Legal Structure of the Clause Prohibiting Performance Requirements in International Investment Agreements

When investors start or maintain foreign direct investment activities, host States often either impose or enforce them to perform some requirements, which are called "performance requirements" (PR). Investors are required, for example, either to achieve a given level or percentage of domestic content or to transfer a particular technology. The intention of host States is to obtain economic merits from the investment activities within their territories. As the PR distorts free investment activities, international investment agreements (IIAs) generally prohibit the host State's PR. This paper examines a wide range of problems relating to the PR and the PR Prohibition Clause.

First, there are two styles of regulating the PR: The North American style, which lists each prohibited PR, and the European style, which incorporates the PR prohibition in a fair and equitable treatment clause. Japan's IIAs generally adopt the North American style. Second, we examine the arbitral practice which clarifies the "formal" examination of the PR clause by the tribunals and the "connection" criteria as an applicability of the PR clause to some concrete circumstances. Third, as a result of the above examination, we make some proposals on the ongoing or future negotiation of Japan's free trade agreements (FTAs) and bilateral investment treaties (BITs), such as the Trans-Pacific Partnership (TPP), the Japan-Myanmar BIT, and the Japan-China-Korea FTA.