Summary LLM International Dispute Resolution - Investment Treaty Arbitration II - Module 6 (Contingent Standards)
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Course
LLM
Institution
Queen Mary, University Of London (QMUL)
National Treatment
o Definition
o Drafting provisions
o Violation of standard
Comparator
- Business sector
- Not like products
- Legal regime
Less favourable treatment
- Treatment
- No less favourable
- Discriminatory intent
No reasonable justification for differentiat...
Contingent standards do not have any intrinsic substantive content. They obtain such
content in relation to the treatment afforded to someone or something else1. Customary
international law does not require such treatment towards aliens. Thus contracting states must
include such standards in treaties to secure such benefits for their citizens in the host state2.
What is the standard for National Treatment?
National treatment standard requires non-discrimination between similarly-situated
domestic and foreign persons/entities/goods/services/investments. Thus the host state should
extend to foreign investors treatment at least as favourable as that accorded to domestic
investors in similar circumstances3. However, states have faced domestic political challenges
in including this standard in their BITs as ‘no single country has so far seen itself in a
position to grant national treatment without qualifications, especially when it comes to the
establishment of an investment’4. Thus this has led to various formulations in expressing such
standard in BITs and MITs.
History
National treatment has largely evolved as a treaty-based standard in international law. It
traces back to the Hanseatic League in the 12th and 13th centuries5. This was seen in Article 5
of 1825 Treaty of Amity, Commerce and Navigation between UK and Ireland and
United Provinces of Rio de la Plata (Argentina), as it provided that ‘No higher or other
duties or charges on account of tonnage, light or harbour dues, pilotage, salvage in case of
damage or shipwreck, or any other local charges, shall be imposed, in any of the ports of the
said United Provinces, on British vessels of the burthen of above 120 tons, than those
payable, in the same ports, by vessels of the said United Provinces of the same burthen; nor
in the ports of any of His Britannic Majesty’s territories, on the vessels of the United
Provinces of above 120 tons, than shall be payable, in the same ports, on British vessels of
the same burthen.’6 Article 2(1) of 1883 Paris Convention for the Protection of Industrial
Property provided that ‘Nationals of any country of the Union shall, as regards the
protection of industrial property, enjoy in all the other countries of the Union the advantages
that their respective laws now grant, or may hereafter grant, to nationals; all without prejudice
to the rights specially provided for by this Convention. Consequently, they shall have the
same protection as the latter, and the same legal remedy against any infringement of their
rights, provided that the conditions and formalities imposed upon nationals are complied
with.’
After World War II, 1947 GATT and 1944 Articles of Agreement of the International
Monetary Fund have mainly focused on limiting nationality-based discrimination. Article III
1
Andrew Newcombe and Lluís Paradell, ‘Chapter 4 – National Treatment’, in Law and Practice of Investment
Treaties: Standards of Treatment (Kluwer Law International 2009) 148
2
Campbell McLachlan and others (2017), ‘Treatment of Investors’ in International Investment Arbitration:
Substantive Principles (2nd edn, OUP 2017) 7.55-7.56
3
UNCTAD (1999), ‘National Treatment’, UNCTAD/ITE/IIT/11 (Vol. IV), UNCTAD Series on Issues in
International Investment Agreements, (United Nations 1999) 1
4
UNCTAD (1999), ‘National Treatment’, UNCTAD/ITE/IIT/11 (Vol. IV), UNCTAD Series on Issues in
International Investment Agreements, (United Nations 1999) 1
5
VerLoren van Themaat, The Changing Structure of International Economic Law (Martinus Nijhoff 1981) at 16
6
Raúl Emilio Vinuesa, ‘National Treatment, Principle’ in Max Planck Encyclopedia of Public International Law
(OUP 2011) paras 10-11
, GATT requires states to provide national treatment to imports originating in other states and
in reference to domestic taxes. Article VIII of Articles of Agreement prohibits
discriminatory currency practices and provides for convertibility of foreign currency.
However, early drafts of MITs like 1959 Abs-Shawcross Convention and 1967 OECD Draft
Convention did not expressly provide for national treatment. Yet commentary to the OECD
Draft Convention suggests that Article 1(a)’s reference to ‘discriminatory measures’ includes
differentiation between foreign and domestic persons 7. Whereas BITs concluded by US, UK
and Japan included national treatment provisions 8. Article VII(1) of 1953 US-Japan FCN
treaty provided that ‘Nationals and companies of either Party shall be accorded national
treatment with respect to engaging in all types of commercial, industrial, financial and other
business activities within the territories of the other Party, whether directly or by agent or
through the medium of any form of lawful juridical entity. Accordingly, such nationals and
companies shall be permitted within such territories: (a) to establish and maintain branches,
agencies, offices, factories and other establishments appropriate to the conduct of their
business; (b) to organize companies under the general company laws of such other Party, and
to acquire majority interests in companies of such other Party; and (c) to control and manage
enterprises which they have established or acquired. Moreover, enterprises which they
control, whether in the form of individual proprietorships, companies or otherwise, shall, in
all that relates to the conduct of the activities thereof, be accorded treatment no less favorable
than that accorded like enterprises controlled by nationals and companies of such other
Party.’ They also provided for protection against exchange controls. Article XII(1) of 1953
US-Japan FCN Treaty provided that ‘Nationals and companies of either Party shall be
accorded by the other Party national treatment and most-favored-nation treatment with
respect to payments, remittances and transfers of funds or financial instruments between the
territories of the two Parties as well as between the territories of such other Party and of any
third country.’
Drafting provisions
States can draft national treatment provisions in their treaties in various ways 9. The treaty
may not mention national treatment at all, include either a general national treatment clause
or a more specific non-discrimination regime.
States should consider various factors when drafting national treatment provisions 10.
These may include the definition and admission of ‘investment’, incentives, MFN treatment,
FET, taxation, investors’ employment and social responsibility obligations, host state’s
operational measures, property takings, transparency regarding laws applicable to foreign
investors’ operations and dispute settlement.
The distinction between pre-entry and post-entry national treatment is important11.
Limited post-establishment treatment avoids limiting host state’s regulatory powers too
greatly by imposing national treatment only to the ‘same’ circumstances and ‘same’
treatment. Whereas full post-establishment national treatment limits the host state’s
7
OECD (1967), ‘Draft Convention on the Protection of Foreign Property’, International Lawyer, Vol. 2, No. 2,
335
8
Andrew Newcombe and Lluís Paradell, ‘Chapter 4 – National Treatment’, in Law and Practice of Investment
Treaties: Standards of Treatment (Kluwer Law International 2009) 155
9
UNCTAD (2004), International Investment Agreements: Key Issues, Volume 1, UNCTAD/ITE/IIT/2004/10
(Vol.I), pages 165-166.
10
UNCTAD (2004), International Investment Agreements: Key Issues, Volume 1, UNCTAD/ITE/IIT/2004/10
(Vol.I), pages 181-183.
11
UNCTAD (2004), International Investment Agreements- Key Issues, Volume 1, UNCTAD/ITE/IIT/2004/10
(Vol.I), pages 185-187.
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