The Most-Favoured-Nation Clause in Investment Treaties

The document examines the controversial role of Most-Favoured-Nation (MFN) clauses in bilateral investment treaties (BITs), specifically the trend of investors importing more favourable provisions from third-party treaties. It details the divergence in tribunal rulings regarding the import of procedural rules—such as circumventing domestic court requirements—and the import of substantive protections. The guide highlights the risks of 'treaty-shopping' and the creation of 'super-treaties' that undermine state sovereignty. It concludes with strategies for states to mitigate these risks, including the use of 'like circumstances' criteria, explicit exclusions of dispute settlement mechanisms, and the adoption of positive lists for pre-establishment liberalization.

• Since the Maffezini v. Spain case in 2000, investment tribunals have increasingly allowed investors to import more favourable provisions from third-party BITs into their basic treaty, leading to criticisms that investors can 'custom tailor a treaty' by combining elements from various agreements.
• Tribunals generally accept the use of MFN to replace a BIT provision with one that is less restrictive or to import a protective rule where none previously existed in the basic treaty.
• There is significant inconsistency among tribunals regarding whether MFN can be used to import procedural rules, such as bypassing the requirement to first exhaust domestic remedies for a set period.
• Most tribunals reject attempts to use MFN to extend the material or temporal scope of a treaty, such as retroactively covering events that occurred before the treaty entered into force or expanding the definition of 'investment'.
• The interpretation of 'like circumstances' varies; while some tribunals use a narrow sectoral approach, others adopt a broad interpretation that considers all companies engaged in the export of various goods.
• Extending MFN to the pre-establishment phase (admission, acquisition, and expansion) significantly limits state sovereignty, as it prevents states from imposing discriminatory entry requirements compared to other foreign investors.
• To counter expansive interpretations, states are increasingly drafting treaties that explicitly exclude dispute settlement mechanisms from the scope of MFN treatment.
• Some states are adopting a 'grandfathering' approach combined with a negative list of future non-conforming measures to manage pre-establishment MFN obligations.
• Some countries, such as India in its 2015 model BIT, have opted to remove the MFN clause entirely to avoid the legal uncertainties and risks of 'treaty-shopping'.

APA

Nikièma, S. H. (2017). The Most-Favoured-Nation Clause in Investment Treaties. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/mfn-most-favoured-nation-clause-best-practices-en.pdf

Chicago

Nikièma, Suzy H. The Most-Favoured-Nation Clause in Investment Treaties. International Institute for Sustainable Development, 2017. https://www.iisd.org/system/files/publications/mfn-most-favoured-nation-clause-best-practices-en.pdf.

Wikipedia

{{cite report |last1=Nikièma |first1=Suzy H. |title=The Most-Favoured-Nation Clause in Investment Treaties |publisher=International Institute for Sustainable Development |date=February 2017 |url=https://www.iisd.org/system/files/publications/mfn-most-favoured-nation-clause-best-practices-en.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{nikima2017mostfavourednation, author = {Nikièma, Suzy H.}, title = {{The Most-Favoured-Nation Clause in Investment Treaties}}, institution = {International Institute for Sustainable Development}, year = {2017}, month = feb, url = {https://www.iisd.org/system/files/publications/mfn-most-favoured-nation-clause-best-practices-en.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }