Don't Get Bit: Addressing ICSID's Inconsistent Application of MostFavored-Nation Clauses to Dispute Resolution Provisions

Abstract

Few except gunboat makers mourn the end of gunboat diplomacy.' Although this traditional method of resolving investment disputes is currently obsolete, the transformation has taken place primarily in the last few decades. Rather than waiting for customary law to provide security for foreign direct investment, developed nations found a quicker path, the Bilateral Investment Treaty (BIT). This new type of treaty outlined the terms and conditions for private investment by individuals and companies of one state in the territory of another. Specifically, it provided substantive and procedural safeguards for investors whose investments were otherwise subject to the whims of the host country. 

Nevertheless, despite the assurances given in BITs, without a neutral dispute resolution mechanism, national interests were still able to affect the security of investments. In response to the need for independent resolution of investment disputes, the International Centre for the Settlement of Investment Disputes (ICSID) was created. Now that ICSID is the preeminent arbitral organization dealing with disputes between sovereign states and individual investors, its decisions carry significant weight.

Recently, ICSID arbitration panel decisions have employed conflicting approaches to applying Most-Favored-Nation (MFN) clauses in BITs to dispute resolution provisions. These inconsistent decisions threaten to frustrate the purpose of the BIT regime-providing states and investors with confidence regarding their respective rights and obligations.

This article will examine the potential effects and problems associated with this set of MFN decisions. Part II discusses the importance and historical development of international investment law and practice. It pays particular attention to the rise of the BIT and its effect on foreign direct investment. Part III discusses the effect of ICSID on international investment. After describing the reasons for creating ICSID, this part explains its structure and emphasizes its ever-increasing importance. Part IV discusses ICSID's divergent approaches toward the effect of MFN clauses on dispute resolution provisions in BITs. Part V addresses the problems associated with these inconsistent approaches. Part VI discusses potential means to remedy the conflict. Part VII concludes the comment.