OECD WORKING PAPERS ON INTERNATIONAL INVESTMENT – The Most Favoured Nation and Non-Discrimination Provisions in international trade law and the OECD Codes of Liberalisation. By Andrea Marín Odio. Increasing moves away from multilateralism have created a fragmented trade and investments cenario where economies progressively combine the application of restrictive unilateral actions with bilateral and regional preferences. The application of, and exceptions to, the non-discrimination provisions are a fundamental element of these trends. This paper sheds light on the two types of non-discrimination provisions considered the founding stones of the multilateral system: the most favoured nation (MFN) clause – as developed under the GATT and GATS – and the non – discrimination clause among countries adhering to the OECD Codes of Liberalisation. While not taking a position on the complex question of whether a multilateral, plurilateral or bilateral approach to trade and investment liberalisation should be pursued, the paper illustrates the OECD has upheld the non – discrimination obligation as one of its basic principles, dating back to its origins over 60 years ago. By the second half of the twentieth century, agreements concluding the global confrontation of the World Wars gave a main role to non – discrimination provisions in international trade and investment law, in a renewed effort towards building a multilateral framework of cooperation. In parallel, and prompted by economic circumstances and geopolitical considerations, regional integration schemes (in the form of bilateral and plurilateral agreements) developed as a way to grant additional preferences to selected treaty partners, without having to extend them to the rest of the world. Since then efforts towards multilateralism have co-existed with preferential regional schemes, considered both a stepping – stone and a threat to the ultimate purpose of multilateral integration. Discussions on the interpretation, application and exceptions to the non – discrimination provisions in international trade and invest ment law are thus deeply linked with the debate on the preferred method of international cooperation and integration. This paper contributes to this discussion by elucidating the concepts of the most-favoured nation (MFN) treatment and the non-discrimination clauses under international trade law and the OECD Codes of Liberalisation of Capital Movements and of Current Invisible Operations (hereinafter together referred to as “the Codes”), as well as their application and exceptions. The non-discrimination principle often comprises two aspects: the MFN treatment obligation and the National Treatment (NT) obligation. The non-discrimination provision under Article 9 of the Codes is akin to the MFN obligation in other trade and investment instruments, whereas NT provisions are covered under the National Treatment instrument of the OECD Declaration on International Investment and Multinational Enterprises, albeitin a non-binding manner. The non-discrimination principle protects the value of concessions granted by countries against future erosion through discrimination. In the absence of such provision a country might be reluctant to concede preferential access to foreign investment from negotiating parties fearing that they may grant a more favourable treatment to a third country thereby reducing relative benefits. This fear could lead to reducing the level of reciprocal concessions granted, or even frustrating any liberalisation process. The application of this principle could, however, also bring unexpected consequences, such as the freezing of further expansion of concessions towards third parties, for fear of having to extend them via MFN to all; or, on the contrary, deepening trade and investment relations exclusively with third parties to avoid the application of a non-discrimination inter partes clause, such as the one in the Codes. Countries could also simply decide not to include, or to limit, MFN obligations in certain agreements, and give additional preferences only to their closest partners. To mitigate the potential drawback of the non-discrimination provisions, diferente multilateral instruments allow some exceptions to the non-discrimination principle, provided certain conditions are met. As an example, Article 10 of the Codes allows Adherents forming part of a “special customs or monetary system” to apply additional measures of liberalisation to one another without extending them to other Adherents. Currently, increasing moves away from multilateralism have brought about a fragmented world scenario, where trade and investment partners are progressively combining the application of restrictive unilateral actions with bilateral and regional negotiations of preferences to selected partners. While selective opening may help to reach agreements that would otherwise be impossible to achieve in the multilateral scena rio, the continuing proliferation of International Investment Agreements (IIAs) has sparked a debate about coherence, compatibility and potential conflict between multilateral and regional approaches to trade and investment. By November 2019, approximately 300 Free Trade Agreements (FTAs) and custom unions were in force. These correspond to 480 notifications from members of the World Trade Organisation (WTO). In addition, more than 2300 Bilateral Investment Treaties (BITs) are in force. This spaghetti bowl of agreements can lead to a multiplication of regulations and associated increases in cost and administrative burden as well as the potential for countries to violate their non-discrimination obligations. The OECD has been no stranger to the discussion of the discrimination issues caused by the proliferation of bilateral and plurilateral IIAs. Since 2005, the OECD Investment Committee has held ongoing discussions on the implication of preferential measures, taken unilaterally or in the context of the subscription of new IIAs, with the obligations of Adherents under the Codes. The debate on the benefits and limitations of the non-discrimination principle stands at the core of the current policy discussions on the preferred model of international economic integration. This paper does not aim to take a position on the complex question of whether a multilateral, plurilateral or bilateral approach to trade and investment liberalisation should be pursued. It does illustrate however, how throughout the history of the Codes, both the Council and IC have upheld the non-discrimination obligation as one of the basic principles not only of the Codes but also in the broader OECD context (for example in the OECD Accession Roadmaps). The paper proceeds as follows: Section one of this report explains the non-discrimination provision in the Codes and the traditional MFN provision, including definition, historical background and application. Section two expands on the exceptions to the traditional non-discrimination provision under the WTO and the non-discrimination provision under the Codes. Section three concludes.
Marín Odio, A. (2020), “The most favoured nation and non-discrimination provisions in international trade law and the OECD codes of liberalisation”, OECD Working Papers on International Investment, No. 2020/01, OECD Publishing, Paris, https://doi.org/10.1787/c7abd09b-en.