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Q46 (IAS/2020) Economy ā€ŗ External Sector & Trade ā€ŗ World Trade Organization Official Key

With reference to Trade-Related Investment Measures (TRIMS), which of the following statements is/are correct ? 1. Quantitative restrictions on imports by foreign investors are prohibited. 2. They apply to investment measures related to trade in both goods and services. 3. They are not concerned with the regulation of foreign investment. Select the correct answer using the code given below :

Result
Your answer: ā€”  Ā·  Correct: C
Explanation

The correct answer is Option 3 (1 and 3 only) based on the following justifications:

  • Statement 1 is correct: Under the TRIMS Agreement, WTO members cannot apply investment measures that restrict trade. Specifically, it prohibits "Local Content Requirements" and "Trade Balancing Requirements," which act as quantitative restrictions on imports by foreign investors, violating GATT Article XI.
  • Statement 2 is incorrect: The TRIMS Agreement applies exclusively to investment measures related to trade in goods. It does not apply to trade in services; services are governed separately under the General Agreement on Trade in Services (GATS).
  • Statement 3 is correct: TRIMS is specifically designed to address trade-restrictive and distorting effects of investment measures. It is not a comprehensive framework for regulating foreign investment itself (like an investment code); it only focuses on the trade-related aspects of such investments.

Therefore, as statements 1 and 3 are accurate while statement 2 is false, Option 3 is the correct choice.

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Q. With reference to Trade-Related Investment Measures (TRIMS), which of the following statements is/are correct ? 1. Quantitative restrictā€¦
At a glance
Origin: Books + Current Affairs Fairness: Moderate fairness Books / CA: 6.7/10 Ā· 3.3/10
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This is a textbook 'Sitter' question. Every standard economy book (Singhania, Vivek Singh) explicitly covers TRIMS. The question relies entirely on the fundamental distinction between WTO agreements for Goods vs. Services. If you missed this, you are neglecting the 'International Organizations' pillar of the syllabus.

How this question is built

This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.

Statement 1
Are quantitative restrictions on imports by foreign investors prohibited under the WTO Agreement on Trade-Related Investment Measures (TRIMS)?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 13: International Organizations > 13.6 Trade Related Investment Measures (TRIMS) > p. 384
Presence: 5/5
ā€œtrade distorting. Several restrictive measures on investment are prohibiting trade and hence are not allowable. According to the TRIMs provision, countries should not adopt the investment measures which restrict and distort trade. Investment measures are those steps used traditionally against foreign investment by host countries. Here, the TRIMs instruct that WTO members may not apply any measure that discriminates against foreign investment that violates basic WTO principles (like the MFN and National Treatment). WTO gives a list of prohibited investment measures or TRIMs like local content requirement, export obligation, domestic employment, technology transfer requirement etc. that violates trade. Few exemptions to developing countries are also provided under TRIMs.ā€
Why this source?
  • Explicitly says TRIMs instruct members not to adopt investment measures that restrict and distort trade.
  • States members may not apply measures that discriminate against foreign investment in violation of MFN and national treatment.
  • Gives examples of prohibited measures (local content, export obligation, technology transfer) illustrating the scope of banned tradeā€‘distorting rules.
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 18: International Economic Institutions > Trade-Related Investment Measures (TRIMs) > p. 544
Presence: 5/5
ā€œā€¢ It is observed that certain investments distort the market and investors. TRIMs recognize G measures to overcome such issues.ā€¢ TRIMs applies only to measures that affect trade in goods (not services).ā€¢ All member nations are directed not to discriminate between domestic and foreign investments, particularly when government spending is involved.ā€¢ WTO gives list of prohibited investment measures like local content requirements, export obligation, technology transfer, etc.ā€
Why this source?
  • Affirms TRIMs applies to measures affecting trade in goods (the domain where import restrictions operate).
  • Directs member nations not to discriminate between domestic and foreign investments, which covers import restrictions targeted at foreign investors.
  • Lists prohibited investment measures, reinforcing that tradeā€‘distorting investment restrictions are banned.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 13: International Organizations > 13.6 Trade Related Investment Measures (TRIMS) > p. 383
Presence: 4/5
ā€œThe Agreement on TRIMs of the WTO is based on the belief that there is strong connection between trade and investment. Restrictive measures on investment areā€
Why this source?
  • Frames the Agreement on TRIMs as addressing the strong connection between trade and investment.
  • Characterizes restrictive investment measures as tradeā€‘distorting, implying they are not allowable under TRIMs.
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Statement analysis

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