International Arbitration and Sovereignty

Abstract

THE GREAT revolutions in the opening decades of the last century – in Mexico and then in Russia – installed a new meaning of sovereignty, the modern version of the ‘command economy’. The state, as the putative representative of the people, would hold inalienable title to the wealth of the national community and reserve an exclusive right to organise and, if it wished, to conduct, through the governmental apparatus, the most critical economic activities. Government subsumed the market. If these revolutionary events had occurred in a global system with little cross-border exchange, their significance would have been limited to the internal affairs of the states where they took place. The world would scarcely have taken notice; and if it had, it would not have cared. But the revolutions coincided with growing international trade and investment, facilitated by unprecedented advances in transportation and communications. So private sector actors in the free market systems of the most economically important parts of the rest of the world increasingly found that they were now conducting business, whether trade or direct investment, with governments rather than, as in the past, with private counterparts. If the law and the national courts applying it had treated governments that engaged in commerce like private parties, the fact that trading partners were now agencies of states would not have altered legal equations. Yet the national courts in free market systems still granted a high degree of immunity, if not absolute immunity, to governments. There were reasons for this practice. In the free-market countries, government officials and the commercial sectors had found an accommodation for their various common and cross-purposes in doctrines of sovereign immunity for other governments when they were hailed into foreign courts. Among other things, this avoided politically costly incidents that could be ignited, often at inconvenient …