The Application of MFN Clause to the Dispute Settlement
Provisions of Chinese Investment Treaties in the Context of
the ‘Belt and Road’ Initiative: – A Possible Way of
Broadening the Scope of Application of Investor-State
Arbitration Mechanism?
Yuwen Xu xuyuwen95@126.com Student No. 12049778
Master program: International and European Law International Trade and Investment Law Track
Supervisor: Hege Elisabeth Kjos (26 Jul 2019)
Abstract
The application of the Most-Favored-National clause to the dispute settlement provisions is an issue being controversial for years. It is still a problem needs to be solved in a more specific context – the ‘Belt and Road’ Initiative. The research
purpose of this article is to figure out to what extent the MFN clause can be applied to dispute settlement provision in China’s international investment agreements with countries involved in BRI. The article limits the number of BRI countries to 64. By applying the exhaustive review of BITs that China has with these 64 BRI countries on MFN clauses and ISDS provisions and non-exhaustive review on the related
jurisprudence, the author comes to the conclusion that China’s BITs with five out of sixty-four countries, have specific languages excluding the application of MFN clause to the dispute settlement clause. In China’s BITs with thirty-two out of sixty-four BRI countries, on the other hand, MFN clauses shall be able to broaden the scope of the consent which limits the ISDS mechanism to compensation for expropriation.
Table of Contents
1. INTRODUCTION ... 4
2. INTERPRETATION OF THE MFN CLAUSE AND THE CONSENT TO ARBITRATION IN INVESTMENT TREATIES ... 8
2.1 INTERPRETATION OF MFNCLAUSES ... 9
2.2 CONSENT TO ARBITRATION IN INVESTMENT TREATIES ... 11
3. JURISPRUDENCE ON THE SUBJECT ... 13
3.1 MAFFEZINI V.SPAIN AND FURTHER DEVELOPMENT ... 13
3.2 PLAMA V.BULGARIA AND OTHERS ... 17
3.3 INTERIM ANALYSIS AND CONCLUSION ... 19
4. APPLICATION OF MFN CLAUESES TO THE DISPUTE SETTLEMENT PROVISIONS OF CHINA’S INVESTMENT TREATIES IN THE CONTEXT OF BRI ... 20
4.1 ISDS MECHANISMS IN IIAS BETWEEN CHINA AND BRI COUNTRIES ... 20
4.2 MFNCLAUSES IN CHINA’S IIAS WITH BRICOUNTRIES ... 22
4.3 THE APPLICATION OF MFNCLAUSES TO DISPUTE SETTLEMENT PROVISIONS OF CHINA’S IIAS WITH BRICOUNTRIES ... 24
4.3.1 Interpretation of MFN clauses ... 24
4.3.2 Read MFN Clauses together with Dispute Settlement Provisions ... 26
4.4 INTERIM DISCUSSION AND CONCLUSION ... 29
5. CONCLUSIONS ... 30
BIBLIOGRAPHY ... 31
ANNEX 1 CHINA’S IIAS WITH BROAD ISDS MECHANISM ... 34
1. INTRODUCTION
The application of the Most-Favored-National clause (‘MFN clause’) to the dispute settlement provisions is an issue being controversial for years. Significant divergence is presented by jurisprudence. However, it is still a problem needs to be solved, and it is not only a problem in the global investment background, but also in a more specific context – the ‘Belt and Road’ Initiative (‘BRI’). The research purpose of this article is to figure out to what extent the MFN clause can be applied to dispute settlement provision in China’s international investment agreements (‘IIAs’) with countries involved in BRI (‘BRI countries’).
In order to deepen the Chinese economic reform and to build up a new and open economic system, China decided that it had to further open up its inland and border areas. In doing so, it launched the BRI to construct a land and maritime economic belt. In September 2013, during a visit to Kazakhstan, President of the People’s Republic of China and General Secretary of the Central Committee of the Communist Party of China (‘CPC’), Xi Jinping, for the first time, introduced and put forward a proposal to establish the ‘Silk Road Economic Belt.’1 Immediately after, Xi visited Indonesia and suggested
another, yet tightly connected, proposal – the ‘Maritime Silk Road.’2 Combined, these
two proposals constitute the primary content of the BRI. Later on, in the Decision of the Central Committee of the Communist Party of China on Some Major Issues Concerning Comprehensively Deepening the Reform,3 adopted at the Third Plenary Session of the
18th Central Committee of CPC on 12 November 2013, BRI was elevated to a state strategy. In order to implement the strategy, the Leading Group for Advancing the Development of the Belt and Road4 was established in 2015. Furthermore, the Chinese
1 Jinping Xi, ‘ Promote Friendship
Between Our People and Work Together to Build a Bright Future —Speech at Nazarbayev University(translation provided by the
author ’<https://www.fmprc.gov.cn/mfa_chn//zyxw_602251/t1074151.shtml> accessed 2 Jul 2019
2Jinping Xi, ‘ - (Join Hands in
Building a China-ASEAN Community of Common Destiny—Speech at Indonesian Parliament, translation provided by the author)
<https://www.mfa.gov.cn/mfa_chn//ziliao_611306/zyjh_611308/t1084354.shtml>accessed 2 Jul 2019
3 The Central People’s Government of the People Republic of China (‘Central Government’), ‘Decision
of the Central Committee of the Communist Party of China on Some Major Issues Concerning
Comprehensively Deepening the Reform’ <http://www.gov.cn/jrzg/2013-11/15/content_2528179.htm> accessed 4 Jun 2019, Ch VII (26) ‘… accelerate the construction of infrastructure connecting China with neighboring countries and regions, and work hard to build a Silk Road Economic Belt and a Maritime Silk Road, so as to form a new pattern of all-round opening.’
4 The Leading Group for Advancing the Development of the Belt and Road (‘the Leading Group’) is a
government published a government white paper on the BRI: Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road,5 thus,
the BRI had been formally brought on the deck of China’s external strategy.
BRI is an open initiative that it does not reject any country that is willing to get involved, and in theory, every country in the world can be a part of the initiative. So far from now, there are already 131 countries6 that are taking part in BRI. However, if this
article is going to include every country in the world that has IIAs with China to do the research, there is no need to circumscribe the scope of the research to BRI at all. Therefore, in order to keep the unique characteristic of the BRI, this article limits the scope of BRI countries to those along the line of the Silk Road Economic Belt and the Maritime Silk Road. These 64 along-the-line countries are also countries that the BRI started with.7 Nevertheless, the research result of this article is also applied to the rest
67 countries.
BRI is a large-scale and remarkably influential project. Its scope is considerably broad, covering areas from policy cooperation, facility connectivity, trade, and financial incorporation to cultural cooperation.8 Until 2018, China had directly invested in all 64
BRI countries, 9 and the total investment amount had reached $154.39 billion, taking up
8.5% of China’s outward FDI stock.10 While profits are gained through those
investments, huge risks of investing in BRI countries also attract much attention. The risks can be perceived from the 2018 Report of Country-risk Rating of Investment from
National Development and Reform Commission and let the National Development and Reform Commission to take on daily work of the Leading Group.
5 National Development and Reform Commission, ‘Vision and Action on Jointly Building Silk Road
Economic Belt and 21st-centry Maritime Silk Road’
<http://www.ndrc.gov.cn/gzdt/201503/t20150330_669392.html> accessed 4 Jun 2019
6 Belt and Road Portal, ‘ List of countries that
have signed a BRI cooperation document with China)’
<https://www.yidaiyilu.gov.cn/gbjg/gbgk/77073.htm> accessed 4 Jun 2019
7 Yan Liu, , (2015) 08 Journal
of Economic cooperation 26. 64 BRI countries include: one East Asia country (Mongolia), eleven Southeast Asia countries (Indonesia, Malaysia, Philippines, Singapore, Thailand, Brunei, Vietnam, Laos, Myanmar, Cambodia, East Timor), seven South Asia countries (Nepal, Bhutan, India, Pakistan, Bangladesh, Sri Lanka, Maldives), six Central Asia countries (Kazakhstan, Turkmenistan, Kyrgyzstan, Uzbekistan, Tajikistan, Afghanistan), eighteen West Asia countries (Iran, Iraq, Georgia, Armenia, Azerbaijan, Turkey, Syria, Jordan, Israel, Palestine, Saudi Arabia, Bahrain, Qatar, Yemen, Oman, United Arab Emirates, Kuwait, Lebanon), sixteen Central and East Europe countries(Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Macedonia, Montenegro, Romania, Poland, Serbia, Slovakia, Slovenia), four CIS countries (Russia, Belarus, Ukraine, Moldova) and one Africa country (Egypt).
8 ibid, ch IV
9 Ministry of Commerce of the People’s Republic of China and others, Statistical Bulletin of China's Outward Foreign Direct Investment (China Statistics Press 2017), 62-63
China where in total 35 BRI sample countries, which took up 99.89% of China’s outward FDI flow in all BRI countries in 2016,11 are evaluated. Only one BRI country –
Singapore, is of the low-risk level (AAA-AA), most of them are of medium-risk level (A-BBB) and seven are evaluated as high-risk level (BB-B).12 In a nutshell, many BRI
countries are being affected negatively by their cumulative foreign debt, political instability, the threat from militants and extremist groups, low level of the ruling of law, to name just a few/etc. Investment risks, such as expropriation, nationalization, foreign war, and civil war, referred in international investment agreements, exist in BRI countries in various degrees. In this investment background, the protection of Chinese investment and investors abroad in BRI countries is an unavoidable topic.
However, on the other hand, the political nature of the BRI leaves itself no legally binding effect to ensure the protection on Chinese investors. In domestic China, there does not exist any document on the law level related to BRI. In the international playing field, the position of BRI is even more unclear. Although until 30 April 2019, the Central People’s Government of China (‘the Central Government’) and its departments have already signed 187 Memorandums of understanding, Joint Declarations or other cooperative documents with countries and international organizations involved,13 the
nature of these documents that China has signed with other countries is in controversy. According to The Procedural Law of the People’s Republic of China on
Conclusion of Treaties, the Central Government and its departments have the power to conclude international treaties and agreements.14 But whether these documents can be
deemed as international agreements or treaties is in doubt. MoU is always deemed as gentlemen’s agreements whilst only a few regards it as legally binding. Moreover, joint statements and declarations also have an uncertain characteristic. Only the statement or the declaration stipulates concrete rights or duties of the parties, can it be seen as an international agreement. Since the access to these statements and
declarations cannot be found, it is hard to give a definite conclusion on their legal nature. So far from now, it seems that only those ‘cooperation agreements’ can have a certain legally binding effects on China and other countries. However, due to their
11 International Investment Research Office of Institute of World Economics and Politics Chinese
Academy of Social Sciences, Report of Country-risk Rating of Investment from China (2018), Working Paper No. 201801, 23 Jan 2018, 38
12 ibid, 40-41
13Belt and Road Portal (n 6)
14 The Procedural Law of the People’s Republic of China on Conclusion of Treaties, Standing
opacity, related dispute settlement mechanisms in those agreements are not known. Furthermore, most of these documents only focus on one particular area of
cooperation, for instance, in natural resource, transportation or sustainable
development. There is not an international agreement that generally focuses on BRI which stipulates the rights and obligations of all participating countries and gains their consent, not even a draft of it. The binding force of the BRI in the international level definitely can be questioned.
Recently in the end of 2018, China International Commercial Courts (‘CICC’) were established by the Supreme People's Court of China (‘SPC’). It is stated in the preamble of the Provisions of the Supreme People's Court on Several Issues
concerning the Establishment of International Commercial Courts, the judicial
interpretation by SPC, which is the also the legal basis of CICC, that the establishment of the CICC is ‘for the purpose of… serving and guarding the construction of the Belt and Road.’ 15 However, only private parties are the qualified parties to the dispute in
CICC, which means Chinese investors cannot seek remedies based on investment losses caused by breaches of IIAs by host states. At the same time, normal commercial arbitration does not allow private parties to bring arbitration against a national state, either. It is hard for Chinese investors to seek remedies for damages caused by illegal acts of the host state. In this situation, where the specific remedy for investors in BRI is not available, and the domestic remedy of the host State is usually untrusted by foreign investors, Chinese investors could seek remedies in international investment laws, and the ISDS is still the best option for them to peruse compensation directly from the host State.
China so far has three versions of model BIT of which the first version was established in the 1980s, the second version was adopted in early 1990s, and the current version is the modification of the second one in late 1990s. Changes in provisions of these versions are not significant, but one that is worth noticing is the scope of consent that made to ISDS is increasing, especially in the third version of model BIT, where all disputes regarding investment were allowed to be submitted to investor-state arbitration.16 However, take a panoramic view of the situation, most of
15 The Provisions of the Supreme People's Court on Several Issues concerning the Establishment of
International Commercial Courts, the Supreme People's Court of China, 1 Jul 2018
16 Norah Gallagher and Wenhua Shan, 'Chinese Investment Treaties: Policies and Practice' in Chester
the BITs between China and BRI countries that are in force at present were signed in the early 1990s and are sharing the characteristics of the first and second version of China’s model BIT, especially on the ISDS. In these two versions, the scope of ISDS, to a large extent, is limited to compensation for expropriation.
In this article, the author will first discuss the two main issues in answering the question in part two: the interpretation of the MFN clause and the consent to
arbitration. Because the core question of the application is by interpreting the MFN clause to comprehend the consent to arbitration set out in the dispute settlement provision. Then, in the third part of the article, the author will turn to focus on the jurisprudence on the subject. By providing the development and the scheme of the jurisprudence, the author then will try to analyze the commonalities and the possible further development on the controversial topic. In the end, the author will make the analysis of the application of the MFN clause to dispute settlement provisions in China’s IIAs with BRI countries by making detailed classifications of MFN clauses and dispute settlement provisions, corresponding to contents in part two and part three.
In answering the research at hand, the author mainly applies the exhaustive review of China’s IIAs with BRI counties by making a detailed comparison form attached in the Annex. However, the article is not based on the exhaustive review of the jurisprudence of the subject, therefore, the jurisprudence is not presented entirely but selected. Moreover, the typology of MFN clause is created by the author herself, which will also be explained in Part four of the article and shown in the Annex. The database used for providing the treaties are UNCTAD Investment Policy Hub, the website of Department of Treaty and Law of Ministry of Commerce of the PRC, and Website of General Administration of Customs of PRC. Most of the IIAs are available in UNCTAD Investment Policy website, and for those which are not available, the author will attach the link of the missing treaty in the foot note.
2. INTERPRETATION OF THE MFN CLAUSE AND THE
CONSENT TO ARBITRATION IN INVESTMENT
TREATIES
In order to solve the problem of application of the MFN clause to the dispute settlement provision, two key issues need to be understood in the first place. Primarily,
the interpretation of MFN clauses is the starting point for answering the question because whether the MFN clause can be applied in dispute settlement provisions is a matter of treaty interpretation.17 Moreover, by deconstructing the question at hand,
what can be identified is that the core of the question is the consent to arbitration of parties, which is described by many scholars as to the cornerstone of arbitration.
2.1 Interpretation of MFN Clauses
A well-known proverb says: ‘there are a thousand Hamlets in a thousand people’s eyes.’ Due to different standpoints and different interests, there can be different
understandings with regard to one treaty provision. In much of the time, these
understandings are in controversy, which is also why disputes arise. In order to settle disputes, treaty interpretation, to a large extent, is a necessary process. Treaty
interpretation is a problem that bothering courts, tribunals, lawyers and dispute parties all the time, notwithstanding, there are now general international rules set up for treaty interpretation, developed by the global/international practice. At the same time, when interpreting the MFN clause in the international investment agreements, the same rules of interpretation shall apply, as IIAs are of the same nature as other international treaties.
Article 31 and 32 of the Vienna Convention on the Law of Treaties,18 (‘VCLT’) is
now the most widely accepted rules for interpreting treaties. Article 31 of the VCLT is also recognized as a reflection of customary international law.19 It takes the primary
position in the process of interpretation. When analyzing in details in interpreting a treaty, there are eight means that have to be paid attention to in this general principle.20
According to the text of the Article 31, the best interpretation of a treaty provision is the interpretation made in good faith that is also the most coherent with the ordinary meaning of the text of the treaty in accordance with the context,21 including the
agreements made between two parties, instruments of one or more parties in
17 Steven Schill, ‘Maffezini v. Plama: Reflections on the Jurisprudential Schism in the Application of
Most-Favored- Nation Clauses to Matters of Dispute Settlement’ in Kinnear, Fischer, Mínguez Almeida, et al. (eds), Building International Investment Law: The First 50 Years of ICSID (Wolters Kluwer 2015), 261
18 Vienna Convention on the Law of the Treaties, (adopted on 22 May 1969, opened for signature on 23
May 1969, entered into force on 27 Jan 1980) 1155 UNTS 331 (VCLT)
19 Malcolm N. Shaw, International law (8th end, CUP 217), 1514
20 Mark E. Villiger, ‘The Rules on Interpretation: Misgivings, Misunderstandings, Miscarriage? The
‘Crucible’ Intended by the International Law Commission,’ in Cannizzaro (ed), The Law of Treaties Beyond the Vienna Convention (OUP, 2011) 108-112
connection with the treaty that accepted by other parties and any subsequent practice,22
underlining the object and purpose of the treaty. Moreover, concerned international rules23 are also applicable and the term shall be endowed with ‘special meaning’ if
parties so propose.24 Article 32 of VCLT, on the other hand, provides for
supplementary approaches of interpretation. When treaty cannot be interpreted clearly through Article 31 or the application of Article 31 leads to absurd or unreasonable results, preparatory work of the treaty and circumstances of its conclusion should be taken into consideration for interpretation.25
All these means are of equal value and no hierarchy exists when applying them, as confirmed by the International Law Committee (‘ILC’): ‘[T]he article, when read as a whole, cannot properly be regarded as laying down a legal hierarchy of norms for the interpretation of treaties.’26 However, in practice, sometimes the general principle is
simplified to the paragraph 1 of the Article 31 and others are seen as supplementary means,27 for instance, in ICJ cases Territorial Dispute case,28 Maritime Delimitation case,29 Oil Platforms case30 and Legality of Use of Force case.31
In interpreting the IIAs, as stated by Schill, ‘[t]hus, the primary task is to identify the ordinary meaning of the clause in its context and in the light of the object and purpose of the treaty.’32 However, in most of the investment cases, similar to some in
ICJ, the general rules of interpretation are reduced to the paragraph 1 of Article 31 of
VCLT as it is stated by the tribunal in the National Grid PLC v The Argentine Republic
case:
… [T]he Tribunal will interpret the Treaty as required by the Vienna Convention Article 31 of the [Vienna] Convention requires an international treaty to ‘be
22 ibid art 31(2), (3)(a)(b) 23 ibid art 31(3)(c) 24 ibid art 31(4) 25 ibid art 32
26 ILC, ‘Reports of the International Law Commission on the second part of its seventeenth session and
on its eighteenth session’ (1966) II YILC 219 para8, 220 para 9
27 See Villiger, above n. 11 115
28 Territorial Dispute (Libyan Arab Jamahirya v. Chad), Judgment of 3 February 1994, [1994] ICJ Rep
21 para 41
29 Maritime Delimitation and Territorial Questions between Qatar and Bahrain (Qatar v. Bahrain),
Jurisdiction and Admissibility, Judgment of 15 February, [1995] ICJ Rep 18 para 33
30 Oil Platforms (Islamic Republic of Iran v. United States of America), Preliminary Objections,
Judgment of 12 December 1996, [1996] ICJ Rep 812 para 23
31 Legality of the Threat or Use of Nuclear Weapons in Armed Conflict, Advisory Opinion of 8 July
1996, [1996] ICJ Rep 75 para 19
32 Rudolf Dolzer, Christoph Schreuer, Principles of International Investment Law (2nd edn, OSAIL
interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in light of its object and purpose.33
Additionally, as to Article 32 of VCLT, in Plama v Bulgaria,34 the Tribunal
concluded that the parties intended not to apply MFN clause to the dispute settlement mechanism by inferring from the negotiations made between parties that ruminated an amendment of the dispute settlement provision of the BIT although failed in the end. 35
However, in general, the travaux préparatoires is rarely taken into account by tribunals.36
Furthermore, MFN clauses vary in different cases, and there is not a unified MFN clause existing in the international world,37 thus, MFN clause shall be interpreted
pursuant to the actual language of it, as reinforced in the ejusdem generis principle which is generally accepted shall apply: ‘the scope will be determined by the wording of the clause, and the precise benefit granted will depend upon the right granted to the third state.’ 38 In some treaties, they even have specified the scope of the application of
the MFN clause. For instance, in Article 3, section (3) of the UK Model BIT (2005) it stipulates: ‘[f]or the evidence of doubt it is confirmed that the treatment provided for in paragraphs (1) and (2) above shall apply to the provisions of Articles 1 to 11 of this Agreement.’ This indicates that the MFN Clause does not apply to dispute settlement provisions.
2.2 Consent to Arbitration in Investment Treaties
The core question of whether the MFN clause can be applied to dispute settlement provisions, as introduced by Schill, is that ‘whether the tribunal can exercise
jurisdiction not on the basis of the dispute settlement clause in the basic treaty but based on the more favorable consent given to investors from third countries,’ which is provided through the functioning of the MFN clause in the basic treaty.39 In other
words, can the consent in a dispute settlement provision to arbitration be extended by
33 National Grid PLC v The Argentine Republic, UNCITRAL Case No. 1:09-cv-00248-RBW, Decision
on Jurisdiction (20 June 2006), para 80
34 Plama Consortium Limited v Republic of Bulgaria, ICSID Case No. ARB/03/24, Decision on
Jurisdiction (8 February 2005)
35 ibid, para 195
36 Dolzer and Schreuer (n 32) 208
37 Kaj Hober, ‘MFN Clause and Dispute Resolution in Investment Treaties: Have We Reached the End
of the Road?’, in Binder, Kriebaum… (ed) International Investment Law for the 21st Century: Essays in
Honour of Christoph Schreuer (OUP 2009) 34. 38 Dolzer and Schreuer (n 32) 186
the MFN clause? Usually, in IIAs, the consent is firstly offered by State parties of one agreement to an investor, a national of another State party, and the consent is accepted by the eligible investor when the investor initiates the arbitration proceeding which is stipulated in the arbitration clause.40
Moreover, in the light of different languages of the wording and scope of the consent given in different arbitration clauses in investment agreements, these
arbitration clauses can be divided into different types.41 Primarily, there are arbitration
clauses that allow for ‘all’ or ‘any’ disputes related to an investment to be submitted to arbitration (‘type I’).42 In this situation, not only do disputes arise from the investment
treaties but those arising from a contract or domestic law can be brought to arbitration only if they concern an investment dispute. In the Salini v Morocco case,43 ‘Article 8
of [Italy-Morocco BIT44] obliges the State to respect the jurisdictional choice arising
by reason of breaches of the bilateral Agreement and of any breach of a contract which binds it directly.’45
Other arbitration clauses, on the other hand, circumscribe the scope of consent. Some also offer consent todisputes relating to investment authorization, investment agreement, or alleged violation of the IIA/TIP (‘type II’), 46 such as the US Model BIT.
Furthermore, consent in other arbitration clauses can be even narrower. In some, arbitration is limited to violations of IIAs’ substantive standards or certain provisions of the BIT (‘type III’),47 e.g., Dutch Model BIT Article 16: ‘… shall apply to a
dispute… concerning treatment alleged to be a breach of a provision in Section 4 of this Agreement…’ While in a few, arbitration is even only possible in expropriation disputes (‘type IV’),48 such as Article 10 of the Spain-Russia BIT.49 The scope of the
40 Josefa Sicard-Mirabal and Yves Derains, Introduction to Investor-state Arbitration (Kluwer Law
International 2018) 50
41 Zachary Douglas, The International Law of Investment Claims (CUP 2009) 234-235 42 ibid, 234
43 Salini Costruttori S.p.A. and Italstrade S.p.A. v Kingdom of Morocco (‘Salini v Morocco’), Case No.
ARB/OO/4, Decision on Jurisdiction (23 July 2001)
44 Agreement between the Government of the Kingdom of Morocco and the Government of Italian
Republic Relating to Promotion and Reciprocal Protection of Investments (‘Italy-Morocco BIT’) (signed 18 Jul 1990, entered into force 26 Apr 2000), art 8
45 Salini v Morocco, Decision on Jurisdiction, 23 July 2001, Journal de Droit International 196 (2002), 6
ICSID Reports 400, para 61.
46 Douglas (n 41), 234 47 ibid, 234
48 ibid, 235
49 Agreement between the Union of Soviet Socialist Republics and the Kingdom of Spain on Assistance
to Implementation and Mutual Protection of Investment (‘Spain-Russia BIT’) (signed 26 Oct 1990, entered into force 28 Nov 1991)
consent in an arbitration clause has to be examined case-by-case according to its exact wording.
Although in some arbitration clauses the consent to arbitration seems to be limited in scope, does it mean that the consent in an arbitration clause should be read in such a restrictive way that once it is written down, it could only be interpreted as what the words circumscribe and no matter how other provisions are stipulated? In other words, should one interpret the consent to arbitration by reading the arbitration clause
restrictively and in isolation? The answer is negative. Most tribunals reject the argument that parties’ consent to arbitration should be construed in a restrictive way, and the majority believed that the interpretation shall be neither restrictive nor expansive, but a balanced approach shall be applied.50 Also, while interpreting the
arbitration clause, the interpretation rules in VCLT should be applicable.
3. JURISPRUDENCE ON THE SUBJECT
As being discovered, there exists a schism in jurisprudence in answering the question of whether the MFN clauses can be applied in dispute settlement provisions. The leading cases of the schism are Maffezini v. Spain51 and Plama v. Bulgaria. Two
tribunals held opposite views on this matter. The Maffezini Tribunal was in support of the claimant that the waiting period during which the remedy in domestic courts had to be pursued before arbitration could be circumvented by applying the MFN clause. The
Plama Tribunal found that the MFN clause could not be qualified as ‘clear and
unambiguous’ consent to arbitration; for this concern, it came to the opposite
conclusion.52 Cases established after two jurisprudences even further stepped into the
arena of the matter.
3.1 Maffezini v. Spain and Further Development
In the Article IV(2) of the Argentina-Spain BIT, the MFN clause provides as: ‘In all matters subject to this Agreement, this treatment shall not be less favorable than that extended by each Party to the investments made in its territory by investors of a third
50 Dolzer and Schreuer (n 32) 263-264
51Emilio Agustín Maffezini v Kingdom of Spain, ICSID Case NO. ARB/97/7, Decision on Jurisdiction
(25 Jan 2000)
country.’53 The dispute arisen in this case was that the Argentina-Spain BIT provided
that before recourse to international arbitration, investors had to pursue local remedies for eighteen months, which was not a requirement to arbitration stipulated in Chile-Spain BIT.54 The Tribunal was facing the question of whether the eighteen months waiting
period for domestic remedies in Argentina-Spain BIT could be circumvented based on its MFN clause by benefiting from the more-favored dispute settlement access provision of Chile-Spain BIT.55
In correspondence to Spain’s argument on the matter, the Tribunal set up two conditions on applying the MFN clause. One was the res inter alios acta doctrine56 that
the subject matter to which the MFN clause applied in order to benefit from the third treaty, Chile-Spain BIT, in this case, had to be within the scope of the basic treaty, Argentina-Spain BIT. Another one was the principle of ejusdem generis.57 ‘The MFN
clause could only apply to a more favorable treatment that fell within the scope of the MFN clause itself.’58 One step further, by stressing the importance of the dispute
settlement in protection of investors’ rights envisaged under the relevant treaties and because it was ‘closely linked’ to material aspect of treatment, the Tribunal concluded that endowing the dispute settlement that was more favorable to investors’ protection in the third treaty to investors in the basic treaty where the dispute settlement was less favorable was in conformity with the ejusdem generis principle. 59
Moreover, to avoid the potential irrational expansive interpretation of the MFN clause in the future, the Tribunal circumscribed its conclusion within a limit:
‘As a matter of principle, the beneficiary of the clause should not be able to override public policy considerations that the contracting parties might have envisaged as fundamental conditions for their acceptance of the agreement in question.’60
Especially, provisions on matters such as arbitration on the exhaustion of local remedies, fork-in-the-road, selection on a particular forum, the selection on a highly
53 Agreement between the Argentina Republic and the Kingdom of Spain on the Reciprocal Promotion
and Protection of Investments (signed 3 Oct 1991, entered into force 28 Sep 1992) art IV(2); Maffezini (n 51) para
54 Agreement between the Republic of Chile and the Kingdom of Spain for the Protection and
Promotion of Investments Reciprocals (‘Chile-Spain BIT’) (signed 2 Oct 1991, entered into force 28 Mar 1994) 55 Maffezini (n 51), para 38-64 56 ibid, para 45 57 ibid, para 46 58 Schill (n 17) 254 59 Maffezini (n 51), para 54-56 60 ibid, para 62
institutionalized system with specified rules of procedure cannot be circumvented by the MFN clause.61 In the end, the Tribunal made a conclusion that the matter in the case was
not a reflection of fundamental question on the public policy consideration regarding the acceptance of the agreement, and it affirmed its competence on the jurisdiction of the case based on the application of MFN clause in Argentina-Spain BIT to dispute settlement provision in Chile-Spain BIT.62
Spawned by the general findings in Maffezini v. Spain that MFN clause can be applied in dispute settlement provision, the past two decades have witnessed an increase in the number of cases discussing this matter. While aligning with the finding, many tribunals have made new developments on the topic.
Different from MFN clause of Argentina-Spain BIT in Maffezini case, in which treatment ‘in all matters subject to this Agreement’ shall not be less favorable,63 the
wording of the MFN clause in Argentina-Germany BIT64 was narrower, only referring
‘treatment’ to ‘investments’ and ‘activities related to investments.’ The Tribunal in
Siemens v. Argentina65 noticed and concurred the difference, notwithstanding it found
that ‘a plain and contextual reading’ of the MFN clause did not limit the scope of the ‘treatment’ or ‘activities’ to a specific character but confirmed the generality of their meaning.66 To conclusion, it considered that the wording of MFN clause, in this case,
was ‘sufficiently wide to include settlement of disputes.’67 Moreover, Siemens
Tribunal even further developed the finding of the Maffezini, decided that investors are able to enjoy all benefits of the third treaty by virtue of MFN clause of the basic treaty, at the same time, without being limited by the restrictions in the third treaty that does not contain in the basic treaty.68
61 ibid, para 63 62 ibid, para 64
63 Argentina-Spain BIT, art IV (2)
64 Treaty between Federal Republic of Germany and the Argentina Republic on the Encouragement
Reciprocal Protection on Investment (‘Argentina-Germany BIT’), (signed 9 Apr 1991, entered into force 8 Nov 1993), art 3(1)(2)
65 Siemens A.G. v. The Argentine Republic, ICSID Case No. ARB/02/8, Decision on Jurisdiction (03
Aug 2004)
66 ibid, para 85-86 67 ibid, para 103
The Tribunal in RosInvestCo v. Russia69 was facing the question of whether the
Article 3 of the UK-Soviet BIT could import Article 8 of the Denmark-Russia BIT70 to
enable the claimant to submit the expropriation dispute to arbitration, which was not contained in the wording of the corresponding provision in the basic treaty. 71 The
Tribunal held that the submission of expropriation dispute to arbitration was within the scope of the ‘treatment’ accorded to investors under Article 3 paragraph 2 of the UK-Soviet BIT.72 The Tribunal also admitted that the application of MFN clause in
UK-Soviet BIT could lead to the confliction with its dispute settlement provision. However, it was precisely the ‘very character and intention’ of the MFN clause to widen the protection that was not accepted by the basic treaty by referring to more-favored protection in a third treaty.73
In the case of Garanti Koza v. Turkmenistan,74 the Tribunal even enabled the
claimant to initiate ICSID arbitration by virtue of applying MFN clause to dispute settlement clause even in which the host state had only expressly consented to the UNCITRAL arbitration.75 By explicitly pointing to the language of MFN clause in
UK-Turkmenistan BIT, Article 3(3): ‘the treatment provided for in paragraphs (1) and (2) above shall apply to the provisions of Articles 1 to 11 of this Agreement,’ the Tribunal deemed that it was required to apply Articles 3(1)(2) of the BIT to Article 8, the dispute settlement clause.76 Thus, the consent to arbitration in the
69RosInvestCo UK Ltd. v The Russia Federation (‘RosInvestCo v Russia’), SCC Case No. Arbitration V
079 / 2005, Award on Jurisdiction (Oct 2007)
70 Agreement between the Government of the Kingdom of Denmark and the Government of the Russian
Federation concerning the Promotion and Reciprocal Protection of Investments (‘Denmark-Russia BIT) (signed 1 Nov 1997, entered into force 26 Aug 1996), art 8 Disputes between an Investor of one Contracting Party and the other Contracting Party: ‘(1) Any dispute which may arise between an investor of one Contracting Party and the other Contracting Party in connection with an investment on the territory of that other Contracting Party shall be subject to negotiations [sic] [between the] parties in dispute…’
71 Agreement between the Government of Great Britain and Northern Ireland and the Government of the
Union of Soviet Socialist Republics for the Promotion and Reciprocal Protection of Investments (‘UK-Soviet BIT’) (signed 4 Apr 1989, entered into force 3 Jul 1991), art 8 : ‘(1) This Article shall apply to any legal dispute… concerning the amount or payment of compensation under Articles 4 or 5 of this
Agreement, or concerning any other matter consequential upon an act of expropriation in accordance with Article 5 of this Agreement, or concerning the consequences of the non-implementation, or of the incorrect implementation, of Article 6 of this Agreement...’
72 RosInvestCo v. Russia (n 69) para 130 73 ibid, para 131
74Garanti Koza LLP v Turkmenistan (‘Garanti Koza v Turkmenistan’), ICSID Case No. ARB/11/20,
Decision on Objection for Lack of Jurisdiction (3 July 2013)
75 ibid, para 96 76 ibid, para 67
Turkmenistan BIT77 was broadened by the Switzerland-Turkmenistan BIT78, in which
the treatment was more favorable and it provided the investor with the option to select forum between ICSID Arbitration and UNCITRAL Arbitration.
3.2 Plama v. Bulgaria and Others
The jurisdiction issue that needs to be solved in this case was that whether Plama, the Claimant, a national of Cyprus, can bring up an arbitration against Bulgaria by invoking dispute settlement provisions in other Bulgaria BITs, relying on the MFN clause in Bulgaria-Cyprus BIT79 where the dispute settlement provision80 only allows
arbitration for disputes concerning the compensation for expropriation. The answer of the Tribunal was no.
The Tribunal deemed that the MFN clause only concerned substantive investment protection in reading the context of the MFN clause.81 The Tribunal agreed with the
claimants that object and purpose of the BIT were to provide protection on investors; however, it took a more cautious attitude towards it.82 By tracing back the negotiation
background and history background of the time when Cyprus and Bulgaria were negotiating the treaty, the Tribunal came to the conclusion that it was not the parties intention to incorporate dispute settlement mechanisms in the MFN clause.83
Moreover, the Tribunal in this case emphasized much on the parties’ agreement to arbitration, which had to be ‘clear and unambiguous’.84 Meanwhile, the Tribunal
explained that the reference to other BITs made by the broad MFN clause in Bulgaria-Cyprus BIT was not clear and unambiguous enough to include dispute settlement provisions.85 In the end, the Tribunal concluded that the MFN provision in the basic
77 Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland
and the Government of Turkmenistan for the Promotion and Protection of Investments (‘UK-Turkmenistan BIT’) (signed and entered into force 9 Feb 1995)
78 Agreement between the Swiss Federal Council and the Government of Turkmenistan on the
Promotion and Reciprocal Protection of Investments (‘Switzerland-Turkmenistan BIT’) (signed 15 May 2008, entered into force 2 Apr 2009), art 8
79 Agreement between The Government of the people's Republic of Bulgaria and The Government of the
Republic of Cyprus on Mutual Encouragement and Protection of Investments (signed 12 Nov 1987, entered into force 18 May 1988), art 3(1)
80 ibid, art 4(4) 81 Plama (n 34), para 191 82 ibid, para 193 83 ibid, para 192, 195, 196 84 ibid, para 198 85 ibis, para 200, 201
treaty could not incorporate the dispute settlement provision unless it ‘leaves no doubt that the Contracting Parties intended to incorporate them.’86
There also exists a series of cases where the tribunals were in line with Plama. Similar to the Plama Tribunal, the Tribunal in ICS v. Argentina87 tended to interpret
the MFN clause by focusing on the intention of the parties to the UK-Argentina BIT.88
It held the view that the ‘treatment’ in the MFN clause did not include procedural rights but:
‘referr[ed] only to the legal regime to be respected by the host State in conformity with its international obligations, conventional or customary. The settlement of dispute meanwhile remained an entirely distinct issue, covered by a separate and specific treaty provision.’89
The Tribunal in Dailmer v. Argentina90 agreed that the ‘treatment’ should be
interpreted by the meaning that Contracting parties intended to mean, notwithstanding the broad meaning of the word.91 The Tribunal in Kilic v.
Turkmenistan92 also took the position that ‘treatment’ only referred to substantive
rights because the treaty structure distinguished rights from remedies.93
Moreover, Both ICS and Kilic Tribunals have concurrence in opinion that if the MFN clause could be applied to dispute settlement provisions, the other BITs that signed in the same period of time which included the provisions of prerequisites for submission to arbitration would be deprive of effectiveness. Thus, it would be in contrary with the principle of effet untile.94 Meanwhile, they two were in
opinion that the expression unius est exclusion alterius principle was not applicable in the case.95
86 Schill (n 17), 256; Plama (n 34), para 223
87 ICS Inspection and Control Services Limited (United Kingdom) v. The Republic of Argentina, PCA
Case No. 2010-9, Award on Jurisdiction (10 Feb 2012)
88 Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland
and the Government of the Republic of Argentina for the Promotion and Protection of Investments (signed 11 Dec 1990, entered into force 19 Feb 1993)
89 ICS v. Argentina (n 87), para 296
90Daimler Financial Services AG v. Argentine Republic, ICSID Case No. ARB/05/1, Award (22 Aug
2012) (annulled on 7 Jan 2015)
91 ibid, para 219
92 Kiliç Ĭnşaat Ĭthalat Ĭhracat Sanayi Ve Ticaret Anonim Şirketi v. Turkmenistan, ICSID Case No.
ARB/10/1, Award (2 Jul 2013) (annulled on 14 Jul 2015)
93 ibid, para 7.3
94 ICS v. Argentina (n 87), para 315; Kilic v. Turkmenistan (n 92), para 7.4
95ICS v. Argentina (n 87), para 310: Contracting parties to the BIT never imagined the dispute
Another idea that supports the argument that the MFN clause is not applicable to dispute settlement was provided by ICS Tribunal and Dailmer Tribunal who noticed that ‘the MFN guarantees are territorially limited.’96 In their
opinion, territorial link requirement ran through the whole investment
agreements. In regard of the dispute settlement, the host state was responsible no more than for providing the domestic dispute resolution that was not less
favorable than it provided to investors from the third state.97
3.3 Interim Analysis and Conclusion
Comparing all these cases where tribunals hold the view that the MFN clause can be applied to the dispute settlement clause in the investment treaties, they are sharing many commonalities. To begin with, all MFN clauses share a common characteristic that the meaning of the wordings is of needs to possess the quality of generality. For instance, in Siemens and Garanti Koza, tribunals affirmed that the language of the clause was general, stating that it was ‘the nature of MFN clauses to be general,’98 and
‘the purpose of the MFN clause [was] to eliminate the effect of specially negotiated provisions unless they ha[d] been expected.’99 Next, tribunals accept that access to
arbitration is inextricably related to the protection of foreign investment under the investment treaties, for instance, in Siemens and Maffezini,100 and the more favorable
protection of investors’ rights in the third treaty should be able to be incorporated into the basic treaty. Finally, they concurred the conflict between MFN clause and
arbitration clause in the investment treaty. However, they emphasized more on the effect of the MFN clause. ‘It would be deprived of effet utile if [the MFN clause] could never be used to override another provision of the treaty’101 and it was the ‘very
character and intention’ of the MFN clause to widen the protection of investment in the basic treaty by transferring the protection incorporated in another treaty.102
For tribunals who do not support the idea that the MFN clause can be applied to dispute settlement provisions, they mainly hold the views that: firstly, ‘treatment’ does not include the substantive protection; secondly, it is for the concern of the principle of
96 ICS v. Argentina (n 87), para 305; Dailmer v. Argentina (n 90), para 225 97 ICS v. Argentina (n 87), para 308; Dailmer v. Argentina (n 90), para 228 98 Garanti Koza v Turkmenistan, para 51
99 Siemens (n 65 ) para 106
100 ibid para 102; Maffezini (n 51) para 54-56 101 Garanti Koza v Turkmenistan, para 54 102 RosInvestCo v Russia, para 131
effet untile; thirdly, the expression unius est exclusion alterius principle is not relevant
and fourthly, it is the result of the requirement of the territorial link.
In conclusion, when considering the question of whether the MFN clause can be applied to dispute settlement provision in an IIA, the MFN clause has to be interpreted according to the text, context and in light of its object and purpose. The Maffezini series of cases tends to use the teleological approach of treaty interpretation103 while
the Plama series of cases prefers to use subjective approach104 while the travaux préparatoires is deemed as a supplementary approach to interpretation in Article 32 of
the VCLT.
4. APPLICATION OF MFN CLAUESES TO THE DISPUTE
SETTLEMENT PROVISIONS OF CHINA’S INVESTMENT
TREATIES IN THE CONTEXT OF BRI
In this part of the article, the general situation of ISDS mechanisms and MFN clauses in China’s IIAs will be introduced. Simultaneously, the author will try to discuss to what extent, the MFN clause can be applied to dispute settlement provisions in China’s IIAs, combing with what have been discussed above – the interpretation of MFN clause, the consent to arbitration and the jurisprudence on the topic. Meanwhile, two new cases - Tza Yap Shum v Peru105 and Austrian Airlines AG v Slovakia,106 which
are more specific will be discussed.
4.1 ISDS mechanisms in IIAs between China and BRI countries
The situation of ISDS mechanisms in China’s IIAs with BRI countries is rather complicated. Among the 64 countries, there are 9 countries107 that do not have any IIAwith China. One BIT, Turkmenistan-China BIT,108 does not have the ISDS
103 Francis G. Jacobs, ‘Varieties of Approach to Treaty Interpretation: With Special Reference to the
Draft Convention on the Law of Treaties before the Vienna Diplomatic Conference’, (Apr 1969) 18(2)
The International and Comparative Law Quarterly 318, 319 104 ibid, 319
105 Tza Yap Shum v Republic of Peru (‘Tza Yap Shum v Peru’), ICSID Case No. ARB/07/6, Decision on
Jurisdiction and Competence (19 Jun 2009)
106 Austrian Airlines AG v The Slovak Republic, UNCITRAL ad hoc arbitration, Final Award (9 Oct
2009)
107 The 9 countries: Afghanistan, Bhutan, East Timor, India (terminated on 03 Oct 2018), Iraq,
Maldives, Montenegro, Nepal, Palestine
108 Agreement between the Government of the People's Republic of China and the Government of
mechanism. In other words, it is not possible for these ten BITs to incorporate ISDS mechanism from other IIAs by virtue of MFN clause. If it is done so, the principle of
ejusdem generis will be breached because one cannot incorporate something that does
not exist in the basic treaty by applying the MFN clause.109
The China-Pakistan FTA110 and China’s BITs with Bosnia and Herzegovina,111
Czech,112 Iran,113 Jordan,114Latvia,115 Russia,116 Romania117 (see Annex 1) on the other
hand, provide the broadest scope of consent to arbitration regarding ISDS that ‘any (legal) dispute’ ‘in connection with,’118 ‘related to,’119 or ‘respect to’120 an investment
can be submitted to arbitration. The China-Jordan BIT even does not circumscribe that the dispute has to be related to an investment.121 In this regard, the scope of ISDS in
these IIAs is also relatively broad, nevertheless in the China-Romania BIT, there exists a ‘if parties to the disputes so agree’ condition in Article 9(2).122
into force 04 Jun 1994) art 7, < http://tfs.mofcom.gov.cn/aarticle/h/at/200212/20021200058376.html> (only Chinese version available)
109 Maffezini (n 51), para 46; also see page 14 of this article
110 Free Trade Agreement between the Government of the People’s Republic of China and the
Government of the Islamic Republic of Pakistan (signed 24 Nov 2006, entered into force 1 Jul 2007) art 54
111 Agreement between the People’s Republic of China and Bosnia and Herzegovina on the Promotion
and Protection of Investments (signed 26 Jun 2002, entered into force 01 Jan 2005) art 8
112 Agreement between the Czech Republic and the People’s Republic of China on the Promotion and
Protection of Investments (signed 08 Dec 2005, entered into force 01 Sep 2006) art 9
113 Agreement on Reciprocal Promotion and Protection on Investment between the Government of the
People’s Republic of China and the Government of Islamic Republic of Iran (signed Jun 2000, entered into force 01 Jul 2005) art 12
114 Agreement between the Government of the Hashemite Kingdom of Jordan and the Government of
the People’s Republic of China on the Reciprocal Promotion and Protection of Investments (signed 15 Nov 2001, not in force) art 10
115 Agreement between the Government of the People’s Republic of China and the Government of the
Republic of Latvia on the Promotion and Protection of Investments (signed 15 Apr 2004, entered into force 01 Feb 2006) art 8
116 Agreement between the Government of the Russian Federation and the Government of the People’s
Republic of China on the Promotion and Reciprocal Protection of Investments (signed 09 Nov 2006, entered into force 01 Mar 2009), art 9
117 Agreement between the Government of the People’s Republic of China and the Government of
Romania Concerning the Encouragement and Reciprocal Protection of Investments (signed 12 Jul 1994, entered into force 01 Sep 1995), art 9
118 China-Pakistan FTA (n 86) art 54(1); China-Czech BIT (n 88) art 9(1); China-Romania BIT (n 93)
art 9(1)
119 China-Russia BIT (n 92) art 9(1); China-Bosnia and Herzegovina BIT (n 87) art 8(1); 120 China-Iran BIT (n 90) art 12(1)
121 China-Jordan BIT (n91) art 10(1) 122 China-Romania BIT (n 93) art 9(2)
As for the ACFTA123 and China-Uzbekistan BIT124 (see Annex 2) they fall within
type III of consent to arbitration, in which the arbitration clauses stipulate that disputes concerning the breaches of specific provisions of the agreement can be submitted to investor-state arbitration.125 In addition to this, most of the BRI countries, their
arbitration clauses in BITs with China fall within the narrowest, type IV of consent: 35 countries126 (see Annex 2) have signed BITs with China, but the ISDS mechanisms in
those BITs are limited to expropriation disputes which only concerns ‘the amount of compensation for expropriation,’ for instance, the China-Mongolia BIT.127
Since ISDS mechanisms in some IIAs are either relatively broad, fall in type I of the consent, or nonexistent at all, thus, it is the dispute settlement provisions that provide type III and type IV of consent that have the need to be examined the possibility of broadening the scope by virtue of MFN clause. In general, it is MFN clauses from IIAs between these 36 countries, the ACFTA and China-Uzbekistan BIT (37 IIAs in total) that are the main research objects of this article to find out to what extent it is possible to broaden the scope of the consent to arbitration by applying the MFN clause.
4.2 MFN Clauses in China’s IIAs with BRI Countries
MFN clauses are very common in all China’s BITs. MFN clauses in all three versions of Chinese Model BIT cover investment and investors together in one
123 The Framework Agreement on Comprehensive Economic Co-operation Between the People's
Republic of China and the Association of South East Asian Nations (signed 4 Nov 2002, entered into force 1 Jul 2003) art 14
124 Agreement between the Government of the People’s Republic of China and the Government of the
Public Uzbekistan on the Promotion and Protection of Investments (signed 19 Apr 2011, entered into force 1 Sep 2011) art 12
125 ACFTA (n 123), art 14(1); China- Uzbekistan BIT (n 124), art 12(2) 126 The 35 countries are: Albania, Azerbaijan, Armenia, Bahrain, Bangladesh
(<http://tfs.mofcom.gov.cn/article/h/at/201808/20180802780018.shtml> only Chinese version available), Belarus, Bulgaria, Croatia, Egypt, Estonia, Georgia, Hungary, Israel, Kazakhstan, Kuwait, Kyrgyzstan, Lebanon, Lithuania, Macedonia, Moldova
(<http://treaty.mfa.gov.cn/tykfiles/20180718/1531876680043.pdf> only Chinese version available), Mongolia, Oman, Poland, Qatar, Saudi Arabia, Serbia, Slovakia, Slovenia, Sri Lanka, Syria, Tajikistan (<http://tfs.mofcom.gov.cn/aarticle/h/at/200212/20021200058370.html> only Chinese version
available), Turkey (signed but not in force), Ukraine, United Arab Emirates, Yemen
(<http://tfs.mofcom.gov.cn/aarticle/h/at/201002/20100206778924.html> only Chinese version available)
127 Agreement between the Government of the Mongolian People's Republic and the Government of the
People's Republic of China concerning the Encouragement and Reciprocal Protection of Investments (signed 25 Aug 1991, ented into force 01 Nov 1993), art 8(3); Gallagher and Shan (n 17) 172: Moreover, another disputed argument on the topic is whether the wording includes the power of the tribunal to decide if the expropriation has occurred or whether the power of tribunal is limited to decide on quantum only.
provision, without separating them in different provisions, also, they have the same wording that the same treatment should be granted to both ‘investments’ and ‘activities associated with such investments.’128 Some of China’s IIAs with BRI countries also
have the same characteristics with what while others are slightly different.
In China’s BIT with 37 IIAs with BRI countries where the ISDS mechanisms are limited to expropriation, three of them, China’s BIT with Croatia, Serbia and Sri Lanka have the MFN clauses that accord the MFN treatment to only ‘investments or returns of investors.’129 MFN treatment in China’s BIT with 27 other countries,130 however, is
accorded to ‘investments and activities associated with such investments of investors.’ In China-Slovakia BIT, the expression is even slightly different; the MFN treatment is accorded ‘to investors… with respect to investments, returns, and business activities in connection with the investment.’131
In the rest 8 BITs,132 things are more different. The MFN treatment is stipulated
with more modifiers, to investors as regards ‘management, maintenance, use,
enjoyment or disposal of their investments.’133 China- United Arab Emirates BIT has
an additional wording: ‘…or any other activities associated therewith.’134 In the
128 Gallagher and Shan (n 17) 160;
129 Agreement between the Government of the Democratic Socialist Republic of Sri Lanka and the
Government of the People's Republic of China on the Reciprocal Promotion and Protection of Investments (‘Sri Lanka- China BIT’) (signed 13 Mar 1986, entered into force 25 Mar 1987), art 4; Agreement between the Government of the Government of the People's Republic of China and the Government of the Republic of Croatia Concerning the Encouragement and Reciprocal Protections of Investments (‘Croatia-China BIT’) (signed 07 Jun 1993, entered into force 01 Jul 1994), art 3(1); Agreement between the Government of the People's Republic of China and the Government of the Federal Republic of Yugoslavia Concerning the Reciprocal Encouragement and Protection of Investments (‘Serbia-China BIT’) (signed 18 Sep 1995, entered into force 13 Sep 1996), art 3(1)
130 Albania, Armenia, Azerbaijan, Bahrain, Bangladesh, Belarus, Egypt, Estonia, Georgia, Hungary,
Kazakhstan, Kyrgyzstan, Lebanon, Lithuania, Moldova, Mongolia, Omen, Poland, Qatar, Slovakia, Slovenia, Syria, Tajikistan, Turkey (new BIT signed in 2015 but not in force), Ukraine, Yemen
131 Agreement between the Government of the Czech and Slovak Federal Republic and the Government
of the People’s Republic of China for the Promotion and Reciprocal protection of Investments, art 3(1)
132 China’s BITs with Saudi Arabia, Israel, Kuwait, United Arab Emirates, Bulgaria, Macedonia,
Uzbekistan and ACTFA
133 Agreement between the Government of the People’s Republic of China and the Government of the
State of Kuwait for the Promotion and Protection of Investments (signed 21 Apr 1994, entered into force 01 Apr 1996), art 3; Agreement between the Government of the Bulgaria and the Government of the People’s Republic of China Concerning the Reciprocal Encouragement and Protection of Investments (signed 27 Jun 1989, entered into force 21 Aug 1994), art 2(2); Agreement between the Government of the People's Republic of China and the Government of the State of Israel for the Promotion and Reciprocal Protection of Investments (Agreement between the Government of the People's Republic of China and the Government of the State of Israel for the Promotion and Reciprocal Protection of Investments(signed 10 Apr 1995, entered into force 13 Jan 2009), art 3(2)
134 Agreement Between the Government of United Arab Emirates and the Government of the People’s
Republic of China (signed 01 Jul 1993, entered into force 28 Sep 1994), (China-United Arab Emirates BIT) art 3(2)
Saudi Arab BIT, it even stipulates that MFN is accorded to investors ‘…or with the means to assure their rights to such investments like transfers and indemnifications or with any other activity associated with this in its territory…’135 Moreover, the MFN
treatment is accorded to investors in respect of their investment ‘their management, use, enjoyment or disposal, extension, liquidation of investments;’136 ‘the
establishment, acquisition, expansion, management, maintenance, use, enjoyment, sale or disposal of investments;’137 ‘the admission, establishment, acquisition, expansion,
management, conduct, operation, maintenance, use, liquidation, sale, and other forms of disposal of investments.’138
Furthermore, there are 24 BITs139 that clarify MFN treatment is referred to as ‘fair
and equitable treatment’ and ‘full protection’ (‘FET’). Also, it is noticeable that in the last paragraph of the MFN clause of ACFTA140 and China-Uzbekistan BIT, they
stipulate clearly that the MFN treatment is not applicable to dispute resolution procedures.
4.3 The Application of MFN Clauses to Dispute Settlement Provisions
of China’s IIAs with BRI Countries
4.3.1 Interpretation of MFN clauses
To begin with, in general, MFN treatment should include treatment not only to substantive treatment but also procedural treatment. On the one hand, the using of the language has a general characteristic. The ordinary meaning of the ‘treatment’ refers to ‘behavior in respect of an entity or a person.’141 The word itself does not limit to only
substantive treatment, but also to FET that is even more difficult to define since the purpose of FET is to fill in the gaps between other more specific standards of protection for foreign investment, ‘in order to obtain the level of investor protection
135 Agreement between the People's Republic of China and the Kingdom of Saudi Arabia on the
Reciprocal Promotion and Protection of Investments (signed 29 Feb 996, entered into force 01 Mar 997), art 3(3)
136 Agreement Between the Government of the People's Republic of China and the Government of the
Republic of Macedonia concerning the Encouragement and Reciprocal Promotion of Investments (signed 09 Jun 1997, entered into force 01 Nov 1997), art 3(2)
137 China-Uzbekistan BIT (n 124), art 4(1) 138 ACFTA (n 123), art 5(1)
139 China’s BIT with Albania, Armenia, Azerbaijan, Bahrain, Bangladesh, Croatia, Egypt, Estonia,
Georgia, Hungary, Kazakhstan, Kyrgyzstan, Lebanon, Lithuania, Moldova, Mongolia, Peru, Poland, Qatar, Slovenia, Syria, Tajikistan, Ukraine, Yemen
140 ACFTA (n 123), art 5(1)
intended by the treaties,’ as stated by Dolzer and Schreuer.142 The actual FET needs to
be examined in a case-by-case basis, but at the same time, it is commonly accepted that FET includes the procedural rights of investors, for instance, the right to due process. Moreover, the access to dispute settlement mechanism is a procedural right of investors, as stated by Siemens Tribunal that the investor-state arbitration is a special dispute settlement mechanism that does not open to investors in normal situations. Thus, similarly, the access to this arbitration is also a part of the protection provided specifically by the Treaty within the treatment.143
On the other hand, with respect to MFN clauses which stipulate that treatment is accorded to ‘investments and activities associated with such investments of investors,’ the language is also relatively broad. With an expansive interpretation of the
‘investment,’ the right of access to the dispute settlement mechanism can be regarded as an investment. This is the view alleged by the claimants in the Swissborough v
Lesotho, where the Tribunal supported claimants’ argument and held that the right to
refer the claim to arbitration fell within ‘[claim] to money or to any performance under contract having a financial value’ which constitute the definition of the investment, and thus it was an investment.144 Even if not taking this expansive view on
interpretation of investment, instead, taking a restrictive view the word ‘activities’ which ‘associated with’, ‘in connection with’ or ‘related to’ an investment also enlarge the scope of objects that are accorded with MFN treatment, and covering the dispute settlement is not at odds with the meaning of the text.
Moreover, as regard in some clauses with modifiers that MFN treatment granted to investors the ‘management, maintenance, use, enjoyment, acquisition, or disposal of…’ investments, it seemed that the access to arbitration fit more in. After all, the protection of the right to arbitration does not affect the ‘investment’ so directly, but rather to procedural rights of investors in these extra languages. The right of
submission to arbitration constitutes a highly connected part of the protection of investors’ ‘management, maintenance, use, enjoyment, acquisition, or disposal of’ investments. Especially the procedural option to international arbitration is of great
142 See Dolzer and Schreuer (n 32), 134 143 Siemens v Argentina (n 65), para 102
144Swissbourgh Diamond Mines (Pty), Ltd Josias Van Zyl, The Josias Van Zyl Family Trust and other v Kingdom of Lesotho, PCA Case No. 2013-29, Judgement of the High Court of Singapore on the Set
significance, comparing with the only alternative to submit the dispute to domestic courts of the host State.145
In the end, the word means what it means. The principle applies to any MFN clause. In all these MFN clauses of China’s BITs with BRI countries, most of them include a paragraph specifying the exclusion of the application of MFN treatment. Moreover, in many of them, MFN treatment is explicitely excluded from economic integration agreements, from taxation treaties except one MFN clause: the one in ACFTA146 that excludes the application to dispute settlement while others are silent.
Since the exclusion provisions in these MFN clauses already exist, and they do not cover the ISDS, there is no reason to rule out the MFN treatment of procedural issues. According to the principle of expressio unius est exclusio alterius, although it is not explicitly incorporated into Article 31 or 32 of VCLT, it can be perceived from these clauses that they do not eject the ISDS in MFN treatment.
4.3.2 Read MFN Clauses together with Dispute Settlement Provisions
As stated above, the ACFTA and China-Uzbekistan BIT have MFN clauses which clearly point out that the MFN clause is not applicable to procedural issues. Particularly, there are three BITs, China-Slovakia BIT,147 China-United Arab Emirates
BIT148 and China-Yemen BIT,149 include the ISDS provision which alleges that the
disputes other than compensation for expropriation shall be agreed by parties to the
dispute in order to submit disputes to ISDS arbitration. For instance, Article 9 of
China-Slovakia BIT states that investor-state dispute can be submitted ‘to an international ad hoc tribunal… provided that the dispute relates to the amount of compensation for expropriation and any other dispute which is agreed upon by both parties to the dispute.’
Concerning this type of dispute settlement provisions, there is one out of very few cases in ICSID where Chinese investors were claimants - Tza Yap Shum v Peru150
which has referential significance to this article. The problem of application of the
145 RosInvestCo v. Russia, para 130 146 ACFTA (n 123), art 5(4)
147 China-Slovakia BIT (n 131 ), art 9(2)(b)
148 China-United Arab Emirates BIT (n 134), art 9(3)
149 Agreement between the Government of Yemen and the Government of the People's Republic of
China Concerning the Encouragement and Reciprocal Protection of Investments (signed 16 Feb 1998, entered into force 10 Apr 2002), art 10(2)
150 Tza Yap Shum v Republic of Peru (‘Tza Yap Shum v Peru’), ICSID Case No. ARB/07/6, Decision on
