Inter-State Investment Disputes: Consultations, Arbitration, and the Limits of Diplomatic Protection

The article examines the legal framework of inter-State investment disputes within contemporary treaty practice. It outlines the role of diplomatic protection and the exhaustion of local remedies as preconditions for activating inter-State procedures. The analysis addresses consultation and negotiation clauses, arbitration provisions, and their interaction with investor–State dispute settlement, including the risk of parallel proceedings. It further considers treaty-based limitations on diplomatic protection once a dispute is submitted to international arbitration, as well as subrogation arrangements enabling the transfer of an investor’s rights to the home State. A tripartite typology of disputes (customary-law based, treaty-based, and subrogation-based) is proposed, and models of State-to-State settlement clauses are compared, including forum-selection mechanisms and exceptions relating to essential security interests. The study concludes that these mechanisms enhance legal predictability and reduce the likelihood of interstate conflict.