Umbrella clause is a clause in bilateral investment treaties (BITs) which guarantees the observance of obligations by host states entered with investors. This clause enables the investor to have direct recourse before arbitral bodies and elevates contractual breaches to a treaty breach, which will in turn attract the international responsibility of the host state. This thesis will discuss the advent of umbrella clause under international law and its subsequent adaptation by various BITs. The study has used both doctrinal and non-doctrinal method of legal research. Ethiopia has signed 31 BITs out of them 35% of such BITs have had an umbrella clause. However, the Ethiopian BITs are marked by dissimilar treatment in relation to umbrella clause. For instance, the Ethio-Germany BIT has an umbrella clause whereas Ethio-France and Turkey BITs have no such clauses. This thesis raises the following principal questions. What are the policy and legal implications of dissimilar treatment of umbrella clause under Ethiopian BITs? Is that a matter of bargain, strategic partnership or another? What will be the implication with regard to state responsibility when inclusion or absence of umbrella clause is made in Ethiopian BITs? After examining tribunalsâ€˜ experiences, comparative study of model BITs and commentators on the field, the study found that while umbrella clause is an imperative arsenal for investor to claim before arbitral bodies, it makes the obligation of host states more burdensome. Therefore, this thesis argues, in order to avoid dissimilar treatment, amending the existing BITs having umbrella clause via eliminating such clause and followed by observing the 2016 Ethiopian model BIT as guidance for future BITs will be a solution.