice. The present article provides a factual survey of jurisprudence and related literature on MFN treaty clauses in investment agreements with a view to contributing a better understanding of the MFN interfaces between such agreements. Key words: dispute resolution, foreign investment, ICSID, most-favored nation treatment, third party treaty, mandate of the arbitration tribunal, a selective import

Hybrid Restraints and Hybrid Tests Under US Antitrust and EU Competition Law

The distinction between horizontal and vertical agreements is not always as obvious as suggested in case law. In particular, under US antitrust law, the current case law on section 1 of the Sherman Act sets out a dichotomy between horizontal and vertical restraints. Yet, the commercial reality, as seen for instance in the e-commerce sector, is that the line between those two types of restraints is sometimes blurred. As more recent cases have shown, the legal assessment of vertical restraints that have horizontal effect is more difficult compared to purely vertical or horizontal restraints. Under US antitrust and EU competition law the assessment of those ‘hybrid restraints’ is further obfuscated due to the emergence of intermediate approaches to the rule of reason/per se rule in section 1 of the Sherman Act and arguably the restriction by object/restriction by effect categories in Article 101 Treaty on the Functioning of the European Union (TFEU) respectively. This article explores whether those intermediate approaches are suitable for the legal assessment of vertical restraints with horizontal effect and how the analyses could be conducted in order to be more administrable. vertical restraints, horizontal restraints, hybrid restraints, Most-Favoured Nation clauses, resale price maintenance, rule of reason, per se rule, restriction by object, restriction by effect, Article 101 TFEU

The MFN Principle at Peril in Investment Treaties - with Particular References to Ansung Housing and Beijing Urban Construction

Purpose - This paper investigates the theories and practices of Most-Favored-Nation (MFN) clauses. The MFN clause became a controversial issue during the past two decades, especially in the context of investment arbitration. This paper aims to clarify a reasonable way to apply MFN clauses. It in particular focuses on the territoriality requirements and the scope of investment activity which are common features included in most of investment treaties. Design/methodology - This paper analyses two investment arbitration cases, Ansung Housing and Beijing Urban Construction. Through the case study, this paper reveals limitations of the currently dominant views on the operation of MFN clauses. It then tries to reconstruct the system of MFN application within the relevant arbitration principles. Findings - Tribunals of recent investment arbitration as represented in the two cases above employed strict literal interpretation of the treaty provisions, especially of the phrase “in its territory”. This paper finds a more functional interpretation is appropriate and consistent with theories of public international law and developments of global economy. Originality/value - Existing studies either stuck to literal interpretation or suggested more flexible interpretation of the phrase “in its territory” without full explanation. This paper tries to fill the gap in the existing discussion by analyzing legal foundations and theoretical structure for an effective interpretation of MFN clauses.

Application of Most-Favoured-Nation Clauses by Investor-State Arbitral Tribunals, Implications for the Developing Countries: A Collection of Chapter Abstracts of the Book

This paper compiles the draft chapter abstracts of my book entitled, 'Application of Most-Favoured-Nation Clauses by Investor-State Arbitral Tribunals. International Law and the Global South (Perspectives from the Rest of the World). Springer, Singapore, 2020. This book comprehensively examines various issues regarding the scope of Most-Favoured Nation (MFN) Clauses in International Investment Agreements (IIAs), and addresses the reform, interpretation, and enforcement of IIAs with a specific focus on the MFN clause. The book begins with a study of the history and evolution of the MFN. It then presents a substantive analysis focusing on the drafting style and how it affects the scope of the MFN; rules of interpretation and arbitral case law on the scope of the MFN, procedural prerequisites to arbitration and jurisdiction of arbitral tribunals, and the implications of adopting an expansive approach to the MFN clause. The book’s argument centres on the need for arbitral tribunals to interpret the MFN in a manner that reflects the expressed intent of the parties. This requires taking into consideration the text of the MFN, its purpose, and the overall context of the IIA, rather than relying on values and assumptions that have nothing to do with the original intent of the parties. In making this argument, the book draws on Articles 31 and 32 of the Vienna Convention on the Law of Treaties and other interpretative rules. What sets the book apart is its comprehensive coverage of issues concerning the interpretation and application of the MFN in IIAs. At the same time, it addresses issues in connection with an expansive interpretation of MFN clauses, as well as concerns regarding the legitimacy crisis in investor-state arbitration. Accordingly, it contributes to future Investor-State Dispute Settlement (ISDS) reform, while also offering a wealth of theoretical and practical insights for future treaty drafters, arbitrators, and policymakers.

Wholesale most-favored-nation clauses and price discrimination with negative consumption externalities: equivalence results

Most-favored-nation (MFN) clauses in wholesale contracts have been the subject of recent controversy and renewed antitrust scrutiny. We demonstrate that a vertical environment where MFN clauses may be endogenously adopted shares equivalence properties with an environment where a final goods monopolist sells a good exhibiting negative consumption externalities directly to consumers and is faced with an exogenously imposed uniform pricing requirement. By leveraging these equivalence results, we are able to offer a new and useful framework for assessing the welfare effects of wholesale MFNs and which generates new insights.

The Fictions and Realities of MFN Clauses in International Investment Agreements

In an article published concurrently in the Journal of International Economic Law, I reach many of the same conclusions as Simon Batifort and J. Benton Heath regarding the use of most favored nation (MFN) clauses to import substantive provisions from other treaties. However, although our conclusions are similar, our reasoning differs in several important respects. In my view, the reasons why MFN clauses cannot be used to import treaty provisions have more to do with the nature of these clauses than their specific text. MFN clauses are primary rules that require performing a comparison and determining whether there is a breach of the provision, and this produces legal effects that run against any attempt at importation. In addition, it is not possible or desirable to interpret MFN clauses in isolation from general international law. Stephan Schill is also correct that Batifort and Heath cannot disclaim the normative implications of their effort to shift the debate over MFN clauses. But Schill confuses the legal effects of MFN clauses with a policy consideration (multilateralization) and misreads the interpretative background that must be considered when applying MFN clauses. Schill also mistakes multilateralization via arbitral interpretations of MFN clauses for true multilateralism, which is the product of states working together in multilateral fora. That distinction matters, too, for Schill's solution might provoke a state-led backlash that will undermine the very multilateralism he seeks to promote.

Putting 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 most favored nation (MFN) clauses. Contrary to Simon Batifort and J. Benton 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.

MFN Clauses and Substantive Treatment: A Law of Treaties Perspective of the “Conventional Wisdom”

On the big questions, Simon Batifort and J. Benton Heath are plainly right. Dogmatic presumptions about the necessary effect of particular clauses and woolly notions of systemic teleology may distract the interpreter from the task of finding the meaning that represents the intentions of the parties, best articulated in the specific terms chosen. Customary rules on treaty interpretation, reflected in Articles 31 and 32 of the Vienna Convention on the Law of Treaties (VCLT), are meant to be flexibly adapted to the case in hand. But in applying their insight to the small print of the interpretative question, Batifort and Heath are less persuasive. Can most favored nation (MFN) clauses be generally relied upon to, as they put it, “import” substantive standards of treatment of investment protection law? The authors are critical of the apparent consensus in favor of an affirmative answer—they call it “conventional wisdom”—and in this regard seem to me to be significantly overstating their case.

Проблема юрисдикционного эффекта оговорки о наибольшем благоприятствовании: взгляд в контексте системных ценностей международного инвестиционного права

Проблема юрисдикционного эффекта оговорки о наибольшем благоприятствовании: взгляд в контексте системных ценностей международного инвестиционного права