Local Content Requirements in Extractive Industries: A Human Rights Analysis

When a State requires foreign investors to hire local workers or engage other local resources as a condition to access its natural resources, it puts in motion a series of events with unanticipated consequences. The State's local content requirements, while seeking to build indigenous capacity, could artificially protect certain individuals or entities. The latter, in turn, may use their privileged position to delay payment for goods and services. The requirements could also encourage the development of local shell entities, which deprive work to those most qualified to perform it. These developments, along with associated corruption, have profound human rights implications, whether as to fundamental principles of equality and dignity or more specific matters, such as the right to work, the right to pay for work, and the right to property. This chapter examines the human rights implications of local content requirements and sets forth a model, based principally on the UN Guiding Principles on Business and Human Rights, to help harmonize investment objectives with human rights.