Performance Requirements in Investment Treaties

The report examines the role of performance requirements (PRs) in foreign direct investment, analyzing how their prohibition in bilateral investment treaties (BITs) and the WTO TRIMs Agreement restricts the ability of host states—particularly developing countries—to achieve sustainable development goals. It contrasts traditional BITs, which are silent on PRs, with a growing minority of 'TRIMs+' treaties that impose broader prohibitions. Through the analysis of investment tribunal cases like Mobil Oil v. Canada and Lemire v. Ukraine, the document highlights the unpredictability of legal interpretations. It concludes by offering policy options for states to maintain their regulatory sovereignty, such as avoiding PR prohibitions in treaties or using specific carve-outs and grandfathering clauses.

• Performance requirements (PRs) are tools used by states to ensure foreign direct investment contributes to national development goals, such as technology transfer, local job creation, and environmental outcomes. While critics argue they distort trade, empirical evidence from Japan, Korea, Singapore, Taiwan, China, India, and Botswana shows they can successfully foster industrialization and competitive domestic sectors.
• The WTO Agreement on Trade-Related Investment Measures (TRIMs) prohibits specific PRs related to local content, trade-balancing, foreign exchange restrictions, and export controls for goods, though it does not cover the services sector. Developing countries and least developed countries (LDCs) may be eligible for temporary exemptions from these prohibitions.
• Bilateral investment treaties (BITs) are shifting from a traditional approach of silence regarding PRs to a growing minority approach that explicitly prohibits them. 'TRIMs+' clauses, common in treaties negotiated by the United States and Canada and in NAFTA, extend prohibitions beyond the WTO list and often cover both the pre- and post-establishment phases of investment.
• Other treaty clauses can indirectly restrict a state's ability to impose PRs. Pre-establishment rights can make joint venture requirements a breach of national treatment obligations, and Most-Favoured Nation (MFN) clauses may allow investors to import PR prohibitions from other treaties signed by the host state.
• Investment tribunals exhibit inconsistent and unpredictable interpretations of PR prohibitions. In Lemire v. Ukraine, the tribunal showed deference to state sovereignty by ruling that a requirement to broadcast Ukrainian music was intended to promote cultural inheritance rather than protect local industry. Conversely, in Mobil Oil v. Canada, the tribunal adopted a broad interpretation, ruling that R&D spending guidelines constituted a de facto local purchase requirement and narrowly interpreted the state's reservations.
• To preserve policy space, developing countries can adopt several strategies: avoiding PR prohibitions in BITs entirely, including clauses that expressly authorize PRs (particularly pre-establishment), restricting prohibitions to mandatory PRs only, creating positive or negative lists of sectors, or excluding PR disputes from investor-state dispute settlement mechanisms.

APA

Nikièma, S. H. (2014). Performance Requirements in Investment Treaties. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/best-practices-performance-requirements-investment-treaties-en.pdf

Chicago

Nikièma, Suzy H. Performance Requirements in Investment Treaties. International Institute for Sustainable Development, 2014. https://www.iisd.org/system/files/publications/best-practices-performance-requirements-investment-treaties-en.pdf.

Wikipedia

{{cite report |last1=Nikièma |first1=Suzy H. |title=Performance Requirements in Investment Treaties |publisher=International Institute for Sustainable Development |date=December 2014 |url=https://www.iisd.org/system/files/publications/best-practices-performance-requirements-investment-treaties-en.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{nikima2014performance, author = {Nikièma, Suzy H.}, title = {{Performance Requirements in Investment Treaties}}, institution = {International Institute for Sustainable Development}, year = {2014}, month = dec, url = {https://www.iisd.org/system/files/publications/best-practices-performance-requirements-investment-treaties-en.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }