Trade-Related Investment Measures (TRIMs)

 

The Agreement on TRIMs covers conditions on investment which are related to trade in goods. Sometimes, governments impose conditions on investment, some of which are trade-related, others are not. For example, a government may prescribe that investment can only be made in a firm owned by resident nationals, or it may impose restrictions on the import of raw materials or the export of products. The restrictions on import and export relate to trade in goods, whereas the restrictions in respect of firm ownership relate to non-trade matters.

Background: Prior to the Uruguay negotiations, the linkage between trade and investment received little attention in the framework of the GATT. The Punta del Este Ministerial Declaration included this subject, stating that further provisions are necessary to avoid the trade-restrictive and trade-distorting effects of investment measures. The Uruguay negotiations on TRIMs were marked by strong disagreement among participants over the coverage and nature of possible new disciplines. The compromise that eventually emerged from the negotiations is essentially limited to an interpretation and clarification of the application to trade-related investment measures of GATT provisions on national treatment for imported goods (Article III) and on quantitative restrictions on imports or exports (Article XI).

Objectives: To promote the expansion and progressive liberalization of world trade and to facilitate investment across international frontiers so as to increase the economic growth of all trading partners, particularly developing country Members.

Coverage: The Agreement applies to investment measures related to trade in goods only. Moreover, the Agreement is not concerned with the regulation of foreign investment. The disciplines of the TRIMs Agreement focus on discriminatory treatment of imported and exported products and do not govern the issue of entry and treatment of foreign investment. For example, a local content requirement imposed in a non-discriminatory manner on domestic and foreign enterprises is inconsistent with the TRIMs Agreement because it involves discriminatory treatment of imported products in favor of domestic products. But the fact that there is no discrimination between domestic and foreign investors in the imposition of the requirement is irrelevant under the TRIMs Agreement.

Measures inconsistent with Article III.4 of GATT 1994

· specifying that particular products of domestic origin must be purchased or used by an enterprise,

· specifying that a particular volume or value of some products of domestic origin must be purchased or used by an enterprise,

· specifying that an enterprise must purchase or use domestic products at least up to a particular proportion of the volume or value of the local production of the enterprise,

· restricting the purchase or use of an imported product by and enterprise to an amount related to the export of its (the enterprise’s) local production.

The first three are local-content requirements and the fourth is an indirect requirement of partial balancing of foreign exchange outflows and inflows.

Measures inconsistent with Article XI.1 of GATT 1994

· imposing a general restriction on the import of inputs by an enterprise or restricting the import of inputs to an amount related to the export of its local production,

· restricting the foreign exchange for the import of inputs by an enterprise to an amount related to the foreign exchange inflow attributable to the enterprise,

· restricting export by an enterprise by specifying the products so restricted, the volume or value of products so restricted, or the proportion of its local production so restricted.

The first two are requirements of a partial balancing of foreign exchange, and the third is an export-restraint requirement for ensuring the domestic availability of the product.

Exception: A developing country Member is allowed temporary deviation from this obligation in so far as it is covered by the flexibility provided under the provision of Balance-of-Payment.

Notification and transparency: Members have to notify all TRIMs not in conformity with the Agreement to the Council for Trade in Goods within 90 days of 1 January 1995.

Elimination of existing measures: 2 years of 1 January 1995 by a developed country Member, 5 years of 1 January 1995 by a developing country Member, 7 years of 1 January 1995 by a least developed country Member, and the time for developing and least developed country Members can be extended if necessary.

 

Questions

 

1. What are VERs and OMAs? What economic interests of participating and third countries are involved in connection to VERs? Why were they seldom challenged in the GATT dispute settlement system?

2. What are safeguards and escape clauses?

3. Describe balance of payment provisions of WTO system.

4. Discuss the problem of technical standards in International Trade.

5. Explain the aims and procedure of imposing sanitary and phytosanitary measures.

References

 

1. John H. Jackson, The World Trading System: Law and Policy of International Economic Relations (2nd ed., Cambridge, MA: MIT Press, 1997). p.139-228.

2. Ustor, Most-Favored-Nation Clause, III EPIL (1997), 468-473.

3. Jackson/Davey/Sykes, 559-595, 990-1061.

4. Trading into the Future – WTO, 3rd edition, Revised August 2003. p. 50-55.

 

Lecture 5. Measures against Unfair Trade

 

WTO establishes rules of competition for countries, which can be described as rules on ‘fair trade’. Mainly, WTO targets two types of measures affecting competitiveness of companies – subsidies and dumping. In cases of dumping and subsidies WTO allows countries to restrict their trade under strict set of rules.

Subsidies

 

Subsidies are benefits provided by governments to producers and exporters of products which improve their competitiveness in international trade and thereby distort competition. Hence, a subsidy is generally considered to be an unfair practice.

For example, all major industrial nations give foreign buyers of the nation’s exports low-interest loans to finance the purchase through agencies such as the US export-import bank. These low-interest credits finance about 5% of US exports but as much as 30 to 40% of the exports of Japan and France. The amount of the subsidy can be measured by the difference between the interest that would have been paid on a commercial loan and what is in fact paid at the subsidized rate.

Definition

A subsidy is a financial contribution or income or price support by the government or any public body or a funding mechanism or a private party directed or trusted by the government within the territory of a Member, which confers a benefit to production/producers or export/exporters.

Financial contribution

- Direct transfer of funds, e.g., direct payments, granting of tax relief, subsidized loans, and equity infusion, low-interest loans to foreign buyers

- Potential direct transfer of funds or liabilities, e.g., loan guarantees

- Revenue foregone or not collected, e.g., tax credits

- Provision of goods and services other than general infrastructure, or purchase of goods

- Subsidies for exports: an outright cash payment based on the volume or value of the export of a product, payment of a part of the freight charges

- Subsidies for domestic production: provision of raw materials at subsidized prices for the production of a particular product, exemption from the payment of some tax, provision of cheap loans

Examples of non-subsidy

- A government temporarily exempts a paper mill in financial difficulties from the obligation to observe anti-pollution laws. (Regulatory but not financial privileges)

- A private NGO - non-governmental organization - gives technical and financial assistance to coffee growers in Africa. (Private aid)

- A government makes a loan to an automobile manufacturer on conditions equivalent to those that the manufacturer could obtain from private banks. (Financial contribution with no benefit)

- Differing effects of subsidies in importing countries

- Domestic producer industry: harm - more competitive foreign products

- Consumers and user industries: benefit - possibility of buying the product at lower prices and a wider choice of sources from which to buy