The Agreement on Trade Related Investment Measures

Investment Policy and Competition Policy
Likely issues during the review

WTO Matters

INTRODUCTION

The Agreement on Trade Related Investment Measures (TRIMs) is one of Agreements covered under Annex IA to the Marrakech Agreement, signed at the end of the Uruguay Round (UR) negotiations. The Agreement addresses investment measures that are trade related and that also violate Article III (National treatment) or Article XI (general elimination of quantitative restrictions) of the General Agreement on Tariffs and Trade. An illustrative list of the measures that are violative of the provisions of the Agreement is annexed to the text of the Agreement. These pertain broadly to local content requirements, trade balancing requirements and export restrictions, attached to investment decision making.

Provisions on elimination of notified TRIMs by WTO Members, and transition periods

The Agreement requires all WTO Members to notify the TRIMs that are inconsistent with the provisions of the Agreement, and to eliminate them after the expiry of the transition period provided in the Agreement. Transition periods of two years in the case of developed countries, five years in the case of developing countries and seven years in the case of LDCs, from the date of entry into force of the Agreement (i.e. 1st January 1995) are provided in the Agreement.

Temporary deviation on BOP grounds

The Agreement allows developing countries to deviate temporarily from its provisions on balance of payments (BOP) grounds (as per the provisions of Article XVIII.B of GATT, 1994).

India’s notified TRIMs

As per the provisions of Art. 5.1 of the TRIMs Agreement India had notified three trade related investment measures as inconsistent with the provisions of the Agreement:

Local content (mixing) requirements in the production of News Print,

Local content requirement in the production of Rifampicin and Penicillin – G, and

Dividend balancing requirement in the case of investment in 22 categories consumer goods.

Such notified TRIMs were due to be eliminated by 31st December, 1999. None of these measures is in force at present. Therefore, India does not have any outstanding obligations under the TRIMs agreement as far as notified TRIMs are concerned.

Present Status

The transition period allowed to developing countries ended on 31st December, 1999. However, Art. 5.3 provides for extension of such transition periods in the case of individual members, based on specific requests. In such cases individual Members have to approach the Council for Trade in Goods with justification based on their specific trade, financial and development needs. Accordingly 9 developing countries (Malaysia, Pakistan, Philippines, Mexico, Chile, Colombia, Argentina, Romania and Thailand) have applied for extension of transition period in respect of certain TRIMs which had been notified by them. Examination of their requests is underway in the Council for Trade in Goods of WTO.

India had proposed during the Seattle Ministerial Conference that:

Extension of transition period for developing countries should be on a multilateral basis and not on an individual basis;

Another opportunity should be provided to developing countries to notify un-notified TRIMs and maintain them for an extended transition period;

The Seattle Ministerial Conference was inconclusive and no decision could be taken on the proposals.

However, during the General Council meeting of 8th May, 2000, the following decisions, inter-alia, were taken :

"…… ..members agree to direct the Council for Trade in Goods to give positive consideration to individual requests presented in accordance with Article 5.3 by developing countries for extension of transition periods for implementation of the TRIMs Agreement".

"Members have noted the concerns of those Members who have not notified TRIMs or have not yet requested an extension. Consultations on the means to address these cases should also be pursued as a matter of priority, under the aegis of the General Council, by the Chairman of the Council for Trade in Goods".

 

Mandated Review of the Agreement

Art. 9 of the Agreement envisages its review within five years of its coming into operation, i.e. by 1-1-2000.

The Council for Trade in Goods is to review the operation of the Agreement and, as appropriate, propose to the Ministerial Conference amendments to its text. The process of review has started but no specific proposals have been made by any Member as yet.

Investment Policy and Competition Policy

In the course of this review, the Council for Trade in Goods shall consider whether the Agreement should be complemented with the provisions on investment policy and competition policy. The Singapore Ministerial Conference which established the two parallel Working Groups to study the relationship between Trade and Investment on the one hand and Trade and Competition Policy on the other had stipulated that future negotiations, if any, regarding multilateral disciplines in these areas will take place only after explicit consensus decision by the Members. The Working Group process is still on.

Likely issues during the review

The review of the Agreement is likely to address the following issues:

A.    Issues related to the operation of the Agreement during the last five years, and

B.    Issues related to the coverage of the Agreement

A.     Issues related to the operation of the Agreement

Art. 4 provides that a developing country Member shall be free to deviate temporarily from the obligations arising out of this agreement to the extent and in such a manner as Art. XVIII of GATT 1994, the Understanding on the Balance of Payments Provisions of GATT 1994, and the Declaration on Trade Measures Taken for Balance of Payments Purpose adopted on 28th November, 1979. Issues related to operationalization of this provision would be raised by developing countries;

The question of transition period of five years for developing countries has ended before the review of the operation of the Agreement. The issue of transition periods and the need for general exemption, rather than based on individual request, is a matter of concern for developing countries;

Art. 5.3 which provides for request for extension of transition period on individual basis, stipulates that such Members should demonstrate particular difficulties in implementing the provisions of the Agreement. This leaves the decision to the discretion of WTO Members. There is likely to be demand for objective criteria;

The role of the Committee on Trade–Related Investment Measures has so far been confined to monitoring the notification requirements. A changed role could be considered.

B.      Issues related to the coverage of the Agreement

The present agreement prohibits trade related investment measures that are violative of Art. III and Art. XI of the General Agreement on Tariffs and Trade. Local content requirements, trade balancing requirements, and export restrictions are prohibited. The efforts of developing countries would be to reduce the prohibitions in view of the experience of these countries based on the operation of the agreement. Developing countries (the Like Minded Group) have submitted certain proposals in this regard in the context of review of implementation of the Uruguay Round Agreements.

The TRIMs Agreement has been found by the developing countries to be standing in the way of sustained industrialization of developing countries, without exposing them to balance of payment shocks, by reducing substantially the policy space available to these countries.

Developed countries, on the other hand, have been arguing for a further expansion in the list of prohibited TRIMs.

Department of Commerce welcomes comments/suggestion related to the review of the TRIMs Agreement in the World Trade Organization. Comments/suggestions may be sent by e-mail to paugustine@ub.delhi.nic.in.

WTO Matters