In the development of international law, there is the law that regulates investment efforts related to international trade, which is Trade – Related Investment Measures or referred to TRIMs within the framework of the World Trade Organization (WTO).
Foreign Investment’s Negative Impact
Foreign direct investment may incur negative impact to the economy of recipient countries. It has been recognized for a long time that foreign investment has incurred a dispute with the recipient country or the local indigenous people, particularly in developing countries. Another impact is multinational enterprises (MNE) can control or dominate local companies in relation to foreign investment. As a result, they can influence the economic policies or even political policies of the recipient country.
As referred to negative impacts of foreign investment, nowadays developing countries consider that the activity or business’s scope of large corporations has to be limited. They shall not invest in all sectors freely. These countries view that foreign investment should be monitored to prevent the negative aspects.
Developing countries apply capital supervision which contains investment efforts and investment requirements. The requirement is investment agreement or as known as TRIMs or Trade-Related Investment Measures against foreign companies who want to invest. The main purpose of imposing measures or requirements by the recipient country is to regulate and control the flow of foreign investment so it can meet its development objectives.
The principle of this TRIMs is an important element for the policies of recipient countries, particularly developing countries. Some developing countries consider the TRIMs as its development facility, especially economic development to achieve a growth rate of its country development. The other developing countries use TRIMs to minimize the negative impact of foreign investment.
Another aim of TRIMs implementation of the recipient country is to prevent foreign investment company to make a decision or policy based on cross-border nature which may influence policy or economy of the recipient country. On the other hand, the implementation of TRIMs is seen solely as a right or policy of any independent country to regulate its economy including the foreign investment (to prevent the adverse effects of foreign investment).
These TRIMs policies are giving opportunity to the recipient country (especially developing countries) rather than developed countries (the importers and the state which large companies are domiciled). The other foreign investors argue other opinion. TRIMs is a barrier to world trade and investment flows and it is a barrier in implementing an integrated global competitive strategy.
Capital Investment Requirement
Capital investment requirements may be classified into two forms. First, entry requirements andsecond , operational requirements.Many regulation of states show that most countries applyboth forms of these requirements as a condition of foreign investment application.
In the first stage, namely the entry requirements, the investment supervising body of the recipient country is checking whether or not proposals of foreign investment will conform to its development goals. Therefore, if after checking the proposals, recipient country considers that the proposal does not meet the entry requirements or the requirements of its national investment policy, then the government may reject the investment application. Adversely, if the recipient government considers that a foreign investment proposal meets the requirements for entry of an investment, then the government will implement the second requirement. The second stage is operational or performance requirements. The scope of these requirements are extensive, depending on the purpose or policy of each country. However, from both requirements, the implementation of the most common requirements are:
- using local content requirements;
- trade balancing requirements;
- export performance requirements;
- limitation on imports;
- foreign exchage and remittace requirements;
- minimum local equity requirements;
- technology transfer requirements; and
- product licensing requirements.