Stabilization Clauses and their impact on human rights and the environment

Abstract

Jurists, economists and social scientists alike agreed that foreign investment has the potential to act as a catalyst for the enjoyment of an individual’s fundamental human rights, particularly in developing countries. While International investment standards are aimed at greater investor and investment protection. Foreign direct investments can stimulate economic growth, development and employment; they can also contribute to improving the human rights situation and environment protection in many developing countries.

On the other hand, corporate investments can have negative consequences for the individual’s enjoyment of fundamental human rights, including an adverse effect on fundamental labor rights and nondiscrimination In addition to its impact on environmental protection. While states have the primary responsibility to respect, protect and fulfill human rights, the obligations and responsibilities of corporations may also be recognized in the sphere of foreign investment.

Investment contracts concluded between states and investors include stabilization clauses, under which states agree to refrain from using their legislative or administrative powers in a way that negatively affects the investor. Rigid application of such clauses may dissuade the host state from developing or implementing new human rights or environmental legislation if compliance adds to the operating expenses of the investor. It is this macro effect of stabilization clause that has led to concerns as regards its effect on development of labor, environmental and human rights laws.

This research discusses and analyses corporate human rights obligations and the lack thereof under stabilization clauses in foreign investment contracts. It addresses main issues related to corporate human rights obligations and stabilization clauses. To be clear, the argument here is that the fundamental human rights and environment protection obligations of investors, particularly of corporations, must be included in foreign investment contract.