Agreement on trade-related investment measures

The stated objectives of the Agreement on Trade-Related Investment Measures (the TRIMs Agreement) include not only the promo­tion of the expansion and progressive liberalization of world trade but also the faoilitation of investment across international frontiers. The TRIMs Agreement prohibits the application of certain investment measures related to trade in goods to enterprises operating within the territory of a Member. It should be noted that the TRIMs Agreement is concerned with the discriminatory treatment of imported and exported goods and is not specifically concerned with the treatment of foreign legal or natural persons. Thus, the basic substantive provision in Article 2 of the TRIMs Agreement prohibits the application of any trade-related investment measure that is inconsistent with the GATT's provisions on national treatment or the elimination of quantitative restrictions. These cover essentially the following types of measures: local content requirements, trade-balancing requirements, foreign exchange balancing requirements and restrictions on exportation. The Agreement bans not only TRIMs that are obligatory in nature, but also those whose compliance is necessary in order to obtain an advantage. It applies only to investment measures related to trade in goods. It does not cover trade in services. Measures concerning service industries are addressed by the GATS, which does not contain explicit rules dealing with TRIMs, although these may be subject to specific negotiated commitments.

Article 5 of the TRIMs Agreement contains provisions for the notification of, and for according transitional periods for the elimination of, trade-related investment measures inconsistent with the Agreement existing at least 180 days prior to entry into force of the WTO. Under Article 5.1 States that were members of WTO on 1 January 1995 were required to notify to the Council for Trade in Goods, within 90 days after the date of entry into force of the WTO Agreement, any TRIMs that were not in conformity with the Agreement. With regard to transition periods, developed, developing and least-developed countries were given, respectively, two, five and seven years from the date of entry into force of the WTO Agreement to eliminate notified TRIMs (Art. 5.2). Furthermore, upon request, the transition period could be extended for developing and least-developed countries that demonstrate particular difficulties in implementing the provisions of the Agreement (Art. 5.3). After protracted negotiations, such an extension was granted to Argentina, Colombia, Malaysia, Mexico, Pakistan, the Philippines, Romania and Thailand until the end of 2003, subject to certain criteria, such as the submission of a phase-out plan for the TRIMs measures.

Export performance requirements are another type of performance requirement often imposed on foreign investors. For various domestic economic policy reasons, these force foreign affiliates to export a larger share of the local output than might otherwise be the case. They increase the cost of local sales by an amount that equals the cross-subsidy needed to keep the share between export and local sales above the stipulated limit. Neither the TRIMs Agreement nor any other WTO rules forbid the imposition on foreign investors of requirements to export a minimum amount of domestic production. An important GATT dispute settlement panel ruling clarified this point in 1984. The panel considered a complaint by the United States regarding certain types of undertaking which were required from foreign investors by Canada as conditions for the approval of investment projects. These undertakings pertained to the purchase of certain products from domestic sources (local content requirements) and to the export of a certain amount or percentage of output (export performance requirements). The Panel concluded that the local content requirements were inconsistent with the national treatment obligation of Article 111:4 of the GATT but that the export performance requirements were not inconsistent with GATT obligations. The Panel emphasized that at issue in the dispute before it was the consistency with the GATT of spe­cific traderelated measures taken by Canada under its foreign investment legislation and not Canada's right to regulate foreign investment perse.

This panel decision confirmed that existing obligations under the GATT were applicable to performance requirements imposed by governments in an investment context in so far as such requirements involve trade-distorting measures, At the same time, the Panel's conclusion that export performance requirements were not covered by the GATT also underscored the limited scope of existing GATT disciplines with respect to such trade-related performance requirements. The subsequent Uruguay Round negotiations would not change this situation. The coverage of WTO rules on performance requirements is thus basically limited to the measures included in the TRIMs Illustrative List and does not extend to export performance requirements.

America Beviglia Zampetti and Pierre Sauve "International investment"