Most-favoured nation treatment

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 implication for host countries’ room for manoeuvrer 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 country specific exceptions. The annex provides a diagram of MFN clauses with illustrations of the extension of the MFN standard, its beneficiaries, scope and exceptions.