International Arbitration
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International Arbitration
International arbitration can refer to practices in-
volving either commercial disputes or disputes be-
tween 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 con-
tractual arrangement, the contract will generally pro-
vide 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 ar-
bitration centers competing to have the most promi-
nent 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 inter-
national. International commercial arbitration may be
institutional, under the auspices of one of the insti-
tutions 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 inter-
national 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 con-
firmed 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 arbi-
tration generally—involves a process whereby a third
party issues an opinion that is formally binding on the
parties. Unlike domestic arbitration as it has tra-
ditionally been practiced in the USA, international
commercial arbitrators typically write formal opin-
ions. These formal opinions are typically not published
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
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 con-
vergence.
The most prominent feature of international ar-
bitration 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 proceed-
ings, 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
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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 ex-
pensive, 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).
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 rela-
tively 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 un-
important 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
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 national-
ization of the oil industries in most of the oil exporting
countries. The oil concession agreements typically had
arbitration clauses through an analogy to the ar-
bitration 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 im-
portant 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 in-
ternational 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 construc-
tion 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 Com-
merce, 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.

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 inex-
pensive 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 parti-
cipated 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 tech-
niques of discovery, intensive production of docu-
ments, 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 sub-
stantially. They did not become identical with US
litigation, but they moved much closer to US adver-
sarialism. 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 corpor-
ations 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 surpris-
ingly, the first reaction of many within the inter-
national arbitration community was that they already
International Arbitration
practiced mediation as part of the normal process.
They argued that the practice of international ar-
bitration 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 trans-
formation 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 arbi-
tration 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 arbi-
trators 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 lin-
guistic 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 com-
mercial arbitration (which means they offer both credi-
bility 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 Busi-
ness; International Justice: Philosophical Aspects;
International Law and Treaties; International Re-
lations: Theories; International Trade: Commercial
Policy and Trade Negotiations; Laws, Conflict of; Lex
Mercatoria; Public Goods: International; World
Trade Organization
Bibliography
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 Trans-
national 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
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 Corpora-
tions). 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 multi-
national 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 in-
vestment 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 pro-
duction factors and goods, economies of scale, and\or
government intervention. The most complete ren-
dering of the oligopolistic thesis is that of Knicker-
bocker (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 profit-
ability 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) fur-
ther argued that patterns of trade and foreign invest-
ment 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-
ISBN: 0-08-043076-7