ISDS vs. Diplomatic protection : What venue, for future investment disputes, would be the best of choices in accordance to have justified investment protection?

Abstract: From the end of 18th century, investors from the Western hemisphere were in need of a protection for their investors. Whenever, inter alia, host-States of Latin America could not – or did not – assist the foreign investors through sufficient local remedies, investors instead sought remedies through their own government. This process is known as diplomatic protection, which in the early stage of 19th century was a viable and good-intended dispute resolution venue. Thus, from the mid-19th century, seeking procedural redress through the foreign investor´s home government became the common method for solving investment disputes. However, at times the diplomatic stand-off was assisted with pressure from armed forces. Thus, diplomatic protection had eventually turned into a corrupt system, sometimes used to seek vengeance for way more than the initial damage. Towards the end of the 19th century and beginning of the 20th century, diplomatic protection was rejected and investor-state dispute settlement (ISDS) came to the surface. ISDS intended to be way less influenced by, among other things, economic pressure, military power and political influences. Instead of two States negotiating on behalf of the aggrieved investor, a tribunal of independent arbitrators were tasked with adjudicatory powers. However, dissatisfactions, criticism, and calls for illegitimacy eventually were levelled against the ISDS regime, initially during the late 20th century but more outspread now in the 21st century. This thesis presents a historical development of diplomatic protection and ISDS; comparing pros and cons, respectively, and culminating in an informed opinion regarding which venue is preferable for future investment disputes. The author concludes that each investor-State relation must be analysed individually before being able to determine what protection is more suitable. It is argued that each State possess a certain amount of power; hence, the investor should merely be provided a ‘fair amount of protection’. Hence, investors should claim their rights through conventional and common international law, without governmental support, merely seeking vengeance through host-State’s local remedies. However, since the international fora of conventional and common international law is not yet developed to the extent, that it is completely reliable and invocable. States and investors will have to rely on the balance between ISDS and diplomatic protection, with a thorough demarcation between those, depending on the involved State´s need of a ‘fair amount of protection’. Keywords: ‘fair amount of protection’, diplomatic protection, ISDS, local remedies, power.