US Tackles Localization Barriers

The just-released 2014 Annual Report of the President of the United States on the Trade Agreements Program outlines U.S. Government efforts to address so-called “localization barriers to trade” imposed by America’s trading partners. According to the Report, these are “measures designed to protect, favor, or stimulate domestic industries, service providers, and/or intellectual property (IP) at the expense of goods, services, or IP from other countries”. Such measures can constitute barriers to trade, even if they are consistent with WTO rules.

The Report sets out examples of localization barriers, which include the following:

  • Local content requirements, i.e., requirements to purchase domestically manufactured goods or domestically supplied services;
  • Subsidies or other preferences that are only provided if producers use: local goods; service providers that are owned locally; or intellectual property that is owned or developed locally or is first registered in that country;
  • Requirements to provide services using local facilities or infrastructure;
  • Measures to force the transfer of technology or intellectual property;
  • Requirements to comply with country- or region-specific or design-based standards that create unnecessary obstacles to trade; and
  • Requirements to conduct or carry out duplicative conformity assessment procedures in-country, without a justification.

In the Report, the Office of the U.S. Trade Representative (USTR) cited on-going U.S. efforts in three fora to reduce the effect of localization barriers on U.S. goods, services and intellectual property. One is APEC (Asia Pacific Economic Cooperation), where in 2014 the U.S. proposed a study of the impact of localization policies on global value chains. In 2015, the U.S. plans to focus on helping its APEC partners understand how localization policies pose threats to regional economic integration, economic growth and competitiveness.

Another arena for engagement on localization barriers is the Organization for Economic Cooperation and Development (OECD), where the U.S. is supporting research on the impact of such barriers on trade, investment and economic growth. Finally, in the Transatlantic Trade and Investment Partnership (TTIP) negotiations, the U.S. is exploring with the European Unions ways to cooperate in addressing localization barriers – both bilaterally and multilaterally.

The U.S. is also tackling specific localization barriers. For example, in 2014, it launched a WTO dispute settlement case against India to address U.S. concerns with the domestic-content requirements for participation in India’s national solar-power generation program, known as the National Solar Mission (NSM). Under Phase I of the NSM, India provided guaranteed, long-term payments to solar power developers contingent on the purchase and use of solar cells and solar modules of domestic origin. India continued to impose domestic content requirements for solar cells and modules under Phase II of the NSM.

In May 2014, based on a request by the U.S., the WTO Dispute Settlement Body established a dispute settlement panel to examine India’s solar power program. The United States is seeking a finding that the domestic content requirements in both phases of India’s NSM program are inconsistent with the 1994 General Agreement on Tariffs and Trade (GATT) and the WTO Agreement on Trade-Related Investment Measures (TRIMs). The panel is expected to issue its decision later in 2015.

While the U.S. seeks support and participation by its trading partners in confronting localization barriers, it has also faced criticism that its own Buy American policies serve as the same type of barrier.  Such claims may complicate U.S. efforts to tackle localization barriers.

Jean Heilman Grier

March 9, 2015

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