On the other hand, the agreement requires that all TRIMs that are inconsistent with Articles III and XI of the GATT and that cannot be justified by a GATT waiver be notified within 90 days of the entry into force of the WTO. These measures must be abolished within a certain period of time, namely two years for industrialized countries, five years for developing countries and seven years for least developed countries. In order to avoid distortions of the conditions of competition between new investments and incumbents already subject to trim, members may, under certain conditions, apply the same TRIM to new investments during the transitional period. Despite the difficulties associated with measuring the efficiency-enhancing effects of foreign direct investment, not to mention the assessment of the specific channels through which technology transfer affects local productivity, the empirical literature offers important conclusions. First, there seems to be a broad consensus that foreign direct investment is an important, perhaps even the most important, channel through which advanced technologies are transferred to developing countries. Second, there also seems to be a consensus that foreign direct investment leads to higher productivity in local firms, particularly in the manufacturing sector. Third, there is evidence that the amount of technology transferred through foreign direct investment is influenced by various characteristics of the hotel industry and the host country. More competitive conditions, higher local investment in investment in fixed and educational investments, and less restrictive conditions imposed on member organizations appear to increase the scope of technology transfer. Developments at the intergovernmental level are influenced by developments at the national level. It is therefore useful to begin by looking very briefly at recent developments in domestic foreign investment regulations. The scope of the Agreement is set out in Article 1, which stipulates that the Agreement applies only to investment measures relating to trade in goods.
Thus, the TRIMs agreement does not apply to services. Given these growing economic, institutional and legal links between trade and foreign direct investment, WTO Members are faced with a fundamental policy choice: do they continue to address the issue of FDI as before, i.e. bilaterally, regionally and plurilaterally and on an ad hoc basis within sectoral and other specific WTO agreements? or do they seek to integrate these agreements into a comprehensive and comprehensive framework that recognizes the close links between trade and investment, ensures the compatibility of investment and trade rules and, above all, balances the interests of all WTO Members — developed, developing and least-developed? Only multilateral negotiations in the WTO, if any, can provide such a comprehensive and balanced framework. Their decision will have a significant impact on the efficiency with which the scarce stocks of capital and technology will be deployed over the next decade and beyond. It will also have an impact on the strength, coherence and relevance of efforts to integrate all developing countries into the multilateral trading system. While some host countries deliberately use high tariffs to stimulate investment, the benefits may be limited. Foreign direct investment attracted by protected markets generally adopts independent production units that are oriented towards the domestic market and are not competitive for export production. In fact, high tariffs on imported raw materials and inputs can further reduce international competitiveness, especially when local inputs are expensive or of poor quality (as mainly suggested by the need to protect domestic producers of these products). In order to counteract the negative effects of high import duties, host countries often provide duty drawback schemes for foreign inputs that enter production for export. This is part of the standard incentive program offered to foreign investors, especially in export processing zones. In addition, OECD members, which currently account for about 85 per cent of global foreign direct investment outflows, have been negotiating since May 1995 with a view to concluding a Multilateral Agreement on Investment (MAI) in 1997.
The aim is an independent international treaty open to OECD members and the European Community, as well as to the accession of non-OECD countries. The answer, of course, depends on a comparison of the costs associated with the impact on the foreign exchange market and the benefits of foreign direct investment, for example through technology transfers and dynamic effects such as increased domestic savings and investment. These are discussed in more detail below. With regard to costs, it should be recalled that the impact of foreign direct investment on the balance of payments depends on the exchange rate regime. In the case of flexible exchange rates, any disruption in the balance between foreign exchange supply and demand is corrected by a movement in the exchange rate, in this case a devaluation. Structure of the internal market. Since they generally have more economic power than their domestic competitors, it is argued that multinational enterprises are able to participate in various restrictive practices in the host country, resulting in higher profits, lower efficiency, barriers to market entry, etc. If foreign direct investment were induced by host country tariffs, it could lead to an influx of leading foreign companies, which could lead to excessive product differentiation and an increase in inefficient small factories (car production in Latin America in the 1960s and 1970s comes to mind). Alternatively, the entry of a multinational company can, of course, lead to the break-up of a comfortable oligopolistic market structure in our country and the promotion of competition and efficiency. And, of course, the national antitrust policies of the host country must be taken into account, which apply to multinational companies as well as domestic companies. In short, the impact of foreign direct investment on market structure, behaviour and performance in host countries is not easy to predict a priori. However, empirical evidence strongly points to pro-competitive effects.
The objectives of the Agreement, as set out in its preamble, include the progressive expansion and liberalization of world trade and the facilitation of cross-border investments in order to increase the economic growth of all trading partners, in particular developing countries, while ensuring free competition. There is also the question of the coherence of efforts to develop international cooperation in the areas of trade and investment. It is clear that the interrelationship between these policy areas should be managed in such a way that policy areas that are in fact increasingly intertwined are not closed. .