Local Content Measures Scrutinized by WTO Members
in Investment Committee (TRIMS)
Several WTO members raised concerns over local content
requirements imposed by other members at a meeting of the Committee on
Trade-Related Investment Measures (TRIMs) on 6 June 2019. Certain domestic
legislation concerning fisheries, mobile and medical devices, and retail,
automobile and pharmaceutical products may breach WTO rules according to some
members.
The
United States, the European Union and Japan said that China's local content
requirements on goods related to cybersecurity measures restrict the ability of
Chinese companies to procure the technology of their choice and reduces market
access for foreign investors. This would be a violation of China's WTO
obligations to treat domestic and imported goods equally, also known as
the national treatment
principle, the members said.
A
requirement for companies to purchase or use products specified in terms of
local production is prohibited by the TRIMs Agreement and
by the 1947 General Agreement on
Tariffs and Trade Article III.
The
United States asked China to clarify how the new draft measure encompasses its
concerns raised in previous meetings of the committee. The issue was first raised in June 2016.
China
said this measure is motivated by national security,
economic, public safety and health reasons and is not meant to restrict market
access for foreign companies. China added that by having solicited public
opinion throughout the drafting process, it was complying with its obligation
of transparency stemming from WTO agreements.
The
United States expressed concern that certain objectionable measures remain in
place after nearly ten years of discussions and have been
complemented by new measures, including for pharmaceutical and medical
devices. However, it welcomed Indonesia's recent commitment to review the
measures in a comprehensive manner. The measures apply to the energy (mining,
oil, gas and solar in particular), industry, telecommunication, agriculture,
pharmaceutical and retail sectors.
The
United States urged Indonesia to reconsider the measures so as not to restrict
the flow of foreign goods to the country, including from other developing
countries. Examples such as requiring companies to build smelters and imposing
an 80 per cent Indonesian content for retail products are undermining
Indonesia's reputation among foreign investors and creating uncertainty, the US
said.
US
concerns were echoed by Australia, the European Union, Japan, Chinese Taipei
and Switzerland. In particular, they underlined an alleged
inconsistency of the measures with the national treatment principle and urged
Indonesia to bring its measures in compliance with the TRIMs Agreement.
Indonesia
was also asked to clarify how the requirements on
pharmaceutical products in particular would be limited to those purchased for
government purposes (and would therefore not be in violation of the TRIMs
Agreement). This particular item has been under discussion since October 2018.
Indonesia
said that foreign investment into the country remains strong, following an
increase from USD 4 billion in 2016 to USD 23 billion
in 2017, and accounting for USD 6 billion in the first quarter of 2019 alone.
Indonesia said that the measures follow its objective of meeting the United
Nations Sustainable Development Goals, in particular in terms of improving
public health and added that it is preparing replies to members' questions.
The
United States said it is waiting to hear from Russia about its apparent
expansion of localization measures, among other questions. The US questioned
the compatibility of the priority given by private companies to Russian-sourced
goods with WTO rules.
The
European Union reiterated its concerns raised since the issue was first discussed in June 2016. Measures that discriminate
between nationals and foreign operators - i.e. granting special authorization
procedures or price advantages to Russian companies - are prohibited
under WTO agreements, the EU said. The EU also expressed concern with Russia's
legislation on fisheries and conservation of aquatic biological resources under
which subsidies in the form of fishing quotas appear to be
granted to companies that use Russian-made ships.
The
United States also asked Russia to clarify its new strategy concerning the auto
industry, including its compatibility with the TRIMs Agreement after Russia
agreed to phase out its auto investment incentive programme
by July 2018.
Russia
reiterated that the tools it is using are compatible with WTO rules and with
its commitments made when it joined the Organization in 2012 and that the measures in question concern goods purchased by
governmental entities. Russia also reiterated that the auto investment
incentive programmes have been
terminated, and that there are no plans to develop new measures to
replace them, as mentioned previously in consultations with interested WTO
members.
Mexico
and the European Union said that Argentina's scheme by which fiscal advantages are granted to private companies that favour
local auto parts is trade-distortive and incompatible with the TRIMs Agreement
and requested its withdrawal. They asked Argentina to provide more details
about the scheme, recent legislative developments and its implementation.
Argentina
said that six companies were eligible for the scheme since the law entered into
force in 2016 and that if reports analysing the impact
of the measures were to be developed, it would share the results.