Towards a more comprehensive world trade organization agreement on trade related investment measures

Stanford Journal of International Law

Volumn 33, Issue 2, 1997, Pages 169-212

  Edwards Jr , Robert H ^a,b,c,d   Lester, Simon N ^a,e,f  

^a Hunton and Williams ^*  (United States)

^b HARVARD UNIVERSITY   (United States)

^c STANFORD UNIVERSITY   (United States)

^d STANFORD LAW SCHOOL   (United States)

^e GEORGETOWN UNIVERSITY   (United States)

^f HARVARD LAW SCHOOL   (United States)

Author keywords

[No Author keywords available]

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EID: 0005837429     PISSN: 07315082     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (290)

1. General Agreement on Tariffs and Trade, Oct. 30, 1947, 61 Stat. A3, T.I.A.S. No. 1700, 55 U.N.T.S. 187 [hereinafter GATT]. Until the establishment of the World Trade Organization, the GATT was the principal multilateral treaty regulating trade. Over the past five decades, countries have reduced barriers to trade in a series of negotiating rounds under the GATT's auspices. The World Trade Organization Agreement, reached in 1994, created a new international organization and treaty structure, with greater definition and powers, to carry forward the goals of the GATT. See infra Part III.A.
2. See WTO Secretariat, Press Release, Trade and Foreign Direct Investment, Press/57 (Oct. 9, 1996).
3. See Multinational Foreign Direct Investment Hits New Records, European Information Service: Multinational Service, Apr. 4, 1995, available in LEXIS, News Library, Curnws File.
4. It should be noted, however, that TRIMs can also be used in conjunction with domestic investment See infra text accompanying notes 199-200.
5. Agreement on Interpretation and Application of Articles VI, XVI, and XXIII of the General Agreement on Tariffs and Trade, Apr. 12, 1979, GATT B.I.S.D. (26th Supp.) at 56 (1980) [hereinafter Subsidies Code].
6. See Agreement on Subsidies and Countervailing Measures, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex IA, reprinted in THE RESULTS OF THE URUGUAY ROUND OF MULTILATERAL TRADE NEGOTIATIONS - THE LEGAL TEXTS 264 (1994) [hereinafter Subsidies Agreement].
7. See infra Part V.A.2.
8. See Agreement on Trade Related Investment Measures, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex IA, reprinted in THE RESULTS OF THE URUGUAY ROUND OF MULTILATERAL TRADE NEGOTIATIONS - THE LEGAL TEXTS, supra note 6, at 163 [hereinafterTRIMs Agreement].
9. See id. art. 2.
10. See id. art. 9.
11. See Figure 1, infra Part II. B.1.
12. See TERENCE P. STEWART, THE GATT URUGUAY ROUND: A NEGOTIATING HISTORY (1986-1992) 2094, 2107 (1993).
13. See UNITED NATIONS, THE IMPACT OF TRADE-RELATED INVESTMENT MEASURES ON TRADE AND DEVELOPMENT at 12, U.N. Doc. ST/LTL/120, U.N. Sales No. E.91.II.A.19 (1991) [hereinafter UN TRIMS STUDY].
14. See UNITED NATIONS, THE IMPACT OF TRADE-RELATED INVESTMENT MEASURES ON TRADE AND DEVELOPMENT at 12, U.N. Doc. ST/LTL/120, U.N. Sales No. E.91.II.A.19 (1991) [hereinafter UN TRIMS STUDY].
15. Restrictive business practices are attempts by corporations to maximize profits through anti-competitive practices and transfer-pricing policies. Home-country measures refer to restrictions placed on investors by the country of incorporation. See id. at 2, 11-12, 87. This Article does not address restrictive business practices because these measures are properly regulated through competition policy. The development of WTO rules in this area is still in the discussion stage. Regulation of home-country measures has barely reached the discussion stage, rendering proposals to integrate such measures into an agreement on TRIMs premature.
16. The term "performance requirements" has its origins in a subgroup of TRIMs referred to as either trade related investment performance requirements (TRIPs) or trade related performance requirements (TRPRs). In this Article, such measures will be referred to as performance requirements to avoid confusion between these two terms, as well as with the WTO Agreement on Trade-Related Aspects of Intellectual Property (also called TRIPs). For an account of the origins of the concepts of TRIPs and TRPRs, see THEODORE H. MORAN & CHARLES S. PEARSON, TRADE RELATED INVESTMENT PERFORMANCE REQUIREMENTS: A STUDY PREPARED FOR THE OVERSEAS PRIVATE INVESTMENT CORPORATION 7 (1987) [hereinafter MORAN & PEARSON, OPIC TRIPs]; Claude G.B. Fontheim & Michael R. Gadbaw, Trade Related Performance Requirements Under the GATT-MTN System and U.S. Law, 14 LAW & POL'Y INT'L BUS. 129 (1982); Theodore H. Moran & Charles S. Pearson, Tread Carefully in the Field of TRIP Measures, 11 THE WORLD ECON. 119 (1988) [hereinafter Moran & Pearson, TRIP Measures].
17. The term "performance requirements" has its origins in a subgroup of TRIMs referred to as either trade related investment performance requirements (TRIPs) or trade related performance requirements (TRPRs). In this Article, such measures will be referred to as performance requirements to avoid confusion between these two terms, as well as with the WTO Agreement on Trade-Related Aspects of Intellectual Property (also called TRIPs). For an account of the origins of the concepts of TRIPs and TRPRs, see THEODORE H. MORAN & CHARLES S. PEARSON, TRADE RELATED INVESTMENT PERFORMANCE REQUIREMENTS: A STUDY PREPARED FOR THE OVERSEAS PRIVATE INVESTMENT CORPORATION 7 (1987) [hereinafter MORAN & PEARSON, OPIC TRIPs]; Claude G.B. Fontheim & Michael R. Gadbaw, Trade Related Performance Requirements Under the GATT-MTN System and U.S. Law, 14 LAW & POL'Y INT'L BUS. 129 (1982); Theodore H. Moran & Charles S. Pearson, Tread Carefully in the Field of TRIP Measures, 11 THE WORLD ECON. 119 (1988) [hereinafter Moran & Pearson, TRIP Measures].
18. The term "performance requirements" has its origins in a subgroup of TRIMs referred to as either trade related investment performance requirements (TRIPs) or trade related performance requirements (TRPRs). In this Article, such measures will be referred to as performance requirements to avoid confusion between these two terms, as well as with the WTO Agreement on Trade-Related Aspects of Intellectual Property (also called TRIPs). For an account of the origins of the concepts of TRIPs and TRPRs, see THEODORE H. MORAN & CHARLES S. PEARSON, TRADE RELATED INVESTMENT PERFORMANCE REQUIREMENTS: A STUDY PREPARED FOR THE OVERSEAS PRIVATE INVESTMENT CORPORATION 7 (1987) [hereinafter MORAN & PEARSON, OPIC TRIPs]; Claude G.B. Fontheim & Michael R. Gadbaw, Trade Related Performance Requirements Under the GATT-MTN System and U.S. Law, 14 LAW & POL'Y INT'L BUS. 129 (1982); Theodore H. Moran & Charles S. Pearson, Tread Carefully in the Field of TRIP Measures, 11 THE WORLD ECON. 119 (1988) [hereinafter Moran & Pearson, TRIP Measures].
19. The term "performance requirements" has its origins in a subgroup of TRIMs referred to as either trade related investment performance requirements (TRIPs) or trade related performance requirements (TRPRs). In this Article, such measures will be referred to as performance requirements to avoid confusion between these two terms, as well as with the WTO Agreement on Trade-Related Aspects of Intellectual Property (also called TRIPs). For an account of the origins of the concepts of TRIPs and TRPRs, see THEODORE H. MORAN & CHARLES S. PEARSON, TRADE RELATED INVESTMENT PERFORMANCE REQUIREMENTS: A STUDY PREPARED FOR THE OVERSEAS PRIVATE INVESTMENT CORPORATION 7 (1987) [hereinafter MORAN & PEARSON, OPIC TRIPs]; Claude G.B. Fontheim & Michael R. Gadbaw, Trade Related Performance Requirements Under the GATT-MTN System and U.S. Law, 14 LAW & POL'Y INT'L BUS. 129 (1982); Theodore H. Moran & Charles S. Pearson, Tread Carefully in the Field of TRIP Measures, 11 THE WORLD ECON. 119 (1988) [hereinafter Moran & Pearson, TRIP Measures].
20. The term "performance requirements" has its origins in a subgroup of TRIMs referred to as either trade related investment performance requirements (TRIPs) or trade related performance requirements (TRPRs). In this Article, such measures will be referred to as performance requirements to avoid confusion between these two terms, as well as with the WTO Agreement on Trade-Related Aspects of Intellectual Property (also called TRIPs). For an account of the origins of the concepts of TRIPs and TRPRs, see THEODORE H. MORAN & CHARLES S. PEARSON, TRADE RELATED INVESTMENT PERFORMANCE REQUIREMENTS: A STUDY PREPARED FOR THE OVERSEAS PRIVATE INVESTMENT CORPORATION 7 (1987) [hereinafter MORAN & PEARSON, OPIC TRIPs]; Claude G.B. Fontheim & Michael R. Gadbaw, Trade Related Performance Requirements Under the GATT-MTN System and U.S. Law, 14 LAW & POL'Y INT'L BUS. 129 (1982); Theodore H. Moran & Charles S. Pearson, Tread Carefully in the Field of TRIP Measures, 11 THE WORLD ECON. 119 (1988) [hereinafter Moran & Pearson, TRIP Measures].
21. For a more detailed description and discussion of specific TRIMs, see infra Part IV.
22. Moran & Pearson, TRIP Measures, supra note 15, at 120.
23. For a description of the problem, see generally Oliver Morrissey & Yogesh Rai, The GATT Agreement on Trade-Related Investment Measures: Implications for Developing Countries and Their Relationship with Transnational Corporations, 31 J. DEV. STUD. 702 (1995).
24. As summarized by Fontheim and Gadbaw: The economic consequences of TRPRs [Trade-Related Performance Requirements] are, in the long run, negative. Although TRPRs may be used by national governments to control and promote economic development, TRPRs generally place the various actors in the international economic system as a group in a worse position than without the use of TRPRs. Fontheim & Gadbaw, supra note 15, at 139.
25. See Moran & Pearson, TRIP Measures, supra note 15, at 122, in which the authors discuss why economic analysis of TRIMs is difficult: First, since TRIP requirements are very frequently part of a complex package of incentives and disincentives,. . . the effects of the TRIP requirements themselves are difficult to distinguish from those of other measures, either theoretically or in practice. Second, TRIP requirements frequently occur within a set of prices that are distorted and the effect of removing one distortion, while leaving the others in place, may or may not lead to an improvement in efficiency - a result following from the theory of the second best. Third, foreign direct investment usually occurs in oligopolistic industries and industries characterized by increasing returns to scale. The theoretical underpinnings of trade theory in the presence of oligopoly, imperfect competition and economies of scale are only just beginning to be developed and firm theoretical conclusions are difficult to make. Finally, the benchmark against which TRIP requirements should be judged is not self-evident. The removal of a TRIP requirement might easily lead to policy adjustments which may themselves increase distortions to trade and investment flows.
26. See STEPHEN E. GUISINGER & Assoc., INVESTMENT INCENTIVES AND PERFORMANCE REQUIREMENTS: PATTERNS OF INTERNATIONAL TRADE, PRODUCTION AND INVESTMENT vii (1985).
27. See Moran & Pearson, TRIP Measures, supra note 15, at 124: There are ample reasons for the indifferent quality of the data: (i) No international agency has a mandate to collect and publish information on TRIPs. (ii) Many are specific to an industry or even to a particular investment project (iii) TRIP requirements may not be invoked or enforced in practice. And (iv) neither host governments nor firms have an incentive to disclose information.
28. See PAUL R. KRUGMAN & MAURICE OBSTFELD, INTERNATIONAL ECONOMICS, THEORY AND POLICY 11-12 (2d ed. 1991) (citing DAVID RICARDO, THE PRINCIPLES OF POLITICAL ECONOMY AND TAXATION (1817)).
29. See PAUL R. KRUGMAN & MAURICE OBSTFELD, INTERNATIONAL ECONOMICS, THEORY AND POLICY 11-12 (2d ed. 1991) (citing DAVID RICARDO, THE PRINCIPLES OF POLITICAL ECONOMY AND TAXATION (1817)).
30. The Heckscher-Ohlin theory, which stipulates that international trade is driven largely by differences in countries' available resources, is one example. See id. at 68-92.
31. See id. at 12-13.
32. See id. at 13-21.
33. See id. at 23-38.
34. See Paul R. Krugman, Introduction: New Thinking About Trade Policy, in STRATEGIC TRADE POLICY AND THE NEW INTERNATIONAL ECONOMICS 14-15, 20-21 (Paul R. Krugman ed., 1986).
35. See id. at 15.
36. See id. at 10-12, 14-15.
37. See id. at 12-18.
38. KRUGMAN & OBSTFELD, supra note 23, at 241.
39. See id. at 150-51.
40. See id. at 241.
41. See Jeswald W. Salacuse, Towards a New Treaty Framework for Direct Foreign Investment, 50 J. AIR L. & COM. 969, 981 (1985).
42. See Stephen E. Guisinger, Investment Related to Trade, in THE URUGUAY ROUND: A HANDBOOK FOR THE MULTUATERAL TRADE NEGOTIATIONS 217, 217 (J. Michael Finger & Andrzej Olechowski eds., 1987).
43. Id.
44. The current policies of Brazil and Indonesia exemplify this shift to performance incentives. See infra Part II.B.2.
45. See Guisinger, supra note 36, at 217.
46. See id. at 222.
47. See supra notes 13-18 and accompanying text.
48. MORAN & PEARSON, OPIC TRIPS, supra note 15.
49. See UN TRIMS STUDY, supra note 13, at 23-26 (summarizing the 1989 USTR survey).
50. See id. at 18-19 (summarizing findings of the OPIC study).
51. See id. at 19 tbl. 5.
52. See MORAN & PEARSON, OPIC TRIPS, supra note 15, at 32-33.
53. See UN TRIMS STUDY, supra note 13, at 23.
54. See id. at 24.
55. See id.
56. See id. at 26.
57. See MORAN & PEARSON, OPIC TRIPS, supra note 15, at 25-46.
58. See id. at 45 (citing results of the 1982 U.S. Department of Commerce Benchmark Survey and GUISINGER & ASSOC., supra note 21).
59. See id.
60. Patrick Low & Arvind Subramanian, TRIMs in the Uruguay Round: An Unfinished Business?, in THE URUGUAY ROUND AND THE DEVELOPING ECONOMIES 413 (Will Martin & L. Alan Winters eds., 1995).
61. See id. 418.
62. See id. at 418, 419-20 tbl. 3.
63. See fig. 1
64. See infra Part IV for a more detailed explanation of Figure 1 and its structure.
65. Investment measures mandating that investors source inputs locally, regardless of cost, are referred to as "domestic (or local) content requirements."
66. Note that when analyzing the effect of any TRIM on trade flows, it is assumed that the application of the TRIM forces the investor to make operational decisions that are different from the decisions that would have been made in the absence of the TRIM.
67. The members of ASEAN are Singapore, the Philippines, Malaysia, Indonesia, Brunei, and, as of 1995, Vietnam.
68. See JANIS TOGASHI & PEARL IMADA, THE LEGAL FRAMEWORK FOR INVESTMENT IN ASEAN: INVESTMENT REGULATIONS AND INCENTIVES 3 (1993).
69. Id. at 19.
70. Presidential Instruction, No. 2 (1996) (translated); Minister of Industry and Trade Decree, No. 31/MPP/SK/2 (1996) (translated); Minister of Finance Decree, No. 82/KMK01 (1996) (translated); Government Regulation of the Republic of Indonesia, No. 20 (1996) (translated); and Elucidation of Government Regulation of the Republic of Indonesia, No. 20/1 (1996) (translated) (on file with the Stanford Journal of International Law).
71. See Minister of Industry and Trade Decree, No. 31/MPP/SK/2, art. 1 (1996) (translated).
72. See id.
73. See id. art. 2.
74. See id. art. 3.
75. See Presidential Instruction, No. 2 (1996) (translated).
76. See Indonesia Announces Automotive Sector Regulations, Deutsche Presse-Agentur, Feb. 29, 1996, at Financial Pages, available in LEXIS, News Library, Curnws File; John Zarocostas, EU, Japan Go to WTO over Indonesia Car Policy, J. OF COM., Oct. 7, 1996, at 3A.
77. See Indonesia Announces Automotive Sector Regulations, Deutsche Presse-Agentur, Feb. 29, 1996, at Financial Pages, available in LEXIS, News Library, Curnws File; John Zarocostas, EU, Japan Go to WTO over Indonesia Car Policy, J. OF COM., Oct. 7, 1996, at 3A.
78. See Zarocostas, supra note 70.
79. Law on Foreign Investment in the Lao People's Democratic Republic, No. 1, art. 72 (1989) (translated).
80. See Law to Encourage, Protect and Manage Foreign Investment in the Lao People's Democratic Republic, No. 1, arts. 17-18 (1994) (translated).
81. See WTO Secretariat, supra note 2.
82. See id.
83. See John S. Mo, China, the World Trade Organization, and the Agreement on Trade-Related Investment Measures, J. WORLD TRADE, Oct. 1996, at 89, 106-10.
84. See id. at 106.
85. The Regulations Implementing the Joint Equity Law were enacted by the State Council in 1983, the Regulations Implementing the Sole Enterprise Law by MOFERT in 1990, and the Regulations Implementing the Co-operative Law by MOFERT in 1995. See id. at 108.
86. See id. at 107-08.
87. See id.
88. See id. at 106-09.
89. See id. at 109-10.
90. See id. at 110-11.
91. See Helen Shapiro, Automobiles: From Import Substitution to Export Promotion in Brazil and Mexico, in BEYOND FREE TRADE: FIRMS, GOVERNMENTS, AND GLOBAL COMPETITION 193, 203 (David Yoffie ed., 1984).
92. See id.
93. See Brazil's Auto Policy Yields Major Industry Investment Plans, 13 Int'l Trade Rep. (BNA) 720 (May 1, 1996) [hereinafter Brazil's Auto Policy].
94. See Brazil's Auto Policy Yields Major Industry Investment Plans, 13 Int'l Trade Rep. (BNA) 720 (May 1, 1996) [hereinafter Brazil's Auto Policy].
95. See WTO Secretariat, Press Release, Brazil's Reforms Promote Economic Gains but Implementation of Trade Policy Remains Complex, Press/TPRB/45 (Oct. 24, 1996) (summary observations of the WTO Secretariat Report on Brazil for the Trade Policy Review Body) .
96. USTR Announces Section 301 Action Against Four Countries, INSIDE U.S. TRADE, Oct 4, 1996, at 25 [hereinafter USTR Announces].
97. USTR Announces Section 301 Action Against Four Countries, INSIDE U.S. TRADE, Oct 4, 1996, at 25 [hereinafter USTR Announces].
98. Brazil's Auto Policy, supra note 86.
99. See WTO Secretariat, supra note 87.
100. See id.
101. Omnibus Trade and Competitiveness Act of 1988 § 721, 50 U.S.C.§ 2170 (1995).
102. See EDWARD M. GRAHAM & PAUL R. KRUGMAN, FOREIGN DIRECT INVESTMENT IN THE UNITED STATES 126 (3d ed. 1995).
103. See id. at 132.
104. Id.
105. Note, however, that performance requirements were rumored to have been imposed by CFIUS in 1988, surrounding the takeover of a U.S. silicon wafer operation by a German chemical firm. See id. at 129, 132.
106. The Technology and Preservation Act of 1991, H.R. 2624, 102d Cong. (1991).
107. See EDWARD M. GRAHAM & PAUL R. KRUGMAN, FOREIGN DIRECT INVESTMENT IN THE UNITED STATES 126-27 (2d ed. 1991).
108. See, e.g., Four-Year Search Leads BMW to Greer, BUS. J. - CHARLOTTE, Mar. 15,1993, § 2, at 6; Go Easy on Volvo Incentives, ATLANTA J. & CONST., Jan. 13, 1996, at 10A; Sougata Mukherjee, Alabama Writes "Blank Check" to Lure Mercedes, BUS. J.- CHARLOTTE, Oct. 4, 1993, § 1, at 1.
109. See, e.g., Four-Year Search Leads BMW to Greer, BUS. J. - CHARLOTTE, Mar. 15,1993, § 2, at 6; Go Easy on Volvo Incentives, ATLANTA J. & CONST., Jan. 13, 1996, at 10A; Sougata Mukherjee, Alabama Writes "Blank Check" to Lure Mercedes, BUS. J.- CHARLOTTE, Oct. 4, 1993, § 1, at 1.
110. See, e.g., Four-Year Search Leads BMW to Greer, BUS. J. - CHARLOTTE, Mar. 15,1993, § 2, at 6; Go Easy on Volvo Incentives, ATLANTA J. & CONST., Jan. 13, 1996, at 10A; Sougata Mukherjee, Alabama Writes "Blank Check" to Lure Mercedes, BUS. J.- CHARLOTTE, Oct. 4, 1993, § 1, at 1.
111. GRAHAM & KRUGMAN, supra note 93, at 141.
112. Moran & Pearson note that, as of 1988: The range of approaches is demonstrated by the following examples. Mexico has explicit, published TRIP requirements for foreign investors, together with restrictions on imports. France awards generous tax breaks on the basis of ministerial considerations of job creation, industrial impact and exports. Ireland has no explicit TRIP requirements, but, having only a small domestic market, she offers cash grants for large-scale production facilities supplying export markets. In the United States, twenty-four state governments have attractive packages of investment incentives that include a diverse array of subsidies. While there is at present no domestic-content legislation in the United States, it would be disingenuous to suggest that the pursuit by certain states of foreign-owned automobile plants has no impact on the country's trade flows. Moran & Pearson, TRIP Measures, supra note 15, at 121-22.
113. Act of Dec. 12, 1973, ch. 46, 1973-1974 S.C. 619 (Can.), as amended [hereinafter FIRA], repealed by Investment Canada Act, R.S.C., ch. 28, § 46 (1st Supp. 1985), as amended; see also Emily F. Carasco, The Foreign Investment Review Agency (FIRA) and the General Agreement on Tariffs and Trade (GATT): Incompatible?, 13 GA. J. INT'L & COMP. L. 441, 443 (1983); Fontheim & Gadbaw, supra note 15, at 174.
114. Act of Dec. 12, 1973, ch. 46, 1973-1974 S.C. 619 (Can.), as amended [hereinafter FIRA], repealed by Investment Canada Act, R.S.C., ch. 28, § 46 (1st Supp. 1985), as amended; see also Emily F. Carasco, The Foreign Investment Review Agency (FIRA) and the General Agreement on Tariffs and Trade (GATT): Incompatible?, 13 GA. J. INT'L & COMP. L. 441, 443 (1983); Fontheim & Gadbaw, supra note 15, at 174.
115. See FIRA, § 3(1).
116. See id. § 8.
117. See id. §§ 9-10; § 2(2) (list of criteria).
118. For a comprehensive description of the history and functions of the GATT, see generally JOHN H. JACKSON, THE WORLD TRADING SYSTEM (1989).
119. After the Uruguay Round, average tariffs on industrial products in industrialized countries fell to 3.9%. See JOHN H. JACKSON ET AL., LEGAL PROBLEMS OF INTERNATIONAL ECONOMIC RELATIONS 383 (1995).
120. See infra Part V.A.1-2.
121. Marrakesh Agreement Establishing the World Trade Organization, Apr. 15, 1994, reprinted in THE RESULTS OF THE URUGUAY ROUND OF MULTILATERAL TRADE NEGOTIATIONS - THE LEGAL TEXTS, supra note 6, at 6.
122. See JACKSON ET AL., supra note 107, at 302.
123. See id. at 327-46. At the time of this writing it is uncertain whether the penalties for refusing to follow a panel decision are strong enough to ensure that countries will comply. See id. at 343-6, 366-71.
124. See id. at 302-03.
125. In the early discussions of the promotion of international trade flows, investment measures were classified in the literature as restrictive business practices. Among other things, these practices included actions taken by private interests or governments with the following effects: (1) influencing prices or conditions of sale; (2) restricting output and production capacity; (3) allocating markets; and (4) eliminating outside competition. The original ITO charter proposal contained an entire chapter detailing these practices. The scope of coverage "was very broad, and was based on the idea that investment measures should not DC used to inhibit economic development and social progress." STEWART, supra note 12, at 2053-54.
126. See id. at 2056-57.
127. See id. at 2060.
128. See id. at 2061.
129. See id. at 2062.
130. See. id at 2062 n. 242.
131. See id. at 2062 n. 241.
132. Even at this early stage, a division of opinion on this issue was evident. Developing countries argued that discussion of TRIMs was not within GATT competence, while the United States, the European Community, and Japan supported further study of the issue. See id. at 2062 n.242.
133. Act Of Dec. 12, 1973, Ch. 46, 1973-74 F.C. 619 (Can.), as amended (repealed 1985).
134. §§ 9-10.
135. Id. § 2(2) (a): "The effect of the acquisition or establishment on the level and nature of economic activity in Canada, including, without limiting the generality of the foregoing, the effect on unemployment, on resource processing, on the utilization of parts, components and services produced in Canada, and on exports from Canada."
136. See Carasco, supra note 102, at 446: The trade-related performance requirements . . . may be illustrated by the following examples: Company H was required to promise only to bank with Canadian banks and utilize exclusively Canadian advertising agencies and public accountants. Company I was required to affirm that it would purchase a specific percentage of its requirements in Canada. Company J was requested to reduce its equity share not only in the firm being acquired in Canada but in other unrelated operations in Canada. Company K was required to pledge that it would cease to import specified products. Company L was pressured to move certain manufacturing operations form the United States to Canada. Company M was required to agree to export specific products. Company N, and numerous others, were required to furnish technology, trademarks etc. free of charge to its Canadian subsidiary. Company O was requested to make "financial contributions" to a Canadian project in which it had no interest
137. See id. at 445-46.
138. See Canada Administration of the Foreign Investment Review Act, Feb. 7, 1984, GATT B.I.S.D. (30th Supp.) at 140, 143-44 (1984) [hereinafter FIRA Panel Report].
139. See Canada Administration of the Foreign Investment Review Act, Feb. 7, 1984, GATT B.I.S.D. (30th Supp.) at 140, 143-44 (1984) [hereinafter FIRA Panel Report].
140. Id. at 141.
141. Id. at 157.
142. Section 4 states: The products of the territory of any contracting party imported into the territory of any other contracting party 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. GATT art III, § 4.
143. FIRA Panel Report, supra note 126, at 159.
144. See id. at 160.
145. See id.
146. See id. at 160-61. The panel also evaluated the purchase undertakings in light of trade obligations emanating from Article XI, Section 1 of the GATT. It found that Article XI, Section 1 was not applicable to purchase undertakings: The panel shares the view of Canada that the General Agreement distinguishes between measures affecting the "importation" of products, which are regulated in Article XI: 1, and those affecting "imported products," which are dealt with in Article III. If Article XI:1 were interpreted broadly to cover also internal requirements, Article III would be partly superfluous. . . . [T] he Panel, noting that purchase undertakings do not prevent the importation of goods as such, reached the conclusion that they are not inconsistent with Article XI:1. Id. at 162-63. This finding of the GATT panel runs counter to the view of several commentators who believe that local content requirements are inconsistent with Article XI, Section 1. These commentators reason that binding local content requirements have the same function as quantitative restrictions on imports: If a firm sells X worth of its product locally and if 1/3 of the value of the goods it sells locally must be produced locally, the firm can import only 2/3 X worth of components for that good. Without this restriction the firm would be able to import any proportion of X that efficiency and consumer demand dictate. Fontheim & Gadbaw, supra note 15, at 148.
147. See FIRA Panel Report, supra note 126, at 163-64. Article XVII, Section 1 (a)-(c) provides that the Contracting Parties shall not prevent enterprises from acting in accordance with commercial considerations or in a manner consistent with the general principles of nondiscriminatory treatment set out in the GATT. GATT, art. XVII, § 1 (a)-(c).
148. FIRA Panel Report, supra note 126, at 164.
149. Id. at 157.
150. Id. at 158.
151. See, e.g., Fontheim & Gadbaw, supra note 15, at 143; see also GATT Secretariat, Submission by the United States, Negotiating Group on Trade-Related Investment Measures, MTN.GNG/NG12/W/14 (Feb. 6, 1989) [hereinafter USTR Submission].
152. See, e.g., Fontheim & Gadbaw, supra note 15, at 143; see also GATT Secretariat, Submission by the United States, Negotiating Group on Trade-Related Investment Measures, MTN.GNG/NG12/W/14 (Feb. 6, 1989) [hereinafter USTR Submission].
153. See, e.g., Fontheim & Gadbaw, supra note 15, at 143; see also GATT Secretariat, Submission by the United States, Negotiating Group on Trade-Related Investment Measures, MTN.GNG/NG12/W/14 (Feb. 6, 1989) [hereinafter USTR Submission].
154. Fontheim & Gadbaw, supra note 15, at 143-44.
155. For further discussion of our position on this point, see infra Part V.
156. GATT Secretariat, Document PREP.COM(89)SR/4 (1989), at 36, quoted in STEWART, supra note 12, at 2068-69 n.269.
157. See, e.g., Daniel M. Price & P. Bryan Christy III, Agreement on Trade Related Investment Measures (TRIMs): Limitations and Prospects for the Future, in TERENCE P. STEWART, THE WORLD TRADE ORGANIZATION 448 (1995).
158. See id.
159. See STEWART, supra note 12, at 2068-69.
160. GATT Secretariat, supra note 141, at 40, quoted in STEWART, supra note 12, at 2069 n.270.
161. The section on TRIMs provides: Multilateral Actions The Contracting Parties should: (1) Seek to increase discipline over investment measures which divert trade and investment flows at the expense of the other contracting parties, in contravention of a major objective of the GATT, i.e., "the elimination of discriminatory treatment in international commerce". . . . (2) Explore a broad range of investment issues in the negotiations, including: . . . Various types of trade-related investment measures: GATT contracting parties must examine ways to stem, and ultimately reverse, the use of these measures. Among these practices are: local content requirements, export requirements, incentives, and product mandating. GATT Secretariat, Document PREP.COM(86)/W/35 (June 11, 1986), at 4, quoted in STEWART, supra note 12, at 2069-70 n.271.
162. See STEWART, supra note 12, at 2071.
163. See GATT Secretariat, Ministerial Declaration on the Uruguay Round, MIN(86)/6 (Sept 20, 1986), at 8, quoted in STEWART, supra note 12, at 2071-72.
164. See STEWART, supra note 12, at 2081. The position of the developing countries was as follow: [The] delegation could not accept the view that the objective of negotiations was to establish within GATT a new system to regulate trade-related investment measures or to provide for a smooth development on the international exchange of investment. . . . The objective of the Group s work was to clarify the operation of the GATT Articles and to elaborate such further provisions as may be necessary. This could not be construed as a license to create a new regime or agreement It was clear that the negotiating mandate could not provide a basis to question the sovereign right of governments to regulate foreign direct investment and lay down conditions of establishment for for-eign enterprises. GATT Secretariat, Meeting of 30 October-2 November 1987, MTN.GNG/NG12/4 (Nov. 23,1987), at 13, quoted in STEWART, supra note 12, at 2081.
165. See STEWART, supra note 12, at 2081. The position of the developing countries was as follow: [The] delegation could not accept the view that the objective of negotiations was to establish within GATT a new system to regulate trade-related investment measures or to provide for a smooth development on the international exchange of investment. . . . The objective of the Group s work was to clarify the operation of the GATT Articles and to elaborate such further provisions as may be necessary. This could not be construed as a license to create a new regime or agreement It was clear that the negotiating mandate could not provide a basis to question the sovereign right of governments to regulate foreign direct investment and lay down conditions of establishment for for-eign enterprises. GATT Secretariat, Meeting of 30 October-2 November 1987, MTN.GNG/NG12/4 (Nov. 23,1987), at 13, quoted in STEWART, supra note 12, at 2081.
166. See STEWART, supra note 12, at 2081-82.
167. GATT Secretariat, Communication from Argentina, Brazil, Cameroon, Colombia, Cuba, Egypt, India, Nigeria, People's Republic of China, United Republic of Tanzania, and Yugoslavia, MTN.GNG/NG12/W/25 (Mar. 10, 1990), at I, quoted in STEWART, supra note 12, at 2113.
168. See STEWART, supra note 12, at 2092-97, 2104-09.
169. For a slightly different evaluation of the particular countries'positions, see UN TRIMS STUDY, supra note 13, at 83-86; see also Edward R. Graham & Paul R. Krugman, Trade-Related Investment Measures, in COMPUTING THE URUGUAY ROUND: A RESULTS-ORIENTED APPROACH TO THE GATT TRADE NEGOTIATIONS 147 (Jeffrey L. Schott ed., 1990). For an in-depth look at the negotiations, including each country's proposals and responses, see STEWART, supra note 12, at 2072-2128.
170. For a slightly different evaluation of the particular countries'positions, see UN TRIMS STUDY, supra note 13, at 83-86; see also Edward R. Graham & Paul R. Krugman, Trade-Related Investment Measures, in COMPUTING THE URUGUAY ROUND: A RESULTS-ORIENTED APPROACH TO THE GATT TRADE NEGOTIATIONS 147 (Jeffrey L. Schott ed., 1990). For an in-depth look at the negotiations, including each country's proposals and responses, see STEWART, supra note 12, at 2072-2128.
171. TRIMs Agreement, supra note 8. Article III of the GATT includes the "national treatment" obligation, which requires equal treatment of domestic and foreign entities by the host country. Article XI addresses the use of quotas, and mandates the "General Elimination of Quantitative Restrictions." GATT, supra note 1, arts. III, XI, 61 Stat. at A18, A32, 55 U.N.T.S. at 204,224.
172. TRIMs Agreement, supra note 8, art. 5.
173. See id. art. 8.
174. See id. arts. 3-4; see also GATT, art. XII, 61 Stat at A34, 55 U.N.T.S. at 228 (permitting a Contracting Party to restrict imports "in order to safeguard its external financial position and balance of payments"); id. art. XVIII, 61 Stat. at A53, 55 U.N.T.S. at 252 (permitting the use of nondiscriminatory protective measures "to promote the establishment, development or reconstruction of particular industries or particular branches of agriculture" under certain circumstances).
175. See TRIMs Agreement, supra note 8, art 5.
176. See id. annex.
177. Id. annex, para. 1.
178. Id. annex, para. 2.
179. id. art. 4; see also GATT, supra note 1, art XVIII, 61 Stat at A53, 55 U.N.T.S. at 252.
180. See TRIMs Agreement, supra note 8, art 5.
181. See supra Part II.B.2.a, c. It is interesting to note that in March 1996, Brazil requested a waiver from the provisions of the TRIMs Agreement with respect to its automotive regime. It withdrew its request, however, in May 1996. See WTO Secretariat, supra note 91.
182. WTO Doc. WT/DS51 (July 30, 1996) (Japanese complaint); WTO Doc. WT/DS52 (Aug. 9, 1996) (U.S. complaint). The U.S. complaint was brought pursuant to Section 301 of the 1974 Trade Act Trade Act of 1974, Pub. L. No. 93-618, § 301, 88 Stat 1978, 2041 (1975), amended by Omnibus Trade and Competitiveness Act of 1988, Pub. L. No. 100-418, 102 Stat. 1107, 1164 (codified as amended at 19 U.S.C. § 2411 (1988)). On October 11, 1996, the USTR initiated an investigation into Brazil's auto policies. See Initiation of Section 302 Investigation and Request for Public Comment Practices of the Government of Brazil Regarding Trade and Investment in the Auto Sector, 61 Fed. Reg. 54, 485 (1996); see also U.S. Considering Two WTO Panels Against Brazil Auto Regime, INSIDE U.S. TRADE, Sept 27, 1996, at 6; U.S. Demands Changes to Brazil's Auto Regime; Brazil to Respond Shortly, INSIDE U.S. TRADE, Nov. 8, 1996, at 10.
183. WTO Doc. WT/DS51 (July 30, 1996) (Japanese complaint); WTO Doc. WT/DS52 (Aug. 9, 1996) (U.S. complaint). The U.S. complaint was brought pursuant to Section 301 of the 1974 Trade Act Trade Act of 1974, Pub. L. No. 93-618, § 301, 88 Stat 1978, 2041 (1975), amended by Omnibus Trade and Competitiveness Act of 1988, Pub. L. No. 100-418, 102 Stat. 1107, 1164 (codified as amended at 19 U.S.C. § 2411 (1988)). On October 11, 1996, the USTR initiated an investigation into Brazil's auto policies. See Initiation of Section 302 Investigation and Request for Public Comment Practices of the Government of Brazil Regarding Trade and Investment in the Auto Sector, 61 Fed. Reg. 54, 485 (1996); see also U.S. Considering Two WTO Panels Against Brazil Auto Regime, INSIDE U.S. TRADE, Sept 27, 1996, at 6; U.S. Demands Changes to Brazil's Auto Regime; Brazil to Respond Shortly, INSIDE U.S. TRADE, Nov. 8, 1996, at 10.
184. See Japan Warns About Car Policy, ASIAN WALL ST. J., Sept 16, 1996, at 8.
185. WTO Doc. WT/DS54 (Oct 3, 1996) (E.U. complaint); WTO Doc. WT/DS55 (Oct 4, 1996) (Japanese complaint); WTO Doc. WT/DS59 (Oct 8, 1996) (U.S. complaint). As with Brazil, the U.S. complaints were brought pursuant to Section 301 of the 1974 Trade Act See supra note 165. On October 8, 1996, USTR initiated an investigation into the Indonesian policy. The policy was said to violate, inter alia, "the prohibition in Article 2 of the TRIMs Agreement on investment measures that are inconsistent with the national treatment and quantitative restriction provisions in the GATT 1994." Initiation of Section 302 Investigation and Request for Public Comment: Practices of the Government of Indonesia Regarding Certain Incentives Related to the Promotion of the Indonesian Motor Vehicle Sector, 61 Fed. Reg. 54, 247 (1996). As part of the investigation, the United States requested consultations with Indonesia in the WTO. See also USTR Announces, supra note 88; USTR Official Promises New WTO Cases on TRIMs with Focus on Autos, INSIDE U.S. TRADE, Sept. 13, 1996, at 1.
186. WTO Doc. WT/DS54 (Oct 3, 1996) (E.U. complaint); WTO Doc. WT/DS55 (Oct 4, 1996) (Japanese complaint); WTO Doc. WT/DS59 (Oct 8, 1996) (U.S. complaint). As with Brazil, the U.S. complaints were brought pursuant to Section 301 of the 1974 Trade Act See supra note 165. On October 8, 1996, USTR initiated an investigation into the Indonesian policy. The policy was said to violate, inter alia, "the prohibition in Article 2 of the TRIMs Agreement on investment measures that are inconsistent with the national treatment and quantitative restriction provisions in the GATT 1994." Initiation of Section 302 Investigation and Request for Public Comment: Practices of the Government of Indonesia Regarding Certain Incentives Related to the Promotion of the Indonesian Motor Vehicle Sector, 61 Fed. Reg. 54, 247 (1996). As part of the investigation, the United States requested consultations with Indonesia in the WTO. See also USTR Announces, supra note 88; USTR Official Promises New WTO Cases on TRIMs with Focus on Autos, INSIDE U.S. TRADE, Sept. 13, 1996, at 1.
187. See WTO Consultations on Brazil Auto Policy Off to Rocky Start, as Japan, EU Deny Deal, 13 Int'l Trade Rep. (BNA) 1346 (Aug. 21, 1996).
188. See United States, Brazil to Hold Additional Consultations on Auto Regime, 14 Int'l Trade Rep. (BNA) 184, 184-85 (Jan. 29, 1997).
189. See id. at 185.
190. See WTO Will Not Tackle Panel Requests on Japan Film, Indonesia Autos, INSIDE U.S. TRADE, Jan. 17, 1997, at 9. The European Union attempted to join these consultations, but Indonesia refused this request at the Dispute Settlement Body (DSB) meeting on December 3, 1996. See WTO Adopts Ethics Rules for Members of Dispute Panels, Appellate Body, INSIDE U.S. TRADE, Dec. 6, 1996, at 14.
191. See WTO Will Not Tackle Panel Requests on Japan Film, Indonesia Autos, INSIDE U.S. TRADE, Jan. 17, 1997, at 9. The European Union attempted to join these consultations, but Indonesia refused this request at the Dispute Settlement Body (DSB) meeting on December 3, 1996. See WTO Adopts Ethics Rules for Members of Dispute Panels, Appellate Body, INSIDE U.S. TRADE, Dec. 6, 1996, at 14.
192. See Zarocostas, supra note 70, at 3A.
193. See Japan to Request WTO Panel on Indonesian National Auto Program, INSIDE U.S. TRADE, April 25, 1997, at 6.
194. The Committee on Trade-Related Investment Measures was established pursuant to Article 7 of the TRIMs Agreement. See TRIMs Agreement, supra note 8, art. 7.
195. See WTO Secretariat, Overview of Developments in International Trade and the Trading System, Trade Policy Review Body, Annual Report by the Director-General, WT/TPR/OV/1 (Dec. 1, 1995).
196. See TRIMs Agreement, supra note 8, art. 5, para. 1.
197. See WTO Secretariat, supra note 175.
198. See supra Part II.B.2.b.
199. See U.S. TRADE REPRESENTATIVE, IDENTIFICATION OF TRADE EXPANSION PRIORITIES PURSUANT TO EXECUTIVE ORDER 12901, at 4 (Oct. 1, 1996). In addition, this report noted that the automobile markets of three other countries were being monitored: (1) India, where import licensing, domestic content, and export performance requirements affect market access; (2) Argentina, where local content requirements have been increased since Argentina notified the WTO of its automobile promotion policies pursuant to the TRIMs Agreement; and (3) Malaysia, which maintains a national automobile program currently "slated to be phased out in accordance with the TRIMs Agreement." See id. at 5.
200. See id.
201. See, e.g., Guisinger, supra note 36, at 218-19. Under Guisinger's taxonomy, TRIMs are distinguished by several features including: (1) the aspect of the investment affected by the measure (e.g. cost of fixed assets, level of revenues); (2) the measure's effect on the profit of the enterprise undertaking the foreign direct investment; and (3) whether or not the measure qualifies as a Trade-Related Performance Requirement. See id. This overlap between measures affecting investment and measures affecting trade flows also is reflected by Salacuse in his work on a treaty framework for direct foreign investment Salacuse divides what he calls "National Barriers to Direct Foreign Investment" into three categories: (1) controls over the entry of investment; (2) operational controls over the project once it is established; and (3) governmental actions affecting property rights. See Salacuse, supra note 35, at 979-86.
202. See MORAN & PEARSON, OPIC TRIPS, supra note 15, at 9-24. See generally Moran & Pearson, TRIP Measures, supra note 15. As noted above, Moran and Pearson's term "Trade Related Investment Performance Requirements" has been replaced by "performance requirements" in this Article. See supra note 15.
203. See MORAN & PEARSON, OPIC TRIPS, supra note 15, at 9-24. See generally Moran & Pearson, TRIP Measures, supra note 15. As noted above, Moran and Pearson's term "Trade Related Investment Performance Requirements" has been replaced by "performance requirements" in this Article. See supra note 15.
204. See Fontheim & Gadbaw, supra note 15, at 129-31. As noted above, Fontheim and Gadbaw's term "Trade Related Performance Requirements" has been replaced by "performance requirements" in this Article. See supra note 15.
205. See INT'L INVESTMENT ALLIANCE BUS. ROUNDTABLE, NEGOTIATING STRATEGY AND FRAMEWORK FOR A GATT AGREEMENT ON INVESTMENT 10-12 (June 1989) [hereinafter BUS. ROUNDTABLE].
206. See INT'L INVESTMENT ALLIANCE BUS. ROUNDTABLE, NEGOTIATING STRATEGY AND FRAMEWORK FOR A GATT AGREEMENT ON INVESTMENT 10-12 (June 1989) [hereinafter BUS. ROUNDTABLE].
207. See USTR Submission, supra note 138.
208. See Guisinger, supra note 36, at 218-19.
209. See infra App. I.
210. See Moran & Pearson, TRIP Measures, supra note 15, at 120: It is important to note that [performance requirements] fall into the category of disincentives to investment From the foreign investor's point of view, [performance requirements], by themselves, are likely to reduce the return on equity by forcing the firm to purchase what it perceives to be high-cost domestic inputs or to try to market high-cost exports.
211. See Guisinger, supra note 36, at 218-19.
212. Performance incentives are not specifically shown in Figure 1 because they are hybrid measures that include both incentive and disincentive TRIMs.
213. See Guisinger, supra note 36, at 218-19.
214. See USTR Submission, supra note 138.
215. The USTR negotiating team included an additional category, those TRIMs that produce an artificial reduction of exports from the country applying the TRIMs (the host country). See id. Domestic sales requirements are examples of such export restrictions. This category is omitted here because the vast majority of TRIMs are directed towards increasing exports or decreasing imports, objectives which are designed to increase the growth of the domestic economy. Host countries have much less of an economic incentive to apply export restraints. The GATT has nevertheless attempted to address the problem of export restrictions under Article 11, but the actual provisions have been ineffective. See JACKSON ET AL., supra note 107, at 946. It should be noted that export restrictions are currently regulated under the TRIMs Agreement as violations of GATT Article 11. See TRIMs Agreement, supra note 8, annex, para. 2(c).
216. The USTR negotiating team included an additional category, those TRIMs that produce an artificial reduction of exports from the country applying the TRIMs (the host country). See id. Domestic sales requirements are examples of such export restrictions. This category is omitted here because the vast majority of TRIMs are directed towards increasing exports or decreasing imports, objectives which are designed to increase the growth of the domestic economy. Host countries have much less of an economic incentive to apply export restraints. The GATT has nevertheless attempted to address the problem of export restrictions under Article 11, but the actual provisions have been ineffective. See JACKSON ET AL., supra note 107, at 946. It should be noted that export restrictions are currently regulated under the TRIMs Agreement as violations of GATT Article 11. See TRIMs Agreement, supra note 8, annex, para. 2(c).
217. The USTR TRIMs negotiating team placed certain TRIMs in multiple categories if they had varying effects on trade flows of the host country. For example, USTR categorized remittance restrictions, technology transfer requirements, and licensing requirements as both artificially reducing imports and artificially increasing exports. See USTR Submission, supra note 138, paras. 1.6-8, II.5, 7. However, for the purposes of this Article, such TRIMs which can have either an import-restricting or export-promoting effect have been classified as having an "uncertain" impact on trade flows.
218. See BUS. ROUNDTABLE, supranote 184, para. 1.
219. See id. para. 2.
220. See id. para. 10.
221. USTR Submission, supra note 138, para. 1.9.
222. For example, the effect of a U.S. government minimum export requirement would be the same whether it was imposed on a GM factory in Detroit or a BMW factory in South Carolina.
223. Support for such a provision does exist. During the Uruguay Round negotiations, the European Union submitted a proposal to include domestic investment in the TRIMs Agreement See STEWART, supra note 12, at 2103. Under the current TRIMs Agreement, however, the national treatment obligation in Article 2 requires only that foreign investors receive treatment no less favorable than domestic investors. TRIMs Agreement, supra note 8, art 2.
224. Support for such a provision does exist. During the Uruguay Round negotiations, the European Union submitted a proposal to include domestic investment in the TRIMs Agreement See STEWART, supra note 12, at 2103. Under the current TRIMs Agreement, however, the national treatment obligation in Article 2 requires only that foreign investors receive treatment no less favorable than domestic investors. TRIMs Agreement, supra note 8, art 2.
225. See, e.g., supra text accompanying notes 83, 99-100 (use of local TRIMs in China and the United States).
226. TRIMs Agreement, supra note 8, art. 6, para. 2.
227. In the same spirit as its suggestion that the TRIMs Agreement include both foreign and domestic investment, the European Union proposed that the GATT/WTO take into account both national and subnational measures. See STEWART, supra note 12, at 2103. Despite this indication of support, there could be problems incorporating subnational measures into a new TRIMs Agreement because of the constantly changing and often divergent interests of WTO members.
228. See supra Part III. CD
229. Subsidies Agreement, supra note 6. For a thorough analysis of the "Traffic Light" framework used in the Subsidies Agreement, see Terrence J. McCartin, Red, Yellow or Green: GATT 1994's Traffic Light Subsidies Categories, in 1 THE COMMERCE DEPARTMENT SPEAKS ON INTERNATIONAL TRADE AND INVESTMENT, at 611 (PLI Corp. Law & Practice Course Handbook Series No. B-S63, 1994).
230. GATT, supra note 1, art. XVI, para. 1, 61 Stat. at A51, 55 U.N.T.S. at 250.
231. GATT art XVI, para. 3,4 GATT B.I.S.D. at 126, 126-27 (1969).
232. See id. para. 4, at 127. This early subsidies regulation under the GATT has been characterized by some commentators as "conspicuously ineffective." See Richard R. Rivers & John D. Greenwald, The Negotiation of a Code on Subsidies and Countervailing Measures: Bridging Fundamental Policy Differences, 11 LAW & POL'Y INT'L BUS. 1447, 1459 (1979). Subsidies used for protectionist purposes were completely unconstrained except for a reporting requirement. The effect of the rules restricting subsidies for primary and nonprimary products was tempered because the rules only applied to Contracting Parties who had accepted specific GATT amendments. See id. at 1460-62:
233. See id. para. 4, at 127. This early subsidies regulation under the GATT has been characterized by some commentators as "conspicuously ineffective." See Richard R. Rivers & John D. Greenwald, The Negotiation of a Code on Subsidies and Countervailing Measures: Bridging Fundamental Policy Differences, 11 LAW & POL'Y INT'L BUS. 1447, 1459 (1979). Subsidies used for protectionist purposes were completely unconstrained except for a reporting requirement. The effect of the rules restricting subsidies for primary and nonprimary products was tempered because the rules only applied to Contracting Parties who had accepted specific GATT amendments. See id. at 1460-62:
234. See id. para. 4, at 127. This early subsidies regulation under the GATT has been characterized by some commentators as "conspicuously ineffective." See Richard R. Rivers & John D. Greenwald, The Negotiation of a Code on Subsidies and Countervailing Measures: Bridging Fundamental Policy Differences, 11 LAW & POL'Y INT'L BUS. 1447, 1459 (1979). Subsidies used for protectionist purposes were completely unconstrained except for a reporting requirement. The effect of the rules restricting subsidies for primary and nonprimary products was tempered because the rules only applied to Contracting Parties who had accepted specific GATT amendments. See id. at 1460-62:
235. See GARY HUFBAUER & JOANNA SHELTON ERB, SUBSIDIES IN INTERNATIONAL TRADE 3 (1984). Table 1.1 shows that between 1952 and 1980, subsidies as a percentage of GDP increased in all the G-7 countries except the United Kingdom. See id. tbl. 1.1.
236. GATT Secretariat, The Tokyo Round of Multilateral Trade Negotiations, Report by the Director General of GATT(1979) at 53, quoted in STEWART, supra note 12, at 815.
237. See infra Part V.B.3.
238. See STEWART, supra note 12, at 817. See generally Rivers & Greenwald, supra note 208.
239. See Subsidies Code, supra note 5, art. 8.
240. Id. art. 9.
241. Article 11 of the Code recognized that the use of certain nonexpert subsidies for the promotion of social and economic policy should be allowed. Permitted subsidies included those aimed at the elimination of economic disadvantage in particular regions, the reduction of unemployment, the encouragement of research, and the promotion of economic and social development of developing countries. Id. art 11, para. 1. The Article noted that such subsidies "may cause or threaten to cause injury to a domestic industry of another signatory or serious prejudice to the interests of another signatory or may nullify or impair benefits accruing to anotner signatory. . . ." Id. art 11, para. 2. But its only comment on these possible harms was that "[s]ignatories shall. . . seek to avoid causing such effects through the use of subsidies." Id. Paragraph 4 of the Article concluded by stating that the Contracting Parties recognize that "nothing in [this Article]. . . creates, in itself, any basis for action under the [GATT]." Id. art 11, para. 4. Article 14 of the Subsidies Code set out additional exceptions for developing countries. Id. art. 14. The most significant area of special treatment was for export subsidies on industrial products, which were permitted in developing countries since such subsidies are an integral part of many growth
242. Subsidies Agreement, supra note 6.
243. Under Article 1 of the Subsidies Agreement, a subsidy is deemed to exist if: (a) (1) there is a financial contribution by a government or any public body. . . where: (i) government practice involves a direct transfer of funds (e.g., grants, loans, and equity infusions) or potential direct transfers of liabilities (e.g., loan guarantees); (ii) government revenue that is otherwise due is foregone or not collected (e.g., fiscal incentives such as tax credits); (iii) the government provides goods or services other than general infrastructure, or purchases goods; (iv) the government makes payments to a funding mechanism that carries out, or entrusts or directs a private body to carry out, one or more of the type of functions illustrated in (i) to (iii) above which would normally be vested in the government and the practice, in no real sense, differs from practices normally followed by governments; or (a) (2) there is any form of income or price support. . . ; and (b) a benefit is thereby conferred. Id. art. 1, para. 1.
244. Any subsidy that qualifies as "specific" under Article 2 of the Agreement will be prohibited. Article 2 states that if the legislation or the government agency authorizing the subsidy "explicitly limits access to a subsidy to certain enterprises," the subsidy is specific. Id. art. 2, para. 1 (a). If, on the other hand, eligibility for the subsidy is based on explicit, verifiable, and objective criteria (i.e., criteria or conditions which are neutral, do not favor certain enterprises over others, are economic in nature, and are horizontal in application), the program will not be considered specific so long as eligibility is automatic and the criteria are strictly adhered to. See id. art 2, para. 1 (b). In cases where the program appears to be nonspecific, however, the program may nonetheless be de facto specific if the following factors are present: use by a limited number of certain enterprises, predominant use by certain enterprises, or the grant of disproportionately large amounts of subsidy to certain enterprises. See id. art 2, para. 1(c). In addition, a program available only to certain enterprises within a designated geographic region of the granting authority's jurisdiction is specific. See id. art 2, para. 2.
245. See McCartin, supra note 205 at 615.
246. Id.
247. 221 For example, all subsidies enumerated in Article 3 are deemed to be specific and are therefore prohibited. See Subsidies Agreement, supra note 6, art 2, para. 3, art. 3.
248. See id. annex I, for an illustrative list of this type of subsidy.
249. See id. art 3, para. 1 (a)-(b).
250. See Subsidies Code, supra note 5, art 9.
251. Subsidies Agreement, supra note 6, art. 5.
252. See id.
253. Id. art 15 n. 45.
254. Id. art 15, para. 1.
255. See id. art. 5.
256. See id. art. 5 n. 12; JACKSON ET AL., supra note 107, at 350-57.
257. See JACKSON ET AL., supra note 107, at 357-64. See generally Ernst-Ulrich Petersmann, Violation Complaints and Non-Violation Complaints in Public International Trade Law, 34 GERM. Y.B. INT'L L. 175 (1991).
258. See JACKSON ET AL., supra note 107, at 357-64. See generally Ernst-Ulrich Petersmann, Violation Complaints and Non-Violation Complaints in Public International Trade Law, 34 GERM. Y.B. INT'L L. 175 (1991).
259. Under Article 26 of the dispute settlement provisions of the Subsidies Agreement, nonviolation complaints have a higher burden of proof than violation complaints, requiring the complaining party to submit a "detailed justification" for its complaint See Understanding on Rules and Procedures Governing the Settlement of Disputes, Annex 2, reprinted in THE RESULTS OF THE URUGUAY ROUND OF MULTILATERAL TRADE NEGOTIATIONS-THE LEGAL TEXTS supra note 6, at 404, 427.
260. Subsidies Agreement, supra note 6, art 6, para. 1 (a)-(d).
261. See id. art 6, para. 2.
262. Id. art. 6, para. 3 (a)-(d).
263. Id. art. 8, para. 2.
264. Id. art. 8, para. 2(a).
265. Id. art. 8, para. 2(a) (i)-(v).
266. Id. art. 8, para. 2(b).
267. Id. art. 8, para. 2(c).
268. See id. art. 8, para. 2(c) (i)-(v).
269. See supra text accompanying notes 209-12.
270. See supra text accompanying note 35.
271. See supra text accompanying note 14.
272. See supra text accompanying notes 195-97.
273. See supra Part IV.C.
274. See supra text accompanying notes 225-35.
275. STEWART, supra note 12, at 2094.
276. Id.
277. See id.
278. See id. at 2107.
279. See JACKSON ET AL., supra note 107, at 1108-26.
280. See id. at 1126-38.
281. Subsidies Agreement, supra note 6, art. 27.
282. Id. art 27, para. 1.
283. Id. annex VII. The "least-developed countries" include those designated as such by the United Nation, as well as other WTO members whose annual per capita GNP has not yet reached $1000. See id.
284. See id. art 27, para. 2.
285. See id. arts. 5-7.
286. See id. art 27, para. 3.
287. See id. art. 27, para. 8.
288. TRIMs Agreement, supra note 8, art. 4.
289. See Isaiah Frank, Import Quotas, the Balance of Payments and the GATT, 10 WORLD ECON. 307, 311 (1987).
290. See TRIMs Agreement, supra note 8, art. 5.