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International Arbitration

Hardin G 1968 The tragedy of the commons. Science 162: institutional, under the auspices of one of the insti-
1243–8 tutions competing for the business of international
Kiss A 1993 Les traites-cadres: une technique juridique charac- commercial arbitration, or it may be ad hoc, handled
teristique du droit international de l’environnement. Annuaire
solely by the parties and their counsel. It is especially
Francaise de Droit International 39: 792–7
Miles E L Jr (ed.) 1999 Explaining Regime Effectieness: Con- difficult to count the ad hoc arbitrations.
fronting Theory with Eidence. MIT Press, Cambridge, MA It is clear, however, that the numbers of inter-
Ruster B, Simma B, Bock M (eds.) 1983 International Protection national commercial arbitrations increased at the end
of the Enironment: Treaties and Related Documents. Oceana, of the twentieth century, particularly in China and
Dobbs Ferry, NY Latin America. The most important of the institutions
Sand P H 1996 Institution-building to assist compliance with is the International Chamber of Commerce in Paris,
international environmental law. Zeitschrift fuW r Auslandisches France, and it generally has the largest caseload and
Oq ffentliches Recht und VoW lkerrecht 56(3): 773–93 the cases involving the highest stakes. In 1999, some
Sandler T 1997 Global Challenges: An Approach to Eniron- 529 requests for arbitration were filed with the ICC,
mental, Political, and Economic Problems. Cambridge Uni-
versity Press, Cambridge, UK
concerning 1,354 parties from 107 different countries.
Schachter O 1991 The emergence of international environmental The places of arbitration assigned to the cases involved
law. Journal of International Affairs 44: 457–93 48 different countries on five continents. Arbitrators
Symes D (ed.) 1998 Property Rights and Regulatory Systems in of 57 different nationalities were appointed or con-
Fisheries. Fishing News Books, Oxford, UK firmed under the ICC Rules, and the amount in
UNEP 1990 International Register of Enironmental Treaties. controversy exceeded one million dollars in 58 percent
United Nations Environment Programme, Nairobi, Kenya of the new cases. The ICC Court, which confirms the
Victor D G, Raustiala K, Skolnikoff E B (eds.) 1998 The Im- awards, had 269 new awards submitted in that year.
plementation and Effectieness of International Enironmental International commercial arbitration—as arbi-
Commitments. MIT Press, Cambridge, MA
Wettestad J 1999 Designing Effectie Enironmental Regimes.
tration generally—involves a process whereby a third
Edward Elgar, Cheltenham, UK party issues an opinion that is formally binding on the
Young O R (ed.) 1999 The Effectieness of International En- parties. Unlike domestic arbitration as it has tra-
ironmental Regimes: Causal Connections and Behaioral ditionally been practiced in the USA, international
Mechanisms. MIT Press, Cambridge, MA commercial arbitrators typically write formal opin-
ions. These formal opinions are typically not published
M. J. Peterson nor even made public informally. They belong to the
parties, who must therefore consent to any publi-
cation. The awards made by the arbitrators are binding
and very difficult to challenge or appeal. The New
York Convention of 1958, which has been adopted by
well over 100 states, make an arbitral award in practice
International Arbitration more easily enforced within a contracting state than
would be a judgment obtained through litigation. In
International arbitration can refer to practices in- addition the procedures of international commercial
volving either commercial disputes or disputes be- arbitration have been converging around a set of rules
tween states. The practice for states, exemplified by that tend to detach arbitration from its site and to
disputes about borders, are ad hoc and infrequently emphasize party autonomy. The UNCITRAL (United
invoked. Of much more practical relevance at the Nations Commission on International Trade Law)
beginning of the twenty-first century is the system of model law has been the major model for this con-
private justice created to resolve international business vergence.
disputes, which has become the standard system for The most prominent feature of international ar-
international transactions. When two businesses with bitration is that the arbitrators are private individuals
headquarters in different countries enter into a con- without any formal connection to the state or a state
tractual arrangement, the contract will generally pro- judicial system. In theory almost anyone could be
vide that any disputes relating to the contract will be selected as an arbitrator. In practice, however, there is
resolved through private arbitration. It is the default a relatively small group that tends to dominate
arrangement. International commercial arbitration selection for major arbitrations. The group consists
involves hundreds of international commercial ar- largely of European lawyers, professors, and retired
bitration centers competing to have the most promi- judges; but there are also prominent arbitrators from
nent rosters of arbitrators and the largest number of other parts of the world.
high stakes international cases. However, the number The advantages of arbitration in international
of international commercial arbitrations is impossible disputes are usually listed as follows: the ability to
to determine precisely since many of the arbitrations select elite private judges, the secrecy of the proceed-
are not administered by any formal organization, and ings, and the ability to avoid having to submit to the
there is no clear line between domestic and inter- judicial system of the opposing party. Not generally
national. International commercial arbitration may be listed as advantages, are the cost and the duration of

International Arbitration

the proceedings, since in fact arbitrations may cost as education abroad—in law and engineering, for
much or more, and take as much or more time, than example. They and a few maverick legal advisors
litigation in a national court system. began to formulate legal arguments that slowly built
The leading centers in addition to the International the legal infrastructure of the industry. The major
Chamber of Commerce in Paris include the London transformation, however, came when the processes of
Court of International Commercial Arbitration readjustment of the relationships resulted in national-
(LCIA), the American Arbitration Association ization of the oil industries in most of the oil exporting
(AAA), the Cairo Regional Center for International countries. The oil concession agreements typically had
Commercial Arbitration, the Stockholm Chamber of arbitration clauses through an analogy to the ar-
Commerce, and the Chinese International Economic bitration that had long been practiced in disputes
and Trade Arbitration Commission (CIETAC). While between nations. When the oil was nationalized in
there are many centers, most contracts that contain places such as Kuwait, Libya, and Saudi Arabia, the
arbitration clauses will typically select one of the companies invoked the arbitration clauses and began
established centers. The ICC is especially useful in this arbitration processes.
regard for relatively new participants to international Legal accounts of this period typically celebrate the
commercial arbitration. The ICC, while more ex- grand arbitrations that resulted, suggesting that im-
pensive, helps to guide new parties and new arbitrators portant legal principles supporting the stability of
through the processes, and it also has a reputation as contracts trumped the political acts of nationalization.
an institution that can ensure that its awards are Other accounts, including those by journalists and
respected in domestic courts. historians, however, do not mention the arbitrations
There are a number of interesting socio-legal issues at all. They instead emphasize the negotiations that
that relate to international commercial arbitration. took place between those who had long invested in the
They include: (a) how this system of private justice relationships, the negotiations between governmental
came to be considered the legitimate way to resolve actors at another level, and the gunboats that were
international business disputes; (b) what this system putting not so subtle pressure on behalf of the oil
means for issues concerned with alternative dispute companies. Lawyers involved at the time suggest that
resolution more generally; and (c) how people become their activity in the arbitrations was not highly valued
international commercial arbitrators (Dezalay and or even much noticed by company executives.
Garth 1996). The arbitration processes did go forward, however,
and they produced raw material that equipped in-
ternational business with people and principles to
handle trans-national disputes. The raw material was
1. Building the International Arbitration System in the form of written opinions that were widely
circulated, academic articles about the principles in
International business was long a world of complex the opinions, and individuals who gained or enhanced
personal relations rather than formal laws and dispute their reputations as potential arbitrators by virtue of
resolution processes. The number of actors was rela- their participation in the arbitrations. The petroleum
tively small in any given field, and the actors could get arbitrations thus contributed to the production and
to know and take account of each other. There might legitimization of international commercial arbitration
be contracts, but the contracts were relatively un- for trans-national business disputes.
important documents either in the negotiation or When new sets of problems arose that related to
when disputes might arise. Histories of the petroleum some of the themes of the petroleum arbitrations, in
industry, in particular, reveal the key actors behind the particular disputes involving the numerous construc-
‘seven sister’ oil companies and how they interacted tion projects that took place in oil-producing countries
with the countries in which they did business. Lawyers after the price of oil increased in the early 1970s,
were very much part of this history, but lawyers for the international commercial arbitration played a crucial
oil companies—including John McCloy, the famous role. The continental academics who developed these
lawyer for the Rockefeller family who was termed the principles into a new lex mercatoria also developed
‘chairman of the establishment’—relied much more on relationships with students from the less developed
personal influence and connections than on their world, and the students helped to reinforce the
expertise as lawyers. legitimacy of these principles in their own countries.
When this relatively stable set of relationships was Put very simply, the process produced lawyers on both
shaken up, especially by new entrants in the 1960s and sides, legal principles, and a legitimacy that made it
1970s willing to offer more favorable terms to produce possible to generate a demand for what this group
the oil, the lawyers for the oil companies used contract supplied. For the International Chamber of Com-
and international law to try to hold on to their merce, this increased demand meant that the while the
privileged positions. At the same time, a small number first 3,000 requests for arbitration came between 1923
of elite actors in the exporting countries had taken and 1976, the next 3,000 came in the following
advantage of oil company paternalism to obtain 11 years.

International Arbitration

2. International Commercial Arbitration and practiced mediation as part of the normal process.
Alternatie Dispute Resolution They argued that the practice of international ar-
bitration provided an effective alternative to litigation
The world of international commercial arbitration as practiced in the USA.
was dominated in the 1960s and 1970s by continental As international commercial arbitration became
academics who wrote about the lex mercatoria, but more like US litigation, however, the US-promoted
also tended to encourage the parties to find a way to alternative began to gain more adherents within the
settle the dispute. The lex mercatoria could be used by international arbitration community. By the end of
the arbitrators to find a solution that fit the business the twentieth century, the menu of US alternatives—
relationship and left the parties satisfied with the including mediation but a range of others as well—had
result. Consistent with the general orientation of become much more common. This gradual trans-
the leading arbitrators and lawyers associated with the formation illustrates the way that the formal categories
pioneers of international commercial arbitration, the of dispute resolution—litigation, arbitration, and even
process was not very adversarial, was relatively inex- mediation—can disguise profound transformations in
pensive except for the arbitrators, did not tend to the way that the underlying practices proceed. The
produce extensive documentary evidence, and did not center of gravity of international commercial arbi-
contemplate such US practices as cross-examination tration moved much closer to US-style litigation,
of witnesses. The model was quite consistent with which was itself a relatively new invention, and the
Continental practices, even for others who parti- shift also helped to bring the US-antidote, alternative
cipated in the processes. dispute resolution.
When the arbitration business began to take off in
the 1970s and 1980s, it coincided with the rise to
prominence of business litigation in the USA. The US 3. Becoming an Arbitrator
law firms in Paris, France, were long involved in
international commercial arbitration, but they tended The international commercial arbitration community
to play according to the Continental rules. As the is relatively closed, often termed a ‘mafia’ even by
practice of international commercial arbitration grew insiders. One reason for this ‘club’ is simply that for
and expanded outside of a relatively small circle of high stakes arbitration, the parties typically want to
people, US businesses became increasingly involved in select arbitrators who are known quantities. Untested
arbitration, and developing countries found it to be in arbitrators are very risky from the point of view of the
their interests to hire US law firms as well. The parties. It is also deemed important to select arbi-
enhanced presence of US litigators had important trators who are known for their ability to ‘speak the
consequences. They naturally sought to use the tech- language’ and be taken seriously within an arbitral
niques of discovery, intensive production of docu- tribunal. Since arbitrators often serve as counsel
ments, cross-examination of witnesses, and more because of their familiarity with the processes and
generally the kind of aggressive adversarial behavior people, it is common for people from the relatively
that was beginning to characterize litigation in the closed arbitral community to nominate others from
USA. They also sought to retain arbitrators who the community. The key to success in the arbitration
would permit the lawyers to use the techniques that proceeding is selecting an arbitrator who will be
they had developed. The result was that the processes impartial enough to persuade the chair of the tribunal
of international commercial arbitration changed sub- but will also be able to understand and put forward the
stantially. They did not become identical with US case of the party that appointed him or her. The
litigation, but they moved much closer to US adver- selection of established names also serves a protective
sarialism. International commercial arbitration function in case the decision does not favor the
became much more document intensive, much more selecting party. It is easier to avoid blame for a safe
adversarial, and much more expensive. selection than for a novel one. For many reasons,
Litigation in the USA had also been transformed, including the fact that a relatively small supply serves
and that transformation had produced the beginnings the economic interests of the arbitrators, it is not easy
of the alternative dispute resolution movement in that to gain entrance into this community.
country. New organizations such as the Center for The easiest way to gain entrance for at least some
Public Resources had begun to encourage corpor- small cases that may provide a basis to build a practice
ations to practice more mediation as a way to avoid is to conform to the characteristics of those already
the high costs and adversarial nature of business in the field. The individuals who set the norms
litigation. The movement became quite influential in emphasized scholarly accomplishments, which put an
the USA and some of the individuals associated with it emphasis on publications, cosmopolitanism, and lin-
began to suggest that it would also be useful for guistic ability. Those who seek to enter must probably
international commercial arbitration. Not surpris- also attend a number of the major conferences in order
ingly, the first reaction of many within the inter- to display the appropriate characteristics and be
national arbitration community was that they already judged more personally. However, the general point is

International Arbitration

that invitations to enter the community tend to be investment not seeking the managerial control of the
issued most easily to those who can offer something to foreign asset) has grown at a rate twice as fast as that
the existing community—most obviously persons of of trade. Foreign direct investment gives rise to
high status who reflect that status back on the arbitral multinational enterprises, i.e., firms with operations in
community, persons from areas that are not yet more than one country (see Multinational Corpora-
committed to the legitimacy of international com- tions). There are some 54,000 of these enterprises in
mercial arbitration (which means they offer both credi- the world today which collectively control about
bility and a potential new caseload), or sometimes 450,000 affiliates. They account for one third of world
disciples of those already in the arbitral community. merchandise trade and for the vast majority of trade in
This process helps to explain why individuals without technology. While theories of international trade were
high status may study, write, and attend conferences, first put forward during the sixteenth century and
but lacking a prestigious platform, they cannot gain largely have remained the province of economics, the
entry. On the other hand, individuals from developing study of foreign direct investment and the multi-
countries who serve as judges on the World Court do national enterprise started only after World War II
typically gain entry. The process also helps explain and has been approached from a variety of social and
why there are so many arbitration centers despite the behavioral perspectives. The three most important
fact that the caseloads are concentrated in a relatively ones—economic, managerial, and sociopolitical—are
few places. Those who create new centers gain the covered here (see Table 1).
attention of the elite of the arbitral community and
also help to provide new domains where businesses 1. The Economic Approach
will contemplate arbitration and courts will respect
the awards. As a result, the new center may promote Modern economic thinking about foreign direct in-
the local leader into a position closer to the core of the vestment and the multinational enterprise properly
arbitral community. There tends to be relatively few of starts with Hymer’s (1976) thesis, posthumously
these peripheral arbitrators in each relevant site. published in 1976. The key insight was to see foreign
direct investment not as a capital movement but as the
See also: Intergenerational Justice; International Busi- decision of a firm to produce some good or service in
ness; International Justice: Philosophical Aspects; a foreign location. Hymer noted that foreign direct
International Law and Treaties; International Re- investors did not seem to go abroad in search for
lations: Theories; International Trade: Commercial higher interest rates—as the theory of investment
Policy and Trade Negotiations; Laws, Conflict of; Lex would predict. Rather, he argued that ‘control of the
Mercatoria; Public Goods: International; World foreign enterprise is desired in order to remove
Trade Organization competition between that foreign enterprise and
enterprises in other countries’ (Hymer 1976). Thus,
Hymer was the first to observe the monopolistic
Bibliography behavior of the firm that engages in foreign direct
investment. In other words, the multinational was seen
Craig W, Park W W, Paulsson J 2000 International Chamber of as an anomaly that could only be explained by
Commerical Arbitration. Oceana Publications, Dobbs Ferry, reference to imperfections in the markets for pro-
Dezalay Y, Garth B 1996 Dealing in Virtue International
duction factors and goods, economies of scale, and\or
Commercial Arbitration and the Construction of a Trans- government intervention. The most complete ren-
national Legal Order. University of Chicago Press, Chicago dering of the oligopolistic thesis is that of Knicker-
Redfern A, Hunter M 1999 International Commercial Arbitration, bocker (1973). He observed that firms in a loose-knit
3rd edn. Thomson Professional Publishing, London oligopoly in the home country match each other’s
investments in foreign locations following a pattern of
B. Garth action–reaction or move–countermove out of fear that
not keeping up with rivals might erode their profit-
Copyright # 2001 Elsevier Science Ltd. ability and competitive position or endanger their
All rights reserved. sources of supply.
Hymer was also the first scholar to note that ‘the
International Business control (of a foreign enterprise) is desired in order to
appropriate fully the returns on certain skills and
The term ‘international business’ refers to economic abilities’ (1976), especially those having to do with
activities that take place across the boundaries of product and process innovation. Vernon (1979) fur-
nation–states. The most important of these are trade ther argued that patterns of trade and foreign invest-
and foreign investment. Merchandise trade has grown ment had to do with the so-called ‘product cycle’ and
12-fold since the end of World War II, and trade in not so much with comparative advantage. Vernon saw
services has increased even faster since the early 1980s. entrepreneurs and managers as relatively myopic, i.e.,
Foreign direct investment (as opposed to portfolio most knowledgeable about, and responsive to, con-


International Encyclopedia of the Social & Behavioral Sciences ISBN: 0-08-043076-7