The Boundaries of Most Favored Nation Treatment in International Investment Law

Contemporary international investment law is characterized by fragmentation. Disputes are heard by a variety of tribunals, which often are constituted solely for the purpose of hearing a single claim. The law applicable in a dispute is usually found in a bilateral agreement, applicable only between the two states connected to the dispute, rather than in a multilateral treaty or customary international law. Moreover, the international investment community itself is profoundly divided on many issues of substantive law, meaning both that the interpretation given to international investment law by a tribunal will be determined largely by those who sit on it, and that even the most authoritative texts are recognized as representing only their authors’ own views, rather than constituting a clarifying statement of the law as it actually stands. Given this context of fragmentation, it is perhaps unsurprising that states negotiating investment treaties have consistently incorporated one of the traditional means of bringing uniformity to international obligations, the Most Favored Nation (MFN) clause. An MFN clause in an investment treaty is fundamentally a promise between the two states party to the treaty that neither state will give to investors from any third state more favorable treatment than that given to investors from the other state party to the treaty. If more favorable treatment is provided to investors from a third state, an obligation arises to provide equivalent treatment to those investors benefiting from the MFN clause.