Dividend-Balancing Clause On Fdi To Go

The dividend balancing clause that applies to 22 industry segments for foreign direct investment (FDI) is slated to go by the year 2000 under the Trade Related Investment Measures (TRIMs) agreement of the World Trade Organisation (WTO).

This will facilitate foreign direct investment and ease entry for foreign companies in several industries, including white goods, soft drinks, coffee, entertainment electronics, food and food products, footwear, leather, wood and wood products, and consumer electronics, among others.

For the 22 industries, dividend payments by the foreign investor must be balanced by export earnings on the following basis:

lDividend balancing is required over seven years from commencement of production and not after this period.

lRemittance of dividend should be covered by earnings from export items mentioned in the foreign collaboration agreement or through the export of items not mentioned in the agreement provided these are in the list of industries eligible for automatic foreign investment approval.

This clause, which was previously applied to all sectors where foreign investment was allowed, is now applicable in 22 industries. Sources said by 2000 this will have to be withdrawn in all sectors. Commerce ministry officials confirmed this while industry ministry officials said the proposal would have to be studied before they could comment on the issue.

Under the TRIMs agreement, India and other developing countries have been given up to five years from 1995 to remove the conditions placed on foreign investors. Developed countries were given two years to remove these restrictions. Under the same agreement, the memorandum of understanding (MoU) policy followed in the automobile sector is also likely to be phased out by the year 2000.

An illustrative list of norms inconsistent with TRIMs include:

Limiting an enterprise's purchases or use of imported products to an amount related to the volume or value of local products that it exports.

Import by an enterprise of products used in or related to its local production by restricting its access to foreign exchange to an amount related to foreign exchange inflows attributable to the enterprise

The export or sale for export by an enterprise of products, whether specified in terms of volume or value of products, or in terms of a proportion of volume or value of products, or in terms of a proportion of volume or value of its local production.

Requiring the purchase or use by an enterprise of products of domestic origin or from any domestic source, whether specified in terms of particular products, in terms of volume or value of products, or in terms of a proportion of volume or value of its local production.