Stabilization Clauses in International Investment Law: Beyond Balancing and Fair and Equitable Treatment

Abstract Stabilization clauses add a twist to the general debate about states’ legitimate discretion to regulate in the public interest and potentially conflicting investors’ rights under international investment law. While this debate is about the legitimate outreach of standards such as fair and equitable treatment (FET) or expropriation in the face of social and environmental regulation, stabilization clauses can go as far as protecting investments from any unfavorable changes in law. This absolute wording could from the outset exclude interpretative reconciliation in conflict of law situations. Recent arbitral decisions seem to confirm this farreaching legal effect. The paper aims to take a closer look at these decisions and to shed light on interpretative leeway in conflict of law situations that involve stabilization clauses. The authors conclude that today far-reaching general stabilization clauses do not stand up to their goal of investment security but rather generate delegitimizing frictions and uncertainty with respect to international law, and should thus be substituted by carefully tailored provisions that respond better to investors’ and states’ actual needs.