Investor Presentaiton
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I. EXPLANATION OF THE ISSUE
A. Historical context
States started to include ISDS in their investment treaties in the
late 1960s and early 1970s; by the 1990s this treaty element had
become standard. Without ISDS, a foreign investor had two avenues
to pursue if a host State expropriated its property or otherwise
interfered with its investment. The first was to seek relief in the
local courts or administrative tribunals of the host State. Investors
seeking such redress often encountered problems
such as
domestic sovereign immunity or a non-independent judiciary that
could be influenced by the host State's political officials which
prevented them from securing recovery for their losses.
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10
Secondly, if domestic courts were ineffective, a foreign
investor's remaining hope was to convince its home government to
espouse its claim (i.e. exercise diplomatic protection). For
investors from "powerful" States this could be an effective weapon;
yet even "powerful" States would often prove reluctant to intervene
on behalf of an investor should higher political considerations
dictate. For a small investor lacking political clout in a discrete
dispute, the hurdle to obtain espousal could be very high indeed.
Even if an investor did obtain espousal, the claim would then belong
to the investor's home State, which could decide how to prosecute it
and even whether to settle. Further, proceeds from the dispute would
technically belong to the State, rather than the investor. Moreover,
transnational corporations (TNCs) with affiliates in numerous
countries (each possessing, in all probability, a different legal
nationality) and a highly international shareholder profile might find
it difficult to accurately define the firm's nationality for the
purposes of establishing the right of diplomatic protection.
10
See Borchard, 1915.
UNCTAD Series on International Investment Agreements IIView entire presentation