TRIMS Agreement

The Agreement on Trade-Related
Investment Measures (TRIMs)
Saravanan A
PhD Candidate
RGSOIPL

Disclaimer:
 Images, content, and published articles are
for reference and illustrative purposes only.
Under no circumstances should any image,
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endorsement for this presentation or any of
its contents. This presentation is intended for
educational purposes only.
2

Outline:
 Legal Background- FIRA Panel Case
 Uruguay Round Negotiations on TRIMs
 General Features of TRIMs
 Provisions of the TRIMS Agreement
 Illustrative List: Para 1 (a) & (b)
 Dispute Settlement Cases Involving The TRIMs Agreement
 Current Debate and Prospects of TRIMs Agreement
 India’s notified TRIMs
3

Legal Background- FIRA Panel Case:
 Until 1980s, investment issues received only marginal attention
in the context of GATT
 In 1982, GATT dispute settlement proceeding initiated by US
against Canada
 For implementation of Canada’s Foreign Investment Review Act (FIRA)
 Certain undertakings required from foreign investors in order to
get an approval for investment projects in Canada
 Three undertakings
 Those requiring foreign investors to buy goods of Canadian origin or
from Canadian sources (LCR)
 To manufacture goods in Canada
 Foreign investors to export specified quantities or proportions of their
local production (EPR)
 Several parties expressed doubt about competence of GATT Panel
4

Cont…
 Finally panel was allowed to hear the dispute
 Condition- findings would be limited to trade issues fall within
scope of GATT
 Panel concluded that LCR were inconsistent with
 N.T obligation contained in Art III:4- because they discriminated
against imported products
 Purchase Canadian goods (LCR) did not prevent
importation of goods
 Hence, not inconsistent with Art XI:1 of GATT (prohibits QR)
 Panel did not rule on GATT consistency of EPR, because it
falls outside the coverage of GATT
 Panel made it very clear that,
 The dispute instituted before the Panel pertained to consistency
with GATT rules of certain TRIMs applied by Canada
 Not to Canada’s right to regulate FDI
5

Uruguay Round Negotiations on
TRIMs:
Launching Negotiations:
 US was the main advocate for introducing TRIMs and other
investment issues into GATT framework
 In 1981 joint study by IBRD and IMF concluded
 EPR could have trade-distorting effects
 Japan and EC expressed support for US proposal
 Opposition from developing countries,
 Argued EPR should outside the remit of GATT
 FIRA decision brought this issue to negotiating table
 In 1986, US succeeded to included the subject in agenda of
Uruguay round negotiations
6

Issues During Negotiations
 The fundamental differences emerged between DC and Dvg
C
 Lack of definition and clarity in the mandate, need, nature and
coverage of possible new disciplines
 DC took a broad view of investment and investment
measures
 DC (US and Jap) sought to introduce strong disciplines on
TRIMs
 Proposed prohibition of wide range of measures in addition to LCR
 These included, manufacturing req, trade balancing req, exchange req,
domestic sales req, EPR, product mandating, TT req, and local equity
req.
 EC and Nordic countries took somewhat more nuanced
approach
7

Negotiating Positions:
 On the contrast Dvg C led by India, Egypt and Latin
American Countries
 Took a much narrower view
 To preserve their freedom to use TRIMs as instrument of
development policy
 Existing GATT rules already addressed trade-restrictive and trade-
distorting effects
 India and other countries proposed negotiations should
address
 Restrictive business practices of MNCs
 But, DC opposed such move
8

Outcome:
 Finally compromise situation emerged limited to an
interpretation and clarification of application to TRIMs
 TRIMS Agreement did not create new obligations
 Went beyond those already established under old GATT
 Many of the measures proposed during negotiation were
excluded from coverage of TRIMs
 Export performance and TT req.
 No new disciplines regarding treatment of FI per se were
established
 Dvg C succeeded in limiting the scope of TRIMs to
application of existing GATT Rules
 From DC point of view, the Agreement failed to cover most
of the investment measures
9

General Features of TRIMs:
 TRIMS does not create any new substantial obligations
 Instead of that, it introduces transition periods for the
elimination of inconsistent measures
 It establishes notification req – introduced some degree of
transparency
 TRIMS also included a provision for its own review
 Lead to amendment or expansion of its disciplines
 DSU- to date 41 cases have been involved
 Few- resulted in panel proceedings
 TRIMs has never been invoked on its own
 but in conjunction with other WTO provisions (Art III & XI of GATT)
 After 20 yrs of EIF still some debates are unsettled
 Working Group on Trade and Investment launched during
Doha Conference 2001
10

General Features of TRIMs:
 It focuses on two Articles that were identified in a previous case
under the GATT
 Article III (National Treatment)
 Article XI (Quantitative Restrictions)
 It is concerned with discriminatory treatment of both imported
and exported products
 Do not regulate the issue of entry and treatment of FI as such
 TRIMs Agreement makes no distinction w.r.t phase of
investment at which measure is imposed
 It covers measures applied both at the moment of entry of investment
as wells as afterwards
 It applies only to goods and not to cover trade in services
11

Aims of the Agreement:
 Desiring
 to promote the expansion and progressive
liberalization* 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
 Recognizing
 certain investment measures can use trade-restrictive
and distorting effects
12

Structure of TRIMS Agreement:
 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
XVIII (b)
 Art 5- Notification and transition periods
 Art 9 - Review
13

Economic Rationale of TRIMs:
 TRIMs shall not apply to any TRIM that is inconsistent with NT
and QR
 TRIMs Agreement does not define the term ‘TRIM’
 Its coverage is provided in an illustrative list annexed to Agreement
 Other requirements not covered in TRIMs
 Export performance, manufacturing , TT, JV and local equity
 TRIMs tend to concentrate in specific industries , particularly in
automotive, chemical and petrochemical, and
computer/informatics
 Local content requirements used more intensively in automotive
sector
 Export performance requirements are more common in
computer/informatics
 Combination of both measures in chemical and petrochemical
14

Economic Rationale of TRIMs:
 Empirical studies shows performance requirements-
employed by both DC and Dvg C
 But use has been more frequent by Dvg C
 Dvg C often imposed performance requirements in an
attempt to
 Offset market failures and monopolistic powers of MNCs
 Prevent foreign subsidiaries from crowding domestic enterprises
 Long controversial debate on development and trade
effects of PR
 Has not been settled to date
15

Provisions of the TRIMS Agreement:
Art 1- Coverage:
 This agreement covers only to trade in goods and it does
not apply to trade in services
Art 2 and the Illustrative List (Annex)- Basic Obligations:
 Art 2.1- core obligation requires Members not to apply any
TRIM that is inconsistent with,
 Art III (NT) or
 Art XI (prohibition of QR on imports or exports)
16

Cont…
 Agreement does not mention any definition of TRIMs
 Art 2.2 refers to an illustrative list annexed to Agreement
 Art III:4 of GATT- obligation of NT
 Art XI:1 of GATT- obligation of general elimination of QR
 Para 1 identifies measures that are inconsistent with Art III:4 of
GATT
 Pertain to purchase or use of products by an enterprise
 Deals with internal measures
 Para 2 identifies measures that are inconsistent with Art XI:1
 Concern the importation or exportation of products by an enterprise
 Deals with border measures
17

Illustrative List: Para 1 (a) & (b)
 Para 1(a) covers LCR measures relate to purchase or use
by an enterprise of products of domestic origin
 Para 1(b) covers trade-balancing requirements
 Limit the purchase or use of imported products
 It is inconsistent with Art III:4, the measure discriminates
against imported products to less favourable conditions
than the domestic products
18

Illustrative List: Para 2 (a), (b) & (c)
 Para 2(a)- refers to measures that limit the importation
 Para 2(b) - measures that restricts imports through the
imposition of foreign exchange balancing requirement
 Act like import quotas- incompatible with Art XI:1
 Para 2(c)- measures that involve restriction on
exportation or sale for export 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
 Para 2(c) refers to measures that restrict exports
19

Three aspects of illustrative list :
 1) List covers both measures
 Mandatory or enforceable under domestic law or under
administrative rulings
 Compliance with which is necessary to obtain an advantage
 2) The term ‘advantage’ is not defined but,
 Interpreted by Panel in Indonesia-Autos dispute
 3) The list is an illustrative nature not intended to be an
exhaustive one
 Still, other measures not explicitly mentioned in list would still be
inconsistent with Art 2 of this Agreement
20

Exceptions: (Art 3)
 All exceptions under GATT 1994 shall apply, as appropriate to
the TRIMs Agreement
 Exceptions also applicable to prohibition contained in Art 2 of
TRIMs
 E.g. LCR applied in context of govt procurement of goods is excluded
from NT obligation
Art 4- Developing Countries:
 In addition to transition periods, some flexibility to Dvg C
 Art 4- allows Dvg C to deviate temporarily from obligations in
Art 2 to extent in such a manner as Art XVIII of GATT
 Governmental Assistance to Economic Development
 Other safeguard provisions for situations of BoP difficulties
21

Notification and Transitional
Arrangements (Art 5):
 It allowed the existing TRIMs that were inconsistent with GATT subject
to certain conditions
 Set forth requirement in Art 5 w r t transitional mechanism
 Art 5.1- Members – to notify to Council for Trade in Goods within 90
days of E.I.F of WTO (by March 31, 1995)
 Regarding any existing TRIM that was inconsistent with this Agreement
 Art 5.2- Existing TRIMs shall be eliminated within specific time-periods
 Length depends upon level of economic development
 DC- 2 yrs after e.i.f of WTO Agreement
 Dvg C- 5 yrs
 LDC- 7 yrs
 Agreement did not provide any mechanism to monitor actions at the
expiry of transition period
22

Cont…
 Countries not members of WTO on 1.1.1995, were entitle to
become original member within two yrs
 After that, they should submit TRIMs notification within 90 days after
acceptance
 Art 5.3- CTG may authorize extension of transition periods on
request by Dvg C or LDC
 They have to demonstrate the ‘particular difficulties’
 Several members have availed their rights under this provision
 Art 5.4- prevents Members from modifying TRIMs notified
under Art 5.1
 The benefit of transitional arrangements shall not apply for TRIMs
incase introduced less than 180 days before eif of WTO (7/5/94)
23

Cont…
 Art 5.5- During the transition period Member may apply
the inconsistent TRIM to a new investment if this is,
 Necessary to prevent trade distortion the condition of competition
between new investment and existing investments
 To identify the product of existing investment is like products
 Member shall notify to CTG incase if they apply these TRIM
to a new investment
24

Transparency: (Art 6)
 Art 6.1- incorporated by reference the transparency
obligation established in Art X of GATT and other WTO
related provisions
 Art 6.2- Members are required to notify to WTO Secretariat
about the publication in which TRIMs may be found
 Art 6.3- Confidential information is exempted from Art X of
GATT
25

Committee on Trade-Related Investment
Measures: (Art 7)
 Establishment of a Committee on Trade-Related Investment
Measures
 To monitor the operation and implementation of the Agreement
 To provide forum for consultation on implementation of the
Agreement
 The Committee is required to report annually to CTG
Art 8- Consultation and Dispute Settlement:
 Articles XXII and XXIII of GATT applied by DSU shall apply to
consultations and settlement of disputes under this Agreement
 To date, 41 cases cite this agreement in the request for
consultations
26

Review by the Council for Trade in Goods:
(Art 9)
 CTG shall review the operation of this Agreement every 5 yrs
 The review shall offers opportunity to propose to the Ministerial
Conference
 as appropriate amendments to the text of text of the Agreement
 During Review CTG shall consider the provisions on investment
policy and competition policy
Setback:
 It does not mention specific procedure on how to undertake the
review
 Date for its completion also not mentioned in the Agreement
27

Dispute Settlement Cases Involving The
TRIMs Agreement:
1. EC Bananas III
2. Indonesia- Autos
3. Canada- Auto Pact
4. India- Autos
5. India- Solar cells and solar modules (Feb 24, 2016)
 Claims under TRIMs Agreement accompanied by
claims under Articles III and XI of GATT
 Some cases SCM, TRIPs & GATS also been cited
28

European Communities—Regime for the
Importation, Sale and Distribution
of Bananas: (DS 27)
 Complainants:
 Ecuador, Guatemala, Honduras, Mexico, United States
 Respondent:
 EC
 Measure at issue:
 The EC’s regime for the importation, distribution and sale of bananas,
introduced on 1 July 1993 and established by EEC Council Regulation
404/93
 Product at issue:
 Bananas imported from third countries
29

Cont…
 Essence of the claims based on preferential treatment granting
to EC and African, Caribbean and Pacific (ACP) bananas at the
expense of bananas from third-countries
 EC’s regime violated number of WTO provisions
 Complainants alleged that regime’s allocation of import quotas
and import licensing procedure were inconsistent with Art III of
GATT and Art 2 of TRIMs, GATS, AoA, Agreement on import
licensing
 Panel found that EC’s regime was inconsistent with NT
obligation in Art III:4 of GATT
 EC contented that the measure is being a border measure and
not an internal measure
 Hence, import licensing did not fall with purview or Art III:4 of
GATT
30

Cont…
 But, Panel dismissed EC’s argument and held
 The measure is an internal measure held within the meaning of Art
III:4
 Preferred allocation of tariff quota to importers was
inconsistent with Art III:4
 But, Panel did not consider the rule on consistency with Art
2 of TRIMs Agreement
 EC appealed against Panel report on Sept 9, 1997
 But, the AB upheld the Panel’s main findings
 AB held, EC’s import licensing regime violated Art III:4 of
GATT
31

Indonesia—Certain Measures Affecting the
Automobile Industry: (DS 54, 55, 59, 64)
 Complainants:
 EC, Japan and US
 Respondent: Indonesia
 Measure at issue:
 “The 1993 Programme” that provided import duty reductions or
exemptions on imports of automotive parts based on the local
content percent; and
 “The 1996 National Car Programme” that provided various benefits
such as luxury tax exemption or import duty exemption to
qualifying (local content and etc.) cars or Indonesian car companies
 Imported motor vehicles and parts and components thereof
32

Cont…
 Complainants alleged that these measures were inconsistent
with,
 Arts I, III and X of GATT
 Art 2 of TRIMs
 Several other provisions of SCM and TRIPs
 Panel found that Indonesia’s measures violate Art 2.1 of TRIMs
 Panel found that Art III and SCM do not conflict with each other
 They have different coverage and don’t impose the same type of
obligations
 In this case both Agreements were Applicable
 Panel held that the disputed measures were ‘investment
measures’
 Measures fall within the scope of Para 1 of illustrative list
33

Cont…
 Panel further held, measures violated Art 2.1 of TRIMs
 Also noted that Indonesia did not invoke any exceptions contained
in Art 3 & 4, nor claimed for enjoyed the transition period
 In order to exercise judicial economy, the Panel saw
 No need to address the claims under Art III:4
 Panel also held that the measures violated Articles I and
III:2 of GATT & Art 5(c) of SCM
34

Canada—Certain Measures Affecting the
Automotive Industry: (DS 139 & 142)
 Complainants: Japan and EC
 Respondent: Canada
 Canada-Auto Pact concerned several measures taken by
Canada in framework of 1965 Auto Pact Agreement with
US
 Implemented through 1988 Motor Vehicle Tariff Order (MVTO),
Several special remission orders (SRO) and letters of undertaking
from Canadian car manufacturers
35

Cont…
 To qualify for the import duty exemptions, a car manufacturer
had to meet three conditions
 It had to have had a manufacturing presence in Canada (base year
1963-64)
 To achieve a minimum amount of Canadian value-added, which applied
to goods and services (CVA Requirements)
 To comply with production-to-sales ratio requirement (ratio
Requirement)
 Claimants contented:
 Canada’s measures were inconsistent with Articles I:1, III:4 and XXIV of
GATT
 Art 2 of TRIMS
 Art 3 of SCM Agreement
 Several GATS Articles
36

Cont…
 Canada argued- CVA Req did not affect the internal sale or
use of imported products
 Panel- dismissed Canada’s argument
 Panel found that CVA Req affected the internal sale or use
in Canada of imported parts, materials
 Panel also found- CVA Req accorded ‘less favorable
treatment’ to imported products than to like domestic
products
 It also affected competitive opportunities
 Hence, Panel concluded that Canada violated Art III:4 of
GATT
 Panel held such measures were also inconsistent with Art
2.1 of TRIMs
37

Cont…
 Panel also held that disputed measures affecting trade in
services inconsistent with Art II:1 of GATS
 Panel also rejected the claim on ratio req inconsistent with
Art 2.1 of Trims
Canada appealed to AB:
 AB upheld the Panel’s finding that disputed Measures
were inconsistent with this Art I of GATT
 AB also upheld panel’s ruling on Ratio Req
 But reversed the Panel’s decision on GATS Art II:1 and AB
held that measures were consistent with Art II:1
38

India—Measures Affecting the Automotive
Sector: (DS 146, 175)
 Complainants- US and EU
 Respondent – India
 Measures at Issue:
 India's indigenization (local content) requirement; and
 Trade balancing requirement (exports value = imports value)
imposed on its automotive sector
 Cars and their components
39

Cont…
 Indian adopted Automotive Policy in Dec 1997,
 Mandatory requirement- Car manufactures wishing to import car
kits were required to sign a ‘Memorandum of Understanding’
 Car manufactures were asked to fulfill following
conditions:
 To achieve specified minimum local content levels to 75%
(Indigenization Requirement)
 75% of total value of materials used within 5 yrs
 To balance the value of their imports of car kits and car parts
against the value of their exports of cars and car parts (Trade
balancing Req)
 Car manufacturers who did not sign and MoU could be
denied a license to import car kits and car parts
40

Cont…
 EC and US raised a claims and challenging, the disputed
measures were inconsistent with
 Arts III:4 and XI:1 of GATT
 Arts 2.1 and 2.2 of TRIMS
W r t indigenization condition:
 Panel held such requirements were inconsistent with Art
III:4 of GATT
 Panel citing Canada- FIRA panel case
 Automotive parts and components of domestic and foreign
origin were like products
41

Cont…
W r t Trade Balancing requirement:
 Panel first examined whether it constituted a ‘measure’
within meaning of Art XI:1
 Panel held it was a measure
 Hence, Panel found that this req,
 Limit the amount of imports in relation to export commitment
 It acted as a restriction on importation within meaning of Art XI:1
 India also failed to justify that the requirement under Art
XVIII:B of GATT (BoP exception)
 Therefore, Panel concluded that this measure is
inconsistent with Art XI:1
42

Cont…
 India appealed to AB, but subsequently withdrew it s
appeal
 Consequently, AB issued a short report,
 Outlining the procedural history of case
 But, did not address the substantial legal issue raised by India
 Eventually, India adopted AB and Panel reports on April 5,
2002
43

India - Certain Measures Relating to Solar
Cells and Solar Modules: (DS 456)
 On Jan 1, 2010, India had launched National solar policy
named, the Jawaharlal Nehru National Solar Mission (NSM)
 Ambitious target of generating 20,000 MW of solar power by 2022
 The solar photovoltaic and solar thermal are the two types of solar
power projects
 Under NSM scheme, above two projects were subject
matter of certain measures,
1) It is mandatory under the scheme that, all the Solar PV
projects to use cells and modules manufactured in India
(100% DCR)
 Measures allows for PV Modules made from thin film technologies
or concentrated PV may be sourced from any country
44

Cont…
2) w.r.t Solar thermal project- the project developers are to
ensure 30% local content
 In all plant and installations under solar thermal technology
 Solar power developers are entitled to enter into power
purchase agreement with NVVM (National Thermal Power
Company Vidyut Vyapar Nigam Limited, Govt nodal agency)
 Who would purchase the electricity produced
45

Summary of key findings:
 US claimed that the measures appear to be inconsistent with
 Art III:4 of the GATT 1994;
 Art 2.1 of the TRIMs Agreement; and
 Arts 3.1(b), 3.2, 5(c), 6.3(a) and (c), and 25 of the SCM Agreement
 On 23 May 2014 DSB established a panel
 Brazil; Canada; China; European Union; Japan; Korea, Republic of Malaysia;
Norway; Russian Federation; Turkey; Ecuador; Saudi Arabia, Chinese
Taipei reserved their 3rd parties
 On 24th Feb 2016, the panel report was circulated
 Panel found that the disputed measures are TRIMs
 Covered by Para 1(a ) of illustrative list
 Panel found that this suffice to establish that the measures are,
 Inconsistent with both Article III:4 of GATT and Art 2.1 of TRIMs
 DCR do accord ‘less favourable treatment’
 India claimed for Govt procurement derogation under Art III:8(a) of
GATT
46

Cont…
 Panel fount that discrimination relating to solar cells and
modules under LCR is not covered by Govt procurement
exceptions
 India argued LCR are justified under general exception in Art
XX(j) of GATT
 Risk of a disruption in imports, makes these ‘products in general or
local short supply’
 Panel found that terms ‘products in general or local short
supply’ refer to
 Quantity of supply of a product from all sources, does not meet
demand in a relevant geographical area or market
 India has not demonstrated the existence of any imminent risk of a
short supply
 Therefore, panel found that India failed to justify the challenged
measured under Art XX(j) of GATT
47

Cont…
 India also argued that LCR are justified under Art XX(d) of GATT
 India’s compliance with ‘laws or regulations’ requiring it to take steps
to promote sustainable development
 Panel did not find any of instruments identified by India are
within meaning of Art XX(d)
 Therefore, panel held that India failed to demonstrate the
disputed measures are justified under Art XX(d)
 Finally, Panel asked India to ‘bring its measures into conformity
with its obligations under TRIMs and GATT’
 India will soon appeal to AB against panel’s findings
48

Current Debate and Prospects of TRIMs
Agreement:
 Mandated Review with in 5 yrs (1.1.2000)
 Singapore Ministerial Conference established two Working
Groups:
 One on relationship between Trade and Investment
 Other on Future negotiations
 Review under Art 9 is foreseen and not focused till to date
 WTO work on Trade and Investment is still unclear
 It might be pursued in future
49

India’s notified TRIMs:
 As per the provisions of Art. 5.1 of the TRIMs India had
notified three TRIMs 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
 Such notified due to be eliminated by 31st Dec 1999
 None of these measures is in force at present
 Currently not have any outstanding obligations
50

References:
 Martha Lara de Sterlini, The Agreement on Trade-Related Investment
Measures, The General Agreement on Trade in Services, The World Trade
Organization: Legal, Economic and Political Analysis International Trade
Law Center eds. Arthur E. Appleton, Michael G. Plummer (Springer, 2007)
 Robert H. Edwards, Jr. & Simon N. Lester, Towards a More Comprehensive
World Trade Organization Agreement on Trade Related Investment
Measures, 33 STAN.J. INT'L L. 169 (1997)
 Scott S. Quillin, The World Trade Organization and its Protection of Foreign
Direct Investment: The Efficacy of The Agreement on Trade-related
Investment Measures, 28 Okla. City U. L. Rev. 875 2003
 Carlos Correa, Nagesh Kumar-Protecting Foreign Investment Implications
of A WTO Regime and Policy Options (RIS, 2004)
 Syed Nasir Aziz Rizvi, Global Investments and the WTO, World Trade
Organization and India- a Critical Study of Its First Decade, eds. J K Mittal,
KD Raju (New Era Law, 2005)
51

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