Feb 1, 1990

U.S. TRIMS DRAFT MEETS WITH THIRD WORLD OPPOSITION.

GENEVA, JANUARY 30 (BY CHAKRAVARTHI RAGHAVAN)— A U.S. proposal for a draft agreement on "Trade-related Investment Measures" (TRIMs) met with opposition and sharp criticism from a number of Third World countries, as well as Australia at this week's meeting of the Uruguay Round TRIMs negotiating group.

The U.S. draft in effect seeks to incorporate into GATT a full-fledged investment regime where rights of investors and the impermissible measures of host-state interventions with such rights are spelt out.

The rights of the foreign investor are to be safeguarded by providing a legal right for the country of the owner to take up purported violation of investor’s rights with the host government and, failing satisfaction, enable retaliation against the trade and property of the host country.

The scope and sweep of the U.S. proposals and demands went not only far beyond what it had sought at the time of the Havana Charter, but even beyond the claimed rights of property of foreigners, rights, backed by gunboat diplomacy and military occupation that prevailed in the colonial era, and now sought to be reinstated and backed by "trade sanctions".

Those who were critical of or opposed to the U.S. proposals are reported to have included the Asian, Brazil, Chile, Colombia, Egypt, India, Mexico, Pakistan and Tanzania. Some of the comments, according to one participant were even condemnatory of the U.S. approach and attempt to apply GATT on a wholesale basis to create an investment regime, and freeze existing patterns of trade and production.

The EEC had reportedly spoken earlier of the need to focus future discussions on operational aspects, and Chairman Tomohiko Koboyashi of Japan sought to guide the future discussions towards the same objective by calling for answers to four questions: whether GATT articles ensure adequate disciplines, what new provisions would be necessary, the scope of such new provisions and how development considerations could be integrated into them.

But a number of the Third World participants reportedly made clear that the Chairman's ideas would in themselves amount to a rewriting of the mandate, and the discussions must first identify the direct and significant adverse trade-restrictive or distorting effects of investment measures.

The group will hold its next meeting on 29 March, with the same five-point agenda, namely, the elements identified in the Montreal mid-term accord.

The U.S. draft, in line with its earlier ideas, provides for an agreement applicable to all contracting parties and with a two-tier approach to disciplines - prohibition of certain investment measures and a "less rigorous" discipline for others.

The U.S. draft also provides for 'transparency' obligations of CPs in respect of TRIMs, for establishment of a committee on TRIMs to oversee implementation of the agreement, and procedures and mechanisms for settlement of disputes.

Going far beyond any current international agreement, the U.S. draft in effect would create rights for "companies" belonging to one country in all other countries, and for the government of the country of the company concerned exercising rights an behalf of its company in raising disputes and enforcing the rights of its company vis-a-vis other sovereign countries.

A foreign government could even raise a dispute relating to a TRIMs on a domestic company of a CP, and in effect intervene on behalf of that domestic company against its own government.

A "company" is defined as "any kind of a corporation, company, association, sole proprietorship, branch or other organisation legally constitute under the laws and regulations of a CP or a political division of the CP, whether or not organised for pecuniary gain, or privately or governmentally owned".

Several Third World countries including Brazil, Chile, Colombia, India and Pakistan reportedly made clear their opposition to the U.S. approach which sought to prohibit some measures and discipline others, and thus went beyond the Punta del Este mandate.

The negotiating mandate and the mid-term review decision, they said, confined the group's focus to adverse trade effects, if any, of TRIMs and for the group to elaborate additional disciplines, if appropriate, to reduce or eliminate such effects.

The U.S. communication made clear that the intention is to have a GATT agreement to all CPs, and not a "separate, free-standing instrument".

"Investment measure" is to be defined as any measure maintained by laws, regulations, judicial decisions, administrative rulings or policy statements or applied by a CP as a term or condition of permitting an investment in its territory, in connection with the establishment of a company or the making or expanding of any investment, as a condition for receipt of an incentive or services necessary for the conduct of business or as a condition for the continued operation of a company.

A TRIMs is any investment measure that restricts or distorts trade by, for example, restricting or displacing imports, restricting, displacing or requiring exports or "otherwise nullifying or impairing any benefits accruing directly or indirectly to a CP under the GATT or the TRIMs agreement.

The measures, which a CP is to be prohibited from maintaining or applying (whether on a domestic or foreign firm), are those:

* Requiring a given level or percentage of domestic content, purchase or supply of goods from domestic sources in preference to imports or substitution of domestic goods for imported goods,

* Requiring the mixture, processing or use of products in ways which require, directly or indirectly, a specified amount or proportion of any product to be supplied by domestic sources,

* Requiring the manufacture of a particular goods in the territory of that party,

* Restricting the production of particular goods or use of particular technology,

* Requiring the transfer, use or licensing of a particular technology or process for local production,

* Requiring the sale of a given level or percentage of production in the territory of that party, or

* Requiring exports or foreign exchange earnings as a condition for importing.

Other obligations under this provision would preclude:

Maintenance or application of investment measures which require the export of goods, either generally or to a particular country or area of the world market, and

Maintenance or application of other investment measures restricting or distorting trade such as measures which condition a company's access to foreign exchange or ability to make remittances on export performance or foreign exchange earnings, or require local equity participation in a company in circumstances under which the local equity participant or related party will be a preferred supplier of domestically produced goods to that company or must be in the same line of business as that company.

Apart from such prohibited investment measures, the U.S. proposal also seeks to discipline other measures which "may" restrict or distort trade in some circumstances, specially when applied in a discriminatory manner.

Such measures, in the U.S. view would include requirements that some equity should be held by nationals of the host country, and restrictions on remittance or access t a foreign exchange, other than those prohibited, which would frustrate the intent of the TRIMs agreement or the General Agreement.

Any CP would be prohibited by the U.S. proposal from applying to the company of another CP treatment less favourable than the "better of the treatment" accorded to its own companies or companies of any other cp.

This right to equal treatment with a domestic company, coupled with the right of the country of the foreign company to intervene bilaterally or multilaterally on behalf of the foreign company will place foreigners' rights an a higher pedestal than nationals of a country - a right that the U.S. has been claiming but has not been able to uphold so far in any international fora or in law.

The U.S. draft would also prevent a CP from applying any investment measure in a manner that would adversely affect the trade of another CP - by restricting or discipline imports: restricting, displacing or requiring exports: or nullifying or impairing benefits accruing directly or indirectly to a CP under the GATT or the TRIMs agreement, taking into account imports or exports that would have occurred if the measure had not been imposed.

The U.S. draft in this regard has been framed in such a vague and all embracing manner that it would enable the U.S. at any time to claim impairment of benefits and raise a dispute to further the interests of its TNCs who invest in a country on the basis of incentives and conditions but later find the conditions of the "non-prohibited" investment measure irksome.

There will be a transition period during which prohibited or actionable measures already in force when the TRIMs agreement enters into force could be phased out, but no new measures could be put in place. The transition period would vary for ICs, Third World countries and the least developed countries, and this presumably would be the extent of the "development" consideration mandated in the mid-term agreement.

Under so-called "transparency" provisions, the U.S. proposal would require publication of all measures of general application which are TRIMs or authorise use of TRIMs.

A CP applying a TRIM to a specific company would also be required to provide to the CP requesting it information about the terms or conditions of the TRIMs including about equity requirements, level of exports or domestic content or export or local content requirements, but not "business-sensitive information not directly related to the TRIMs, such as information about profits, or plans regarding expansion or reduction of business operations.

The U.S. proposals also call for the establishment of a committee on TRIMs, with its own rules of procedure, to oversee the implementation of the TRIMs agreement and for consultation and settlement of disputes in accordance with Articles XXII and XXIII of the GATT.

These articles provide for adjudication of disputes through a panel, and for trade retaliation after authorisation for alleged impairment of benefits.