May 13, 1989

U.S. SEEKS TO "DISCIPLINE" WIDE RANGE OF INVESTMENT MEASURES.

GENEVA, MAY 11 (BY CHAKRAVARTHI RAGHAVAN) A wide range of measures adopted by countries to regulate and influence foreign direct investments have been sought to be attacked and "disciplined" by the United States in the Uruguay round multilateral trade negotiations.

The U.S. proposals have been advanced in the Uruguay round negotiating group on "Trade-Related Investment Measures" (TRIMS), chaired by Tomohiko Kobayashi of Japan.

While the Punta del Este mandate seeks to address adverse effects on trade of trade-restrictive and distorting effects of investment measures, the us proposals have sought to deal with all and any type of investment measures (including incentives offered by countries for investment) on the ground that they have effects on trade.

At the meeting this week, third world countries reiterated their view that the group was not to discuss investment measures as such and that the scope of discussion was more limited in terms of the mandate and the mid-term accord.

Under the latter the negotiating group has been asked to integrate several elements in its work

--Further identification of the trade-restrictive and distorting effects of investment measures that might or might not be covered by GATT articles, or not covered adequately,

--Development aspects that would require consideration,

--Means of avoiding identified adverse trade effects of TRIMS, including new provisions to be elaborated, and

--Other relevant issues like modalities of implementation.

In a paper circulated to the group, the U.S. has identified nearly a dozen measures which it claims artificially reduce imports and exports or increases exports.

Apart from third world countries who sharply questioned the sweep of the U.S. proposals and measures covered, the EEC, Canada and Nordics also reportedly described as "absurd" the U.S. attempt to attack incentives to investment offered by countries to attract direct foreign investment.

The next meeting of the negotiating group is set for July 10-11.

Kobayashi reportedly appealed to delegations to make written contributions in the light of the directions for further work in the mid-term accord. He would also appear to have suggested that third world countries particularly should submit their contributions on the development aspects.

However a number of third world participants would appear to have underscored the need for the group first to achieve "greater maturity and consensus" on the effects of TRIMS.

The development aspects to be covered, they reportedly argued, would necessarily be related to the consensus to be reached on the effects of TRIMS and whether new disciplines were needed.

The group might well conclude, they suggested, that all the effects of TRIMS complained about were adequately dealt with in existing GATT provisions and disciplines and no more was necessary.

Third world countries also made-clear that the work of the group would have to cover not only TRIMS of states but also private behaviour of transnational corporations (TNCS).

There was nothing in the mandate, which explicitly excluded their behaviour, and hence they too would have to be covered, since the measures of TNCS also had trade restrictive or distortive effects in international trade.

The U.S. cited in its paper a number of TRIMS which, it contended either artificially reduced imports, increased exports or reduced exports.

The measures the U.S. seeks to attack through new GATT provisions or strengthening existing ones include:

--Local content requirements where investor is obliged to produce locally or purchase from local sources inputs for his final product,

--Trade balancing requirements where the investor's imports are tied to level of exports,

--Manufacturing requirement whereby the investor is required to manufacture a product or component locally,

--Manufacturing limitations where manufacturing locally by investor is prohibited,

--Exchange requirements that limit his access to foreign currency or related to his exports or fewer imports,

--Remittance restrictions,

--Technology transfer requirements that oblige the investor to incorporate a particular technology in a domestic good rather than import,

--Licensing requirement where investor is obliged to license a local firm for local production,

--Local equity requirements, and

--Combinations of all of these.

In addition to these, in the area of TRIMS allegedly inducing or increasing exports, the us sought to attack export requirements, product mandate requirements (where exports are directed at particular markets or regions), and incentives provided to investors to change location of operations, and a combination of any or all of these.

In the U.S. view local content requirements, trade-balancing requirements, manufacturing requirements, export requirements and product mandate requirements are inconsistent with on or more GATT provisions.

The U.S. has also said that all the other measures cited by it, while not clearly inconsistent with GATT articles, nevertheless have adverse trade effects and hence should be disciplined through new rules and provisions.