Trade Related Investment Measures

1
Trade Related Investment Measures

• Bijit Bora
• Trade Analysis Branch
• UNCTAD

2
Uruguay Round

• Provided a mandate for the first time to discuss
• Following an examination of the operation of
  GATT Articles related to the trade restrictive
  and distortive effects of investment measures,
  negotiations should elaborate, as appropriate,
  further provision that maybe necessary to avoid
  such adverse effects on trade
• Previous attempts at incorporating investment
  provisions included the Havana Charter in 1947

3
Issues During Negotiations

• Major problem was the lack of definition and
  clarity in the mandate due to the work in
  identifying which measures were trade related.
• Developed countries took a broad view of
  investment and investment measures
• Some developing countries took a much narrower
  view, especially in the context of policies such
  as technology transfer requirements

4
Investment and Trade

• The issue is whether or not a policy with a
  particular target - in this case an investment
  measure - can affect trade.
• Are there different degrees of trade effects?
• Export performance requirements, local content
  schemes and foreign exchange balancing - ok

5
Examples of TRIMS

• Market access
• Ownership or equity restrictions
• Joint venture requirements

• Performance Requirements
• Local content schemes
• Export performance requirements
• Foreign Exchange balancing

6
The TRIMS Agreement

• Structure
• Content

7
Legal Framework

• The TRIMs agreement does not provide any new
  language
• It focusses on two Articles that were identified
  in a previous case under the GATT
• Article III (National Treatment)
• Article XI (Quantitative Restrictions)

8
Aims of the Agreement

• Desiring
• to promote the expansion and progressive
  liberalisaiton of world trade and to facilitate
  investment, while ensuring competition
• Take into account
• trade, development and financial needs of
  developing countries, particularly least
  developed countries
• Recognising
• certain investment measures can cause
  trade-restrictive and distorting effects

9
Structure

• Nine Articles and an Annex
• Art I - clarifies that the agreement applies only
  to trade in goods
• Art 2 - applies Articles III or XI and refers to
  the Annex list
• Art 3-4 deal with general exceptions and Art
  XVIIIb
• Art 5 Notification and transition periods
• Art 9 - Review

10
GATT Articles

• Article III (GATT)
• National treatment of imported product, unless
  specified in other agreements
• Subjects the purchase or use by an enterprise of
  imported products to less favourable conditions
  than the purchase or use of domestic products
• Article XI (GATT)
• Prohibition of quantitative restrictions on
  imports and exports
• Part of the general trend in textiles and
  agriculture to phase out the use of quantitative
  restrictions

11
Illustrative list - Para 1

• Para 1 (a) covers local content TRIMs which
  require the purchase or use by an enterprise of
  products of domestic origin or domestic source.
• Para 1(b) covers trade balancing TRIMs which
  limit the purchase or use of imported products by
  an enterprise to an amount related to the volume
  or value of local products that it exports.

12
Ilustrative list- Para 2

• 2(a) deals with border measures that deal with
  trade balancing.
• 2(b) restrictions to trade that arise from
  foreign exchange access restrictions such as
  balancing requirements
• 2 (c) deals with measures that restrict exports.

13
Notification

• Governments of WTO members, or countries entitled
  to be members within 2 years after 1 January,
  1995 shouold make notifications within 90 days
  after the date of their acceptance of the WTO
  agreement.

14
Transition periods

• Members are obliged to eliminate TRIMs which have
  been notified. Such elimination is to take place
  within two years after the date of entry into
  force of the agreement for developed countries
• five years for developing
• seven years for LDC

15
Standstill

• TRIMS introduced less than 180 days before the
  agreement do not benefit from transition period.
• Members are also not allowed to change measures
  that have been notified if these changes are
  inconsistent with the agreement.
• The same TRIM can be applied to a new investment.

16
Implementation

• Notification
• Disputes
• Transition

17
Notification

• Argentina
• Barbados
• Bolivia
• Chile
• Colombia
• Costa Rica
• Cuba
• Cyprus
• Dominican Republic
• Ecuador
• Egypt
• India
• Indonesia
• Malaysia

• Mexico
• Nigeria
• Pakistan
• Peru
• Philippines
• Poland
• Romania
• South Africa
• Thailand
• Uganda
• Uruguay
• Venezuela

18
Disputes

• Three disputes
• Indonesia vs EU, Japan, US
• Canada vs. Japan and EU
• Panama vs EU (Bananas)

19
Indonesia

• Automotive sector
• National car policy
• required the manufacturer to have local content
• Lower sales tax
• Subsidy issue was also involved.

20
Canada

• Automotive sector - Canada-US Auto Pact
• Required a company to have local content levels
  beyond the North American Free Trade Agreement in
  order to have a lower tariff rate
• Result was the tariff was increased to MFN rate

21
Implementation Difficulties

• Difficulties in identifying TRIMs that violate
  the agreement
• Difficulties in identifying alternative policies
  to achieve the same objective
• Difficulties in accounting for non-contingent
  outcomes such as the financial crisis in Asia and
  Latin America
• Difficulties in meeting the transition period
  deadlines

22
Development Dimension of the TRIMS agreement

• Only developing countries notified TRIMS
• Most frequent sector was the automotive industry
• The most frequent policy was local content
  schemes

23
Applying for Extensions of Transition Periods

• Chile
• Romania
• Egypt
• Argentina
• Colombia

• Thailand
• Malaysia
• Philippines
• Pakistan

24
Where to from here?

• Developing countries are serious about not moving
  ahead on TRIMS until the agreement has been
  implemented
• The focus is on how to proceed with the review.

25
Investment and the WTO

• Options
• Leave the agreement as it is
• Extend the illustrative list
• Complement the TRIMs agreement with new rules on
  investment that have features of BITs and NAFTA
  chapter 11.

26
Status Quo

• There are two dispute panels have clarified
  precisely the role of TRIMs and GATT.
• We have a clear specification of the consistency
  of policies in the annex list an the GATT
• Guidance on transition periods

27
Renovation

• Annex list is not exclusive of policies that are
  inconsistent with III1 and XI4
• Seek to expand the list
• Export performance requirements
• Require a clarification of restrict versus
  distort trade.

28
New Architecture

• Proposal to expand the role of provisions related
  to market access and operations of foreign
  affiliates.
• Two models
• BITS
• NAFTA chapter 11

29
Components

• Three components of an investment architecture
• Market access
• Pre and post establishment
• Operations
• National treatment with respect to policies
• Dispute resolution
• NAFTA type investor-state model
• Unworkable in the WTO context

30
Study

• Goods Council has requested a joint UNCTAD/WTO
  Secretariat study on the development effects of
  TRIMs.
• Joint with Trade Analysis Branch (UNCTAD) and
  Trade and Finance (WTO).

31
Development effects

• I Identify and define TRIMs
• II Historical experience with TRIMS
• III What is development?
• Include employment
• Technology transfer
• Establishment and development of industry
• Growth
• Neutrality of the study.

32
FDI and poverty alleviation

• FDI and growth - parallels with trade and growth
  literature
• Data is worse.
• Composition of FDI flows
• labour-intensive (poor intensive) sectors
• Not a huge amount of total flows, but important
  for developing countries
• Crowding out domestic investment and domestic
  firms
• likely more important in the context of large
  scale industries
• Auto industry - seat covers, wiring harnesses

33
EU-LDC Networks

• Networks
• Access to researchers and data
• case studies are hugely important
• Economists are terrible at doing this kind of
  work.
• Specialists have knowledge of past studies to
  contribute to step II
• Developing a research agenda on development
  dimension of TRIMs