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INTRODUCTION
Governments often impose conditions on foreign investors to encourage
investment in accordance with certain national priorities. Conditions that can affect
trade are known as trade-related investment measures or TRIMs. The Agreement
on TRIMs, which was negotiated in the Uruguay Round, requires countries to
phase out TRIMs that have been identified as being inconsistent with GATT rules.
The phasing-out period for developed countries was two years from 1 January
1995. Developing countries have a transition period of five years, and least
developed countries seven years.
When the Uruguay Round of negotiations was being launched, the United
States proposed that there was a need to bring under discipline investment
measures that distort trade. It also suggested that the negotiations should cover
policy issues affecting the flow of foreign direct investment. In particular it
suggested that it would be necessary to consider the feasibility of applying to
foreign direct investment the GATT principles of national treatment (which would
give foreign companies the same right as domestic companies to invest in, and to
establish, local operations) and MFN treatment (which would prevent countries
from discriminating amongst sources of investment). While these proposals
received some support from other developed countries, they were not looked on
with favour by developing countries. Apart from holding that GATTs mandate did
not permit it to negotiate on investment issues, these countries maintained that, if
any such negotiations were to be held, they would have to include the problems
posed to trade by transnational corporations resorting to transfer pricing, restrictive
business methods and other practices. This reluctance of developing countries to
allow discussions in GATT on investment issues ultimately resulted in negotiations
taking place on a narrowly defined concept of trade-related investment measures.
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TRIMS are concerned with the liberalization of foreign investment conditions. Under
the national treatment rule WTO member states commit themselves to treat foreign
enterprises under the same terms and conditions as their domestic enterprises.
Member countries also commit themselves to the reduction of all quantitative
restrictions on imported goods, including tariffs and non-tariff barriers .
The TRIMs agreement provides a few concessions to safeguard local industries such
as the requirement of local content aimed at ensuring that local industries benefit from
providing inputs into the production process of foreign companies. It is obvious,
however that for countries to benefit from TRIMS they should have a very
organized and advanced industrial sector, which would be able to respond to specific
input, needs of foreign investors. LDCs generally lack infrastructure to enable them to
respond positively to input needs of various foreign investments. If LDCs are to
benefit from TRIMS then their governments have to assist in building capacity of
small and medium enterprises (SMEs).
As has been mentioned earlier on the issue of investment has important implications
for women, as foreign direct investment tends to rely on womens labor in export
manufacturing. TRIMS do not address themselves to working conditions in export
processing zones, a serious loophole since working conditions in many foreign direct
companies have been neglected as emphasis is placed on export performance in
relation to amounts of profits earned from various business concerns. TRIMS, like all
the WTO agreements have very little, if anything, to offer in enhancement of
development among poor countries. TRIMS do not adequately address themselves to
problems faced by developing nations with regard to foreign exchange.
Whilst TRIMS themselves are very limited in scope, the proposed Multilateral
Investment Agreement (MIA) is threatening their existence. The MIA, among other
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things is aimed at giving foreign investors the liberty to establish themselves in all
sectors in any WTO member and be accorded national treatment. This renders
member states vulnerable to infiltration by undesirable investments, Investors will
thus have freedom without responsibility, except in respect of their own
profits(UNIFEM,1998).The MIA therefore places serious threat to domestic
investors and women are particularly affected due to their concentration in small and
medium enterprises. Presently, land tenure systems of most developing nations
discriminate against women, with the MIA foreign interests are likely to extend to
land and other resources making it even more difficult for women to access land.
Examples of TRIMs are;
( i)Local content requirements where governments require enterprises to use or
purchase domestic products.
(ii)Trade balancing measures where governments impose restrictions on imports by
an enterprise or link the amount of imports to the level of its exports
(iii)Foreign exchange balancing requirements where an enterprise has the level of
imports linked to the value of its exports in order to maintain a net foreign
exchange earning.
3.SIGNIFICANCE OF TRIMs
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Some governments view TRIMs as a way to protect and foster domestic industry.
TRIMs are also mistakenly seen as an effective remedy for a deteriorating balance
of payments. These perceived benefits account for their frequent use in developing
countries. In the long run, however, TRIMs can retard economic development and
weaken the economies of the countries that impose them by stifling the free flow
of investment.
Local content requirements, for example, illustrate this distinction between shortterm advantage and long-term disadvantage. Local content requirements may force
a foreign-affiliated producer to use locally produced parts. Although this
requirement results in immediate sales for the domestic parts industry, it also
means that the industry is shielded from the salutary effects of competition. In the
end, this industry will fail to improve its international competitiveness. Moreover,
the industry using these parts is unable to procure high-quality, low-priced parts
and components from other countries and will be less able to produce
internationally competitive finished products. Consumers in the host country also
suffer as a result of TRIMs because they must spend much more on a finished
product than would be necessary under a system of liberalized imports. Since
consumers placed in such a position must pay a higher price, domestic demand will
stagnate. This lack of demand also stifles the long-term economic development of
domestic industries.
The TRIMs Agreement, which was negotiated in the Uruguay Round, prohibits
countries from using five TRIMs. These are considered inconsistent with GATT
rules on national treatment and the rules against the use of quantitative restrictions.
TRIMs prohibited on the grounds that they extend more favorable treatment
to domestic products in comparison to imports and thus infringe the national
treatment principle include those that require:
(i)Purchase or use by an enterprise of products of domestic origin or from any
domestic source (local content requirements), or Agreement on TRIMs,
(ii)That an enterprises purchase or use of imported products should be limited
to an amount related to the volume or value of the local products it exports
(trade-balancing requirements).
TRIMs considered inconsistent with the provisions of Article XI of GATT against
the use of quantitative restrictions on imports and exports include those that:
(i)Restrict imports to an amount related to the quantity or value of the product
exported (i.e. trade-balancing requirements constituting restrictions on imports);
(ii)Restrict access to foreign exchange to an amount of foreign exchange
attributable to the enterprise (i.e. exchange restrictions resulting in restrictions on
imports);
(iii)Specify exports in terms of the volume or value of local production (i.e.
domestic sales requirements involving restrictions on exports).The Agreement
provides transition periods for the elimination of prohibited TRIMs. For developed
countries, the period was two years from 1995 when the Agreement entered into
force; this period has already expired. Developing countries have a transition
period of up to five years (i.e. until 1 January 2000)and least developed countries
up to seven years (until 1 January 2002). Itshould be noted, however, that these
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transition periods are available only for the prohibited TRIMs notified when the
Agreement became operational.
Under the Agreement on Trade-Related Investment Measures of the World Trade
Organization (WTO), commonly known as the TRIMs Agreement, WTO
members have agreed not to apply certain investment measures related to trade in
goods that restrict or distort trade.
The TRIMs Agreement prohibits certain measures that violate the national
treatment and quantitative restrictions requirements of the General Agreement on
Tariffs and Trade (GATT).
Prohibited TRIMs may include requirements to:
achieve a certain level of local content;
produce locally;
export a given level/percentage of goods;
balance the amount/percentage of imports with the amount/percentage of
exports;
transfer technology or proprietary business information to local persons; or
balance foreign exchange inflows and outflows.
These requirements may be mandatory conditions for investment, or can be
attached to fiscal or other incentives. The TRIMs Agreement does not cover
services.
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the term affecting has been understood to imply a measure that has an effect on
the internal sale, or use of products and thus indicates a broad scope of
application.49 Then it has been interpreted to cover not only laws and regulations
which directly govern the conditions of sale or purchase but also any laws.
regulations and/or requirements which might adversely modify the conditions of
competition between domestic and imported products.
Invoking GATT Article III (4) and XI (1), the TRIMs Agreement at last recognizes
that certain measures can restrict and distort trade, no matter whether they are
mandatory and act as disincentives or not. The version used in the preamble of the
Agreement suggests the victory of the Effect Test. Thus the Agreement merely
embodies provisions on outlawing certain investment measures that discriminate
against foreigners or foreign products (ie violates National Treatment principle) or
lead to restrictions in quantities, which are adverse effects on trade, not on all
measure.
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8.CONCLUSION
TRIMs may be defined, in general, as certain investment measures relating to
trade provided for investors in respect of the laws, regulations, policies and/or
administrative actions of the host countries, which apply to certain conditions, or
are adopted in special areas. TRIMs include not only mandatory measures but
also those measures which are not mandatory but create advantages if
observed.
Upon accession, China must eliminate and cease to enforce trade and foreign
exchange balancing requirements, local content and export or performance
requirements made effective through laws, regulations or other measures.
Although China amended its three FDI laws before its WTO accession, there still
remain a number of TRIMs in administrative rules and local regulations. To
comply with the WTO rules, it needs to further review Chinese FDI Law. Since
TRIMs exist, they must be eliminated. China must not enforce provisions of
contracts imposing TRIMs inconsistent to the TRIMs Agreement.130
To do such work, China needs to identify TRIMs correctly, precisely and
appropriately. The criteria are the TRIMs Agreement, which provides an
international minimum standard for investment measures in relation with trade
in goods and the Protocol on Chinas Accession, which provides Chinas
commitments to perform its obligations under the WTO agreements. The rules
apply both to measures affecting existing investments and to those governing new
investments.
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9.BIBLIOGRAPHY
(i)
http://www.wto.org/english/res_e/booksp_e/analytic_index_e/trims_01_e.ht
(ii)
m
http://epublications.bond.edu.au/cgi/viewcontent.cgi?
article=1237&context=blr&sei-redir=1&referer=http%3A%2F
(iii)
(iv)
%2Fwww.google.co.in%2Fur
http://epublications.bond.edu.au/blr/vol14/iss2/10/
http://connection.ebscohost.com/c/reference-entries/31602755/trade-
(v)
related-investment-measures-trims
http://www.policyalternatives.ca/publications/reports/wto-agreement-
(vi)
trade-related-investment-measures-trims
http://www.jurisint.org/pub/06/en/doc/C13.pdf
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