Why might a government require local administrative and court remedies to be used before international arbitration?

Governments often require the exhaustion of local administrative and judicial remedies before consenting to international arbitration to ensure that their own legal systems are given the first opportunity to resolve disputes involving foreign private parties.1

By mandating that an injured party pursue all available domestic avenues, a state asserts its sovereignty and the integrity of its local courts. This practice serves as a procedural safeguard, ensuring that international intervention is reserved for cases where justice could not be obtained through the state's own established legal framework.12

While contracting parties may explicitly agree to bypass these local requirements in their contracts, the Convention on the Settlement of Investment Disputes specifically allows a state to make the exhaustion of local remedies a formal condition of its consent to arbitration. Ultimately, this requirement reflects the tension between international adjudication and the preference of states to maintain control over the resolution of disputes occurring within their jurisdiction.1