Elimination of Trims: the Experience of Selected Developing Countries

UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT ELIMINATION OF TRIMS: THE EXPERIENCE OF SELECTED DEVELOPING COUNTRIES UNITED NATIONS New York and Geneva, 2007 ii Elimination of TRIMs: The experience of selected developing countries Note UNCTAD serves as the focal point within the United Nations Secretariat for all matters related to foreign direct investment (FDI) and transnational corporations (TNCs). In the past, the Programme on Transnational Corporations was carried out by the United Nations Centre on Transnational Corporations (1975–1992) and the Transnational Corporations and Management Division of the United Nations Department of Economic and Social Development (1992–1993). In 1993, the programme was transferred to UNCTAD, which seeks to further the understanding of the nature of TNCs and their contribution to development, and create an enabling environment for international investment and enterprise development. UNCTAD’s work is carried out through intergovernmental deliberations, research and analysis, technical assistance activities, seminars, workshops and conferences. The term “country” as used in this study also refers, as appropriate, to territories or areas; the designations employed and the presentation of the material do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. In addition, the designations of country groups are intended solely for statistical or analytical convenience and do not necessarily express a judgement about the stage of development reached by a particular country or area in the development process. The material contained in this study may be freely quoted with appropriate acknowledgement. UNCTAD/ITE/IIA/2007/6 UNITED NATIONS PUBLICATION Sales No. E.07.II.D.18 ISBN 978-92-1-112729-4 ISSN 1818-1465 Copyright © United Nations, 2007 All rights reserved Printed in Switzerland UNCTAD current studies on FDI and development Elimination of TRIMs: The experience of selected developing countries iii Preface The World Trade Organization (WTO) Agreement on Trade-Related Investment Measures (TRIMs) came into force in 1995, as part of the Uruguay Round negotiations. The TRIMs Agreement did not define prohibited TRIMs, but its illustrative list included local content requirements, trade balancing requirements and export restrictions. Member States were given 90 days to notify WTO of any existing non-conforming measures. There were in total 43 notifications by 24 developing countries. After the stipulated transition periods had expired, 10 developing countries under article 5 of the agreement requested extensions of the transition period. By early 2007, virtually all notified TRIMs had been abolished by the countries concerned. Before that, few studies had been conducted to examine the implications of the elimination of TRIMs. Against this background, the purpose of the present study is to shed new light on this important area. It considers the experience of four countries that notified TRIMs in 1995: Argentina, Mexico, Pakistan and the Philippines. In addition, it covers two countries that, when the project was started, were seeking to accede to WTO: Ethiopia and Viet Nam, the latter of which has now already become a WTO member. The idea of including these two countries was to examine the likely impact of WTO accession on their use of selected TRIMs. The study constitutes an extension of previous analytical work by UNCTAD in the area of performance requirements, as reported in the World Investment Report 2003: FDI Policies for Development: National and International Perspectives. It responds to the decision at the eighth session of the Commission on Investment, Technology and Related Financial Issues (paragraph 5 of the report from that session) that: “The secretariat should also follow up on the work it has undertaken in the World Investment Report 2003, especially on issues of special interest to developing countries.” Furthermore the São Paulo Consensus specified (paragraph 50): “UNCTAD should continue its work on investment, as well as technology and enterprise development, and – through policy analysis, technical assistance and capacity- and consensus-building – assist developing countries in policy formation and implementation in this regard, taking into account developments in the international economic environment. UNCTAD should pay particular attention to the international dimension in order to identify the opportunities for and obstacles to progress in economic development.” The research has benefited from the financial support from the Development Account and offers important findings for Governments and their agencies involved in investment-related policymaking. For example, in the context of promoting linkages, many developing countries have traditionally made use of TRIMs. The six country studies illustrate how the countries concerned have been affected by the elimination of such TRIMs. They also consider possible alternative ways to encourage linkage development. In the context of this project, a panel discussion was organized in March 2006 during the tenth session of the UNCTAD Commission on Investment, Technology and Related Issues and UNCTAD current studies on FDI and development iv Elimination of TRIMs: The experience of selected developing countries back to back with the Annual Conference of the World Association of Investment Promotion Agencies. During the same week, a workshop was organized to discuss the preliminary findings of the case studies. From a normative perspective, the notion that TRIMs should be disallowed, when individual countries may consider them as useful tools of industrial development and diversification, remains controversial. It has become even more so as developed economies have resorted extensively to such schemes in order to, among other things, build domestic manufacturing capabilities and stimulate production linkages. The study suggests that the extent to which TRIMs have helped advance the objectives set out has varied considerably, reflecting the specific economic conditions and policy environment of the country using them. In some cases, they have played a role in spurring foreign companies to source more locally in, or enhance their exports from, the host economy. In other instances, the impact appears to have been small or even negative. The effectiveness of various TRIMs has been influenced by a range of factors, including government capabilities, local absorptive capacity of the workforce and domestic enterprises, and the extent to which measures used have been compatible with other industrial and trade policies. UNCTAD current studies on FDI and development Elimination of TRIMs: The experience of selected developing countries v Acknowledgements This publication was edited by Americo Beviglia Zampetti and Torbjörn Fredriksson under the guidance of Anne Miroux. It is based primarily on background papers prepared for the different chapters by Le Thuc Duc and Tran Hao Hung, Mamo E. Mihretu, David Romo Murillo, Zafar Mueen Nasir, Rene E. Ofreneo, and Diana Tussie and Ignacio Labaqui. The final version reflects comments received by Joachim Karl, Martha Lara, Dong Jae Lee, Mina Mashayekhi, Theodore H. Moran, Thomas Pollan and Yunsung Tark. Teresita Ventura did the desktop publishing for the paper. It was edited by Michael Gibson. UNCTAD current studies on FDI and development Elimination of TRIMs: The experience of selected developing countries vii Contents Page Preface...............................................................................................................................................iii Acknowledgements...........................................................................................................................iv I. Implications of the elimination of TRIMs: A summary.......................................................1 A. The TRIMs Agreement...................................................................................................1 B. Case study findings .........................................................................................................5 C. Conclusions ......................................................................................................................9 II. Argentina................................................................................................................................13 A. Introduction.................................................................................................................. 13 B. Regulatory framework and recent trends in FDI ..................................................... 13 1. Legal framework................................................................................................... 13 2. Recent trends in FDI inflows ................................................................................ 14 C. Argentina’s TRIMs notifications................................................................................ 16 D. The automotive regime and the MERCOSUR automotive policy........................... 18 1. The automotive regime ......................................................................................... 18 2. The MERCOSUR automotive policy.................................................................... 21 E. The automotive industry in Argentina......................................................................

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