The TRIMs agreement, 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 is two years from January 1, 1995, for developing countries five years and for transitional economies seven years.
That meant the feasibility of applying to foreign direct investment the GATT principles of national treatment (giving foreign companies the same rights as the domesticcompanies to invest in, and to establish local operations and MFN treatment. This was not acceptable to the developing countries though it had received some support from the developed countries.
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 use a certain amount of fiscal inputs in production, are an example of such conditions. Export performance requirements are another example. Such conditions, which can have adverse effects on trade, are known as TRIMs.
TRIMs have been used by developing countries to promote development objectives. In many cases, TRIMs are designed to deal with the restrictive business practices of transnational corporations and their anti-competitionbehaviour. A recent survey shows that TRIMs tend to be concentrated in specific industries - automotive, chemical and petro-chemical and computer/ informatics.
Specify exports in terms of volume or value of local production.The Agreement provides transitional periods for the elimination of prohibited TRIMs, that is two years, five years, and seven years for developed, developing and transitional economy countries respectively.
Business implications
It is important to note that the Agreement is limited in scope. It identifies only five TRIMs ie, local content requirements (LCRs), trade balancing requirements, domestic sales requirements, export performance requirements (EPRs), and licensing requirements that are inconsistent with GATT and gives countries transitional periods within which to remove them.
It does not restrict countries from using at least some of the other TRIMs like foreignexchange balancing requirements, exchange restrictions, manufacturing requirements, product mandating requirements, manufacturing limitations, technology transfer requirements, remittance restrictions and local equity requirements.
The Agreement's limited coverage ofTRIMs has led countries to provide that its operation should be reviewed within a period of five years of its coming into force (ie, before January 1, 2000). The review should consider the desirability of complementing the Agreement with provisions of investment and competition policy. This indicates that proposals for negotiations on the development of multilateral rules on foreign direct investment may be revived at the next Seattle Review Conference being held from November 30 to December 3, 1999.
It is a misunderstanding of the TRIMs that it requires unrestricted entry of foreign investment into a country, that it prohibits any ceiling on foreign equity and that it rules out export obligations. The Agreement does not deal with foreigninvestment policy, but only with discriminatory import restrictions.
The forthcoming review of the TRIMs at WTO ministerial meeting in Seattle should not result in extension of existing TRIMs Agreement, said the Confederation of Indian Industry (CII). In a position paper on `WTO Before the Seattle Ministerial meeting 999', CII has pointed out that as the Agreement allows certain investment measures that are consistent with Article 3 and Article 11, dealing with national treatment and general elimination of QRs the national investment policy should be framed accordingly.
Giving examples of such consistent policies, the paper states that these can include imposition of minimum investment requirement and economies of scale, having joint ventures and transfer of technology and imposing certain quality requirements with conditions for regular upgradation.
CII is of the opinion that for certain emerging sectors such as automobiles, consumer durable, electronics, computer peripherals, and office equipment,India should seek an extension period till 2005. The paper also calls for allowing developing countries with manufactured exports constituting less than 10 per cent of the value of manufacturing output, to impose measures which will promote export of manufactured items.
Regarding anti-dumping CII has said that there is a feeling that the Agreement is miused against the developing countries. "The Agreement on anti-dumping should be reviewed every two years as there is a tendency to resort to its use ever so often", the paper said.
India has requested the setting up of a panel to look into dumping duties imposed on imports of cotton-type bed linen by the EU. The request was made at a meeting of the dispute settlement body of the WTO in September. India had lodged two complaints in early October against dumping duties imposed by the EU. The duties are expected to harm India's textile industry and hurt exports worth Rs 1,100 crore to Rs 1,200 crore.
In the first complaint filed on August 3, 1998, India hassought the setting up of a panel and said the European Commission (EC) initiated anti-dumping proceedings against the import of cotton-type bed linen from India by publishing a notice of initiation in September 1996. Provisional anti-dumping duties were imposed by a EC regulation in June 1997. This was followed by the imposition of final duties by the EC council regulation of November 28, 1997. These are inconsistent with the WTO law.
India has argued that the EC has not taken into account the "special situation of India as a developing country". It has also alleged that this is violation of Articles 1 and 6 of the anti-dumping Agreement. The second complaint is in respect of alleged repeated recourse by the EC anti-dumping actions of unbleached cotton fabrics (UCF) from India.
India has called for incorporation of provisions of compensation if the case of dumping is not established after the investigation. The Agreement should also elaborate the procedure for the procedure of compensation.
As theGeneral Agreement on Trade in Service (GATS) would come in for another round of negotiations from January 1, 2000, there should be more thrust on greater participation of the developing countries. Any negotiation and final Agreement should involve at least two-third of the membership so those developing countries have their proper say in the WTO matters.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.