Investment-related trade measure

Investment-related trade measures (IRTMs) are a diverse array of trade policy instruments that influence the volume, sectoral composition and geographic distribution of foreign direct investment (FDI). Some trade measures classified as (IRTMs) (such as tariffs, quotas, and export financing programmes) are not principally designed to influence FDI flows but nevertheless can have major consequences on the decisions of international investors. Other devices (such as export processing zones, and co-production or buy-back trade arrangements) are designed with FDI consequence is intended or not, the resultant impact on production location decisions and intra-company trade flows exerts an influence on world commerce. IRTMs help, therefore, to shape how international business activities affect both global welfare and the relative distribution of benefits among national economies through their impact on FDI flows. IRTMs are thus relevant to international investment agreements, including discussions about a possible multilateral frame-work on investment. The interaction between trade and FDI policies becomes a matter of concern for national governments as FDI assumes an increasingly important role in the global economy. Numerous international negotiations and agreements have historically addressed international trade issues compared to the attention given to FDI. International trade negotiations recently incorporated the impact of FDI policies on trade flows (trade-related investment measures, of TRIMs) but there has been less recognition of the converse of effects that trade policies can have on FDI decisions. An examination of IRTMs provides a way to understand some of these effects so that they can be assessed and, if appropriate, addressed in international discussions on trade and FDI policies. For developing countries, it is important to assess accurately the interactive link between trade and FDI in order to understand the effects of changes in national policy regimes.