TRADE-RELATED INVESTMENT MEASURES (TRIMS)
WTO members continued to examine some longstanding LCR measures and their implications in terms of WTO rules.
Indonesia’s LCR policies remained high on the agenda as members called for meaningful actions to be taken by Indonesia to stop its alleged measures across a wide array of sectors. The United States observed that Indonesia’s LCR measures have expanded into renewable energies and internet connectivity.
China’s draft implementation measures for its new Cybersecurity Law once again drew close scrutiny from the United States and the European Union.
Members also discussed other LCR practices in Nigeria, Russia, Argentina and Turkey which, according to proponents, were inconsistent with the General Agreement on Trade and Tariffs (GATT) and the TRIMs Agreements.
The Committee elected Ms Carrie Wu from Chinese Taipei as the new chair. The next TRIMS meeting is scheduled for 18 October 2018.
China - local content in cybersecurity measures
The United States reiterated its concerns about China’s measures that require the use of local products in the insurance sector, according to the draft regulation on Insurance System Informatization published by the Chinese Insurance Regulation Commission. The US believes that provisions regarding “secure and controllable” requirements in this regulation and other draft implementation measures of the one-year-old Cybersecurity Law are part of China’s efforts to push for more use of Chinese domestic products in information and communications technology (ICT) and other sectors. The US asked China to refrain from issuing or implementing final measures until such concerns are addressed.
The European Union, Canada, Japan and Australia shared the US concerns. They were particularly interested in seeking a clearer definition of “secure and controllable” requirements and having more information on its implementation status. They claimed that these requirements may lead to trade-restrictive effects and are inconsistent with Article 2 of the TRIMS Agreement.
China declared that the purpose of drafting the measure on Insurance System Informatization was to guarantee the security of information in the insurance industry. China said its drafting process was open and transparent, and fully fulfilled the transparency requirements of the WTO. According to China, bilateral exchange had taken place between China and other members and it will continue to exchange views with WTO members and relevant stakeholders.
The United States appreciated China’s bilateral efforts while at the same time highlighting the importance of the committee’s work, and encouraged China’s full engagement in this committee. The US also asked China to submit its replies in written form.
Indonesia - local content requirements
Six items on the meeting agenda concerned Indonesia’s specific LCR policies. These items were placed on the agenda by the United States, the European Union, Japan, Canada, Australia and Chinese Taipei. Korea also expressed its specific concerns at the meeting.
The United States began with an overarching comment on Indonesia’s "pervasive" use of restrictive measures that favour domestic products against imported products. The US stated that Indonesia’s protective measures had expanded into new sectors, such as renewable energy, the internet and the information industry. The US emphasized that, despite the repeated calls from the United States for engagement in various WTO fora, including the Agriculture Committee, the Import Licensing Committee and the Goods Council, little effort had been made on Indonesia’s side to change its policies.
The European Union, Japan and the United States referred to Indonesian Ministry of Industry’s Regulation No. 65 of 2016 which they believed required local content for 4G LTE mobile devices and base stations. They claimed that such requirements were discriminatory and violated Article III.4 of the GATT and Article 2 of the TRIMs Agreement. Members urged Indonesia to eliminate these LCR measures in digital hardware and software and update any LCR policies in new areas.
Indonesia pointed out that these regulations are still in the drafting process and it is open to domestic and international investors in its telecommunication sectors without discrimination. Indonesia believes that these regulations are consistent with WTO rules.
With respect to certain local content provisions in the energy sector (mining, oil and gas), Japan, the European Union and the United States reiterated their concerns about export restrictions, investment restrictions and local content requirements. Japan remained concerned that the export restriction measures in Indonesia's Mining Law may violate Article XI of the GATT. The US, the EU, Canada and Australia were of the view that Indonesia had extended its LCR approach into renewable energy sectors. In particular, the US stressed that "prioritizing" domestic content as stipulated in Indonesia's regulations actually means "requiring" domestic content, which may be inconsistent with TRIMs obligations.
Indonesia indicated that there was no obligation to prioritize the use of domestic over foreign goods and services in the energy sector. Utilizing products is based on standards, pricing and availability of products. Firms can import foreign products if the required products are not available in the domestic market. And it is not mandatory to use domestic products. There were no export prohibitions as long as the materials met the purification levels as required in Regulation 5/2017. The amendments to the Mineral, Coal, Oil, and Gas Law are still under consideration in the Parliament, but Indonesia was taking into consideration the trade concerns raised by WTO members.
In response, the United States suggested members contemplate Indonesia’s contradictory comments on gas and oil: firstly, it said there were no requirement on the use of local content, then it said that imports can happen only when local products are not available.
Regarding industrial law and trade law, several members reiterated their general concerns about some LCR provisions and urged Indonesia to inform members about the implementation of these laws.
Indonesia responded that the two laws were developed to support job creation, improvement of competitiveness, and increasing production capacity. They were adopted to address Indonesia's development challenges and to support the development of its national economy, while respecting Indonesia's WTO commitments.
Regarding Indonesia’s minimum local product requirement for the retail sector, the European Union, Japan and some other members reiterated their concerns about the 80% LCR imposed by Regulation 70/2013. They asked Indonesia to keep members updated of such regulations and to ensure compliance with the TRIMs Agreement.
Indonesia informed the committee that the regulation is still being discussed and no consensus had yet been reached.
As for certain measures addressing local content in investment in the telecommunications sector, Japan raised the concerns that Indonesia’s amendments to its LCR policy in the telecommunications sector may breach WTO rules, and asked Indonesia to provide an English translation of new amendments and related regulations. The United States highlighted its concerns that Indonesia had expanded LCRs to other sectors.
Indonesia informed members that Ministerial Decree 38/2007, concerning the Universal Service Obligation/USO, had been revoked and amended by Ministerial Decree 25/2015. The new decree did not include LCR. Indonesia will provide an English translation of the new regulation soon.
Regarding local content requirements for dairy importation and distribution, the United States expressed its deep concern about Indonesia’s Ministry of Agriculture Regulation 26/2017 concerning milk supply and circulation. The US suggested that the measure required investors intending to import and distribute dairy products to form partnerships with local producers and to purchase local fresh milk. The European Union, Japan and New Zealand expressed shared concerns.
Indonesia stated that the Ministry of Agriculture’s regulation has several mechanisms with a view to improving the welfare of local farmers, which only apply to fresh milk and does not disrupt trade. It is a partnership programme to help small scale farmers, said Indonesia.
Nigeria – guidelines on Nigerian content in information and communications technology (ICT)
The United States reiterated its concerns about the increasing use of local content measures in Nigeria in energy and ICT sectors, and in particular flagged the confusion stemming from its "Guidelines for Nigerian Content Development in Information and Communications Technology" issued in 2013 by Nigeria's National Information Technology Development Agency. Having received no response since the previous committee meeting, the US asked Nigeria again to clarify a number of descriptions of specific provisions and incentives mentioned in the Guidelines.
Nigeria believed that the Guidelines were consistent with its obligations in the WTO. Foreign investors can have full ownership in ICT sectors according to the Nigerian schedules of concessions in the General Agreement on Trade in Services (GATS). Nigeria stated that there was no confusion and some issues had been discussed bilaterally. It said it is working on the responses and committed to cooperating with members.
Russian Federation – measures implementing Russia's import substitution policy
The European Union reiterated its concerns about Decree 223-FZ that required Russian state-owned enterprises (SOEs) and other entities to source domestic goods and services as well as the new initiative of Decree 925 which introduced a 15% price preference for goods of Russian origin and services provided by Russian suppliers. The United States and the EU shared the view that Russia’s import substitution policies are violating the spirit and letter of the TRIMS Agreement. Both requested Russia’s further response to these concerns.
The Russian Federation stated that the policy item, which has been on the committee’s agenda since 2016, was not aimed at squeezing foreign products out of the Russian market but at strengthening the competitiveness and increasing the overall reputation of Russian products. Russia pointed out that Decree 925 did not violate WTO rules as the GATT does not prevent members from giving priority to local goods in public procurement for governmental purposes. Russia also clarified that the purpose of the federal board established by Decree 223 is to galvanize coordination on public procurement, not to purchase Russian products. The purpose of this federal agency is to ensure full satisfaction of the needs of purchasers, focused on quality, availability and time of delivery of goods.
Argentina – auto parts industry
Mexico reiterated its concerns about Argentina's Act 27,263 on the Regime for the Development and Strengthening of the Argentine Auto Parts Industry, which entered into force on 2 August 2016. Mexico believed that this Act granted fiscal support to auto parts producers who comply with specific minimum local content requirements. This support could violate the TRIMS Agreement. Mexico was not satisfied with Argentina’s replies and asked Argentina to respond to recent questions.
The European Union regretted that Act 27,263 remained in operation in spite of members’ widespread belief that Argentina has violated Article 2 of the TRIMS Agreement. The EU called on Argentina to review this legislation, which is discriminatory against imported car parts. The United States and Korea expressed their interest in monitoring the issue.
Argentina stated that all regulations related to auto industries are compatible with WTO rules. Act 27,263 provisions makes no distinction between domestic and foreign investors when determining eligibility to enrol in and benefit from the regime, said Argentina. It pointed out that, to date, five companies from Japan, Italy, France and the United States were enrolled in the regime.
Mexico reiterated that Argentina’s effort to strengthen its car industry and integrate it into global value chains should be done within the WTO rules and in a non-discriminatory manner.
Turkey – localisation policy in the pharmaceuticals sector
The policy at issue, in the European Union’s view, obliges producers of pharmaceutical products to submit localisation plans to shift production to Turkey or to produce locally via a Turkish manufacturer. When failing to do so or submitting plans deemed insufficient, the respective pharmaceutical products were delisted from the reimbursement list of the Turkish Social Security Institute (SGK), which accounts for approximately 90% of total sales of pharmaceutical products in Turkey.
The EU disagreed with Turkey's claim that the measure would fall within the public procurement exemption of GATT Article III:8. The EU acknowledged direct purchases of pharmaceutical products by hospitals could indeed be considered as public procurement, but it did not consider the overall reimbursement scheme as public procurement because the social security authority was not directly involved in the purchases and patients contribute partially to the cost of pharmaceutical drugs. The EU asked Turkey to stop this localization policy without delay.
The United States, Canada and Switzerland echoed the EU’s concerns.
Turkey replied that the list of reimbursed medicines is under the authority of the Social Security Institute in Turkey which is a public agency responsible for taking decisions on the listing and modification of payment conditions. Turkey stated that this reimbursement scheme falls within the public procurement exception under Article III:8 of the GATT. Turkey did not apply any licensing policies impeding imports of foreign medicines. It agreed to study further the concerns expressed by members.
The United States and the European Union hoped that the issue will be fully addressed by Turkey so that it will no longer appear in the agenda.
Russia's auto investment programmes were taken up as "Other Business" upon the request of the European Union. On its accession to the WTO, Russia was allowed to maintain some LCR in its auto investment programmes until 1 July 2018. Since 2016 June, Russia has started its consultation process regarding this issue and has received queries from the EU. The two sides held a consultation meeting on 31 May. Russia announced that it will remove these programme on the due date and raise the preferential tariff rates on auto components up to its bound tariff rates in order to fully comply with WTO rules.