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As businesses continue to expand globally, they are increasingly opting for arbitration as a means of resolving disputes. However, with parties hailing from different geographic locations, the question arises as to which law should govern the arbitration process.

Choice of law in an arbitration agreement refers to the law that governs the rights and obligations of the parties involved and the arbitral tribunal in resolving disputes. It is an essential element of any arbitration agreement and can impact the outcome of the dispute.

In many cases, the parties may agree on the law to be applied in the arbitration agreement. This is commonly referred to as the “choice of law” clause. The choice of law clause can either be expressly stated in the arbitration agreement, or it can be incorporated by reference.

The choice of law clause should not only be chosen carefully, but it should also be drafted effectively. Parties must consider factors such as the legal framework, language, and familiarity of the chosen law, as well as the potential enforceability of the arbitration award in the jurisdiction of the losing party.

For instance, if the arbitration is taking place between a company based in China and one based in the United States, the parties may choose to use the laws of a neutral jurisdiction such as Singapore or Switzerland. This is because such jurisdictions have a well-established legal framework for international arbitration, and their laws are generally regarded as neutral.

Another consideration is the language used in the arbitration agreement. It is essential that the chosen language is familiar to both parties to ensure that they can fully understand the agreement`s terms and conditions.

When drafting the choice of law clause, it is also crucial to consider the potential enforceability of the arbitration award in the jurisdiction of the losing party. In some countries, there may be obstacles to enforcement if the award is based on foreign law, in which case it may be preferable to choose the law of the forum.

It is also essential to keep in mind that the choice of law clause is not the only factor that determines which law governs the arbitration. The law of the seat of arbitration and the procedural law of the arbitration institution also play a significant role in determining the applicable law.

In conclusion, choosing the law to govern the arbitration agreement is crucial in ensuring the efficiency and effectiveness of the dispute resolution process. A well-drafted choice of law clause that takes into account all the relevant factors can go a long way in ensuring the parties` satisfaction with the final outcome.

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