Islamic Legal Tradition and the Choice of Investment Arbitration Forums

Abstract

Does domestic legal tradition affect international cooperation and legalization? Recent studies indicate that states with Islamic law tradition (ILT) prefer more informal forums to resolve international disputes, compared to states with other legal traditions. We examine this claim in the context of the increasingly important global investment regime. We argue, specifically, that international investment agreements (IIAs) concluded by ILT states are less likely to refer disputes to the highly legalized and formal Centre for the Settlement of Investment Dispute (ICSID), and are more likely to refer them Islamic forums, which tend to be less formal. Employing new data on forum choice in investor-state dispute settlement (ISDS) provisions in more than 2,600 IIAs and controlling for a battery of alternative explanations, we find substantial empirical support for the theoretical expectations. These findings underscore the significance of domestic legal traditions to international dispute settlement in the Islamic world and beyond.

Keywords: Islamic law states; Legal tradition; International investment agreements; Investor-state dispute settlement; Investment arbitration forums; Legalization