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Foreign Investment

MFN clause has been beneficial in generating parity in trading opportunity among states by converting bilateral accords into multilateral agreements. As a matter of public international law, MFN clause provides the sovereign equality of states relative to trading policy. While as a tool for economic policy, it establishes a basis for international treaty in relation to competitive dealings.2
The establishment of Most-Favoured-Nation dealing has quite a long record. Before the GATT (General Agreement on Tariffs and Trade), bilateral trade agreements often include an MFN clause, and by itself contributed a great deal to trade liberalization. Nevertheless, various measures in the '30s were carried out that constrained the operation of the MFN initiative. These measures were viewed to result in the splitting up of the world economy into trade blocs.3 Realizing from this mistaken view, the unqualified MFN clause on a multilateral footing was subsequently integrated in the GATT following the ending of World War II, and has led to trade stability all over the world.
The dual purpose of the MFN principle is removing the econ...
The MFN clauses ensure that protected investments via treaty will obtain favourable treatment no less than the agreement the host country bestows to investments from any other state firms or nationals. The Netherlands-Philippines Bilateral Investment Treaty is one distinctive example wherein it formulated that "each contracting party shall extend to investments, in its territory, of nationals of the other contracting party treatment no less favourable than that granted to investment by any third state."4

II. Procedural and Substantive Rights of Investors
Maffezini v. Kingdom of Spain5
The issue being dealt with in the Maffezini case was to find out in what permissible conditions that an investor can apply the MFN clause covered in a Bilateral Investment Treaty (BIT) that is valid to its dispute as a way of establishing the arbitral's jurisdiction. In resolving this issue, the tribunal presented the difference between the rightful extension of rights and privileges by way of the operation of the MFN clause, and the bothersome treaty-shopping that could disrupt policy objectives of the essential explicit treaty provisions.6
Case Facts: An investment dispute between the Kingdom Spain and an Argentine petitioner submitted to adjudication by the petitioner under the Spain-Argentine BIT. The terms of the treaty provide that any dispute arising from the BIT has to be submitted to a competent tribunal in Spain when the procedures for amicable settlement fail (Art.-X.2). Further, that a dispute could only be elevated for international arbitration if the competent tribunal in Spain delivered a decision on the merits that fall short of resolving the dispute, or a decision has not been made on the merits within a period of eighteen ...Show more

Summary

The Most-Favoured-Nation (MFN) clause indicates that the preferences conferred to a foreign investor must also be conferred to all other foreign investors. This signifies that a foreign investor be conferred the highest standard of treatment obtainable from any foreign country (Fietta 2005).
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