There is one important fact about Israelis and Palestinians that is not generally reported: every year Israelis and Palestinians engage in an estimated US$4 billion in trade. Israel is by far Palestine’s largest trading partner and, according to some estimates, Palestine is Israel’s second largest trading partner after the United States. In other words, notwithstanding the seemingly endless stream of dismal headlines about the prospects for peace in the region, peaceful and mutually beneficial exchanges occur every day between ordinary Palestinians and Israelis.

As with all commercial transactions, disputes sometimes arise out of these exchanges. In such disputes, Israelis generally have full access to the machinery of civil justice under Israeli law. Meanwhile, it can be exceedingly difficult for Palestinians to participate in judicial proceedings in Israel; conversely, Israeli companies can face their own difficulties in enforcement. Just as with contracts between U.S. companies and French, Japanese, or Brazilian parties, neither party believes that it would be treated fairly in the other party’s courts.

Planning the New Jerusalem Arbitration Center

About two years ago, a retired Israeli military general named Oren Shachor, now a businessman and the head of the International Chamber of Commerce of Israel (which goes by the acronym “ICC Israel”), and Samir Hulleileh, who heads up one of the largest Palestinian holding companies, decided that the situation had to change. They knew that both Israeli and Palestinian businesses would gain from a more neutral mechanism for resolving their disputes. When they met, they started with seemingly epic questions and insurmountable doubts, but ended with the idea of the Jerusalem Arbitration Center (“JAC”). The purpose of the JAC, as they conceived it, is to resolve through international arbitration the inevitable commercial disputes that arise between Israelis and Palestinians. Despite the region’s history, the JAC is now well on its way to being a practical reality.

International arbitration has a long history of providing fair, neutral, and reliable dispute resolution for parties from different cultural and legal traditions. In the absence of arbitration, international commercial exchanges are inevitably hampered by self-help arrangements and activities, cumbersome financing, or piecemeal contractual arrangements. The JAC could provide a better alternative for Israeli-Palestinian exchanges and, by eliminating expensive work-arounds, increase the amounts invested in profitable exchanges. It would also prevent commercial disputes from festering into larger, open conflicts that could be accompanied by violence.

A New “ICC Palestine”

To create the Jerusalem Arbitration Center, the ICC Israel needed a viable partner. Shachor and Hulleileh envisioned a new “ICC Palestine.” Perhaps not surprisingly, the Paris-based International Chamber of Commerce (“ICC”) was initially reluctant to sign on. The ICC wanted assurances that its reputation for excellence and any resources that it would lend to the project would not be wasted in some quixotic quest for the impossible. But the ICC had long championed the notion of “peace through commerce.” After an intensive in-person lobbying effort by ICC Israel, the ICC came around to the view that this was a serious international endeavor. It would be a good test of the mettle of its motto. In record time, the ICC Palestine was established and, by May 2011, a Memorandum of Understanding for the JAC had been signed by the ICC Israel, the ICC Palestine, and the ICC in Paris.

The ICC Palestine still has all the markers of a startup. It was founded and is chaired by Munib Masri, a successful American-educated businessman who has been dubbed the “Palestinian Rothschild” by Israeli media for his extensive philanthropic works in Palestinian communities and economic enterprises. Administratively, the institution is headed by a vibrant 30-something Palestinian woman named Yara Asad, who has an executive MBA diploma from Duke University in the United States, and is currently finishing her PhD in Paris.

It is a one-room operation running on a shoestring budget out of an office borrowed from a Palestinian pharmaceutical company through the generosity of its CEO, Talal Nasereddin. What Asad lacks in experience and formal legal training, she makes up for with her determination, sharp managerial skills, and an almost uncanny intuition about legal issues. Asad is emblematic of the new generation of Palestinians who have a vision of the world beyond their troubled, and as yet undefined, borders—and they are determined to make that vision a homemade reality.

The ICC Israel

On the ICC Israel side, Oren Shachor may seem an equally improbable source for the vision to create the JAC. For more than 30 years, Shachor was in the Israeli military. His resume counts him in virtually every major violent clash with Palestinians during that period, including one in which he was wounded. Eventually, former Prime Minister Yitzak Rabin appointed Shachor to serve as the commander in charge of overseeing the occupation in the West Bank and Gaza. In that role, in his own words, Shachor was “the very symbol of the occupation.” It was, however, this close daily work with Palestinians, as well as his pivotal role in negotiating the Oslo Peace Accords, that gave Shachor the background and insight to believe that cooperation through the JAC was possible and could be mutually beneficial.

Today, Shachor proudly states that he is much more “a soldier of peace than a general of war.” Despite switching objectives, Shachor’s military experience has been essential to creating the JAC—who else but a former general with such a distinguished military background could push through the obstacles and skepticism about the JAC?

Shachor works at the ICC Israel with Baruch Mazor, now a prominent Israeli businessman who also has a distinguished career as a former Israeli military officer and as an informal statesman in international efforts on behalf of Holocaust survivors and their children. Shachor’s title is “Director General” of the ICC Israel, and Mazor’s is “Secretary General.” More than “Generals,” however, Shachor and Mazor denominate themselves “Merchants of Peace.” They are working to bring the promise of peaceful economic cooperation between Palestinians and Israelis to sometimes wary onlookers in Israel, Palestine, and beyond.

Challenges for the JAC

Creating the JAC requires continued suspension of disbelief and a slow building of reciprocal trust between peoples who have a long history of reasons to distrust each other. But the process of creating the JAC is less about opposing parties staking out positions and strategies for compromise; it is more about working together to build a strong, resilient and independent institution on a solid foundation. For that reason, the seemingly constant flow of political shake-ups, and even incidents of violence, that regularly disrupt efforts at political peace have not derailed the work in putting together the JAC. Perhaps even more surprisingly, while the Israeli Government and the Palestinian Authority have trouble agreeing on almost anything, they have both committed support for establishment of the JAC.

As a practical matter, one of the most significant challenges for the JAC is bridging the vast disparities in business and legal expertise between Palestinians and Israelis, disparities that are also represented in the process of creating the JAC. As Mazor explains, he knows that the ICC Israel has a significant advantage over the ICC Palestine in “know-how” about international arbitration generally and about the ICC as an institution (the ICC Israel has existed for over 50 years and enjoys representation on the ICC Paris’ Executive Board). It is also well-known that the Israeli legal profession, Israel’s cadre of international arbitrators, and its legal infrastructure (including legal education) hold many advantages over their Palestinian counterparts.

Against this backdrop, the structure of the Jerusalem Arbitration Center is designed to be a symbol of the equality and empowerment that it seeks to ensure through its arbitral processes. Its legal form will be a joint venture, with ownership shared equally between the ICC Israel and the new ICC Palestine. In addition to the prestige of its name, the ICC in Paris has promised to provide essential guidance and international support in everything from selecting the board of the JAC, to management of an arbitral institution, to establishing its internal accounting system. The joint venture agreement and arbitral rules are being developed jointly by Palestinians and Israelis, with input from the ICC in Paris, and administration of the JAC will also be divided equally. While the JAC itself will be headquartered in Jerusalem, there are plans to build contact centers in Ramallah and Tel Aviv, the respective homes of the ICC Palestine and the ICC Israel.

Capacity-Building in Palestinian Institutions

The structure of the JAC alone cannot resolve all the disparities between Palestinians and Israelis, particularly ones that are tied to Palestinian institutions. Accordingly, the ICC Palestine, in conjunction with Penn State Law and with the support of various other institutions, is undertaking a series of initiatives aimed at promoting international arbitration in various Palestinian institutions, and building professional capacity in Palestinian business professionals, lawyers, judges and law schools. These initiatives will include various types of educational exchanges and related internships, advocacy training, arbitrator training, and judicial training and exchanges. Long-term plans include joint advocate and arbitrator training programs in conjunction with Israeli attorneys, and a regional international arbitration moot court event involving Palestinian and Israeli law students.

The kick-off event for these initiatives was a “Teach In” in Ramallah on December 7-8, 2012 which provided a general introduction and overview of international arbitration. It was designed to generate “buy-in” and highlight the many challenges ahead in preparing Palestinian professionals and legal institutions to participate in the JAC and other international arbitrations. It was remarkably well-attended not only by members of the Palestinian legal and business communities, but also by law professors from most of the Palestinian law schools, numerous judges, and representatives from various ministries of the Palestinian Authority. Prime Minister Dr. Salaam Fayyad opened the event with an optimistic vision of how local commitment to, and competence in, international arbitration can help attract foreign investment and increase overall trade with Israel and beyond.

Plans are also under way, in conjunction with the Palestinian Ministry of Justice and the support of the Palestinian Authority, to revise the Palestinian Arbitration Law, which was adopted in 2000 when the Palestinian Authority was first established. Under this law, the level of enforcement of domestic arbitration awards in Palestinian courts is precariously low. The current law has many substantive provisions in common with the UNCITRAL Model Law, a model law that can be adopted by States and ensures national enforcement of international arbitral awards in a manner consistent with the New York Convention (the treaty that obliges contracting States to enforce international arbitral awards). However, the Palestinian law also includes several loopholes that allow Palestinian courts to engage in an exacting review of arbitral proceedings and outcomes, a level of review that is inconsistent with international standards. The law reform effort will focus on closing these loopholes to ensure that the problems with enforcing domestic awards do not affect enforcement of awards rendered under the auspices of the JAC.

Legal Challenges for the JAC

In addition to challenges within Palestinian legal institutions, there are also several complex legal issues relating to the structure of the JAC and its proceedings. Unlike domestic arbitration, an international arbitration has a “legal seat” that constitutes its “juridical home.” The legal seat determines which courts can intervene in various aspects of the arbitral process (such as to respond to requests for interim relief and arbitrator challenges). The legal seat also determines what law applies when courts review an award, and which courts have the power to vacate or nullify an award (as opposed to grant or refuse enforcement of the award). If JAC arbitration had a legal seat that was regarded as within either Israeli or Palestinian courts’ jurisdiction, that could subject JAC awards to treatment similar to domestic Israeli or Palestinian awards, as well as potentially deny them the benefits of the New York Convention.

Another legal challenge, at least in the beginning, is with respect to the jurisdiction of the JAC itself. The Memorandum of Understanding currently provides that for the first few years, disputes in excess of $7 million that are submitted to the JAC will revert to the ICC in Paris for resolution. This is effectively a limit on the jurisdiction of the JAC, but an innovative one that has little precedent. It must be disclosed to potential users, but not undermine the confidence in, or functioning and viability of, the JAC.

The JAC as a Model for Other Arbitral Institutions.

Other challenges that the JAC faces are not so unique. From one perspective, the JAC may be seen as a particularized example of the “regionalization of international arbitration,” meaning the development of regional arbitration centers whose rules and personnel are more familiar with local legal traditions and culture. Just as small community banks can carve out a niche by providing service that is better tailored to the local community than large, nationwide banks, regional arbitration institutions can provide service and know-how that is more tailored to the local market. They can be cheaper, too.

For such regional institutions, the general challenge is how to establish trust and legitimacy for an institution that is new and intentionally disconnected from political and legal apparatus. Building on rules and protocols established by global leaders is a technique that has been used in other new centers from Bahrain (in conjunction with the AAA’s international division, the International Center for Dispute Resolution or “ICDR”), to the India Center of the London Court of International Arbitration (or “LCIA”), to the Centro de Arbitraje de México (whose rules are based on the ICC Rules).

From another perspective, the JAC is an example of an institution that is trying to bring binding and legal dispute resolution infrastructure to an economically under-developed jurisdiction. Its effort may be a model for many other jurisdictions that do not have the legal infrastructure to attract and protect foreign investment. Initiatives to generate buy-in and to increase Palestinian judges, legal and business professionals’ capacity to participate in and manage commercial disputes may be exported to other places like Bangladesh, Peru, and Kenya.

Finally, and seemingly the most unusual feature, the JAC is seeking to bring peaceful dispute resolution to disputants from jurisdictions that are openly hostile to each other and that lack formal diplomatic relations. While this may seem like a problem that is peculiar to the JAC, there are similar situations around the world, e.g. the former Yugoslavia, India and Pakistan and Sudan and South Sudan. To the extent the JAC is successful in its effort to provide reliable, efficient dispute resolution for parties in a region that is defined by intractable violent conflict, it may be a model for future institutions in similar contexts. It may also create some space for political processes to take a lead from the private sector, for peace to follow from commerce.

(Note: The original version of this article in substantially the same form first appeared in the Spring 2012 edition of the New York Dispute Resolution Lawyer, and is reprinted here by permission.)