2. Introduction
Trade-related Investment Measures (TRIMs) are rules that apply to the
domestic regulations a country applies to foreign investors, as part of
industrial policy.
This agreement came into effect in the year 1995.
These agreements were agreed upon by all members of the World Trade
Organization, to prevent differential measures between domestic and foreign
investors and impose quantitative restrictions on imports and exports.
3. History
In the late 1980s there was an increase in foreign direct investment,
throughout the world.
Some countries receive foreign investment by imposing several restrictions on
local investment design and fostering domestic industries.
To prevent the outflow of foreign exchange reserves.
4. What is TRIMs ?
The agreement on TRIM’s is based on the belief that there should be a strong
connection between trade and investment.
According to the provisions of TRIMs, countries should not adopt investment
measures that could restrict and distort trade.
Restrictive measures on investment affect trade, and these restrictions that
prohibit trade are not allowed.
The TRIMs instruct the WTO members not to violate WTO basic principles like
MFN (Most Favorable Nations), local content requirement, export obligation,
technology transfer requirement, etc., that violate trade.
5. Cont..
The Committee of TRIMs monitors the operation and implementation of TRIMs
agreements and offers consultation for member countries.
To ensure fair treatment of investment in all member countries.
As per the TRIMs agreement, members are also required to notify the WTO
council for trade in goods of existing TRIMs which are inconsistent with the
agreement.
6. TRIMs and Foreign Investment Policies
in India
Various industrial policies were declared in India in the years 1948, 1956, 1977,
1980, and 1985, but in spite of all efforts, the level of industrial development in
India, could not reach its need.
In the year 1991, then Finance Minister our former P.M Dr. Manmohan Singh
introduced the New Economic Policy, and New Industrial policy liberalize the
economy, encourage foreign assistance, made the public sector more competitive,
industrial development, increase exports, and facilitate imports.
Regulation for both FDI (Foreign Direct Investment) and FPI (Foreign Portfolio
Investment) was simplified and foreign investments were allowed in almost all
sectors.
7. Cont..
Dr. Manmohan Singh is also known as the Father of
New Economic policies in India.
Foreign Portfolio Investment defines as buying and
selling of shares, convertible debentures of Indian
companies, and units of domestic mutual funds at any
Indian stock exchange.
It is a passive holding of security like foreign stocks, bonds, and
financial assets, none of which entails active management or control of the
securities by the investor.
Since then FPI has emerged as a major source of Private capital inflow in
the country.
8. TRIMs may include requirements to:
Achieve a certain level of local content.
Production of Goods locally.
Export a given level or percentage of goods.
Imports and exports percentages should be balanced.
Transfer of technology or business information to local persons.
Note: These requirements may be mandatory requirements for investment. The
TRIMs agreements do not cover services. All the WTO member countries are parties
to the agreement. This agreement went into effect on 1st January 1995.
9. INDIA’s Notified TRIMs
As per Article 5.1 of the TRIMs agreement India has notified three trade-related
investment measures with provision of the agreement.
i. Local Content requirements in the production of News Print.
ii. Local Content requirements in the production of Rifampicin (a medicine) and
Penicillin-G
iii. Dividend balancing requirement in the case of investment in 22 categories of
consumable goods.
Note: 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.
10. Present Status
The transition period allowed to developing countries ended on 31st December
1999.
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.
11. 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 manufacturers more vulnerable
against the cheap products of developed countries
