Modern Foreign Policy


Standard diplomacy involves government-to-government communication; modern diplomacy has begun to emphasize public diplomacy as well.

Learning Objectives

Compare and contrast public diplomacy with standard diplomacy

Key Takeaways

Key Points

  • Through diplomacy, governments of one country engage governments of another country. Usually this is accomplished by diplomats (e.g. ambassadors) in an official, U.S. government capacity in order to improve relationships between two countries, negotiate treaties, etc.
  • Through public diplomacy, governments attempt to influence and communicate with the societies of another country. Film, music, arts, social and educational exchange programs, direct radio broadcasts, and the Internet can all be used to achieve public diplomacy.
  • Public diplomacy has increased in importance since 9/11. The U.S. government has actively sought to use public diplomacy to improve their reputation abroad, particularly in the Middle East.
  • Increasing globalization has caused public diplomacy to grow in importance in modern foreign policy. People-- not just states -- matter in an increasingly interconnected world.

Key Terms

  • foreign policy: A government's policy relating to matters beyond its own jurisdiction: usually relations with other nations and international organisations.
  • diplomacy: The art and practice of conducting international relations by negotiating alliances, treaties, agreements, etc., bilaterally or multilaterally, between states and sometimes international organizations or even between policies with varying statuses, such as those of monarchs and their princely vassals.
  • public diplomacy: The communication between foreign societies, intended primarily to establish a dialogue designed to inform and influence.

Public Diplomacy

Public diplomacy has become increasingly important in modern foreign policy. Public diplomacy-- or people's diplomacy, broadly speaking-- is the communication between foreign societies, intended primarily to establish a dialogue designed to inform and influence. It is practiced through a variety of instruments and methods ranging from personal contact and media interviews to the Internet and educational exchanges.

Public Diplomacy Versus Standard Diplomacy

Standard diplomacy can be described as the way in which government leaders communicate with each other at the highest levels; it is the elite diplomacy we are all familiar with. By contrast, public diplomacy focuses on the way in which a country (or multi-lateral organization such as the United Nations) communicates with citizens in other societies. A country may be acting deliberately or inadvertently, and through both official and private individuals and institutions. Effective public diplomacy begins with the premise that dialogue, rather than a sales pitch, is often central to achieving the goals of foreign policy: public diplomacy must be seen as a two-way street. Furthermore, public diplomacy advocates many differing views as represented by private American individuals and organizations in addition to the official views of the US government.


Ambassadors and Fulbright Scholars: Eric G. John, the U.S. Ambassador to Thailand from 2007-2010, speaks at a reception for Fulbright Grantees in Thailand. As an ambassador and formal representative of the U.S. government, John addresses traditional, elite-to-elite diplomacy, while the Fulbright program emphasizes public diplomacy.

Traditional diplomacy actively engages one government with another government. In traditional diplomacy, U.S. embassy officials represent the U.S. government in a host country primarily by maintaining relations and conducting official U.S. government business with the officials of the host government, whereas public diplomacy primarily engages many diverse, non-governmental elements of a society.


US Embassies: Maintaining an embassy in every recognized country is an important traditional diplomatic task. Depicted here is the U.S. embassy in London, England.

Avenues for Public Diplomacy

Film, television, music, sports, video games and other social/cultural activities are seen by public diplomacy advocates as enormously important avenues for otherwise diverse citizens to understand each other, as well as integral to international cultural understanding, considered a key goal of modern public diplomacy. This goal involves not only shaping the messages that a country wishes to present abroad-- by developing the necessary tools of conversation and persuasion-- but also analyzing and understanding the ways that the message is interpreted by diverse societies.

Instruments used for practicing public diplomacy include broadcasting stations (The Voice of America, Radio Free Europe, Radio Liberty), exchange programs (Fulbright, the International Visitor Leadership Program), American arts and performances in foreign countries, the Internet, and personal contact.


Voice of America: Pictured is the Voice of America headquarters in Washington, DC. Media such as Voice of America seek to influence foreign societies by making American policy seem more favorable. This is a key component of modern public diplomacy.

Globalization and Increase in U.S. Public Diplomacy

Public diplomacy has been an essential element of American foreign policy for decades. It was an important tool in influencing public opinion during the Cold War. Since the attacks of September 11, 2001, the term has come back into vogue and the practice has increased in importance as the United States government works to improve their reputation abroad, particularly in the Middle East and among those in the Islamic world. Numerous panels, including those sponsored by the Council on Foreign Relations, have evaluated American efforts in public diplomacy since 9/11 and have written reports recommending that the United States take various actions to improve the effectiveness of its public diplomacy.

This traditional concept is expanded on with the idea of adopting what is called "population-centric foreign affairs" within which foreign populations assume a central component of foreign policy. Since people, not just states, are of global importance in a world where technology and migration increasingly face everyone, an entire new door of policy is opened.

The United Nations

The United Nations is the most important and influential international, intergovernmental organization.

Learning Objectives

Analyze the United States position toward the United Nations

Key Takeaways

Key Points

  • The United Nations was established in 1945 to replace the failed League of Nations, with the goal of promoting peace by establishing a forum for cooperation, dialogue, and humanitarian response.
  • The UN's main bodies include the Security Council, the General Assembly, the Economic and Social Council, the Secretariat, and the International Court of Justice. The U.S. is a permanent member of the UN Security Council, which is arguably the most influential body of the UN.
  • The UN's main objectives include peacekeeping and security, disarmament, human rights protection and humanitarian assistance, and social and economic development.
  • The U.S. led the creation of the UN, and has been an influential player in the UN's work since its beginning.
  • Since the U.S. has taken on the role of the world's sole superpower, the UN and the U.S. have often conflicted. In particular, the UN and the U.S. have conflicted over the U.S.' s debts to the UN, as well as the U.S.' s 2003 near-unilateral invasion of Iraq.

Key Terms

  • Universal Declaration of Human Rights: A declaration adopted by the United Nations General Assembly after World War II that represents the first global expression of rights to which all human beings are inherently entitled. It includes economic, political and social rights.
  • international organization: Often referred to as intergovernmental organization; organizations that are made up primarily of sovereign states (referred to as member states).
  • multilateral: Involving more than one party (often used in politics to refer to negotiations, talks, or proceedings involving several nations).

What is the United Nations?

The United Nations (UN) is an intergovernmental, international organization consisting of all 193 states in the world, whose stated aims are facilitating cooperation in international law, international security, economic development, social progress, human rights, and the achievement of world peace. The UN was founded in 1945 to stop wars between countries and to provide a platform for dialogue. It contains multiple subsidiary organizations to carry out its missions.

History of the UN

After World War II, most government leaders recognized that humankind could not afford a third world war. The United Nations was established to replace the flawed League of Nations, in order to maintain international peace and promote cooperation in solving international economic, social and humanitarian problems.

In 1945, the UN officially came into existence upon ratification of the United Nations Charter by the five then-permanent members of the Security Council—France, the Republic of China, the Soviet Union, the United Kingdom and the United States—and by a majority of the other 46 signatories.

Organization of the UN

The organization's principle organs are as follows:

  1. The General Assembly is the main deliberative assembly and is composed of all United Nations member states.
  2. The Security Council (UNSC) is charged with maintaining peace and security among countries. It is composed of 15 member states, including 5 permanent members--China, France, Russia, the UK, and the US.
  3. The Economic and Social Council promotes international economic and social progress through cooperation and development.
  4. The Secretariat, headed by the Secretary-General, provides studies, information and facilities needed by the UN bodies.
  5. The International Court of Justice is the primary judicial organ of the UN.

Other prominent UN agencies exist to work on particular issues. Some of the most well-known agencies are the International Atomic Energy Agency, the World Bank, the World Health Organization (WHO), the World Food Programme (WFP), and the United Nation's Children's Fund (UNICEF). It is through these agencies that the UN performs most of its humanitarian work.

The UN is financed from assessed and voluntary contributions from member states. The General Assembly approves the regular budget and determines the assessment for each member.

Objectives of the UN

One of the main objectives of the UN is peacekeeping and security. With approval from the Security Council, the UN sends peacekeepers, voluntarily provided by UN member states, to regions where armed conflict has recently ceased. The goal of the peacekeepers is to enforce the terms of peace agreements and to discourage combatants from resuming hostilities.


UN Peacekeepers: A UN peacekeeper carries out operations in Haiti. Peacekeeping and security are primary objectives of the UN, and UN peacekeepers have been deployed around the world.

The UN is a world leader in human rights protection and humanitarian assistance. The Universal Declaration of Human Rights, though not legally binding, was adopted by the General Assembly in 1948 as a common standard of achievement for all. The UN and its agencies are central in upholding and implementing the principles enshrined in the Declaration, from assisting countries transitioning to democracy, to supporting women's rights, to providing humanitarian aid.

Lastly, the UN also focuses on social and economic development through the UN Development Program (UNDP) and other agencies like the WHO and the World Bank.

The United States and the UN

The United States is a charter member of the United Nations and one of five permanent members of the UN Security Council. The most important American contribution to the United Nations system is perhaps the Bretton Woods conference. This conference took place in 1944, and its goal was "to create a new international monetary and trade regime that was stable and predictable." This new system opened world markets, promoted a liberal economy and was implemented through different institutions, such as the World Bank and the International Monetary Fund.

Since 1991 the United States has been the world's dominant military, economic, social and political power (plus it hosts the UN Headquarters itself in New York City ). The United Nations was not designed for such a unipolar world with a single superpower, and conflict between an ascendant U.S. and other UN members has increased.


UN Building in New York: This picture shows the UN Secretariat's headquarters in New York City.

One of such conflicts occurred when the U.S. refused to pay its arrears in order to force UN compliance with U.S. wishes, as well as to cause the UN to reduce the U.S. assessment.

Another conflict between the U.S. and some UN members arose in 2003 over the issue of Iraq. U.S. President Bush maintained that Iraqi President Saddam Hussein possessed weapons of mass destruction (WMDs) in violation of his post-Gulf War obligations. In order to find these WMDs, Bush and a "coalition of the willing" invaded Iraq without explicit UN Security Council approval, causing friction within the multilateral UN.


2003 Invasion of Iraq: President George W. Bush addresses the nation in 2003, announcing the beginning of Operation Iraqi Freedom. The U.S.' s near-unilateral invasion of Iraq caused tension in the multilateral UN.

The International Monetary Structure

The international monetary structure involves international institutions, regional trading blocs, private players, and national governments.

Learning Objectives

Explain the role played by the United States over the history of the international monetary structure

Key Takeaways

Key Points

  • The International Monetary Fund (IMF) is one of the most prominent institutions in the international monetary structure. The IMF oversees the global financial system and offers assistance to states.
  • Another international institution, the World Bank, is important in the global monetary structure as it provides assistance and loans to developing nations.
  • The World Trade Organization is an international institution that helps settle trade disputes and negotiate trade arrangements among states.
  • Other important institutions in the international monetary structure include private participants (such as banks or insurance companies), regional trading blocs (such as the Eurozone or NAFTA), and national governments.
  • Some argue that because of the U.S.' s economic power and global influence, the international monetary structure has been created to match the U.S.' s preferences and national interests.
  • The U.S. helped establish the current structure of the international monetary system by leading the creation of the Bretton Woods system in 1944.

Key Terms

  • International Monetary Fund: The international organization entrusted with overseeing the global financial system by monitoring foreign exchange rates and balance of payments, as well as offering technical and financial assistance when asked. Abbreviated as IMF.
  • World Bank: A group of five financial organizations whose purpose is economic development and the elimination of poverty.
  • Washington Consensus: A term that refers to a set of ten relatively specific economic policy prescriptions that constitute the "standard" reform package promoted for crisis-wracked developing countries.

Major Components of the International Monetary Structure

The main components in the international monetary structure are global institutions (such as the International Monetary Fund and Bank for International Settlements), national agencies and government departments (such as central banks and finance ministries), private institutions acting on the global scale (such as banks and hedge funds), and regional institutions (like the Eurozone or NAFTA).

International Institutions

The most prominent international institutions are the International Monetary Fund (IMF), the World Bank, and the World Trade Organization (WTO). The IMF keeps account of the international balance of payments accounts of member states, but also lends money as a last resort for members in financial distress. Membership is based on the amount of money a country provides to the fund relative to the size of its role in the international trading system.


IMF Headquarters: The headquarters of the International Monetary Fund in Washington, DC.

The World Bank aims to provide funding, takes up credit risk, or offers favorable terms to developing countries for development projects that couldn't be obtained by the private sector.

The World Trade Organization settles trade disputes and negotiates international trade agreements in its rounds of talks (currently the Doha Round).


Members of the WTO: This map depicts the member states of the World Trade Organization (WTO). Dark green states are members; light green are members of the EU and thus members of the WTO as well; blue states are observer states; and gray states have no official interaction with the WTO. Notice the global reach of organizations like the WTO.

Private Participants

Also important to the international monetary structure are private participants, such as players active in the markets of stocks, bonds, foreign exchange, derivatives, and commodities, as well as investment banking. This includes commercial banks, hedge funds and private equity, pension funds, insurance companies, mutual funds, and sovereign wealth funds.

Regional Institutions

Certain regional institutions also play a role in the structure of the international monetary system. For example, the Commonwealth of Independent States (CIS), the Eurozone, Mercosur, and North American Free Trade Agreement (NAFTA) are all examples of regional trade blocs, which are very important to the international monetary structure.


Bill Clinton Signs NAFTA: In this picture, President Bill Clinton signs the North American Free Trade Agreement into law. NAFTA, a free trade area between Canada, the U.S., and Mexico, is an example of the importance of regional trade blocs to the international monetary structure. NAFTA is also an example of the U.S.' s disproportionate power in determining the direction of the international monetary structure.

Government Institutions

Governments are also a part of the international monetary structure, primarily through their finance ministries: they pass the laws and regulations for financial markets, and set the tax burden for private players such as banks, funds, and exchanges. They also participate actively through discretionary spending. They are closely tied to central banks that issue government debt, set interest rates and deposit requirements, and intervene in the foreign exchange market.

Perspectives on the International Monetary Structure

The liberal view of the international monetary structure holds that the exchange of currencies should be determined not by state institutions but instead individual players at a market level. This view has been labelled as the Washington Consensus. The social democratic view challenges the liberal view, advocating for the tempering of market mechanisms and the institution of economic safeguards in an attempt to ensure financial stability and redistribution. Besides the liberal and social democratic views, neo-Marxists are highly critical of the modern financial system in that it promotes inequality between state players, particularly holding the view that the wealthier countries abuse the financial system to exercise control of developing countries' economies.

U.S. Influence on the International Monetary Structure

The most important American contribution to the global financial system is perhaps the introduction of the Bretton Woods system. The Bretton Woods system of monetary management, created at a conference in 1944, established the rules for commercial and financial relations among the world's major industrial states in the mid-20th century. The Bretton Woods system was the first example of a fully negotiated monetary order intended to govern monetary relations among independent nation-states. Setting up a system of rules, institutions, and procedures to regulate the international monetary system, the planners at Bretton Woods established the IMF and the International Bank for Reconstruction and Development (IBRD), which today is part of the World Bank Group.

Besides the influence of the U.S. on the Bretton Woods system, it is often claimed that the United States's transition to neoliberalism and global capitalism also led to a change in the identity and functions of international financial institutions like the IMF. Because of the high involvement and voting power of the United States, the global economic ideology could effectively be transformed to match that of the U.S. This is consistent with the IMF's function change during the 1970s after a change in President Nixon's policies (when the Nixon Shock ended the Bretton Woods gold standard). Others also claim that, because of the disproportionate economic power of the United States, allies of the United States are able to receive bigger loans with fewer conditions.

Collective Military Force

A collective military force (when multiple countries pool their militaries) involves both collective security and collective defense.

Learning Objectives

Compare and contrast the concepts of collective security and collective defense

Key Takeaways

Key Points

  • Collective security is more far-reaching than collective defense as it addresses a broader range of threats.
  • States usually establish an organization in order to pursue collective security. The UN is the most prominent example of a collective security organization.
  • In collective defense (usually formalized by a treaty or an organization) states agree to come to the defense of another state; an attack on one state is considered an attack on all.
  • The North Atlantic Treaty Organization (NATO) is one of the most prominent collective defense organizations. The US is a prominent and leading member of NATO.
  • The 1991 Gulf War is an example of states successfully creating and deploying a collective military force.

Key Terms

  • North Atlantic Treaty Organization: An intergovernmental military alliance based on the North Atlantic Treaty which was signed on 4 April 1949. The organization constitutes a system of collective defense whereby its member states agree to mutual defense in response to an attack by any external party.
  • collective security: The concept of maintaining peace among all nations or members of a group by making the security concerns of one member important to all members. This is broader than mere military alliances; a primary example of collective security is the UN.
  • collective defense: An arrangement, usually formalized by a treaty and an organization, among participant states that commit support in defense of a member state if it is attacked by another state outside the organization.

Collective Military Force

A collective military force is what arises when countries decide that it is in their best interest to pool their militaries in order to achieve a common goal. The use of collective military force in the global environment involves two primary concepts: collective security and collective defense. These concepts are similar but not identical.

Collective Security

Collective security can be understood as a security arrangement, regional or global, in which each state in the system accepts that the security of one is the concern of all, and agrees to join in a collective response to threats to, and breaches of, the peace. Collective security is more ambitious than collective defense in that it seeks to encompass the totality of states within a region or indeed globally, and to address a wide range of possible threats.

Collective security is achieved by setting up an international cooperative organization, under the auspices of international law. This gives rise to a form of international collective governance, albeit limited in scope and effectiveness. The collective security organization then becomes an arena for diplomacy.

The UN and Collective Security

The UN is often provided as the primary example of collective security. By employing a system of collective security, the UN hopes to dissuade any member state from acting in a manner likely to threaten peace, thereby avoiding any conflict.

Collective Defense

Collective defense is an arrangement, usually formalized by a treaty and an organization, among participant states that commit support in defense of a member state if it is attacked by another state outside the organization.

NATO and Collective Defense

The North Atlantic Treaty Organization (NATO) is the best known collective defense organization. Its now famous Article V calls on (but does not fully commit) member states to assist another member under attack. This article was invoked after the September 11 attacks on the United States, after which other NATO members provided assistance to the US War on Terror in Afghanistan. As a global military and economic superpower, the US has taken charge of leading many of NATO's initiatives and interventions.


NATO in Afghanistan: In 2003, NATO took command of ISAF (International Security Assistance Force), which was the group of international troops operating in Afghanistan. This picture depicts a commander passing the NATO flag during a change of command in Afghanistan.


September 11 and Collective Defense: The 11 September attacks in the United States caused NATO to invoke its collective defense article for the first time.


NATO Coverage: This map depicts current members of the North Atlantic Treaty Organization, one of the primary examples of a collective defense organization.

Benefits and Drawbacks to Collective Defense

Collective defense entails benefits as well as risks. On the one hand, by combining and pooling resources, it can reduce any single state's cost of providing fully for its security. Smaller members of NATO, for example, have leeway to invest a greater proportion of their budget on non-military priorities, such as education or health, since they can count on other members to come to their defense, if needed.

On the other hand, collective defense also involves risky commitments. Member states can become embroiled in costly wars in which neither the direct victim nor the aggressor benefit. In the First World War, countries in the collective defense arrangement known as the Triple Entente (France, Britain, Russia) were pulled into war quickly when Russia started full mobilization against Austria-Hungary, whose ally Germany subsequently declared war on Russia.

Using Collective Military Force: The 1991 Gulf War

The Gulf War (2 August 1990 – 28 February 1991), codenamed Operation Desert Storm, was a war waged by a UN-authorized coalition force from 34 nations led by the United States, against Iraq in response to Iraq's invasion and annexation of Kuwait. This invasion is often given as an example of the successful deployment of a collective military force.

In August, 1990, Iraqi troops invaded Kuwait. This invasion met with unified international condemnation, and brought immediate economic sanctions against Iraq by members of the UN Security Council. U.S. President George H. W. Bush deployed American forces into Saudi Arabia, and an array of nations joined the coalition. In this conflict, the UN, the US, and other nations were united into a military force that successfully propelled the Iraqi aggressor out of sovereign Kuwait.

Economic Aid and Sanctions

States can give economic aid to help another country, or implement economic sanctions to try and force another country to change policies.

Learning Objectives

Analyze criticisms of the institutions, practices and policies of economic aid

Key Takeaways

Key Points

  • Economic aid is given, at least partly, with the motivation of helping the recipient country. Aid can also be a tool of foreign policy given to show diplomatic approval, reward a government, or gain some other benefit.
  • Economic aid is often given with conditions, meaning that in order to receive the aid, the recipient country must change economic policies, agree to spend the aid only on certain items, etc.
  • Economic aid is often criticized for being motivated more by donor concerns than recipient concerns, for being a form of neocolonialism, and for simply not being effective.
  • Economic sanctions are a foreign policy tool in which one country places trade penalties on another country, and may include trade barriers, duties, or quotas.
  • Economic sanctions can be put in place as a foreign policy measure designed to make another country change some sort of human rights or political policy (for example, the US has sanctions against Iran).
  • One country can declare sanctions against another country in protest of unfair trading practices.

Key Terms

  • conditionality: A condition applied to the access of a government to credit facilities and other international financial assistance, especially from the IMF and the World Bank.
  • neocolonialism: The control or domination by a powerful country over weaker ones (especially former colonies) by the use of economic pressure, political suppression and cultural dominance.
  • sanction: A penalty, or some coercive measure, intended to ensure compliance; especially one adopted by several nations, or by an international body.

Economic Aid and Sanctions

As part of foreign policy, states can use money and monetary policies to either help or penalize other states. Economic aid is a voluntary transfer of resources from one country to another, given at least partly with the objective of benefiting the recipient country. Sanctions, on the other hand, are penalties (usually in the form of trade policies) that are applied to one country by another.


Development Aid: States can give economic aid to help another country's economic development. In this picture, the US government has supplied water pumps to a village in Afghanistan.

Economic Aid

Aid may have other functions besides humanitarian: it may be given to signal diplomatic approval, strengthen a military ally, reward a government for behavior desired by the donor, extend the donor's cultural influence, provide infrastructure needed by the donor for resource extraction from the recipient country, or gain other kinds of commercial access. The threat of withdrawing aid can be another means by which a state can pursue its national interest. Humanitarianism and altruism are, nevertheless, significant motivations for the giving of aid.

A major proportion of aid from donor nations is based on conditionality, meaning that the aid comes with conditions. For example, some donors mandate that a receiving nation must spend the aid on products and expertise originating only from the donor country. Similarly, the World Bank and the International Monetary Fund, as primary holders of developing countries' debt, attach structural adjustment conditionalities to loans which generally include eliminating state subsidies and the privatizing state services.

Criticisms of Economic Aid

Aid is seldom given from motives of pure altruism; instead, it is often used as a tool of foreign policy. It may be given as a means of supporting an ally in international politics. It may also be given with the intention of influencing the political process in the receiving nation. Aid to underdeveloped countries is often more in the interest of the donor than the recipient, or even a form of neocolonialism. In recent decades, aid by organizations such as the International Monetary Fund and the World Bank has been criticized as being primarily a tool used to open new areas up to global capitalists, and being only secondarily, if at all, concerned with the well-being of the people in the recipient countries.

Economic aid is often criticized for simply not being effective: it does not do what it was intended to do or help the people it was intended to help. Statistical studies have produced widely differing assessments of the correlation between aid and economic growth, and no firm consensus has emerged to suggest that foreign aid boosts growth. It has also been argued that foreign aid harms recipient governments, often because aid distributed by local politicians finances the creation of corrupt government.

Economic Sanctions: Resolving Trade Disputes

Economic sanctions are domestic penalties applied by one country or group of countries on another for a variety of reasons. Economic sanctions include, but are not limited to, tariffs, trade barriers, import duties, and import or export quotas.

Sanctions can arise from an unresolved trade or policy dispute, such as a disagreement about the fairness of a policy affecting international trade. For instance, one country may conclude that another is unfairly subsidizing exports of one or more products, or unfairly protecting some sector from competition from imported goods or services. The first country may retaliate by imposing import duties on goods or services from the second.

For example, in March 2010, Brazil introduced new sanctions against the US. These sanctions were on the basis that the US government was paying cotton farmers for their products, an action not allowed by the WTO. The WTO is currently supervising talks between the states to remove the sanctions.

Economic Sanctions: Achieving Policy Goals

Economic sanctions also can be a coercive foreign policy measure used to achieve particular policy goals related to trade, governance, or humanitarian violations. For example, the United States has imposed economic sanctions against Iran for years on the basis that the Iranian government sponsors groups who work against US interests. The United Nations imposed stringent economic sanctions on Iraq after the first Gulf War, partly as an attempt to make the Iraqi government cooperate with the UN weapons inspectors' monitoring of Iraq's weapons programs.


Iran and Sanctions: The US has long upheld economic sanctions against Iran, arguing that Iran pursues policies that are contrary to US national interest.


Arbitration is a form of dispute resolution that can be used to resolve international commercial, investment, and interstate conflicts.

Learning Objectives

Explain the advantages of international commercial and investment arbitration

Key Takeaways

Key Points

  • Arbitration is a form of alternative dispute resolution in which a third party reviews evidence in a dispute and makes a decision that is legally binding for all involved.
  • International arbitration has frequently been used in resolving international commercial or investment disputes.
  • International commercial and investment arbitration is popular primarily because it avoids the uncertainties and problems that come with litigating in a foreign, national court, and arbitration is confidential and enforceable.
  • The main legal instrument that governs international commercial arbitration is the 1958 New York Convention, which was created under the auspices of the UN and has been signed by more than 140 countries.
  • Arbitration can also be an important tool of foreign policy, as it provides a way for states to resolve their conflicts peaceably. For example, in 1903, arbitration settled a border dispute between the United States and Canada.

Key Terms

  • alternative dispute resolution: Resolution of a dispute through negotiation, mediation, arbitration, or similar means, as opposed to litigation
  • New York Convention: Widely considered the foundational instrument for international arbitration, this agreement requires the courts of states who signed the agreement to give effect to private arbitration agreements and to recognize and enforce arbitration awards made in other contracting states.
  • arbitration: A process through which two or more parties use an arbitrator or arbiter (an impartial third party) in order to resolve a dispute.

What is Arbitration?

Arbitration, a form of alternative dispute resolution, is a legal technique for the resolution of disputes outside the courts, where the parties to a dispute refer it to one or more persons by whose decision they agree to be bound. It is a resolution technique in which a third party reviews the evidence in the case and imposes a decision that is legally binding for both sides and enforceable.

Arbitration is often used for the resolution of commercial disputes, particularly in the context of international commercial transactions. Arbitration can be an important tool of foreign policy, as it allows states a forum to resolve disputes.

International Arbitration

International arbitration is a leading method for resolving disputes arising from international commercial agreements and other international relationships. As with arbitration generally, international arbitration is a creature of contract. In other words, the parties' agree to submit disputes to binding resolution by arbitrators, usually by including a provision for the arbitration of future disputes in their contract. The practice of international arbitration has developed so as to allow parties from different legal and cultural backgrounds to resolve their disputes, generally without the formalities of their respective legal systems.

Advantages to International Arbitration

International arbitration has enjoyed growing popularity with business and other users over the past 50 years. There are a number of reasons that parties elect to have their international disputes resolved through arbitration. These include: the desire to avoid the uncertainties and local practices associated with litigation in national courts, the desire to obtain a quicker, more efficient decision, the relative enforceability of arbitration agreements and awards, the commercial expertise of arbitrators, the parties' freedom to select and design the arbitral procedures, confidentiality of arbitration, and other benefits.

The New York Convention

The principal instrument governing the enforcement of commercial international arbitration agreements and awards is the United Nations Convention on Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the "New York Convention"). The New York Convention was drafted under the auspices of the United Nations and has been ratified by more than 140 countries, including most major countries involved in significant international trade and economic transactions. The New York Convention requires that the states that have ratified it to recognize and enforce international arbitration agreements and foreign arbitral awards issued in other contracting states, subject to certain limited exceptions. These provisions of the New York Convention, together with the large number of contracting states, has created an international legal regime that significantly favors the enforcement of international arbitration agreements and awards.


New York Convention Signatories: This map depicts all of the countries who have signed on to the New York Convention. This extensive treaty is often recognized as the most important instrument governing international commercial arbitration.

International Commercial and Investment Arbitration

The resolution of disputes under international commercial contracts is widely conducted under the auspices of several major international institutions and rule making bodies. Specialist dispute resolution bodies also exist, such as the World Intellectual Property Organisation (WIPO), which has an arbitration and mediation center and a panel of international neutrals specializing in intellectual property and technology related disputes.

The last few decades have seen the promulgation of numerous investment treaties such as the Energy Charter Treaty, which are designed to encourage investment in signatory countries by offering protections to investors from other signatory states.

Interstate Arbitration

Arbitration has been used for centuries for the resolution of disputes between states and state-like entities. The 1899 and 1907 Hague Conferences addressed arbitration as a mechanism for resolving state-to-state disputes, leading to the adoption of the Hague Conventions for the Pacific Settlement of International Disputes. The Conventions established the Permanent Court of Arbitration and a rudimentary institutional framework for international arbitration of inter-state disputes.


Members of the Permanent Court of Arbitration: These states are parties to the Permanent Court of Arbitration (the green states signed on to the 1907 agreement and the blue ones to the 1899 agreement).

For example, in 1903, arbitration resolved a dispute over the Canada-Alaska border. The Alaska Purchase of 1867 drew the boundary between Canada and Alaska in ambiguous fashion. With the gold rush into the Yukon in 1898, miners had to enter through Alaska and Canada wanted the boundary redrawn to obtain its own port. The issue went to arbitration and the Alaska boundary dispute was resolved in US favor by an arbitration in 1903. In recent years, international arbitration has been used to resolve a number of disputes between states or state-like entities, thus making arbitration an important tool in modern foreign policy.


Alaska Boundary Dispute: Blue is the border as was claimed by the United States, red is the border as was claimed by Canada. The Canadian province of British Columbia claimed a greater area, shown in green. Yellow shows the current border, after the boundary dispute was resolved by arbitration in 1903. Arbitration can be an important tool in solving interstate disputes.

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