'MFN Clauses and Substantive Treatment: A Law of Treaties Perspective of the “Conventional Wisdom”' (2018) 112 AJIL Unbound 49

On the big questions, Simon Batifort and J. Benton Heath are plainly right. Dogmatic presumptions about the necessary effect of particular clauses and woolly notions of systemic teleology may distract the interpreter from the task of finding the

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  SYMPOSIUM ON SIMON BATIFORT AND J. BENTON HEATH,  “  THE NEW DEBATE ON THE INTERPRETATION OF MFN CLAUSES IN INVESTMENT TREATIES: PUTTING THEBRAKES ON MULTILATERALIZATION ” MFN CLAUSES AND SUBSTANTIVE TREATMENT: A LAW OF TREATIES PERSPECTIVEOF THE  “ CONVENTIONAL WISDOM ”  Martins Paparinskis*  On the big questions, Simon Batifort and J. Benton Heath are plainly right. 1 Dogmatic presumptions about thenecessaryeffectofparticularclausesandwoollynotionsofsystemicteleologymaydistracttheinterpreterfromthetask of   fi nding the meaning that represents the intentions of the parties, best articulated in the speci fi c terms cho-sen.Customaryrules ontreatyinterpretation,re fl ectedin Articles31 and32of the ViennaConventionontheLaw of Treaties (VCLT), 2 are meant to be fl exibly adapted to the case in hand. 3 But in applying their insight to the small print of the interpretative question, Batifort and Heath are less persuasive. Can most favored nation (MFN)clauses be generally relied upon to, as they put it,  “ import  ”  substantive standards of treatment of investment pro-tectionlaw?Theauthorsarecritical oftheapparentconsensus infavor ofanaf  fi rmativeanswer  —  theycallit  “ con- ventional wisdom ”—  and in this regard seem to me to be signi fi cantly overstating their case.My comment takes the perspective of the mainstream public international lawof treaties. I will suggest that Batifort and Heath have understated the breadth of state practice in support of the  “ conventional wisdom. ”  The modest broaderpointisthis:toapproachtheinternationallegalargumentwith,asitwere, ICSID Reports  inhandand “ ordinary meaning  ”  rather loose in the holster 4 may well be a helpful technique for drafting a pleading. However, it re fl ects arestrictive conception of the international legal order, where  “ conventional wisdom ”  is not a pejorative but rather ashorthand description of the process by which the shared judgement on rules of international law is formed. 5 The Question  Batifort and Heath argue that an interpreter of an investment treaty who determines the content of a party  ’ sprimary obligations by reference to another treaty  6 may commit a legal error in two ways: either by erroneously  * Reader in Public International Law, University College London. 1 Simon Batifort & J. Benton Heath,  The New Debate on the Interpretation of MFN Clauses in Investment Treaties: Putting the Brakes on  Multilateralization  , 111 AJIL 873 (2018). 2 Maritime Delimitation in the Indian Ocean (Som. v. Kenya), Preliminary Objections, para. 63 (ICJ, Feb. 2, 2017). 3 Franklin Berman,  Why Do We Need a Law of Treaties?  , 385 R  ECUEIL DES  C OURSES  17, 29 (2017). 4  T.S. Eliot,  Choruses from the   “    Rock ”   ,  in   T HE  P OEMS OF  T. S. E LIOT  165 (Christopher Rick & Jim McCue eds., 2015). 5  James Crawford,  Chance, Order, Change: The Course of International Law  , 365 R  ECUEIL DES  C OURSES  13, 21  –  22 (2013). 6  To borrow from the still unsurpassed explanation of MFN clauses in P  AUL   R  EUTER  , I NTRODUCTION TO THE  L   AW OF  T REATIES  106 (JoséMico & Peter Haggenmacher trans., 1995). doi:10.1017/aju.2018.28 The American Society of International Law and Martins Paparinskis © 2018. This is an Open Access article, distributed under theterms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0/), which permits unrestrictedre-use, distribution, and reproduction in any medium, provided the srcinal work is properly cited.49  identifying such an ordinary (or special) meaning of an MFN clause in the  fi rst place; or by giving it excessive weight in the interpretative process that downplays the signi fi cance of context. 7 It is a perfectly plausible argument about the character and interpretative weight of treaty language: after all, there is no such thing as  “ the ”  (or even “ an ”  ) MFN clause, but only a series of particular provisions, each of which is to be assessed on its own merits incontext. The argument must stand or fall against the traditional benchmark of consensus in state practice. Havestates challenged the determination of their obligations in investment treaties by means of (particularly for-mulated) MFN clauses? Or have they generally endorsed this practice? It is a trite point that state practice ismore dif  fi cult to identify in investment law than in other  fi elds of international law, because formalized dis-pute settlement between investors and states pushes practice away from interstate relations where it is usually generated. But it is not impossible, and the last two decades reveal much about states ’  views on MFN clausesand substantive treatment, as expressed in multilateral fora, international dispute settlement, and treaty-making. 8 It appears, in fact, that states have generally endorsed interpretation of variously drafted MFNclauses in investment treaties to determine the content of a party  ’ s primary obligations by reference toanother treaty.  Multilateral State Practice   The International Law Commission ’ s (ILC ’ s) work on MFN clauses, resulting in its adoption of  Summary Conclusions on the Most-Favoured-Nation clause in 2015, 9 provided an opportunity for states to express their views in the Sixth Committee of the General Assembly. Some states objected to application of MFN clauses tosubstantive standards. Venezuela noted that   “ States generally had no idea how the concept of most-favoured-nation was applied, even with respect to substantive matters. In fact, the concept was unworkable in investment treaties. ” 10 For Cuba, the practice was problematic in both legal and policy terms: it   “  was blatantly contrary to theprinciples of treaty interpretation and application as established by the Vienna Convention, ” “ affected the balanceof the investment protection agreements and impinged upon the sovereignty of the host State in respect of policymaking. ” 11 But most states to address the issue endorsed, whether explicitly or by necessary implication, application of MFN clauses to substantive rules in other treaties. Thus, Austria thought that   “ [t]he question of the proper 7 I am unfamiliar with the  “ top-down ”  and  “ bottom-up ”  language that structures the argument, and therefore have translated it into thetechnical VCLT parlance (without misrepresenting it, hopefully). 8 It is worth noting, as an example of earlier perceptions, that the fi nest lawof treaties lawyer of the last century argued the greatest MFNclause case in the same terms challenged by the authors.  See   Ambatielos Case (Greece v. UK), 1953 ICJ Pleadings 406 (Mar. 26, 1953)(Fitzmaurice on behalf of the UK) (  “ [O]ur adversaries have at various times reproached us for objecting to their invocation of other treaties …  on the ground that we did the same thing in the  Anglo-Iranian Oil Company   case. But of course, the truth is, we have no objection of principle to the invocation of other treaties, provided they are relevant. We have no objection to the process as such. ”  ). 9 Int  ’ l Law Comm ’ n, Report on the Work of the Sixty-Seventh Session, UN Doc. A/70/10, at para. 42 (2015) [hereinafter 2015Summary Conclusions]. The ILC also welcomed with appreciation the Final Report of the Study Group on the Most-Favoured-Nationclause,  id.  at para. 41, Annex. Note that the ILC did not endorse the Final Report.  See   Int  ’ l Law Comm ’ n, Provisional Summary Record of the 3264th Meeting , UN Doc. A/CN.4/SR.3264, at 4  –  5 (July 6, 2015) (McRae, Nolte, Kittichaisaree), Int  ’ l Law Comm ’ n, Provisional Summary Record of the 3277th Meeting , UN Doc. A/CN.4/SR.3277, at 11 (July 23, 2015). 10 Sixth Committee, Summary Record of the 19th Meeting , UN Doc. A/C.6/70/SR.19, at para. 49 (Nov. 4, 2015);  see also  id.  at para. 37(Jamaica). 11 Sixth Committee, Summary Record of the 25th Meeting , UN Doc. A/C.6/68/SR.25, at para. 74 (Nov. 5, 2013). 50  AJIL UNBOUND  Vol. 112  scope of most-favoured-nation clauses  …  depended primarily on  …  whether it included or excluded proce-dural and jurisdictional matters. ” 12  Australia ’ s position was that,  “ [i]n interpreting a treaty where the ambit of the MFN obligation with respect to dispute settlement was not speci fi ed, it was not appropriate to assumethat MFN obligations applied broadly in a manner that would negate the negotiated procedural require-ments. ” 13 Italy  described the question as  “  whether, in investment treaty arbitration, MFN clauses shouldapply only to substantive obligations. ” 14  The Netherlands referred to its  “ Model Bilateral Investment  Agreement, on the basis of which MFN clauses were usually speci fi ed in that they were limited to treatment for  ‘ investment  ’  and were not applicable to provisions regarding dispute settlement. ” 15 India echoed the ILCon  “ a new dimension ”  of the recent decisions that went beyond  “ con fi ning the [MFN] clause to the substan-tive obligations imposed under bilateral investment treaties. ” 16 In Thailand ’ s view,  “ such clauses should benarrowly interpreted as to whether or not they should apply beyond substantive obligations. ” 17 Malaysia sug-gested that   “ [t]he clause should be interpreted in such a way that it applied only to substantive preferential treatment provided for in treaties. ” 18  The Philippines was concerned that   “ the provisions of such clauses inbilateral investment treaties could extend from substantive obligations. ” 19  Taking stock of this practice as a whole, states that directly engage with the issue overwhelmingly endorse application of MFN clauses to sub-stantive rules; this includes (traditional) home and host states, developed and developing states, and states with various domestic legal traditions and attitudes to international dispute settlement. State Practice in Dispute Settlement  Reasonable people may disagree about whether states ’  pleadings in favor of their position carry much weight in identifying international law more generally. But there is a stronger case for taking pleadings asexpressing a general position when states accept or at least do not challenge an argument that directly andunfavorably affects their rights. 20  That is how most states have dealt with invocation of (variously drafted)MFN clauses regarding substantive standards in bilateral investment treaty (BIT) disputes. Kazakhstan, forexample,accepts that, under the MFN clause, it was obliged to treat Claimants in accordance with any more favour-able treatment afforded to nationals of other countries.  …  To interpret the obligations claimed by Claimants that are not in the Turkey-Kazakhstan itself, Respondent will refer only to the UnitedKingdom-Kazakhstan BIT. This contains all of the obligations Claimants allege they were owed and 12 Sixth Committee, Summary Record of the 20th Meeting , UN Doc. A/C.6/67/SR.20, at para. 117 (Nov. 2, 2012). 13 Sixth Committee, Summary Record of the 24th Meeting , UN Doc. A/C.6/68/SR.24, at para. 54 (Nov. 4, 2013);  see also  id.  at para. 55. 14 Sixth Committee, Summary Record of the 17th Meeting , UN Doc. A/C.6/70/SR.17, at para. 56 (Nov. 2, 2015). 15 Id.  at para. 77. 16 Sixth Committee, Summary Record of the 18th Meeting , UN Doc. A/C.6/70/SR.18, at para. 27 (Nov. 3, 2015). 17 Id.  at para. 66. 18 Sixth Committee, Summary Record of the 19th Meeting , UN Doc. A/C.6/70/SR.19, at para. 9 (Nov. 4, 2015). 19 Id.  at para. 14. 20 Cf.  Draft Conclusions on Identi fi cation of Customary International Law, Int  ’ l Law Comm ’ n, Report on the Work of the Sixty-EighthSession, UN Doc. A/71/10, at 100 (2016) (Draft Conclusion 10, Commentary 7); Draft Conclusions on Subsequent Agreement andSubsequent Practice in Relation to the Interpretation of Treaties,  id.  at 122 (Draft Conclusion 10(2)). 2018  MFN CLAUSES AND SUBSTANTIVE TREATMENT  51  Respondent accepts that, were Claimants United Kingdom companies, the standards of that treaty wouldbe applicable to them. 21 Chile, 22  Jordan, 23 and Ukraine 24 have similarly accepted such invocation of MFN clauses.Other states have accepted the general argument but distinguished its application in particular circumstances. AlgeriaarguedthattheMFNclausecouldnotapplytorulesonprotectionofinvestmentbecauseitwasincludedinthe section on promotion. 25 Pakistan objected to application of the MFN clause to treaties already in force. 26 Mongolia noted the limitation of the MFN clause to the operation or disposal of investments. 27 India objectedbecause  “ both Contracting Parties placed a strong and  unusual   emphasis on the application of national laws toinvestments. ” 28  Argentina and Moldova argued against application of MFN clauses to umbrella clauses because they were different in kind from properly international obligations. 29 For technical legal purposes, an argument of this kind that explains why a general proposition is distinguishable counts as an endorsement of that proposition,i.e., that MFN clauses usually apply to substantive standards.Few states challenge  “ conventional wisdom ”  directly. Only  Turkmenistan appears to have done so in a BITdispute (highlighted by Batifort and Heath) 30  —  but it has not made the same argument either in the SixthCommittee or in earlier disputes raising MFN issues, and this inconsistency must diminish the weight of its posi-tion.NorthAmericanFreeTradeAgreementpracticeismorehelpfultotheauthors ’ argument.Butthereisgreaternuance in positions of different states on different legal issues (and at different points in time) than they admit. At least the United States apparently has avoided articulating its position in these terms, e.g., it objected to theargument for application of MFN treatment to Article 1105 because of the binding interpretation by the Free Trade Commission that could not be circumvented, rather than because it accepted the limited applicability of the MFN clause. 31  Taking stockof dispute settlement practice as awhole, despite a limited number of weakobjec-tions, the core consensus is formed by failure to challenge or evenclear acceptance of anunfavorable argument by states. Such conduct goes against the grain of expectation in a procedural setting and therefore constitutes strong endorsement of the  “ conventional wisdom ”  that Batifort and Heath challenge. 21 RumeliTelekomA.S.v.Kaz.,ICSIDCaseNo.ARB/05/16,Award,paras.572,574,(July29,2008).Kazakhstandidnotraisetheissuein annulment proceedings.  See   Rumeli Telekom A.S. v. Kaz., ICSID Case No. ARB/05/16, Decision of the Ad Hoc Committee (Mar. 25,2010). 22 MTD Equity Sdn. Bhd. v. Chile, ICSID Case No. ARB/01/7, Award, para. 100 (May 25, 2004). In annulment, Chile challengedconfusion between MFN and fair and equitable treatment but not the principle.  See   MTD Equity Sdn. Bhd. v. Chile, ICSID Case No. ARB/01/7, Decision on Annulment, paras. 63  –  64 (Mar. 21, 2007). 23  ATA Construction, Industrial & Trading Co. v. Jordan, ICSID Case No. ARB/08/2, Award, sec. V.2 (May 18, 2010) (investor reliedon an MFN clause and Jordan did not address the argument). 24 OAO Tatneft v. Ukr., Award on the Merits, para. 365 (UNCITRAL, July 29, 2014). 25 L.E.S.I. S.p.A. v. Alg ., ICSID Case No. ARB/05/3, Award (Nov. 12, 2008). 26 Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Pak ., ICSID Case No. ARB/03/29, Award, paras. 146, 151  –  52, 162 (Aug. 27, 2009). 27 Paushok v. Mong ., Award on Jurisdiction and Liability, para. 246 (UNCITRAL, Apr. 28, 2011). 28  White Industries Australia Limited v. India, Final Award, para 5.4.2 (UNCITRAL, Nov. 30, 2011) (emphasis added). 29 EDFInternationalS.Av.Arg .,ICSIDCaseNo.ARB/03/23,Decision,para.234(Feb.5,2016); Arifv.Mold.,ICSIDCaseNo.ARB/ 11/23, Award, para. 143 (Apr. 8, 2013). 30 İ çkale  İ ns         ̧ aat Limited  Ş irketi v. Turk ., ICSID Case No. ARB/10/24, Award, paras. 320  –  21 (Mar. 8, 2016). 31 Mesa PowerGroup LLC v. Can., PCACase No. 2012  –  17, Submission of the U.S., para. 10 (July 25, 2014). Another example of skilful avoidance of this (as well as another contested) issue is Apotex Holdings Inc. v. U.S., ICSID AF Case No. ARB(AF)/12/1, Counter- Memorial on Merits and Objections to Jurisdiction of the U.S., para 384 (Dec. 14, 2012). 52  AJIL UNBOUND  Vol. 112  Treaty Practice  Batifort and Heath are right to discuss developments in recent treaty practice, although examples that illuminateshifting policy preferences may be without obvious relevance to a technical interpretative argument. Treaty drafting that adds a  “ for greater certainty  ”  proviso may suggest the position of states on the ordinary (or special) meaning of the particular term more generally, including in other treaties. But the small print is important. Take Article 8.7(3) of the EU-Canada Comprehensive Economic and Trade Agreement (CETA), which explains  “ for greater certainty  ” that   “ treatment  ”  in the MFN clause is inapplicable to substantive obligations in other treaties. Did that explanationcarry any interpretative weight before September 21, 2017, when CETA became provisionally applicable? 32  What isthe effectof the  “ onlyinsofar asforeigndirect investment is concerned ”  quali fi cation inthedecision on provisional application? 33 Does the explanation re fl ect the legal positionof EU memberstatesbeforerati fi cation? Isit limitedtoMFN clauses with  “ like circumstances ”  language? 34 Some of these questions have clearer answers than others, but the broader point is that treaty practice, just as any other legal argument, comes with nuances, quali fi cations, andconditions, and putting favorable examples forward  en masse   is not particularly illuminating. Subsidiary Means for the Determination of Rules of Law  States ’  general acceptance of determination of content of primary investment obligations by reference to anothertreatyiscon fi rmedbysubsidiarymeansforthedeterminationofrulesoflaw.TheInstituteofInternationalLaw (IIL)endorsed it by necessary implication, 35 as did the ILC by noting that   “ new dimension[s] ”  were brought to the dis-cussionwhenMFNclauseswerenot  “ limit[ed]tosubstantiveobligations. ” 36 (Forsome,theILC “ tendedtostatetheobvious, ” 37 but that only speaks to the strength of professional consensus.) The approach is also re fl ected in arbitral decisions, even if the authors are unimpressed by arbitral reasoning. The  fi rst point to note is the key reason for arbitral brevity: few disputing parties raised the issue. Pursuit of inter-national judicial function may sometimes push tribunals beyond the consensual elements of dispute settlement,but, in the world of ever-longer decisions, few people will call for expansive  proprio motu   exploration of issues that re fl ect shared consensus of disputing parties as well as the broader community. The second point relates to thequality of decision-makers. International (investment) arbitration is highly decentralized, and the quantity of deci-sions in support of a proposition is often less important than the caliber of people who make them. The great minds are divided on many questions of international law. But in this instance those who endorse the  “ conven-tional wisdom ”  include some of the (if not   the   ) greatest public international lawyers of our times. If their decisionshavebeen brief, perhaps itisbecause theyweredealing with a  “ but of course ” issue.Thethird andbroader point isthis: IIL, ILC, and international arbitral tribunals, whatever their imperfections, are the best institutions that themodern international legal order has to offer for the determination of rules of international law in this  fi eld. Oneshould perhaps pause before sweepingly rejecting the consensus that they have helped to generate. 32 Press Release, EU-Canada Trade Agreement Enters into Force, E UROPEAN  C OMMISSION  (Sept. 20, 2017). 33 Council Decision 2017/38 of 28 October 2016 on the Provisional Application of the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one Part, and the European Union and its Member States, of the other Part , art 1(1)(a),2017 O.J. (L 11) 1080 (EU). 34 Cf.  Ickale,  supra   note 30, at para. 329. 35 Institute of International Law, Resolution on Legal Aspects of Resource to Arbitration by an Investor Against the Authorities of theHost State under Inter-State Treaties, art. 12(1), (3) (2013). 36 Int  ’ l Law Comm ’ n, 2015 Summary Conclusions,  supra   note 9, at para. 42 [d]. 37 Sixth Committee, Summary Record of the 18th Meeting , UN Doc. A/C.6/70/SR.18, at para. 62 (Nov. 3, 2015) (Spain). 2018  MFN CLAUSES AND SUBSTANTIVE TREATMENT  53
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