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Economic Equilibrium Clause
Practical Law Glossary Item 2-501-7259 (Approx. 2 pages)
Glossary
Economic Equilibrium Clause
A type of stabilization clause contained in a host government agreement (HGA) or other international investment agreement between a host government and a foreign investor that protects foreign investors from laws and regulations adopted after the execution of the HGA or other agreement by requiring the host government to indemnify the investors from and against the costs of complying with the new laws and regulations.
Depending on the negotiating strength of the foreign investors and the host government's desire or need for the project and the investors' investment, these clauses may be full or limited.
A full economic equilibrium clause protects the foreign investors against the economic consequences of all subsequent legislation. By contrast, a limited economic equilibrium clause:
- May indemnify the foreign investors against a specified set of laws or regulations (for example, laws that may be discriminatory to the foreign investors) or for costs and expenses in excess of a certain amount.
- May require the foreign investors to mitigate the costs of compliance.
- Often requires that the costs of compliance be determined or verified by an independent expert before payment.
For more information on stabilization clauses, see Practice Note, Understanding Stabilization Clauses in International Investment Agreements.