U.S. Model BIT

The U.S. model bilateral investment treaty of 2012 contains a most-favoured-nation clause that is almost identical with that of the NAFTA.²¹⁵ It provides in Article 4:

“(1) Each Party shall accord to investors of the other Party treatment no less favora-ble than that it accords, in like circumstances, to investors of any non-Party with re-spect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory.

215 Moreover, it is virtually identical with the most-favoured-nation clause in Article 4 of the Canadian Model BIT.

53 (2) Each Party shall accord to investments of the other Party treatment no less fa-vorable than that it accords, in like circumstances, to investments in its territory of investors of any non-party with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments.”²¹⁶

In contrast to early U.S. Model BITs, the most-favoured-nation obligation is now uncou-pled from the national treatment obligation. It now contains not only a reference to in-vestments, but also an obligation to treat investors on a most-favoured-nation basis. The reference to “like situations” has been changed into “like circumstances”, which does not however entail a change of the meaning²¹⁷. Moreover, the list of covered activities is now exhaustive. It is less detailed than in early model treaties; yet the definition of “invest-ment” contained in Article 1 of the 2012 model BIT covers all activities that were addi-tionally mentioned in the favoured-nation clause in prior model BITs. The most-favoured-nation obligation in the U.S. model BIT does not apply to government procure-ment and to subsidies or grants provided by a Party (Article 14 (5)). Most United States bilateral investment treaties adopt a negative-list approach for market access, which means that the obligation to grant market access is only restricted if the State has specifi-cally made exceptions for the respective sector. Moreover, the most-favoured-nation clause of the U.S. model BIT refers to the establishment and acquisition of investments.

Thus, like NAFTA’s most-favoured-nation clause, the most-favoured-nation obligation in the U.S. model BIT is also applicable in the pre-entry phase.

D. 2008 German Model BIT

The general most-favoured-nation clause in Article 3 of the German Model BIT provides:

(1) Neither Contracting State shall in its territory subject investments owned or con-trolled by investors of the other Contracting State to treatment less favourable than

216 A virtually identical formulation is used in Article 4 (1) of the 2004 Canadian Model BIT.

217 See Part VIII A.

it accords to investments of its own investors or to investments of investors of any third State.

(2) Neither Contracting State shall in its territory subject investors of the other Con-tracting State, as regards their activity in connection with investments, to treatment less favourable than it accords to its own investors or to investors of any third State.

The following shall, in particular, be deemed treatment less favourable within the meaning of this Article:

1. different treatment in the event of restrictions on the procurement of raw or auxil-iary materials, of energy and fuels, and of all types of means of production and op-eration;

2. different treatment in the event of impediments to the sale of products at home and abroad;

3. other measures of similar effect.”

The provision provides that less favourable treatment is given in certain enumerated cas-es, however, the list is not exhaustive. The clause only covers the post-establishment phase and is thus not applicable to the market access of an enterprise. This can be inferred from the formulation of Article 2 (1) of the German model BIT, which obliges the Con-tracting States to admit investments in accordance with their legislation. One can follow from this provision that the BIT does not prohibit restrictions to the admission of an in-vestment if they are provided in the national legal system. Moreover, the most-favoured-nation clause of the German model BIT refers to investments “in [the Contracting States’]

territory”, thus indicating that most-favoured-nation treatment shall only be applied to in-vestments that have already been established within the jurisdiction of the respective host State. The lack of a right to market access is in conformity with the rights protected in most bilateral investment treaties except those of the United States and Canada, which usually do not grant a right to establish a foreign investment in a certain country, but only comprehend the protection of enterprises that are already operating on the market. Ac-cordingly, the predominant part of bilateral investment treaties grants most-favoured-nation treatment only with respect to the phase following the establishment of the enter-prise.

55 Article 3 (3) of the model BIT provides for an exception from the duty to accord most-favoured-nation treatment with regard to privileges granted due to membership in a cus-toms or economic union, a common market or a free trade area or a State’s association with such union.This norm is particularly relevant as regards Germany’s membership in the European Union. Article 3 (4) provides that most-favoured-nation treatment shall not relate to favours granted to third states on account of an agreement concerning the pay-ment of taxes, especially double taxation agreepay-ments. Article 3 (2) third sentence clarifies that measures that are taken for reasons of public security and order are not classified as less favourable treatment.²¹⁸

E. Energy Charter Treaty (ECT)²¹⁹

The Energy Charter Treaty is a multilateral treaty which entered into force on 16 April 1998 and has currently been signed by fifty-three and ratified by forty-eight Contracting Parties. One of its aims is the protection of investments in the energy sector. Part III of the treaty (Articles 10-17) contains the substantive provisions for the protection of invest-ments. Article 10 (7) ECT provides:

“Each Contracting Party shall accord to Investments in its Area of Investors of other Contracting Parties, and their related activities including management, maintenance, use, enjoyment or disposal, treatment no less favourable than that which it accords to Investments of its own Investors or of the Investors of any other Contracting Par-ty or any third state and their related activities including management, maintenance, use, enjoyment or disposal, whichever is the most favourable.”

In its binding form, the clause only covers the post-entry phase. With regard to the pre-establishment phase, the Contracting Parties are only subject to the soft-law obligation

218 The original wording of Art. 3 (a), 3rd sentence of the Protocol is: “Maßnahmen, die aus Gründen der öffentlichen Sicherheit und Ordnung, der Volksgesundheit oder Sittlichkeit zu treffen sind, gelten nicht als “weniger günstige” Behandlung im Sinne des Artikel 3.”

219 For an overview of the investment provisions of the ECT see Happ, Dispute Settlement Under the Energy Charter Treaty, pp. 331-362.

under Article 10 (2) and (3) to “endeavour to accord to Investors of other Contracting Par-ties, as regards the Making of Investments in [their] Area” most-favoured-nation treat-ment. However, as announced in the preamble and in Article 10 (4), most-favoured-nation treatment shall be applied to the pre-establishment phase pursuant to a supplementary treaty. This construction is an example for a compromise between those parties that wish to suppress national control in the field of the admission of investments and those intend-ing to ensure it. The most-favoured-nation standard is subject to a number of exceptions.

According to Article 21, the provisions of the ECT including the most-favoured-nation standard shall not be applicable to taxation matters. Article 24 enlists further general ex-ceptions, which are mostly inspired by concepts developed in international trade law, namely by the catalogue of exceptions stated in Article XX GATT, including measures necessary to protect human, animal or plant life or health (Art. 24 (2) (b) (i)), measures essential to the acquisition or distribution of energy materials in conditions of short sup-ply arising from causes outside the control of the Contracting Party (Art. 24 (2) (b) (ii)), measures designed to benefit investors who are aboriginal people or socially or economi-cally disadvantaged individuals or groups (Art. 24 (2) (b) (iii)), measures for the protec-tion of essential security interests (Art. 24 (3) (a)), measures relating to the implementa-tion of naimplementa-tional policies respecting the non-proliferaimplementa-tion of nuclear weapons (Article 24 (3) (b)), or measures which the State considers necessary for the maintenance of public order (Article 24 (3) (c)). The most-favoured-nation obligation is also submitted to an ex-ception in Article 24 (4), which states that the requirement shall not oblige the Contract-ing Parties to extend to investors of another ContractContract-ing Party preferential treatment re-sulting from the State’s membership in a free trade area or customs union or from an in-ternational agreement “concerning economic cooperation between states that were con-stituent parts of the former Union of Soviet Socialist Republics pending the establishment of their mutual economic relations on a definitive basis”. According to Article 10 (10), the most-favoured-nation obligation and the national treatment obligation shall not apply to the protection of intellectual property. This leaves the Contracting States the possibility to maintain existing exemptions to most-favoured-nation and national treatment under exist-ing intellectual property rights agreements.

57