Merits, Defects and Improvement of Stabilization Clauses in Transnational Contracts


The legal world has for long discussed the legal effect of stabilization clauses internationalizing a transnational contract between a state and multinational corporation. The shortcomings of such stabilization clauses is the fact that they do not take into account the dynamic changes that can occur during of the agreement, and do not acknowledge the necessity of new laws, which accommodate these changes, being applied. It is of paramount importance that governments in developing or transitional economies critically examine the consequences of stipulating stabilization clauses from a long term comprehensive perspective. In turn, investors should not consider stabilization clauses to be tools that create “the place of sleeping beauty…where time stays still.”1 Indeed, it is sound practical advice for contract negotiators to “envisage the possibility of legislative change and attempt to define the financial consequence in the contact.”2


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