Stability Through Stabilization Clauses?

Last week, the International Finance Corporation (IFC) and John Ruggie, the United Nations Secretary-General's Special Representative on Business and Human Rights, released a draft of a paper they commissioned on the effects stabilization clauses within foreign direct investment contracts have on human rights. More specifically, the report takes an empirical approach to the question of the potential conflict between a foreign direct investment’s interests in “regulatory stability” and the host state’s ability to adopt and implement human rights laws and regulations in areas such as labor, non-discrimination, and environmental protection.
This document offers a rare insight into the typically secretive provisions governing foreign direct investment contracts and will serve the basis of a much more educated and insightful discussion on the conflicts that arise between such investments and larger social and environmental concerns. Among other chief findings, the study demonstrates that "stabilization clauses are sometimes drafted so as to insulate investors from having to implement new environmental and social laws, or to provide investors with an opportunity to be compensated for compliance with such laws.” The report states that this is more likely to occur in contracts from countries outside the Organisation for Economic Co-operation and Development (OECD).
The document is publicly available and will serve as a consultative document that will form the basis for a series of discussions with a variety of groups with interest in the future use of stabilization clauses. This study forms a part of the reports that have started to emerge from Ruggie's team and will surely form part of the more general effort to bring greater transparency to foreign direct investment practices.

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