WORLD TRADE
ORGANIZATIONG/C/W/428
G/TRIMS/W/25
9 October 2002
(02-5436)
Council for Trade in Goods
Committee on Trade-Related Investment MeasuresOriginal:  English
COMMUNICATION FROM BRAZIL AND INDIA
The following communication, dated 8 October 2002, has been received from the delegations
of Brazil and India, with the request that it be ci rculated to the Council for Trade in Goods and to the
Committee on Trade-Related Investment Measures.
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The Mandated Review of the TRIMs Agreement
Paragraph 12(b) of the Doha Ministerial Declaration
Implementation-related issues and concerns (tiret 40)
I. BACKGROUND
1. The TRIMs Agreement has established in Article 9 a comprehensive provision on its own
review, which includes the possibility of Members proposing amendments to its text. This provision
stemmed from the understanding of many Members at the end of the Uruguay Round (UR) –
especially developing countries – that the scope of the agreement had gone beyond the mandate
agreed to in the Punta del Este Declaration. That mandate stated that "following an examination of the
operation of GATT Articles related to the trade-restrictive and distorting effects of investmentmeasures, negotiations should elaborate, as appropriate, further provisions that may be necessary to
avoid such adverse effects on trade". However, instead of addressing directly such alleged adverse
effects on trade, the TRIMs Agreement simply prohibits some investment measures presumed to be
inconsistent with Articles III and XI of GATT 1994.
2. Furthermore, paragraph 12 of the Doha Ministerial Declaration determined that negotiations
on outstanding implementation issues shall be an integral part of the Work Programme. Pursuant to
item "b" of that same paragraph, these issues include those set out in tirets 37 to 40 of document
Job(01)152/Rev.1, which are directly related to the Trims Agreement. This paper refers to issues
related to tiret 40.
3. Since the end of the UR, the argument against the use of investment measures has lost much
of its theoretical strength. New developments in the theory of international trade have raised doubts
with respect to models of perfect competition, that  have become increasingly seen as unrealistic or
based on questionable assumptions. Furthermore, the argument according to which resort to these
measures inevitably results in trade distortions has not been proved by empirical evidence.
4. A recent joint study by the WTO and UNCTAD Secretariats (G/C/W/307) is relevant in this
regard. If it is true that this study does not add up to a decisive argument in favor of local content,
trade balancing, and export performance requirements, it does, however, weigh against any kind of
general assumption that such measures necessarily distort trade. Moreover, history provides manyG/C/W/428
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examples of successful recourse to investment measures to address developmental objectives as well
as to offset trade-distorting effects of certain forms of corporate behaviour - which in the case of
developing countries may affect the efficient allocation of resources in a more negative way than
investment measures. In addition, it must be pointed out that other currently WTO-compatiblemeasures have revealed themselves to have a much more distorting effect on international trade,
particularly in sectors of export interest to developing countries, than those related to investment.
5. One issue of extreme importance for developing countries is technology. The gap between
developed and developing countries in terms of technology tends to grow over time, as the
international economy moves from the traditional factors of production into a paradigm of production
reliant on technology, knowledge and innovation. Trade-related investment measures in the area of
science and technology are necessary in order for these countries to increase their share in the higher-technology segment of international trade and to avoid what would inevitably be a decline of their
participation in world trade as a whole as high-technology goods become the only dynamic sectors.
6. Competition policy is another area of interest. New evidence shows that trade-related
investment measures can, if properly implemented, generate benefits to the competitiveness
environment. Over the last two decades, a massive expansion of corporate power took place indeveloped and developing countries. The risks of excessive corporate power can be reduced through
incentives to other investors to compete in the domestic market.
7. Trade-related investment measures can also be valuable instruments of regional development
policies. There are circumstances in which goods originating from disadvantaged regions of
developing countries cannot compete in the short term with goods produced by more advancedmethods or technologies. Since it does not make economic sense for the State to support these regions
indefinitely, trade-related investment measures associated with purchases from companies located in
those disadvantaged regions can provide an additio nal stimulus for such companies to grow and
improve their ability to compete.
8. Trade-related investment measures can also be positively associated with sustainable
development as they relate to environment concerns. Unlike developed economies, developing
countries do not have all the means to ensure environment protection and therefore need to generate
additional income to that effect. It is widely recognized that certain natural resources and regions are
best protected in developing countries when sustainable management policies are implemented with
focus on specific products. It is therefore necessary to promote environment-friendly processes and
goods, in most cases under conditions which may not be competitive. Such processes and goods may
only find their way into the market by means of an induced demand which, in turn, could be generatedthrough trade-related investment measures.
9. One additional and special concern for developing countries lies in the fact that external
financial weaknesses are sometimes structural and, as such, become a major risk for the stability of
trade flows. Developing countries have been seriously affected by the financial turbulence of the past
five years, as they face structural imbalances in their external sectors, which can only be eliminated in
the development process over time. Usually, developing countries must generate trade surpluses if
they are to maintain a normal flow of transfers and payments, even if they are not faced with an acute
balance of payments crisis. There are two ways of generating trade surpluses, namely export increases
and import reductions, but only the former brings benefits for the multilateral trading system. When
faced with structural imbalances in the external front, developing countries should be encouraged toincrease exports in order not to restrict imports with deflationary policies. Trade-related investment
measures related to exports can be less restrictive than deflationary policies for a country's external
trade flows and for the multilateral trading system as a whole.G/C/W/428
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10. The disciplines of the TRIMs Agreement disregard the above structural inequalities among
Members and, apart from already concluded transitional periods, incorporate no specific meaningful
clauses for special and differential treatment. The absence of effective and operative clauses aiming at
addressing the special needs of developing countries has made the TRIMs Agreement one example ofreverse special and differential treatment. While developed countries had decades to choose when,
how and in which economic sectors to apply such measures, developing countries had their right to
choose simply revoked. Besides, the provisions of Article 4, as they are confined to the exceptions
permitted in Article XVIII of GATT 1994, in the Understanding on the Balance-of-Payments
Provisions of GATT 1994, and in the Declaration on Trade Measures Taken for Balance-of-Payments
Purposes adopted on 28 November 1979, are clearly insufficient in providing the necessary flexibility
to make use of investment measures in the context of development policies. Furthermore, theseexceptions are indicative that the GATT recognizes that quantitative restrictions allow developing
countries to conserve their foreign currency assets for purchases of imports needed for development.
II. PROPOSAL
11. Article 4 of the TRIMs Agreement should be amended in order to incorporate specific
provisions that will provide developing countries with the necessary flexibility to implementdevelopment policies. One possible solution is to extend the range of situations in which developing
countries are allowed to deviate temporarily from the provisions of Article 2. Among the new
provisions that should be included, the following should be considered.
12. Developing countries should be allowed to use TRIMs in order to:
(a) promote domestic manufacturing capabilities in high value-added sectors or
technology-intensive sectors;
(b) stimulate the transfer or indigenous development of technology;
(c) promote domestic competition and/or correct restrictive business practices;
(d) promote purchases from disadvantaged regions in order to reduce regional disparities
within their territories;
(e) stimulate environment-friendly methods or products and contribute to sustainable
development;
(f) increase export capacity in cases where structural current account deficits would
cause or threaten to cause a major reduction in imports.
(g) promote small and medium-sized enterprises as they contribute to employment
generation.
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