TRIMS

INTRODUCTION

The term "TRIMs" represents "trade-related investment measures". Governments impose

these measures to either encourage or compel investment to achieve certain national

priorities. Conditions that can affect trade are known as TRIMs.

TRADE-RELATED INVESTMENT MEASURES

The Agreement on Trade Related Investment Measures (TRIMs) is one of Agreements

covered under Annex IA to the Marrakech Agreement, signed at the end of the Uruguay

Round (UR) negotiations. The Agreement addresses investment measures that are trade

related and that also violate Article III (National treatment) or Article XI (general

elimination of quantitative restrictions) of the General Agreement on Tariffs and Trade.

An illustrative list of the measures that are violative of the provisions of the Agreement is

annexed to the text of the Agreement. These pertain broadly to local content

requirements, trade balancing requirements and export restrictions, attached to

investment decision making.

In many ways the WTO Agreement on Trade-Related Investment Measures

(TRIMs) is less significant than the WTO agreements on services, intellectual property

rights, and agriculture. The TRIMs Agreement does not involve any new rules or

disciplines, referring only to the existing provisions under the GATT. In fact the whole

text of the TRIMs Agreement is only 5 pages long.

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TRIMS

However, by enforcing GATT provisions on ‘national treatment’, this short and

simple agreement has had far reaching effects on everything from fresh milk to auto

parts. The TRIMs Agreement bans any laws, policies or administrative regulations

favoring domestic products. This includes government incentives to encourage

corporations to use domestically made products as a way of creating or protecting local

jobs. This has serious ramifications for industrial policies designed to support the

development of domestic capacity, secure flow-on benefits from foreign investment or

limit the effects of foreign competition. This would guarantee national treatment for

foreign investors and ban any kind of government regulation on foreign investment such

as: technology transfer requirements, restrictions on the transfer of profits overseas,

controls on foreign exchange flows, government reviews of foreign investment

performance, nationalization, expropriation, etc. The governments of the EC, US, Japan

and Canada tried to push this proposal through, but faced strong resistance from the

governments of developing countries. So a watered-down TRIMs Agreement was the

result.

However, we have already seen the original plan resurface in the form of the

Multilateral Agreement on Investment (MAI) proposal and its realization in NAFTA’s

Chapter 11. So there is still pressure for an expanded, more powerful TRIMs Agreement

that would act as a bill of rights for transnational corporations. Another possibility is that

a new investment agreement in the WTO will be introduced, superseding the current

TRIMs Agreement.

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TRIMS

TRIM’s AGREEMENT

WHAT IS TRIMS AGREEMENT -INFORMATION

The WTO recognized that some of TRIMs might cause trade distortion and violate the

principles of General Agreement on Tariff and Trade (GATT). Therefore, WTO

Members negotiated a multilateral agreement on TRIMs in the Uruguay Round. The

agreement requires countries to phase out TRIMs that have been identified as being

inconsistent with GATT rules.

The TRIMs Agreement is a multilateral agreement that only applies to the measures that

affect trade of goods. The Agreement focuses on discriminatory treatment of imported

and exported products but not on the issue of entry and treatment of foreign investments.

The agreement prohibits those TRIMs which violate "national treatment" principles in

GATT or lead to restrictions in quantity.

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TRIMS

OBJECTIVES

The main objective of the TRIMs Agreement is to advocate Members to eliminate those

TRIMs which cause trade distortions. Through the removal of barriers, the Agreement

ensures free competition among Members, helps expand the liberalization of world trade

and facilitates investments across international frontiers. Therefore, economic growth of

all trading partners, particularly developing country members, increases with the

increasing trades and investments.

CONTENTS OF TRIM’S AGREEMENT

Although TRIMs Agreement is about trade related investment measures (TRIMs), it does

not give a clear definition on the Agreement. The Agreement contains only an illustrative

list of measures in Annex. These measures in the list are inconsistent with Article III

(National Treatment on Internal Taxation and Regulation) or Article XI (General

Elimination of Quantitative Restrictions) of GATT 1994 and should be eliminated under

the Agreement, including local content requirements, trade balancing measures, foreign

exchange balancing requirements and export performance, etc.

The TRIMs Agreement came into effect on 1 January 1995 and a Working Party was

established in 1996 to conduct analytical work on relationship between trade and

investment. When the enforcement of WTO agreement started to implement, there was a

transitional period for Members to eliminate the TRIMs.

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TRIMS

However, those TRIMs originally used by countries must be notified to the WTO within

90 days of 1 January 1995 (i.e. the date of enforcing the TRIMs Agreement). Developed

countries would have a period of 2 years to abolish such measures, developing countries

would have 5 years while least-developed countries would have 7 years to do so.

Therefore, all developing countries should have implemented the TRIMs Agreement and

eliminated their regulations forbidden by TRIMs Agreement by 1 January 2000. For

those developing and least-developed countries which cannot finish the abolition by

2000, they can apply for an extension of the transition period. However, the benefits of

transition periods only apply to the TRIMs that were in existence at least 180 days before

the enforcement of the WTO Agreement. Otherwise, the TRIMs would have to be

eliminated immediately. In the Agreement, there are some exceptional provisions for the

developing countries. For example, the developing countries are allowed to retain TRIMs

which constitute a violation of GATT Article III (National Treatment on Internal

Taxation and Regulation) or Article XI (General Elimination of Quantitative

Restrictions), provided that the measures meet the conditions of GATT Article XVIII

(Government Assistant to Economic Development).

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TRIMS

BACKGROUND OF THE TRIMS AGREEMENT

A changing perception of the role of foreign direct investment (FDI) and intense debate

on the linkage between foreign investment policy created from the US Canada dispute on

Canada’s application of performance measures on foreign firms and GATT rules,

necessitated the inclusion of investment in the Uruguay Round.

Although only five pages long, the Agreement on Trade Related Investment Measures

(TRIMs) has become a central issue in the debate on the relevance of the multilateral

trading agreements and the World Trade Organization (WTO) to developing countries. It

is quite interesting that the TRIMS agreement itself does not explicitly define what a

trade related investment measure is but instead it provides an illustrative list (Annex 1).

This lack of proper definition means that there are no clear cut operations and obligations

of the agreement in terms of its coverage on certain measures. Basically it prohibits

member countries making the approval of investment conditional on compliance with

laws, policies or administrative regulations that favor domestic products.

After the late 1980s, a significant increase in foreign direct investment, especially in

developing countries, took place throughout the world. Some countries receiving the

foreign investment, however, imposed numerous restrictions to protect and foster

domestic industries and to prevent the outflow of foreign exchange reserves.

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TRIMS

Examples of these restrictions include local content requirements (which require that

locally-produced goods be purchased or used), manufacturing requirements (which

require that certain components be domestically manufactured), trade balancing

requirements, domestic sales requirements, technology transfer requirements, export

performance requirements (which require that a specified percentage of production

volume be exported), local equity restrictions, foreign exchange restrictions, remittance

restrictions, licensing requirements, and employment restrictions. Some of these

restrictions distort trade in violation of GATT Article III and XI, and are therefore

prohibited. The TRIMs Agreement requires member countries to phase-out performance

requirements relating to trade, such as these local content requirements and foreign

exchange neutrality.

The TRIMs Agreement that was finally concluded does not provide any new language,

but refers to the already existing GATT articles of national treatment (article III) and

quantitative restrictions (article XI). In this framework, the agreement only identifies

investment measures that are inconsistent with some sections of the GATT hence it is

criticised for being a pseudo extension of the GATT. Under this agreement WTO

members agreed not to apply certain investment measures to trade in goods which distort

or violate trade. The objectives of the Agreement, as enshrined in its preamble, include

“the expansion and progressive liberalization of world trade and to facilitate investment

across international frontiers so as to increase the economic growth of all trading

partners, particularly developing country members, while ensuring free competition”.

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TRIMS

TRIMs Agreement focus on discriminatory treatment of imported and exported products

and do not govern the issue of entry and treatment of foreign investment. For example, a

local content requirement imposed in a non-discriminatory manner on domestic and

foreign enterprises is inconsistent with the TRIMs Agreement because it involves

discriminatory treatment of imported products in favor of domestic products. The fact

that there is no discrimination between domestic and foreign investors in the imposition

of the requirement is irrelevant under the TRIMs Agreement. Whilst the agreement is

basically designed to govern and provide a level playing field for foreign investment,

measures relating to internal taxes or subsides cannot be construed to be trade related

investment measures." Given that foreign investment is already subject to a number of

WTO agreements and WTO related rules, it is likely that the step towards a multilateral

agreement on investment (MAI) would be relatively short. Such agreements include the

General Agreement on Trade and Services (GATS) which recognizes that the supply of

many services to a market is difficult or impossible without the physical presence of the

service supplier.

A multilateral approach also means greater trade and investment openness which in turn

means less corruption. In their study of trade and investment regimes, Selowsky and

Martin (1997) found that trade and investment openness have a positive impact on the

reduction of corruption. The open trade and investment regimes are conducive to FDI

inflows for different reasons. A common belief is that MAI will generate an increase in

FDI for the member nations. FDI projects vary in terms of generation of linkages for

domestic enterprises.

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TRIMS

FDI usually flows as a bundle of resources including, besides capital, production

technology, organizational and managerial skills, marketing know-how, and even market

access through the marketing networks of multinational enterprises (MNEs) who

undertake FDI. These skills tend to spill over to domestic enterprises in the host country.

Therefore, FDI can be expected to contribute to growth more than proportionately

compared to domestic investments in the host country. The externalities such as

spillovers may not take place in some cases because of poor linkages with the domestic

enterprises or poor absorptive capacity, for instance. However, there is also a possibility

of multinational enterprises (MNEs) entry affecting domestic enterprises adversely given

the market power of their proprietary assets such as superior technology, appeal of brand

names and aggressive marketing techniques. Therefore, FDI may crowd-out domestic

investment and may thus have serious ramifications on young infant industries.

This is, of course, only a necessary but not a sufficient condition but what the agreement

will do is to provide a framework of transparent conditions to facilitate the movement of

capital. Administrative inefficiency and government arbitrariness with inconsistent

policies are probably today the most frequently observed deterrents to FDI. Reduced

government intervention in markets will eliminate corruption and bribery e.g. such

measures as the elimination of price controls, reduction of regulatory activities of

governments to only those activities that are absolutely necessary.

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TRIMS

THE AGREEMENT

The TRIMs Agreement basically does three things:

1. Highlights obligations under GATT Articles III and XI

2. Lays down deadlines for removing trade related investment measures

3. Allows disputes between member-states to be settled by the WTO

It is significant that the Agreement does not define what a “trade-related investment

measure” is. Instead, there is an Illustrative List attached to the Agreement providing

examples of what laws, policies or regulations may be considered a TRIM.

TRIMs may be understood as any measure taken by a government to discriminate

between a domestically produced good and goods produced overseas.

This includes:

Local content policies - where governments require a corporation to use or purchase

domestic products in order to avoid a penalty or to benefit from an incentive.

Example: Under Malaysia’s Investment Promotion Act auto companies producing

passenger cars and motorcycles with specified domestic content levels (from 20 to 60%)

received a 5 year tax exemption on 70 per cent of earnings.

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TRIMS

Trade balancing measures - where governments impose restrictions on the import of

inputs by a corporation or limit the import of inputs in accordance with its level of

exports.

Foreign exchange balancing requirements - where a corporation’s permitted imports

are tied to the value of its exports so that there is a net foreign exchange earnings. These

are just some examples of TRIMs. It should be remembered, however, that there is no

clear definition of TRIMs in the Agreement and as such it continues to be the subject of

dispute among WTO member-states. It should also be noted that the TRIMs Agreement

only covers goods. Services are covered by the WTO General Agreement on Trade in

Services (GATS) and export subsidies are covered in the Subsidies Agreement. Export

performance and technology transfer requirements are not included in the TRIMs

Agreement.

PROCESS IN SETTING DOWN DEADLINES FOR GETTING RID OF TRIMS, THE

AGREEMENT OUTLINES A TWO-STAGE PROCESS

1. All member-states were given 90 days from the date the Agreement came into effect

(January 1, 1995) to notify the WTO of any existing TRIMs.

Note: Of the 43 notifications of TRIMs by 24 developing countries, 19 related to the auto

industry and 10 to the agri-food industry.

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TRIMS

2. All member-states were given a “transition period” during which TRIMs must be

eliminated. The length of time is based on a member-state’s level of development:

Developed countries were given 2 years;

Developing countries were given 5 years; and

Least-developed countries were given 7 years.

Example: Within 90 days of the start of the TRIMs Agreement the Indonesian

government notified the WTO that its local content requirements for utility boilers,

soybean cake and fresh milk constituted TRIMs.

As a result, the Indonesian government was given 5 years to eliminate these regulations.

This was done before the January 1, 2000 deadline. In this sense Indonesia’s local content

requirements for these products were still in force up until 2000, but they did not violate

the TRIMs Agreement because the WTO had already been notified.

Note: It’s significant that the removal of local content requirements on soybean cake - a

staple food in parts of Indonesia - coincided with massive imports of genetically-

modified soya produced in the US. If a government does not notify the WTO of an

existing TRIM, then it is open to legal action by other WTO members.

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TRIMS

LEGAL FRAMEWORK

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. The TRIMs Agreement, however, contains statements

prohibiting any TRIMs that are inconsistent with the provisions of Articles III or XI of

GATT 1994. In addition, it provides an illustrative list that explicitly prohibits local

content requirements, trade balancing requirements, foreign exchange restrictions and

export restrictions (domestic sales requirements) that would violate Article III:4 or XI:1

of GATT 1994.

TRIMs prohibited by the Agreement include those that are mandatory or enforceable

under domestic law or administrative rulings, or those with which compliance is

necessary to obtain an advantage (such as subsidies or tax breaks). Figure 8-1 contains a

list of measures specifically prohibited by the TRIMs Agreement. Note that this figure is

not exhaustive, but simply illustrates TRIMs that are prohibited by the TRIMs

Agreement. The figure, therefore, calls particular attention to several common types of

TRIMs. We would add that this figure identifies measures that were also inconsistent

with Article III:4 and XI:1 of GATT 1947. Indeed, the TRIMs Agreement is not intended

to impose new obligations, but to clarify the pre-existing GATT 1947 obligations. Under

the WTO TRIMs Agreement, countries are required to rectify any measures inconsistent

with the Agreement, within a set period of time, with a few exceptions.

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TRIMS

Before the Uruguay round, the link between trade and investment has been overlooked

and not much attention has been paid to this effect. Nevertheless, it is acknowledgeable

that trade is one such avenue that aids development in developing and developed

countries alike. On the 1st of January 1995 the Trade-Related Investment Measures

(TRIMs) Agreement came into effect as part of the Uruguay round of negotiations.

This agreement was meant to address investment measures that were trade related and

violated Article III (National Treatment or Article XI (general elimination of quantitative

restrictions). Notably, this agreement is biased in favour of developed countries so much

that it is the developing countries that have to make policy changes that are in compliance

to it. At this juncture of the 21st millennium it is quiet important to look at the linkages

between trade, FDI and development of developing countries. Although the agreement

foreshadowed a direct link with GATT, there was still some confusion regarding whether

or not a policy that violated GATT articles automatically meant that it violated the

TRIMs Agreement. As indicated before, the problem here is that the TRIMs agreement

did not introduce new language in the context of disciplining policies – instead it only

referred to the GATT articles. Therefore, this raises a question of how the TRIMs

agreement actually fits into the set of multilateral trade agreements (MTAs) and whether

it allows or prevents a measure directly targeted to a foreign enterprise.

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TRIMS

PROVISIONS ON ELIMINATION OF NOTIFIED TRIMS BY WTO MEMBERS,

AND TRANSITION PERIODS

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, from the date of entry into force of the Agreement (i.e. 1st January

1995) are provided in the Agreement.

TEMPORARY DEVIATION ON BOP GROUNDS

The Agreement allows developing countries to deviate temporarily from its provisions on

balance of payments (BOP) grounds (as per the provisions of Article XVIII.B of GATT,

1994).

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TRIMS

INDIA’S NOTIFIED TRIMS

As per the provisions of Art. 5.1 of the TRIMs Agreement India had notified three trade

related investment measures as inconsistent with the provisions of the Agreement:

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

requirement in the production of Rifampicin and Penicillin – G, and Dividend balancing

requirement in the case of investment in 22 categories consumer goods.

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.

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, 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 Article III and XI,

and are therefore prohibited.

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TRIMS

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 content and

country coverage. The OECD Code on Liberalization of Capital Movements, for

example, requires members to liberalize restrictions on direct investment in a broad range

of areas. The OECD Code's efficacy, however, is limited by the numerous reservations

made by each of the members. In addition, there are other international treaties, bilateral

and multilateral, under which signatories extend most-favoured-nation treatment to direct

investment. Only a few such treaties, however, provide national treatment for direct

investment. Moreover, although the APEC Investment Principles adopted in November

1994 provide rules for investment as a whole, including non-discrimination and national

treatment, they have no binding force.

PRESENT STATUS

The transition period allowed to developing countries ended on 31st December, 1999.

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.

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TRIMS

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;

However, during the General Council meeting of 8th May, 2000, the following decisions,

inter-alia, were taken members agree to direct the Council for Trade in Goods to give

positive consideration to individual requests presented in accordance with Article 5.3 by

developing countries for extension of transition periods for implementation of the TRIMs

Agreement.

"Members have noted the concerns of those Members who have not notified TRIMs or

have not yet requested an extension. Consultations on the means to address these cases

should also be pursued as a matter of priority, under the aegis of the General Council, by

the Chairman of the Council for Trade in Goods".

 

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TRIMS

MANDATED REVIEW OF THE AGREEMENT

Art. 9 of the Agreement envisage its review within five years of its coming into

operation, i.e. by 1-1-2000.

The Council for Trade in Goods is to review the operation of the Agreement and, as

appropriate, propose to the Ministerial Conference amendments to its text. The process of

review has started but no specific proposals have been made by any Member as yet.

INVESTMENT POLICY AND COMPETITION POLICY

In the course of this review, the Council for Trade in Goods shall consider whether the

Agreement should be complemented with the provisions on investment policy and

competition policy. The Singapore Ministerial Conference which established the two

parallel Working Groups to study the relationship between Trade and Investment on the

one hand and Trade and Competition Policy on the other had stipulated that future

negotiations, if any, regarding multilateral disciplines in these areas will take place only

after explicit consensus decision by the Members. The Working Group process is still on.

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TRIMS

COMMONLY USED TRIMS AND THEIR ADVANTAGES

Governments establish TRIMs for foreign investors because governments want to ensure

the positive impacts of foreign direct investment (FDI) on the FDI-receiving countries'

employment and export performance. The domestic sectors can also be protected under

TRIMs from the increasing competition after the injection of foreign investment.

TRIMs are more frequently used by developing countries than developed countries. It is

because most infant industries in developing countries are not well prepared to compete

in the world market, it is necessary for developing countries to use TRIMs to protect their

local industries during the transitional period. TRIMs, such as the joint venture

requirements, allow local enterprises to take advantage during the transitional period to

learn from foreign subsidiaries and to enhance their competitiveness by cooperating with

foreign subsidiaries. The followings are examples of TRIMs that are commonly used.

LOCAL CONTENT REQUIREMENTS

One of the commonly used measures is the local content requirements (LCRs). They are

popular government policies in developing countries to regulate FDI. Foreign investors

are required to utilize a certain proportion of local parts and components in their

production. By regulating the multinational enterprises to use local resources and factor

inputs, employment in the local industries of the host countries will be bound to increase.

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TRIMS

Besides, governments also require the multinational enterprises to transfer the technology

to the local industries so as to maintain the quality of the finished products. Imposing

LCRs consolidates the positive impacts of FDI on employment opportunities and

technological levels in the host countries. Meanwhile, foreign subsidiaries also gain

under the local content requirements. Under these requirements, foreign subsidiaries are

required to buy a proportion of resources from local suppliers. In order to become the

providers of resources to the foreign subsidiaries, the local suppliers will compete against

each other by lowering the sales prices. As a result, foreign subsidiaries can exercise their

monopolistic powers to drive down the buying prices as well as the production costs.

TRADE BALANCING REQUIREMENTS

Another type of performance requirements is the trade balancing requirements. These

requirements limit the amounts of imported products purchased or used by foreign

enterprises which are located in host countries and require the foreign enterprises to

export a certain amount of their finished products. Trade balancing requirements can

ensure that imports coming in would not be more than exports going out to avoid

potentially serious balance of payments deficits in host countries. The precaution of

balance of payments crisis is an incentive for governments to use this type of TRIMs.

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TRIMS

FOREIGN EXCHANGE BALANCING REQUIREMENTS

The foreign exchange balancing requirements is another type of TRIMs that protects the

interests of the host countries. These requirements aim at linking the imported level of a

foreign firm to the value of its exports in order to maintain net foreign exchange earnings.

This TRIM is similar to exchange control under which the amount of foreign currencies

available to multinational enterprises is limited by the performance of their exports. By

imposing these requirements, foreign subsidiaries cannot import goods as much as they

want. Governments can also directly limit the domestic sales of home currency to foreign

currencies, thus preventing the adverse effects on foreign exchange reserves and reducing

the possibility of speculative attacks. That is the reason for countries commonly using

these measures to maintain a stable balance of payments.

EXPORT PERFORMANCE REQUIREMENTS

These requirements are the restrictions on the sales of products in domestic market, that

is, a certain proportion of production should be stipulated for export. Countries with aims

of export-led growth have the tendency to impose EPRs on foreign investors because

these regulations help the penetration of domestic products to overseas markets, fitting

well with the development objectives of the host countries.

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TECHNOLOGY TRANSFER REQUIREMENTS

These requirements restrict specified technologies to be transferred and/or specific levels

and types of research and development (R & D) to be conducted locally. Foreign

investors are required to share new technologies and researches with local researchers,

government agencies, businesses or local communities. The aim is obvious that the

governments want to improve the technological level of the host countries.

JOINT VENTURE REQUIREMENTS

The host countries try to limit foreign ownerships of the firms located in home countries

and influence the activities of foreign investors by requiring them to take on local

partners in joint venture rather than to own the whole firm. The objective of these

requirements is to help local partners achieve more technology transfer through the

cooperation with foreign investors. On the other hand, these requirements also benefit the

foreign investors. With the help of their local partners, foreign investors can acquire the

location-specific knowledge regarding the host-country market without any costs. The

local partners can also help them establish backward linkages to the domestic industrial

base. Therefore, foreign investors can access the local market and input suppliers more

easily.

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TRIMS

OTHER TRIM’S

Other than the above commonly used TRIMs, there are several more requirements or

restrictions, such as manufacturing requirements, manufacturing limitations and

remittance restrictions, which may be imposed by the host countries. Under the

manufacturing requirements, foreign investors have to manufacture certain products

locally. In contrast, manufacturing limitations prevent companies from manufacturing

certain products or establishing certain product lines in the host countries. These

limitations aim at protecting domestic industries by reducing the competition between

foreign subsidiaries and domestic enterprises. While remittance restrictions limit the

rights of foreign investors to repatriate returns from their investments; the host countries

always hope that the return can be re-invested in different projects and generate more

income in domestic economies.

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TRIMS

PROS AND CONS OF TRIMS TO LDCS

Pros

From another perspective, local content requirements stipulate that a minimum share of

inputs be obtained from local sources; ‘laws of similar’ are often used to define

appropriate local inputs. Import and foreign exchange restrictions have the same effect as

both limit the amount of inputs that can be imported. The trade effect is to reduce imports

(that are displaced by local supplies) TRIMs reduce imports and also contribute to

increasing potential balance of payments benefits from FDI. Export requirements are

aimed to increase the proportion of output exported. TRIMs designed to reduce

competition with domestic producers, that may be import-substituting, have the same

effect. These include manufacturing requirements, market reserve and domestic sales

limitations on what can be sold on the local market. Some TRIMs aim to ensure that

MNEs, on balance, do not import more in value than they export e.g. trade or foreign

exchange balancing.

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TRIMS

Cons

In the previous section, we mentioned the benefits of TRIMs. However, some evidences

showed that the regulations imposed on FDI do not benefit the host economies.

Firstly, TRIMs discourage free trade and free competition, thus adversely affecting the

host economies. If a country wants to be a World Trade Organization (WTO) Member

and benefits from free trade, the country is obligated to obey the articles mentioned in

WTO agreement. One of the important principles in WTO agreement is "national

treatment". It prescribes the obligation that an imported product should be treated as a

national product. That means there should be no discrimination between domestic and

imported products. However, TRIMs like local content requirements and trade balancing

requirements violate this principle. They restrict the use of imported resources and limit

the quantity of imported goods entering the host countries. As a result, countries using

TRIMs cannot enjoy the benefits from free trade.

Secondly, TRIMs have a negative impact on the economic efficiency of a foreign

operation in a country. It is because under LCRs, foreign investors are forced to use the

local resources, which do not have comparative advantages, as their inputs. These

restrictions indeed raise foreign companies' production costs and ultimately discourage

foreign investors from investing in the host countries. Meanwhile, consumers will suffer

if multinational enterprises transfer the extra costs to them.

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TRIMS

Besides missing the opportunity of enjoying comparative advantages, foreign investors

are unlikely to enjoy lower average costs and capture the benefits of full economies of

scale. Under the LCRs, foreign investors in host countries cannot import resources in

bulk amount. Therefore, the foreign investors have to pay higher prices of resources. In

sum, there are high inefficiency in the host countries where LCRs have been imposed.

This inefficiency is also shown in a survey conducted under the United Nations of

Transnational Corporations. Other than undermining economic efficiency, TRIMs also

slow down the pace of technological upgrading of local operations in host countries.

There is an evidence that technological lags between the introduction and the adoption of

new technology to projects in the highly protected countries is great.

Without economies of scale and updated technology of local operations, the incentives

for foreign subsidiaries to invest in the host countries will be reduced. Gradually, foreign

investors will locate their subsidiaries to somewhere else. In addition, an evidence

showed that the gains of wholly owned subsidiaries are higher than that of joint ventures

which are set up in request under joint ventures requirements. The speed of parent firms

transferred technology to wholly owned subsidiaries in developing countries is one-third

faster, on average, than that of joint ventures. The evidence also indicated that the

requirement of a local partner weakens export performance.

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TRIMS

In contrast, the wholly owned foreign subsidiaries can act as catalysts that stimulate the

export performance of domestic firms because domestic firms can improve the quality of

products under competition. Accordingly, the wholly owned foreign subsidiaries seem to

be a better business structure to improve economic growth of the host countries. From

the above arguments, TRIMs cannot guarantee a higher economic growth and possibly

generate negative impacts on the host economies. Therefore, the WTO members

negotiated a multilateral agreement on TRIMs during the Uruguay round.

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WTO DISPUTES OVER TRIMS

Of the 194 disputes brought to the WTO since January 1995, 15 have involved the

TRIMs Agreement. In some cases the same issue has been the subject of several

complaints. For example, between July 1996 and May 1997, 4 separate complaints were

lodged with the WTO by the EC and the Japanese and US governments against Brazil’s

auto industry measures. All 4 cases cited TRIMs Agreement violations.

In some cases government measures deemed as TRIMs were introduced after the

Agreement came into force.

Example: In May 1999 the US government lodged a complaint against the Indian

government for the auto industry measures it introduced in November 1997.

Under the 1997 law, the Indian government required all new foreign auto manufacturing

investments to sign a standard MOU with the government establishing:

• A minimum US$50 million investment in joint ventures with majority foreign

ownership;

• A waiver of import licenses if local content exceeds 50 per cent;

• 50 per cent local content requirements for CKD and SKD in first 3 years and 70 per

cent within 5 years;

• And the obligation to export within 3 years, with possible restrictions on imports for

CKD and SKD if export requirements are not met.

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TRIMS

Undoubtedly the WTO dispute settlement body will rule that these conditions violate the

provisions of the GATT enforced under the TRIMs Agreement and will instruct the

Indian government to revoke the 1997 law.

Extending ‘Transition’ Deadlines

The Agreement allows developing and least developed countries to request an extension

of the transition period for eliminating TRIMs. The request is considered on the basis of

the “development, trade and financial needs” of that country. However, the Agreement

does not explain how these requests will be decided or what these “needs” could be.

There was still confusion when the 5-year deadline for developing countries expired on

January 1, 2000. Before the deadline expired, the governments of 9 developing countries

(Argentina, Chile, Columbia, Malaysia, Mexico, Pakistan, the Philippines, Romania and

Thailand) submitted requests for an extension of their transition periods. Requests ranged

from 5 months (Chile) to 7 years (Argentina, Columbia and Pakistan).

CONFLICT OVER DEADLINE EXTENSIONS

Differences over how to interpret the extension of deadlines under the TRIMs Agreement

has led to increasing conflict between the governments of developing and developed

countries. The governments of developing countries have argued that the process for

negotiating extensions of the deadlines should be based on groups of member-states and

be undertaken through a multilateral framework.

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TRIMS

This position was advanced by the governments of Malaysia, Brazil, Mexico, and

Pakistan. In contrast the US, EC, Japanese and Canadian governments argued that

requests for deadline extensions should only be considered on a “case by case” basis and

should be negotiated bilaterally.

TWO IMPORTANT OUTCOMES:

1. Each government must undertake separate bilateral negotiations with the EC, US and

Japan respectively, explaining the reasons for their request.

2. During these bilateral negotiations the developed country governments are able to

impose additional conditions beyond TRIMs issues. The threat to reject a request for an

extension on TRIMs elimination forms a powerful bargaining weapon that can be used to

extract other concessions from developing countries. It is the bilateral nature of this

process that developing country governments are concerned about.

Example: Although Romania and the Philippines requested extensions before the January

1, 2000 deadline, the US government has targeted these countries for TRIMS Agreement

violations. The US has already rejected the Philippines’ request for an extension until

December 2004 of its deadline to eliminate TRIMs in auto and auto parts. As long as the

US government is threatening to lodge a complaint with the WTO, the Philippines

government may be forced to make concessions in areas unrelated to the auto industry.

The failure to resolve this conflict over how to process extension requests under the

TRIMs Agreement was one of the disagreements which contributed to the internal

collapse of the Seattle WTO trade talks.

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TRIMS

Since the Seattle talks the WTO Council for Trade in Goods has held several meetings to

try to resolve the dispute over extension procedures. This was partly resolved in early

July 2000 when it was decided that the Council chair would oversee multilateral

negotiations. However, requests will still be dealt with on a case by case basis and are

open to bilateral pressure from the US, Japan and the EC.

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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)

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TRIMS

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)

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TRIMS

EXCEPTIONAL PROVISIONS OF THE TRIMS AGREEMENT

TRANSITIONAL PERIOD

Measures specifically prohibited by the TRIMs Agreement need not be eliminated

immediately, although such measures must be notified to the WTO within 90 days after

the entry into force of the TRIMs Agreement. Developed countries will have a period of

two years in which to abolish such measures; in principle, developing countries will have

five years and least-developed countries will have seven years.

EXCEPTIONS FOR DEVELOPING COUNTRIES

Developing countries are permitted to retain TRIMs that constitute a violation of GATT

Article III or XI, provided the measures meet the conditions of GATT Article XVIII

which allows specified derogation from the GATT provisions, by virtue of the economic

development needs of developing countries.

EQUITABLE PROVISIONS

To avoid damaging the competitiveness of companies already subject to TRIMs,

governments are allowed to apply the same TRIMs to new foreign direct investment

during the transitional period described in (1) above.

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TRIMS

NOTIFICATION PROCESS AND DEVELOPING COUNTRIES

When the TRIMs Agreement went into effect in 1995, all WTO member countries were

required to notify their nonconforming trade-related investment measures and then bring

those measures into compliance with the Agreement following a transition period. The

length of the transition period varied based on the Member's individual level of

development. At this time all transition periods have expired since the deadline was by 31

December 1999.

According to Article 5 Para 2, “… member shall eliminate all TRIMS… within two years

… in the case of a developed country… within five years in the case of a developing

country … seven years in the case of a least-developed country…” Although the

notification process and period did not pose any problems, some developing countries

argued that this period was too short to identify all TRIMs. This is mainly due to lack of

appropriate expertise to timely identify the TRIMS that are inconsistent with the

provisions of the Agreement.1 More so, overall developing countries are still facing

difficulties in effective and timely implementation of their commitments because of

resource and institutional constraints and lack of adequate technical assistance. Hence, in

most cases there have only been a limited number of disputes. Most favoured nation

(MFN) requires nations to give each other the most favorable treatment they give any

trading partner. Contrary to the special and differential treatment principle, the national

treatment requires nations to treat foreign investors or investments no less favorably than

they treat their own.

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TRIMS

This implies that foreign domestic investors in developing countries are treated equally

despite the different technological levels. The agreement allowed any member access to

an extended transition period for bringing policies that they may have into compliance

with the Agreement, if and only if these policies were notified within 90 days of the

commencement of the agreement.

Therefore all developing countries should have implemented the TRIMs agreement and

eliminated their regulations by 1 January 2000. However, Article 5.3 of the agreement

permits developing and least-developed countries to apply for an extension of the

transition period.

Disparity may arise between development interests which vary widely across LDCs and

TRIMs conformity measures. In some cases they argue that opening their economy to

import competition would not allow them to optimally exploit domestic resources,

promote transfer of technology, and promote employment and domestic linkages.

In the TRIMS Agreement, "investment measures" such as local content (obliging foreign

firms to use at least a specified minimal amount of local inputs) is prohibited 1 Article 5

Paragraph 1 of the TRIMS Agreement for most developing countries. Developing

countries need these policies because of the low level of development of the local sector,

which would not be able to withstand free competition at their various stages. Thus, by

implementing TRIMS, developing countries lose some important policy options to pursue

their industrialisation.

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TRIMS

A COMPROMISE AGREEMENT

Conflict over the interpretation of the Agreement reflects the fact that it was a

compromise agreement in the first place. Differences between trade officials from

developing and developed countries could not be resolved during the Uruguay Round of

GATT talks, and this is reflected in the vague wording of the TRIMs Agreement.

If the EC, US and Japanese governments had succeeded, then TRIMs would have been a

comprehensive agreement on investment similar to Chapter 11 of NAFTA or the MAI. In

fact, the Japanese Ministry of International Trade and Industry still describes the TRIMs

Agreement as a “first step” in getting an MAI like agreement in the WTO. A similar view

is held by EC trade officials. The US government position is weaker on this, mainly

because it has chosen to focus on GATS and the Agreement on Agriculture.

Where the EC, US and Japanese governments did succeed was building a review

mechanism into the Agreement. Article 7 of the Agreement established a Committee on

Trade-Related Investment Measures which must meet at least once a year (in practice it

meets twice a year) to monitor the implementation of the Agreement. The Committee

reports to the WTO Council for Trade in Goods.

To some extent this open clause authorised the creation a WTO Working Group on Trade

and Investment at the WTO Ministerial meeting in Singapore in 1996, despite strong

opposition by the governments of developing countries.

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TRIMS

TRIMS WITH RESPECT TO INDIA

Local content requirements, exports balancing requirements, export restrictions.

On 12 December 1997, India announced a new automotive policy that requires

manufacturers in the automotive industry and the Ministry of Commerce to draft and sign

a memorandum of understanding (MOU) on new guidelines for the industry. The policy

has the following problems in relation to the TRIMs Agreement. First, the policy requires

that 50 percent local content be achieved within three years of the date on which the first

imported parts (CKD, SKD) were cleared through customs, increasing to 70 percent

within five years of first clearance.

Second, the policy requires that exports of automobiles or parts begin within three years

of start-up, with the possibility of restrictions on the amount of parts (CKD, SKD) that

can be imported depending on the degree to which the export requirement is met. This

amounts to an export/import balancing requirement. Even prior to this policy, India had a

history of making auto parts import licenses for companies setting up operations within

its borders conditional upon signing MOU containing local content requirements and

export/import balancing requirements despite the lack of any legal basis for doing so. It is

certain that the new automotive policy of 1997 is designed to institutionalize the previous

administrative guidelines.

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TRIMS

In the TRIMs Committee held in March/September 1998, some countries - including

Japan, the EU and the United States - argued that the policy would not be regarded as

compatible with the WTO Agreement. Subsequently, in October 1998 the EU requested

consultation - Japan and the United States participate in the consultation as third parties -

and the first consultation was held in December 1998. The government of India should

eliminate the policy as soon as possible.

In addition, India has had export restrictions on agricultural products and industrial goods

since 1991, and in 1986 imposed local content requirements for penicillin and other

pharmaceuticals. The WTO has been notified of these measures and they are not in

contravention of the agreement, but Japan must still watch that they are not expanded and

that they are eliminated on schedule.

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TRIMS

MULTINATIONAL ENTERPRISES VS. SMALL-MEDIUM ENTERPRISES

Once investment and trade is liberalized progressively to “facilitate investment across

frontier”, the nagging question that rings into one’s mind is whether LDCs are able to

embrace competition from developed countries. Liberalization between two unequal

partners is least likely to result in a win-win situation. It is more of a zero-sum game

where one loses what the other get or vice versa. LDCs are characterised by SMEs while

in developed countries MNEs thrive to penetrate LDCs’ frontiers to seek investment

prospects. This penetration is viewed as FDI in economic terms and is associated with at

its best short term benefits and at worst long term domestic industrial shrunkness.

SMEs characterised by high strategic risks such as competitor moves (in most cases

MNEs), changing markets, demand fluctuations, obsolete technology, price

distortions/controls, diseconomies of scale, semi and unskilled labour export constraints,

limited access to raw materials and competitiveness e.t.c. face serious challenges from

MNEs which force them to scale down and ultimately terminate business. It is clear that

the TRIMs agreement fail to realise these ramifications if it does then it one can safely

conclude that “…free competition…” will not promote economic growth envisaged in the

agreement.

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TRIMS

SME COMPETITIVENESS: MNE COMPETITIVENESS

Competitiveness refers to the commitment in market competition in case of companies

and success in international competition in case of countries.

Competitiveness concerns business management processes, elements of organizational

culture and macroeconomic factors at the same time. There is no one single indicator

used to measure competitiveness (maybe its main reason is that even the concept of

competitiveness cannot be defined in a uniform and adequate way), which is,

additionally, very complicated to be measured.

It is worth mentioning that TRIMs Agreement not only expose local small and medium

enterprises but also national governments to global MNEs, which extort more and more

considerable amount of supports and preferences in order to realize investments in

another country.

It is worth mentioning that TRIMs Agreement not only expose local small and medium

enterprises but also national governments to global MNEs, which extort more and more

considerable amount of supports and preferences in order to realize investments in

another country. Regarding the quality and price of the products, sales networks and

marketing activities need some improvement to improve competitiveness of SMEs

against MNEs. In medium sized companies a serious problem is the weakness of their

own development capacities. Company experts believe the lack of capital and the

disadvantageous rate of return on R&D expenditures to be the most important obstacles

of innovation.

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TRIMS

In the sphere of SMEs a very important obstacle on the return of innovational

expenditures is high tax burden and the unfair competition from MNEs. At medium sized

companies a serious problem is the weakness of the own development capacities.

Company experts believe the lack of capital and the disadvantageous rate of return on

R&D expenditures to be the most important obstacles of innovation.

Local companies have disadvantages of competition against multinational companies.

One of its main reasons is thought to be the higher productivity of multinational

companies against local small and medium enterprises. This is caused by, among others,

the supports and preferences given to multinationals settled down in LDCs, endangering

the further operation of local companies. Experts believe that global MNEs established

through direct investments by foreigners can combine the economic resources more

effectively than ever; therefore all of their efficiency indicators exceed the ones of the

local SMEs. The later can only survive if they become part of the global international

companies or at least they form strong contractor relationship with them.

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TRIMS

LIKELY ISSUES DURING THE REVIEW

The review of the Agreement is likely to address the following issues:

A.     Issues related to the operation of the Agreement

Art. 4 provide that a developing country Member shall be free to deviate temporarily

from the obligations arising out of this agreement to the extent and in such a manner as

Art. XVIII of GATT 1994, the Understanding on the Balance of Payments Provisions of

GATT 1994, and the Declaration on Trade Measures Taken for Balance of Payments

Purpose adopted on 28th November, 1979. Issues related to operationalization of this

provision would be raised by developing countries; The question of transition period of

five years for developing countries has ended before the review of the operation of the

Agreement. The issue of transition periods and the need for general exemption, rather

than based on individual request, is a matter of concern for developing countries;

Art. 5.3 Which provides for request for extension of transition period on individual basis,

stipulates that such Members should demonstrate particular difficulties in implementing

the provisions of the Agreement. This leaves the decision to the discretion of WTO

Members. There is likely to be demand for objective criteria; the role of the Committee

on Trade–Related Investment Measures has so far been confined to monitoring the

notification requirements. A changed role could be considered.

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B.      Issues related to the coverage of the Agreement

The present agreement prohibits trade related investment measures that are violative of

Art. III and Art. XI of the General Agreement on Tariffs and Trade. Local content

requirements, trade balancing requirements, and export restrictions are prohibited. The

efforts of developing countries would be to reduce the prohibitions in view of the

experience of these countries based on the operation of the agreement. Developing

countries (the Like Minded Group) have submitted certain proposals in this regard in the

context of review of implementation of the Uruguay Round Agreements.

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 TRIMs.

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CONCLUSIONS

African countries are facing serious problems in conforming to the Trade-Related

Investment Measures (TRIMs) Agreement as it places serious constraints on their

industrial development. In particular, Article 2.2 prohibits domestic content requirement

which was of immense benefit to developing countries.

The debate on the inclusion of investment issues into the multilateral trading system that

started in the late 1940s continues today. The TRIMs agreement that was part of the

Uruguay Round package was an attempt at addressing some of the issues related to

investment policies. In the end, however, the agreement simply addresses trade distorting

policies, regardless of whether or not they are targeted at foreign or domestic enterprise.

Clearly the principle of special and differential treatment is sidelined while pursuing

investment which may harm SMEs and local industry in the host countries.

The fact that, a third of the WTO members that were required to implement their

obligations failed to do so, suggests that the agreement is far from perfect. Furthermore,

there is no consensus as to how to move investment issues further in the WTO, if at all

inspite of TRIMs inclusion in the Doha Round of negotiations.

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TRIMS

Resisting an expanded TRIMs Agreement

The governments of developed countries, particularly the EU, are continuing to push for

an expanded TRIMs Agreement. Technically, TRIMs could be expanded by adding more

examples to the Illustrative List. This adds to the uncertainty about which aspects of a

national industrial policy can or will be challenged in the WTO - either through a loose

interpretation of TRIMs or additions to the Illustrative List.

Under current arrangements the question we face is what kind of socially useful industrial

policy can be devised and implemented without the use of domestic content requirements

or discriminatory support for locally produced goods.

However, there can be no real answer as long as there is a possibility of an expanded

definition of TRIMs in the near future. An expanded TRIMs Agreement could pre-empt

attempts to introduce new, more innovative industrial policies based on combinations of

public investment, limited competition and job creation.

Opposing the expansion of the TRIMs

Agreement is therefore critical. However, at the same time any new agreement on

investment must also be opposed. Organising this opposition should not only draw on

recent anti-WTO sentiment, but must draw on the success of the anti-MAI campaigns of

1997- 98. This is particularly important in Europe where opposition to the MAI was

strong. Since the EU is the strongest advocate for an expanded TRIMs Agreement, it is

all the more important that the TRIMs-MAI link is understood and a similar campaign

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launched. In other words, the TRIMs Agreement must be tacked as an MAI agenda. A

leaked European Commission report in December 1998 clearly outlined the EU’s plan to

call for an MAI in the WTO. In doing so the report referred to the inadequacy of existing

agreements such as the TRIMs Agreement:

“WTO rules cover some forms of investment (‘commercial presence’ for service

suppliers under the GATS) or address issues highly relevant to investment (e.g. TRIMs

and subsidies) but do not address for instance, investment protection.” Given the South

Korean government’s support for MAI like rules for investment protection, the ASEM

meeting will be used to push the MAI agenda forward. In North America, opposition to

an expanded TRIMS Agreement or a new MAI-like agreement under the WTO must be

linked to existing investment rules in NAFTA’s Chapter 11 and the prospect of its

expanded application under the FTAA.

The stalemate over extensions

The stalemate over TRIMs provides a breathing space since the revision and amendment

of the Agreement due in 2000 cannot go ahead until procedural issues are resolved. In the

meantime the conflict over extensions can also be used to highlight the political

imbalances within the WTO regime and the economic interests that control it.

However, in arguing for a multilateral framework for negotiation of transition period

extensions under the TRIMs Agreement, developing country trade technocrats have

ended up supporting the kind of framework they had originally resisted under the

investment agreement proposal.

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TRIMS

The EC, US and Japanese governments may capitalise on this, arguing that the confusion

and conflict in recent months justifies the need for a more comprehensive multilateral

investment agreement.

The 2002 deadline for least-developed countries

Another tactical consideration concerns the approach to the January 1, 2002 deadline for

least-developed countries to eliminate TRIMs. Clearly this provides an opportunity for

raising awareness of the effects of the TRIMs Agreement.

For example, the need for foreign exchange balancing requirements can be linked to the

issue of Third World debt. The need for local content requirements can be linked to the

social and economic consequences of Export Processing Zones and Free Trade Zones. It

may even be useful to support particular governments in their refusal to meet the deadline

or their request for an extension. Of course this should be based on discussions with

genuine unions and grassroots workers’ organisations in these countries.

‘Developing country’ issues

More important than the conflict over extensions is the debate over the relationship

between TRIMs and the prospects for national development among ‘developing’

countries. A month prior to the Seattle WTO talks the Indian government circulated a set

of proposals on behalf of Cuba, the Dominican Republic, Egypt, El Salvador, Honduras,

Indonesia, Malaysia, Nigeria, Pakistan, Sri Lanka and Uganda.

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TRIMS

In these proposals it was argued that the TRIMs Agreement should be substantially

revised: “There is a need to review provisions in the Agreement on TRIMs which come

in the way of acceleration of economic growth in developing countries and deny these

countries the means to maintain balance of payments stability.” Specifically it was

proposed that: “Developing countries should be exempted from the disciplines on the

application of domestic content requirement by providing for an enabling provision in

Article 2 or Article 4 to this effect.”

These proposals are important because they challenge the existing WTO-TRIMs

mechanism and its restriction of developing countries’ capacity for national development.

The ‘national development’ issue also highlights the fact that the ban on local content

policies means that developing countries are prevented from adopting industrialisation

strategies used by the US, Japan, France, Germany the UK, etc, in the past.

At present it is tactically important to support the call for revision of the TRIMs

Agreement to allow the use of local content policies. However, there are serious

limitations to the ‘developing countries’ approach. For a start it does nothing to challenge

the definition of national development, instead reinforcing dominant notions of levels of

development (developed, developing and least developed). This obscures poverty,

inequality and under-development within countries, including those designated as

‘developed.’ Moreover, developing country objections to the TRIMs Agreement still

operate within an export-oriented industrialization (EOI) model.

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The purpose of local content requirements, trade balancing, etc is to secure ‘trickle-down’

effects from this foreign investment. More importantly, such an approach ends up

supporting trade technocrats from the ‘South’ (and the domestic capitalist interests they

represent) as proponents of an ‘alternative view.’ The fact is that TRIMs often operate as

a form of corporate welfare for local capitalists.

For example, Indonesia’s National Car Program was ruled a violation of the TRIMs

Agreement. Yet the local content policies and tax exemptions involved primarily

benefited President Suharto’s youngest son, Tommy, who owned the local auto company,

PT Timor. The point is that taking the ‘developing countries’ approach often distorts the

real issue. The focus should not be on providing corporate welfare for local capitalists,

but in building capacities for popular democratic control and overcoming restrictions on

that control.

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BIBLIOGRAPHY

http://henryckliu.com/page9.html  

http://www.patentlens.net/daisy/KeyOrgs/1236/416/415.html  

http://www.codissia.com/document/Trade%20Related%20Intellectual

%20Property%20Rights.pdf  

http://www.indianmba.com/Faculty_Column/FC535/fc535.html  

http://commerce.nic.in/TRIPS_matter_amended.pdf  

http://www.actionaid.org.uk/doc_lib/53_1_trips.pdf  

http://www.unutki.org/default.php?doc_id=53  

http://www.jurisint.org/pub/06/en/doc/C20.pdf  

http://www.wto.org/english/tratop_e/trips_e/t_agm0_e.htm l

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