A Proposed Code to Discipline Local Content Requirements

The global economic crisis in 2008 produced pledges from countries around the world to avoid new barriers to trade and investment. These commitments were largely honored when it came to tariffs and quotas, but not when it came to nontraditional forms of protection, including behind-the-border, nontariff barriers such as local content requirements (LCRs). This Policy Brief analyzes the impact of the widely used requirements that local suppliers of goods, services, and even entire projects be favored. It explains why the steps to prevent such protectionism have been effective and further recommends a new World Trade Organization (WTO) code to constrain the use of LCRs, enhance transparency, expedite dispute resolution, and impose penalties for noncompliance.