NATIONAL TREATMENT

• Art.III og GATT 1994.

• NT ---- imp. Both in pre entry and post entry phases of investment.
• GATT ----- principal forum where international trade negotiations were
conducted.
• The NTP prohibits any of the member nations from favouring or giving any
advantages or raising any benefits to their domestic products/ goods over
imported products of other member nations.
• In 1946 ----- US again launched a new series of FCN agreements where nearly 21
agreements were signed and the same was continued for another 20 years.
• During this period, the FCN treaties guaranteed equal treatment, constant
protection and security to foreign nationals & enterprises. It also guaranteed
MFN treatment which was supported by Article 9 of ‘Convention on Rights and
Duties of States 1933’,----- the first international instrument to support the
principle of national treatment related to right to carryout commercial
activities.
• The drastic change which took place during this period was that the
protection was extended to corporate bodies along with individuals.
• ICJ ---- first time stated that it can exercise consenting jurisdiction
with respect to disputes involving interpretation and application of
investment agreement.
• In pre entry stage --- NT ---- creates a right of entry into the host
state---- and a right of establishment of business.
• National post-entry treatment entitles foreign investors to receive
equal treatment with domestic entrepreneurs .
• NT ---- an instrument of liberalisation of movement of capital.
• What makes the emergence of treatment norms as a new cause of
action appropriate to contemporary law is the emergence of fresh
meanings ascribed to ancient treatment norms as well as their
extension.
• The breach of these norms results in the liability of the State. Such
accountability is seen not as a static notion, but as one that continues
to evolve. (Mondev Vs. US 2003)
• The basis of national treatment is non-discrimination between the
foreign investor and a local investor conducting similar business.
• The operation of NT in pre entry period has to be considered in an
award. (NAFTA case)
• NT --- at post entry phase of investment --- has implications for
economic devt.
• If ethnic groups within the state are to be given preference because of positive
discrimination programmes, this too may violate NT provisions.
• In Occidental v. Ecuador --- the tribunal found ----- violation of national
treatment when the claimant, an exporter in the oil sector, was not given tax
concessions ---- in host state.
• In some treaties, national treatment is postponed until a level of economic
development is reached.
• National treatment provisions may also have an impact on the imposition of
performance requirements. (ADF Group Inc. v. United States)
• If national treatment for foreign investment is to be enacted, the welfare-
enhancing potential of such demands can be lost. Many treaties directly
prohibit performance requirements, but their violation of national treatment
standards could be raised as a ground of liability as well. (ADF Group Inc.
v.United States)
• In ADF Vs. Unites States ---- NAFTA tribunal found no violation of NT
standard, as a US requirement to use locally produced steel for govt.
projects applied equally to both national and foreign contractors.
• In Thunderbird Vs. Mexico ---- tribunal --- held ---- no claim to NT
could be made when the claim of the investor was illegal.
• In Siemens Vs. Argentina ---- tribunal held ---- intent is not imp. For
finding of a discrimination ----- but ---- impact of the measure on
investment is an imp. Factor which can lead to discriminatory
measures.
• Many disputes ---- under NAFTA ---- based on violation of NT at post
entry phase of investment.
• In S.D. Myers v. Canada ---- violation of national treatment was found.
Tribunal held ---- attempt by the Canadian government to prevent
hazardous waste being disposed of by the claimant’s waste-disposal
system in Ohio in the United States, just across the border from Canada
---- was in violation of the NT provisions of NAFTA.
• In Methanex Vs. U.S. --- Tribunal ------ held -----Methanol which was
produced by a Canadian Govt. was found to have health risks which
justified it being treated differently from other chemical additives.
MOST FAVOURED MATION (MFN)
TREATMENT
• Bedrock principle of the WTO.
• Article I of GATT deals with the principle of MFN treatment, which says that
there shall be no discrimination among the contracting parties while
establishing an international trade relationship.
• Under Customary law ---- MFN not required.
• A most-favoured-nation (MFN) principle explains the concept where a country
has to grant some privileges related in a trade agreement to any of the member
nations of the World Trade Organization.
• The concept not only ends here, but the main principle of the MFN principle is
also that if any privileges are granted to any member nation by another
member nation of the WTO then the same privilege of like products has to be
given to all the other member nations of the WTO.
• The main objective of these principles is to promote trade and provide equal
opportunity to get the best benefits of any member nation’s resources.
• Under the MFN rule, if WTO Member A agrees in negotiations with
country B, which need not be a WTO Member, to reduce the tariff
on product X to five percent, this same “tariff rate” must also apply
to all other WTO Members as well. In other words, if a country
gives favourable treatment to one country regarding a particular
issue, it must treat all Members equally with respect to the same
issue.
• Rationale Behind The MFN Principle:-
 Maximize efficiency.
Minimize transaction costs.
Promote further reciprocal liberalization- This benefits particularly small
developing countries, which benefit from the most favoured treatment
provided to other Members.
Minimize the costs of trade negotiations.
• MFN clauses reflect principles of equality and non-discrimination.
• The principle says that, the goods which originate from any state party
must be allowed without any discrimination but however, there is an
exception where preference shall be given in respect of import duties .
• Article 11 of the GATS also discusses about MFN principle which is
applicable to service and service providers along with the goods.
• However, Article 11(2) provides exception from application of the
said provision for 5 years but it must be reviewed if it exceeds 5 years
and at any circumstances the exemption cannot be extended beyond
10 years.
• The Minimum standard of treatment being a non contingent, provides
absolute protection to FDI but on the other hand the national
treatment, MFN treatment and guarantee of non-discrimination are
contingent as they are based on BIT signed by the parties. This proves
that the parties to the BIT incorporates terms and conditions as per
their convenience but simultaneously they must follow the principle
of international investment laws.
• In Pope & Talbot Vs. Canada --- tribunal--- relied on MFN clause ---
contained in NAFTA article 1103.
• In MTD Vs. Chile ---- the MFN clause --- was mixed with the obligation
to accord fair and equitable treatment in the same way which has
been provided in the BIT between Chile and Malaysia. Also held ----
the clause allowed for the invocation of other substantive obligations
contained in other BITs concluded by Chile with Denmark and Croatia.
• In CME Vs. Czech Republic ---- the applicable BIT provided for ‘just
compensation’ which represents the ‘genuine value’ of the
investment affected.
• In Bayinder Vs. Pakistan --- Tribunal--- held ---- a MFN clause would
be applicable for a fair and equitable treatment clause contained in
France, Netherlands, China, UK, Australia, and Switzerland.
• ADF VS. US Case ( already discussed)
 BACKGROUND OF MFN
• Prior to the GATT, an MFN clause was often included in bilateral trade
agreements, and as such it contributed greatly to the liberalization of
trade. However, in the 1930s, measures were taken that limited the
functioning of the MFN principle.
• It is said that these measures led to the division of the world
economy into trade blocs.
• In the wake of World War II, an unconditional MFN clause was
included in the GATT, on a multilateral basis, and has contributed to
the stability of trade around the world.
FAIR AND EQUITABLE TREATMENT
(FET)