Trade-Related Investment Measures (TRIMs)

1. What is a trade-related investment measure?

Host countries often attach conditions to foreign investment: a car plant must buy a certain share of its parts locally, or must export a share of its output, or may import only as much as it exports. Such conditions are performance requirements. When they affect trade in goods, by forcing the use of domestic rather than imported inputs or by restricting imports or exports, they are trade-related investment measures. They were widely used by developing countries, India included, to build domestic industry and save foreign exchange. Developed countries saw them as distortions of trade. The Uruguay Round produced a compromise: the Agreement on Trade-Related Investment Measures, in Annex 1A.

2. Objectives

The Preamble states the purposes:

• to promote the expansion and progressive liberalisation of world trade and to facilitate investment across international frontiers, so as to increase the economic growth of all trading partners, particularly developing countries, while ensuring free competition;
• to take into account the particular trade, development and financial needs of developing countries, particularly the least developed;
• to recognise that certain investment measures can cause trade-restrictive and distorting effects; and
• to elaborate disciplines to avoid those effects.

The Agreement does not create a law of foreign investment. It does not regulate the admission of investors, expropriation or investor protection. Its aim is narrow: to stop investment conditions being used to get round two GATT obligations.

3. The key obligation: Article 2

Article 1 limits the Agreement to investment measures related to trade in goods. Article 2.1 provides that no member shall apply any TRIM that is inconsistent with Article III (national treatment) or Article XI (general elimination of quantitative restrictions) of GATT 1994. Article 2.2 refers to an Illustrative List in the Annex. The Agreement adds no new obligation; it clarifies that these GATT rules apply to investment conditions, whether they are mandatory or are conditions for obtaining an advantage such as a tax concession.

4. The Illustrative List

Inconsistent with Article III:4 (paragraph 1): measures that require or reward

• the purchase or use by an enterprise of products of domestic origin or source, specified by product, volume or value, or as a proportion of local production (local content requirements); or
• that an enterprise's purchases or use of imported products be limited to an amount related to the volume or value of local products it exports (trade-balancing requirements).

Inconsistent with Article XI:1 (paragraph 2): measures that restrict

• the importation of products used in local production generally, or to an amount related to local production it exports (trade balancing);
• access to foreign exchange to an amount related to the foreign exchange inflows attributable to the enterprise (foreign exchange balancing); or
• the exportation or sale for export of products, whether by product, volume or value, or as a proportion of local production (export restrictions or domestic sales requirements).

5. Exceptions, transition and notification

• Exceptions (Article 3): all GATT exceptions apply, including Article XX and the security exception.
• Developing countries (Article 4): may deviate temporarily to the extent GATT Article XVIII (balance of payments and infant industry) permits.
• Notification and elimination (Article 5): existing inconsistent TRIMs had to be notified within 90 days and eliminated within two years (developed), five years (developing) or seven years (least developed) from 1 January 1995, extendable on request by the Council for Trade in Goods. A new measure could not be introduced during the transition to escape the deadline.
• Transparency (Article 6), a Committee on TRIMs (Article 7), dispute settlement under the DSU (Article 8), and a review clause (Article 9) asking the Council to consider whether the Agreement should be complemented with provisions on investment policy and competition policy.

6. What TRIMs does not prohibit

Export performance requirements (a duty to export a share of output, without restricting imports), technology-transfer requirements, joint-venture or equity limits, and employment of local staff are not on the Illustrative List and are not prohibited by TRIMs, although some may be caught by the SCM Agreement (export subsidies) or by GATS commitments. Investment in services is dealt with under GATS mode 3 (commercial presence). Investor protection is left to bilateral investment treaties.

7. The disputes

• Indonesia – Autos (panel, 1998): tax and customs benefits under the national car programme, conditioned on local content, violated TRIMs Article 2.1.
• Canada – Autos (2000): value-added requirements attached to an import duty exemption violated GATT Article III:4.
• India – Autos (panel, 2002), brought by the European Communities and the United States. Under Public Notice No. 60 of 1997, car manufacturers had to sign memoranda of understanding with the Government undertaking indigenisation (local content rising to 70 per cent) and trade balancing (matching imports of kits and components with exports). The panel found the indigenisation condition inconsistent with GATT Article III:4 and the trade-balancing condition inconsistent with Articles III:4 and XI:1. India had already withdrawn the import-licensing system after India – Quantitative Restrictions (1999).
• India – Solar Cells (Appellate Body, 2016), brought by the United States. Under the Jawaharlal Nehru National Solar Mission, solar power developers had to use domestically manufactured cells and modules to sell power to the Government. The measures were held to fall within paragraph 1(a) of the Illustrative List and so to violate TRIMs Article 2.1 and GATT Article III:4. India's defences failed: the government procurement exception in Article III:8(a) did not apply because the Government bought electricity, not cells; and Article XX(j) (products in short supply) and XX(d) were not made out.

How this is examined

For the objectives essay: background (performance requirements and why they matter), the Preamble objectives, Article 2 with the Illustrative List, transition periods, what is outside the Agreement, and the Indian disputes as illustrations. For a short note: definition, Article 2, the four kinds of listed measure, and India – Autos or India – Solar Cells. End with the point that any scheme to promote local manufacturing must avoid conditioning benefits on the use of domestic inputs: that is caught by TRIMs and, where a subsidy is involved, by the prohibition on local content subsidies in Article 3.1(b) of the SCM Agreement.