Should Arbitration Be Legal?

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1. Consider the time and effort it takes to bring a case to court. In a general sense, why might MNEs prefer Arbitration to Domestic courts? Arbitration is a dispute resolution method that allows the dispute to be solved outside the court of law. When both parties agree on the arbitration procedure, an arbitrator1 will review the evidence, listen to parties and then issue a final decision (award). This method differs from court litigation in several ways and thus the preference of some MNE’s for arbitration rather than litigation. First, it is a less formal procedure than court litigation, as it does not need a judge or a court. However, it is more formal than the mediation or negotiation processes. Second, and one of the main differences,…show more content…
When there is no treaty between the countries of two parties in dispute, the United Nations Convention on Recognized Enforcement of Arbitral Awards offers a mechanism between the more than 120 signatory countries worldwide to readily recognize and enforce arbitral awards from each other’s countries, a major advantage over court litigation in such circumstances where the foreign MNE could be in a disadvantageous position when facing a domestic firm. Fifth, arbitration has much more simplicity and flexibility than litigation. The parties may select the arbitrator according to expertise and how he will be selected, language in which they want the process to be developed and also whether they want the process to follow recognized arbitration institution rules or if they prefer it to be conducted ad hoc, who pays the due fees, etc., whereas in the second they are subject to translations and translators that may bias the procedure as well as the incapacity to choose the ruling framework that better adapt to their interest. Generally, MNE’s prefer (and are indeed better off with) arbitration. However, and even though arbitration clauses are part of most of business contracts, the parties have to evaluate whether it is the most appropriate procedure, given the facts and circumstances. 2. Why might host-market firms (domestic firms) take the opposite position? Many of the reasons were already approached in the first question. As already stated in the
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