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The use of arbitration to resolve international investment disputes clearly represents an improvement over “gunboat diplomacy” and its implicit threat of violent confrontation. Nonetheless, investors, States and other stakeholders have begun to express dissatisfaction with some elements of arbitration in the international investment treaty context. First, arbitration proceedings can be quite lengthy, and their transaction costs seem to be increasing. Second, parties’ compliance is not guaranteed. Some States suggest they may refuse to abide by arbitral awards. Third, the process focuses parties on their legal rights when non-legal issues may be equally important and useful to achieve resolution. Fourth, arbitration can sometimes marginalize parties’ unique socio-cultural characteristics and inhibit parties from identifying and building upon their mutual interests. Last, losing parties (and even some of those who have won) are unlikely to perceive arbitration as providing them with a meaningful opportunity to exercise self-determination in the resolution of their disputes.

As a result of these concerns, some stakeholders—investors, States and interested international bodies—have begun to express interest in the consensual process of mediation. The term, “mediation,” however, is used quite loosely at this point, and there is no single definition or model of the process. Rather, there are several variations, and each is likely to serve certain objectives better than others. Each is also likely to be more appropriate at certain points in the life of a dispute. This essay will describe these variations and their suitability in different contexts. It will also examine the advantages and disadvantages of making participation—or at least consideration of the mediation process—mandatory. IIAs could, for example, require the use of mediation whenever a dispute arises between parties. Such agreements could even condition parties’ submission to arbitration upon documented proof of a previous attempt to reach agreement through mediation. There are significant concerns about mandatory mediation, however. This essay will examine those concerns and describe important and potentially useful variations that permit parties to tailor the scope of what will come within a mandatory mediation requirement.

This essay’s intent is simultaneously modest and ambitious: (1) to provide stakeholders with important information regarding the key variations of mediation that are available in the United States; (2) to provide stakeholders with important information regarding their options in defining the scope of a mandatory requirement; (3) to enable stakeholders to avoid a premature focus upon only the most obvious and controversial of those variations; and (4) to provide stakeholders with some examples of creative adaptation that may inspire further creativity and thoughtful adaptation to the international investment context.

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Investor-State Disputes: Prevention and Alternatives to Arbitration


United Nations Conference on Trade and Development


Susan D. Franck & Anna Joubin-Bret

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