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Fiscal polciy


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Fiscal polciy

  1. 1. General Agreement on Tariffs and Trade (GATT) & Trade Related Investment Measures (TRIMs) Qis College of Engg. Technology Kop pula. Chandra Sekher 1st –MBA-13491e0037 01/01/2014
  2. 2. A Study on General Agreement on Tariffs and Trade (GATT) & Agreement on Trade Related Investment Measures (TRIMs) Mini Project Report in Business Environment Submitted to JNTU, Kakinada in Partial Fulfillment for the Award of the Degree of “MASTER OF BUSINESS ADMINISTRATION” Submitted By Koppula.Chandra sekher (Reg. No. 13491E0037). DEPARTMENT OF MASTER OF BUSINESS ADMINISTRATION QIS COLLEGE OF ENGINEERING & TECHNOLOGY An ISO 9001: 2008 Certified Institution and Accredited by NBA (Affiliated to JNTU, Kakinada and Approved by AICTE) Vengamukkapalem, Pondur Road ONGOLE –523 272 . FEB-2013
  3. 3. INDEX: S. No Contents Page No‘s 01 Abstract 03 02 Key wards 04 03 Introduction 04 04 Definition 04 05 Need for the study 04 06 Scope of the study 04 07 Objectives 04 08 Methodology 05 09 Review of literature 05 10 Fundamental Principles of GATT & objectives 05,06 11 GATT Rounds 09 12 13 15 Major Principles of GATT 13 Conclusion 13 References
  4. 4. General Agreements on TRADE & TARIFF Abstract: Purpose – The literature examining the participation of developing countries in the General Agreement on Tariffs and Trade (GATT) and International Trade Organization (ITO) negotiations generally sees their attitudes towards these projects as having been driven exclusively by a commitment to import substitution. This commitment, it is argued, led developing countries to oppose many aspects of the GATT/ITO project, particularly the requirement for reciprocal tariff cuts. The purpose of this paper is to focus on examining the critical period around the ultimately doomed negotiation of the Charter for an ITO and the process of creating the GATT. Design/methodology/approach – This paper draws from GATT documents and from the literature on economic history to give a more comprehensive account of the motivating ideas underpinning developing countries attitudes to the post-war negotiations. Findings – This paper argues that this view misconstrues and caricatures the ideas and motivations underpinning developing countries' attitudes towards the GATT and ITO. Though import substitution and the related objective of industrialization each played a part in shaping developing countries' attitudes, they are only aspects of a more complex set of aims and ideas. Developing countries were drawing from a range of key experiences and ideas beyond simply import substitution in forming their attitude towards the GATT/ITO project, in particular the volatility in commodity markets that preceded the negotiations, the legacy of colonialism and the lessons provided by the ninetieth and twentieth century‘s on trade policy. Finally, this paper argues that the first round of GATT negotiations shows that developing countries were substantially less opposed to reciprocal tariff concessions than has previously been argued. Originality/value – These findings are important for anyone who wants to understand the evolution of the GATT and the role developing countries played in it, and the difficulties between the rich and poor nations that continue to characterize negotiations in the World Trade Organization. Resource :James Scott, (2010) "Developing countries in the ITO and GATT negotiations", Journal of International Trade Law and Policy, Vol. 9 Iss: 1, pp.5 - 24
  5. 5. Key words: Multilateral. M.F.N (Developing countries), Tariffs, Trade, World economy, Non- Discrimination, Introduction: The General Agreement on Tariffs and Trade (GATT) was a multilateral agreement regulating international trade. According to its preamble, its purpose was the "substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous basis." It was negotiated during the United Nations Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization (ITO). GATT was signed in 1947 and lasted until 1994, when it was replaced by the World Trade Organization in 1995. Definition: General agreement trade & taxes Is the world finance institution .This is the replacement of the WTO (world trade organization).The main purpose of GATT is regulated to the Trade (Buy & Selling) & Taxes structure of activities. General Agreement on Tariffs and Trade, an international treaty (1948–94) to promote trade and economic development by reducing tariffs and other restrictions. It was superseded by the establishment of the World Trade Organization in 1995. Need for the Study: The views expressed in this essay are purely personal and do not necessarily express the views of the institutions is the associated with. This is a technical, academic and research output. Scope of the Study: Recognizing that their relations in the field of trade and economic Endeavour should be conducted with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, developing the full use of the resources of the world and expanding the production and exchange of goods, Being desirous of contributing to these objectives by entering into reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in international commerce, Objectives:     To know that Non-discrimination. To Study Multilateral agreements. To Evaluate GATT rounds. To know that 15 principles of GATT.
  6. 6. Methodology: o This data collected from electronic sources collected from the electronic sources i.e., from the Google and the related websites and also Class subject materials. o o Review of literature: Principles of GATT Objectives of GATT GATT rounds 15 Major principles provided at the end of GATT time period. Trims (Trade Related Investment Measures). Legal Framework. The agreements The WTO Agreements cover goods, services and intellectual property. They spell out the principles of liberalization, and the permitted exceptions. They include individual countries‘ commitments to lower customs tariffs and other trade barriers, and to open and keep open services markets. The agreements for the two largest areas — goods and services — share a common three-part outline, even though the detail is sometimes quite different. • They start with broad principles: the General Agreement on Tariffs and Trade (GATT) (for goods), and the General Agreement on Trade in Services (GATS). (The third area, Trade-Related Aspects of Intellectual Property Rights (TRIPS), also falls into this category although at present it has no additional parts.) • They come extra agreements and annexes dealing with the special requirements of specific sectors or issues. • Finally, there are the detailed and lengthy schedules (or lists) of commitments made by individual countries allowing specific foreign products or service-providers access to their markets. Principles of the trading system The WTO agreements are lengthy and complex because they are legal texts covering a wide range of activities. They deal with: agriculture, textiles and clothing, banking, telecommunications, government purchases, industrial standards and product safety, food sanitation regulations, intellectual property, and much more. But a number of simple, fundamental principles run throughout all of these documents. These principles are the foundation of the multilateral trading system. Not: ‘Multilateral’ trading system ... the system operated by the WTO. Most nations — including almost all the main trading nations — are members of the system. But some are not, so ―multilateral‖ is used to describe the system instead of ―global‖ or ―world‖. The principles
  7. 7. The trading system should be ... • without discrimination — a country should not discriminate between its trading partners (giving them equally ―most-favoured-nation‖ or MFN status); and it should not discriminate between its own and foreign products, services or nationals (giving them ―national treatment‖); • freer — barriers coming down through negotiation; • predictable — foreign companies, investors and governments should be confident that trade barriers (including tariffs and non-tariff barriers) should not be raised arbitrarily; tariff rates and market-opening commitments are ―bound‖ in the WTO; • more competitive — discouraging ―unfair‖ practices such as export subsidies and dumping products at below cost to gain market share; • more beneficial for less developed countries — giving them more time to adjust, greater flexibility, and special privileges. GATT Objectives WTO embodies many reciprocal rights and obligations for trading countries and its core principle is the Most-Favoured-Nations (MFN) clause. Under this, trade must be conducted on the basis of non-discriminationall members are bound to accord each other treatment in tariffs and trade as favourable as they give to any other member-country. A second principle is that, to the maximum extend possible, trade protection should be given to domestic industries not through non-tariff measures such as quantitative restrictions, arbitrary technical standards, and health regulations, etc; but only through the customs tariff, so that the extent protection is clear and competition is still possible. Other basic provisions are‖ national treatment‖(non-discrimination),transparency of trade rules, and general prohibition of quantitative restrictions or quotas. A final principle embodied in the WTO is ‗fair competition‘. Fair competition in the GATT context is reflected in a number of provisions. Government subsidization of exports is prohibited andor countervail able by importing countries. Certain types of the behaviour pursued by exporting firms (as opposed to governments) are also countervailing able. Thus, dumping by exporters-which usually mean charging a price in the export market that is less than what is charged in the home market –maybe offset by importing country government‘s through the imposition of an anti-dumping duty if the dumping injures domestic competitors. GATT / WTO & WORLD TRADING SYSTEM General Agreement on Tariffs and Trade (GATT) The original intention was to create a third institution to handle the trade side of international economic co-operation joining the two ―Bretton Woods‖ institutions, the World Bank and the International Monetary Fund. Over 50 countries participated in negotiations to create an International Trade Organization (ITO) as a specialized agency of the United Nations. The draft ITO Charter was ambitious. It extended beyond world trade
  8. 8. disciplines, to include rules on employment, commodity agreements, restrictive business practices, international investment, and services. Even before the talks concluded, 23 of the 50 participants decided in 1946 to negotiate to reduce and bind customs tariffs. With the Second World War only recently ended, they wanted to give an early boost to trade liberalization, and to begin to correct the legacy of protectionist measures which remained in place from the early 1930s. First round of negotiations resulted in 45,000 tariff concessions affecting $10 billion of trade, about one fifth of the world‘s total. This 23 countries also agreed that they should accept some of the trade rules of the draft ITO Charter. The combined package of trade rules and tariff concessions became known as the General Agreement on Tariffs and Trade. It entered into force in January 1948, while the ITO Charter was still being negotiated. The 23 became founding GATT members. After this first round of negotiations in Geneva – Switzerland, GATT improved by 7 more rounds of negotiations. Finally in the 8th round named Uruguay Round creation of WTO covered. 1) Trade without discrimination Most-favoured-nation (MFN): Under the WTO agreements, countries cannot normally discriminate between their trading Partners. Grant someone a special favour (such as a lower customs duty rate for one of their products) and you have to do the same for all other WTO members. This principle is known as most-favoured-nation (MFN) treatment. It is so important that it is the first article of the General Agreement on Tariffs and Trade (GATT), which governs trade in goods. MFN is also a priority in the General Agreement on Trade in Services (GATS) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) , although in each agreement the principle is handled slightly differently. Together, those three agreements cover all three main areas of trade handled by the WTO. National Treatment: Imported and locally-produced goods should be treated equally - at least after the foreign goods have entered the market. The same should apply to foreign and domestic services, and to foreign and local trademarks, copyrights and patents.
  9. 9. 2) Freer Trade Since GATT‘s creation in 1947-48 there have been eight rounds of trade negotiations. A ninth round, under the Doha Development Agenda, is now underway. At first these focused on lowering tariffs (customs duties) on imported goods. As a result of the negotiations, by the mid-1990s industrial countries‘ tariff rates on industrial goods had fallen steadily to less than 4%. Opening markets can be beneficial, but it also requires adjustment. The WTO agreements allow countries to introduce changes gradually, through ―progressive liberalization‖. Developing countries are usually given longer to fulfil their obligations. 3) Predictability With stability and predictability, investment is encouraged, jobs are created and consumers can fully enjoy the benefits of competition — choice and lower prices. The multilateral trading system is an attempt by governments to make the business environment stable and predictable. In the WTO, when countries agree to open their markets for goods or services, they ―bind‖ their commitments. For goods, these bindings amount to ceilings on customs tariff rates. Sometimes countries tax imports at rates that are lower than the bound rates. Frequently this is the case in developing countries. In developed countries the rates actually charged and the bound rates tend to be the same. 4) Promoting Fair Competition The rules on non-discrimination — MFN and national treatment — wich we explained before are designed to secure fair conditions of trade. So too are those on dumping (exporting at below cost to gain market share) and subsidies. The issues are complex, and the rules try to establish what is fair or unfair, and how governments can respond, in particular by charging additional import duties calculated to compensate for damage caused by unfair trade. Encouraging development and economic reform The WTO system contributes to development. On the other hand, developing countries need flexibility in the time they take to implement the system‘s agreements. And the agreements themselves inherit the earlier provisions of GATT that allow for special assistance and trade concessions for developing countries. Over three quarters of WTO members are developing countries and countries in transition to market economies. During the seven and a half years of the Uruguay Round, over 60 of these countries implemented trade liberalization programmes autonomously.
  10. 10. Turkey has been a member of WTO since 26 March 1995, For personal interest Goods schedules of Turkey, Services schedules and MFN exemptions of Turkey , Trade Policy Reviews of Turkey, Dispute cases involving Turkey, GATT ROUNDS GATT held a total of nine rounds, [GATT Name Start Duration Countries and WTO trade rounds Subjects covered Achievements Signing of GATT, 45,000 tariff Geneva April 1947 7 months 23 Tariffs concessions affecting $10 billion of trade Annecy Torquay April 1949 5 months September 1950 Geneva January II 1956 Dillon 13 Tariffs 38 Tariffs Countries exchanged some 5,000 tariff concessions Countries exchanged some 8,700 8 months tariff concessions, cutting the 1948 tariff levels by 25% 5 months September 11 1960 months 26 26 Tariffs, admission of Japan Tariffs $2.5 billion in tariff reductions Tariff concessions worth $4.9 billion of world trade
  11. 11. Kennedy May 1964 37 months 62 Tariffs, Anti-dumping Tariff concessions worth $40 billion of world trade Tariffs, non-tariff Tokyo September 74 1973 months 102 measures, Tariff reductions worth more than "framework" $300 billion dollars achieved agreements The round led to the creation of Tariffs, non-tariff measures, rules, Uruguay September 87 1986 months services, intellectual 123 property, dispute settlement, textiles, agriculture, creation of WTO, etc WTO, and extended the range of trade negotiations, leading to major reductions in tariffs (about 40%) and agricultural subsidies, an agreement to allow full access for textiles and clothing from developing countries, and an extension of intellectual property rights. Tariffs, non-tariff measures, agriculture, labor Doha November 2001 standards, ? 159 The round is not yet environment, concluded. Bali Package signed competition, on the 7th December 2013. investment, transparency, patents etc Annecy Round: 1949 The second round took place in 1949 in Annecy, France. 13 countries took part in the round. The main focus of the talks was more tariff reductions, around 5000 in total. Torquay Round: 1951 The third round occurred in Torque, England in 1950. Thirty-eight countries took part in the round. 8,700 tariff concessions were made totaling the remaining amount of tariffs to ¾ of the tariffs which were in effect in 1948. The contemporaneous rejection by the U.S. of the Havana Charter signified the establishment of the GATT as a governing world body. Geneva Round: 1955–59 The fourth round returned to Geneva in 1955 and lasted until May 1956. Twenty-six countries took part in the round. $2.5 billion in tariffs were eliminated or reduced.
  12. 12. Dillon Round: 1960–62 The fifth round occurred once more in Geneva and lasted from 1960-1962. The talks were named after U.S. Treasury Secretary and former Under Secretary of State, Douglas Dillon, who first proposed the talks. Twentysix countries took part in the round. Along with reducing over $4.9 billion in tariffs, it also yielded discussion relating to the creation of the European Economic Community (EEC). Kennedy Round: 1962–67 The sixth round of GATT multilateral trade negotiations, held from 1963 to 1967. It was named after U.S. President John F. Kennedy in recognition of his support for the reformulation of the United States trade agenda, which resulted in the Trade Expansion Act of 1962. This Act gave the President the widest-ever negotiating authority. As the Dillon Round went through the laborious process of item-by-item tariff negotiations, it became clear, long before the Round ended, that a more comprehensive approach was needed to deal with the emerging challenges resulting from the formation of the European Economic Community (EEC) and EFTA, as well as Europe's re-emergence as a significant international trader more generally. Japan's high economic growth rate portended the major role it would play later as an exporter, but the focal point of the Kennedy Round always was the United States-EEC relationship. Indeed, there was an influential American view that saw what became the Kennedy Round as the start of a transatlantic partnership that might ultimately lead to a transatlantic economic community. To an extent, this view was shared in Europe, but the process of European unification created its own stresses under which the Kennedy Round at times became a secondary focus for the EEC. An example of this was the French veto in January 1963, before the round had even started, on membership by the United Kingdom. Another was the internal crisis of 1965, which ended in the Luxembourg Compromise. Preparations for the new round were immediately overshadowed by the Chicken War, an early sign of the impact variable levies under the Common Agricultural Policy would eventually have. Some participants in the Round had been concerned that the convening of UCTAD, scheduled for 1964, would result in further complications, but its impact on the actual negotiations was minimal. In May 1963 Ministers reached agreement on three negotiating objectives for the round: (a) Measures for the expansion of trade of developing counties as a means of furthering their economic development, (b) Reduction or elimination of tariffs and other barriers to trade, and (c) Measures for access to markets for agricultural and other primary products. The working hypothesis for the tariff negotiations was a linear tariff cut of 50% with the smallest number of exceptions. A drawn-out argument developed about the trade effects a uniform linear cut would have on the dispersed rates (low and high tariffs quite far apart) of the United States as compared to the much more concentrated rates of the EEC which also tended to be in the lower held of United States tariff rates. The EEC accordingly argued for an evening-out or harmonization of peaks and troughs through its cerement, double cart and thirty: ten proposals. Once negotiations had been joined, the lofty working hypothesis was soon undermined. The special-structure countries (Australia, Canada, New Zealand and South Africa), so called because their exports were dominated by raw materials and other primary commodities, negotiated their tariff reductions entirely through the item-by-item method.
  13. 13. In the end, the result was an average 35% reduction in tariffs, except for textiles, chemicals, steel and other sensitive products; plus a 15% to 18% reduction in tariffs for agricultural and food products. In addition, the negotiations on chemicals led to a provisional agreement on the abolition of the American Selling Price (ASP). This was a method of valuing some chemicals used by the noted States for the imposition of import duties which gave domestic manufacturers a much higher level of protection than the tariff schedule indicated. However, this part of the outcome was disallowed by Congress, and the American Selling Price was not abolished until Congress adopted the results of the Tokyo Round. The results on agriculture overall were poor. The most notable achievement was agreement on a Memorandum of Agreement on Basic Elements for the Negotiation of a World Grants Arrangement, which eventually was rolled into a new International Grains Arrangement. The EEC claimed that for it the main result of the negotiations on agriculture was that they "greatly helped to define its own common policy". The developing countries, who played a minor role throughout the negotiations in this Round, benefited nonetheless from substantial tariff cuts particularly in non-agricultural items of interest to them. Their main achievement at the time, however, was seen to be the adoption of Part IV of the GATT, which absolved them from according reciprocity to developed countries in trade negotiations. In the view of many developing countries, this was a direct result of the call at UNCTAD I for a better trade deal for them. There has been argument ever since whether this symbolic gesture was a victory for them, or whether it ensured their exclusion in the future from meaningful participation in the multilateral trading system. On the other hand, there was no doubt that the extension of the Long-Term Arrangement Regarding International Trade in Cotton Textiles, which later became the Multi-Fiber Arrangement, for three years until 1970 led to the longer-term impairment of export opportunities for developing countries. Another outcome of the Kennedy Round was the adoption of an Anti-dumping Code, which gave more precise guidance on the implementation of Article VI of the GATT. In particular, it sought to ensure speedy and fair investigations, and it imposed limits on the retrospective application of anti-dumping measures. Kennedy Round took place from 1962-1967. $40 billion in tariffs were eliminated or reduced. Tokyo Round: 1973–79 Reduced tariffs and established new regulations aimed at controlling the proliferation of non-tariff barriers and voluntary export restrictions. 102 countries took part in the round. Concessions were made on $190 billion worth. Uruguay Round: 1986–94 The Uruguay Round began in 1986. It was the most ambitious round to date, hoping to expand the competence of the GATT to important new areas such as services, capital, intellectual property, textiles, and agriculture. 123 countries took part in the round. The Uruguay Round was also the first set of multilateral trade negotiations in which developing countries had played an active role. Agriculture was essentially exempted from previous agreements as it was given special status in the areas of import quotas and export subsidies, with only mild caveats. However, by the time of the Uruguay round, many countries considered the exception of agriculture to be sufficiently glaring that they refused to sign a new deal without some movement on agricultural products. These fourteen countries came to be known as the "Cairns Group", and included mostly small and medium sized agricultural exporters such as Australia, Brazil, Canada, Indonesia, and New Zealand.
  14. 14. The Agreement on Agriculture of the Uruguay Round continues to be the most substantial trade liberalization agreement in agricultural products in the history of trade negotiations. The goals of the agreement were to improve market access for agricultural products, reduce domestic support of agriculture in the form of pricedistorting subsidies and quotas, and eliminate over time export subsidies on agricultural products and to harmonize to the extent possible sanitary and phytosanitary measures between member countries. 15 Major principles provided at the end of GATT time period. a. b. c. d. e. f. g. h. Tariff Barriers. NON- Tariff Barriers Tropical products Subsidies National Resource products Agriculture multilateral agreements Safe guard Employment opportunities i. GATT j. Trips k. Trims l. GAT‘s Principles m. Bilateral Agreements. n. Capital goods structure. Conclusion: Turkey, committed to the expansion of the world trade, will further strengthen its bilateral relations with all countries, including those which are not yet integrated into the multilateral trading system established under the WTO system. Resource: o o
  15. 15. INDEX S. No Contents Page No‘s 01 Abstract 01 02 Introduction 01 03 Trade related Investments 02 04 Legal Frame work 03 05 Examples of TRIMs Explicitly Prohibited by the 04 TRIMs Agreement 06 Exceptional Provisions of the TRIMs Agreement 04 References Trade related investment measures (TRIMS) Abstract: This paper examines the experience of WTO members with the TRIMS agreement covering notification, disputes and implementations issues from a developing country focus. Although the agreement is biased against developing countries in that they are the ones that have had to make policy changes to comply with the agreement the paper finds that such adjustment would have had to take place earlier had it not been for the
  16. 16. agreement. The paper also analyses prospective issues pertaining to the TRIMs agreement in the context of both the mandated review of the agreement and a new round of trade negotiations. Introduction: The Agreement on Trade Related Investment Measures (TRIMs) are rules that apply to the domestic regulations a country applies to foreign investors, often as part of an industrial policy. The agreement was agreed upon by all members of the World Trade Organization. The agreement was concluded in 1994 and came into force in 1995. (The WTO wasn't established at that time, it was its predecessor, the GATT (General Agreement on Trade and Tariffs. The WTO came about in 1994-1995.) Policies such as local content requirements and trade balancing rules that have traditionally been used to both promote the interests of domestic industries and combat restrictive business practices are now banned. Trade Related Investment Measures is the name of one of the four principal legal agreements of the WTO trade treaty. TRIMs are rules that restrict preference of domestic firms and thereby enable international firms to operate more easily within foreign markets. Overview of Rules (1) Trade-Related Investment Measures 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 (which require the export of a specified percentage of production volume), 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. 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-favored-nation treatment to direct
  17. 17. 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. (2) 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 (noted in Figure 8-2). Examples of TRIMs Explicitly Prohibited by the TRIMs Agreement
  18. 18. Local content requirement Trade balancing Foreign exchange Export restrictions requirements restrictions (Domestic sales requirements) Measures requiring the purchase 1. Measures requiring Measures restricting Measures restricting or use by an enterprise of that an enterprise's the importation by an the exportation or sale domestic products, whether purchases or use of enterprise of for export by an specified in terms of particular imported products be products (parts and enterprise of products, products, in terms of volume or limited to an amount other goods) used in whether specified in value of products, or in terms of related to the volume or or related to its local terms of particular a proportion of volume or value value of local products Production by products, in terms of of its local production. that it exports. restricting its access volume or value of (Violation of GATT Article (Violation of GATT to foreign exchange products, or in terms III:4) Article III:4)2. to an amount related of a proportion of Measures restricting the to the foreign volume or value of its importation by an exchange inflows local production. enterprise of products attributable to the (Violation of GATT used in or related to its enterprise. (Violation Article XI:1) local production, of GATT Article generally or to an XI:1) amount related to the volume or value of local production that it exports. (Violation of GATT Article XI:1) Exceptional Provisions of the TRIMs Agreement
  19. 19. Transitional period Exceptions for developing countries Equitable provisions 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 leastdeveloped countries will have seven years. 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. 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. References:  