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This chapter introduces the concept of performance requirements and investment incentives as used to structure the nature and extent of FDI by host states. It will consider the stated goals, potential benefits and criticisms of various categories of these policies, based on a wide range of economic studies.
This book assesses the way in which performance requirements and investment incentives are regulated by international economic law, consisting of the law of the World Trade Organization (WTO) and international investment agreements (IIAs). The central argument of this book is that the existing international regulatory regime governing these policy instruments is insufficiently robust to prevent their abuse by states seeking to protect weak industries and by mobile firms exploiting host states which need to attract foreign direct investment (FDI). This book will suggest that the lack of international coherence on the control of performance requirements and investment incentives has prevented states from using them in a manner that is economically advantageous on a domestic and, by extension, global scale. The manner in which performance requirements and investment incentives are regulated by international economic law is contentious, because these policies allow states to control the nature and extent of FDI in and out of their territory, very often leading to distortions in international markets as well as misallocated resources in the domestic economy. At the same time, these conditions are key manifestations of economic sovereignty and can represent useful instruments of domestic economic and social policy in limited circumstances. This is true both in emerging markets, which are often vulnerable to the effects of globalization, and in developed states, where they may be used in response to discrete, socially-damaging downturns in particular industries or regions. Drawing on the economic and business literature, this book will recommend a balanced, socially collaborative approach to the regulation of performance requirements and investment incentives that is mindful of the need for case-by-case evaluations of individual policies with input with a range of affected stakeholders.