Most-Favored-Nation Clauses

by

Jordi Bonet

• LAST REVIEWED: 26 August 2014
• LAST MODIFIED: 26 August 2014
• DOI: 10.1093/obo/9780199796953-0117

Introduction

A most-favored-nation clause (MFNC) is a specific treaty provision “whereby a State [the granting State] undertakes an obligation towards another State [the beneficiary State] to accord most-favored treatment in an agreed sphere of relations” (Article 4 of the draft on most-favored-nation clauses adopted by the International Law Commission at its thirtieth session in 1978). The general purpose of a MFNC is to grant most favored treatment (MFNT) within spheres of relations generally connected to areas of bilateral or multilateral intergovernmental cooperation varying in scope. MFNT is a standard of treatment accorded by the granting state to the beneficiary state, or to persons or things in a determined relationship with that state; this means that MFNT could also be employed to benefit persons or things that have an identified link with the beneficiary state (for example, citizenship or product origin) and not only in reciprocal interstate relationships. The International Law Commission (ILC) points out that MFNT involves granting treatment not less favorable than treatment extended by the granting state to a third state or to persons or things in the same relationship with that third state; the ILC prefers the wording “not less favorable” to the alternative “equal treatment” because it is the phrase commonly used in MFNCs and because MFNCs cannot prevent the granting state from bestowing on the beneficiary state additional advantages to those applied to the most-favored third state. In sum, the purpose of MFNCs is to maintain fundamental equality among all the states concerned in the relevant fields. On the other hand, even if MFNT could theoretically arise from the unilateral conduct of states, whether or not based on reciprocity or on nonbinding instruments (as political agreements), conventional MFNCs inserted in international treaties have become the most effective tool to ensure MFNT and its reciprocal extension to all parties since unilateral clauses granting such treatment are, if in use at all, rather exceptional nowadays.

General Overviews

MFNCs originated in international trade relations and continue to be more commonly used in this field (see also Economic Dimensions and the World Trade Organization). However, MFNCs have also been used in different areas of international relations and international cooperation, including traffic and transportation, establishment of foreign persons, establishment of diplomatic and consular missions, and intellectual property (See also International Investment Law and Other Non-trade Areas in Which MFNCs Are Provided). Even if the scope of MFNCs in a relational field and/or area of cooperation varies, it is rare to find a MFNC involving all relations and/or all areas of cooperation between the countries involved. Although MFNCs traditionally appear in bilateral treaties (see also Historical Background), they have been increasingly included since the 20th century in multilateral treaties relating to specific areas and international cooperation arrangements, for example, Article I of the General Agreement on Tariffs and Trade (GATT). On the other hand, the main legal issues raised by MFNCs have emerged through bilateral and multilateral practice and they include: the conditional and the unconditional form of clauses, the automaticity and extent of their effects (taking into account the ejusdem generis rule), and the exceptions that may limit their scope particularly in the field of multilateral international trade, such as preferential treatment in favor of developing countries or the participation of states in an integrated regional system (see also Exceptions to the Application of MFNCs). Also, the current legal controversy regarding their application to rules on dispute settlement in bilateral investment treaties is of great interest from the perspective of the scope of their legal effects (see also the Procedural Dimension: MFNC-Based Jurisdiction and Jurisprudence on MFNC-Based Jurisdiction). General overviews include Basdevant 1929, Bonnet 1900, Pescatore 1968, Sauvignon 1972, Schwarzenberger 1945, Triggiani 1984, United Nations 2008, and Ustor 1985.

• Basdevant, Suzanne. “Clause de la nation plus favorisée.” In Répertoire de droit international. Edited by Albert Geouffre de la Padrelle and Jean-Paul Niboyet, 464–513. Paris: Recueil Sirey, 1929.

  The author presents a conceptual approach to MFNCs and analyzes its practice at the turn of the 20th century in France (including an interesting classification of the areas in which MFNCs can be found). Translated as “Most-favored-nation clause.”

• Bonnet, Louis. La clause de la nation la plus favorisée. Grenoble, France: Imprimerie Typographique G. Villard, 1900.

  The author developed a general theory on MFNCs on the basis of 19th-century practice. Translated as “The most-favored-nation clause.”

• Pescatore, Pierre. La clause de la nation la plus favorisée dans les conventions multilaterales: Rapport provisoire présenté à l’Institut de droit international. Geneva, Switzerland: Imprimerie de “La Tribune de Genève,” 1968.

  A classic analysis reviewing the main characteristics and problems of MFNCs’ application and interpretation since their incorporation into multilateral conventions and/or multilateral institutional systems became a consolidated legal trend. The report pays special attention to the applicability of MFNCs in economic multilateral relations. Translated as “The most-favored-nation clause in multilateral conventions: Preliminary report to the Institute of International Law.”

• Sauvignon, Édouard. La clause de la nation la plus favorisée. Grenoble, France: Presses Universitaires de Grenoble, 1972.

  The book provides a comprehensive analysis of such clauses. Translated as “The most-favored-nation clause.”

• Schwarzenberger, Georg. “The Most-Favoured-Nation Standard in British State Practice.” British Yearbook of International Law 22 (1945): 96–121.

  Although the analysis refers mainly to British practice, it provides a complete, comprehensive, and systematic overview of a MFNC. It is a classical and useful introduction to MFNCs.

• Triggiani, Ennio. Il trattamento della nazione più favorita. Naples, Italy: Editore Jovene, 1984.

  (The Most-Favored-Nation Treatment). A classical collection of the European literature on the topic focusing in particular on the legal questions posed by the existence of exceptions to the application of MFNT and MFNCs as an operative limit to their scope. Translated as “The most-favored-nation treatment.”

• United Nations. Working Group of the International Law Commission (McRae Working Group). The Most-Favoured-Nation Clause: Report on the Work of Its Sixtieth Session (5 May to 6 June and 7 July to 8 August 2008). GAOR, Sixty-third Session, Supplement No. 10 (Document A/63/10), Annex B390–402. New York: United Nations, 2008.

  A brief but thought-provoking approach to the definition of, and current legal issues raised by, MFNCs, including a general approach to the codification process in the ILC. See also United Nations, Working Group of the International Law Commission (McRae Working Group), The Most-Favoured-Nation Clause, International Law Document A/CN.4/L.719.

• Ustor, Endre. “Most-Favoured-Nation Clause.” In Encyclopedia of Public International Law, Vol. 8, Human Rights and the Individual in International Law: International Economic Relations. Directed by Rudolf Bernhardt and under the auspices of the Max Planck Institute for Comparative Law, 411–416. Amsterdam: North Holland, 1985.

  A comprehensive approach to the legal regime of MFNCs and its codification made by one of the Special Rapporteurs appointed by the ILC. See also a new article in the online version of the Encyclopedia: Meinhard Hilf and Robin Geiss, “Most-Favoured-Nation Clause,” in Max Planck Encyclopedia of Public International Law (MPEPIL), edited by Rüdiger Wolfrum (Oxford: Oxford University Press, 2009), available online by subscription.