International arbitration: a global good or a global bad?

States are failing to adjust their legal systems to satisfy urgent needs of operators in the global economy. The territoriality of state law, for example, renders cross-border enforcement of court decisions exceedingly difficult and costly. As a result, global businesses have been turning increasingly to international commercial and investor-state arbitration as a private alternative mechanism of dispute resolution.

The enormous growth of international arbitration, however, is controversial. Some see the evolution of international arbitration and private courts positively as a significant element of an emerging transnational private legal order that gradually evolves according to the needs of market actors. Keen on attracting foreign business and investments, many governments support his trend, for example, by ratifying the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

Others fear that the emerging new private legal order enables powerful transnational actors to circumvent state courts and regulations at the expense of weak and vulnerable groups. Strikingly, the EU’s incoming trade chief, Cecilia Malmström, just raised the possibility of dropping arbitration from the planned EU-US trade deal despite an agreement last year to include it. “[International arbitration] is a very toxic issue in this parliament and elsewhere,” Malmström said at her confirmation hearing as EU trade commissioner before the European parliament. Critics primarily point to abuses in investor-state arbitration in the context of bilateral investment treaties. These treaties may involve powerful investors and weak or corrupt governments. Some such treaties have led to harmful industrial activities and short-sighted policies dictated by investor interests. Examples include land-grabbing affecting access to food for the poor, pollution and other durable ecological harm, destruction of local cultural or religious heritage, discrimination in respect of local workforce, exploitation, and violence.

Still, other experts and observers accept that these contrasting views contain kernels of truth but are too simplistic to adequately grasp and appreciate the complex governance structure developed by arbitration courts over the last two decades. Arbitrators are not simply executors of the will of private parties involved in international transactions; they also apply public norms (for example, against corruption or protecting weak groups), thereby supplementing the supposedly private nature of arbitration with broader public policy objectives. Recent arbitral practice integrates different conceptions of public policy into an overarching hierarchy of norms mimicking domestic constitutional orders. An important factor driving this so-called constitutionalization of international arbitration is the increasing willingness of arbitral tribunals to publish arbitral awards. Such publication enables the development of a genuinely legal form of reasoning based on precedent, generating normative expectations as well as greater doctrinal consistency, and fostering the growth of transnational law.

In sum, a fascinating interdisciplinary debate is emerging on arbitration courts and global private justice that transcends the conventional view of arbitration as a narrowly practice-oriented and technical topic of limited interest to a wider public. The debate reflects analytically on international arbitration as a form of global governance, thus connecting and contributing to a much wider discussion in academia and public-policy making circles that describes the profound economic, legal, and political transformations in which key governance functions are increasingly exercised by actors other than national public authorities.