Nov 5, 1987


GENEVA NOVEMBER 3 (IFDA/CHAKRAVARTHI RAGHAVAN) – Third world countries have flatly rejected an U.S. view that every measure or action of countries in the area of Trade-Related Investment Measures (TRIMS) could potentially result in a "nullification or impairment" of its rights under GATT, and thus amenable to GATT dispute settlement trade retaliation provisions.

The third world countries have also rejected the Japanese idea that the TRIMS exercise in the Uruguay Round should result in the creation of a new GATT agreement or regime on investment measures.

The Group on TRIMS, chaired by Japan’s Tomohiko Kobayashi, met on October 30 and November 2, when a number of GATT articles related to the trade restrictive and distorting effects of investment measures were reported to have been reviewed.

The group is to meet again on November 26 and 27, when it is expected to devote the session principally to stocktaking and/or report to the Group of Negotiations on Goods (GNG).

Under the Punta del Este mandate and negotiating plan, the TRIMS Group has been asked to identify and examine the operation of GATT articles "related to the trade restrictive and distorting effects of investment measures", on the basis of submissions by participants.

After the examination, and definition of areas in which further negotiations might be required to avoid restrictive and distorting effects on TRIMS, negotiations are to be conducted on the basis established.

At its last meeting in October, the Group had examined article III (National treatment) and article VI (Anti-dumping and countervailing provisions), and at its current meeting looked at 14 other articles.

However, participants said, there has so far emerged no common view wither on what GATT articles relate to the group’s mandate or on the "effects" of TRIMS that could be dealt with in GATT.

Participants said that Japan, U.S. and a few others are trying to link the "measures and policies" of countries in the area of investment with the "trade policy" provisions in the various GATT articles, whereas the others are insisting that what was "relevant" was not the "policies and measures" but those having significant trade restrictive and distorting "effects".

At the end of the meeting, participants said, a number of third world countries expressed themselves against the Secretariat preparing any paper. Several also appeared to feel that there was need for "reflection", and there had only been some preliminary exchange of views on the GATT articles, with several CPS reserving their positions.

India and others felt that an entire scheme for TRIMS was being built on a series of hypothesis – export performance led to dumping, leading to restrictive or distorting effects in third markets and for which there were no GATT provisions, and it was better to deal with measures at source rather than their effects, and hence there should be provisions for TRIMS.

India noted that GATT as such was not an instrument to deal with policies and measures of countries, but only their effects on trade.

Malaysia was unable to accept the view that TRIMS per se restricted or distorted trade, though there may be "spill-over" effects which would have to be examined to see how serious they were and how to deal with them.

But the overall effects of TRIMS in the Malaysia view led to expansion of economic activity.

Japan agreed that its view that TRIMS exercise should result in the creation of a new agreement or regime dealing with TRIMS was diametrically opposed to the views of countries like India.

India made clear that its views were derived from the Punta del Este mandates. Egypt felt that it was essential for the group not only to clarify the GATT articles related to its work, but also the directions of its future work.

Discussion in the group suggested it was proceeding in a different direction than that in the Punta del Este mandate, and this was a matter of concern to several participants.

Earlier, the U.S., EEC and Japan contended that the provisions for "transparency" in article VIII (levy of fees and formalities for importation and exportation) and in article X (publication and administration of trade regulations) were also relevant for TRIMS, and countries should notify their trade-related investment measures.

This view was however challenged by a number of third world countries.

Argentina and Egypt contended that articles X dealt actions related to import and export of goods, and could have no application to TRIMS. Also, they merely called for "publication" of measures, which was quite different from "notification".

Singapore, supported by India and Chile, underscored the distinction in GATT between "publication" and "notification". India further pointed out that provisions in article X only related to trade regulations.

India and Tanzania also contended that the issue of "transparency" of TRIMS applied to "all economic operators" and not merely to governments.

The EEC felt that articles XI (general elimination of quantitative restriction, QRS) and article XIII (non-discriminatory application of QRS) were relevant to the manufacturing requirements (asking an enterprise to produce locally components used or sold) and mandating requirements (obliging a principal to assign export rights to a specific subsidiary).

The U.S. felt they are also relevant to the issues of restrictions or remittances, transfer of technology requirements and product mandating requirements.

Japan felt that all measures like local content, export performance, trade-balancing and domestic sales requirements were relevant to these articles.

Hungary felt the articles cited related to the effects of certain border control measures, while the TRIMS cited were not border control measures at all. At best an export performance requirement was a restriction on sale of the product on the internal market, and could not be considered a restriction on experts.

On the GATT provisions for restrictions on Balance-Of-Payments (BOP) considerations in article XII and section B of article XVIII, India objected to the categorisation of these articles as being related to TRIMS.

This suggested that countries would have to justify their investment regimes and development policy as a whole in the area of TRIMS under the BOP review provisions of GATT.

The group, India contended, was concerned only with the trade restrictive and distorting effects of TRIMS, and that too those with significant and direct effects on trade, and directly linked to the GATT articles.

Egypt was unable to see the relationship between TRIMS and articles XII and XVIII, and said it was first necessary to establish a relationship between TRIMS and the GATT articles.

Article XVIII allowed "deviations" form obligations under other GATT articles on account of BOP considerations.

But when there were no GATT articles dealing with TRIMS, where was the question of countries having to justify their TRIMS under the BOP review provisions of XII or XVIII? Egypt asked.

India and Yugoslavia agreed with this view. Philippines said that invoking article XVIII to seek release from GATT obligations was not relevant to TRIMS.

The EEC agreed that the link between GATT articles and TRIMS would have to be first established before article XVIII and its exceptions could be invoked. The new disciplines or rules on TRIMS would first have to be agreed before exceptions could be dealt with.

On article XVII relating to state enterprises, India said the article did not deal with government interventions as such, but only about the role of state trading enterprises in the trade on goods, and thus not related to TRIMS.

Malaysia noted that under GATT government intervention was permissible and not illegal under XVII.

On articles XXII (consultations) and XXIII (nullification or impairment and dispute settlement), Japan said depending on the nature of the agreement or regime on TRIMS, dispute settlement mechanisms should be provided for.

The U.S. said article XXIII provided remedies when a Contracting felt that benefits accruing to it directly or indirectly under GATT were being nullified or impaired or that the attainment of the objectives of GATT was being impeded.

This could arise out of the failure of another CP to carry out its GATT obligations, or the application of any measure "whether or not in conflict with the provisions of GATT", or to the existence of any other situation.

"Thus potentially all TRIMS are subject to action under this article, and it is broad enough to reach all TRIMS" the U.S. reportedly contended.

India said the purpose of the exercise was to clarify GATT articles, and not to create a new agreement or regime on TRIMS and provide for a dispute settlement mechanism for it.

Malaysia agreed that the group was not to deal with investment per se. So it could not be contended that all TRIMS were subject to dispute settlement mechanism.

Jamaica said the group must first agree on what TRIMS were? Jamaica could not agree that everything was potentially within the ambit of GATT dispute settlement mechanism.

Grey area measures like Voluntary Export Restraints (VERS) and Orderly Marketing Arrangements (OMAS) caused investments that distorted and restricted world trade. Bilaterally, VERS encouraged investors in the importing country to invest in the particular sector.

Could they be brought under GATT’s dispute settlement mechanism? the Jamaican delegate asked.