English

What is a performance requirement in trade agreements?

A performance requirement in a legal requirement imposed on producers of goods and/or services, which imposes on them certain obligations.

For example, according to the Economic Commission for Latin America and the Caribbean (ECLAC), some trade agreements include, among others, the following performance requirements:

  • A level or percentage of goods or services exported.
  • A person who benefits from a tariff exemption must purchase other goods or services in the territory of the country that grant the exemption or grant a preference to domestically produced goods or services.
  • The domestic goods or services of the producing country that grant a tariff exemption are replaced by imported goods or services.
  • A person who benefits from a tariff exemption must produce goods or provide services in the territory of the country granting the exemption, with a given level or percentage of local content.
  • A requirement that relates in any way the volume or value of imports with the volume or value of exports or the amount of foreign exchange flows.

Performance requirement

On the other hand, this term has a different meaning in the context of public sector purchases.

Here it refers to the special conditions imposed by government agencies on bidders, sometimes requiring commitments to purchase local inputs, or to ensure the employment of a specified percentage of local labor and administration.

T-MEC

In the Agreement between Mexico, the United States and Canada (USMCA), this principle establishes that no party may impose or enforce any requirement or enforce any obligation or commitment to:

  • Export a certain level or percentage of goods or services.
  • Reach a certain degree or percentage of national content.
  • Acquire, use or grant a preference to goods produced or services supplied in its territory or acquire goods or services from a person in its territory.

It also establishes that no party may require that a company from a country designate individuals of a particular nationality to occupy senior management positions.

For members of the board of directors or a committee, it may establish the requirement of particular nationality or resident of the territory provided that said requirement does not significantly impair the investor’s ability to exercise control of their investment.

 

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