The Future of International Arbitration in Central and Eastern Europe

By Sadowski, Wojciech | American University Business Law Review, January 3, 2016 | Go to article overview

The Future of International Arbitration in Central and Eastern Europe


Sadowski, Wojciech, American University Business Law Review


Introduction

Central and Eastern Europe (CEE) is an amorphous geopolitical concept, employed mostly as a collective name for the broadly conceived former Soviet bloc in Europe, and frequently extending into Albania, the former Yugoslavia, and Romania. Accordingly, neither Finland nor Greece is typically mentioned as CEE countries, although they geographically both lie east of the Czech Republic and Slovenia.1 The purpose of this paper is to discuss whether there are any existing idiosyncratic considerations involving CEE which could help explain the current condition of international arbitration in the region. With this understanding of CEE, I will make informed predictions concerning the possible trends in dispute resolution in the future.

The central conclusion I will make in this paper is that the cycle of development of international commercial arbitration in CEE may be approaching a low mark. The forces that were driving the development of international arbitration in this part of the world before 1989, such as the East-West dichotomy and the subsequent increased commercial, legal, and political risk connected to the "emerging-economy" status of CEE countries, exhausted most of its potential, which is unlikely to rebound. At the present moment, there are no compelling reasons why international arbitration in CEE should flourish. It is clear, however, that its future development will have to respond to the changing needs and preferences of the business community and the individual CEE states, rather than the objectives immediately relied upon after the fall of Communism.

This paper starts with a brief historical note explaining the traditional motivations leading commercial parties to agree on international arbitration in the CEE-related business context, both before and after the fall of Communism in 1989. I will present the developments of the past twentyfive years that help explain the current position and potential of international commercial arbitration in CEE. Due to the significant diversity among the countries in the region, I will not offer a detailed analysis of the particular legal frameworks in each individual CEE state. The differences between various national laws within the region do not play a primary role. Instead, I will emphasize the existing and potential interests and reasons that may convince the business community across CEE to use international arbitration to resolve commercial disputes. These enticing factors do not depend as much on the legal particularities of individual CEE jurisdictions as on the broader economic and cultural considerations of the region generally.

II. History

A. Cold War

The genesis of the current condition of international commercial arbitration in CEE goes back to the Cold War, when Europe was divided into two opposite camps founded on conflicting ideologies.2 Western Europe developed on the premise of the free market ideology, supported by democratic values and the rule of law. Eastern Europe struggled to implement the "socialist utopia" of centrally planned economies and authoritarian regimes that were imposed and maintained by the Soviet Union's political and military hegemony in the region. In such a hostile environment, international commercial arbitration had clear advantages as a method of dispute resolution between the East and the West. The main rationale for selecting international arbitration was the ideological polarization of the respective political, economic, and military camps, which led to mutual distrust. Western companies had no confidence in the Eastern European legal and court systems, which-apart from political or ideological issues-were also ill-equipped to deal with issues of international trade, contractual freedom, or complex commercial relations. Most of the industry in Eastern Europe was nationalized after the Second World War. State-owned enterprises, which had little inclination to surrender to the jurisdiction of Western European state courts, contributed to the bulk of economic activity. …

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