Agreement on Trade Related Investment Measures (TRIMS) is meant to help multinational corporations in undertaking investment in telecommunications, financial services, and the like in foreign countries.
The gains from TRIMS primarily go to developed countries because they are capital-abundant and because they can export financial capital and related services to developing and least developed countries.
In contrast, the latter category of countries feel that their markets should be protected from inflow of certain forms of foreign investment, more so because it is not possible to keep these investments under state control and subsidised.
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Left to market forces and foreign control, these services are likely to become too expensive and affordable for the common masses.
Provisions of TRIMS are extremely tough and impose severe limitations on the policy-freedom of a national government. Under these provisions, a government may be obliged to extend to foreign investors a degree of favourable treatment which it was not ready to extend to even its domestic investors. These provisions include the following:
1. There would be no discrimination in favour of domestic capital and enterprise, so that the foreign investors and suppliers would get the same treatment and privileges as the domestic ones.
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2. Foreigners would not be debarred from any area of investment and there would be no pre-conditions in the form of equity participation by the domestic investors.
3. Foreign investors would have complete freedom to import raw materials and components etc. They would not be obliged to use local raw materials and other inputs.
4. The investors would be free to repatriate profits, dividends, and investment and royalty earnings.
5. There would be no export obligation for the foreign investors.
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6. The investors would not be obliged to have a programme of increasing indigenous content of the product.
In Compliance with these provisions of TRIMS, the Government of India has been taking several steps; this process has been further strengthened by our switch from a policy of seeking foreign loans to inviting foreign direct investment (FDI).
Here it is relevant to note that there is a world-wide competition between capital-scarce countries for FDI which can be obtained only by ensuring a congenial atmosphere for it and by offering a package of attractive facilities and privileges. It is in this context, for example, that our labour laws are being diluted to attract FDI.
As regards the success of the Gaol policy in attracting FDI, we must note the following. As yet, we have not been able to create a sufficiently attractive atmosphere for FDI so that its inflow is still very small compared with our needs.
Apart from other things, our procedural formalities and insufficient availability of infrastructure have come in the way of adequate inflow of FDI.
Also, till now we have succeeded in preventing a rapid inflow of foreign capital into the services sector. But unfortunately, in the manufacturing sector, it has tended to gravitate to consumer goods and not the capital goods sector.
The logic behind this will become apparent when we realise that developed economies need markets for their consumer goods, while wishing to retain the technology behind their production.