TRIMS-Trade Related Investment Measures

Posted on Mar 22 2016 - 7:32am by Preeti

TRIMS-Trade Related Investment Measures

 

The Agreement on Trade-Related Investment Measures (TRIMS) are rules that apply to the domestic regulations a country applies to foreign investors, often as part of an industrial policy. The agreement was agreed upon by all members of the World Trade Organisation. The agreement was concluded in 1994 and came into force in 1995. The WTO was not established at that time, it was its predecessor, the GATT (General Agreement on Trade and Tariffs. The WTO came about in 1994-1995.)

Policies such as local content requirements and trade balancing rules that have traditionally been used to both promote the interests of domestic industries and combat restrictive business practices are now banned.Trade-Related Investment Measures is the name of one of the four principal legal agreements of the WTO trade treaty. TRIMs are rules that restrict preference of domestic firms and thereby enable international firms to operate more easily within foreign markets.

Features of TRIMs

  1. Abolition of restriction imposed on foreign capital.
  2. Offering equal rights to the foreign investor on par with the domestic investor
  3.  No restrictions on any area of investment
  4.  No limitation or ceiling on the quantum of foreign investment.
  5.  Granting of permission of without restrictions to import raw material and other components
  6.  No force on the foreign investors to use the total products and or materials
  7. Export of the part of the final product will not be mandatory
  8. Restriction on repatriation of dividend interest and royalty will be removed
  9. Phased manufacturing programming will be introduced to increase the domestic content of manufacturer

India’s notified TRIMs

As per the provisions of Art. 5.1 of the TRIMs Agreement India had notified three trade   related investment measures as inconsistent with the provisions of the Agreement:

  • Local content (mixing) requirements in the production of News Print,
  • Local content requirement in the production of Rifampicin and Penicillin – G, and
  • Dividend balancing requirement in the case of investment in 22 categories consumer goods.

Such notified TRIMs were due to be eliminated by 31st December, 1999. None of these measures is in force at present. Therefore, India does not have any outstanding obligations under the TRIMs agreement as far as notified TRIMs are concerned.

Economic Implications

Some governments view TRIMs as a way to protect and foster domestic industry. TRIMs are also mistakenly seen as an effective remedy for a deteriorating balance of payments. These perceived benefits account for their frequent use in developing countries. In the long run, however, TRIMs may well retard economic development and weaken the economies of the countries that impose them by stifling the free flow of investment. Local content requirements, for example, illustrate this distinction between short-term advantage and long-term disadvantage. Local content requirements may force a foreign affiliated producer to use locally produced parts. Although this requirement results in immediate sales for the domestic parts industry, it also means that this industry is shielded from the salutary effects of competition. In the end, this industry will fail to improve its international competitiveness. Moreover, the industry using these parts is unable to procure high-quality, low-priced parts and components from other countries, and will be less able to produce internationally competitive finished products. The best the domestic industry can hope to achieve import substitution, but the likelihood of further development is poor. The consumer in the host country also suffers as a result of TRIMs. The consumer has no choice but to spend much more on a finished product than would be necessary under a system of liberalized imports. Since consumers placed in such a position must pay a higher price, growth of domestic demand will stagnate. This lack of demand also hinders the long-term economic development of domestic industries.

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