MDU-CPAS

ASSIGNMENT
OF

FOREIGN TRADE LAW

SESSION – 2020-2021

TOPIC – PROVISIONS RELATING TO

AGREEMENT ON TRADE-RELATED INVESTMENT MEASURES

Submitted to Submitted by
Dr. Arundhati Tanya Chhabra
Roll no. 3591-B
B.A L.L.B (IX Sem)
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 ACKNOWLEDGEMENT

I take this opportunity to express my profound gratitude and deep regards

to my guide Dr. Arundhati for her exemplary guidance, monitoring and
constant encouragement to give shape to this assignment. The blessing,
help and guidance given by them time to time shall carry me a long way in
the journey of life on which I am about to embark.

I also take the opportunity to express a deep sense of gratitude to my

respected seniors who shared their cordial support, valuable information
and guidance, which helped me in completing the task through various
stages.

Last but not the least, I think the almighty, my parents, brother, sisters and
friends for their constant encouragement without which this assignment
would not have been possible.

Tanya Chhabra

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 TABLE OF CONTENTS

INTRODUCTION…………………………………………………………………………………... 4

MEANING………………………………………………………………………………………….. 5

IMPORTANT TERMINOLOGIES………………………………………………………………… 5

LEGAL FRAMEWORK OF TRIMs……………………………………………………………….. 6

FIR PANEL CASE…………………………………………………………………………………. 6

OBJECTIVES………………………………………………………………………………………. 7

FEATURES………………………………………………………………………………………… 7

STRUCTURE OF TRIMs AGREEMENT…………………………………………………………. 8

CONCLUSION………………………………………………………………………………..…… 10

BIBLIOGRAPHY………………………………………………………………………………….. 10

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Introduction

 The Agreement on Trade-Related Investment Measures (TRIMs), are rules that apply to the
domestic regulations applied by a country to foreign investors, often as part of an industrial policy.

 The Agreement was agreed upon by all members of the World Trade Organisation (WTO). The
Agreement was concluded in 1994 and came into force in 1995.

 The WTO was not established at that time, The GATT (General Agreement on Trade and Tariffs)
was WTO’s predecessor. The WTO came about in 1994-1995.

 In the late 1980s, a significant increase in Foreign Direct Investment (FDI) was taking place
throughout the world.

 Some countries receiving that Foreign Investment, however imposed numerous restrictions on it,
that were designed to protect and foster domestic industries and to prevent the outflow of foreign
exchange reserves.

 TRIMs is one of the Agreements covered under Annex 1A to the Marrakesh Agreement,
signed at the end of the Uruguay Round (UR) Negotiations.

 Policies such as Local Content Requirements (LCR) and Trade Balancing Rules (TBR) that have
traditionally been used to both promote the interests of domestic industries and combat
restrictive business practices are now banned.

 This Agreement addresses investment measures that are Trade Related and that also violate Art III
and XI of GATT:

ART – III (NATIONAL TREATMENT)

ART – XI (GENERAL ELIMINATION OF QUANTITATIVE RESTRICTIONS)

Meaning
 It is a World Trade Organisation Agreement that recognizes that measures and regulations impose
on investments and investors can reduce international trade and many functions as disincentives for
investor in situations where investment is needed.

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 The agreement restricts the use of Three TRIMs Performance requirements:
 Local content Requirements (LCR);
 Trade Balancing Requirements (TBR);
 Foreign Exchange Balancing Requirements (FEBR)

Important Terminologies
 Local Content Requirements (LCRs) impose the use of a certain amount of local inputs (exports)
in production.

 Trade Balancing Requirements (TBRs) oblige imports to be equivalent to a certain proportion of

exports.

 Foreign Exchange Balancing Requirements (FBRs) – Foreign exchange mode available for
imports should be a certain proportion of the value of foreign exchange brought in by the firm from
exports and other sources.

 Exchange Restrictions restrict access to foreign exchange and hence restrict imports.

 Domestic Sales Requirements require a company to sell a certain proportion of its output locally,
which amounts to a restriction on exportation.

 Manufacturing Requirements require certain products to be manufactured locally.

 Export Performance Requirements (EPRs) stipulate that a certain proportion of production

should be exported.

 Product Mandating Requirements oblige an investor to supply certain markets with a designated
product or products manufactured from a specified facility or operation.

 Manufacturing Limitations prevent companies from manufacturing certain products or product

lines in the lost country.

 Licensing Requirements oblige the investor to license technologies similar or unrelated to those it
uses in the home country to host country firms.

 Local Equity Requirements specify that a certain percentage of a firm’s entity should be held by
local investors.

Legal Framework of TRIMs

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 GATT, 1947 prohibited investment measures that violated the principles of National Treatment and
the General Elimination of Quantitative Restrictions, but the extent of the prohibitions was never
clear.

 TRIMs Agreement contains statements prohibiting any TRIMs that are inconsistent with the
provisions of Art III or XI of GATT 1994.

 This Agreement prohibited those measures that are mandatory or enforceable under domestic law or
administrative rulings which are necessary to obtain.

FIR Panel Case

 Until 1980s, investment issues received only marginal attention in the context of GATT.
 In 1982, GATT dispute settlement proceeding initiated by US against Canada.
 For implementation of Canada’s Foreign Investment Review Act (FIRA), Certain undertakings
required from foreign investors in order to get an approval for investment projects in Canada.

 Three undertakings requiring:

 Foreign investors to buy goods of Canadian origin or from Canadian sources (LCR)
 To manufacture goods in Canada.
 Foreign investors to export specified quantities or proportions of their local production.
(EPR)

 Panel was allowed to her the dispute on a condition i.e., findings would be limited to trade issues
fall within scope of GATT .
 Panel concluded that LCR were inconsistent with National Treatment because they discriminated
against imported products.
 Purchase Canadian goods (LCR) did not prevent importation of goods, hence not consistent with
Art XI (i.e., General Elimination of Quantitative Restrictions) of GATT.
 Panel did not rule on GATT consistency of EPR (Export Performance Requirements) because it
falls outside the coverage of GATT.

 Panel made it very clear that;

 The dispute instituted before the Panel pertained to consistency with GATT rules of
certain TRIMs applied by Canada.
 Not to Canada’s right to regulate FDI.

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 Therefore, TRIMs include:
1. Market Access: a) Ownership/ Equity Restrictions
b) Joint Venture Requirements

2. Performance Requirements: a) Local Content Requirements (LCR)

b) Export Performance Requirements (EPR)
c) Foreign Exchange Balancing Requirements (FEBR)

Objectives of TRIMs

 Desiring – To promote the expansion and progressive liberalization of World Trade and to facilitate
investment, while ensuring competition.

 Taking Into Account – Trade, Development and Financial Needs of developing Countries,
particularly least developed countries.

 Recognizing – Certain investment measures can cause trade-restrictive and distorting effects.

In short, TRIMs is to prevent member countries from restorting to measures that violate non-
differential treatment between domestic and foreign investors and impose quantitative
restrictions on Imports and Exports.

Features of TRIMs

1. Abolition of Restriction imposed on foreign capital.

2. Offering equal rights to the foreign investor on par with the domestic investor.
3. No restrictions on any area of investment.
4. No limitation or ceiling on the quantum of foreign investment.
5. Granting of permission of without restrictions to import raw material and other components .
6. No force on the foreign investors to use the total products or materials.
7. Export of the part of the final product will not be mandatory.
8. Restrictions on repatriation of dividend interest and royalty will be removed.
9. Phased Manufacturing programming will be introduced to increase the domestic content of
manufacturer.
10. It does not create any new substantial obligations.
11. It applies only to goods and not to cover Trade in services.
12. It does not regulate the entry of foreign investment or investors and concerns measures
applied to both foreign and local firms.
13. It focuses on 2 Articles of GATT,
ART – III (NATIONAL TREATMENT);
ART – XI (GENERAL ELIMINATION OF QUANTITATIVE RESTRICTIONS)

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Structure of TRIMs Agreement:

(Nine Articles and an Annex)

 Art 1 – Application of TRIMs

 Art 2 – Applied Art III and XI and refers to Annex list
 Art 3 – General Exceptions
 Art 4 – Developing Countries
 Art 5 – Notification and Transition of periods
 Art 6 – Transparency
 Art 7 – Committee on TRIMs
 Art 8 – Consultation and Dispute Settlement
 Art 9 – Review 13

Provisions of TRIMs Agreement

(1) Art 1 contemplates that this Agreement covers only to trade in goods and it does not apply to
trade in services.

(2) Art 2 obliges members not to apply any TRIMs i.e., inconsistent with:

ART – III (NATIONAL TREATMENT);

ART – XI (GENERAL ELIMINATION OF QUANTITATIVE RESTRICTIONS)
 Agreement does not mention any definition of TRIMs.
 PART I identifies measures that are inconsistent with Art III:
a) pertain to purchase or use of products by an enterprise;
(covers LCR measures relate to purchase or use by an enterprise of products of domestic origin)

b) deals with internal measures

(covers TBRs which limit the purchase or use of imported products)

 Part II identifies measures that are inconsistent with Art XI:

a) concern the importation/ exportation of products by an enterprise;
(covers the following measures:
- measures that limit the importation
- measures that restricts exports specified in terms of particular products
(i) in terms of volume/ value of products, or
(ii) in terms of a proportion of volume/ value of its local production.)
b) deals with border measures
(covers the measures that restricts imports through the imposition of foreign exchange balancing
requirements (FEBR) which act like import quotas i.e., incompatible with Art XI)

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(3) Art 3 covers all exceptions provided under GATT 1994 which are appropriate to the TRIMs
Agreements.

 Exceptions also applicable to prohibition contained in Art 2 of TRIMs.

 eg- LCR applied in context of government procurement of goods is excluded from NT obligation.

(4) Art 4 allowed developing countries to deviate temporarily from obligations in Art 2 to extent in
such a manner as Art XVIII of GATT, i.e., Govt Assistance to Economic Development and also
includes other safeguard provisions for situations of BOP (Balance of Payment) difficulties.

(5) Art 5 states about Notification and Transitional Agreements:

 It allowed the exiting TRIMs that were inconsistent with GATT subject to certain conditions set
forth requirement in Art 5 with reference to transitional mechanism.
 It provides members to notify to Council for Trade in Goods within 90 days after the date of entry
into force of WTO regarding any existing TRIM that was inconsistent with this Agreement.
 Existing TRIMs shall be eliminated with specific time-periods which depends upon level of
economic development:

Developed countries – 2 years entry of WTO Agreement

Developing Countries – 5 years entry of WTO Agreement
Least- Developed Countries – 7 years entry of WTO Agreement

 Agreement did not provide any mechanism to Monitor Actions at the expiry of Transition period .
 Countries which are not members of WTO on 1 Jan 1995, were entitles to become original member
within 2 years and after that they should submit TRIMs notification within 90 days after accepted.
 Central Government may authorize extension of Transition periods and the several members have
availed their rights under this provision.
 The benefit of Transitional Arrangements shall not apply for TRIMs in case introduce less than
180 days before enter into force of WTO.
 Member shall notify to Central Government if they apply for new investment.

(6) Art 6 states about Transparency:

 This provision incorporated by reference the transparency obligation established in Art X of GATT
and other WTO related provisions.
 Members are required to notify to WTO Secretariat about the publication in which TRIMs may be
found.
 Confidential information is exempted from Art X of GATT .
 During this transition period, member may apply the inconsistent TRIM to a new investment if this
is:

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 a) necessary to prevent trade distortion the condition of competition between new investment and
existing investments
b) identify the product of existing investment is like products .
 Therefore, the whole procedure must be transparent, which implies no secrecy, openness, directness
and simplicity.

(7) Art 7 covers the provisions relating to Committee on TRIMs:

 The Committee is required to report annually to Central Government and establishes-

a) To monitor the operation and implementation of Agreement.
b) To provide forum for consultation n implementation of the Agreement.

(8) Art 8 covers the provisions relating to Consultation and Dispute Settlement:

 Art XXII and XXIII of GATT apply to consultations and dispute settlement under this agreement.
 41 cases cite this agreement in the request for consultations.

(9) Art 9 provides Central Government to review the operation of TRIMs:

 Central Government shall review the operation of this Agreement every 5 years which offers
opportunity to propose to the Ministerial Conference as appropriate amendments to the text of the
Agreement.
 During Central Government Review, it shall consider the provisions on
a) investment policy and b) competition policy
 It does not mention specific procedure on how to undertake the review.
 Date for its completion also not mentioned in this Agreement.

Conclusion:

 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 BOP 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 TRIM. But India should be careful while giving its node to the expansion of TRIMs,
 Because it may make Indian manufacture more vulnerable against the cheap products of developed
countries.

Bibliography

 https://www.wto.org/english/tratop_e/invest_e/invest_info_e.htm
 https://en.wikipedia.org/wiki/Agreement_on_Trade-Related_Investment_Measures
 https://www.jagranjosh.com/general-knowledge/trade-related-investment-measures-trims-
1448706918-1

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