Most-Favoured-Nation Treatment in Investment Law

The Most-Favoured-Nation (MFN) standard requires a host state to treat a covered foreign investor or investment no less favourably than comparable investors or investments from any third state. It is a relative standard of non-discrimination, whose precise operation depends on the wording and scope of the investment treaty.

How the comparison works

An MFN claim compares the treatment received by the protected investor with that accorded to a suitable third-state comparator in relevantly similar circumstances.

• The claimant must establish that the investors, investments or situations are sufficiently comparable under the treaty's like circumstances requirement.
• Less favourable treatment may arise from a formally nationality-based rule or, depending on the clause, from a facially neutral measure producing discriminatory effects.
• MFN treatment provides equality with the more favoured foreign comparator; it does not independently guarantee the best conceivable treatment.

Scope of the obligation

The treaty determines which investors, investments, measures and stages of investment are covered. Some clauses apply only after establishment, while pre-establishment rights arise only when admission or establishment is included.

• MFN clauses may allow reliance on more favourable substantive treatment contained in another investment treaty when it concerns the same subject matter.
• Whether MFN can import dispute-settlement provisions is contested and depends on the clause, treaty context and parties' intention.
• Treaty interpretation follows the ordinary meaning, context, and object and purpose under Articles 31 and 32 of the Vienna Convention on the Law of Treaties.

Limits and distinction from national treatment

MFN does not remove express treaty qualifications or exceptions, such as reservations concerning taxation or regional economic integration, where these are provided.

• MFN compares foreign investors of different nationalities, whereas national treatment compares foreign investors with domestic investors.
• MFN is not an absolute minimum standard and does not require states to harmonise their investment laws.
• It cannot ordinarily be used to bypass clear conditions, exclusions or negotiated limits in the basic treaty.