“Expanding Business Opportunities through International Arbitration”

Investing in foreign markets can be risky, especially in countries where rule of law is weak and the economy is less than stable. However, investment is a major driver of economic growth, both for countries and individual firms. Fortunately, in environments where the institutions to protect investors do not exist, there is another mechanism available: international arbitration. In CIPE’s latest Economic Reform Feature Service article, “Expanding Business Opportunities through International Arbitration,” David Baron, Partner at McDermott, Will & Emery LLP and Adjunct Professor of International Law at American University discusses the importance of arbitration and the way the process works. The article is based on a presentation Mr. Baron made at CIPE in 2006, and you can view his powerpoint presentation here.

People don’t commonly think of the need for a conflict-resolution mechanism like arbitration as a possible indicator of economic growth. But, as Mr. Baron notes, if there are international dispute to be resolved, it means that investment is happening. Providing investors with a safe mechanism to ensure that they can retain their profits and enforce contracts is one way to encourage investment while helping countries improve their own institutions for dealing with these important issues.

Please read the article and come back to add your comments.

Abstract:

As competition for investment is increasing throughout the world, economies seeking investment – both foreign and domestic – are realizing that business transactions follow stability. One of the best ways to ensure stability is to assure investors that when they enter a new market, they will be able to retain control of their profits and personnel, enforce contracts, and engage in productive activities – and that they will not be trapped by inefficient regulations. If an investor thinks his/her property is going to be expropriated, suspects the rules of the game will change arbitrarily, or feels the system is unstable, then most often that investor will decide that it is not worthwhile to do business in that market.

International arbitration is one way to bridge the gap between investors or foreign companies and domestic entities by providing a neutral and independent mechanism for resolving disputes when they arise. International arbitration is part of the rule of law and it brings the stability that is so essential to foreign investment; it is particularly relevant to investment in emerging markets with weak or unstable institutions. While international arbitration plays a role in reducing uncertainty in business dealings, governments can also contribute by improving the legal and regulatory climates in their individual countries.

Published Date: July 05, 2007