Originally from American Review of International Arbitration - ARIA

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INTERNATIONAL COMMERCIAL ARBITRATION INVOLVING A
STATE PARTY AND THE DEFENSE OF STATE IMMUNITY
Renata Brazil-David*

I. THE GROWING IMPORTANCE OF INTERNATIONAL COMMERCIAL
ARBITRATION INVOLVING A STATE PARTY

One of the most remarkable developments in international commercial
arbitration is the noticeable growth in the number of disputes involving State
parties.1 Such a noteworthy increase in international commercial arbitration
involving a State party can be explained not only by economic factors but also by
the striking advantages of arbitration when compared to court litigation.

During the past few decades international trade and commerce have increased
significantly and sovereign States have been actively involved in international
trade transactions with private parties.2 Simultaneously, there has been a
remarkable growth in the number of Bilateral Investment Treaties (“BITs”) in the
past few years and most BITs have a clause dealing with dispute settlement, which
normally provides for arbitration. Furthermore, international treaties such as the
Energy Charter Treaty (“ECT”) and the North American Free Trade Agreement
(“NAFTA”) also provide for arbitration as a method of dispute resolution.3 In this
context, foreign investors became aware of the possibility of resorting to
arbitration under international treaties and conventions, such as the ECT, NAFTA
and ICSID, and the number of arbitrations involving State parties significantly
increased.

It is generally argued that the use of arbitration is likely to foster foreign
investment since foreign investors might be reluctant to enter into transactions
with a State that is not prepared to settle their disputes through arbitration before a
neutral tribunal.4 Therefore, many States, which previously avoided arbitration,
are now willing to take part in arbitration of foreign investment disputes and many
countries have implemented foreign investment laws that also provide for
international arbitration in order to further encourage foreign investment.