Previous Year Question
With reference to Trade-Related Investment Measures (TRIMS), which of the following statements is/are correct?
Quantitative restrictions on imports by foreign investors are prohibited.
They apply to investment measures related to trade in both goods and services.
They are not concerned with the regulation of foreign investment.
Select the correct answer using the code given below:
1 and 2 only
2 only
1 and 3 only
1, 2 and 3
Correct Answer: C
Detailed Solution
The Agreement on Trade-Related Investment Measures is a World Trade Organization agreement. It deals with investment measures that distort international trade in goods or violate the rules of GATT, 1994.
Statement 1 is correct. Article 2 of the TRIMS Agreement provides that a WTO member cannot apply an investment measure inconsistent with:
Article III of GATT concerning National Treatment; or
Article XI concerning the general prohibition of Quantitative Restrictions.
The Illustrative List of TRIMS prohibits measures that require a foreign investor or enterprise to:
purchase a specified quantity of domestic products;
link imports to the quantity or value of its exports; or
restrict imports in relation to local production or foreign-exchange earnings.
Therefore, trade-distorting quantitative restrictions on imports by a foreign-invested enterprise are prohibited.
Statement 2 is incorrect. The TRIMS Agreement applies only to investment measures related to trade in goods. It does not apply to trade in services.
International trade in services is primarily governed by a separate WTO agreement—the General Agreement on Trade in Services (GATS). Therefore, it is incorrect to state that TRIMS applies to both goods and services.
Statement 3 is correct. The TRIMS Agreement does not regulate the entire framework governing foreign investment. It does not determine:
the sectors in which a country must admit foreign investment;
the permissible level of foreign ownership;
the approval route for foreign investment; or
the sectors that a country may reserve or restrict.
These matters primarily remain within the domestic investment policy of the concerned country. TRIMS deals only with investment measures that produce restrictive or discriminatory effects on trade in goods.
Thus, statement 3 does not mean that TRIMS has no connection with investment. It means that TRIMS does not provide comprehensive regulation of foreign investment; it disciplines only investment-linked measures that distort trade in goods.