1.INTRODUCTION

Governments often impose conditions on foreign investors to encourage investment in accordance with certain national priorities. Conditions that can affect trade are known as trade-related investment measures or TRIMs. The Agreement on TRIMs, which was negotiated in the Uruguay Round, requires countries to phase out TRIMs that have been identified as being inconsistent with GATT rules. The phasing-out period for developed countries was two years from 1 January 1995. Developing countries have a transition period of five years, and least developed countries seven years.When the Uruguay Round of negotiations was being launched, the UnitedStates proposed that there was a need to bring under discipline investmentmeasures that distort trade. It also suggested that the negotiations should cover policy issues affecting the flow of foreign direct investment. In particular it suggested that it would be necessary to consider the feasibility of applying to foreign direct investment the GATT principles of national treatment (which would give foreign companies the same right as domestic companies to invest in, and to establish, local operations) and MFN treatment (which would prevent countries from discriminating amongst sources of investment). While these proposals received some support from other developed countries, they were not looked on with favour by developing countries. Apart from holding that GATTs mandate did not permit it to negotiate on investment issues, these countries maintained that, if any such negotiations were to be held, they would have to include the problems posed to trade by transnational corporations resorting to transfer pricing, restrictive business methods and other practices. This reluctance of developing countries to allow discussions in GATT on investment issues ultimately resulted in negotiations taking place on a narrowly defined concept of trade-related investment measures.Market-driven changes in the economic environment have been complemented bychanges in policies. Perceptions about multinational firms and their effects on hostcountries have undergone a transformation. Most countries are now quite eager to attract FDI; many offer financial incentives to attract FDI and have concluded bilateral investment treaties (BITs). As of 1999, over 1,600 BITs have been negotiated, compared to some 400 at the beginning of 1990 (UNCTAD, 1997). On the other hand, many countries continue to subject multinationals to performance requirements. For example ,multinationals may have to comply with local content, export or technology transfer requirements. The schizophrenic nature of the overall policy environment reflects the guarded optimism with which many countries continue to view the entry of multinational firms into their territory.

2.WHAT ARE TRIMs

The measures adopted by governments to attract and regulate foreign investment include fiscal incentives, tax rebates and the provision of land and other serviceson preferential terms. In addition, governments impose conditions to encourageor compel the use of investment according to certain national priorities. Localcontent requirements, which require the investor to undertake to utilize a certainamount of local inputs in production, are an example of such conditions. Exportperformance requirements are another example; they compel the investor toundertake to export a certain proportion of its output. Such conditions, whichcan have adverse effects on trade, are known as trade-related investmentmeasures or TRIMs.Trade-related investment measures have been used mainly, if not exclusively,by developing countries to promote development objectives. For instance, thegrowth of domestic ancillary industries has been sought through the impositionof local content requirements and export expansion through export performance requirements. In many cases, TRIMs are designed to deal with the restrictive business practices of transnational corporations and their anti-competition behavior .A recent survey shows that TRIMs tend to be concentrated in specific industries automotive, chemical and petrochemical, and computer/informatics. Local content requirements are more predominant than export performance requirements in the automotive industry and are less so in the computer/informaticsindustry. In the chemical and petrochemical industries both local content andexport performance requirements are prominent.

TRIMS are concerned with the liberalization of foreign investment conditions. Under the national treatment rule WTO member states commit themselves to treat foreign enterprises under the same terms and conditions as their domestic enterprises. Member countries also commit themselves to the reduction of all quantitative restrictions on imported goods, including tariffs and non-tariff barriers .The TRIMs agreement provides a few concessions to safeguard local industries such as the requirement of local content aimed at ensuring that local industries benefit from providing inputs into the production process of foreign companies. It is obvious, however that for countries to benefit from TRIMS they should have a very organized and advanced industrial sector, which would be able to respond to specific input, needs of foreign investors. LDCs generally lack infrastructure to enable them to respond positively to input needs of various foreign investments. If LDCs are to benefit from TRIMS then their governments have to assist in building capacity of small and medium enterprises (SMEs).

As has been mentioned earlier on the issue of investment has important implications for women, as foreign direct investment tends to rely on womens labor in export manufacturing. TRIMS do not address themselves to working conditions in export processing zones, a serious loophole since working conditions in many foreign direct companies have been neglected as emphasis is placed on export performance in relation to amounts of profits earned from various business concerns. TRIMS, like all the WTO agreements have very little, if anything, to offer in enhancement of development among poor countries. TRIMS do not adequately address themselves to problems faced by developing nations with regard to foreign exchange.

Whilst TRIMS themselves are very limited in scope, the proposed Multilateral Investment Agreement (MIA) is threatening their existence. The MIA, among other things is aimed at giving foreign investors the liberty to establish themselves in all sectors in any WTO member and be accorded national treatment. This renders member states vulnerable to infiltration by undesirable investments, Investors will thus have freedom without responsibility, except in respect of their own profits(UNIFEM,1998).The MIA therefore places serious threat to domestic investors and women are particularly affected due to their concentration in small and medium enterprises. Presently, land tenure systems of most developing nations discriminate against women, with the MIA foreign interests are likely to extend to land and other resources making it even more difficult for women to access land.Examples of TRIMs are;( i)Local content requirements where governments require enterprises to use or purchase domestic products.(ii)Trade balancing measures where governments impose restrictions on imports by an enterprise or link the amount of imports to the level of its exports (iii)Foreign exchange balancing requirements where an enterprise has the level of imports linked to the value of its exports in order to maintain a net foreign exchange earning.

3.SIGNIFICANCE OF TRIMs

Some governments view TRIMs as a way to protect and foster domestic industry. TRIMs are also mistakenly seen as an effective remedy for a deteriorating balance of payments. These perceived benefits account for their frequent use in developing countries. In the long run, however, TRIMs can retard economic development and weaken the economies of the countries that impose them by stifling the free flow of investment. Local content requirements, for example, illustrate this distinction between short-term advantage and long-term disadvantage. Local content requirements may force a foreign-affiliated producer to use locally produced parts. Although this requirement results in immediate sales for the domestic parts industry, it also means that the industry is shielded from the salutary effects of competition. In the end, this industry will fail to improve its international competitiveness. Moreover, the industry using these parts is unable to procure high-quality, low-priced parts and components from other countries and will be less able to produce internationally competitive finished products. Consumers in the host country also suffer as a result of TRIMs because they must spend much more on a finished product than would be necessary under a system of liberalized imports. Since consumers placed in such a position must pay a higher price, domestic demand will stagnate. This lack of demand also stifles the long-term economic development of domestic industries.

4.THE TRIMs AGREEMENT

The TRIMs Agreement, which was negotiated in the Uruguay Round, prohibitscountries from using five TRIMs. These are considered inconsistent with GATT rules on national treatment and the rules against the use of quantitative restrictions.TRIMs prohibited on the grounds that they extend more favorable treatmentto domestic products in comparison to imports and thus infringe the nationaltreatment principle include those that require:(i)Purchase or use by an enterprise of products of domestic origin or from anydomestic source (local content requirements), or Agreement on TRIMs,(ii)That an enterprises purchase or use of imported products should be limitedto an amount related to the volume or value of the local products it exports(trade-balancing requirements).TRIMs considered inconsistent with the provisions of Article XI of GATT against the use of quantitative restrictions on imports and exports include those that:(i)Restrict imports to an amount related to the quantity or value of the productexported (i.e. trade-balancing requirements constituting restrictions on imports);(ii)Restrict access to foreign exchange to an amount of foreign exchange attributable to the enterprise (i.e. exchange restrictions resulting in restrictions on imports);(iii)Specify exports in terms of the volume or value of local production (i.e.domestic sales requirements involving restrictions on exports).The Agreement provides transition periods for the elimination of prohibited TRIMs. For developed countries, the period was two years from 1995 when the Agreement entered into force; this period has already expired. Developing countries have a transition period of up to five years (i.e. until 1 January 2000)and least developed countries up to seven years (until 1 January 2002). Itshould be noted, however, that these transition periods are available only for the prohibited TRIMs notified when the Agreement became operational.Under the Agreement on Trade-Related Investment Measures of the World Trade Organization (WTO), commonly known as the TRIMs Agreement, WTO members have agreed not to apply certain investment measures related to trade in goods that restrict or distort trade.The TRIMs Agreement prohibits certain measures that violate the national treatment and quantitative restrictions requirements of theGeneral Agreement on Tariffs and Trade (GATT).Prohibited TRIMs may include requirements to: achieve a certain level of local content; produce locally; export a given level/percentage of goods; balance the amount/percentage of imports with the amount/percentage of exports; transfer technology or proprietary business information to local persons; or balance foreign exchange inflows and outflows.These requirements may be mandatory conditions for investment, or can be attached to fiscal or other incentives. The TRIMs Agreement does not cover services.

5.TRIMS ELIMINATION AND TRANSITION PERIODS

Under the Agreement member states were given 90 days to notify the WTO of any existing TRIMs. There were 43 notifications by 24 developing countries (19 related to the auto industry and 10 to the agri-food industry).Member states were then given a "transition period" during which their notified TRIMs were to be eliminated. The length of time was based on a state's level of development i.e. developed countries were given 2 years; developing countries were given 5 years; and least-developed countries were given 7 years. Therefore all developing countries should have implemented the TRIMs agreement and eliminated their regulations by 1 January 2000. However, Article 5.3 of the Agreement permits developing and least-developed countries to apply for an extension of the transition period. 10 WTO members have so far submitted transitional period extension requests . It is likely that a number of other countries will seek extended transitional periods, but are waiting to see what happens with the "first batch". The requests range from Chile 1 year to Pakistan 7 years. Since 1995 the TRIMs obligations that new members face on accession to the WTO depend on the terms of their accession. So far all acceding countries have agreed to implement the TRIMs agreement upon accession regardless of whether they are developing countries or not.

6.BUSINESS IMPLICATION OF TRIMs

For the business person, it is important to note that the Agreement is limited in scope. It identifies only five TRIMs that are inconsistent with GATT and gives countries transition periods within which to remove them. It does not preventcountries from using at least some of the other TRIMs. For instance, countries are not prevented from imposing export performance requirements as a condition for investment. They are not prohibited from insisting that a certain percentage of equity should be held by local investors or that a foreign investor must bring in the most up-to-date technology or must conduct a specific level or type of R & D locally.A number of developing countries today impose local content requirements.The abolition of these requirements may have an impact on ancillary industriesthat are benefiting from the protection they provide. However, most of thesecountries are reviewing the need for the continued maintenance of such measures in the light of the open trade policies they are now pursuing and the steps they are taking to attract foreign investment. For instance, Argentina,Brazil, India and Mexico had taken decisions to abolish local contentrequirements even before the conclusion of the Uruguay Round. The Agreement therefore only reinforces the trend towards the removal of TRIMs that are considered inconsistent with GATT.The Agreements limited coverage of TRIMs has led countries to provide thatits operation should be reviewed within a period of five years of its coming intoforce (i.e. before 1 January 2000) and that the review should consider the desirability of complementing the Agreement with provisions on investmentand competition policy.In this context it is important to note that, in pursuance of decisions taken at the 1996 Singapore Ministerial Conference, analytical discussions are currently going on in WTO on the relationship of trade with investment on the one hand and with competition policy, particularly the anti-competition behaviour of business enterprises, on the other. The results of these discussions will influence the positions countries may take in any discussions on the desirability of complementing the Agreement on TRIMs with provisions dealing with investment and competition policy.

7.ADVERSE EFFECT OF TRIMs ON TRADE

TRIMs Agreement covers those investment measures which are directly applicable to trade in goods, or that it governs the measures which have distorting and adverse effects on trade in goods? If the first meaning prevails, an investment measure that does not apply to trade in goods but has a negative effect on trade in goods falls outside the scope of the Agreement. If the second is preferred, any measure which has the effect of distorting or restricting trade in goods will be covered, whether or not it is directly related to trade in goods.The latter also called the Effect Test, was proposed by US in the Uruguay Round to create a broad concept of TRIMs.The Effect Test approach appears to be largely consistent with the position of the GATT Ministers mentioned above during the negotiations. The Effect Test approach was agreed by the Ministers in the Punta del Este Declaration and at last incorporated in the TRIMs Agreement.Under the Effects Test, a clear causal link would need to be demonstrated between the measure and the alleged effect. If such a link established, the nature and impact on the interests of the affected party would need to be assessed. Then appropriate ways and means would have to be found to deal with the demonstrated adverse effects, including in relation to the treatment accorded when development aspects outweigh the adverse trade effects.The Effect Test was shown in Article III (4) of GATT 1947 itself by using version of affecting their internal sale, offering for saleor use. The ordinary meaning of the term affecting has been understood to imply a measure that has an effect on the internal sale, or use of products and thus indicates a broad scope of application.49 Then it has been interpreted to cover not only laws and regulations which directly govern the conditions of sale or purchase but also any laws. regulations and/or requirements which might adversely modify the conditions of competition between domestic and imported products.Invoking GATT Article III (4) and XI (1), the TRIMs Agreement at last recognizes that certain measures can restrict and distort trade, no matter whether they are mandatory and act as disincentives or not. The version used in the preamble of the Agreement suggests the victory of the Effect Test. Thus the Agreement merely embodies provisions on outlawing certain investment measures that discriminate against foreigners or foreign products (ie violates National Treatment principle) or lead to restrictions in quantities, which are adverse effects on trade, not on all measure.

8.CONCLUSION

TRIMs may be defined, in general, as certain investment measures relating to trade provided for investors in respect of the laws, regulations, policies and/or administrative actions of the host countries, which apply to certain conditions, or are adopted in special areas. TRIMs include not only mandatory measures but also those measures which are not mandatory but create advantages if observed.Upon accession, China must eliminate and cease to enforce trade and foreign exchange balancing requirements, local content and export or performance requirements made effective through laws, regulations or other measures.Although China amended its three FDI laws before its WTO accession, there still remain a number of TRIMs in administrative rules and local regulations. To comply with the WTO rules, it needs to further review Chinese FDI Law. Since TRIMs exist, they must be eliminated. China must not enforce provisions of contracts imposing TRIMs inconsistent to the TRIMs Agreement.130To do such work, China needs to identify TRIMs correctly, precisely and appropriately. The criteria are the TRIMs Agreement, which provides an international minimum standard for investment measures in relation with trade in goods and the Protocol on Chinas Accession, which provides Chinas commitments to perform its obligations under the WTO agreements. The rules apply both to measures affecting existing investments and to those governing new investments.

9.BIBLIOGRAPHY

(i) http://www.wto.org/english/res_e/booksp_e/analytic_index_e/trims_01_e.htm(ii) http://epublications.bond.edu.au/cgi/viewcontent.cgi?article=1237&context=blr&sei-redir=1&referer=http%3A%2F%2Fwww.google.co.in%2Fur(iii) http://epublications.bond.edu.au/blr/vol14/iss2/10/(iv) http://connection.ebscohost.com/c/reference-entries/31602755/trade-related-investment-measures-trims(v) http://www.policyalternatives.ca/publications/reports/wto-agreement-trade-related-investment-measures-trims(vi) http://www.jurisint.org/pub/06/en/doc/C13.pdfPage | 1