Most-Favoured-Nation Clauses, or MFN Clauses, figure in the vast majority of investment protection treaties. They are intended to ensure “that a host country extends to the covered foreign investor and its investments, as applicable, treatment that is no less favourable than that which it accords to foreign investors of any third country.” By according such equal treatment, MFN Clauses provide “a level playing field […] between foreign investors from different countries.” Along with the national treatment standard, MFN treatment belongs to the category of contingent standards, in the sense that it is determined by reference to treatment accorded to others in the same condition, in this case investors of third countries.
Such an MFN Clause figures, for instance, in Article III(2) of the BIT concluded between Canada and Slovakia which provides that “[e]ach Contracting Party shall grant to investment or returns of investors of the other Contracting Party in its own territory treatment no less favourable than that which it grants, in like circumstances, to investment or returns of investors of any third state.”
The ambit of application of an MFN Clause may, however, vary from one treaty to another. In fact, some treaties, such as the BIT concluded between Argentina and Spain (Article IV(2)), provide for a very broad MFN treatment applying to “all matters governed” by the treaty. Others, such as the NAFTA (Article 1103), specify that the MFN clause applies merely to “the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments.”
As summarized by Campbell McLachlan, general elements of MFN Clauses in investment treaties form a legal test which requires responding to the following questions:
- What acts of the State are capable of constituting « treatment »?
- What is the relevant class of persons or things – the comparators – whose treatment is to be compared with the class of persons protected under the MFN Clause?
- The level of treatment accorded: is it less or no less favourable?
Notion and Scope of Treatment
Although an MFN Clause implies a comparison of treatment, treaties are usually silent as to what exactly constitutes such treatment. Thus, this notion is generally left to the interpretation of arbitral tribunals. A general approach was outlined in the Suez v. Argentina case where the arbitral tribunal held that “the ordinary meaning of [the term treatment] within the context of investment includes the rights and privileges granted and the obligations and burdens imposed by a Contracting State on investments made by investors covered by the treaty.”
Although this definition appears relatively straightforward with respect to substantive standards of protection (A), it is less evident concerning procedural rights and/or dispute resolution provisions contained in investment treaties (B).
A. Substantive Standards and MFN Clauses in Investment Arbitration
There is little doubt that an MFN Clause can be used to import more favourable substantive treatment from a third treaty. The investment arbitration caselaw shows that an MFN Clause has been used in order to import the following substantive protection standards:
This does not mean that MFN Clauses will always be ruled to allow the importation of more favourable substantive treatment from a third treaty, however. For instance, in İçkale İnşaat Limited Şirketi v. Turkmenistan, ICSID Case No. ARB/10/24, one arbitral tribunal presided by Dr. Veijo Heiskanen considered an MFN Clause worded:
“Each Party shall accord to these investments, once established, treatment no less favourable than that accorded in similar situations to investments of its investors or to investments of investors of any third country, whichever is the most favourable.”
That arbitral tribunal ruled that the use of the terms “similar situations” meant that the MFN treatment obligation « requires a comparison of the factual situation of the investments of the investors of the home State and that of the investments of the investors of third States, for the purpose of determining whether the treatment accorded to investors of the home State can be said to be less favorable than that accorded to investments of the investors of any third State, » to undermine the ability of the MFN Clause to be used to import more favourable substantive treatment standards.
While the dissonance of this ruling has been highlighted by various authors who have called the approach « overly restrictive« , and scholars have expressed doubts about the correctness of this award, it cannot be blithely assumed that all arbitral tribunals will allow an MFN Clause to fulfil its traditional purpose.
B. Procedural and Dispute Resolution Provisions and MFN Clauses in Investment Arbitration
More controversy, however, emerges regarding the use of an MFN Clause in order to import more favourable procedural and/or dispute resolution provisions from a third treaty. In this respect, arbitral tribunals have taken diametrically opposed positions.
In one series of decisions, arbitral tribunals have taken a liberal approach considering that, except if otherwise indicated in the BIT, there is nothing that would prevent an MFN Clause to be used in order to import a more favourable dispute resolution mechanism from a third treaty. This approach started to proliferate after the decision in Maffezini v. Spain case, where the arbitral tribunal held that “if a third-party treaty contains provisions for the settlement of disputes that are more favorable to the protection of the investor’s rights and interests that those in the basic treaty, such provisions may be extended to the beneficiary of the most favored nation clause”. In the same vein, the tribunal in Austrian Lines v. Slovakia considered that there is “no conceptual reason why an MFN clause should be limited to substantive guarantees and rule out procedural protections, the latter being a means to enforce the former.”
Nevertheless, other arbitral tribunals have rejected the argument that an MFN clause could extend to procedural and/or dispute resolution provisions. For example, while interpreting the Argentina-Italy BIT, the arbitral tribunal in the Impregilo v. Argentina case held that “Impregilo cannot rely upon the [MFN] clause in Article 3(1) of the Argentina-Italy BIT for the purpose of avoiding the obligation to resort to the local courts for 18 months. This clause cannot be used to circumvent the obligation to resort to the competent administrative or judicial bodies for 18 months.” Likewise, the tribunal in Euram v. Slovakia held that “[e]ven if that BIT contains a broadly worded MFN clause, that clause cannot substitute for the arbitration provision and make it possible for an investor successfully to bring arbitration proceedings against a State Party to the BIT, no matter what provisions for arbitration that State Party might have agreed to include in its other BITs. [It concluded] that the MFN provision in Article 3(1) of the BIT does not affect the scope of its jurisdiction under Article 8.” Other tribunals have followed the same approach.
In particular, several arbitrators, such as Professor Brigitte Stern, claim to be “very strongly convinced that [unless the BIT states otherwise] MFN clauses should not apply to dispute settlement mechanisms [and] therefore disagree with the result arrived at in the Maffezini and al. cases”. More particularly, she is of the opinion that the MFN Clause concerns only the rights that an investment of an investor is to enjoy under the BIT, be it substantive or jurisdictional, but it does not extend to the conditions that need to be met as per the BIT, such as the jurisdiction prerequisites in order to access such rights.
Existence of Comparator and Degree of Treatment – Ejusdem Generis Rule Limitations on MFN Clauses
The second and third element required for an MFN Clause to be susceptible of application is the existence of a comparator third treaty which contains more favourable treatment provisions. As summarized by Campbell McLachlan, a double identity needs to exist between the two treaties:
- Identity of subject matter between the rights protected by the clause and the rights compared;
- That the persons or things protected by the clause belong to the same category of persons or things to those which the comparison is made and are in the same relationship with the relevant State.
The double identity test relates to the so-called ejusdem generis rule. This rule is often seen to impose that an MFN Clause can be used to import from a third treaty only treatment that already exists in the basic treaty, but in less-favourable terms. For example, a treaty between States A and B contains a full protection and security provision that is restricted only to physical protection. If this treaty contains an MFN Clause, the latter can attract a more favourable full protection and security provision from a treaty concluded between States A and C that covers not only a physical, but also a legal protection. However, if the treaty between States A and B does not contain a full protection and security clause, the MFN Clause cannot serve as a gateway to import such provision from the treaty between States A and C. In the terms of the ILC’s Commentary on the Draft Articles on MFN Clauses, there needs to be “a substantial identity between the subject-matter of the two sets of clauses concerned [because] States cannot be regarded as being bound beyond the obligations they have undertaken.” 
This principle has been applied in investment arbitration case law. For example, the arbitral tribunal in the Doutremepuich v. Mauritius case ruled that the purpose of the ejusdem generis rule is to “prevent a State, via the application of the MFN clause, from seeing its obligations extended to matters it did not contemplate.” The same position was taken by the arbitral tribunal in the Rawat v. Mauritius case.
Today, one can observe that, although the MFN Clause benefits from extensive application in investment arbitration, there are, unfortunately, no uniform and foreseeable standard of interpretation by arbitral tribunals, especially regarding the issue of its application to procedural and dispute resolution clauses.
 Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Award, 27 August 2009, para. 387.
 C. McLachlan, “International Investment Arbitration – Substantive Principles”, 2nd ed., Oxford University Press (2017), para. 7.45.
 C. McLachlan, “International Investment Arbitration – Substantive Principles”, 2nd ed., Oxford University Press (2017), para. 7.305.
 Suez, Sociedad General de Aguas de Barcelona S.A., and InterAguas Servicios Integrales del Agua S.A v. Argentine Republic, ICSID Case No. ARB/03/17, Decision on Jurisdiction, 16 May 2006, para. 55.
 See e.g., P. Dumberry, “The Importation of the FET Standard through MFN Clauses: An Empirical Study of BITs”, ICSID Review, Vol. 32, No. 1 (2017), pp. 116-137.
 See e.g., MTD Equity Sdn. Bhd. and MTD Chile S.A. v. Republic of Chile, ICSID Case No. ARB/01/7, Award, 25 May 2004, paras. 100-104; Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Award, 27 August 2009, paras. 153-160.
 See e.g., Impregilo S.p.A. v. Argentine Republic I, ICSID Case No. ARB/07/17, Award, 21 June 2011, para. 334; CC/Devas (Mauritius) Ltd., Devas Employees Mauritius Private Limited and Telcom Devas Mauritius Limited v. Republic of India, PCA Case No. 2013-09, Award on Jurisdiction and Merits, 25 July 2016, para. 496.
 See e.g., Mr. Franck Charles Arif v. Republic of Moldova, ICSID Case No. ARB/11/23, Award, 8 April 2013, para. 396; Consutel Group S.p.A. in liquidazione v. People’s Democratic Republic of Algeria, PCA Case No. 2017-33, Final Award, 3 February 2020, paras. 354-359.
 European American Investment Bank AG (Austria) v. Slovak Republic, PCA Case No. 2010-17, Award on Jurisdiction, 22 October 2012, paras. 446-4596.
 Les Laboratoires Servier, S.A.S., Biofarma, S.A.S. and Arts et Techniques du Progres S.A.S. v. Republic of Poland, UNCITRAL, Award, 14 February 2012, para. 51.
 Impregilo v. Argentine Republic, ICSID Case No. ARB/07/17, Concurring and Dissenting Opinion of Professor Brigitte Stern, 21 June 2011, para. 14.
 Impregilo v. Argentine Republic, ICSID Case No. ARB/07/17, Concurring and Dissenting Opinion of Professor Brigitte Stern, 21 June 2011, paras. 47 and 99.
 C. McLachlan, “International Investment Arbitration – Substantive Principles”, 2nd ed., Oxford University Press (2017), para. 7.312.
 ILC 1978 Draft Articles and Commentary, Commentary to Articles 9 and 10, para. 11.
 Professor Christian Doutremepuich and Antoine Doutremepuich v. the Republic of Mauritius, PCA Case No. 2018-37, Award on Jurisdiction, 23 August 2019, para. 217.