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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 United
States proposed that there was a need to bring under discipline investment
measures 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.
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Market-driven changes in the economic environment have been complemented by

changes in policies. Perceptions about multinational firms and their effects on host
countries 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.

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The measures adopted by governments to attract and regulate foreign investment
include fiscal incentives, tax rebates and the provision of land and other services
on preferential terms. In addition, governments impose conditions to encourage
or compel the use of investment according to certain national priorities. Local
content requirements, which require the investor to undertake to utilize a certain
amount of local inputs in production, are an example of such conditions. Export
performance requirements are another example; they compel the investor to
undertake to export a certain proportion of its output. Such conditions, which
can have adverse effects on trade, are known as trade-related investment
measures or TRIMs.
Trade-related investment measures have been used mainly, if not exclusively,
by developing countries to promote development objectives. For instance, the
growth of domestic ancillary industries has been sought through the imposition
of 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/informatics
industry. In the chemical and petrochemical industries both local content and
export performance requirements are prominent.

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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
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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.

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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 shortterm 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.


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The TRIMs Agreement, which was negotiated in the Uruguay Round, prohibits
countries 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 treatment
to domestic products in comparison to imports and thus infringe the national
treatment principle include those that require:
(i)Purchase or use by an enterprise of products of domestic origin or from any
domestic source (local content requirements), or Agreement on TRIMs,
(ii)That an enterprises purchase or use of imported products should be limited
to 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 product
exported (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
(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
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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 the General 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
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

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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.

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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 prevent
countries 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 industries
that are benefiting from the protection they provide. However, most of these
countries 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 that
its operation should be reviewed within a period of five years of its coming into
force (i.e. before 1 January 2000) and that the review should consider the
desirability of complementing the Agreement with provisions on investment
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and 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 anticompetition 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.

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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
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
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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

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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
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.130
To 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
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