1

THE OVERVIEW OF THE TRIMS AGREEMENT AND DEVELOPING COUNTRIES Huala Adolf ABSTRACT The trade-related investment measures (TRIMS) agreement is one of the most controversial agenda during the Uruguay Round negotiation (1986-1993). The author elaborates the historical background of the negotiation, the conclusion of the TRIMS Agreement, and its implication on the developing countries. The author argues that the developing countries should keep on voicing their interests and striving to include the development objects in the future review of the Agreement. A. INTRODUCTION The negotiation on the trade-related investment measures (TRIMS) was one of the major issues during the Uruguay Round (1986-1993). This issue had attracted quite serious attention from many participants, in particular developed and developing countries. They, however, did not have an adequate background of picture and basic understanding about the TRIMS. It is therefore understandable that the negotiation on this issue had been regarded as one of the most difficult subject in the agenda of the negotiations. During the negotiations, it was not a surprise to see that this agenda was the most frustrating and least productive.1 The United States' long endeavor to place investment issues in the agenda of GATT has at last been successful when the Uruguay Round was launched.2 Nevertheless, the conflict between the developed and developing countries to great extent remained exist in the negotiations on this issue.
1

John Croome, Reshaping the World Trading System: A History of the Uruguay Round (Geneva: World Trade Organization, 1995), p. 138. For major works on this issue, see: Terence P. Stewart, (ed.), The GATT Uruguay Round: A Negotiating History (1986-1992), Vol. II: Commentary (The Netherlands: Kluwer, 1993), pp. 1997 - 2240; Paul Bryan Christy III, 'Negotiating Investment in the GATT: A Call for Functionalism', 12 Mich.J.Int'l.L. 743-798 (1991). 2 The use of international (economic) organizations to discuss the economic interests is one of the U.S. trade policies. (See: Thomas L. Brewer and Stephen Young, The Multilateral Investment System and Multinational Enterprises (Oxford: Oxford U.P., 1998), p. 122). The economic report of the U.S. president in 1991 stated: 'The primary thrust of the U.S. trade policy is to use multilateral discussions and fora such as GATT and the Organization for Economic and Development to promote free, rules-based trade.' (William A.

2 The main conflict was the different views between the developed and developing countries concerning the nature of TRIMs. Some industrialized countries contended that TRIMs conflicted with various GATT articles.3 On the other hand many developing countries. They held that investment measures (TRIMs) were not designed to distort trade, but were made to meet certain development objectives, including industrialization and development.4 In addition, there was another view, which contended that governments around the world had increasingly resorted to the use of investment measures.5 This view argued that close examination of the operation of GATT articles was warranted to ensure the adequate protection of the rights of contracting parties.6 Another divergent view was relating to the objective of the negotiation. The industrialized countries intended to develop a new and broader rule on TRIMS. By contrast, the developing countries opposed to this view. They argued that the negotiation should be confined to elaborating existing GATT articles that might be operable to TRIMS. These countries also demanded that the negotiation should provide greater opportunity and freedom for these countries taking into account its development objectives.7 Despite the developed countries' enthusiastic to have this new issue regulated under the GATT discipline, the Uruguay Round mandate as described in the Punta Del Este Declaration was not as broad as developed countries, in particular, United States expected.
Fennel and Joseph W. Tyler, Trade and International Investment from the GATT to the Multilateral Agreement on Investment (1995), p. 2036). 3 The measures which are mostly cited are: local content where the investor is expected to purchase a certain portion of local materials for production purposes; export performance where a certain quantity or proportion of production must be exported; product mandating where an obligation on the investor to export to certain countries or origins; trade balancing where the investor has to use earnings from exports to pay for imported materials; domestic sales where a commitment to supply a certain proportion of production to the local market; and exchange restrictions where an investor's access to foreign exchange and therefore his ability to import is limited. (GATT, GATT Activities 1990, p. 46). 4 GATT, GATT Activities 1987, p. 43; GATT, GATT Activities 1989, p. 66. 5 GATT, GATT Activities 1987, p. 43; see also: Robert H. Edwards Jr., and Simon N. Lester, 'Towards a More Comprehensive World Trade Organization Agreement on Trade-Related Investment Measures,' 33 Stan. J. Int'l.L 145 (1997). 6 GATT, GATT Activities 1987, p. 43.

3 The Punta del Este Declaration, dealing with investment, decides:8 "Following an examination of the operation of GATT articles related to the trade restrictive and distorting effects of investment measures, negotiations should elaborate, as appropriate, further provisions that may be necessary to avoid such adverse effects on trade". The declaration above demonstrated that the negotiation on this, first, is confined to the investment measures that may have adverse effects on trade or TRIMS. Second, the declaration recognizes GATT articles to be operable to the TRIMS. Third, the negotiation is necessary to create further regulations which regulate only TRIMS in order to avoid adverse effects on trade.9 The early negotiation on this issue has been focused on seeking a better understanding on TRIMs and the issue of the need of identification and examination of various GATT articles relating to the trade restrictive and distorting effects of investment measures.10 This is due to the lack of work done prior to Uruguay Round. During the negotiation, many governments are still disputing the trade effects of TRIMs and the relation of their trade effects to the GATT's articles.11 In the course of negotiation, the view that TRIMS are not designed to distort trade but are aimed at legitimate objective such as industrialization and development is still dominant. The developing countries supporting this view suggested that the negotiation should focus on the examination of the problems on a case-by-case basis. It has also been accepted that negotiation should focus on adverse effects than the legitimacy of the investment measures themselves.12

Paul Bryan Christy III, supra, note 1, p. 783; Terence P. Stewart (ed.), supra, note 1, p. 2073; Sidney Golt, The GATT Negotiations 1986-1990: Origin, Issues and Prospects (London: British-North American Institute, 1990), p. 43. 8 Ministerial Declaration on the Uruguay Round, Uruguay Round: Papers on Selected Issues (UNCTAD/ITP/10), 1989, Annex I, p. 376. 9 See Maskus and Eby, 'Developing New Rules and Disciplines on Trade Related Investment Measures,' in: Robert M. Stern (ed.), Multilateral Trading System, (Ann Arbor: the University of Michigan Press, 1993), p. 458. This short mandate for the TRIMS negotiation had later led to some different interpretations and procedural delay in the negotiations. (See: John Croome, supra, note 1, p. 138). 10 GATT Focus 52 (1987/88) 5; GATT Focus 54 (1988) 6; GATT Focus 58 (1988) 7. 11 GATT Focus 56 (1988) 5; GATT, GATT Activities 1987, p. 42. 12 GATT, GATT Activities 1987, p. 42. GATT, GATT Activities 1989, p. 66.

4 The Mid-Terms Review of the Trade Negotiations Committee met at Montreal in December 1988. The meeting has successfully formulated the objective of the TRIMs negotiations as follows:13 (a) Further identification of the trade restrictive and distorting effects of investment measures that are or may be covered by GATT Articles, specifying those Articles. (b) Identification of other trade restrictive and distorting effects of investment measures that may not be covered adequately be existing GATT Articles but are relevant to the mandate of the Group given by the Punta del Este Ministerial Declaration. (c) Development aspects that would require consideration. (d) Means of avoiding the identified adverse trade effects of trade-related investment measures including, as appropriate, new provisions to be elaborated where existing GATT Articles may not cover them adequately. (e) Other relevant issues, such as the modalities and implementation. It may be shown from the above objective that the negotiators (contracting parties of the GATT) had no clear picture about the TRIMS. They were in fact still identifying whether TRIMS had effects that distort or restrict international trade; the relationship of such measures with the GATT articles, and also the effects of such measures with the development.14 In 1988, several proposals were tabled. The United States ('US'), for example, proposed that some GATT principles such as non-discrimination, transparency and dispute settlement were applicable to TRIMS. It also proposed additional GATT provisions so that the harmful trade effects of TRIMS were avoided.15

13

GATT Focus 61 (1989) pp. 8-9; GATT, GATT Activities 1989, p. 67; UNCTAD, The Outcome of the Uruguay Round: An Initial Assessment, (New York: UN, 1997), pp. 138-139. 14 UNCTAD, supra, note 13, p. 139. 15 GATT, GATT Activities 1988, p. 52.

5 The developing countries were against such submission. They were of the view that the negotiation should be limited solely to the TRIMS. Furthermore, these countries have rightly stressed the necessity of a favourable and differential treatment.16 During the discussions in 1989, the different submissions were put forward. Switzerland and Japan proposed a graded set principles taking into account the differing levels of traderestrictive effects of various investment measures, ranging from outright prohibition of the most trade-restrictive measures to a general commitment to apply all measures in a transparent and nondiscriminatory manner.17 The US, driven by its economic interests and open market policy, reiterated his demand of incorporating a comprehensive agreement for investment in the GATT context.18 The US proposed a new rule for TRIMS which included adequate disciplines to eliminate or minimize their adverse trade effects and to provide relief from effects when they occured.19 The US in this respect proposed the establishment of 2 categories of disciplines under the TRIMS: 1) prohibition, for those TRIMS that inherently produce adverse trade effects and other disciplines for TRIMS that cause adverse trade effects in some but not all circumstances. The US also proposed the establishment of illustrative lists of TRIMS that would be elaborated for both categories of discipline. Other important proposals by the US to the negotiating Group were the needs of transparency, enforcement and dispute settlement and transitional arrangements.20 The submissions put forward by the EC were more selective and concerned with the TRIMS measures which overtly and directly distorted trade and GATT rules. The EC separated the issue of foreign direct investment and the issue of trade-related investment measures and stand against the inclusion of the right of establishment and transfer of resources in the negotiations. In
UNCTAD, supra, note 13, p. 141. GATT Focus 64 (989) p. 3; GATT, GATT Activities 1989, p. 67; Terence P. Stewart, (ed.), supra, note 1, p. 2093. 18 GATT Focus 64 (989) p. 3; The U.S. policy to negotiate with its trading partners concerning foreign direct investment was primarily based on the U.S. Omnibus Trade and Competitive Act, Sect. 1101 (b) (11), 102 Stat. 1107. (See further: William A. Fennel and Joseph W. Tyler, supra, note 2, p. 2036). 19 GATT Focus 64 (1989) p. 3.
17 16

6 addition, they contended that the separation should also be drawn between the direct and indirect effect trade effects of investment measures. In direct trade effects, they argued, were caused by TRIMs - related to licensing local equity and technology transfers requirements, remittances and exchange restrictions and investment incentives.21 This TRIMs with indirect effects would be subject to consultation and dispute settlement procedure.22 The EC pointed out eight TRIMs that meet the criterions of being directed at the exports and imports of a company with the purpose of influencing its trade patterns. These requirements included local content, manufacturing, export performance, product mandatory, trade balancing, exchange restrictions, domestic sales, and manufacturing limitations concerning components of the final product.23 The developing countries were reluctant to undertake such an ambitious goal and settled for more modest mandate. These countries argue that the negotiation should focus on the trade distorting effects of TRIMs, rather than the investment measures themselves.24 The submission put forward by developing countries was not, however, focused on the investment measures or establishing a new system within GATT to regulate trade-related investment measures. The group of these countries, led by India and Brazil, contended that the objective of the negotiation was to clarify the operation of GATT articles and to elaborate further provisions as may be necessary.25

20 21

GATT Focus 64 (1989) p. 3. UNCTAD, supra, note 13, p. 140. 22 UNCTAD, supra, note 13, p. 140. 23 UNCTAD, supra, note 13, p. 140. The EC also believed that the negotiations on the question of exceptions such as those for the developing countries would be relevant only when the TRIMs and relevant GATT provisions had been identified. 24 Stephen J. Canner, 'Trade and International Investment: From GATT to the Multilateral Agreement on Investment,' in: Joseph F. Dennin (ed.), Law and Practice of the World Trade Organization, (New York: Oceana Publ., 1995), p. 4. 25 UNCTAD, supra, note 13, p. 141.

7 In addition these countries had also stressed the necessity of differential and more favourable treatment in their favour.26 India, for example, argued that the development dimensions of certain investment measures far outweigh their trade effects. These measures were needed to counter restrictive business practices of multinational corporations.27 India also tabled a new submission. It called on the Group to focus on those investment measures whose adverse trade effects were direct and significant. It maintained that the prohibition of certain investment measures was new to the GATT framework. India argued that the investment measures that had some direct trade effects included: export performance requirements, local content/manufacturing requirements and trade balancing requirements and other. Other requirements do not distort or restrict international trade. 28 These countries argued that international investment rules which restrict or prohibit the use of TRIMS as proposed by developed nations constituted an encroachment on their national sovereignty. This, according to India, would lead to new colonialism by multinational enterprises. Moreover, some developing countries had also argued that the developed countries' stance had inadequately taken into account the development consideration in discussing the TRIMs.29 Developing countries sought to limit the scope of the negotiation on TRIMS. They contended that the negotiation should not depart from the provisions of the GATT. In addition, these countries argued that a multilateral agreement on TRIMS restricted the prerogative of national (and local) government in the regulation of trade policy.30 During the negotiations in 1990, the Negotiating Group continued its examination on the developmental aspect of TRIMs and its relationship with GATT Articles. In this respect, some
26 27

UNCTAD, supra, note 13, p. 141. GATT Focus 66 (1989) p. 6; GATT, GATT Activities 1989, p. 67. 28 GATT Focus 66 (1989) pp. 5,6. 29 GATT Focus 64 (1989) p. 3. 30 William A. Fennell and Joseph W. Tyler, supra, note 2, p. 2003. See also Maskus and Eby, supra, note 9, p. 452. During the discussion, Singapore, supporting the position of developing countries, argued that

8 developing countries (Bangladesh, Brazil, Colombia, Cuba, Egypt, India, Kenya, Nigeria, Pakistan, Peru, Tanzania, Zimbabwe) presented a draft declaration stressing the need for the Negotiating Group to address the trade effects of investment measures (not the measures themselves), the developmental aspects of investment measures, and the relationship of GATT Articles to the adverse trade effects of the measures. It also provided for clear recognition that these investment measures were legitimate instruments used by governments for the promotion of development objectives.31 The draft declaration concluded, among others, that the negotiated outcome should facilitate a movement of investment across international frontiers, especially with a view to serving developmental aspirations of developing countries.32 The Negotiating Group has not been able to reconcile these conflicting views. Some issues that remained to be solved were: a) the coverage of the TRIMs; b) whether certain TRIMs should be prohibited under new provisions; and c) whether an agreement on TRIMs should address the restrictive business practices of private enterprises. 33 The submissions of the developing countries described, inter alia, the methodological approach to determine any adverse trade effects of TRIMs. They included: first, there could be no presumption that investment measures were inherently trade-restrictive or trade-distorting. Second, if it were demonstrated that on a case by case basis some investment measures did have an adverse trade effect, one would have to establish a causal link between the investment measure and the adverse effect on trade. Third, if such a link were established, the nature of the impact upon the interests of the affected party would have to be assessed. Finally, appropriate ways would have to be found to deal with the adverse trade effects (rather than the investment measures themselves).34

TRIMs should not be regarded as restricting or distorting trade, if no material injury to another contracting party was found. (GATT Focus 64 (1989), p. 3). 31 GATT Focus 73 (1990), p. 10. 32 GATT, GATT Activities 1990, p. 47. 33 GATT, GATT Activities 1990, p. 47. 34 See: UNCTAD, supra, note 13, p. 141; Stephen J. Canner, supra, note 24, p.7. In early 1990, actually the United States had also submitted a draft agreement on TRIMs. It contained prohibition for those investment

9 During the negotiations in 1991, the Chairman of the rule making group conducted consultations. These consultations had enabled him to formulate a text on TRIMs (which later likely to have contributed to Secretary General Arthur Dunkel's draft final act on TRIMs).35 The draft agreement stipulated that certain investment measures could restrict and distort trade. It also provided that no contracting parties should apply any TRIMs inconsistent with GATT. For the purpose an illustrative list of TRIMs agreed to be inconsistent with these articles was appended to the agreement.
36

The draft agreement required mandatory notification of all non-conforming

TRIMs and their elimination within two years for developed countries, within five years for developing countries and within seven years for least developed countries. It would establish a Committee on TRIMs which would, among others, monitor the implementation of the agreement.37 The persistence and divergence of views between these countries were, again, hard to reconcile. It seemed that the parties still considered this topic as a new issue negotiated and discussed in international plane. The previous negotiation and discipline on the multilateral investment discussed above was mainly relating to the protection of investment, the problem of the principle of compensation issue arising out from the nationalization or expropriation of foreign companies. While the issue negotiated at the Uruguay Round negotiation was truly 'sensitive' one for most developing countries, since it concerned the aspect of sovereignty of these countries to

measures which restrict or distort trade and general commitments to apply them only on a nondiscriminatory basis. (Articles 1 and 2). It also proposed longer transition period for developing countries to eliminate prohibited TRIMs (Article 3), transparency requirements (Article 4) and the creation of a Standing TRIMs Committee (Article 5). It also proposed the application of the GATT's provision on the settlement of disputes to be applicable to TRIMs (art. 6), and the need of periodic review of the TRIMs Agreement (Article 7) (See: Terence P. Stewart, (ed.), supra, note 1, pp. 2108-9). Unfortunately some delegations did not give their blessings to this draft agreement. They considered it premature to consider such a draft agreement. They believed certain basic principles and concepts relating to TRIMs had to be agreed first. Moreover, the United States proposal to prohibit certain TRIMs was unacceptable. Furthermore, some members contended that the proposal mentioned no provisions concerning development consideration. (GATT Focus 69 (1990), p. 4). 35 GATT, GATT Activities 1991, p. 31. 36 GATT, GATT Activities 1991, p. 31. 37 GATT, GATT Activities 1991, p. 31-32.

10 regulate and control the inflow of foreign investment and also affected their economic development objectives.38 In addition, the Punta del Este declaration which became the basis of negotiation imposed a very limited task for the GATT contracting parties to negotiate this issue. Some authors, however, held that the negotiation on TRIMS was not easy mainly because there was lack of incentives for the parties to reach the agreement on this issue.39 Despite these conflicting views between developed and developing countries, there was at least a similar view. They agreed that the two type of TRIMS, namely local content and export performance requirements,40 affected trade and were 'legitimate subjects for discussion.'41 Given the sharp conflicting interests between developed countries and developing countries and its complicated task, outcome of the Uruguay Round, as shown in the TRIMs agreement below, was far from comprehensive. B. THE OUTCOME OF THE URUGUAY ROUND The negotiations on TRIMS, as demonstrated above, were experiencing unfruitful result. The interests and attention of the negotiators on this area during the last sessions of the Uruguay Round had became very low. Nevertheless, the initiative of the former Director General Arthur Dunkel to make a draft agreement of the result of the Uruguay Round negotiation has been a very significant contribution to the conclusion of the Uruguay Round. The Agreement on TRIMS
38

Cf., the U.S. has also been overwhelmingly concerned with the issue of its sovereignty especially when U.S. Congress was about to give its ratification to the ITO (International Trade Organization) Charter. When the U.S. Congress discussed the possibility of ratifying the WTO treaty, the issue of sovereignty again came to the fore and became, what Prof. John Jackson said, the 'Great 1994 Sovereignty Debate.' (See: John H. Jackson, 'The Great 1994 Sovereignty Debate: United States Acceptance and Implementation of the Uruguay Round Results,' 36 Colum. J. Transn'l L. 157- 188 (1997). 39 See: Steven Wong and J. Brady Lum, 'TRIMS at the Elevenths Hour: Prospects and Possibilities for Multilateral Solutions,' in Noordin Sopiee and J. Brady Lum, (eds.), Towards the Closing of the Uruguay Round and Beyond, (Malaysia: the Institute of Strategic and International Studies (ISIS), 1990), p. 53. 40 As noted above, local content requirements require that a certain product must use materials or components supplied from the domestic market. Export performance requirements require that certain amount of products must be sold abroad. (John Croome, supra, note 1, p. 139). 41 John Croome, supra, note 1, p. 139.

11 contained in the Draft Agreement was a compromised solution between the developed and developing countries.42 The compromised text prohibits certain (TRIMs) practices, but it provides for transition periods for countries to eliminate the forbidden practices as well as incorporating traditional GATT exceptions.43 The Agreement accommodates the interests of the developing countries by, among others, allowing these countries not to apply the provisions of the Agreement for some time. It also contains a provision on the possibility for the review of the TRIMS Agreement.44 The provisions of the TRIMS embodied in the Draft Agreement later became the TRIMS Agreement of the WTO, with little changes. It is also worth noting that the U.S who once had strong position to include and negotiate broad substantive provisions of TRIMS had at last conceded to accept the result of TRIMS negotiation in return for keeping the intellectual property rights and services on the agenda of the Uruguay Round.45 The TRIMS Agreement has by no means been comprehensive. It is contained in the Annex 1 of the Uruguay Round text. 46 It is the shortest text among the other WTO agreements. It consists of merely 9 articles and an illustrative list.

42

It is worth noting that the Dunkel's draft was not a negotiated result of the six years work of the countries that participated in the TRIMs negotiations. It was actually a compromise created by Dunkel and his staff. (Sic). (Terence P. Stewart, supra, note 1, p. 2127). 43 Terence P. Stewart, supra, note 1, p. 2127. 44 Thomas L. Brewer and Stephen Young, Op.cit., note 2, p. 124. 45 Low and Subramanian, 'TRIMS in the Uruguay Round: An Unfinished Business,' in: Robert M. Stern (ed.), Multialteral Trading System, (Ann Arbor: the Uni. Of Michigan U.P., 1993), p.416. Sylvia Ostry also observed that in addition to the US' less attention to this issue, the members of the EC had little desire to limit the use of investment performance requirements (particularly in their efforts to increase the competitiveness of their industries). (Sylvia Ostry, A New Regime for Foreign Direct Investment (Washington DC: Group of Thirty, 1997), pp. 6-7). 46 Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiation, Marrakesh, 15 April 1994. It should be noted, however, that the provisions on investment is not solely covered under the TRIMS agreement, but also in other WTO's agreements. The regulation on investment may also be found in the General Agreement on Trade and Services (GATS), the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs Agreement), and even in the Understanding on Rules and Procedures Governing the Settlement of Disputes. However, this part will not deal specifically with the investment provisions in those agreements (on GATS, TRIPs or dispute settlement). For further elaboration on this issue, see, for example, Sir Leon Brittan, 'Building on the Singapore Ministerial: Trade, Investment and Competition,' in Jagdish Bhagwati and Mathias Hirsch, (eds.), The Uruguay Round and Beyond (Verlag:

12 The preamble of the TRIMS Agreement lays down and reaffirmed the decision of mandate of the Punta Del Este Declaration recognizing that certain investment measures "can cause traderestrictive and distorting effects." Article 1 of the Agreement provides that the Agreement relates to trade in goods only. This article clearly shows that the aspiration of the developing countries to prevent any new regulation or additional new provisions on investment is, to some extent, well accommodated.47 In essence, the results of the TRIMS above is a reaffirmation of the GATT "existing disciplines, namely the national treatment embodied in Article III and the prohibition of quantitative restrictions (Article XI). Article 2 enshrines the national treatment principle and the prohibition of quantitative restrictions to those inconsistent with the provision of GATT Article III (National Treatment on Internal Taxation and Regulation) and Article XI (General Elimination of Quantitative Restrictions). Article 3 provides that all GATT 1994 exceptions shall apply, as appropriate, to the provisions of this Agreement. These excetions include public morals, environmental protection, national security, etc. Article 4 is made specifically for developing countries. This article permits developing country members to deviate temporarily from Article 2 to the extent in the manner that Articles III and XI of GATT 1994 can be deviated from pursuant to listed GATT 1994 and other provisions. Article 5 requires the members to notify the Trade in Goods Council within ninety days period of entry into force of details of all nonconforming TRIMS they are applying (paragraph

Springer, 1998), p. 275; Thomas L. Brewer and Stephen Young, supra, note 2, p. 126-130; WTO, Trade and Foreign Direct Investment, New Report by the WTO (PRESS 55/57, 9 October 1996), pp. 46-51. 47 UNCTAD, supra, note 13, p. 142 (noting that the developing countries were successful in preventing the extension of trade obligations into the field of investment. These countries had also been successful in preventing the incorporation of principles such as 'right of establishment' or 'national treatment' for investors into the TRIMS agreement).

13 1).48 It also requires the members to eliminate all notified TRIMS within a designated transition period, that is within two years for developed countries, five years for developing countries and seven years for least developed countries (paragraph 2). The developing countries may also apply for the extension of the transition period if they face difficulties in the implementation of the provisions of the TRIMS Agreement (paragraph 3).49 The article stipulates that no increase in the Article 2 inconsistency of notified TRIMS within such period (standstill clause) (paragraph 4). This Article also provides for a special provision allowing the imposition of TRIMS on new enterprises during the transition period if that is deemed necessary in order not to disadvantage established enterprises already subject to TRIMS (paragraph 5).50 Article 6 regulates the obligation of transparency in the application of TRIMS. It requires the notification obligation to the WTO Secretariat of the publication in which TRIMS may be found, including those applied by regional and local governments and authorities within their territories. Article 7 establishes the Committee on Trade-Related Investment Measures (the "Committee") (paragraph 1). The Committee shall monitor the implementation of commitments of the members under the Agreement and report annually to the Council for Trade in Goods (paragraph 3). Article 8 deals with the settlement of TRIMs disputes. This article applies Articles XXIIXXIII of GATT 1994 and Annex 2 Dispute Settlement Understanding. Article 9 provides that the Council for Trade in Services shall review this Agreement within five years of its entry into force. The purpose of this review is to propose, as appropriate,
48

Until 30 June 1999, twenty-six country Members have notified the Trade in Goods Council about these non-confirming TRIMS being implemented. They are: Argentina, Barbados, Bolivia, Chile, Colombia, Costa Rica, Cuba, Cyprus, the Dominican Republic, Ecuador, Egypt, India, Mexico, Malaysia, Nigeria, Pakistan, Peru, Philippines, Poland, Romania, Thailand, Uganda, Uruguay, Venezuela and South Africa (WTO, Annual Report 1999 [Geneva: WTO, 1999], p. 66). 49 No Member country has availed itself of this article (WTO, Annual Report 1999 (Geneva: WTO, 1999), p. 66.

14 amendments to the contents of the illustrative lists and to consider the scope for complimentary provisions on investment policy and competition policy.51 The annex of the Agreement contains illustrative list of TRIMS which is inconsistent with GATT 1994 Article III (4) and Article XI (1). This annex is mandatory or enforceable under domestic law or under administrative rulings. In general, the following is listed as illustrations of prohibited TRIMS:52 (i) under the national treatment with which is necessary to obtain an advantage: (a) requirements to purchase or use by an enterprise of products of domestic origin or from any domestic source (local content requirement); or (b) that an enterprise's purchase or use of imported products tied to the volume or value of local products exported (trade balancing requirement); (ii) TRIMS that are inconsistent with the obligation of Article XI:1 are those which: (a) the importation of products to an amount related to the quantity or value of local products exported (trade balancing); (b) the importation of products by restricting an enterprise's access to foreign exchange to the amount of foreign exchange inflows attributable to the enterprise (foreign exchange restrictions); or (c) the exportation of products specified in terms of value or value of local production (domestic sales requirement).

50 51

Low and Subramanian, supra, note 45, p. 416. P. Sauv, 'A First Look at Investment in the Final Act of the Uruguay Round,' 29 J.W.T. 5 (1995), p. 8. 52 The measures above, particularly local content requirement and trade balancing requirement are the measures commonly applied by, particularly, developing countries and practice of states demonstrated that these measures have become a source of conflict between states. (John H,. Jackson, The World Trading System (Cambridge, Massachusetts: the MIT Press, 2nd ed., 1997), p.317.

15 From the list above, it is obvious that other TRIMS are not listed.53 Thus the other measures are still permissible under the new TRIMS Agreement.54 This provision is maintaining the interests of developing countries which impose and apply this requirement to foreign investors. Additionally, this provision in many developing countries is normally mandatory.55 In its 1998 report, the Working Group on the Relationship Between Trade and Investment of the WTO stated that certain types performance requirements, such as technology transfer requirement and the promotion of research and development had proved to be an important means of the development objectives. 56 There is, however, a number of limitations of the TRIMs agreement. First, it does not give a definition of a TRIM or an objective test for identifying such measures. It seems, therefore, that is for the notifying country to determine which of its TRIMS are illegal under the agreement.57 Second, the TRIMS agreement may be considered as a setback in terms of the enforcement of law. According to Low and Subramanian, by providing a transition period to member countries to eliminate the TRIMS in member countries, the TRIPS Agreement has neglected the fact that TRIMS which distorted trade has already been decided.58 Third, the other defects of the result of the Uruguay Round on TRIMS is that it has failed to include the important provisions on restrictive business practices. These provisions are particularly important for developing countries when dealing with the foreign investors with their dominant position and superior competitive power.
53

Investment measures not covered by the TRIMs Agreement include: local equity requirements, technology transfer and licensing requirements, local manufacturing requirements, personnel entry restrictions, local employment requirements, remittance restrictions, and export performance requirements, among others. 54 UNCTAD, supra, note 13, p. 143. 55 UNCTAD, supra, note 13, p. 143. 56 WTO, Report (1998) of the Working Group on the Relationship between Trade and Investment to the General Council, WT/WGTI/2. 8 December 1998, paragraph 68. (Hereinafter referred to as Report (1998). 57 UNCTAD, supra, note 13, p. 143. 58 Low and Subramanian, supra, note 45, p. 418. In terms of its overall result, the TRIMs Agreement, as Brewer and Young argued, 'is something perceived to be tangible evidence of the failure of the Uruguay

16 Fourth, although the TRIMs Agreement accommodates the interests of developing countries, however it fails to provide a special treatment and non-reciprocal treatment for developing countries. The articles especially made for these countries is article 4 (stipulating that the developing countries shall be free to deviate temporarily from the principle of national treatment and quantitative restrictions). Article 5 paragraph 2 permits developing countries to extend its transition period to implement the Agreement. Nevertheless, to enable these countries to obtain the extension is likely not easy. Article 5 paragraph 2 imposes 2 requirements. Firstly, it requires the respective countries to demonstrate that they are facing difficulties in implementing the Agreement. Secondly, the request will not be automatically granted since it will be subject to the approval of the Council for Trade in Goods after this body takes into account the particular needs of the country concerned.59 C. SIGNIFICANCE OF TRIMS The result of the Uruguay Round negotiations on TRIMS, despite its simple provisions, has been of considerable significance. First, the inclusion of investment into the WTO treaty is truly a watershed result as far as the law of investment is concerned.60 It is a new regulation which is binding upon the majority of countries in the world. The conclusion of the Agreement has for the first time affirmed that, from the legal point of view, there is a close-link relation between the rules and disciplines of trade and investment.61 Second, the conclusion of the Uruguay Round negotiation has, at least, created a new international institution, namely WTO through its subsidiary organ 'Committee on TRIMS', whose
Round to make significant progress on FDI manufacturing, since its core provisions were already embodied in the previous GATT agreements concerning trade in goods.' (Brewer and Young, supra, note 2, p. 124). 59 Report (1998), supra, note 56, also indicates that the TRIMS Agreement lacks of the provision on the protection of investment (paragraph 125). 60 Sir Leon Brittan, supra, note 46, p. 275 (stated that the TRIMS Agreement 'incorporates specific investment disciplines in the multilateral system for the first time'). 61 It should however be important to note that the WTO provisions which have indirect impact on investment may be unlimited. According to Piere Sauv, all areas of trade policy making may be expected to interfere

17 task, among others, is to supervise and guarantee the liberalization of foreign direct investment. This is a significant contribution for the development of international law on this field, since, before the establishment of the WTO in 1994, there is no international institution dealing with TRIMS. Furthermore, the role of WTO on this matter has its own enforcement mechanism through its dispute settlement mechanism when its members violate the TRIMS Agreement or their commitments. Previously, there are some arguments with regard to lack of international institution regulating FDI. Some argue that WTO may not be a proper place to deal with multilateral investment agreement. The main reason is due to countries' differing perceptions of the contents of the substantive standards. 62 The foregoing argument, however, is true but somewhat weak. As history shows, it is always the purpose of the negotiation at the level of international institution to address the problem of divergence of substantive standards among its members.63 Thus, the creation and the existence of WTO will not merely address the issue but also, in the long run, will make sure that the rules and the disciplines agreed by its members be enforced. Third, The TRIMS Agreement has also been a significant contribution to the future development of international law in this field. Thus, the existing discipline, despite its short one, may pave the way for a broader and more comprehensive discipline on this subject. 64

the investment decisions of internationally active firms (see: Piere Sauv, 'A First Look at Investment in the Final Act of the Uruguay Round,' 29 J.W.T. 6 (1995). 62 For example, Graham and Krugman, 'Trade-Related Investment Measures,' in: Jeffrey J. Schott (ed.), Completing the Uruguay Round, (Washington: Institute for International Economics, 1990), p. 150. 63 See for example, the issue concerning the extent the provisions of developing countries should be applicable to the TRIMS during the negotiations; the issue of dumping, rules of origin, GATS, and TRIPS, just to name a few. In other areas of international law, one may find the controversy over Chapter XI of the United Nations Convention on the Law of the Sea, or the conflicting views between developed and developing countries with regard to the binding force of international law principles embodied in the UN Charter on the Economic Rights of Duties of States of 1974. 64 See Article 9 TRIMs Agreement; Cf., DeAnne Julius in one of her works noted that the 'creation of the WTO encompassing the GATT as well as the new agreements provides a strong skeleton on which to build sectoral codes that expand from and integrate new areas of trade-related investment.' (DeAnne Julius, 'International Direct Investment: Strengthening the Policy Regime,' in: Peter B. Kennen, (ed.), Managing the

18 Fourth, the TRIMS Agreement helps the member countries to be transparent in their laws and policies on investment. This will hopefully creates an open and predictable conditions and legal certainty for foreign investors to do business in foreign member countries of the WTO. Fifth, the TRIMS Agreement provides balanced provisions between the interests of developed and developing countries (in terms of their investment policies). The Agreement, as far as the developing countries are concerned, provides a rather broader discretion to implement the agreement. Although the Agreement requires 5 years and 7 years for developing countries and least developed countries respectively to implement fully the Agreement, yet the Agreement allows these countries to extend the transition period. This provision shows, at least, that the WTO takes into consideration the position of these countries in the operation of the Agreement. Sixth, the inclusion of Dispute Settlement procedure into the TRIMS Agreement will be a new development of international (trade) law. This is by far an important development, since as far as the investment dispute is concerned, the international community has solely used the 'traditional' means of settlement of disputes, among others national and international (arbitration) courts, such as arbitration under the ICSID Convention. D. IMPLICATION OF TRIMS AGREEMENT ON DEVELOPING COUNTRIES Since the result of the Uruguay Round negotiation on investment is relatively short, the implication of TRIMs Agreement is relatively meagre and does not to a certain degree, burden member states with many obligations.65 In addition it does not significantly constrain the ability of governments of developing countries to regulate foreign direct investment in their territory.66

World Economy: Fifty Years after the Bretton Woods (Washington D.C.: Institute for International Economic, 1994), p. 284. 65 UNCTAD, supra, note 13, p. 144. 66 It may be worth noting that, as Kirmani argues, the practice demonstrates that the application of TRIMs by countries is discretionary. Kirmani notes that TRIMs may often 'not be binding insofar as they require a course of action that the firm could otherwise pursue.' (Naheed Kirmani, et.al., International Trade Policies: The Uruguay Round and Beyond, vol. II: Background Papers (Washington: International Monetary Fund, 1994), p. 13.

19 Nevertheless, the prohibition of local content requirement and trade balancing requirement have inevitably forced the developing countries to stop gradually requiring foreign investors to use its local components. This is a quite negative implication since these countries have frequently employed these requirements to promote their local component industries and their economic development.67 The other implication of the TRIMS Agreement is that it limits a host country's full control of FDI.68 This is a major threat to the developing countries and policies over FDI where these countries are always seeking control over the FDI. In addition, the notification and transparency obligations of the member countries with respect to TRIMs have not been obviously easy for these countries. A recent study, for example, indicated that there have been many difficulties in the observance of notification obligation of nonconforming TRIMs to the WTO Secretariat.69 To avoid or at least to minimize negative implication of future negotiation on this are upon developing countries, Mashayekhi and Gibbs rightly made the following observation: 'If developing countries are to maintain influence over the future international trade agenda in the area of investment, consistent with their growing importance as import markets, they will have to exert considerable efforts to prepare technically sound initiatives reflecting the realities of globalization and liberalization for action their favour, i.e. 'positive agenda', and to form solid alliances and to counter proposals emanating from developed country ...' 70

67

See: John H. Jackson, supra, note 38, p.317; GATT's Trade Policy Review Mechanism in 1991-1994 revealed that some developing countries employed local content requirements, notably in the automotive sectors. These countries include Bangladesh, Chile, Egypt Ghana, Indonesia, Mexico, Nigeria, Peru, the Philippines, Senegal, South Africa, Thailand, and Uruguay). (Naheed Kirmani, et.al., supra, note 66, p. 13. 68 Eric M. Burt, 'Developing Countrues and the Framework for Negotiations of Foreign Direct Investment in the World Trade Organization,' 12:6 Am.U.J.Int'l.L. & Pol'y 1027 (1997). 69 Thomas L. Brewer and Stephen Young, supra, note 2, p. 143. 70 Mina Mashayekhi and Murray Gibbs, 'Lessons from the Uruguay Round Negotiations on Investment,' 33:6 J.W.T. 12 (1999). This 'developing countries alliance' approach introduced above by the two authors proves to be applicable only for those countries that have, at least, better awareness about the rules and issues being negotiated. In addition, it will also depend very much on the forum where the negotiation takes

20

place. Most important issue that actually is urgent to arise is to ensure the all Members, particularly the developed countries to take into account the development objectives and the special condition of developing countries.