The Regulation of Trade-Distorting Restrictions in Foreign Investment Law

Abstract

Despite the relative lack of World Trade Organisation (WTO) coverage on investment, many WTO Members have seized on the WTO accession process as a lever to encourage prospective Members to go beyond the WTO agreements on investment and investment-related issues, and China is a very good case in point. To date the experience of China in the WTO, in relation to investment measures, can be described as a successful one. The Trade-Related Investment Measures (TRIMs) Agreement prohibits certain measures that violate the national treatment and quantitative restrictions requirements of the General Agreement on Tariffs and Trade (GATT). Prohibited TRIMs may include requirements to: achieve a certain level of local content; produce locally; export a given level/percentage of goods; balance the amount/percentage of imports with the amount/percentage of exports; transfer technology or proprietary business information to local persons; or balance foreign exchange inflows and outflows. These requirements may be mandatory conditions for investment, or they can be attached to fiscal or other incentives. As is suggested by the case law, China has been doing well because only a small number of disputes with China as the defending party include TRIMs measures. The absence of disputes does not however mean that all regulations are being fully complied with, and we identified a number of them which are good candidates for a prompt clarification.