Agreement on Trade-Related Investment Measures

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I. Preamble 

A. Text of the Preamble

Members,

 

   Considering that Ministers agreed in the Punta del Este Declaration that “Following an examination of the operation of GATT Articles related to the trade-restrictive and distorting effects of investment measures, negotiations should elaborate, as appropriate, further provisions that may be necessary to avoid such adverse effects on trade”;

 

   Desiring to promote 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;

 

   Taking into account the particular trade, development and financial needs of developing country Members, particularly those of the least-developed country Members;

 

   Recognizing that certain investment measures can cause trade-restrictive and distorting effects;

 

   Hereby agree as follows:

 
B. Interpretation and Application of the Preamble

No jurisprudence or decision of a competent WTO body.

 

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II. Article 1 

A. Text of Article 1

Article 1: Coverage

   This Agreement applies to investment measures related to trade in goods only (referred to in this Agreement as “TRIMs”).

 
B. Interpretation and Application of Article 1

1. “Investment measures”

1.   In Indonesia — Autos, the Panel examined the consistency of certain Indonesian measures with the TRIMs Agreement. Indonesia argued that the measures at issue were not trade-related investment measures within the scope of the TRIMs Agreement. The Panel rejected Indonesia’s argument. First, the Panel found that the term “investment measures” is not limited to measures taken specifically in regard to foreign investment:

“We note that the use of the broad term ‘investment measures’ indicates that the TRIMs Agreement is not limited to measures taken specifically in regard to foreign investment. … [N]othing in the TRIMs Agreement suggests that the nationality of the ownership of enterprises subject to a particular measure is an element in deciding whether that measure is covered by the Agreement. We therefore find without textual support in the TRIMs Agreement the argument that since the TRIMs Agreement is basically designed to govern and provide a level playing field for foreign investment, measures relating to internal taxes or subsidies cannot be construed to be a trade-related investment measure. We recall in this context that internal tax advantages or subsidies are only one of many types of advantages which may be tied to a local content requirement which is a principal focus of the TRIMs Agreement. The TRIMs Agreement is not concerned with subsidies and internal taxes as such but rather with local content requirements, compliance with which may be encouraged through providing any type of advantage. Nor, in any case, do we see why an internal measure would necessarily not govern the treatment of foreign investment.”⁽¹⁾

2.   In examining whether the measures in question were “investment measures”, the Panel in Indonesia — Autos reviewed the legislative provisions relating to these measures. The Panel found that the measures at issue fell within any reasonable interpretation of those terms:

“On the basis of our reading of these measures applied by Indonesia under the 1993 and the 1996 car programmes, which have investment objectives and investment features and which refer to investment programmes, we find that these measures are aimed at encouraging the development of a local manufacturing capability for finished motor vehicles and parts and components in Indonesia. Inherent to this objective is that these measures necessarily have a significant impact on investment in these sectors. For this reason, we consider that these measures fall within any reasonable interpretation of the term ‘investment measures’. We do not intend to provide an overall definition of what constitutes an investment measure. We emphasize that our characterization of the measures as ‘investment measures’ is based on an examination of the manner in which the measures at issue in this case relate to investment. There may be other measures which qualify as investment measures within the meaning of the TRIMs Agreement because they relate to investment in a different manner.

 

With respect to the arguments of Indonesia that the measures at issue are not investment measures because the Indonesian Government does not regard the programmes as investment programmes and because the measures have not been adopted by the authorities responsible for investment policy, we believe that there is nothing in the text of the TRIMs Agreement to suggest that a measure is not an investment measure simply on the grounds that a Member does not characterize the measure as such, or on the grounds that the measure is not explicitly adopted as an investment regulation. In any event, we note that some of the regulations and decisions adopted pursuant to these car programmes were adopted by investment bodies.”⁽²⁾

2. “related to trade”

3.   In examining whether the measures at issue in the dispute before it were “trade-related”, the Panel in Indonesia — Autos held that local content requirements were necessarily trade-related:

“[I]f these measures are local content requirements, they would necessarily be ‘trade–related’ because such requirements, by definition, always favour the use of domestic products over imported products, and therefore affect trade.

 

An examination of whether these measures are covered by Item (1) of the Illustrative List of TRIMs annexed to the TRIMs Agreement, which refers amongst other situations to measures with local content requirements, will not only indicate whether they are trade-related but also whether they are inconsistent with Article III:4 and thus in violation of Article 2.1 of the TRIMs Agreement.”⁽³⁾

3. Necessity of separate analysis on whether a measure is a trade-related investment measure

4.   In Indonesia — Autos, the parties disagreed on the question whether any requirement by an enterprise to purchase or use a domestic product in order to obtain an advantage, by definition falls within the Illustrative List or whether the TRIMs Agreement requires a separate analysis of the nature of a measure as a “trade-related investment measure” before proceeding to an examination of whether the measure is covered by the Illustrative List.⁽⁴⁾ The Panel considered it unnecessary to resolve this issue:

“[I]f we were to consider that the measures in dispute in this case are in any event trade-related investment measures, it would not be necessary to decide this basic issue of interpretation. We note in this regard that the United States and the European Communities have also argued in the alternative that, even if it is necessary to show a relationship of a measure to investment, any such requirement would be satisfied in the case under consideration.

 

Therefore, we will first determine whether the Indonesian measures are TRIMs. To this end, we address initially the issue of whether the measures at issue are ‘investment measures’. Next, we consider whether they are ‘trade-related’. Finally, we shall examine whether any measure found to be a TRIM is inconsistent with the provisions of Article III and thus violates the TRIMs Agreement.”⁽⁵⁾

 

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III. Article 2 and the Illustrative List 

A. Text of Article 2 and the Illustrative List

Article 2: National Treatment and Quantitative Restrictions

1.   Without prejudice to other rights and obligations under GATT 1994, no Member shall apply any TRIM that is inconsistent with the provisions of Article III or Article XI of GATT 1994.

 

2.   An illustrative list of TRIMs that are inconsistent with the obligation of national treatment provided for in paragraph 4 of Article III of GATT 1994 and the obligation of general elimination of quantitative restrictions provided for in paragraph 1 of Article XI of GATT 1994 is contained in the Annex to this Agreement.

Annex: Illustrative List

1.   TRIMs that are inconsistent with the obligation of national treatment provided for in paragraph 4 of Article III of GATT 1994 include those which are mandatory or enforceable under domestic law or under administrative rulings, or compliance with which is necessary to obtain an advantage, and which require:

 

(a)   the purchase or use by an enterprise of products of domestic origin or from any domestic source, whether 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; or

 

(b)   that an enterprise’s purchases or use of imported products be limited to an amount related to the volume or value of local products that it exports.

 

2.   TRIMs that are inconsistent with the obligation of general elimination of quantitative restrictions provided for in paragraph 1 of Article XI of GATT 1994 include those which are mandatory or enforceable under domestic law or under administrative rulings, or compliance with which is necessary to obtain an advantage, and which restrict:

 

(a)   the importation by an enterprise of products used in or related to its local production, generally or to an amount related to the volume or value of local production that it exports;

 

(b)   the importation by an enterprise of products used in or related to its local production by restricting its access to foreign exchange to an amount related to the foreign exchange inflows attributable to the enterprise; or

 

(c)   the exportation or sale for export by an enterprise of products, whether 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.

 
B. Interpretation and Application of Article 2 and the Illustrative List

5.   In EC — Bananas III, the Panel discussed the relationship between GATT 1994, the Licensing Agreement and Article 2 of the TRIMs Agreement. The Panel concluded that there was no conflict among these provisions:

“Proceeding on this basis, we have to ascertain whether the provisions of the Licensing Agreement and the TRIMs Agreement, to the extent they are within the coverage of the terms of reference of this Panel, contain any conflicting obligations which are contrary to those stipulated by Articles I, III, X, or XIII of GATT 1994, in the sense that Members could not comply with the obligations resulting from both Agreements at the same time or that WTO Members are authorized to act in a manner that would be inconsistent with the requirements of GATT rules. Wherever the answer to this question is affirmative, the obligation or authorization contained in the Licensing or TRIMs Agreement would, in accordance with the General Interpretative Note, prevail over the provisions of the relevant article of GATT 1994. Where the answer is negative, both provisions would apply equally.

 

Based on our detailed examination of the provisions of the Licensing Agreement, Article 2 of the TRIMs Agreement as well as GATT 1994, we find that no conflicting, i.e. mutually exclusive, obligations arise from the provisions of the three Agreements that the parties to the dispute have put before us. Indeed, we note that the first substantive provision of the Licensing Agreement, Article 1.2, requires Members to conform to GATT rules applicable to import licensing.

 

In the light of the foregoing discussion, we find that the provisions of GATT 1994, the Licensing Agreement and Article 2 of the TRIMs Agreement all apply to the EC’s import licensing procedures for bananas.”⁽⁶⁾

6.   The Panel in EC — Bananas III found that the allocation of import licences to a particular category of operators was inconsistent with Article III:4 of GATT 1994.⁽⁷⁾ With respect to the claim that this measure was also inconsistent with Article 2 of the TRIMs Agreement, the Panel, further to noting that the TRIMs Agreement essentially interprets and clarifies the provisions of Article III where trade-related investment measures are concerned, exercised judicial economy:

“[W]e first examine the relationship of the TRIMs Agreement to the provisions of GATT. We note that with the exception of its transition provisions⁽⁸⁾ the TRIMs Agreement essentially interprets and clarifies the provisions of Article III (and also Article XI) where trade-related investment measures are concerned. Thus the TRIMs Agreement does not add to or subtract from those GATT obligations, although it clarifies that Article III:4 may cover investment-related matters.

 

We emphasize that in view of the importance of the TRIMs Agreement in the framework of the agreements covered by the WTO, we have examined the claims and legal arguments advanced by the parties under the TRIMs Agreement carefully. However, for the reasons stated in the previous paragraph, we do not consider it necessary to make a specific ruling under the TRIMs Agreement with respect to the eligibility criteria for the different categories of operators and the allocation of certain percentages of import licences based on operator categories. On the one hand, a finding that the measure in question would not be considered a trade-related investment measure for the purposes of the TRIMs Agreement would not affect our findings in respect of Article III:4 since the scope of that provision is not limited to TRIMs and, on the other hand, steps taken to bring EC licensing procedures into conformity with Article III:4 would also eliminate the alleged non-conformity with obligations under the TRIMs Agreement.”⁽⁹⁾

7.   In Indonesia — Autos, claims regarding various Indonesian measures were raised under the GATT 1994, the SCM Agreement and Article 2 of the TRIMs Agreement. The Panel rejected Indonesia’s argument that the measures in dispute were covered only by the SCM Agreement, reasoning that the SCM Agreement and the TRIMs Agreement are concerned with different types of obligations and cover different subject matters:

“In this context the fact that the drafters included an express provision governing conflicts between GATT and the other Annex 1A Agreements, but did not include any such provision regarding the relationship between the other Annex 1A Agreements, at a minimum reinforces the presumption in public international law against conflicts. With respect to the nature of obligations, we consider that, with regard to local content requirements, the SCM Agreement and the TRIMs Agreement are concerned with different types of obligations and cover different subject matters. In the case of the SCM Agreement, what is prohibited is the grant of a subsidy contingent on use of domestic goods, not the requirement to use domestic goods as such. In the case of the TRIMs Agreement, what is prohibited are TRIMs in the form of local content requirements, not the grant of an advantage, such as a subsidy.

 

A finding of inconsistency with Article 3.1(b) of the SCM Agreement can be remedied by removal of the subsidy, even if the local content requirement remains applicable. By contrast, a finding of inconsistency with the TRIMs Agreement can be remedied by a removal of the TRIM that is a local content requirement even if the subsidy continues to be granted. Conversely, for instance, if a Member were to apply a TRIM (in the form of local content requirement), as a condition for the receipt of a subsidy, the measure would continue to be a violation of the TRIMs Agreement if the subsidy element were replaced with some other form of incentive. By contrast, if the local content requirements were dropped, the subsidy would continue to be subject to the SCM Agreement, although the nature of the relevant discipline under the SCM Agreement might be affected. Clearly, the two agreements prohibit different measures. We note also that under the TRIMs Agreement, the advantage made conditional on meeting a local content requirement may include a wide variety of incentives and advantages, other than subsidies. There is no provision contained in the SCM Agreement that obliges a Member to violate the TRIMs Agreement, or vice versa.

 

We consider that the SCM and TRIMs Agreements cannot be in conflict, as they cover different subject matters and do not impose mutually exclusive obligations. The TRIMs Agreement and the SCM Agreement may have overlapping coverage in that they may both apply to a single legislative act, but they have different focus, and they impose different types of obligations.”⁽¹⁰⁾

8.   The Panel in Indonesia — Autos found support for its finding in the Appellate Body Reports in Canada — Periodicals and EC — Bananas III:

“In support of this finding, we agree with the principles developed in the Periodicals⁽¹¹⁾ and Bananas III⁽¹²⁾ cases concerning the relationship between two WTO agreements at the same level within the structure of WTO agreements. It was made clear that, while the same measure could be scrutinized both under GATT and under GATS, the specific aspects of that measure to be examined under each agreement would be different. In the present case, there are in fact two different, albeit linked, aspects of the car programmes for which the complainants have raised claims. Some claims relate to the existence of local content requirements, alleged to be in violation of the TRIMs Agreement, and the other claims relate to the existence of subsidies, alleged to cause serious prejudice within the meaning of the SCM Agreement.

 

[W]e do not consider that the application of the TRIMs Agreement to this dispute would reduce the SCM Agreement, and Article 27.3 thereof, to ‘inutility’. On the contrary, with Article 27.3 of the SCM Agreement, those subsidy measures of developing countries that are contingent on compliance with TRIMs (in the form of local content requirement) and that are permitted during the transition period provided under Article 5 of the TRIMs Agreement, are not prohibited by Article 3.1(b) of the SCM Agreement, for the transition period specified in Article 27.3 of the SCM Agreement.

 

We find that there is no general conflict between the SCM Agreement and the TRIMs Agreement. Therefore, to the extent that the Indonesian car programmes are TRIMs and subsidies, both the TRIMs Agreement and the SCM Agreement are applicable to this dispute.”⁽¹³⁾

9.   The Panel in Indonesia — Autos also addressed the relationship between the TRIMs Agreement and the GATT 1994. The complainants claimed that the Indonesian 1996 car programme, by providing for local content requirements linked to tax benefits for National Cars (which by definition incorporated a certain percentage value of domestic products), and to customs duty benefits for imported parts and components used in National Cars, violated both Article 2 of the TRIMs Agreement and Article III:4 of the GATT 1994. The Panel began by stating that:

“Since the complainants have raised claims that the local content requirements of the car programmes violate both the provisions of Article III:4 of GATT and Article 2 of the TRIMs Agreement, we must consider which claims to examine first. In deciding which claims to examine first, we must, initially, address the relationship between Article III of GATT and the TRIMs Agreement.

 

In this regard, we note first that on its face the TRIMs Agreement is a fully fledged agreement in the WTO system. The TRIMs Agreement is not an ‘Understanding to GATT 1994’, unlike the six Understandings which form part of the GATT 1994. The TRIMs Agreement and Article III:4 prohibit local content requirements that are TRIMs and therefore can be said to cover the same subject matter. But when the TRIMs Agreement refers to ‘the provisions of Article III’, it refers to the substantive aspects of Article III; that is to say, conceptually, it is the ten paragraphs of Article III that are referred to in Article 2.1 of the TRIMs Agreement, and not the application of Article III in the WTO context as such. Thus if Article III is not applicable for any reason not related to the disciplines of Article III itself, the provisions of Article III remain applicable for the purpose of the TRIMs Agreement. This view is reinforced by the fact that Article 3 of the TRIMs Agreement contains a distinct and explicit reference to the general exceptions to GATT. If the purpose of the TRIMs Agreement were to refer to Article III as applied in the light of other (non Article III) GATT rules, there would be no need to refer to such general exceptions.⁽¹⁴⁾”⁽¹⁵⁾

10.   The Panel in Indonesia — Autos concluded from its analysis of the measures at issue that “under these measures compliance with the provisions for the purchase and use of particular products of domestic origin is necessary to obtain the tax and customs duty benefits on these car programmes, as referred to in Item 1(a) of the Illustrative List of TRIMs.”⁽¹⁶⁾ The Panel then concluded that the tax and customs duty benefits were “advantages” within the meaning of the chapeau of paragraph 1 of the Illustrative List:

“In the context of the claims under Article III:4 of GATT, Indonesia has argued that the reduced customs duties are not internal regulations and as such cannot be covered by the wording of Article III:4. We do not consider that the matter before us in connection with Indonesia’s obligations under the TRIMs Agreement is the customs duty relief as such but rather the internal regulations, i.e. the provisions on purchase and use of domestic products, compliance with which is necessary to obtain an advantage, which advantage here is the customs duty relief. The lower duty rates are clearly ‘advantages’ in the meaning of the chapeau of the Illustrative List to the TRIMs Agreement and as such, we find that the Indonesian measures fall within the scope of Item 1 of the Illustrative List of TRIMs.

 

Indonesia also argues that the local content requirements of its car programmes do not constitute classic local content requirements within the meaning of the FIRA panel (which involved a binding contract between the investor and the Government of Canada) because they leave companies free to decide from which source to purchase parts and components. We note that the Indonesian producers or assemblers of motor vehicles (or motor vehicle parts) must satisfy the local content targets of the relevant measures in order to take advantage of the customs duty and tax benefits offered by the Government. The wording of the Illustrative List of the TRIMs Agreement makes it clear that a simple advantage conditional on the use of domestic goods is considered to be a violation of Article 2 of the TRIMs Agreement even if the local content requirement is not binding as such. We note in addition that this argument has also been rejected in the Panel Report on Parts and Components.⁽¹⁷⁾

 

We thus find that the tax and tariff benefits contingent on meeting local requirements under these car programmes constitute ‘advantages’.”⁽¹⁸⁾

11.   The Panel in Indonesia — Autos found that the tax and tariff benefits contingent on meeting local requirements under the Indonesian car programmes constituted “advantages” within the meaning of the chapeau of paragraph 1 of the Illustrative List of TRIMs, and as a result were inconsistent with Article 2.1 of the TRIMs Agreement.⁽¹⁹⁾ The Panel then decided that it was unnecessary to consider claims raised with respect to these measures under Article III:4 of GATT 1994:

“The complainants have claimed that the local content requirements under examination, and which we find are inconsistent with the TRIMs Agreement, also violate the provisions of Article III:4 of GATT. Under the principle of judicial economy,⁽²⁰⁾ a panel only has to address the claims that must be addressed to resolve a dispute or which may help a losing party in bringing its measures into conformity with the WTO Agreement. The local content requirement aspects of the measures at issue have been addressed pursuant to the claims of the complainants under the TRIMs Agreement. We consider therefore that action to remedy the inconsistencies that we have found with Indonesia’s obligations under the TRIMs Agreement would necessarily remedy any inconsistency that we might find with the provisions of Article III:4 of GATT. We recall our conclusion that non applicability of Article III would not affect as such the application of the TRIMs Agreement. We consider therefore that we do not have to address the claims under Article III:4, nor any claim of conflict between Article III:4 of GATT and the provisions of the SCM Agreement.”⁽²¹⁾

12.   In Canada — Autos, the complainants raised claims pertaining to conditions concerning the level of Canadian value added, and the maintenance of a certain ratio between the net sales value of vehicles produced in Canada and the net sales value of vehicles sold for consumption in Canada. These claims were based upon both Article III:4 of the GATT 1994 and Article 2.1 of the TRIMs Agreement. The Panel decided to examine first the claims raised under Article III:4 of GATT 1994. The Panel first took note of the different outcomes in prior panel proceedings resulting from the sequence in which the claims were addressed, and the application of judicial economy. The Panel then turned to the case before it:

“In the present dispute, the parties have not explicitly addressed this question of which of the claims raised under Article III:4 of the GATT and Article 2.1 of the TRIMs Agreement should be examined first. Implicit in the order in which they have presented their claims is the view that these claims should be addressed first under Article III:4 of the GATT. While we are aware of the statement made by the Appellate Body in EC — Bananas III, and referred to by the panel in Indonesia — Autos, that a claim should be examined first under the agreement which is the most specific with respect to that claim, we are not persuaded that the TRIMs Agreement can be properly characterized as being more specific than Article III:4 in respect of the claims raised by the complainants in the present case. Thus, we note that there is disagreement between the parties not only on whether the measures at issue can be considered to be ‘trade-related investment measures’ but also on whether the Canadian value added requirements and ratio requirements are explicitly covered by the Illustrative List annexed to the TRIMs Agreement. It would thus appear that, assuming that the measures at issue are ‘trade-related investment measures’, their consistency with Article III:4 of the GATT may not be able to be determined simply on the basis of the text of the Illustrative List but may require an analysis based on the wording of Article III:4. Consequently, we doubt that examining the claims first under the TRIMs Agreement will enable us to resolve the dispute before us in a more efficient manner than examining these claims under Article III:4.

 

In light of the foregoing considerations, we decide that, consistent with the approach of the panel in EC — Bananas III, we will examine the claims in question first under Article III:4 of the GATT.”⁽²²⁾

13.   After finding that certain requirements concerning domestic value added were inconsistent with Article III:4 of the GATT 1994,⁽²³⁾ the Panel in Canada — Autos addressed the issue of why judicial economy regarding the TRIMs claim would be appropriate in that case:

“In light of the finding in the preceding paragraph, we do not consider it necessary to make a specific ruling on whether the CVA requirements provided for in the MVTO 1998 and the SROs are inconsistent with Article 2.1 of the TRIMs Agreement. We believe that the Panel’s reasoning in EC — Bananas III as to why it did not make a finding under the TRIMs Agreement after it had found that certain aspects of the EC’s licensing procedures were inconsistent with Article III:4 of the GATT also applies to the present case. Thus, on the one hand, a finding in the present case that the CVA requirements are not trade-related investment measures for the purposes of the TRIMs Agreement would not affect our finding in respect of the inconsistency of these requirements with Article III:4 of the GATT since the scope of that provision is not limited to trade-related investment measures. On the other hand, steps taken by Canada to bring these measures into conformity with Article III:4 would also eliminate the alleged inconsistency with obligations under the TRIMs Agreement.”⁽²⁴⁾

14.   The Panel in Canada — Autos also rejected a claim under Article 2.1 of the TRIMs Agreement as a consequence of rejecting a claim under GATT Article III:4 against the same measure:

“[W]e find that the European Communities has failed to demonstrate that, by applying ratio requirements under the MVTO 1998 and the SROs as one of the conditions determining the eligibility of duty-free importation of motor vehicles, Canada is according to motor vehicles imported duty free less favourable treatment with respect to their internal sale than to like domestic motor vehicles. The claim of the European Communities regarding the inconsistency of the ratio requirements with Article III:4 must therefore be rejected. Because of this finding …, we must also reject the claim of the European Communities that these requirements are inconsistent with Article 2.1 of the TRIMs Agreement. We note in this regard that the European Communities claims that these ratio requirements are trade-related investment measures which are inconsistent with Article 2.1 of the TRIMs Agreement because they violate Article III:4 of the GATT.”⁽²⁵⁾

15.   In India — Autos, the United States and the European Communities alleged violations of Articles III:4 and XI:1 of the GATT 1994 and Article 2 of the TRIMs Agreement in relation to certain Indian measures affecting trade and investment in the automotive industry. The Panel noted that these measures could violate both the GATT 1994 and the TRIMs Agreement, and decided to examine GATT 1994 provisions first. The Panel began its analysis of the relationship between the GATT 1994 and the TRIMs Agreement in the light of Canada — Autos:

“As a general matter, even if there was some guiding principle to the effect that a specific covered Agreement might appropriately be examined before a general one where both may apply to the same measure, it might be difficult to characterize the TRIMs Agreement as necessarily more ‘specific’ than the relevant GATT provisions. Although the TRIMs Agreement ‘has an autonomous legal existence’, independent from the relevant GATT provisions, as noted by the Indonesia — Autos panel, the substance of its obligations refers directly to Articles III and XI of the GATT, and clarifies their meaning, inter alia, through an Illustrative list. On one view, it simply provides additional guidance as to the identification of certain measures considered to be inconsistent with Articles III:4 and XI:1 of the GATT 1994. On the other hand, the TRIMs Agreement also introduces rights and obligations that are specific to it, through its notification mechanism and related provisions. An interpretative question also arises in relation to the TRIMs Agreement as to whether a complainant must separately prove that the measure in issue is a ‘trade-related investment measure’. For either of these reasons, the TRIMs Agreement might be arguably more specific in that it provides additional rules concerning the specific measures it covers.⁽²⁶⁾ The Panel is therefore not convinced that, as a general matter, the TRIMs Agreement could inherently be characterized as more specific than the relevant GATT provisions.”⁽²⁷⁾

16.   The India — Autos Panel then decided to examine the GATT 1994 provisions first.⁽²⁸⁾ After finding that both the indigenization and the neutralization conditions were inconsistent with Articles III:4 and XI:1 of the GATT 1994, the Panel applied the principle of judicial economy and did not separately consider whether such conditions also violated the provisions of the TRIMs Agreement.⁽²⁹⁾ However, the panel found that a condition provided in a regulation and in binding agreements between the government and investors limiting the amount of imports by linking them to an export commitment “acts as a restriction on importation, contrary to the terms of Article XI:1” of the GATT. The Panel stated that this finding “appears consistent with Item 2(a) of the Illustrative List … which suggests that measures linking the amount of imports to a certain quantity or value of exports can constitute restrictions on importation within the meaning of Article XI:1.”⁽³⁰⁾ It noted that “this item does not limit the linkage to past export.”⁽³¹⁾ The Panel also noted that “to fall within the terms of item 2(a), the measures in question may in any case need to be characterized as measures that ‘restrict’ imports in certain ways.”⁽³²⁾

17.   In Canada — Wheat Exports and Grain Imports, the Panel rejected a claim that Section 87 of the Canada Grain Act was inconsistent with Article III:4 of the GATT 1994, and therefore found that the measure was not inconsistent with Article 2.1 of the TRIMs Agreement:

“The United States has not established that Section 87 is inconsistent with Article III:4 of the GATT 1994. In view of these findings, it is clear that, even if Section 87 could be considered an investment measure related to trade in goods within the meaning of the TRIMs Agreement, the United States has not established that Section 87 is, as such, inconsistent with Article 2.1 of the TRIMs Agreement. Moreover, since the United States has not established that Section 87 of the Canada Grain Act legally precludes producers of foreign grain or foreign producers of grain from gaining access to producer railway cars, the United States has also failed to establish that Section 87 requires the use by an enterprise of products of domestic origin or from any domestic source within the meaning of paragraph 1(a) of the Annex to the TRIMs Agreement.”⁽³³⁾

18.   In Colombia — Ports of Entry, the Panel examined the relationship between Article 2 (and the Illustrative List) of the TRIMs Agreement and Article XI:1 of the GATT 1994. Specifically, the Panel rejected the argument that Article XI:1 of the GATT should be interpreted narrowly to cover only those types of measures included in the Illustrative List of the TRIMs Agreement:

“Colombia has lastly referred to Paragraph 2 of the Illustrative List of the Annex of the TRIMs Agreement as informing the scope of Article XI:1. The TRIMs Agreement states in Article 2 that ‘no Member shall apply any TRIM that is inconsistent with the provisions of … Article XI of GATT 1994’. Paragraph 2 of the Illustrative List of the Annex of the TRIMs Agreement further provides in part that ‘TRIMs that are inconsistent with the obligation of general elimination of quantitative restrictions provided for in paragraph 1 of Article XI of GATT 1994 include those … which restrict: … the importation … generally or to an amount related to the volume or value of local production that it exports’. On a plain reading, the Annex expressly recognizes that Article XI:1 contains an obligation to generally eliminate quantitative restrictions. The Illustrative List then identifies various type of TRIMs measures that should be considered prohibited import or export restrictions, i.e. each subparagraph of the Illustrative List refers to restriction based on specified amounts, such as the types of products used in or related to production; the volume or value of local production; the volume or value of products, in terms of product type; or to an amount related to foreign exchange flows. In the Panel’s view, Article XI:1 is not restricted to such a finite list of possible measures. On the contrary, Article XI:1 applies to ‘prohibitions or restrictions other than duties, taxes or other charges’ and does not include finite categories. Accordingly, the Panel declines to consider the Illustrative List of the Annex of the TRIMs Agreement in interpreting the scope of Article XI:1.”⁽³⁴⁾

19.   In China — Publications and Audiovisual Products, the Appellate Body referred to the Illustrative List in the Annex to the TRIMs Agreement in the context of observing that some measures (e.g. TRIMs) that do not directly regulate goods, or the importation of goods, may nonetheless contravene GATT obligations:

“The close relationship between restrictions on entities engaged in trade and GATT obligations relating to trade in goods has also been recognized in previous GATT panel and WTO panel and Appellate Body reports, where measures that did not directly regulate goods, or the importation of goods, have nonetheless been found to contravene GATT obligations. Thus, for example, restrictions imposed on investors, wholesalers, and manufacturers, as well as on points of sale and ports of entry, have been found to be inconsistent with Article III:4 or Article XI:1 of the GATT 1947 or 1994. In addition, the Illustrative List in Annex 1 to the Agreement on Trade-Related Investment Measures (the ‘TRIMs Agreement’) sets out a number of requirements imposed on enterprises that are deemed to be inconsistent with either Article III:4 or Article XI:1 of the GATT 1994, and Article 3 of the TRIMs Agreement states that all exceptions under the GATT 1994 apply, as appropriate, to the provisions of the TRIMs Agreement. These considerations suggest that measures that restrict the rights of traders may violate GATT obligations with respect to trade in goods.”⁽³⁵⁾

 

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IV. Article 3 

A. Text of Article 3

Article 3: Exceptions

   All exceptions under GATT 1994 shall apply, as appropriate, to the provisions of this Agreement.

 
B. Interpretation and Application of Article 3

20.   In Indonesia — Autos, the Panel referred to Article 3 in discussing the relationship between the TRIMs Agreement and GATT 1994. See the references to this report in paragraph 9 above. The Panel also noted that “a violation of Article 2.1 of the TRIMs Agreement may be justified under Articles 3, 4 or 5 of the TRIMs Agreement”.⁽³⁶⁾

21.   In China — Publications and Audiovisual Products, the Appellate Body referred to the Illustrative List in the Annex to the TRIMs Agreement in the context of observing that some measures (e.g. TRIMs) that do not directly regulate goods, or the importation of goods, may nonetheless contravene GATT obligations. See paragraph 19 above.

 

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V. Article 4 

A. Text of Article 4

Article 4: Developing Country Members

   A developing country Member shall be free to deviate temporarily from the provisions of Article 2 to the extent and in such a manner as Article XVIII of GATT 1994, the Understanding on the Balance-of-Payments Provisions of GATT 1994, and the Declaration on Trade Measures Taken for Balance-of-Payments Purposes adopted on 28 November 1979 (BISD 26S/205–209) permit the Member to deviate from the provisions of Articles III and XI of GATT 1994.

 
B. Interpretation and Application of Article 4

22.   In Indonesia — Autos, the Panel noted that “a violation of Article 2.1 of the TRIMs Agreement may be justified under Articles 3, 4 or 5 of the TRIMs Agreement”.⁽³⁷⁾

 

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VI. Article 5 

A. Text of Article 5

Article 5: Notification and Transitional Arrangements

1.   Members, within 90 days of the date of entry into force of the WTO Agreement, shall notify the Council for Trade in Goods of all TRIMs they are applying that are not in conformity with the provisions of this Agreement. Such TRIMs of general or specific application shall be notified, along with their principal features.(1)

 

(footnote original) 1 In the case of TRIMs applied under discretionary authority, each specific application shall be notified. Information that would prejudice the legitimate commercial interests of particular enterprises need not be disclosed.

 

2.   Each Member shall eliminate all TRIMs which are notified under paragraph 1 within two years of the date of entry into force of the WTO Agreement in the case of a developed country Member, within five years in the case of a developing country Member, and within seven years in the case of a least-developed country Member.

 

3.   On request, the Council for Trade in Goods may extend the transition period for the elimination of TRIMs notified under paragraph 1 for a developing country Member, including a least-developed country Member, which demonstrates particular difficulties in implementing the provisions of this Agreement. In considering such a request, the Council for Trade in Goods shall take into account the individual development, financial and trade needs of the Member in question.

 

4.   During the transition period, a Member shall not modify the terms of any TRIM which it notifies under paragraph 1 from those prevailing at the date of entry into force of the WTO Agreement so as to increase the degree of inconsistency with the provisions of Article 2. TRIMs introduced less than 180 days before the date of entry into force of the WTO Agreement shall not benefit from the transitional arrangements provided in paragraph 2.

 

5.   Notwithstanding the provisions of Article 2, a Member, in order not to disadvantage established enterprises which are subject to a TRIM notified under paragraph 1, may apply during the transition period the same TRIM to a new investment (i) where the products of such investment are like products to those of the established enterprises, and (ii) where necessary to avoid distorting the conditions of competition between the new investment and the established enterprises. Any TRIM so applied to a new investment shall be notified to the Council for Trade in Goods. The terms of such a TRIM shall be equivalent in their competitive effect to those applicable to the established enterprises, and it shall be terminated at the same time.

 
B. Interpretation and Application of Article 5

1. General

23.   The Panel in EC — Bananas III declined to consider a claim based on Article 5 on the grounds that it had not been properly identified in the panel request.⁽³⁸⁾

24.   In Indonesia — Autos, the Panel noted that “a violation of Article 2.1 of the TRIMs Agreement may be justified under Articles 3, 4 or 5 of the TRIMs Agreement”.⁽³⁹⁾

2. Article 5.1

25.   At its meeting of 20 February 1995, the Council for Trade in Goods adopted a standard format for notifications required under Article 5.1(40), which had been recommended by the Preparatory Committee for the World Trade Organization.⁽⁴¹⁾

26.   On 3 April 1995, the General Council adopted a decision on notifications under Article 5.1 by states and separate customs territories eligible to become original WTO Members that accepted the WTO Agreement after its entry into force. The decision permits them to submit these notifications within 90 days from the date of acceptance of the WTO Agreement, but does not change the phase-out periods in Article 5.2 or the requirements of Article 5.4, both of which run from the date of entry into force of the WTO Agreement.⁽⁴²⁾

27.   The following table contains a list of all notifications of measures under Article 5.1.⁽⁴³⁾ In the case of some Members, notifications have been submitted later than the 90-day period foreseen.

28.   Annex F to the Hong Kong Ministerial Declaration adopted on 18 December 2005 provides:

“LDCs shall be allowed to maintain on a temporary basis existing measures that deviate from their obligations under the TRIMs Agreement. For this purpose, LDCs shall notify the Council for Trade in Goods (CTG) of such measures within two years, starting 30 days after the date of this declaration. LDCs will be allowed to maintain these existing measures until the end of a new transition period, lasting seven years. This transition period may be extended by the CTG under the existing procedures set out in the TRIMs Agreement, taking into account the individual financial, trade, and development needs of the Member in question.

 

LDCs shall also be allowed to introduce new measures that deviate from their obligations under the TRIMs Agreement. These new TRIMs shall be notified to the CTG no later than six months after their adoption. The CTG shall give positive consideration to such notifications, taking into account the individual financial, trade, and development needs of the Member in question. The duration of these measures will not exceed five years, renewable subject to review and decision by the CTG.

 

Any measures incompatible with the TRIMs Agreement and adopted under this decision shall be phased out by year 2020.”⁽⁵⁴⁾

29.   As of March 2011, no notifications had been received under this Decision.⁽⁵⁵⁾

3. Article 5.2

30.   With one exception,⁽⁵⁶⁾ acceding developed and developing country Members have to date eliminated any TRIMs during accession negotiations and have committed to apply the TRIMs Agreement from the date of accession without recourse to any transitional period. Some Members have committed to eliminate identified TRIMs upon accession.⁽⁵⁷⁾ See also the 3 April 1995 General Council Decision referenced in paragraph 26 above.

31.   The 18 December 2005 decision cited above permits least-developed countries to maintain existing TRIMs until the end of a new transition period, lasting until 18 December 2012. The duration of new TRIMs notified under this decision may not exceed five years, unless renewed by the CTG.⁽⁵⁸⁾

4. Article 5.3

32.   At its meeting of 3 and 8 May 2000, the General Council agreed to “direct the Council for Trade in Goods to give positive consideration to individual requests presented in accordance with Article 5.3 by developing countries for extension of transition periods for implementation of the TRIMs Agreement”.⁽⁵⁹⁾

33.   The 18 December 2005 decision cited above authorizes the Council for Trade in Goods to extend the transition period for existing or new TRIMs notified by LDCs, under the existing procedures in the TRIMs Agreement, taking into account the individual financial, trade, and development needs of the Member in question. Any measures incompatible with the TRIMs Agreement and adopted under that decision are to be phased out by year 2020.⁽⁶⁰⁾

34.   At its meeting of 31 July 2001, the Council for Trade in Goods adopted an extension of the transitional period for the elimination of TRIMs for seven developing countries, at their request.⁽⁶¹⁾ The extension lasted until the end of 2001. At its meeting of 5 November 2001, the Council for Trade in Goods adopted an additional extension of the transition period for six of these Members and for Thailand,⁽⁶²⁾ the length of the extension varied depending on the Member concerned.⁽⁶³⁾ On 20 December 2001, the General Council granted the remaining country of the original seven, Colombia, a waiver of its TRIMs obligations under Article 5.2 for one remaining TRIM in respect of beans, until 31 December 2003.⁽⁶⁴⁾

35.   On 19 December 2003, Pakistan made a request to the Council for Trade in Goods for a three-year extension of the transition period in which to eliminate its remaining TRIMs.⁽⁶⁵⁾ At its meeting of 10 March 2006, the Council for Trade in Goods took note of Pakistan’s statement that it wished to formally withdraw its request.⁽⁶⁶⁾

5. Article 5.5

36.   A standard format has been adopted for notifications made pursuant to this provision.⁽⁶⁷⁾ However, to date no such notifications have been made to the Council for Trade in Goods.

 

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VII. Article 6 

A. Text of Article 6

Article 6: Transparency

1.   Members reaffirm, with respect to TRIMs, their commitment to obligations on transparency and notification in Article X of GATT 1994, in the undertaking on “Notification” contained in the Understanding Regarding Notification, Consultation, Dispute Settlement and Surveillance adopted on 28 November 1979 and in the Ministerial Decision on Notification Procedures adopted on 15 April 1994.

 

2.   Each Member shall notify the Secretariat of the publications in which TRIMs may be found, including those applied by regional and local governments and authorities within their territories.

 

3.   Each Member shall accord sympathetic consideration to requests for information, and afford adequate opportunity for consultation, on any matter arising from this Agreement raised by another Member. In conformity with Article X of GATT 1994 no Member is required to disclose information the disclosure of which would impede law enforcement or otherwise be contrary to the public interest or would prejudice the legitimate commercial interests of particular enterprises, public or private.

 
B. Interpretation and Application of Article 6

1. Article 6.2

37.   At its meeting of 30 September and 1 November 1996, the TRIMs Committee adopted a Decision regarding the procedure for Members to provide the Secretariat with the name(s) of publication(s) in which TRIMs may be found (where such publications exist) including those applied by regional and local governments and authorities within their territories, and the addresses from which copies can be obtained.⁽⁶⁸⁾

38.   The Secretariat consolidates all notifications received under Article 6.2 in a single document.⁽⁶⁹⁾

 

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VIII. Article 7 

A. Text of Article 7

Article 7: Committee on Trade-Related Investment Measures

1.   A Committee on Trade-Related Investment Measures (referred to in this Agreement as the “Committee”) is hereby established, and shall be open to all Members. The Committee shall elect its own Chairman and Vice-Chairman, and shall meet not less than once a year and otherwise at the request of any Member.

 

2.   The Committee shall carry out responsibilities assigned to it by the Council for Trade in Goods and shall afford Members the opportunity to consult on any matters relating to the operation and implementation of this Agreement.

 

3.   The Committee shall monitor the operation and implementation of this Agreement and shall report thereon annually to the Council for Trade in Goods.

 
B. Interpretation and Application of Article 7

1. General

(a) Rules of procedure

39.   At its meeting on 1 December 1995, the Council for Trade in Goods approved the TRIMs Committee’s rules of procedure.⁽⁷⁰⁾

2. Article 7.2

40.   At its meeting on 20 February 1995 the Council for Trade in Goods, in approving the standard format for notifications specified under Article 5.1 and 5.5 of the Agreement, agreed to a proposal made by the Chairman of the Committee to the effect that the TRIMs Committee would carry out the task assigned to the Council for Trade in Goods with respect to notifications of TRIMs.⁽⁷¹⁾

41.   At its meeting of 7May 2002, the Council for Trade in Goods adopted a decision that assigned to the Committee on TRIMs the work for continued discussion on implementation issues relating to special treatment for developing countries in respect of the TRIMs Agreement. The decision stated that:

“Members agree in accordance with Article 7.2 of the TRIMs Agreement, the CTG will assign to the Committee on TRIMs the responsibility for conducting the work on the outstanding implementation issues contained in tirets 37–40 of the document JOB(01)152/Rev.1. The TRIMs committee shall report regularly on the progress of its work to the CTG, which will report to the Trade Negotiating Committee in accordance with paragraph 12 of the Doha Ministerial Declaration.”⁽⁷²⁾

42.   The TRIMs Committee discussed these issues during 2002–2007.⁽⁷³⁾ In its reports to the General Council, the TRIMs Committee also noted that it had considered two proposals on special and differential treatment submitted by the African Group⁽⁷⁴⁾, including a revised version of them⁽⁷⁵⁾, with respect to Article 4 and Article 5.3 of the TRIMs Agreement.

3. Article 7.3

43.   The TRIMs Committee reports to the Council for Trade in Goods on an annual basis.⁽⁷⁶⁾

 

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IX. Article 8 

A. Text of Article 8

Article 8: Consultation and Dispute Settlement

   The provisions of Articles XXII and XXIII of GATT 1994, as elaborated and applied by the Dispute Settlement Understanding, shall apply to consultations and the settlement of disputes under this Agreement.

 
B. Interpretation and Application of Article 8

1. Articles of the TRIMs Agreement invoked in panel and Appellate Body proceedings

44.   For a table listing all panel and Appellate Body proceedings in which articles of the TRIMs Agreement have been invoked, see the table of “Articles of the Covered Agreements Invoked in Panel and Appellate Body Proceedings” in the Chapter on the DSU.

 

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X. Article 9 

A. Text of Article 9

Article 9: Review by the Council for Trade in Goods

   Not later than five years after the date of entry into force of the WTO Agreement, the Council for Trade in Goods shall review the operation of this Agreement and, as appropriate, propose to the Ministerial Conference amendments to its text. In the course of this review, the Council for Trade in Goods shall consider whether the Agreement should be complemented with provisions on investment policy and competition policy.

 
B. Interpretation and Application of Article 9

45.   In accordance with Article 9, at its meeting of 15 October 1999, the Council for Trade in Goods launched the review of the operation of the TRIMs Agreement.⁽⁷⁷⁾ As requested by Members, the WTO and UNCTAD Secretariats jointly prepared a study on the use and effects of TRIMs and other performance requirements, which served as input for discussions under the Article 9 review of the TRIMs Agreement.⁽⁷⁸⁾

46.   The Singapore Ministerial Decision of 1997 agreed to establish a working group to establish the relationship between trade and investment, “[h]aving 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, and on the understanding that the work undertaken shall not prejudge whether negotiations will be initiated in the future”.⁽⁷⁹⁾

47.   The Doha Declaration of 2001 provided that “negotiations will take place after [the Cancún Ministerial Conference] on the basis of a decision to Agreement on Trade-Related Investment Measures 695 be taken, by explicit consensus, at that session on modalities of negotiations.”

48.   However, on 1 August 2004, the General Council decided that the issue of the relationship between trade and investment “will not form part of the Work Programme set out in the [Doha Ministerial Declaration] and therefore no work towards negotiations on any of the issues will take place within the WTO during the Doha Round.”⁽⁸⁰⁾

 

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XI. Annex: Illustrative List 

49.   The Illustrative List of TRIMs is addressed together with Article 2 of this Chapter. See paragraphs 5–19 above.