Originally from World Arbitration And Mediation Review (WAMR)

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ARBITRATION INVOLVING STATES

By Kaj Hobér*

I. INTRODUCTION
Even though arbitrations between States and commercial enterprises is a
relatively new phenomenon in the history of international arbitration, such
arbitrations have taken place for a long time. Generally speaking,
arbitrations between States and companies started to become prominent after
the Second World War. Since then all aspects of modern life have gone
through a remarkable globalization, including the areas of trade, finance and
investment. The practical importance of such arbitrations1 is beyond any
doubt today. In many former socialist countries, foreign trade was a State
monopoly, thus by definition engaging the State and/or State enterprises in
commercial activities. In other countries, developing and developed, the
State and State enterprises have to varying degrees been engaged in
international trade and finance. Such participation has occasionally led to
disputes which are often settled through arbitration.
During the last five to eight years there has been a dramatic increase in
the number of State arbitrations. No official statistics are available to
confirm this statement, but this is certainly the general perception of
arbitration lawyers in most parts of the world. As I see it, this is the result of
two overlapping and interdependent developments, viz., the transformation
of the political and economic systems in Eastern Europe, including the
former Soviet Union, and the significant increase in so-called investment
arbitrations.
As far as Eastern Europe is concerned the most dramatic aspect is
perhaps the dissolution of the Soviet Union resulting inter alia in more than
a dozen new States. All the former republics of the Soviet Union have
become independent States. All of them are now participants in international
trade and finance, albeit to varying degrees. The new States and their State
owned entities are actively trying to entice foreign investments in their