Issues in the Law Applicable to State Contracts
The globalization of commercial activities has stimulated the flow of business across national boundaries. A substantial part of these business relations involves foreign private parties and governments. Governments of economically developing countries are especially involved in these transactions because in most of these countries active State participation in foreign trade and investment is considered an essential part of national economic policy. This trend is facilitated by moves toward the creation of a New International Economic Order, 1 by virtue of which States play an active and dominant role in the control of their resources and the regulation of multinational corporations operating in their territories.
Contracts between States, or State agencies, and foreign private parties are called State contracts so as to underscore the fact that a State party is involved in the transaction. 2 State contracts vary from the old-type concession agreements to more recent types, such as joint ventures, turnkey projects, technology transfer agreements, and management agreements.
Providing a suitable conflict resolution machinery in State contracts could pose considerable problems. While the private party may not have confidence in the impartiality of the court of the State party, State parties are in most cases reluctant to submit disputes between them and foreign nationals to the municipal courts of another country. In these kinds of situations "arbitration imposes itself for a lack of an acceptable alternative." 3 The arbitration of State contract disputes is on the increase, 4 and there is a proliferation of investment agreements providing for arbitration of disputes under the auspices of the International Centre for the Settlement of Investment Disputes. 5
This chapter examines some of the legal issues that arise in connection with the law applicable to the merits of State contract disputes. It focuses