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Investment Treaty Arbitration and International Law - Volume 4 - Hardcover
Investment Treaty Arbitration and International Law - Volume 4 - Electronic
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Chapter 6
The Most-Favored-Nation Clause in the Context
of Chinese BITs: A Bridge to International
Adjudication of Investment Disputes?
Luisa Fernanda Torres∗
I. INTRODUCTION
There has been considerable debate over the interaction between the
Most-Favored-Nation clause (MFN clause) and the dispute resolution
provisions in Bilateral Investment Treaties (BITs). The issue is whether the
MFN clause in a given treaty (the basic treaty) may attract a more
favorable dispute-resolution provision from another treaty (the third-party
or comparator treaty). In the last ten years, investors have resorted to the
MFN clause to gain access to a dispute-resolution provision from a
comparator treaty in at least 17 reported cases.1 But despite the extensive
debate, tribunals and academics continue to struggle with the issue. There
is still no consensus on how the issue is to be resolved or uniformity in the
tribunals' reasoning. A recent episode of this debate is the decision in Tza
Yap Shum v. Peru, the first known case dealing with the issue in the
context of the Chinese BIT program.
It is often said that two schools of thought have emerged.2 One sector
favors an expansive approach: absent an express prohibition in the basic
treaty, an MFN clause in that treaty is capable of attracting a disputeresolution
clause from a third-party treaty. The other sector endorses a
restrictive approach: as a matter of principle, an MFN clause does not
apply to dispute-resolution matters absent clear language in the basic
treaty or other clear evidence to the contrary.
However, the most recent decisions on this issue -- Rosinvest Co. v.
Russia, Renta 4 v. Russia, Tza Yap Shum v. Peru and AUA v. The Slovak
Republic -- do not easily fit that pattern. While in three of these cases the
tribunals did not allow the use of the MFN clause at issue to expand the
scope of consent to international arbitration, they did so on narrow
grounds relating to the particular provisions of the treaty at hand. The
tribunals in those cases did not embrace the a priori dismissal of the effects
of MFN clauses on matters of international arbitral jurisdiction, and
rejected unconvincing generalizations and policy-based concerns at the
heart of the first generation of cases that had taken that a priori position
and had denied jurisdictional effects to an MFN clause.
I. Introduction
II. The Status of the Debate in the Practice of Investment Treaty Arbitration
A. Overview
B. Two Generations of Cases Concluding That an MFN Clause Might Not Attract Broader Dispute-Resolution Provisions
1. The First Generation: Resorting to Alleged Statements of Principle and Policy-Based Considerations
2. The Second Generation: Abandoning the Negative Presumption and Narrowing the Grounds for Dismissal
C. Two Generations of Cases Allowing the Use of an MFN Clause to Attract More Favorable Dispute-Resolution Provisions
1. The First Generation: By-passing Admissibility Requirements
2. The Second Generation: Broadening the Scope of Consent
III. The Chinese Bilateral Investment Treaty Program
A. Overview
B. The Potential Effects of Recent Arbitral Jurisprudence in the Chinese BIT Program
C. The Tribunal’s Jurisdiction to Rule on the Scope of the MFN Clause in the Presence of a Limited Dispute Resolution Provision
IV. Conclusion
Annex A
Annex B
Luisa F. Torres, Special Legal Consultant at Covington & Burling
LLP. She is a member of the International Arbitration Group and has experience in
international investment disputes and international commercial arbitration. She is
admitted to the Bars of the State of New York and the Republic of Colombia, and she is
licensed as a Special Legal Consultant in the District of Columbia. The views expressed in
this article do not necessarily reflect the positions of Covington & Burling LLP or any past or
present client thereof.
