- WTO prohibit investment restricting measures that discriminates foreign investment
- The argument of WTO is that such investment restricting steps are violating trade itself (WTO is an institution formed to promote trade).
- Historically countries impose measures that restrict foreign investment (called as investment measures and WTO term this as Trade Related Investment Measures).
- Under TRIMs, the WTO names the list of investment measures that discriminates foreign investment and hence violates the basic WTO principle of National Treatment.
- These measures include - local content requirement, domestic employment, technology transfer requirement etc
What is TRIMs?
The Agreement on TRIMs of the WTO is based on the belief that there is strong connection between trade and investment. Restrictive measures on investment are trade distorting. Several restrictive measures on investment are prohibiting trade and hence are not allowable. According to the TRIMs provision, countries should not adopt the investment measures which restrict and distort trade.
Investment measures are those steps used traditionally against foreign investment by host countries. Here, the TRIMs instruct that WTO members may not apply any measure that discriminates against foreign investment that violates basic WTO principles (like the MFN). WTO gives a list of prohibited investment measures or TRIMs like local content requirement, export obligation, technology transfer requirement etc. that violates trade. Few exemptions to developing countries are also provided under TRIMs. The Committee on TRIMs monitors the operation and implementation of the TRIMs Agreement and offers consultation for member countries.
The objective of TRIMs is to ensure fair treatment of investment in all member countries.
As per the TRIMs Agreement, members are required to notify the WTO Council for Trade in Goods of their existing TRIMs that are inconsistent with the agreement.
TRIMs and Foreign Investment Policy changes in India
India has made several foreign investment liberalisation measures since the launch of the New Industrial Policy in1991. Regulations for both FDI and FPI were simplified and now foreign investment is allowed in almost all sectors.