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IISD Best Practices Series: Performance Requirements in Investment Treaties

This paper surveys the types of performance requirements (PRs) in use around the world, and briefly describes the WTO’s Agreement on Trade-Related Investment Measures (TRIMs).

The study focuses on the meaning and scope of PR-related clauses in bilateral investment treaties (BITs) and the interpretation of such clauses by investment tribunals.

If well formulated and applied, PRs can be effective tools to maximize the economic, environmental and social benefits of foreign investments. Therefore, it is important for states, particularly developing countries, to retain the possibility of using them when circumstances warrant it.

In this context, the growing trend of prohibiting most PRs in some investment treaties, combined with the investor–state dispute settlement mechanism, seriously impairs the ability of developing states to use these development policy tools. Notably, these restrictions and prohibitions on PRs often go beyond WTO TRIMs prohibitions— and, when available, exceptions in BITs are not always effective before tribunals.

Finally, the paper provides some options to help states preserve their policy space in BITs for imposing, if needed, PRs on foreign direct investment (FDI) in their territory.