Originally from the ICDR Handbook on International Arbitration & ADR - Third Edition

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I.    Introduction

Unlike other generic writings on how to resolve business disputes, we offer 10 “golden rules” that U.S. corporate counsel should follow when they engage in settlement negotiations of an investment dispute with a foreign sovereign or state entity. Negotiating with foreign governments can be challenging because they generally do not share the same objectives as private companies. Private enterprises are usually driven by one goal: making money. So when a deal turns sour, the goal remains the same regardless of the country of incorporation—to settle the dispute on the best possible financial terms. (A secondary goal might be to maintain the ongoing business relation¬ship, but again, even the motivating factor underlying this goal is monetary.) For publicly traded companies, the financial goal is especially critical because, at the end of the day, it is the bottom line and the all-important end-of-year accounts to shareholders that are the lodestar of their actions.

It would be inaccurate to say that government entities are not also motivated by financial objectives to some extent. But when a foreign state entity is involved in a dispute with a private commercial enterprise, commercial considerations typically are not its primary interest. Governments have no shareholders. Their actions are more often influenced by national public policies, economic development goals, political objectives, lobbyists, non-governmental organizations (NGOs), multilateral institutional lending requirements, world trade issues, regional public policy, media reaction inside and outside of the country, and other such factors. All of the foregoing could be sharply exacerbated during election years.

Foreign host governments have enormous power over the operations of foreign investments within their borders, and full-blown international arbitration can be expensive and lengthy. To maximize the prospects for a successful negotiation of a dispute arising out of a foreign investment without the need to resort to a protracted arbitration proceeding, U.S. corporate counsel should bear in mind the following golden rules.