Nation Clause Research Articles

Liberalization of Investment and Human Development

Particularly throughout the 1990s, one important strategy relied on by countries lacking capital or seeking to improve their access to technology by attracting investors has been to conclude international investment agreements (IIAs). Such treaties usually include provisions relating to the scope and definition of foreign investment ; admission and establishment ; national treatment in the post-establishment phase (a guarantee of non-discrimination against the investor of the other Party established in one Party); the most-favoured nation clause (ensuring that the investor of the other Party will benefit from the same treatment as any other foreign investor) ; fair and equitable treatment, including a protection from expriopriation ; guarantees of free transfers of funds and repatriation of capitals and profits ; and dispute settlement provisions (State-State and State-investor). But how successful was such a strategy? Did it succeed in attracting investment? And even if it did, how can we assess the 'sovereignty costs', or the loss of 'policy space', associated with the conclusion of IIAs? If countries indeed compete for the arrival of foreign investment and if the conclusion of such agreements is one tool they rely on to gain an advantage on potential competitors, does this entail the risk that the concesssions they make will go too far, for example by renouncing the possibility of imposing performance requirements on the investor (though this could arguably strengthen the linkages with the host economy), by guaranteeing a freeze in the regulatory framework applicable to the investment, or by authorizing transfer pricing between the local subsidiary and the foreign-based parent, thereby reducing the fiscal revenues that could be gained from the arrival of the foreign investor? By concluding an investment agreement, a country signals its intention to respect the rights of investors and to create a legal and policy framework that will provide the kind of stability they usually expect. But could it be that, while it may be understandable for each country considered individually to seek to conclude IIAs with a view to attracting investors, the result is collectively sub-optimal, as the IIAs lose their signalling function once they come to be generalized?We conclude that IIAs are not decisive in attracting investment. FDI inflows are generally dependent on other variables, especially the size of the market in the host country or trade openness ; and although a predictable and safe legal environment does matter to the investor, such predictability can be provided by other means (the more a country's traditional respect for the rule of law is established, the less it shall have to resort to investment treaties that protect the rights of investors). Moreover, if IIAs make any difference, it is especially in the extractive industry where very large investments are made, that are 'sunk' at the early stages of the project, and that are only profitable after a long period of time, leading the investor to be particularly risk-averse. It would therefore be ill-advised for countries seeking to attract investment to do so by providing incentives in investment agreements, especially where such incentives are designed in a way that could be interpreted as exempting the investor from having to comply with requirements linked to human rights, or to social and environmental considerations. Such incentives are no substitute for the establishment of an attractive macro-economic and business climate, and they may in fact even be counter-productive as regards the immediate aim of attracting investors (let alone as regards the more ambitious aim of human development) if, as a result of entering the country, the investor would be risking its reputation and subject itself to criticism because of the laxity of the standards applied. It is therefore entirely justified, even from the point of view of the attractiveness of a country to investors, to seek to explore which safeguards should be established under the domestic law of host countries in order to ensure that the arrival of FDI shall not negatively affect the rights of the local population, and shall instead contribute positively to human development indicators in the country ; and it is fitting for capital-exporting countries and for agencies such as export credit agencies or multilateral lending institutions to support this effort. Far from limiting the sovereignty of the countries seeking to attract investment, these tools are used in order to strengthen the bargaining position of these countries: they are a way to support them in making the choices that should benefit their populations most, when these countries could otherwise be tempted to 'signal' their willingness to attract investors by providing far-reaching forms of protection that reduce their policy space, or to offer advantages that will annul, or at least seriously diminish, the benefits they have a right to expect from the arrival of FDI.

Transnational Airlines in Latin America Facing the Fear of Nationality

Latin America has been the recent scenery of cross-border mergers and acquisitions of airlines in countries in which their domestic law allows important foreign investment in air carriers. However, the still present architecture of bilateral exchange of traffic rights between countries, encouraged by the 1944 Chicago Convention, is a serious threat for the development of these transnational airlines, operating through a complex network of corporations incorporated in different countries. Typically, this bilateral architecture includes 'ownership and effective control' clauses that require an airline designated by a country party to a bilateral air services agreement (ASA) to be majority owned and effectively controlled by its nationals. Such nationality clauses were founded, back in the 1930s for security (including military) and economic reasons. Recently, some Latin American countries are liberalizing nationality requirements for designated airlines under bilateral ASAs in conformity with their locally relaxed posture pertaining to foreign investment in air carriers. Regional initiatives have also been taking place, slowly waiving the traditional restrictive attitude towards the previously mentioned nationality requirements. Hence, it is argued that airline's designation under a bilateral ASA in Latin America should be focused on criteria that are linked with the corporative structure rather than on the nationality of the final ownership of the airline. This position will be coherent with today's reality in regard to the airline industry of the region.

WTO legality of discriminatory liberalization of internal regulations: role of RTA national treatment

AbstractIn this paper, we study the interaction between regionalism and multilateralism by examining the role of national treatment clauses in regional trade agreements (RTAs). We ask whether discriminatory liberalization of internal regulations under RTAs can fulfill the requirements of the GATT Article XXIV defense. In the presence of pre-existing RTAs with RTA national treatment clauses, the GATT Article XXIV defenses for violations of GATT Article I and GATT Article III resulting from preferential liberalization of internal regulations may not succeed because the ‘necessity’ requirement under the Turkey–Textiles Appellate Body test is not likely to be met. The necessity requirement would fail because the RTA party may adopt ‘a reasonable alternative’ of applying the measure non-discriminatorily to all WTO members. RTA national treatment clauses in the pre-existing RTAs may have the effect of binding the RTA parties to liberalize trade-restrictive internal regulations on a non-discriminatory basis.

Measuring the Challenge: The Most Favoured Treatment Clause in the Economic Partnership Agreements between the European Community and African, Caribbean and Pacific Countries

In recent years, the European Community (EC) has concluded several trade agreements with several African, Caribbean, and Pacific (ACP) countries. These agreements, designed as a means to help eradicate poverty through trade and development, are known as Economic Partnership Agreements (EPAs) and provide ACP countries with preferential and differential trade benefits. Each agreement contains most favoured nation (MFN) clauses, providing that the EC must be accorded any more favourable treatment that an ACP country grants to certain third states not party to the EPA falling within the agreement's definition of a 'major trading economy'. These third states, or 'major trading economies', include less developed emerging economic powers. This paper examines potential challenges to the EPAs' MFN clauses, providing an in-depth factual analysis of the MFN clauses and a determination of possible ways for disputes to arise mainly under World Trade Organization (WTO) law and, to a lesser extent, within the EPA dispute resolutions provisions. The major case study is the MFN clause contained in the EC-Caribbean Forum (CARIFORUM) agreement, but the similarities in MFN provisions make the arguments generally applicable across the spectrum of EPAs concluded between the EC and ACP countries.

Credit Allocation and the International Rules on Subsidies: Have the Anti-Crisis Measures in Brazil Gone Too Far?

The different economic stimulus packages architected around the world to control and overcome the recent financial crisis contained a series of credit policies which, due to the presence of (i) favorable conditions granted to lenders, such as low interest rates, and also of (ii) export performance and/or national content requirement clauses, may be inconsistent with the current international rules on subsidies. In Brazil, the incentive measures called for a vigorous expansion of state banks’ operations in the credit markets as a means to compensate for the shortage of private credit that affected the economy during the crisis. The Program for Sustainability of Investments of the Brazilian Bank for Economic and Social Development (PSI - BNDES) was created in June 2009 and is responsible until today for more than $70 billion dollars already borrowed or yet to be given to companies for areas such international trade, innovation, and acquisition or production of capital goods. This paper investigates the consistency of PSI with the current international rules on domestic subsidies. In order to do so, it (a) describes the main aspects and rules of PSI credit lines (international trade; innovation; and capital goods) and also the (b) central concepts of the Agreement on Subsidies and Countervailing Measures of the World Trade Organization in order to then be able to (c) analyze the consistency of PSI with this agreement. In the end, the paper will briefly present alternative measures for policy makers so that domestic legislation in the field of credit policy can be issued or be brought into conformity with international rules.

MFN in the CARIFORUM-EC Economic Partnership Agreement: Policy Blunder or Legal Inconsistency?

The Carribbean Forum-European Communities (CARIFORUM-EC) Economic Partnership Agreement (EPA) represents a new era of development cooperation and trade relations between the European Union (EU) on the one hand, and a subgrouping of the African, Caribbean, and Pacific (ACP) group of countries on the other hand. The inclusion of Most Favoured Nation (MFN) clauses in the EPA, which require CARIFORUM countries to extend to the EU any more favourable treatment granted to third parties in future Free Trade Agreements (FTAs) has generated some controversy. This note critically examines the arguments that have been levelled against the inclusion of these clauses from legal and policy perspectives. Notwithstanding the often nebulous distinction between law and policy, it will be argued here that questions of policy and issues of law must be bifurcated in order to meaningfully assess the value of MFN clauses in the EPA. A paradigm for assessing such clauses in other so-called North-South FTAs is also suggested.

The Japan-Mexico Treaty 1888 and the Most Favored Nation Clause in the Unequal Treaties

The Japan-Mexico Treaty 1888 was the first treaty that Japan concluded in equal and reciprocal terms with a Western Nation during the most crucial period of Japan's modern diplomatic history as it was the revision of the Treaties.The generic name Unequal Treaties refers to 16 international conventions that Japan signed between 1854 and 1874 with the Western Powers. These treaties were unilateral, not reciprocal, all citizens of the treaty nations enjoyed extraterritorial privileges that rendered them, for all intents and purposes, immune from Japanese justice. Even more onerous and problematic, these treaties denied Japan of tariff autonomy, and autonomy in the treaty ports. In 1883, Mexico proposed to Japan to conclude a treaty based on absolute equality to serve as support and precedent for Japan to denounce the Treaties. Japan declined the Mexican offer adducing that it was first necessary to obtain the revision of the Treaties, to avoid extending, the new advantageous conditions of an equal treaty to the Treaty Powers, by way of the Most-Favored-Nation clause. Japan carried forward the Treaty Revision Conferences between 1882 and 1886 without obtaining any significant progress. Five years later, in 1888, despite the fact that the Treaty Powers had neither renounced the MFN clause, nor revised the extra-territoriality provisions, Japan concluded its first equal treaty with Mexico. How did the Japanese government solve this impasse? This paper addresses this question as well as the arguments and motivations that shaped the new unconditional interpretation of the MFN clause, or Ōkuma Doctrine. The cornerstone of the treaty system was the Most Favored Nation clause. This paper delineates the main features of the MFN clause emphasizing the Conditional and Unconditional MFN interpretations. It also explains why this MFN was the main obstacle for the revision of the Treaties, and how this problem was solved by the Ōkuma's interpretation; his conditional interpretation of the MFN, is called the Ōkuma Doctrine.

MFN-based Jurisdiction in Investor-State Arbitration: Is There Any Hope for a Consistent Approach?

Most-favored nation (MFN) clauses are a hotly contested basis for jurisdiction in investment arbitration. This article categorizes the divergent approaches taken by 17 arbitral tribunals to date, revealing the major types of MFN clauses interpreted, the key types of MFN questions confronted and the primary reasons cited for either upholding or denying MFN-based jurisdiction. It analyzes trends emerging from the awards and attempts to explain the inconsistent outcomes in terms of the different burdens of persuasion applied by tribunals. The article concludes by exploring the feasibility of finding a more consistent approach, one which respects both the dictates of the Vienna Convention on the Law of Treaties and the pragmatic concerns of investors and host states. Oxford University Press 2011, all rights reserved, Oxford University Press.

Border Tax Adjustment at the Interface of WTO Law and International Climate Protection

The article addresses border tax adjustment from the perspective of world trade law. This classical instrument of foreign trade provides a level playing field for certain goods by adjusting the indirect taxes and charges to the level of the destination country. Particular problems have arisen with environmental charges. The structure of the article reflects the development of the scientific debate on border tax adjustments. The controversy of the nineties was about the adjustment of environmental taxes, which do not charge a product as such but the resources exhausted in the process of production. The article demonstrates that those taxes are to be numbered among the adjustable indirect taxes. The current debate deals with the expenses European producers have to bear due to the European Emission Trading Scheme. It is demonstrated that those expenses are in the same way adjustable as regular environmental taxes. Thus border tax adjustment on its own becomes important as an instrument of environmental policies. This is because environmental charges can only have an effect on the exhaustion of global resources, if they do not affect global competition in favour for countries that do not pursue environmental policies. Though, in adherence to the Most Favoured Nation Clause adjustments for environmental charges can only be made schematically without considering the environmental policy or the stage of development in the country of origin. However, a justification pursuant to Art. XX GATT would allow a more flexible application of border tax adjustments.

The International Tax Policy in the Context of Integration and Trade in Latin America

At the end of the 1980’s Latin American countries started a process of liberalization through which the traditional scheme of “production towards domestic necessities” was left behind. In Latin America different reforms in areas such as tax law, financial (banking) law, foreign trade law and constitutional law were introduced. These reforms took place for these countries at a different pace and different emphasis was given in one or another area by the institutions of these countries. This paper aims to describe the different approaches from Latin American countries and in order to keep it comprehensive; Chile and Colombia have been selected as countries of study. Hypothesis is that the differences in the international tax policy in these countries have an influence in the processes of Latin American integration and trade. In order to analyze and provide recommendations to the trade and tax policy of Chile and Colombia, a general overview of the instruments for international trade is provided in Section 2 and for international taxation in Section 3. The main features of international trade and international taxation of the two countries of study are described, to wit: Chile in Section 4 and Colombia in Section 5. The relationship between trade and taxation up till the time of writing is analyzed in Section 6. More specifically, the influence of trade provisions such as most favoured nation clause and export subsidies in direct taxation is addressed. Finally, the suggested approach of this paper, that is, the importance of the development of an international tax policy in the context of integration and trade is analyzed in Section 7. The approach in this paper is from a tax law perspective and more specifically deals with direct taxation (leaving outside value added tax issues).Hence, economic studies on whether bilateral tax treaties promote investment will not be dealt with in this paper.

Il regime degli scambi nel commercio internazionale agroalimentare e la pac

Il regime degli scambi nel commercio internazionale agroalimentare e la pac

Efectos sorpresivos de la cláusula de la nación más favorecida (CNMF) en materia de inversiones extranjeras

La CNMF (Cláusula de la Nación más favorecida), insertada de forma casi automática en los tratados bilaterales de promoción y/o de protección de las inversiones durante las décadas de 1960 y 1970, devela hoy una dinámica sorprendente. Vía las decisiones de diferentes tribunales CIADI (Centro International de Arreglo de Diferencias relativas a Inversiones), presentamos la “evolución” o cambio que protagoniza esta cláusula. Para esto, se analizará el mecanismo de la cláusula, el cual a priori circunscrito (por los Estados y la doctrina) a la importación de disposiciones de fondo, parece estar implícitamente habilitado para importar también disposiciones de procedimiento. La nueva faceta de la cláusula impone un estudio retrospectivo de sus principios, su enunciado y su objetivo. Mas dicha perspectiva no es el resultado de un cambio sustancial en el enunciado de la cláusula sino en la valoración que los árbitros, Estados e inversionistas hacen de ella. Así, la instrumentalización de la CNMF además de permitir una mayor liberalización del sector repercute en otras estructuras del derecho internacional y resalta el papel que desempeñan los Estados, sus cocontratantes privados y el CIADI en la relectura de la CNMF.

Incentives Towards Economic Integration as the Second-best Tariff Policy

Economic integration such as free trade areas (FTAs) and customs unions (CUs) allows importing countries to circumvent the constraint of non-discriminatory tariffs posed by the most favored nation clause in WTO and to employ (incomplete) tariff discrimination. Thus the second-best choice for the importing country, if it does regional integration, is to choose as the partner the exporting country that would have been subject to the lower tariff under the full tariff discrimination. Regardless of the mode of competition, we will find that such a partner tends to be less efficient than other exporting countries, which implies that voluntary regional integration leads the world economy to less efficient resource allocations.

Do countries free ride on MFN?

The Most-Favored Nation (MFN) clause has long been suspected of creating a free rider problem in multilateral trade negotiations. To address this issue, we model multilateral negotiations as a mechanism design problem with voluntary participation. We show that an optimal mechanism induces only the largest exporters to participate in negotiations over any product, thus providing a rationalization for the Principal supplier rule. We also show that, through this channel, equilibrium tariffs vary according to the Herfindahl–Hirschman index of export shares: higher concentration in a sector reduces free riding and thus causes a lower tariff. Estimation of our model using sector-level tariff data for the U.S. provides strong support for this relationship.

The Most Favoured Nation Clause in BITs as a Basis for Jurisdiction in Foreign Investor--Host State Arbitration

A trend has recently emerged before international arbitral tribunals established to settle disputes between foreign investors and the host countries. We refer to the practice of claimants, that is foreign investors, to invoke the Most Favoured Nation (MEN) clause contained in the Bilateral Investment Treaty (BIT) at issue in order to overcome the respondent state’s objection to jurisdiction based on the non-compliance by the claimants with the BIT provisions concerning dispute settlement procedures. Since the first case of the series under analysis, the arguments of the claimants concerning the application of the MFN clause to jurisdictional issues have been refined. The respondent states, also, have better developed their defence on the point. Although it could still be the object of assessment by future arbitral tribunals, it seems appropriate, at this stage of elaboration by the jurisprudence, to see how the question of the extension to procedural matters of the MFN treatment provided for in an investment treaty has been dealt with. The study of the case law available so far supports the opinion that the question cannot be decided once and for all according to general theories but has to be addressed on a case-by-case basis through a proper interpretation of the relevant MFN clause.

Trade negotiations, domestic policies, and the Most Favored Nation clause

Abstract. This paper illustrates how restricting trade instruments to non‐discrimination links trade agreements to non‐trade agreements and, under certain conditions, helps governments further lower tariffs and/or domestic standards (policies). These conditions are: (i) governments' objective functions are sufficiently concave with respect to domestic standards (policies); (ii) domestic standards are sufficiently valued; and (iii) policies are strategic complements. These can then be used as a rationale for restricting safeguard measures to non‐discrimination.

The Most-Favored-Nation Clause in International Investment: Agreements A Tool for Treaty Shopping?

Until recent years, the most favored nation clause (“MFNC”) in international investment agreements appeared to be a harmless rule, and for some time it had not been the subject of any serious discussion. We have now a number of awards which have raised difficult questions concerning the right application of the standard. It seems there is doubt and a lack of consensus. This article goes back to the very basic nature of the MFNC and reviews the relevant jurisprudence arising from investment treaty arbitration, as a requisite step before arriving at the proposed conclusion: the MFNC was designed and should function as a means to reduce distortions in a host country that adversely affect investors, but solely with respect to competitive conditions, and not as a treaty shopping tool that, in the context of particular claims, overrides or modifies the scope of specific negotiated arrangements related to non-competitive conditions.

The Application of the Most-Favoured-Nation Clause to the Dispute Settlement Provisions of Bilateral Investment Treaties: Domesticating the 'Trojan Horse'

Contracting states bring a ' Trojan Horse ' into the city when providing for most-favoured- nation clauses (MFN clause) in bilateral investment treaties (BIT). This affects the general equilibrium of the treaties, as recent case law from investment arbitration tribunals illus- trates. In these cases the controversial issue is the applicability of the MFN clause to the dispute settlement provisions of the BITs. Arbitration practice and mainstream literature so far have focussed on the specifi c nature of the dispute settlement mechanism, asking whether the MFN clause should cover it or not. This article analyses the arguments put forward so far on this issue, and argues that by reason of the ' effet utile ' the MFN clause always covers the dispute settlement mechanism, unless the opposite intention of the Contracting states can be demonstrated. Furthermore, this article considers that the prevailing focus on the entire mechanism is misleading. The main issue is in fact the scope of application of the MFN clause to the individual provisions on dispute settlement. Underlying this issue there is the tension between the MFN clause and the other provisions of BITs, whatever their procedural or substantive nature. This tension puts into question the rationality of providing for MFN clauses in bilateral investment treaties. But once such a clause is already adopted, this article suggests that the way to domesticate this ' Trojan Horse ' is to substitute conditional MFN clauses for the unconditional MFN clauses presently provided for in BITs.

The role of MFN under asymmetries in environmental standards

We critically examine the implications of the most favored nation (MFN) clause under asymmetric environmental standards. Using an oligopolistic intra-industry trade model, we show that environmentally beneficial trade diversion and higher world welfare obtain under tariff discrimination relative to MFN.

Sustaining multilateral cooperation among asymmetric countries: Does MFN help?

The most favored nation (MFN) clause is widely understood to be the central pillar of the global multilateral trading system. Does the MFN principle of non-discrimination facilitate multilateral cooperation? Using a repeated game approach, we address this question in an oligopolistic three country model of intraindustry trade where production costs differ across countries. The analysis delivers two main results. First, both under MFN and tariff discrimination the incentive constraint of the high cost country determines whether or not free trade is sustainable. Second, the high cost country is more willing to cooperate multilaterally under MFN relative to tariff discrimination.