A European energy company invests billions in a solar park in Latin America. Years later, a regulatory change threatens the project’s profitability. The company accuses the State of failing to meet its commitments; the government defends its right to legislate. Who decides who is right? In many cases, it will not be the national courts, but an international arbitrator.
In this type of situation, international arbitration comes into play, a mechanism that allows for the resolution of commercial and investor-State disputes through independent arbitrators, chosen by the parties or appointed by specialized institutions, instead of resorting to ordinary justice. Thanks to this, arbitration has become a key piece of international trade and investment. Institutions such as the International Court of Arbitration of the International Chamber of Commerce (ICC) and the Permanent Court of Arbitration (PCA), based in The Hague, play a fundamental role in this system.
The main advantage of international arbitration is neutrality. Arbitration provides an independent, specialized, and flexible mechanism. The parties can agree on the venue of the proceedings, the language, the number of arbitrators, and even the applicable rules. Additionally, the processes are usually confidential, a feature especially valued in sectors where trade secrets or strategic decisions are at stake.
Another of its great advantages is that arbitral decisions can be enforced in much of the world. Arbitral awards have international recognition thanks to the New York Convention of 1958, which facilitates their enforcement in a large number of jurisdictions. This provides legal certainty to companies and investors operating in diverse markets.
The institutions that arbitrate the global order
The most well-known institution is probably the International Court of Arbitration of the International Chamber of Commerce (ICC). Founded in Paris in 1923, it is one of the most influential institutions in international commercial arbitration. The ICC International Court of Arbitration does not directly resolve conflicts but administers the proceedings and supervises the work of the arbitral tribunals constituted for each case. The ICC mainly intervenes in international commercial disputes between companies, conflicts arising from sales contracts, construction, energy, infrastructure, or technology, as well as certain litigations related to international investments.
On the other hand, based in the Peace Palace in the Netherlands, the Permanent Court of Arbitration (PCA) in The Hague is the oldest intergovernmental body in this field (established in 1899). The PCA administers disputes between States, between States and private investors, between international organizations, and also between companies that agree to submit their disputes to this institution. Its cases often address issues related to investment treaties, border delimitation, natural resources, international trade, human rights, and the environment.
In addition, there is the International Centre for Settlement of Investment Disputes (ICSID), belonging to the World Bank Group in Washington D.C., a fundamental pillar for resolving disputes arising from Bilateral Investment Treaties (BITs).
Beyond the major traditional centers, the map of global arbitration has expanded to respond to different regions and key sectors. In Europe and America, institutions such as the London Court of International Arbitration (LCIA), the International Centre for Dispute Resolution (ICDR) in the United States, or the CIAM-CIAR (International Arbitration Centre of Madrid-Ibero-American Arbitration Centre) channel thousands of cross-border commercial disputes. Simultaneously, the global economic axis has boosted the relevance of top Asian centers such as the SIAC in Singapore or the HKIAC in Hong Kong. This offering is complemented by highly specialized bodies, among which stand out the Court of Arbitration for Sport (CAS) in Lausanne, the London Maritime Arbitrators Association (LMAA) for maritime transport, and the WIPO Arbitration and Mediation Center in Geneva, focused on intellectual property and technological disputes.
Arbitration in action
One of the most well-known cases administered by the PCA was initiated by the Philippines against China regarding the South China Sea. The arbitral tribunal constituted under the framework of the United Nations Convention on the Law of the Sea issued a historic decision in 2016 on maritime claims and sovereign rights, a decision that remains a reference in disputes over maritime sovereignty.
The case initiated by the Swedish utility Vattenfall against Germany following Germany’s decision to gradually abandon nuclear energy became one of the most cited examples of the conflict between the protection of foreign investments and the ability of States to make public policy decisions.
In recent years, disputes related to the energy transition, decarbonization, and climate goals have gained increasing weight in international arbitrations, reflecting the tensions between the legal certainty of investors and the new regulatory priorities of States. One of the largest focal points of investment arbitration in the last decade was the wave of claims against Spain following the modification of the renewable energy incentives regime. Dozens of foreign investors resorted to international arbitration mechanisms claiming regulatory changes that affected their investment expectations, making Spain one of the countries with the most investment arbitrations related to the energy sector.
Despite its advantages, international arbitration also generates debate. Critics argue that some investment protection mechanisms allow large corporations to challenge decisions made by democratic governments in areas such as energy, the environment, or public health. Supporters respond that the existence of predictable rules and neutral bodies is essential to provide legal certainty and promote cross-border investment.