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Trade Related Investment Measures (TRIMS)

28-NOV-2015 16:05

    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).

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

    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 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;

    • 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.

    Examples of TRIMs Explicitly Prohibited by the TRIMs Agreement

    Local content requirement

    Measures requiring the purchase or use by an enterprise of domestic products, whether specified in terms of particular products, in terms of volume or value of products, or in terms of a proportion of volume or value of its local production. (Violation of GATT Article III:4)

    Trade balancing requirements

    Measures requiring that an enterprise's purchases or use of imported products be limited to an amount related to the volume or value of local products that it exports. (Violation of GATT Article III:4)
    Measures restricting the importation by an enterprise of products used in or related to its local production, generally or to an amount related to the volume or value of local production that it exports. (Violation of GATT Article XI:1)

    Foreign exchange restrictions

    Measures restricting the importation by an enterprise of products (parts and other goods) used in or related to its local Production by restricting its access to foreign exchange to an amount related to the foreign exchange inflows attributable to the enterprise. (Violation of GATT Article XI:1)

    Export restrictions (Domestic sales requirements)

    Measures restricting the exportation or sale for export by an enterprise of products, whether specified in terms of particular products, in terms of volume or value of products, or in terms of a proportion of volume or value of its local production. (Violation of GATT Article XI:1)

    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.

    DISCLAIMER: JPL and its affiliates shall have no liability for any views, thoughts and comments expressed on this article.

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