Abstract: The most-favoured-nation treatment (MFN) standard is a core element of international investment agreements. It means that a host country treats investors from one foreign country no less favourably than investors from any other foreign country. The MFN standard gives investors a guarantee against certain forms of discrimination by host countries, and it is crucial for the establishment of equality of competitive opportunities between investors from different foreign countries. The MFN standard may also have implications for host countriesด room for manoeuvre in respect of future investment agreements, because it can create a so-called free rider situation in that the MFN standard commits a host country to extend unilaterally to its treaty partners any additional rights that it grants to third countries in future agreements. Furthermore, as the globalization of investment activities makes corporate nationality more difficult to use as a ground for distinguishing between companies, it may become equally more difficult to identify the nation that actually benefits from MFN. While the MFN standard has for decades been a common feature of bilateral investment treaties (BITs), efforts have been undertaken in recent years to translate this standard in a multilateral framework.1 Moreover, some recent agreements extend the MFN standard to both the pre- and post-establishment phases. On the other hand, there are several exceptions to the MFN standard which could be general exceptions (e.g. for national security reasons), exceptions based on reciprocity considerations (for example in the area of taxation and intellectual property) and individual countryspecific exceptions. The annex provides a diagram of MFN clauses with illustrations of the extension of the MFN standard, its beneficiaries, scope and exceptions. The MFN standard interacts with various other investment issues and concepts addressed in this series of papers, in particular the so-called international minimum standard and the standard of national treatment (NT). While MFN is generally more than the minimum standard required under customary international law, it does not go so far as to put the foreign investor on an equal footing with domestic investors in the host country. Although international investment agreements allow for exceptions from MFN, it seems that contracting parties have hitherto not used this freedom to discriminate among foreign investors from different countries beyond those policy areas where differential treatment is explicitly recognized (for instance, taxation, intellectual property or mutual recognition). However, the possibility of using exceptions to MFN introduces an element of flexibility in taking account of development objectives where this may be appropriate. [English and Spanish only]
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International Institute for Trade and Developement : UNCTAD Collection
