NEW TEXT ON TRIMS HITS THIRD WORLD AUTONOMY FOR DEVELOPMENT.

Oct 9, 1990

NEW TEXT ON TRIMS HITS THIRD WORLD AUTONOMY FOR DEVELOPMENT.

GENEVA, OCTOBER 6 (BY CHAKRAVARTHI RAGHAVAN)— A new text on Trade Related Investment Measures (TRIMs) put forward by the Chairman of the negotiating group will hit the ability of Third World countries to channel investments (domestic and foreign) to promote their development objectives through industrialisation or counter the restrictive practices of the TNCs.

The text is described as an "informal working paper" and is claimed by GATT sources to be the basis for further negotiations.

The informal paper continues the push for creating an investment regime per se and is structurally such that, whether the agreement is "formally" part of GATT, a separate agreement or whatever, it would enable home countries of TNCs to take trade retaliatory measures against exports of Third World countries.

In July, Kobayashi had put forward a negotiating text, reflecting mostly the viewpoints of the ICs, prohibiting various investment measures and making others actionable (through GATT trade retaliation) - with Third World countries merely being provided the right to seek permission of GATT Contracting Parties under Art. XVIII: C to temporarily deviate from the obligations, but pay compensation to other CPs.

To meet objections from Third World countries, he had then revised the text, keeping his proposals as an "A" text, and incorporating the Third World and U.S. views as "B" and "C" texts.

Third World delegates at that time had claimed that there had been no agreement to negotiate on the basis of the Kobayashi text and that further discussions and negotiations would be on basis of all the texts.

The covering note of Kobayashi suggests that the formal and informal discussions since July, and comments from delegates, had only been on his text (which he claims now to have revised in the light of his understanding of the discussions) and that "no specific comments" had been addressed to the other texts.

Even though the fundamentally different approach of Third World countries are technically described as being on the table and "an active part" of the TRIMs Group's "negotiating documentation", Third World observers say that in the next phase of negotiations the Kobayashi "revised and updated" working paper would become the basis and Third World countries would be at a disadvantage.

In their anxiety to appear "constructive" and avoid being dubbed "obstructive", Third World negotiators appear to have been using diplomatic language rather than a blunt "no", and have perhaps landed themselves procedurally at a considerable disadvantage, long-time observers of the GATT scene suggested.

The "trade-related investment measures" would include requirements and restrictions specified in the proposed agreement and others "applied" by a contracting party to any direct investment in or operation of a company or acquisition of control of an established company on its territory which cause "trade restrictive and distorting" effects to merchandise trade.

The term "applied" is defined to include investment measures to be complied with under laws, regulations or judicial or administrative decisions, or sought or accepted by a CP for issuing an investment or production authorisation or it is a condition for getting an advantage from a CP.

The terms "trade-restrictive and distorting" have equally wide definitions and could include TRIMs:

* Which displace or impede imports of like products (including cases where imports of a competing product from another CP has fallen significantly as a proportion of total imports);

* Or displace or impede exports of like products by another CP, including cases where merchandise export earnings in a third country market are affected;

* Or when exports of the product have increased "artificially" (defined to include when exports rise significantly as a proportion of domestic production and as share of imports into market of another CP);

*Or cause material injury or threat of material injury to an established industry of another CP.

As if the four are not sufficiently wide to bring within their scope any productive activity in a country, there is also the catchall provision about "nullification or impairment of benefits" under which even actions otherwise legal can be attacked in GATT.

Though presented in an optically different form from the earlier text, the prohibitions go much farther than earlier one.

For example, the GATT FIRA panel (in the case brought by U.S. against Canadian foreign investments regulations) which ruled against Canadian local content requirements made clear that its ruling applied specifically to disputes involving two industrialised CPs, and not where one of the parties was a "less developed contracting party" where different GATT provisions would apply.

The new text not only extends the FIRA ruling on local content requirements to Third World countries, but covers a whole lot of other conditions or requirements attached by governments, both those that could be said to be covered by Art. III of GATT as well as those not covered, including domestic manufacturing requirements or phased manufacturing programmes, or requirements to balance imports with exports to save foreign exchange outflows, etc. Almost every measure that currently Third World governments use to counter the restrictive business practices and market sharing arrangements of TNCs will fall under the prohibited categories.

Any CP feeling its trade interests are "adversely affected" by the trims of another CP can have recourse to the "appropriate" provisions of GATT, thus attracting GATT dispute settlement and retaliatory provisions.

The new paper has what it describes as "elements concerning development considerations".

The Third World text had focussed on the development dimension of investment measures, and dealt with it in a positive manner, to enable Third World governments to undertake investment measures, both to attract and channel foreign direct investments, to promote development and industrialisation objectives.

The new text lists a number of these objectives and says that a CP could deviate temporarily from GATT obligations of Art. III (prohibition of discriminatory treatment as between domestic and imported products) and Art. VI (quantitative restrictions on imports and exports) provided it has recourse to XVIII: C of the GATT.

Currently, Third World countries can act under Art. XVIII: B and undertake such measures when they have BOP difficulties. The new text by forcing them to have recourse to Art. XVIII: C, which would in effect mean agreement of others affected and providing them compensation or enabling them to retaliate.

There would be a standstill on all TRIMs existing at the end of the Uruguay Round, and a "gradual" approach to modification and elimination within varying time periods (to be negotiated) for the ICs, Third World countries and LDCs.