GATT

GATT-

General agreement on tariffs and trade-established in Geneva in 1947

• Outcome of the failure of negotiating governments to create International Trade Organization [ITO].
• Negotiated during the UN conference on trade and employment.
• Finally formed in 1947 and transformed to world trade organization [WTO] in 1995

INTRODUCTION:

“Tariff” or “duty” is a tax imposed by the government on an imported good as it enters a country.

Tariff does 2 things:

1. It adds on the cost of the imported item and hence to the price of that imported item. It thus possibly reduces the competitiveness of that item. Thus tariff may act as a measure protecting the local industry.

2. It gives revenue to the government

 INTRODUCTION:

Ø  GATT the predecessor of the WTO was born in 1948 as result of the international desire to liberalize trade. It was set up on October 30, 1947 in Geneva with 23countries as its founder members.

Ø  India was the founder members of GATT along with World Bank, IMF and WTO.

Ø  The primary actions of organization were to freeze and reduce tarrif levels on various commodities.

Ø  It was originally set up as temporary arrangements to bring about trade liberalization.

Ø  It later became an important and permanent set-up to attend to all trade issue among the members countries.

Ø  GATT played a prominent role in settlement of trade disputes between 2 nations.

Ø  Free trade has been the motto of GATT.

Ø  During the next nearly half a century 1948-1994 many nations successively joined the agreements .There were 8 rounds of GATT trade negotiations in this period. Bringing forth significant reductions in tariff and non-tariff barriers to trade

Ø  GATT was created to be part of the international trade organization(ITO), however ITO failed to be created so GATT was left as an independent organization. In 1944 GATT was taken over by WTO.

Purpose of GATT:

ü  It was designed to provide an international forum,

ü  To encourage free trade between member states.

ü  To regulate and reduce tariffs on trade goods.

ü  It provides a common mechanism for resolving trade disputes.

Objective-


1.Main objective was the “Reduction of barriers to international trade”.

2.To create framework that would regulate international trade and stimulate international commerce.

3.Raising standard of living

4.Ensuring full employment & a large & steadily growing volume of real income   & effective demand

5.Developing full use of the resources of the world. 

6.Expansion of production & international trade.

Functions of GATT

 1. Trade negotiations under GATT

 2. Safeguards

 3. Trade negotiations among developing countries

 4. Solves Trade Disputes

Trade negotiations under GATT

1.The GATT has organized seven trade negotiations on so far. They are: 1947 (Geneva),1949 (Anney, France), 1951 (Torquay, England),1956 (Geneva), 1960-61 (Geneva, Dillon Round), 1964-67 (Geneva, Kennedy Round) and 1973-79(Geneva, Tokyo Round).

2.As a result of these negotiations, the tariff rates onthousands of items entered into world trade werereduced. The developed countries achieved a 50%reduction in many industrial products.

Safeguards

§  The agreement also provides proper safeguards for the domestic industry and trade.

§  Article XIX of the General Agreement permits a member country to impose restrictions on imports or suspend tariff concessions on products if they are importedin excessive quantities and are causing or threatening to cause serious injury tocompeting domestic producers.

Trade negotiations among developing countries

Ø  In an effort to increase the trade among developing nations, the eighteen of GATT members joined in an agreement in 1973, providingfor an exchange of mutually advantageous tariff and trade concessions.

Ø  These eighteen members are (countries) Bangladesh, Brazil, Chile, Egypt, India, Israel, S.Korea, Mexico, Pakistan, Paraguay, Peru, Philippines, Romania, Spain, Tunisia, Turkey, Uruguay and Yugoslavia. The agreement is known as Protocol relating to trade negotiations among developing countries 

Ø  All developing countries whether or not they are members of GATT are allowed to join it. The participants negotiated for concessions on about500 tariffs heading including agricultural, manufactured goods and raw material.

Solves Trade Disputes

·     The GATT has been successful in the accomplishment of its objectives. It contains anenabling clause that reconciles the principle ofgranting special and differential treatment to the developing countries.

·    It also solves trade disputes among members’ countries impartially, amicably andquickly by identify the measures to solve theproblems of balance of payment withoutupsetting international trade.

Principles of GATT

1. Trade without discrimination:

A country granting advantages (tariffs, subsidies) to one non-GATT party must grant the same advantage to other member countries in export and import duties and changes

2. Protection through tariffs:

Protection to home industries can be provided only through customs tariffs and not through any other. Exceptions: Developing nation where development need more imports.

3. A stable Basis of Trade:

- Stable and predictable basis for trade is provided underrules

- Contracting countries should obey levels of tariffs

-No one country can change the tariffs

4. Consultation:

Member countries should consult one another in the matter of trade and trade problems or they can call on GATT for settlement. The GATT council has set up panels of independent experts to examine the trade disputes between member states. . The members on the panel are chosen among countries which have no direct interest in the disputes being investigated. The panel is generally interested in making mutual and amicable settlement between the two parties.

History:

PHASES- Divided into 3 phases:

First:

From 1947 until the Torquay Round

Largely concerned which commodities would be covered by the agreement

Freezing existing tariff levels

Second:

From 1959 to 1979

Focused on reducing tariffs

Third:

Consists only of the Uruguay Round from 1986 to 1994

It extended the agreement to new areas such as intellectual property, services, capital, and agriculture

Final outcome was creation of WTO

First Phase

Commodities which would be covered by the agreement and freezing existing tariff levels

YEAR	NAME/PLACE	SUBJECTS COVERED
1947	GENEVA	TARIFFS
1949	ANNECY	TARIFFS
1951	TORQUAY	TARIFFS

Second Phase

Focused on reducing tariffs

YEAR	NAME/PLACE	SUBJECTS COVERED
1960-61	GENEVA DILLON ROUND	TARIFFS
1964-67	GENEVA KENNEDY ROUND	TARIFFS AND ANTI DUMPING MEASURES
1973-79	GENEVA TOKYO ROUND	TARIFFS,NON-TARIFF MEASURES,”FRAMEWORK” AGREEMENTS

Third Phase

Extended the agreement fully to new areas such as intellectual property, services, capital, and agriculture. Out of this round the WTO was born.

YEAR	NAME/PLACE	SUBJECTS COVERED
1986-1994	GENEVA URUGUAY ROUND	TARIFFS, TARIFFS,NON-TARIFF MEASURES,RULES,SERVICES,INTELLECTUAL PROPERTY,DISPUTE SETTLEMENT,TEXTILES,AGRICULTURE,CREATION OF WTO,ETC.

ROUNDS-8

1. GENEVA ROUND: 1947

ü  TIME-APRIL 1947- OCTOBER 1947

ü  DURATION- 7MONTHS

ü  COUNTRIES -23

ü  Negotiations in this and the succeeding 4 Rounds were on a bilateral basis -:

ü  “Product-by-product, request-offer”.

ü  Members completed 123 negotiations and established 20schedules containing the tariff reductions which became an integral part of GATT.

ü  The Agreement covered some 45,000 tariff concessions and about$10 billion in trade.

ü  First Round was successful since the US was ..

ü  Enthusiastic for free trade

ü  Was willing to cut its tariffs on imports from Europe

ü  Did not put pressure on European countries to abandon their trade restrictions

2. Annecy Round (1949)

ü  Time:  April 1949-August1949

ü  Duration - 5 months

ü  Countries – Accession of ten more country (From 23 to 33)

ü  Denmark, Finland, Sweden, Greece,Nicaragua, Uruguay Haiti, Liberia,Dominican Republic, Italy,

ü  All Members negotiated an additional 13,000 tariff reductions from last round.

ü  If a member votes against accession it does not need to extend trade policy concessions to this country.

3. Torquay Round (1950/51)

ü  Time: September 1950 – April1951

ü  Duration – 8 months

ü  Countries – Accession of five more countries (33+5 = 38)

ü  Austria, Germany, Turkey, Philippines, Peru

ü  Participants completed some 500 negotiations

ü  Additional tariff reductions emerging from these negotiations were modest: Negotiations were not considered to be a success

ü  Major problem of this round is dispute between the us and the uk no bilateral tariff cuts on US – UK trade.

ü  Contracting parties exchanged some 8,700 tariff reductions of about 25% in relation to the 1948 level.

ü  During this round us indicated that ITO character would not be re-submitted to the us congress: end of ITO.

4. Geneva Round (1955/56)

ü  Time-: January 1956 – May 1956

ü  Duration – 5 months

ü  From 1951 to 1955, GATT membership increased by only one country on net, with the withdrawal of Libya being balanced by the accession of Japan

ü  The momentum toward lower tariffs was lost

ü  Important factor behind the passivity during this period: Growing protectionism in the US (Feeling that the US had given away concessions, while European countries were reluctant in eliminating their trade barriers)

ü  Low-tariff countries were frustrated by their inability to bargaineffectively with high-tariff countries.

ü  Fourth Round produced similarly not sufficient results ($2.5 billionworth of tariff reductions)

5.Dillon Round (1960-62)

ü  Time : September 1960 – July 1962

ü  Duration– 11 months

ü  Average tariff rates differed sharply within the EuropeanEconomic Community (EEC), ranging from 6% for Germany to19% for Italy.

The Round was divided into two phases: – 

ü  First phase was concerned for negotiations with European Economic Community (EEC) member states for the creation of a single schedule of concessions for the EEC based on its Common External Tariff (CET)

ü  Second phase was a further general round of tariff negotiations Round resulted in 4,400 tariff concessions covering $4.9 billion of trade.

ü  Round resulted in 4,400 tariff concessions covering $4.9 billion of trade

ü  •Last round of negotiations which were undertaken on a bilateralbasis

ü  •As a result of Dillon Round, tariff rates on manufactured goodscame down sharply (e.g. common external tariff of the EEC fell to10.4% in 1968)

ü  •Agricultural and textile sectors were still not considered

6.KENNEDY ROUND [1964-67]

ü  Time: May 1964- June 1967

ü  Duration: 37 months

ü  Countries-66

ü  A very ambitious round .it had 4 major goals:

ü  To slash tariffs by half with minimum number of exceptions.

ü  To break down farm trade restrictions.

ü  To strip off non tariff regulations.

ü  To aid developing nations.

ü  The participating countries presented80% of world trade.

ü  •Round named after President John F Kennedy who died the year before the round.

ü  •It aimed to increase trade between the US and the European Economic Commission (EEC).

•         An Anti-Dumping code was agreed upon, however US never agreed upon it so it had little practical implications. American Selling Price had also been eliminated. 

ü  •A short lived International Wheat Agreement was intended tostabilize world wheat prices.

ü  Large reductions in grains and chemical products.

•         Reduction of tariff in tropical products, primary materialsand manufactured goods of interest to the less developedcountries.

•         Food aid programme totaling 4.5 million tons a year fordeveloping countries.

•         As a result of Kennedy Round, the Common External Tariff of the European Community fell to 6.6%.

•         Kennedy round agreement was signed on June 30, 1967 ;last day of the US negotiating authority under the Trade Expansion Act.

7. Tokyo Round (1973-79)

ü  Time- September 1973 – November1979

ü  Duration – 74 months

ü  Countries – 102

ü  •Discouraging economic climate during Tokyo Round: 

–         Oil crisis (1973); World-wide―stagflation (Crisis)

–         Proliferation of non-tariff barriers during the early 1970s.

–         Strained trade relations between the US, the EC and Japan

Main agreements & declarations of Tokyo Round:

•Agreement on Govt. Procurement,

•Agreement on Anti-dumping Code,

•Agreement on Customs Valuation Code,

•Agreement on Import licensing procedures,

•Agreement on Subsidies Code,

•Agreement on Trade in Civil Aircraft,

Declaration on Trade measures taken for Balance of payment purposes,

• International Dairy Agreement,

• International Bovine meat Agreement,

• Safeguard Action for development purposes.

8. Uruguay Round (1986-94)

ü  Time - September 1986 – December1993

ü  Duration  – 87 months

ü  Countries  – 123

ü  •Period following the Tokyo Round 

o    World-wide recession 

o    Trade conflicts between three major trading blocs:US, EC,Japan

o    US-EC trade disputes centered on agricultural issues (ECbecame exporter)

o    US wanted Japan to open its domestic market for US exports

ü  EC wanted to limit Japanese export growth

ü  •GATT ministerial meeting (1982): Attempt to meet problems left bythe Tokyo Round failed in Resurgence of   protectionism

ü  •US reacted to protectionist pressure and considered the initiation of a new round of negotiations

ü  •Japan favored a new GATT round: Multilateral negotiations werepreferred to bilateral pressure from the US and the EC

ü  •Other countries were mostly in favor of new round:

o    Smaller industrial countries wished to curtail the tendency of the big three‘ to ignore GATT principles.

o    Agricultural-exporting countries were concerned about US producersubsidies and EC export subsidies

ü  Developing countries wanted to secure greater tariff preferences

ü  •A committee was established to determine the objectives of a newround of negotiations to be launched in 1986

ü  •There was little agreement between the big three‘

ü  •Initiative was taken by G9 group of mid-sized industrial nations andG10 group of developing countries led by India and Brazil.

Year	Name	Sub covered	Countries	Achievements
1947	GENEVA	TARIFFS	23	Signing of GATT,45,000 tariff concessions affecting$10 billion of trade
1949	ANNECY	TARIFFS	13	Countries exchanged some 5,000 tariff concessions.
1950	TORQUAY	TARIFFS	38	Countries exchanged some 8,700  tariff concessions, cutting the 1948 tariff levels by 25%
1956	GENEVA	TARIFFS, ADMISSION OF JAPAN	23	$2.5 billion in  tariff reductions
1960	DILLON	TARIFFS	26	Tariff concessions worth $4.9 billion of world trade
1964	KENNEDY	TARIFFS, ANTI DUMPING,	66	Tariff concessions worth $40 billion of world trade
1973	TOKYO	TARIFFS,NON-TARIFF MEASURES “FRAME WORK”	102	Tariff reductions worth more than $300 billion dollars achieved
1986	URUGUAY	TARIFFS, NON-TARIFF MEASURES, RULES,SERVICES, INTELLECTUALPROPERTY, DISPUTESETTLEMENT, TEXTILES, AGRICULTURE, CREATION OF WTO,ETC  .	123	The creation of WTO, and extended the range of trade negotiations, leading to major reductions in tariffs &agricultural subsidies, to allow full access for Textiles from developing countries, and an extension of intellectual property rights.

Uruguay round (1986-94)

ü Uruguay round of multilateral trade negotiationswas initiated in September 1986 and concluded on the 15^th September, 1993.

ü  Mr. Arthur Dunkel, the Director General of GATT submitted a proposal on the 20^th December,1991 popularly known as DunkelProposal which lead trade liberalization in many areas like:

ü  Trade Related Investment Measures (TRIMs)

ü  Trade Related Intellectual Property Rights (TRIPs)

ü  Other services, textiles, clothing and agriculture subsidies, Market.

GENERAL AGREEMENT ON TRADE INSERVICES (GATS)

ü  It is a treaty of the World Trade Organization (WTO) that entered into force in January 1995 as a result of the Uruguay Round negotiations.

ü  The treaty was created to extend the multilateral trading system to service sector, in the same way the General Agreement on Tariffs and Trade (GATT) provides such a system for merchandise trade.


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