Study On Performance Requirements Under International Investment Law

Performance requirements are regulatory measures that host states impose on foreign investors,taking into account their own economic and social development needs.They are also the threshold for foreign investors to engage in investment activities in host states.Whether or not a country adopts performance requirements,including their restrictive extent,is matters within the scope of the country's sovereignty.The situation varies over different countries,depending on the differences of their economic and social development and strategic decisions.Since performance requirements run counter to investment liberalization,some countries have proposed restrictions or prohibitions on performance requirements to release host states'economic regulating space.In this context,prohibitive performance requirements are gradually favored by countries with higher degree of liberalization,and are also the major trend of international investment rules in the future.However,it does not mean that prohibitive performance requirements have become an essential element of international investment agreements(IIAs).Performance requirements still play an important role in directing international investment to specific fields given the need of economic development and sustainable development of developing countries,thereby cannot abandoned entirely.For our country,it is a critical issue to balance foreign investors'interests with host states because China needs to take into account both costs and benefits of being a capital importing country and an emerging capital exporting country.As balance of interests is the core content of sustainable development investment,our country should adhere to the principle of sustainable development,specify the applicability of performance requirements,pay attention to the dynamics of performance requirements and emphasize implementation and supervision mechanism of performance requirements.In doing so,state' s right to regulate in due space can be ensured.Comparing with other investment treatment clauses,performance requirements are relatively new and less used investment clause in IIAs,thereby lacking in-depth studies in this field.The correct application of performance requirement clause has a direct impact on the balance of interests of host states,foreign investors and their home countries.Therefore,it is of great value to study performance requirements from the perspective of international investment law.With the exception of Introduction,this dissertation is composed of six chapters.Chapter ? is a brief introduction of performance requirements.Performance requirements cover almost all matters relating to foreign investment.Their classification varies according to the standards of legal documents,implementation stage,enforcement force and target of measures,and manifestations are diversified,including 14 categories(e.g.local content requirements,local equity requirements,technology transfer requirements,employment and training requirements,manufacturing requirements and product authorization requirements).Performance requirements play an active role in supporting emerging industries,dealing with market defects and breaking through trade restrictions,but their negative effects cannot be ignored at the same time.As the product of investment liberalization,prohibitive performance requirements with promotion of United States and other countries have gradually appeared in some regional investment agreements and investment agreement models of countries with high standards of investment protection.Their restrictive scope develops from limited prohibition to extensive.However,the existence of performance requirements has its rationality.Especially for developing countries,performance requirements are an important tool for achieving national economic prosperity.In the view of overlap with local content requirements in the broad sense,performance requirements are rules that combine both trade and investment contents,reflecting both trade policies of contracting parties and their investment policies.Therefore,performance requirements have their particularity in international economy and trade circle.Chapter ? elaborates legal regulation of performance requirements under IIAs.Through induction and analysis of IIAs,this chapter divides legal provisions of prohibitive performance requirements into mandatory and conditional ones.The difference is that the former are mandatory rules for foreign investors,while the latter are optional.The relationship between performance requirement clause and national treatment clause,most-favoured-nation clause and employment clause directly reflect degree of investment liberalization and application of human rights protection in international investment law.The exception clause of prohibitive performance requirements is a flexible mechanism to realize investment liberalization and protect non-investment interests.While limiting host states' right to regulate,regulatory space for host states to pursue social value should be reserved,such as exceptions on government procurement,existing or future non-conforming measures and special areas(e.g.aboriginal peoples,cultural industries and tax measures),so as to weaken the effect of restrictive characteristics.Certainly,the most effective way is to combine special provisions with general ones,which clarify specific exceptions to prohibitive performance requirements and include social values that are in line with sustainable development goals,thus ensuring the balance between countries' flexible regulatory space and investor protection treatment.Chapter ? analyses the interpretation of performance requirements under international investment arbitration.At present,there are only 15 arbitration cases on the terms of performance requirements which are mostly initiated under NAFTA rules.Among them,interpretation method,degree of relevance,substantive effect,investment and types of investors and investment activities are the main factors affecting the applicability of prohibitive performance requirements.Performance requirements of host states are increasingly challenged by foreign investors,but arbitral tribunals interpret this article with reference to various standards,resulting in frequent inconsistencies of awards.To effectively alleviate fragmentation of international law,arbitration tribunal should integrate various factors in judging illegality of performance requirements.On the basis of considering regulatory measures of developing countries in specific periods,the proportionality between development goals of host states and scope and duration of performance requirements etc.should be taken into account,so as to avoid distorting effect of performance requirements on international investment activities and unreasonable regulation of prohibitive performance requirements.While renewable energy case in Canada and solar cell case in India are typical examples of local content requirements applying international trade rules,they are also valuable for international investment rules when determining whether measures are consistent with national treatment or exceptions.Thus,the effective way to solve legitimacy crisis of interpretation is to give the consideration of purpose and effect interpretation,distinguish between the fact and legal performance requirements and clarify preferential conditions of performance requirements.Chapter IV discusses the interaction of performance requirements and investment incentives under international investment law.The relationship between performance requirements and investment incentives is an issue that cannot be ignored when studying performance requirement provisions,because the "condition" in conditional performance requirements mostly falls within the scope of investment incentives.Performance requirements seem to be opposite to investment incentives.The former imposes obligations on investors and are mandatory to some extent,while the latter are encouraging to grant investors rights and give certain investment preferences when facing performance requirements.In essence,performance requirements and investment incentives are carrot-and-stick regulatory measures implemented by host states to promote national development.The effectiveness of investment incentives is obvious,including attracting foreign direct investment towards specific economic objectives and compensating for adverse policy environments in host countries.But their negative effects on international economic and trade activities and fiscal revenues are also worthy of attention.In this chapter,Cuba,South Africa and Turkey are selected as the typical countries which adopt investment incentives,and it is concluded that states have discretion in types of investment incentives and their implementation mechanism provided that it does not violate international investment agreements and other mandatory provisions.Moreover,through analysis of international investment agreement texts and international investment arbitration cases,this paper takes tax incentive as an example to explain the internal relationship between investment incentives and performance requirements.Therefore,the construction of performance requirement and investment incentive should be based on the principle of sustainable development and realized by establishing appropriate system,perfecting evaluation system and improving investment convenience.Chapter V chooses local content requirements as the key issue of performance requirements under domestic investment law.Local content requirements are broad concepts that vary with target values and defined differently in legislative,contractual and judicial fields.Local content requirements can be applied in many fields of foreign investment restrictive measures,which present the characteristics of complexity and concealment.In despite of restraining transnational enterprises'foreign investment and influencing the orderly competition of international economy,local content requirements are still powerful tools for governments to develop national economy and cope with economic recession,thus its effectiveness cannot be ignored.Countries such as India,Brazil,Nigeria and Zimbabwe have implemented local content requirements that cover energy,audio-visual services,retail,automotive and life sciences etc.The degrees of applicability differ on the objectives of national economic development strategies.However,local content requirements should not be seen as a panacea for solving systemic problems of national economy,since their value depends on national economic infrastructure and trade or industrial policies.On the basis of improving formulation and implementation mechanisms,the major innovative directions for local content requirements hence include enhancing productivity and value-added,integrating with trade policies and promoting regional components.Chapter VI underlines China' s practice and response of performance requirements.Because Africa is the typical area implementing performance requirements,this chapter takes African countries as an example to analyze the plight of performance requirements faced by Chinese overseas investors,which mainly manifests in wide-range coverage and diversified forms.For Chinese investors,it is necessary to objectively evaluate investment environment,actively respond to localization policies and be alert to risks caused by changeable policies.Moreover,China also imposes performance requirements on foreign investment,mainly in terms of trade balance requirements,export performance requirements and local content requirements,which are inconsistent with Protocol on China's Accession to the WTO and should be amended or deleted.Throughout international investment agreements concluded by China,there are only six of them that contain performance requirements provision with restrictions range from invoking TRIMs Agreemen t to prohibiting unreasonable or discriminatory measures against local content requirements,technology transfer requirements or export performance requirements.In the context of investment liberalization,prohibitive performance requirements have gradually become the trend of international investment law.Consequently,China should stick to the bottom line and strive to maximize the effect of performance requirements through carefully stipulating prohibitive scope of performance requirements and applying exception clauses as well as paying attention to the combination of performance requirements with sustainable development,business environment,incentive policies and responsible investment.