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

T RAINING P ROGRAMME F OR T HE G OVERNMENT O F I NDONESIA T HE TRIMS A GREEMENT Jogjakarta, Indonesia 26-29 March 2019

A GENDA • 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

I NTRODUCTION TO THE TRIMS A GREEMENT • The TRIMS Agreement was negotiated during the Uruguay Round. • It disciplines investment measures that can have trade-restrictive and trade- distorting effects. o 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: o Protection against expropriation o MFN treatment o National treatment o 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.

I NTRODUCTION TO THE TRIMS A GREEMENT • Havana Charter addressed the treatment of foreign investment in a chapter on economic development. This Charter, however, was never ratified. • Some provisions of the GATT 1947 have an indirect impact on the regulation of investments. • GATT Panel Report, Canada – Foreign Investment Regulation Act (FIRA) : o Panel ruled that "voluntary undertakings" required by the Canadian government as a condition for the establishment of investment violated Article III:4, in as far as they require the purchase of domestic over imported products

I NTRODUCTION TO THE TRIMS A GREEMENT • 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 of 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).

W HAT IS A TRIM? • Coverage: Article 1 states that the Agreement applies to investment measures related to trade in goods only. o Thus, the TRIMS Agreement does not apply to services. • No definition of what a "trade-related investment measure" is: o But the Annex contains an Illustrative List of measures that are inconsistent with GATT Articles III:4 and Article XI:1 of GATT 1994. o 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.

G ENERAL OBLIGATIONS • Article 2.1 prohibits TRIMS inconsistent with Articles III and XI of the GATT 1994: o "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". o However, does the measure at issue fall under the scope of these provisions (a threshold issue)?

T HE CARVE - OUT PROVISION IN A RTICLE III:8( A ) • Measures that are covered by Article III:8(a) of the GATT 1994 are not subject to the national treatment obligation in Article III:4. Article III:8(a) states that the national treatment requirements under Article III: (a) shall not apply to laws, regulations or 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 …

T HE CARVE - OUT PROVISION IN A RTICLE 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

T HE CARVE - OUT PROVISION IN A RTICLE 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 of 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).

T HE CARVE - OUT PROVISION IN A RTICLE 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 oriented 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).

E XCEPTION IN A RTICLE 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 or charges applied consistently with the provisions of this Article and subsidies effected through governmental purchases of domestic products".

E XCEPTION IN A RTICLE III:8( B ) • This provision was most recently clarified by the Appellate Body in Brazil – Taxation . The key "take- aways" from this decision: o This provision covers only "payment of subsidy", but not revenue foregone by a government, such as tax exemptions. o Import-substitution measures, as a condition for a subsidy, are not covered either. This is because these measures affect the competitive opportunities of products other than those subsidized.

A RTICLE 2.1 AND A RTICLE 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. […]

A RTICLE 2.1 AND A RTICLE 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).

A RTICLE 2.1 AND A RTICLE III:4 • Panels and the Appellate Body have employed four criteria in analyzing "likeness": o the properties, nature and quality of the products; o the end-uses of the products; o consumers' tastes and habits; and o the tariff classification of the products (Appellate Body Report, EC – Asbestos , para. 101).

I LLUSTRATIVE 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 : … "

I LLUSTRATIVE 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.