I NTRODUCTION TO THE TRIMS A GREEMENT The TRIMS Agreement was - - PowerPoint PPT Presentation

TRAINING PROGRAMME FOR THE GOVERNMENT OF INDONESIA

THE TRIMS AGREEMENT

Jogjakarta, Indonesia 26-29 March 2019

AGENDA

• Introduction to the Agreement on Trade-Related

Investment Measures (TRIMS Agreement)

• What is a TRIM?
• Relationship between Article 2.1 of the TRIMS

Agreement and Articles III:4 and XI:1 of the GATT 1994

• Carve-out provision in Article III:8(a) and exception in

III:8(b) of the GATT 1994

• General obligations under Article 2.1 of the TRIMS

Agreement

• Other provisions: applicability of GATT exceptions
• Relevant case law

INTRODUCTION TO THE TRIMS AGREEMENT

• The TRIMS Agreement was negotiated during the Uruguay Round.
• It disciplines investment measures that can have trade-restrictive and trade-

distorting effects.

• Investment is a monetary asset purchased with the idea that the asset

will provide income in the future or will be sold at a higher price for a profit.

• Investment protection in international law usually revolves around issues such

as:

• Protection against expropriation
• MFN treatment
• National treatment
• Fair and equitable treatment
• The TRIMS Agreement, however, contains only a subset of these protections and

does not establish any new independent disciplines beyond those already contained in WTO law.

• Havana

Charter addressed the treatment

• f

foreign investment in a chapter on economic development. This Charter, however, was never ratified.

• Some provisions of the GATT 1947 have an indirect impact
• n the regulation of investments.
• GATT Panel Report, Canada – Foreign Investment Regulation

Act (FIRA):

• Panel ruled that "voluntary undertakings" required by the

Canadian government as a condition for the establishment

• f investment violated Article III:4, in as far as they require

the purchase of domestic over imported products

INTRODUCTION TO THE TRIMS AGREEMENT

INTRODUCTION TO THE TRIMS AGREEMENT

• Negotiating mandate during the Uruguay Round of negotiations:

"Following an examination of the operation of GATT Articles related to the trade-restrictive and trade-distorting effects of investment measures, negotiations should elaborate, as appropriate, further provisions that may be necessary to avoid such adverse effects on trade."

• The emphasis placed in this mandate on trade effects made it clear that

the negotiations were not intended to deal with the regulation of "investment" as such.

• The negotiators agreed that the Agreement would clarify the application
• f GATT provisions on national treatment for imported goods (Article III)

and quantitative restrictions on imports or exports (Article XI) to trade- related investment measures.

• However, note indirect rules on investment in the GATS: the supply of

services through mode 3 (commercial presence).

WHAT IS A TRIM?

• Coverage: Article 1 states that the Agreement applies to

investment measures related to trade in goods only.

• Thus, the TRIMS Agreement does not apply to services.
• No definition of what a "trade-related investment measure" is:
• But the Annex contains an Illustrative List of measures that

are inconsistent with GATT Articles III:4 and Article XI:1 of GATT 1994.

• Panel in India – Solar Cells: The measures at issue were

TRIMS, because their aim was to regulate investments. Moreover, the measure at issue was found to be "trade- related" because it contained a local-content requirement.

GENERAL OBLIGATIONS

• Article 2.1 prohibits TRIMS inconsistent with Articles III

and XI of the GATT 1994:

• "Without prejudice to other rights and obligations

under GATT 1994, no Member shall apply any TRIM that is inconsistent with the provisions of Article III or Article XI of GATT 1994".

• However, does the measure at issue fall under the

scope of these provisions (a threshold issue)?

THE CARVE-OUT PROVISION IN ARTICLE III:8(A)

• Measures that are covered by Article III:8(a) of the

GATT 1994 are not subject to the national treatment

• bligation in Article III:4. Article III:8(a) states that the

national treatment requirements under Article III: (a) shall not apply to laws, regulations

• r

requirements governing the procurement by governmental agencies of products purchased for governmental purposes and not with a view to commercial resale or with a view to use in the production of goods for commercial sale …

THE CARVE-OUT PROVISION IN ARTICLE III:8(A)

• Article

III:8(a) appears to refer to procurement effectuated through the purchase of goods, rather than a broader notion of procurement.

• The procurement must concern the purchase of products

that are in a competitive relationship with the products affected by discriminatory treatment, which is addressed in Article III:4. Thus, these products must be identical, like, or directly competitive/substitutable (Appellate Body Report, India – Solar Cells, para. 5.40).

Domestic producers

THE CARVE-OUT PROVISION IN ARTICLE III:8(A)

• The procurement must be performed by governmental

agencies for governmental purposes.

• What

is "governmental agency" and what is "governmental purpose"?

• The Appellate Body clarified that the phrase "products

purchased for governmental purposes" in Article III:8(a) refers to "what is consumed by government or what is provided by government to recipients in the discharge

• f its public functions" (Canada – Renewable Energy,
• para. 5.68).
• As an example, the Appellate Body referred to a

situation where a public hospital purchases pharmaceuticals and provides them to patients (ibid, footnote 514).

THE CARVE-OUT PROVISION IN ARTICLE III:8(A)

• The purchase of goods must not be made with a

view to commercial resale or with a view to use in the production of goods for commercial sale.

• Whether a transaction constitutes a "commercial

resale" must look at "whether the transaction is

• riented at generating a profit for the seller in the

long run". However, the existence of profit is not in itself determinative (Appellate Body Report, Canada – Renewable Energy, para. 5.71).

EXCEPTION IN ARTICLE III:8(B)

• Article III "shall not prevent":

(b) "… the payment of subsidies exclusively to domestic producers, including payments to domestic producers derived from the proceeds of internal taxes

• r charges applied consistently with the provisions of

this Article and subsidies effected through governmental purchases of domestic products".

EXCEPTION IN ARTICLE III:8(B)

• This provision was most recently clarified by the

Appellate Body in Brazil – Taxation. The key "take- aways" from this decision:

• This

provision covers

• nly

"payment

• f

subsidy", but not revenue foregone by a government, such as tax exemptions.

• Import-substitution measures, as a condition

for a subsidy, are not covered either. This is because these measures affect the competitive

• pportunities of products other than those

subsidized.

ARTICLE 2.1 AND ARTICLE III:4

• Article III:4 prohibits Members from applying internal

regulations that discriminate between domestic and imported like products. It provides: The products of the territory of any [Member] imported into the territory of any other [Member] shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use. […]

ARTICLE 2.1 AND ARTICLE III:4

• In Korea – Various Measures on Beef, the Appellate Body noted

that three elements must be shown to establish a violation of Article III:4:

• the imported and domestic products at issue must be "like

products";

• the measure at issue must be a law, regulation, or

requirement affecting the products' internal sale, offering for sale, purchase, transportation, distribution, or use; and

• the imported products must be accorded "less favourable

treatment" than that accorded to like domestic products (para. 133).

ARTICLE 2.1 AND ARTICLE III:4

• Panels and the Appellate Body have employed four

criteria in analyzing "likeness":

• the properties, nature and quality of the

products;

• the end-uses of the products;
• consumers' tastes and habits; and
• the tariff classification of the products (Appellate

Body Report, EC – Asbestos, para. 101).

ILLUSTRATIVE LIST

Annex "TRIMs that are inconsistent with the obligation of national treatment provided for in paragraph 4 of Article III of GATT 1994 include those which are mandatory or enforceable under domestic law or under administrative rulings, or compliance with which is necessary to obtain an advantage, and which require: …"

ILLUSTRATIVE LIST

… and which require: (a) the purchase or use by an enterprise of products of domestic origin or from any domestic source, whether specified in terms of particular products, in terms of volume or value of products, or in terms of a proportion of volume or value of its local production; or (b) that an enterprise's purchases or use of imported products be limited to an amount related to the volume or value of local products that it exports.

ILLUSTRATIVE LIST

TRIMS that are inconsistent with the obligation of general elimination of quantitative restrictions provided for in paragraph 1 of Article XI of GATT 1994 include those which are mandatory or enforceable under domestic law

• r

under administrative rulings,

• r

compliance with which is necessary to obtain an advantage, and which restrict: (a) the importation by an enterprise of products used in or related to its local production, generally or to an amount related to the volume or value of local production that it exports;

ILLUSTRATIVE LIST

• What is the practical purpose of the Illustrative List

and the TRIMS Agreement?

• The Illustrative List serves as a "shortcut" for Members

challenging TRIMS.

• If a challenged TRIM is one of the measures in the list,

a complainant is not required to prove the elements of the legal test in Article III:4, such as "likeness" and "less-favourable treatment". Measures listed in the Annex are presumed to be inconsistent with both Article 2.1 of the TRIMS Agreement and Article III:4 of the GATT 1994.

OTHER PROVISIONS

• Other provisions:
• Transitional periods (longer for developing

countries and LDCs), but now expired.

• "All exceptions under GATT 1994 shall apply"

(Article 3).

RELEVANT CASE LAW

• In Indonesia – Autos, the EC, Japan and the U.S. challenged under the

TRIMS Agreement several programs of Indonesia conditioning tax and customs duty benefits for car manufacturers on compliance with local- content requirements. For example, the 1993 Program:

• Provided import duty reductions or exemptions on imports of

automotive parts based on the percentage of local content of the finished motor vehicle in which the parts are used; and

• Provided for reduced luxury sales taxes on motor vehicles with

specified amount of local content.

• Indonesia's main defense was that, because the

measures at issue were subsidies, the SCM Agreement applied to the exclusion of the TRIMS Agreement.

• In the Panel's view, both agreements applied
• cumulatively. The local-content requirements

were found to be WTO-inconsistent.

RELEVANT CASE LAW

• In Canada – Renewable Energy, the measure at issue was

the Ontario's feed-in tariff (FIT) program, which aimed to encourage investments in the generation of renewable

• energy. Under this program, favorable prices, above

market level, were paid to electricity generators that purchased a certain amount of energy-generation equipment (e.g. wind turbines and solar panels) of domestic origin.

• Canada's main defense that the program constituted

government procurement failed, as products that were procured (electricity) and discriminated against (energy- generation equipment) were not the same.

• Similar measures and outcome in

India – Solar Cells.

RELEVANT CASE LAW

• In Brazil - Taxation, the measures at issue were local-

content requirements attached to various programs established by the Brazilian Government, providing for exemptions, reductions or suspensions of certain Brazilian federal taxes. These measures covered a broad range of products, from information technology goods, to cars, and machinery.

• Brazil argued that some of the challenged programs were

subsidies exclusively to domestic producers and were excluded from the scope of the national treatment

• bligation in Article III by virtue of Article III:8(b).
• The panel and the Appellate

Body, however, rejected this defense.