The Fictions and Realities of MFN Clauses in International Investment Agreements

Abstract

In an article published concurrently in the Journal of International Economic Law, I reach many of the same conclusions as Simon Batifort and J. Benton Heath regarding the use of most favored nation (MFN) clauses to import substantive provisions from other treaties. However, although our conclusions are similar, our reasoning differs in several important respects. In my view, the reasons why MFN clauses cannot be used to import treaty provisions have more to do with the nature of these clauses than their specific text. MFN clauses are primary rules that require performing a comparison and determining whether there is a breach of the provision, and this produces legal effects that run against any attempt at importation. In addition, it is not possible or desirable to interpret MFN clauses in isolation from general international law. Stephan Schill is also correct that Batifort and Heath cannot disclaim the normative implications of their effort to shift the debate over MFN clauses. But Schill confuses the legal effects of MFN clauses with a policy consideration (multilateralization) and misreads the interpretative background that must be considered when applying MFN clauses. Schill also mistakes multilateralization via arbitral interpretations of MFN clauses for true multilateralism, which is the product of states working together in multilateral fora. That distinction matters, too, for Schill's solution might provoke a state-led backlash that will undermine the very multilateralism he seeks to promote.