TRIMS

IBL PPT BY ANMOL BAJAJ

03
INTRODUCTION

 In the late 1980s, there was a significant increase

in foreign direct investment throughout 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.
 The Agreement on Trims of the WTO is based on the belief that
there is strong connection between trade and investment.
 Restrictive measures on investment are trade distorting. Several
restrictive measures on investment are prohibiting trade and hence
are not allowable.
 According to the TRIMs provision, countries should not adopt the
investment measures which restrict and distort trade.
  Investment measures are those steps used traditionally against foreign investment
by host countries. Here, the TRIMs instruct thatWTO members may not apply any
measure that discriminates against foreign investment that violates basic WTO
principles (like the MFN). WTO gives a list of prohibited investment measures or
TRIMs like local content requirement, export obligation, technology transfer
requirement etc. that violates trade. Few exemptions to developing countries are
also provided under Trims.
 The Committee on TRIMs monitors the operation and implementation of the
TRIMs Agreement and offers consultation for member countries.
  The objective of TRIMs is to ensure fair treatment of investment in
all member countries.
 As per the TRIMs Agreement, members are required to notify the
WTO Council for Trade in Goods of their existing TRIMs that are
inconsistent with the agreement.
TRIMS AND FORIGN INVESTMENT
POLICY CHANGES IN INDIA
 India has made several foreign
investment liberalisation measures
since the launch of the New Industrial
Policy in1991. Regulations for both FDI and FPI
were simplified and now foreign investment is
allowed in almost all sectors.
TRADE AND INVESTMENT

  There are three main areas of work in the WTO on trade and
investment:
 A Working Group established in 1996 conducts analytical work on the
relationship between trade and investment.
 The Agreement onTrade-Related Investment Measures (“TRIMs
Agreement”), one of the Multilateral Agreements on Trade in Goods,
prohibits trade-related investment measures, such as local content
requirements, that are inconsistent with basic provisions of GATT 1994.
 The General Agreement onTrade in Services addresses foreign
investment in services as one of four modes of supply of services.
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. TheTRIMs Agreement does not cover
services. AllWTO member countries (offsite link) are parties to this Agreement.
This Agreement went into effect on January 1, 1995. It has no expiration date.
INDIA’S NOTIFIED TRIMS

 As per the provisions of Article. 5.1 of theTRIMs 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 .
 Dividend balancing requirement in the case of investment in 22
categories of consumer goods.
INDIA’S NOTIFIED TRIMS

 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 transition period
in respect of certain TRIMs which had been notified by them. Examination of
their requests is underway in the Council forTrade in Goods of WTO.
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 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 HAS PROPOSED DURING
SEATTLE CONFRENCE
 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 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 adopted Automotive policy in Dec 1997,
 Mandatory Requirement-Car manufacturers wishing to import car kits were
required to sign a “Memorandum of Understanding” Car Manufacturers were also
asked to fulfil following conditions:
 To achieve specified minimum local content levels to 75% (75% of total value of
materials used within 5 years) To balance the value of imports of car kits and parts
against the value of their cars and car parts. Car manufacturers who did not sign
MOU could be denied license to import the parts.
INDIA-MEASURES AFFECTING
AUTOMATIVE SECTOR
  Complainants- US & EU
 Respondent- INDIA
 Measures at Issue: India’s indigenization(local content) requirement and;
 Trade Balancing Requirement(export value=import value) imposed on its
automotive sector
 Product at issue- Car & their components
 EU & US raised a complaint against India, the dispute measures inconsistent with
 Arts 3:4
 Panel examined whether it constituted “Measure”;
 Panel held it under Measure & found that-
 Limit the amount of import s in relation to the export commitment.
 It acted as a restriction on importation.
 Hence India failed to justify the requirement.
 Eventually India adopted Panel reports on April 5,2002.
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 prohibitedTRIM. But India
should be careful while giving its node to the expansion ofTRIMS because it may
make Indian manufacture more vulnerable against the cheap products of
developed countries