International Arbitration

Hardin G 1968 The tragedy of the commons. Science 162: 1243–8 Kiss A 1993 Les traites-cadres: une technique juridique characteristique du droit international de l’environnement. Annuaire Francaise de Droit International 39: 792–7 Miles E L Jr (ed.) 1999 Explaining Regime Effecti eness: Confronting Theory with E idence. MIT Press, Cambridge, MA Ruster B, Simma B, Bock M (eds.) 1983 International Protection of the En ironment: Treaties and Related Documents. Oceana, Dobbs Ferry, NY Sand P H 1996 Institution-building to assist compliance with international environmental law. Zeitschrift fur Auslandisches W q Offentliches Recht und Volkerrecht 56(3): 773–93 W Sandler T 1997 Global Challenges: An Approach to En ironmental, Political, and Economic Problems. Cambridge University Press, Cambridge, UK Schachter O 1991 The emergence of international environmental law. Journal of International Affairs 44: 457–93 Symes D (ed.) 1998 Property Rights and Regulatory Systems in Fisheries. Fishing News Books, Oxford, UK UNEP 1990 International Register of En ironmental Treaties. United Nations Environment Programme, Nairobi, Kenya Victor D G, Raustiala K, Skolnikoff E B (eds.) 1998 The Implementation and Effecti eness of International En ironmental Commitments. MIT Press, Cambridge, MA Wettestad J 1999 Designing Effecti e En ironmental Regimes. Edward Elgar, Cheltenham, UK Young O R (ed.) 1999 The Effecti eness of International Enironmental Regimes: Causal Connections and Beha ioral Mechanisms. MIT Press, Cambridge, MA

M. J. Peterson

International Arbitration
International arbitration can refer to practices involving either commercial disputes or disputes between states. The practice for states, exemplified by disputes about borders, are ad hoc and infrequently invoked. Of much more practical relevance at the beginning of the twenty-first century is the system of private justice created to resolve international business disputes, which has become the standard system for international transactions. When two businesses with headquarters in different countries enter into a contractual arrangement, the contract will generally provide that any disputes relating to the contract will be resolved through private arbitration. It is the default arrangement. International commercial arbitration involves hundreds of international commercial arbitration centers competing to have the most prominent rosters of arbitrators and the largest number of high stakes international cases. However, the number of international commercial arbitrations is impossible to determine precisely since many of the arbitrations are not administered by any formal organization, and there is no clear line between domestic and international. International commercial arbitration may be

institutional, under the auspices of one of the institutions competing for the business of international commercial arbitration, or it may be ad hoc, handled solely by the parties and their counsel. It is especially difficult to count the ad hoc arbitrations. It is clear, however, that the numbers of international commercial arbitrations increased at the end of the twentieth century, particularly in China and Latin America. The most important of the institutions is the International Chamber of Commerce in Paris, France, and it generally has the largest caseload and the cases involving the highest stakes. In 1999, some 529 requests for arbitration were filed with the ICC, concerning 1,354 parties from 107 different countries. The places of arbitration assigned to the cases involved 48 different countries on five continents. Arbitrators of 57 different nationalities were appointed or confirmed under the ICC Rules, and the amount in controversy exceeded one million dollars in 58 percent of the new cases. The ICC Court, which confirms the awards, had 269 new awards submitted in that year. International commercial arbitration—as arbitration generally—involves a process whereby a third party issues an opinion that is formally binding on the parties. Unlike domestic arbitration as it has traditionally been practiced in the USA, international commercial arbitrators typically write formal opinions. These formal opinions are typically not published nor even made public informally. They belong to the parties, who must therefore consent to any publication. 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 more easily enforced within a contracting state than would be a judgment obtained through litigation. In addition the procedures of international commercial arbitration have been converging around a set of rules that tend to detach arbitration from its site and to emphasize party autonomy. The UNCITRAL (United Nations Commission on International Trade Law) model law has been the major model for this convergence. The most prominent feature of international arbitration is that the arbitrators are private individuals without any formal connection to the state or a state judicial system. In theory almost anyone could be selected as an arbitrator. In practice, however, there is a relatively small group that tends to dominate selection for major arbitrations. The group consists largely of European lawyers, professors, and retired judges; but there are also prominent arbitrators from other parts of the world. The advantages of arbitration in international disputes are usually listed as follows: the ability to select elite private judges, the secrecy of the proceedings, and the ability to avoid having to submit to the judicial system of the opposing party. Not generally listed as advantages, are the cost and the duration of 7765

International Arbitration the proceedings, since in fact arbitrations may cost as much or more, and take as much or more time, than litigation in a national court system. The leading centers in addition to the International Chamber of Commerce in Paris include the London Court of International Commercial Arbitration (LCIA), the American Arbitration Association (AAA), the Cairo Regional Center for International Commercial Arbitration, the Stockholm Chamber of Commerce, and the Chinese International Economic and Trade Arbitration Commission (CIETAC). While there are many centers, most contracts that contain arbitration clauses will typically select one of the established centers. The ICC is especially useful in this regard for relatively new participants to international commercial arbitration. The ICC, while more expensive, helps to guide new parties and new arbitrators through the processes, and it also has a reputation as an institution that can ensure that its awards are respected in domestic courts. There are a number of interesting socio-legal issues that relate to international commercial arbitration. They include: (a) how this system of private justice came to be considered the legitimate way to resolve international business disputes; (b) what this system means for issues concerned with alternative dispute resolution more generally; and (c) how people become international commercial arbitrators (Dezalay and Garth 1996). education abroad—in law and engineering, for example. They and a few maverick legal advisors began to formulate legal arguments that slowly built the legal infrastructure of the industry. The major transformation, however, came when the processes of readjustment of the relationships resulted in nationalization of the oil industries in most of the oil exporting countries. The oil concession agreements typically had arbitration clauses through an analogy to the arbitration that had long been practiced in disputes between nations. When the oil was nationalized in places such as Kuwait, Libya, and Saudi Arabia, the companies invoked the arbitration clauses and began arbitration processes. Legal accounts of this period typically celebrate the grand arbitrations that resulted, suggesting that important legal principles supporting the stability of contracts trumped the political acts of nationalization. Other accounts, including those by journalists and historians, however, do not mention the arbitrations at all. They instead emphasize the negotiations that took place between those who had long invested in the relationships, the negotiations between governmental actors at another level, and the gunboats that were putting not so subtle pressure on behalf of the oil companies. Lawyers involved at the time suggest that their activity in the arbitrations was not highly valued or even much noticed by company executives. The arbitration processes did go forward, however, and they produced raw material that equipped international business with people and principles to handle trans-national disputes. The raw material was in the form of written opinions that were widely circulated, academic articles about the principles in the opinions, and individuals who gained or enhanced their reputations as potential arbitrators by virtue of their participation in the arbitrations. The petroleum arbitrations thus contributed to the production and legitimization of international commercial arbitration for trans-national business disputes. When new sets of problems arose that related to some of the themes of the petroleum arbitrations, in particular disputes involving the numerous construction projects that took place in oil-producing countries after the price of oil increased in the early 1970s, international commercial arbitration played a crucial role. The continental academics who developed these principles into a new lex mercatoria also developed relationships with students from the less developed world, and the students helped to reinforce the legitimacy of these principles in their own countries. Put very simply, the process produced lawyers on both sides, legal principles, and a legitimacy that made it possible to generate a demand for what this group supplied. For the International Chamber of Commerce, this increased demand meant that the while the first 3,000 requests for arbitration came between 1923 and 1976, the next 3,000 came in the following 11 years.

1. Building the International Arbitration System
International business was long a world of complex personal relations rather than formal laws and dispute resolution processes. The number of actors was relatively small in any given field, and the actors could get to know and take account of each other. There might be contracts, but the contracts were relatively unimportant documents either in the negotiation or when disputes might arise. Histories of the petroleum industry, in particular, reveal the key actors behind the ‘seven sister’ oil companies and how they interacted with the countries in which they did business. Lawyers were very much part of this history, but lawyers for the oil companies—including John McCloy, the famous lawyer for the Rockefeller family who was termed the ‘chairman of the establishment’—relied much more on personal influence and connections than on their expertise as lawyers. When this relatively stable set of relationships was shaken up, especially by new entrants in the 1960s and 1970s willing to offer more favorable terms to produce the oil, the lawyers for the oil companies used contract and international law to try to hold on to their privileged positions. At the same time, a small number of elite actors in the exporting countries had taken advantage of oil company paternalism to obtain 7766

International Arbitration

2. International Commercial Arbitration and Alternati e Dispute Resolution
The world of international commercial arbitration was dominated in the 1960s and 1970s by continental academics who wrote about the lex mercatoria, but also tended to encourage the parties to find a way to settle the dispute. The lex mercatoria could be used by the arbitrators to find a solution that fit the business relationship and left the parties satisfied with the result. Consistent with the general orientation of the leading arbitrators and lawyers associated with the pioneers of international commercial arbitration, the process was not very adversarial, was relatively inexpensive except for the arbitrators, did not tend to produce extensive documentary evidence, and did not contemplate such US practices as cross-examination of witnesses. The model was quite consistent with Continental practices, even for others who participated in the processes. 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 law firms in Paris, France, were long involved in international commercial arbitration, but they tended to play according to the Continental rules. As the practice of international commercial arbitration grew and expanded outside of a relatively small circle of people, US businesses became increasingly involved in arbitration, and developing countries found it to be in their interests to hire US law firms as well. The enhanced presence of US litigators had important consequences. They naturally sought to use the techniques of discovery, intensive production of documents, cross-examination of witnesses, and more generally the kind of aggressive adversarial behavior that was beginning to characterize litigation in the USA. They also sought to retain arbitrators who would permit the lawyers to use the techniques that they had developed. The result was that the processes of international commercial arbitration changed substantially. They did not become identical with US litigation, but they moved much closer to US adversarialism. International commercial arbitration became much more document intensive, much more adversarial, and much more expensive. Litigation in the USA had also been transformed, and that transformation had produced the beginnings of the alternative dispute resolution movement in that country. New organizations such as the Center for Public Resources had begun to encourage corporations to practice more mediation as a way to avoid the high costs and adversarial nature of business litigation. The movement became quite influential in the USA and some of the individuals associated with it began to suggest that it would also be useful for international commercial arbitration. Not surprisingly, the first reaction of many within the international arbitration community was that they already

practiced mediation as part of the normal process. They argued that the practice of international arbitration provided an effective alternative to litigation as practiced in the USA. As international commercial arbitration became more like US litigation, however, the US-promoted alternative began to gain more adherents within the international arbitration community. By the end of the twentieth century, the menu of US alternatives— including mediation but a range of others as well—had become much more common. This gradual transformation illustrates the way that the formal categories of dispute resolution—litigation, arbitration, and even mediation—can disguise profound transformations in the way that the underlying practices proceed. The center of gravity of international commercial arbitration moved much closer to US-style litigation, which was itself a relatively new invention, and the shift also helped to bring the US-antidote, alternative dispute resolution.

3. Becoming an Arbitrator
The international commercial arbitration community is relatively closed, often termed a ‘mafia’ even by insiders. One reason for this ‘club’ is simply that for high stakes arbitration, the parties typically want to select arbitrators who are known quantities. Untested arbitrators are very risky from the point of view of the parties. It is also deemed important to select arbitrators who are known for their ability to ‘speak the language’ and be taken seriously within an arbitral tribunal. Since arbitrators often serve as counsel because of their familiarity with the processes and people, it is common for people from the relatively closed arbitral community to nominate others from the community. The key to success in the arbitration proceeding is selecting an arbitrator who will be impartial enough to persuade the chair of the tribunal but will also be able to understand and put forward the case of the party that appointed him or her. The selection of established names also serves a protective function in case the decision does not favor the selecting party. It is easier to avoid blame for a safe selection than for a novel one. For many reasons, including the fact that a relatively small supply serves the economic interests of the arbitrators, it is not easy to gain entrance into this community. The easiest way to gain entrance for at least some small cases that may provide a basis to build a practice is to conform to the characteristics of those already in the field. The individuals who set the norms emphasized scholarly accomplishments, which put an emphasis on publications, cosmopolitanism, and linguistic ability. Those who seek to enter must probably also attend a number of the major conferences in order to display the appropriate characteristics and be judged more personally. However, the general point is 7767

International Arbitration that invitations to enter the community tend to be issued most easily to those who can offer something to the existing community—most obviously persons of high status who reflect that status back on the arbitral community, persons from areas that are not yet committed to the legitimacy of international commercial arbitration (which means they offer both credibility and a potential new caseload), or sometimes disciples of those already in the arbitral community. This process helps to explain why individuals without high status may study, write, and attend conferences, but lacking a prestigious platform, they cannot gain entry. On the other hand, individuals from developing countries who serve as judges on the World Court do typically gain entry. The process also helps explain why there are so many arbitration centers despite the fact that the caseloads are concentrated in a relatively few places. Those who create new centers gain the attention of the elite of the arbitral community and also help to provide new domains where businesses will contemplate arbitration and courts will respect the awards. As a result, the new center may promote the local leader into a position closer to the core of the arbitral community. There tends to be relatively few of these peripheral arbitrators in each relevant site. See also: Intergenerational Justice; International Business; International Justice: Philosophical Aspects; International Law and Treaties; International Relations: Theories; International Trade: Commercial Policy and Trade Negotiations; Laws, Conflict of; Lex Mercatoria; Public Goods: International; World Trade Organization investment not seeking the managerial control of the foreign asset) has grown at a rate twice as fast as that of trade. Foreign direct investment gives rise to multinational enterprises, i.e., firms with operations in more than one country (see Multinational Corporations). There are some 54,000 of these enterprises in the world today which collectively control about 450,000 affiliates. They account for one third of world merchandise trade and for the vast majority of trade in technology. While theories of international trade were first put forward during the sixteenth century and largely have remained the province of economics, the study of foreign direct investment and the multinational enterprise started only after World War II and has been approached from a variety of social and behavioral perspectives. The three most important ones—economic, managerial, and sociopolitical—are covered here (see Table 1).

1. The Economic Approach
Modern economic thinking about foreign direct investment and the multinational enterprise properly starts with Hymer’s (1976) thesis, posthumously published in 1976. The key insight was to see foreign direct investment not as a capital movement but as the decision of a firm to produce some good or service in a foreign location. Hymer noted that foreign direct investors did not seem to go abroad in search for higher interest rates—as the theory of investment would predict. Rather, he argued that ‘control of the foreign enterprise is desired in order to remove competition between that foreign enterprise and enterprises in other countries’ (Hymer 1976). Thus, Hymer was the first to observe the monopolistic behavior of the firm that engages in foreign direct investment. In other words, the multinational was seen as an anomaly that could only be explained by reference to imperfections in the markets for production factors and goods, economies of scale, and\or government intervention. The most complete rendering of the oligopolistic thesis is that of Knickerbocker (1973). He observed that firms in a loose-knit oligopoly in the home country match each other’s investments in foreign locations following a pattern of action–reaction or move–countermove out of fear that not keeping up with rivals might erode their profitability and competitive position or endanger their sources of supply. Hymer was also the first scholar to note that ‘the control (of a foreign enterprise) is desired in order to appropriate fully the returns on certain skills and abilities’ (1976), especially those having to do with product and process innovation. Vernon (1979) further argued that patterns of trade and foreign investment had to do with the so-called ‘product cycle’ and not so much with comparative advantage. Vernon saw entrepreneurs and managers as relatively myopic, i.e., most knowledgeable about, and responsive to, con-

Craig W, Park W W, Paulsson J 2000 International Chamber of Commerical Arbitration. Oceana Publications, Dobbs Ferry, NY Dezalay Y, Garth B 1996 Dealing in Virtue International Commercial Arbitration and the Construction of a Transnational Legal Order. University of Chicago Press, Chicago Redfern A, Hunter M 1999 International Commercial Arbitration, 3rd edn. Thomson Professional Publishing, London

B. Garth Copyright # 2001 Elsevier Science Ltd. All rights reserved.

International Business
The term ‘international business’ refers to economic activities that take place across the boundaries of nation–states. The most important of these are trade and foreign investment. Merchandise trade has grown 12-fold since the end of World War II, and trade in services has increased even faster since the early 1980s. Foreign direct investment (as opposed to portfolio 7768

International Encyclopedia of the Social & Behavioral Sciences

ISBN: 0-08-043076-7

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