News and Analysis • Volume 12 • Number 3 • May 2008
TRIMs & Local Content
A ‘local content requirement’ under the WTO Agreement on Trade-related Investment Measures (TRIMs) refers to a government obliging enterprises operating in its territory to source all or part of the components of their manufacturing processes from domestic suppliers.
This practice is prohibited under TRIMs Article III:4 – even if it is applied to domestic and foreign enterprises alike on the grounds that it entails discriminatory treatment of imported products in favour of domestic products. The prohibition is based on the ‘national treatment’ principle embodied in Article III of the General Agreement on Tariffs and Trade (GATT), one of the cornerstones of the multilateral trading system since 1947.
In technical language, TRIMs Article III:4 states that “[t]he 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.”
A WTO backgrounder on the TRIMS Agreement1 explains that the Uruguay Round negotiations on trade-related investment measures “were marked by strong disagreement among participants over the coverage and nature of possible new disciplines. While some developed countries proposed provisions that would prohibit a wide range of measures in addition to the local content requirements [already condemned by a landmark GATT ruling in 1984, ed.] many developing countries opposed this. The compromise that eventually emerged [...] is essentially limited to an interpretation and clarification of the application to trade-related investment measures of GATT provisions on national treatment for imported goods (Article III) and on quantitative restrictions on imports or exports (Article XI).”
1 http://www.wto.org/english/tratop_e/ invest_e/invest_info_e.htm