UPSC Prelims 2020 Q56: Indian Economy – International Trade & WTO
- (a) 1 and 2 only
- (b) 2 only
- (c) 1 and 3 only
- (d) 1, 2 and 3
Answer: (c) 1 and 3 only
Explanation
Trade-Related Investment Measures (TRIMs): WTO Agreement, 1995
| Statement | Claim | Verdict | Detail |
|---|---|---|---|
| 1 | Quantitative restrictions on imports by foreign investors are prohibited | TRUE | The TRIMs Agreement's illustrative list bars local content requirements and trade-balancing requirements that force investors to limit imports. Such quantitative restrictions on imports are prohibited. |
| 2 | Applies to trade in both goods and services | FALSE | TRIMs applies to trade in goods only. Investment measures affecting services are covered by the separate General Agreement on Trade in Services (GATS). |
| 3 | Not concerned with the regulation of foreign investment | TRUE | TRIMs regulates investment measures that distort trade in goods, not foreign investment as such. It does not lay down entry, ownership, or FDI-approval rules - those remain within host-country policy. In that narrow sense TRIMs is not a foreign-investment regulation regime. |
Statements 1 and 3 are correct. Statement 2 is wrong. Official answer: (c) 1 and 3 only.
Answer: (c) 1 and 3 only.
Why each option is right or wrong
- (a) Incorrect. Statement 2 is wrong - TRIMs applies to goods only, not services. Services are handled by GATS.
- (b) Incorrect. Statement 2 alone is not correct; TRIMs does not extend to services.
- (c) CORRECT. Statements 1 and 3 are both correct. TRIMs prohibits quantitative import restrictions on foreign investors (via local-content and trade-balancing rules), and it does not regulate foreign investment as such - it only disciplines investment measures that distort trade in goods.
- (d) Incorrect. Statement 2 is wrong, so 1, 2 and 3 together cannot be the answer.
Key point
TRIMs (WTO, 1995): Applies to goods only. Prohibits local content, trade-balancing, foreign-exchange and export restriction requirements that distort trade. Does NOT regulate foreign investment entry or ownership. Statements 1 and 3 correct. Answer: (c) 1 and 3 only.
Remember
TRIMs (WTO Agreement, 1995) prohibits quantitative import restrictions on foreign investors (through local-content and trade-balancing requirements) and applies to goods only. It does not regulate foreign investment as such - only investment measures that distort trade in goods. Statements 1 and 3 correct, statement 2 wrong. Answer: (c) 1 and 3 only.
Common mistakes
- Assuming TRIMs also covers services. It does not - the General Agreement on Trade in Services (GATS) is the separate WTO instrument for services.
- Reading statement 3 as saying TRIMs is irrelevant to investment. UPSC's intended reading is that TRIMs does not regulate foreign investment itself - only trade-distorting investment measures.
- Confusing TRIMs with a bilateral investment treaty. TRIMs is a WTO multilateral agreement limited to trade-distorting measures.
Exam tip
WTO agreement map: GATT = trade in goods, GATS = trade in services, TRIMs = investment measures that distort trade in goods, TRIPS = intellectual property, DSU = dispute settlement. TRIMs cannot be invoked for services or for pure FDI-entry rules.
Sources
- WTO - Agreement on Trade-Related Investment Measures (TRIMs), Annex 1A
- World Trade Organization — General Agreement on Trade in Services (GATS)