GATT NEGOTIATIONS ON TRIM NOT OPEN-ENDED.

Apr 7, 1987

GATT NEGOTIATIONS ON TRIM NOT OPEN-ENDED.

GENEVA APRIL 3 (IFDA/CHAKRAVARTHI RAGHAVAN) -- The negotiations in the Uruguay Round on "Trade-related Investment Measures" (TRIMS) is not an open-ended exercise for a multilateral framework on investments, but a very limited one to deal with trade restrictive and distorting effects of investment measures, and that too in terms of GATT articles and "trade in goods".

Third world countries representing a wide range of philosophical attitudes to foreign direct investment in their countries reportedly put forward this view Thursday at the first meeting of the Uruguay Round negotiating group on TRIMS.

The group is chaired by Tomohiko Kobayashi, special economic advisor to the Foreign Minister of Japan.

The Punta del Este declaration for GATT MTNS in goods said that "following an examination of the operation of GATT articles related to the trade restrictive and distorting effects of investment measures, negotiations should elaborate, as appropriate, further provisions that may be necessary to avoid such adverse effects on trade".

Before Punta del Este, the U.S. had sought a much wider negotiating mandate on investment, but this had met with strong opposition from countries like Brazil and India, and ultimately the more limited mandate was agreed to.

But in presenting its ideas to the TRIMS negotiating group, the U.S. in a paper circulated by it has in effect sought to go back to its original objective.

One participant said that the U.S. paper appeared to be couched deliberately in some "obfuscatory language" to claim any meaning they later wanted it to have.

The U.S. also appeared to be hinting at its plan to use a catch-all GATT provision about "nullification and impairment of concessions" due any measure taken by a GATT Contracting Party, whether or not it was authorized in GATT, and tried to relate its current exercise to this by arguing that in the U.S. view "there are a number of investment measures which give rise to direct or indirect impairment".

A participant in Thursday's meeting said that not only did countries like Brazil and India oppose the U.S. position but also a range of some traditional U.S. supporters like Chile, South Korea and the Asian countries - all of whom embrace U.S. philosophies and want to attract foreign capital.

The Malaysian delegate reportedly said that if they could put the clock back (to before Punta del Este meeting), they would advise their Ministers not to agree to negotiate on TRIMS.

In its paper, the U.S. argued that government measures and policies on investments affect imports, exports and manufacturing patterns, and impair ability of an enterprise to respond to development in the market place, and that this cumulatively distorts global trade patterns and flows.

There were some GATT articles dealing with some aspects - national treatment, prohibition of subsidised exports, anti-dumping, etc. - but there were other problems not covered. In the U.S. view therefore government policies and measures relating to investments should be brought under effective multilateral trade disciplines, and if necessary through elaboration of additional rules and disciplines.

The U.S. sought to relate its ideas for new rules, and restricting ability of governments to regulate investment activities by foreign entrepreneurs by talking of the GATT philosophy of promoting free enterprise.

The EEC, participants said, largely supported the U.S. views, and reportedly argued that the negotiating mandate in effect recognised that existing GATT provisions did not deal with trade restrictive or distorting effects of investment measures, and that there should hence be new rules elaborated.

There should be neither an overly restrictive view of the mandate nor an "over-ambitious one", the EEC reportedly argued.

The EEC wanted the litmus test of "reasonableness" of the investment measures and the "causal link" to trade to be applied. It gave as examples of TRIMS it had in mind, requirements by third world countries to investors about use of locally available material or manufacturing content, limitations on imports, and export performances of enterprises.

The U.S. had earlier sought to attack third world practices in respect of export requirements on TNC operations in their countries, by saying that even the requirement that enterprises should export and earn enough to take care of their imports and remittances was a "trade-distortive action".

South Korea reportedly argued that the exact meaning of "TRIMS" should be defined and the scope of negotiations clarified at the initial stage itself, since there appeared to be no consensus on these matters. It was necessary to see to what extent TRIMS restricted or distorted trade.

Any negotiations, in the South Korean view, could result in either a new GATT code or could elaborate relevant GATT articles. But whatever approach was attempted it should be such as to secure the widest participation of GATT CPS, including the third world countries.

South Korea, as all other third world participants who spoke later, also reportedly underscored the importance of providing in any elaboration or new discipline on TRIMS for "special and differential treatment" for third world countries.

India reportedly said the objective of the group was not to create an international regime or multilateral framework on investments per sec or deal with issues that lay completely within the sovereign jurisdiction of states in their regulation of FDI.

The efforts within the group could not also be related general concept about "GATT philosophy", but had to be related to specific GATT articles and provisions.

The mandate of the group was within the frameworks of the group of negotiations on goods, and thus any outcome had to be confined to the area of "goods".

The mandate talked about investment "measures", and did not refer only to government measures, and hence investment practices and measures of TNCS that restricted or distorted trade would also have to be addressed.

When GATT articles were examined, many of the complaints about "governmental actions or policies" on TRIMS were covered by existing provisions relating to "national treatment" for imported goods, and provisions about "subsidies" and "dumping". It was only the TNC measures and practices that were not covered.

The Indian view was supported by Argentina, Yugoslavia, Brazil and Egypt.

The U.S. and EEC reportedly sought to rebut this, by arguing that the Punta del Este declaration had not included "restrictive business practices" as a subject for negotiations.

India however reportedly argued that it was not seeking to bring in by the backdoor RBPS per sec, but the negotiating plan called for examination of "all investment measures" having a trade distorting of restrictive effect. Hence both governmental and non-governmental measures were envisaged to be covered.

Singapore reportedly stressed that the issue was "new and complex", and the problems of TRIMS had to be seen both from the trade restrictive or distorting effects as well as from the objective of development.

There must be a clear definition of what TRIMS were, to what extent existing GATT articles covered the problem, and a clear definition of what was meant by "trade distortion in the GATT context". Would "distortion cover diversion from commercially competitive sources of supply", the Singapore delegate reportedly asked.

Argentina supported the strict interpretation of the mandate, and said only measures having an impact on trade could be considered and not all investment policies and measures or wider issues of economic policies of government. Also, all measures, and not merely governmental ones, should be looked at, and hence the practices of TNCS.

Malaysia insisted that the group's mandate should be seen as strictly limited. Otherwise it would "distort the entire Uruguay Round". The issue appeared to be becoming "a north-south problem", and investment policies and decisions within national sovereign jurisdiction could not be questioned.

Yugoslavia supported the need for a "balanced approach" and saw the U.S. approach as going beyond the Punta del Este decision and hence not a basis for work in the group.

The group must first decide what were trade restrictive or distorting investment measures, and adopt a step by step approach by looking at GATT articles and provisions first. The RBPS of TNCS, such as licensing conditions attached to investment, which distorted trade flows, were also "measures" covered by the group's mandate, the Yugoslav delegate reportedly argued.

Brazil agreed that overall issues of investment could not be discussed by the group, which had to respect the national sovereignty of states to regulate investments. There could be no attempt to determine a multilateral disciple for fid or create an international investment regime. Brazil agreed with India that some of the TNC practices and measures on investment should also be looked into.

China stressed the issue was "new and very difficult", and there should be no efforts to question national policy objectives.

Chile agreed that investment measures per sec were not covered, but only those having a trade restrictive or distorting effects, and as a first step the GATT articles concerned must be examined.

Australia supported the view that the group should first identify and examine the GATT articles and see which problems of TRIMS could be addressed in GATT.

Not all problems of TRIMS need be dealt with in GATT, but only those having a direct effect on trade, the Australian delegate reportedly argued pointing to the fact that there were many aspects of TRIMS which could be dealt with elsewhere than in GATT.

There should also be a balance maintained between the reasons for TRIMS and their effects.

Egypt reportedly said there should be a balance maintained in negotiations, and supported the Indian view that. The RBPS of TNCS should also be looked into.

In summing up, the chairman reportedly said that there was a need to identify the problems, and for this purpose participants should put forward their proposals. But any submission by any participant would not commit any other participant, Kobayashi reportedly clarified.

There was also a need to address the relationship between GATT articles and TRIMS, and it should be possible for participants to see how adequately GATT articles covered TRIMS.