Performance requirements are used by most of developing countries, because they

can be a tool that ensure the incoming foreign investments are headed for local and
national priorities to further environmentally and socially sustainable development.
According to Satwik Shekhar (2017) the Agreement on Trade-Related Investment
Measures (TRIMs) prohibits the host States (who are Member States of the WTO)
from imposing a set of PRs in respect of an incoming foreign investment. This
prohibition of PRs was because of their inconsistency with Article III:4 (National
Treatment) and Article XI (Prohibition of Quantitative Restrictions) of General
Agreement on Trade and Tariffs, 1994 (GATT).
However, one must keep in mind that not all performance requirements used by
countries have been prohibited under TRIMs. A numerous amount of PRs still
being used without any restriction, with the only exception being the bilateral
investment treaties (BITs) or international investment agreements (IIAs) which
countries are a party to. In other words, in order to ensure maximum benefits can be
derived by the host country from foreign investments, countries impose PRs (which
are neither prohibited under TRIMs nor under an applicable BIT/IIA) on the
foreign investor. Since these performance requirements are not subject to TRIMs, a
WTO-covered agreement, these requirements are generally described as “WTO+”
measures. Additionally, there are PRs which are still not prohibited by either
TRIMs or BITs/IIAs yet. Countries have maximum flexibility to exercise their right
to regulate and can choose to impose these kinds of performance requirements with
full policy immunity.
It is undeniable on the fact that emerging and developing economies (EDEs) use
“WTO+” PRs, but the need to expand the set of TRIMs PRs to include “WTO+”
PRs has been a topic of debate for a long time now. There have been requests to
prohibit all PRs under TRIMs with the argument that in a North-South investment
arrangement (BITs/IIAs between advanced economies (AEs) and EDEs), the
investors from AEs experience a diminishing return from their investments in EDE
host States. But before this discussion goes deeper, it is essential to study the
specific PRs the EDEs are using in respect to foreign investments and the sectors
which have the maximum incidence of PRs in EDEs. The UNCTAD (2003) cited a
research conducted by Kumar and Singh (2002) which stated that the most
remarkable PR which has been used by the EDEs is local content requirements
related to the automotive sector. However, local content requirements in other
industries and other types of requirements have also been used by a number of
developing countries. The table below describes the incidence of PRs in EDEs
(using the UNCTAD’s 2003 report).

Satwik Shekhar (2017) stated that the requirements mostly used by EDEs included
joint venture or domestic equity requirements; local content requirements, and
more than half the respondents had encountered export requirements. The major
intention of EDEs behind attracting FDI is to take its benefits in the form of, for
example, generation of capital in order to finance their infrastructure. Mandatory
PRs might not be an attractive offer for a foreign investor who could find it hard to
comply with the said mandatory PRs and hence, lost an opportunity to invest in the
host State. This could make the purpose of attracting FDI useless. Therefore, the
current trends among the EDEs is to impose voluntary PRs with incentives to
enable the investors to accept voluntary PRs despite these being of non-mandatory
in nature.
It is important to keep in mind that the set of performance requirement measures
provided in the illustrative list of the Annex to TRIMs Agreement were prohibited
on the basis of the rationale that the imposition of these measures have a trade
restrictive effect and also while bearing in mind the development and financial
needs of developing country members. This can be understood better from an
UNCTAD survey (2014) that focused on the frequency of measures taken by
investment promotion agencies to promote sustainable development goals. The
survey showed that the most essential performance requirements used were the
ones that are not prohibited by TRIMs.