Most favored nation

Definition

A clause frequently included in bilateral investment treaties ("BITs") which provides that a host state shall treat all of its trading partners equally. Under such a clause, if the host state lowers a tariff for one trading partner, it must lower it for all trading partners.

As most major trading states are members of the WTO, the WTO's trade agreements have superceded many preexisting bilateral investment treaties.  However, there are still unsettled legal issues between the operation of the WTO basic treaty and existing BITs.  See Maffezini v. Spain (2000), Case No. ARB/97/7, Decision on Jurisdiction, ¶45 (ICSID) (“[I]f a third party treaty contains provisions for the settlement of disputes that are more favorable to the protection of the investor’s rights and interests than those in the basic treaty, such provisions may be extended to the beneficiary of the most favored nation clause as they are fully compatible with the ejusdem generis principle.”)

See also