Q) Background of TRIMs.

Answer:-
INTRODUCTION:-
The Agreement on Trade-Related Investment Measures (TRIMs) are
rules that are applicable to the domestic regulations a country applies to foreign
investors, often as part of an industrial policy. The agreement, concluded in 1994,
was negotiated under the WTO's predecessor, the General Agreement on Tariffs and
Trade (GATT), and came into force in 1995. The agreement was agreed upon by all
members of the World Trade Organization. Trade-Related Investment Measures is
one of the four principal legal agreements of the WTO trade treaty.

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).

TRIMs are rules that restrict preference of domestic firms and thereby enable
international firms to operate more easily within foreign markets. Policies such as
local content requirements and trade balancing rules that have traditionally been
used to both promote the interests of domestic industries and combat restrictive
business practices are now banned.

The agreement on the Trade Related Investment measures (TRIMS) calls for
introducing national treatment of foreign investment and removal of quantities
restrictions. It identifies five investment measures which are inconsistent with the
General Agreement on Trade and Tariff (GATT) on according national treatment and
on general elimination of quantitative restrictions. These are measure which are
imposed on the foreign investors the obligation to use local inputs, to produce for
export as a condition to obtain imported goods as inputs, to balance foreign
exchange outgo on importing inputs with foreign exchange earnings through export
and not to export more than a specified proportion of the local production.

Trade-Related Investment Measures is the name of one of the four principal legal
agreements of the World Trade Organization (WTO), trade treaty. TRIMs are rules
that restrict preference of domestic firms and thereby enable international firms to
operate more easily within foreign markets. The TRIMs Agreement prohibits certain
measures that violate the national treatment and quantitative restrictions
requirements of the General Agreement on Tariffs and Trade (GATT).

1
Meaning:-
Trade Related Investment Measures (TRIMs) is a set of rules laid down by the
World Trade Organization (WTO) that controls certain investment-related measures
that may impact global trade.

● TRIMs covers many investment measures, including requirements related to

local content, technology transfer, export restrictions, and domestic sales
requirements.
● Under TRIMs, WTO members must ensure that their investment-related
measures are consistent with their obligations under the General Agreement
on Tariffs and Trade (GATT) and other WTO agreements.
● The TRIMs agreement applies to all WTO members, although developing
countries are given some flexibility in implementing the rules.
● TRIMs aims to eliminate trade-distorting measures that countries may use to
focus on their domestic industries, such as requiring foreign investors to use
locally produced goods or to export a certain percentage of their products.

In general, TRIMs intends to generate a level playing field for global trade and
investment by eliminating barriers affecting the free flow of goods and services
across borders.

Principles of TRIMs:-
TRIMs may include requirements to:

I. Achieve a certain level of local content;

II. Produce locally;

III. Export a given level/percentage of goods;

IV. Balance the amount/percentage of imports with the amount/percentage of

exports;
V. Transfer of technology or proprietary business information to local persons;

These requirements may be mandatory conditions for investment, or can be

attached to fiscal or other incentives. The TRIMs Agreement does not cover
services. All WTO member countries (offsite link) are parties to this Agreement. This
Agreement went into effect on January 1, 1995. It has no expiration date.

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

2
case of developed countries, five years in the case of developing countries and
seven years in the case of LDCs.

Objectives of TRIMs:-
The objectives of the TRIMs (Trade-Related Investment Measures) Agreement
include:
1. Promoting non-discriminatory treatment:The agreement aims to ensure
that foreign investors are treated in a non-discriminatory manner by
eliminating any measures that give preferential treatment to domestic
investors over foreign investors.
2. Removing trade barriers: The agreement seeks to eliminate measures that
restrict or distort trade in goods and services such as local content
requirements, export performance requirements, and import restrictions.
3. Encouraging transparency and predictability: The agreement promotes
transparency by requiring member countries to notify and publish their
investment measures, making them easily accessible to foreign investors This
helps create a more predictable and stable investment environment.
4. Enhancing market access: The TRIMs Agreement aims to improve market
access for foreign investors by eliminating or reducing barriers to foreign
investment, such as restrictions on the establishment of new investments or
limitations on the expansion of existing investments

5. Promoting fair competition: The agreement seeks to prevent

anti-competitive practices by prohibiting measures that give domestic
investors an unfair advantage over foreign investors. This includes measures
that provide subsidies or other forms of government support exclusively to
domestic investors.

6. Facilitating economic development: The TRIMs Agreement recognizes the

important role of foreign investment in promoting economic development. By
promoting a more open and transparent investment environment, the
agreement aims to attract more foreign investment, which can contribute to
economic growth, job creation, and technology transfer.
7. Prohibition of certain measures: The Agreement prohibits certain measures
that are considered trade-distorting or unfair. This includes requirements to
transfer technology export restrictions on raw materials, and local content
requirements that favour domestic suppliers.
8. Protection of intellectual property rights: The TRIMs Agreement aims to
protect intellectual property rights by prohibiting measures that require the
purchase or use of intellectual property as a condition for investment or
trade.

3
 9. Promotion of competition: The TRIMS Agreement encourages competition by
prohibiting measures that restrict market access or create monopolies or
anti-competitive practices.

10. Dispute settlement: The agreement provides a mechanism for resolving

disputes between member countries related to the interpretation or
implementation of the agreement. This ensures that countries adhere to their
obligations and resolve conflicts in a fair and transparent manner
11. Capacity building: The TRIMs Agreement includes provisions for technical
assistance and capacity building to help developing countries implement and
benefit from the agreement. This helps to level the playing field and promote
sustainable development
12. Cooperation and coordination: The agreement promotes cooperation and
coordination among member countries to ensure effective implementation and
enforcement of its provisions. This includes sharing information, exchanging
best practices, and coordinating policies to enhance the benefits of the
agreement for all parties involved.

Overall, the objectives of the TRIMs Agreement are to create a more open,
transparent, and predictable investment environment that promotes fair competition
and facilitates.

Origin of TRIMs:-
In the late 1980s, there was a significant increase in foreign direct investment
across the world. However, some of the countries receiving foreign investment
imposed numerous restrictions on that investment designed to protect and foster
domestic industries, and to prevent the outflow of foreign exchange reserves.

Examples of these restrictions include local content requirements (which require that
locally produced goods be purchased or used), manufacturing requirements (which
require the domestic manufacturing of certain components), trade balancing
requirements, domestic sales requirements, technology transfer requirements,
export performance requirements (which require the export of a specified percentage
of production volume), local equity restrictions, foreign exchange restrictions,
remittance restrictions, licensing requirements, and employment restrictions. These
measures can also be used in connection with fiscal incentives as opposed to
requirement. Some of these investment measures distort trade in violation of GATT
Articles III and XI, and are therefore prohibited.[1]

Until the completion of the Uruguay Round negotiations, which produced a

well-rounded Agreement on Trade-Related Investment Measures (hereinafter the
"TRIMs Agreement"), the few international agreements providing disciplines for
measures restricting foreign investment provided only limited guidance in terms of

4
content and country coverage. The OECD Code on Liberalisation of Capital
Movements, for example, requires members to liberalise restrictions on direct
investment in a range of areas. The OECD Code's efficacy, however, is limited by the
numerous reservations made by each of the members.[2]

In addition, there are other international treaties, bilateral and multilateral, under
which signatories extend most-favored-nation treatment to direct investment. Only a
few such treaties, however, provide national treatment for direct investment. The
Asia-Pacific Economic Cooperation Investment Principles adopted in November
1994 are general rules for investment but they are non- binding.

Features of TRIMs:-

The Agreement on Trade-Related Investment Measures (TRIMs Agreement) is a

part of the World Trade Organization (WTO) framework and aims to regulate
investment measures that affect trade. Some of the key features of the TRIMs
Agreement include:

1. National Treatment: The TRIMs Agreement requires that foreign investors be

treated no less favourably than domestic investors in terms of laws, regulations, and
administrative procedures.

2. Prohibition of Quantitative Restrictions: The agreement prohibits the use of

quantitative restrictions on imports and exports as a condition for foreign investment.
This means that governments cannot require a certain level of local content or export
performance as a requirement for investment

3. Prohibition of Performance Requirements: The TRIMs Agreement also

prohibits the use of performance requirements, such as requiring investors to
achieve certain levels of local production, export targets, or technology transfer
obligations

4. Transparency: The agreement promotes transparency by requiring member

countries to notify the WTO of any trade-related investment measures they have in
place. This allows other member countries to review and assess the impact of these
measures.

5. Phasing-out of Existing Measures: The TRIMs Agreement includes provisions

for the phasing-out of existing trade-related investment measures that are
inconsistent with the agreement. This allows countries to gradually remove any
discriminatory or restrictive measures they may have in place.

5
6. Dispute Settlement: The TRIMs Agreement provides a mechanism for resolving
disputes between member countries. This ensures that countries can seek redress if
they believe another member country is violating the agreement

7. Exceptions for Developing Countries: The TRIMs Agreement allows developing

countries to apply certain measures that may be inconsistent with the agreement for
a limited period of time, provided they meet specific criteria.

8. Review and Monitoring: The TRIMs Agreement establishes a mechanism for the
regular review and monitoring of its implementation. This allows member countries to
assess the effectiveness and impact of the agreement

9, Non-discrimination: The agreement emphasises the principle of

non-discrimination, requiring member countries to treat investors from all other
member countries equally.

10. Prohibition of Local Content Requirements: The TRIMs Agreement prohibits

the use of local content requirements, which would require investors to use a certain
percentage of locally sourced inputs or components

11. Prohibition of Export Subsidies: The agreement prohibits member countries

from providing export subsidies or other financial incentives that are contingent on
export performance.

12. Prohibition of Import Restrictions: The TRIMs Agreement prohibits member

countries from imposing import restrictions as a condition for foreign investment

13. Transparency in Investment Measures: The agreement encourages member

countries to provide information on investment measures laws, and regulations to
ensure transparency and facilitate understanding among member countries.

14. Investor Protection: The TRIMs Agreement provides a framework for the
protection of investors' rights, ensuring fair and equitable treatment, protection
against expropriation and access to dispute settlement mechanisms.

15. Encouragement of Technology Transfer: The agreement recognizes the

importance of technology transfer and encourages member countries to facilitate the
transfer of technology to promote economic development.

16. Cooperation and Technical Assistance: The TRIMs Agreement promotes

cooperation among member countries and provides for technical assistance to
developing countries to help them implement the agreement effectively.

6
Overall, the TRIMs Agreement aims to promote a more open and non-discriminatory
investment environment by prohibiting certain trade-related investment measures
that can distort trade flows and hinder foreign investment

India’s Notified TRIMs:

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

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

2. Local content requirement in the production of Rifampicin (a medicine) and

Penicillin – G, and

3. Dividend balancing requirement in the case of investment in 22 categories

of 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 the 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;

7
• 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.

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 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 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.