Transcript Trade Related Investment Measures - EU-LDC

Trade Related Investment
Measures
Bijit Bora
Trade Analysis Branch
UNCTAD
Uruguay Round
• Provided a mandate for the first time to
discuss:
– “Following an examination of the operation of
GATT Articles related to the trade restrictive
and distortive effects of investment measures,
negotiations should elaborate, as appropriate,
further provision that maybe necessary to
avoid such adverse effects on trade”
• Previous attempts at incorporating
investment provisions included the
Havana Charter in 1947
Issues During Negotiations
• Major problem was the lack of definition
and clarity in the mandate due to the work
in identifying which measures were trade
related.
• Developed countries took a broad view of
investment and investment measures
• Some developing countries took a much
narrower view, especially in the context of
policies such as technology transfer
requirements
Investment and Trade
• The issue is whether or not a policy
with a particular target - in this case
an investment measure - can affect
trade.
• Are there different degrees of trade
effects?
• Export performance requirements,
local content schemes and foreign
exchange balancing - ok
Examples of TRIMS
• Market access
– Ownership or
equity restrictions
– Joint venture
requirements
• Performance
Requirements
– Local content
schemes
– Export
performance
requirements
– Foreign Exchange
balancing
The TRIMS Agreement
•Structure
•Content
Legal Framework
• The TRIMs agreement does not
provide any new language
• It focusses on two Articles that were
identified in a previous case under
the GATT
– Article III (National Treatment)
– Article XI (Quantitative Restrictions)
Aims of the Agreement
• Desiring
– to promote the expansion and progressive
liberalisaiton of world trade and to facilitate
investment, while ensuring competition
• Take into account
– trade, development and financial needs of
developing countries, particularly least
developed countries
• Recognising
– certain investment measures can cause traderestrictive and distorting effects
Structure
– Nine Articles and an Annex
– Art I - clarifies that the agreement
applies only to trade in goods
– Art 2 - applies Articles III or XI and
refers to the Annex list
– Art 3-4 deal with general exceptions
and Art XVIIIb
– Art 5 Notification and transition periods
– Art 9 - Review
GATT Articles
– Article III (GATT)
• National treatment of imported product, unless
specified in other agreements
• Subjects the purchase or use by an enterprise of
imported products to less favourable conditions than
the purchase or use of domestic products
– Article XI (GATT)
• Prohibition of quantitative restrictions on imports and
exports
• Part of the general trend in textiles and agriculture to
phase out the use of quantitative restrictions
Illustrative list - Para 1
• Para 1 (a) covers local content TRIMs
which require the purchase or use by an
enterprise of products of domestic origin
or domestic source.
• Para 1(b) covers trade balancing TRIMs
which limit the purchase or use of
imported products by an enterprise to an
amount related to the volume or value of
local products that it exports.
Ilustrative list- Para 2
• 2(a) deals with border measures that
deal with trade balancing.
• 2(b) restrictions to trade that arise
from foreign exchange access
restrictions such as balancing
requirements
• 2 (c) deals with measures that
restrict exports.
Notification
• Governments of WTO members, or
countries entitled to be members
within 2 years after 1 January, 1995
shouold make notifications within 90
days after the date of their
acceptance of the WTO agreement.
Transition periods
• Members are obliged to eliminate
TRIMs which have been notified.
Such elimination is to take place
within two years after the date of
entry into force of the agreement for
developed countries
– five years for developing
– seven years for LDC
Standstill
• TRIMS introduced less than 180
days before the agreement do not
benefit from transition period.
• Members are also not allowed to
change measures that have been
notified if these changes are
inconsistent with the agreement.
• The same TRIM can be applied to a
new investment.
Implementation
•Notification
•Disputes
•Transition
Notification
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Argentina*
Barbados
Bolivia
Chile*
Colombia
Costa Rica
Cuba
Cyprus
Dominican Republic
Ecuador
Egypt*
India
Indonesia
Malaysia*
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Mexico*
Nigeria
Pakistan*
Peru
Philippines*
Poland
Romania*
South Africa
Thailand*
Uganda
Uruguay
Venezuela
Disputes
• Three disputes
– Indonesia vs EU, Japan, US
– Canada vs. Japan and EU
– Panama vs EU (Bananas)
Indonesia
• Automotive sector
• National car policy
– required the manufacturer to have local
content
– Lower sales tax
– Subsidy issue was also involved.
Canada
• Automotive sector - Canada-US Auto
Pact
• Required a company to have local
content levels beyond the North
American Free Trade Agreement in
order to have a lower tariff rate
• Result was the tariff was increased
to MFN rate
Implementation Difficulties
• Difficulties in identifying TRIMs that violate
the agreement
• Difficulties in identifying alternative
policies to achieve the same objective
• Difficulties in accounting for noncontingent outcomes such as the financial
crisis in Asia and Latin America
• Difficulties in meeting the transition period
deadlines
Development Dimension of the
TRIMS agreement
• Only developing countries notified
TRIMS
• Most frequent sector was the
automotive industry
• The most frequent policy was local
content schemes
Applying for Extensions of Transition
Periods
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Chile
Romania
Egypt
Argentina
Colombia
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Thailand
Malaysia
Philippines
Pakistan
Where to from here?
• Developing countries are serious
about not moving ahead on TRIMS
until the agreement has been
implemented
• The focus is on how to proceed with
the review.
Investment and the WTO
• Options
– Leave the agreement as it is
– Extend the illustrative list
– Complement the TRIMs agreement with
new rules on investment that have
features of BITs and NAFTA chapter
11.
Status Quo
• There are two dispute panels have
clarified precisely the role of TRIMs
and GATT.
• We have a clear specification of the
consistency of policies in the annex
list an the GATT
• Guidance on transition periods
Renovation
• Annex list is not exclusive of policies
that are inconsistent with III:1 and
XI:4
• Seek to expand the list
– Export performance requirements
• Require a clarification of “restrict”
versus “distort” trade.
New Architecture
• Proposal to expand the role of
provisions related to market access
and operations of foreign affiliates.
• Two models
– BITS
– NAFTA chapter 11
Components
• Three components of an investment
architecture
– Market access
• Pre and post establishment
– Operations
• National treatment with respect to policies
– Dispute resolution
• NAFTA type investor-state model
• Unworkable in the WTO context
Study
• Goods Council has requested a joint
UNCTAD/WTO Secretariat study on
the “development effects of TRIMs”.
• Joint with Trade Analysis Branch
(UNCTAD) and Trade and Finance
(WTO).
Development effects
• I Identify and define TRIMs
• II Historical experience with TRIMS
• III What is ‘development’?
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Include employment
Technology transfer
Establishment and development of industry
Growth
• Neutrality of the study.
FDI and poverty alleviation
• FDI and growth - parallels with trade and
growth literature
– Data is worse.
• Composition of FDI flows
– labour-intensive (poor intensive) sectors
• Not a huge amount of total flows, but important for
developing countries
• “Crowding out” domestic investment and
domestic firms
– likely more important in the context of large
scale industries
– Auto industry - seat covers, wiring harnesses
EU-LDC Networks
• Networks
– Access to researchers and data
• case studies are hugely important
• Economists are terrible at doing this kind of
work.
– Specialists have knowledge of past
studies to contribute to step II
– Developing a research agenda on
development dimension of TRIMs