The incorporate dispute resolution provisions of a

The
Effect of The MFN Clause to The Dispute Resolution Clauses in the BIT’s

?hsan Bahad?r Çelikta?1

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Abstract

The
controversial issue about the application of the Most Favored Nation clause (hereinafter “MFN clause”) to the dispute resolution provisions in Bilateral
Investment Treaties (hereinafter “BIT”)
is going to be discussed in this article. Is it possible to replace the dispute
resolution provisions in BIT’s through the MFN clause? This article considers
the scope of the MFN clause in light of the relevant cases and scholars
opinions. Additionally, the article is concerned about the rationale of adding
a MFN clause to the BIT’s. This article also suggests that the adoption of the
MFN clause in the BIT’s requires parties to show their intentions clearly.
Finally, the interpretation of the MFN clause is going to take place in the
article.

 

Introduction

According to GATT, the
most favored nation principle mainly aims to prevent discrimination in
international trade. Today, the MFN clause takes place in many different areas
such as international investment. The reason behind adopting MFN clause in
BIT’s is to protect investments and prevent discrimination between foreign
investors. However, usage of the MFN clause arises conflicts in international
investment law. Since the existence of MFN clause allows the party to be
treated equally as the more favored third party, the scope of the clause is
problematic.

The issue is whether the
MFN clause covers the dispute resolution clause in BIT’s or not. In other
words, is it possible to incorporate dispute resolution provisions of a third
party BIT’s through the MFN clause. The conflict especially exists when the
parties does not expressly show their intentions in the wording of treaties. If
the MFN clause explicitly excludes the dispute settlement provisions or clearly
lists the scope of the clause, then there shall be no need for interpretation.
However not every MFN clause contains such statements. Therefore, this kind of
clauses needs interpretation in order to reveal the intention of the parties
and determine to scope of the clause. Firstly, relevant cases are going to be
examined. Secondly, the systematic interpretation is going to take place.

 

1-      Understanding
the Scope of the MFN Clause in BIT’s through relevant cases

There
are different opinions about the scope and the interpretation of the MFN
clause. At this point, the drafting of the clause plays an important role.
Parties to a treaty may choose to draft a broad or a narrow MFN clause. There are
three wording types of MFN clauses mostly seen in BIT’s.

Firstly,
a general and a broad wording such as the BIT signed between the Spain and
Argentina. This BIT had the MFN clause broadly drafted, “in all matters governed by this
Agreement, such treatment shall be no less favorable than that accorded by
each party to investment made in its territory by investors of a third country”.
In Spain-Argentina BIT the word “matter” creates an ambiguity about whether
the clause covering the substantive or procedural issues. Another example of a
broadly drafted MFN clause takes place in the BIT signed between Greece and
United Kingdom in 1886. In this BIT, the MFN clause stated “all
matters relating to commerce and navigation”. These somewhat broadly drafted MFN clauses were subject to
different tribunals such as Mafezzini v.
Kingdom of Spain, Gas Natural SDG, SA v. The Argentina Republic, Suez,
Sociedad General de Barcelona SA v. The Argentina Republic. Since the
dispute resolution provisions are matters in the treaty, these tribunals accepted that the word “matter” covers the dispute
resolution provisions. Additionally, the main reason behind signing a BIT is to
protect the investment, so excluding the dispute resolution clause from the
scope of a broadly drafted MFN clause is going to be against purpose of the
treaty. Therefore, broadly worded MFN clauses are accepted as they also cover
the dispute resolution clause. It is also stated that if a party is willing to
exclude the dispute resolution clause, then it should be written explicitly
while drafting the treaty. However, this interpretation also suggests that if a
MFN clause is not broadly drafted, in other words, does not articulate
statements such as “all matters” then it
does not cover the dispute resolution clause. Tribunals accept this opinion.

Secondly,
the MFN clause may be drafted in a way where the matters covered in the clause
are explicitly listed. Thus, if the dispute resolution clause does not take
place in the list then we may reach to a conclusion that it is excluded. As an
example of this may be found in the NAFTA, article 1103 reads as “each party shall accord to investors of
another party treatment no less favorable than it accords, in like
circumstances, to investors of any other party or of non-party with respect to
the establishment, acquisition,
expansion, management, conduct, operation, and sale or other disposition of
investments”. The Plama Tribunal in the case Plama Consortium Ltd. v. Republic of Bulgaria analyzed this
article. In the award, the tribunal accepted that the dispute resolution clause
was intentionally left out from the list, therefore the this clause does not
extend to the dispute resolution clause. However, in a very similar case,
totally different opinion adopted by the tribunal.  

 

 

 

 

 

 

 

1 Student at Bilgi University Law Faculty,
11451002