GATT and Foreign Investment back to top
Prior to the Uruguay Round negotiations, the linkage between
trade and investment received little attention in the framework of the GATT.
Havana Charter
The Charter for an International Trade Organization (1948)
contained provisions on the treatment of foreign investment as part of a chapter on
economic development. This Charter was never ratified and only its provisions on
commercial policy were incorporated into the General Agreement on Tariffs and Trade
(GATT).
1955 Resolution on International Investment for Economic
Development
In 1955, the GATT CONTRACTING PARTIES adopted a resolution on
International Investment for Economic Development in which they, inter alia, urged
countries to conclude bilateral agreements to provide protection and security for foreign
investment.
The FIRA Panel
Perhaps the most significant development with respect to
investment in the period before the Uruguay round was a ruling by a panel in a dispute
settlement proceeding between the United States and Canada. In Canada —
Administration of the Foreign Investment Review Act (“FIRA”) (BISD 30S/140,
1984) a GATT dispute settlement panel considered a complaint by the United States
regarding certain types of undertakings which were required from foreign investors by the
Canadian authorities as conditions for the approval of investment projects. These
undertakings pertained to the purchase of certain products from domestic sources (local
content requirements) and to the export of a certain amount or percentage of output
(export performance requirements). The Panel concluded that the local content requirements
were inconsistent with the national treatment obligation of Article III:4 of the GATT(1) but that the export performance requirements
were not inconsistent with GATT obligations. The Panel emphasized that at issue in the
dispute before it was the consistency with the GATT of specific trade-related measures
taken by Canada under its foreign investment legislation and not Canada's right to
regulate foreign investment per se.
The panel decision in the FIRA case was significant in that it confirmed that existing
obligations under the GATT were applicable to performance requirements imposed by
governments in an investment context in so far as such requirements involve
trade-distorting measures. At the same time, the panel's conclusion that export
performance requirements were not covered by the GATT also underscored the limited scope
of existing GATT disciplines with respect to such trade-related performance requirements.
Uruguay Round Negotiations on Trade-Related
Investment Measures back to top
The Punta del Este Ministerial Declaration which launched the
Uruguay Round included the subject of trade-related investment measures as a subject for
the new round through a carefully drafted compromise:
“Following an examination of the operation of GATT Articles related to the
trade-restrictive and trade-distorting effects of investment measures, negotiations should
elaborate, as appropriate, further provisions that may be necessary to avoid such adverse
effects on trade.”
The emphasis placed in this mandate on trade effects made it clear that the negotiations
were not intended to deal with the regulation of investment as such.
The Uruguay Round negotiations on trade-related investment measures were marked by strong
disagreement among participants over the coverage and nature of possible new disciplines.
While some developed countries proposed provisions that would prohibit a wide range of
measures in addition to the local content requirements found to be inconsistent with
Article III in the FIRA panel case, many developing countries opposed this. The compromise
that eventually emerged from the negotiations is essentially limited to an interpretation
and clarification of the application to trade-related investment measures of GATT
provisions on national treatment for imported goods (Article III) and on quantitative
restrictions on imports or exports (Article XI). Thus, the TRIMs Agreement does not cover
many of the measures that were discussed in the Uruguay Round negotiations, such as export
performance and transfer of technology requirements.
Objectives back to top
The objectives of the Agreement, as defined 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”.
Limitation of Coverage to Trade in Goods back to top
The coverage of the Agreement is defined in Article 1, which
states that the Agreement applies to investment measures related to trade in goods only.
Thus, the TRIMs Agreement does not apply to services.
Lack of a Generic Definition of What is a “Trade-Related Investment Measure” back to top
The term “trade-related investment measures”
(“TRIMs”) is not defined in the Agreement. However, the Agreement contains in an
annex an Illustrative List of measures that are inconsistent with GATT Article III:4 or
Article XI:1 of GATT 1994.
The TRIMs Agreement and Regulation of Foreign Investment
back to top
As an agreement that is based on existing GATT disciplines on
trade in goods, the Agreement is not concerned with the regulation of foreign investment.
The disciplines of the 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 favour 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.
Basic Substantive Obligations: Article 2 and the
Illustrative List back to top
Article 2.1 of the TRIMs Agreement requires Members not to apply
any TRIM that is inconsistent with the provisions of Article III (national treatment of
imported products) or Article XI (prohibition of quantitative restrictions on imports or
exports) of GATT 1994. An Illustrative List annexed to the TRIMs Agreement lists measures
that are inconsistent with paragraph 4 of Article III and paragraph 1 of Article XI.
Mandatory and Non-mandatory Measures back to top
The Illustrative List covers both TRIMs which are mandatory or
enforceable under domestic law or under administrative rulings and TRIMs compliance with
which is necessary to obtain an advantage.
Distinction between Paragraphs 1 and 2 of the Illustrative
List back to top
TRIMs identified in paragraph 1 of the Illustrative List as
being inconsistent with Article III:4 concern the purchase or use of products by an
enterprise, while the TRIMs listed in paragraph 2 as inconsistent with Article XI:1 of
GATT 1994 concern the importation or exportation of products by an enterprise.
TRIMs which are inconsistent with the national treatment
obligation of Article III:4 of GATT 1994
Paragraph 1(a) of the Illustrative List covers local content
TRIMs, which require the purchase or use by an enterprise of products of domestic origin
or domestic source (local content requirements) while paragraph 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.
In both cases, the inconsistency with Article III:4 of GATT 1994 results from the fact
that the measure subjects the purchase or use by an enterprise of imported products to
less favourable conditions than the purchase or use of domestic products.
TRIMs which are inconsistent with the prohibition on imposition of quantitative restrictions of Article XI:1 of GATT 1994
Paragraph 2(a) of the Illustrative List covers measures which
limit the importation by an enterprise of products used in its local production in general
terms or to an amount related to the volume or value of local production exported by the
enterprise. There is a conceptual similarity between this paragraph and paragraph 1(b) in
that they both cover trade-balancing measures. The difference is that paragraph 1(b) deals
with internal measures affecting the purchase or use of products after they have been
imported, while paragraph 2(a) deals with border measures affecting the importation of
products.
Measures identified in paragraph 2(b) of the list involve a restriction of imports in the
form of a foreign exchange balancing requirement, whereby the ability to import products
used in or related to local production is limited by restricting the enterprise's access
to foreign exchange to an amount related to the foreign exchange inflows attributable to
the enterprise.
Finally, paragraph 2(c) covers measures involving restrictions on the exportation of or
sale for export by an enterprise, whether specified in terms of particular products,
volume or value of products or in terms of a proportion of volume or value of its local
production. Since paragraph 2 applies the provisions of Article XI:1 of GATT 1994, it
deals only with measures that restrict exports. Other measures relating to exports, such
as export incentives and export performance requirements, are therefore not covered by the TRIMs Agreement.
Exceptions back to top
General exceptions
Article 3 of the TRIMs Agreement provides that all exceptions
under GATT 1994 shall apply, as appropriate, to the provisions of the TRIMs Agreement.
Developing countries
Article 4 allows developing countries to deviate temporarily
from the obligations of the TRIMs Agreement, as provided for in Article XVIII of GATT 1994
and related WTO provisions on safeguard measures for balance-of-payments difficulties.
Notification requirements back to top
Under Article 5.1 Members were required to notify to the Council
for Trade in Goods, within 90 days after the date of entry into force of the WTO
Agreement, any TRIMs that are not in conformity with the Agreement. A decision adopted by
the WTO General Council in April 1995 provided that governments that were not Members of
the WTO on 1 January 1995, but were entitled to become original Members within a period of
two years after 1 January 1995, should make notifications under Article 5.1 within 90 days
after the date of their acceptance of the WTO Agreement.
Notifications received under Article 5.1 back to top
By 26 August 1998, notifications under Article 5.1 have been
submitted by Argentina, Barbados, Bolivia, Chile, Colombia, Costa Rica, Cyprus, Dominican
Republic, Ecuador, Egypt, India, Indonesia, Mexico, Malaysia, Nigeria, Pakistan, Peru,
Philippines, Poland, Romania, South Africa, Thailand, Uganda, Uruguay, and Venezuela.
These notifications have been circulated in the G/TRIMS/N/1/COUNTRY/—series of documents.
Transition period for the elimination of TRIMs which are
inconsistent with the Agreement back to top
Members are obliged under Article 5.2 of the TRIMs Agreement to
eliminate TRIMs which have been notified under Article 5.1. Such elimination is to take
place within two years after the date of the entry into force of the WTO Agreement in the
case of a developed country Member, within five years in the case of developing countries
and within seven years in the case of a least developed country Member.
Limitation of the benefits of the transition period to
existing measures back to top
TRIMs introduced less than 180 days before the date of the entry
into force of the WTO Agreement do not benefit from these transition periods. Thus, the
transition provisions of the TRIMs Agreement do not permit the introduction of new TRIMs
that are inconsistent with the Agreement.
“Standstill” requirement during the transition
period back to top
The Agreement precludes Members from changing measures notified
under Article 5.1 in a manner which would increase their inconsistency with the Agreement
(Article 5.4). However, if a Member has notified a TRIM under Article 5.1, it may during
the transition period apply the same TRIM to a new investment in order to avoid a
distortion of competition between the new investment and existing investments (Article 5.5).
Possible extension of the transition period back to top
Under Article 5.3, the Council for Trade in Goods may, on
request, extend the transition period for the elimination of TRIMs in the case of a
developing country which demonstrates particular difficulties in implementing the
provisions of the Agreement.
Transparency back to top
Provisions designed to ensure transparency with respect to the
application of TRIMs are contained in Article 6 of the TRIMs Agreement. This Article
provides in particular for the notification to the WTO Secretariat of lists of
publications in which TRIMs may be found. Notifications received under these provisions
are listed in document G/TRIMS/N/2/Rev.2.
Committee on Trade-Related Investment Measures back to top
Article 7 of the TRIMs Agreement establishes a Committee on
Trade-Related Investment Measures as a forum to examine the implementation operation of
the Agreement. The Committee usually meets twice a year. Much of the work of the Committee
to date has focused on the notifications received under Article 5.1 of the Agreement.
Dispute Settlement back to top
The general WTO dispute settlement procedure, as laid down in
the Dispute Settlement Understanding, also applies to disputes arising under the TRIMs
Agreement (Article 8). Issues relating to the alleged inconsistency of particular measures
with the TRIMs Agreement have been raised in a dispute settlement proceeding in which a
panel was established in 1997 concerning measures applied by Indonesia in the automotive
sector. The TRIMs Agreement has also been referred to in the disputes concerning the
European Community's import regime for bananas; however, the panels established in those
disputes did not make findings under the TRIMs Agreement. Measures taken by Brazil and the
Philippines have been the subject of bilateral consultations pursuant to the TRIMs
Agreement.
Review of the TRIMs Agreement: Investment Policy and
Competition Policy as Subjects for Future Consideration back to top
Article 9 stipulates that, not later than five years after the
date of entry into force of the Agreement, the Council for Trade in Goods shall review the
operation of the TRIMs Agreement. In this review, consideration is to be given as to
whether the Agreement should be supplemented with provisions on investment policy and
competition policy. The first WTO Ministerial Conference held in Singapore in 1996,
established working groups on trade and investment and on trade and competition
“having regard to the existing WTO provisions on matters related to investment and
competition policy and the built-in agenda in these areas, including under the TRIMs
Agreement”. |
