Bargaining in the Shadow of Investor-state Mediation: How the Threat of Mediation Will Improve Parties' Conflict Management

Issues of access to justice, threats to national sovereignty, and perceptions of inconsistency and arbitrariness have led to a crisis of confidence in the investor-state arbitration system. In response, there has been a successful push for the inclusion of mediation in treaty provisions and arbitration rules, as well as ratification of the Singapore Convention for the expedited enforcement of mediated agreements. Nonetheless, very little mediation is actually occurring on the ground. Efforts to increase the use of mediation have failed to address concerns such as the political costs of settling cases, the lack of coordination between state agencies with different portfolios, and the existence of governmental actors with different jurisdictions and misaligned incentives. Strategic use of mediation's "shadow," however, could increase the effectiveness of existing conflict management tools and systems that have been designed in certain countries and recommended by the World Bank to better facilitate ongoing relationships and investment. More particularly, the threat of mandatory mediation (i.e., being required by ICSID rules to participate in mediation before filing an arbitration claim) could encourage the development of conflict management systems and structured stakeholder negotiations that respond more effectively to investor-state conflicts, especially if the International Bar Association (IBA) rules provide that the mandate for mediation may be met by the occurrence of stakeholder negotiation that is supported by these other conflict management tools.