Trade Related Investment Measures

Ankaj Mohindroo MBA-IB UBS

Uruguay Round
Provided a mandate for the first time to

discuss:
Following an examination of the operation of GATT

Articles related to the trade restrictive and distortive effects of investment measures, negotiations should elaborate, as appropriate, further provision that maybe necessary to avoid such adverse effects on trade
Previous attempts at incorporating investment

provisions included the Havana Charter in 1947

Issues During Negotiations

Major problem was the lack of definition and

clarity in the mandate due to the work in identifying which measures were trade related. Developed countries took a broad view of investment and investment measures Some developing countries took a much narrower view, especially in the context of policies such as technology transfer requirements

Investment and Trade

The issue is whether or not a policy with a

particular target - in this case an investment measure - can affect trade. Are there different degrees of trade effects? Export performance requirements, local content schemes and foreign exchange balancing .

Examples of TRIMS
Market access
Ownership or equity

Performance

Requirements
Local content

restrictions Joint venture requirements

schemes Export performance requirements Foreign Exchange balancing

The TRIMS Agreement

Structure Content

Legal Framework
The TRIMs agreement does not provide any new

language It focusses on two Articles that were identified in a previous case under the GATT
Article III (National Treatment)

Article XI (Quantitative Restrictions)

Aims of the Agreement

Desiring to promote the expansion and progressive liberalisaiton of world trade and to facilitate investment, while ensuring competition Take into account trade, development and financial needs of developing countries, particularly least developed countries Recognising certain investment measures can cause traderestrictive and distorting effects

Structure
Nine Articles and an Annex Art I - clarifies that the agreement applies only to

trade in goods Art 2 - applies Articles III or XI and refers to the Annex list Art 3-4 deal with general exceptions and Art XVIIIb Art 5 Notification and transition periods Art 9 - Review

GATT Articles
Article III (GATT) National treatment of imported product, unless specified in other agreements Subjects the purchase or use by an enterprise of imported products to less favourable conditions than the purchase or use of domestic products

Article XI (GATT) Prohibition of quantitative restrictions on imports and exports Part of the general trend in textiles and agriculture to phase out the use of quantitative restrictions

Illustrative list - Para 1

Para 1 (a) covers local content TRIMs which

require the purchase or use by an enterprise of products of domestic origin or domestic source. Para 1(b) covers trade balancing TRIMs which limit the purchase or use of imported products by an enterprise to an amount related to the volume or value of local products that it exports.

Ilustrative list- Para 2

2(a) deals with border measures that deal with

trade balancing. 2(b) restrictions to trade that arise from foreign exchange access restrictions such as balancing requirements 2 (c) deals with measures that restrict exports.

Notification
Governments of WTO members, or countries

entitled to be members within 2 years after 1 January, 1995 shouold make notifications within 90 days after the date of their acceptance of the WTO agreement.

Transition periods
Members are obliged to eliminate TRIMs which

have been notified. Such elimination is to take place within two years after the date of entry into force of the agreement for developed countries
five years for developing

seven years for LDC

Standstill
TRIMS introduced less than 180 days before the

agreement do not benefit from transition period. Members are also not allowed to change measures that have been notified if these changes are inconsistent with the agreement. The same TRIM can be applied to a new investment.

Disputes relating to TRIMS b/w India and USA

US files dispute against India on solar panel products

The United States, on 6 February 2013, notified the WTO Secretariat of a request for consultations with India on certain measures of India relating to domestic content requirements under the Jawaharlal Nehru National Solar Mission (NSM) for solar cells and solar modules. The United States claims that India requires solar power developers to buy and use domestic solar cells and solar modules in order to benefit from participating in the Jawaharlal Nehru NSM programme and to enter into contracts under the NSM programme or with the National Power Company.According to the United States, the benefits for solar power developers, contingent on their purchase and use of domestic solar cells and solar

 India files dispute against US

On 12 April 2012, India requested consultations with the US under the dispute settlement system concerning the latters countervailing duties on certain steel products from India. United States files dispute against India On 6 March 2012, the United States requested consultations with India under the dispute settlement system concerning the latters import restrictions on agricultural products from the United States.

Implementation
Notification Disputes Transition

Notification
Argentina* Barbados Bolivia Mexico* Nigeria Pakistan* Peru Philippines* Poland Romania* South Africa Thailand* Uganda Uruguay Venezuela

Chile*
Colombia Costa Rica Cuba

Cyprus
Dominican Republic Ecuador Egypt* India Indonesia Malaysia*

Disputes
Three disputes
Indonesia vs EU, Japan, US Canada vs. Japan and EU Panama vs EU (Bananas)

Indonesia
Automotive sector

National car policy

required the manufacturer to have local content Lower sales tax Subsidy issue was also involved.

Canada
Automotive sector - Canada-US Auto Pact

Required a company to have local content levels

beyond the North American Free Trade Agreement in order to have a lower tariff rate Result was the tariff was increased to MFN rate

Implementation Difficulties
Difficulties in identifying TRIMs that violate the

agreement Difficulties in identifying alternative policies to achieve the same objective Difficulties in accounting for non-contingent outcomes such as the financial crisis in Asia and Latin America Difficulties in meeting the transition period deadlines

Development Dimension of the TRIMS agreement

Only developing countries notified TRIMS

Most frequent sector was the automotive industry

The most frequent policy was local content

schemes

Applying for Extensions of Transition Periods

Chile Thailand

Romania
Egypt Argentina

Malaysia
Philippines Pakistan

Colombia

Where to from here?

Developing countries are serious about not

moving ahead on TRIMS until the agreement has been implemented The focus is on how to proceed with the review.

Investment and the WTO

Options
Leave the agreement as it is Extend the illustrative list Complement the TRIMs agreement with new rules

on investment that have features of BITs and NAFTA chapter 11.

Status Quo
There are two dispute panels have clarified

precisely the role of TRIMs and GATT. We have a clear specification of the consistency of policies in the annex list an the GATT Guidance on transition periods

Renovation
Annex list is not exclusive of policies that are

inconsistent with III:1 and XI:4 Seek to expand the list

Export performance requirements

Require a clarification of restrict versus distort

trade.

New Architecture
Proposal to expand the role of provisions related

to market access and operations of foreign affiliates. Two models

BITS

NAFTA chapter 11

Components
Three components of an investment architecture
Market access Pre and post establishment Operations National treatment with respect to policies Dispute resolution NAFTA type investor-state model Unworkable in the WTO context

Study
Goods Council has requested a joint

UNCTAD/WTO Secretariat study on the development effects of TRIMs. Joint with Trade Analysis Branch (UNCTAD) and Trade and Finance (WTO).

Development effects
I Identify and define TRIMs

II Historical experience with TRIMS

III What is development? Include employment Technology transfer Establishment and development of industry Growth Neutrality of the study.

FDI and poverty alleviation

FDI and growth - parallels with trade and

growth literature
Data is worse.

Composition of FDI flows labour-intensive (poor intensive) sectors

Not a huge amount of total flows, but important for

developing countries

Crowding out domestic investment and

domestic firms
likely more important in the context of large scale

industries Auto industry - seat covers, wiring harnesses

EU-LDC Networks
Networks
Access to researchers and data case studies are hugely important Economists are terrible at doing this kind of work. Specialists have knowledge of past studies to

contribute to step II Developing a research agenda on development dimension of TRIMs