Many international investment treaties contain Most Favored Nation (MFN) clauses. Those clauses ensure that the signatory countries give preferential treatment to other signatories’ nationals. Indeed, “the rise of international commerce in the late medieval period saw states adopting MFN clauses as a means of ensuring that their traders would compete in foreign markets on at least equal terms with traders from third states.”¹ Through those clauses, the treaties’ substantive protections — notably, Fair and Equitable Treatment (FET), Minimum Standards of Treatment (MST), Full Protection and Security (FPS), National Treatment (NT), Most Favored Nation (MFN) Treatment, Non-Discrimination, Compensation, Public Purpose, and Due Process — are regarded as importable through pertinent third-party treaties. The question is whether procedural provisions, such as exhaustion of local remedies, are similarly importable through the MFN clauses. The debate is brewing in investor-state dispute settlement (ISDS).

If “a country” should “make[] two MFN promises to two different countries, then it cannot treat them both better than it treats the other.”² That signatory becomes legally obligated to “give [its fellow signatories] equal treatment—that is, unless the MFN clause of Treaty-One is not even enforceable in some other treaty’s arbitration.”³ The logic is a simple one: “Why enter into an MFN guarantee if the other signatory has already promised MFN treatment to another party and the other MFN clause is not enforceable in arbitration (unless there are sectoral, time, or other distinctions)?”⁴

It is accepted that “[t]he goal of [international] treaty interpretation … is to determine the meaning of the treaty viewed from the perspective of the contemporary shared understanding of the parties to the treaties.”⁵ So party autonomy matters a lot more in international arbitration than it does in most domestic legal systems. Consequently, as the prominent international jurist — and International Court of Justice judge — the late Judge James Crawford put it, the signatories “own the treaty.”⁶ The dispute settlement process to which those signatories have submitted their matter have a restricted role in calling balls and strikes, in accordance with the terms set by those signatories.

Given these precepts, it is unsurprising that substantive provisions are readily importable from third-party treaties. As jurists have observed, MFN guarantees “impose[] a substantive treaty obligation on the host state to comply with its undertakings towards investments, including contractual commitments.”⁷ Indeed, MFN clauses’ principal “purpose … is to create a level playing field among foreign investors and to import obligations from third-party treaties to give effect to that purpose.”⁸ If that precept holds true, then what does that mean for procedural provisions?

Initially, there was some controversy as to whether such procedural protections are similarly importable. That dam broke in 2000, when an ISDS panel decided Maffezini v. Spain (2000).⁹ That decision made even procedural mechanisms contained in third-party treaties subject to importation through MFN clauses. The Maffezini tribunal noted “that today dispute settlement arrangements are inextricably related to the protection of foreign investors.”¹⁰ “Maffezini deduced from this principle that an international tribunal could import a substantive or procedural right” just as “long as some related international obligation connects the respondent to the tribunal at issue.”¹¹ As a consequence, the Maffezini tribunal recognized: “[I]f 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 than those in the basic treaty, such provisions may be extended to the beneficiary of the most favored nation clause as they are fully compatible with the ejusdem generis principle.”¹²

Some scholars have opined that Maffezini marked “the first time that a party has been permitted to rely upon an MFN clause to modify the jurisdictional mandate of an international tribunal.”¹³ Yet some others would disagree and characterize Maffezini’s interpretation of the MFN guarantee as a time-honored tradition and principle. It has also been observed that the operative treaty must unambiguously permit the importation of procedural provisions in order for such importation to occur: “[A]n MFN provision in a basic treaty does not incorporate by reference dispute settlement provisions in whole or in part set forth in another treaty, unless the MFN provision in the basic treaty leaves no doubt that the Contracting Parties intended to incorporate them.”¹⁴

While this principle of MFN importability of procedural protections is gaining acceptance, the fragmentation of international law and, specifically, the lack of vertical stare decisis in investor-state arbitration renders it a project in perpetuity. As disputes are submitted to ISDS tribunals, this line of developments may increasingly effloresce. And might flourish in other spheres of international law as well. It may become clearer in due course whether Maffezini’s momentous achievement flourishes or whether it fades over time.

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¹ Tony Cole, The Boundaries of Most Favored Nation Treatment in International Investment Law, 33 Mich. J. Int’l L. 537, 544—45 (2012).
² Riddhi Dasgupta, International Interplay: The Future of Expropriation Across International Dispute Settlement 342 (2013).
³ Id.
⁴ Id.
⁵ Id.
⁶ James Crawford, A Consensualist Interpretation of Article 31(3) of the Vienna Convention on the Law of Treaties, in Treaties and Subsequent Practice 29, 31 (2013).
⁷ Andrew Newcombe & Lluis Paradell, Law and Practice of Investment Treaties 466 (2009).
⁸ Hesham T. M. Al Warraq v. Republic of Indonesia, UNCITRAL, Final Award, ¶ 386, 15 Dec. 2014.
⁹ ICSID Case No. ARB/97/7, at ¶ 54 (Decision on Jurisdiction) (2000).
¹⁰ Id.
¹¹ Dasgupta, International Interplay, supra, at 345.
¹² Id. at ¶ 56.
¹³ The MFN Clause in Investment Treaty Arbitration: Treaty Interpretation off The Rails, 2 J. Int’l Disp. Settlement 97, 101 (2010).
¹⁴ Plama Consortium Limited v. Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction (2005), at ¶ 223 (emphasis added); see also id., at ¶ 198 (“… [A]n agreement of the parties to arbitrate . . . should be clear and unambiguous.”); id., at ¶ 200 (“[The] reference [in the MFN clause] must be such that the parties’ intention to import the arbitration provision of the other agreement is clear and unambiguous”); id., at ¶ 204 (“the intention to incorporate dispute settlement provisions must be clearly and unambiguously expressed.”); id., at ¶ 218 (“an arbitration clause must be clear and unambiguous and the reference to an arbitration clause must be such as to make the clause part of the contract (treaty).”) (emphasis added).  See also Vladimir Berschader and Moïse Berschander v. The Russ. Federation, SCC Case No. 080/2004, at ¶ 90, Award (2006) (stating that “the present Tribunal will apply the principle that an MFN provision in a BIT will only incorporate by reference an arbitration clause from another BIT where the terms of the original BIT clearly and unambiguously so provide or where it can otherwise be clearly inferred that this was the intention of the contracting parties.”); Wintershall Aktiengesellschaft v. Argentine Republic, ICSID Case No. ARB/04/14, at ¶ 167, Award (2008) (observing that “ordinarily and without more, the prospect of an investor selecting at will from an assorted variety of options provided in other treaties negotiated with other parties under different circumstances, dislodges the dispute resolution provision in the basic treaty itself-unless of course the MFN Clause in the basic treaty clearly and unambiguously indicates that it should be so interpreted: which is not so in the present case.”).