Published on May 27, 2013
General Agreement on Tariffs andTrade (GATT)Outcome of the failure of negotiating governments tocreate the International Trade Organization (ITO)Negotiated during the UN Conference on Trade andEmploymentFormed in 1947 and transformed to World TradeOrganization (WTO) in 1995
GATTGATTs main objectiveReduction of barriers to international tradeAchieved through reduction of tariff barriers,quantitative restrictions and subsidies on trade througha series of agreementsIt was a treaty, not an organizationA small secretariat occupied what is today the CentreWilliam Rappard in Geneva, Switzerland
InceptionEfforts to negotiate international trade agreements began in 1927 atthe League of Nations but were unsuccessful.Precursor organization to GATT, ITO, was first proposed inFebruary 1945 by the United Nations Economic and Social Council(UNESCO).Owing to the United States failing to implement the ITO, GATTwas the only organization left.On 1 January, 1948 the agreement was signed by 23 countries:Australia, Belgium, Brazil, Burma, Canada, Ceylon, Chile,China, Cuba, the Czechoslovak Republic, France, India,Lebanon, Luxembourg, Netherlands, New Zealand, Norway,Pakistan, Southern Rhodesia, Syria, South Africa, the UnitedKingdom, and the United States.According to GATTs own estimates, the negotiations created 123agreements that covered 45,000 tariff items that related toapproximately one-half of world trade
General Agreement on Tariffs and Trade
The General Agreement on Tariffs and Trade(GATT) was first signed in 1947.Was designedTo provide an international forumThat encouraged free trade between memberstatesBy regulating and reducing tariffs on tradedgoodsProviding a common mechanism for resolvingtrade disputes.
GATT ??Was the outcome of the failure of negotiatinggovernments to create the ITOThe Bretton Woods Conference introducedthe idea for an organization to regulate trade aspart of a larger plan for economic recovery afterWorld War IIAs governments negotiated the ITO, 15negotiating states began parallel negotiations forthe GATT as a way to attain early tariffreductionsOnce the ITO failed in 1950, only the GATTagreement was left.A Treaty, not an Organization
ObjectiveThe GATTs main objective was the“Reduction of Barriers to International Trade”This was achieved through the Reduction ofTariff barriersQuantitative RestrictionsSubsidies on trade through a series of agreements
HistoryDivided into 3 phases:First: From 1947 until the Torquay Round Largely concerned which commodities would be covered bythe agreement Freezing existing tariff levelsSecond: From 1959 to 1979 Focused on reducing tariffsThird: Consists only of the Uruguay Round from 1986 to 1994 It extended the agreement to new areas such as intellectualproperty, services, capital, and agriculture Final outcome was creation of WTO
History (Contd...)GATT signatories occasionally negotiated new tradeagreements that all countries would enter intoEach set of agreements was called a roundIn general, each agreement bound members toreduce certain tariffs. Usually this would includemany special-case treatments of individual products,with exceptions or modifications for each country.
First PhaseCommodities which would be covered by theagreement and freezing existing tariff levelsYear Place/name Subjectscovered1947 Geneva Tariffs1949 Annecy Tariffs1951 Torquay Tariffs
Second PhaseFocused on reducing tariffsYear Place/name Subjects covered1960-1961 GenevaDillon RoundTariffs1964-1967 GenevaKennedyRoundTariffs and anti-dumpingmeasures1973-1979 GenevaTokyo RoundTariffs, non-tariffmeasures, “framework”agreements
Third PhaseYear Place/name Subjects covered1986-1994 GenevaUruguay RoundTariffs, non-tariffmeasures, rules,services, intellectualproperty, disputesettlement, textiles,agriculture, creation ofWTO, etcExtended the agreement fully to new areas such asintellectual property, services, capital, and agriculture.Out of this round the WTO was born.
ROUNDSNAME START DURATIONCOUNTRIESSUB.COVEREDACHIVEMENTS1.GENEVA APRIL19477MONTHS23 TARIFFS SIGNING OF GATT,45,000 TARIFFCONCESSIONSAFFECTING $10BILLION OF TRADE.2.ANNECYAPRIL19495MONTHS13 TARIFFS COUNTRIESEXCHANGED SOME5000 TARIFFCONCESSIONS.
ROUNDS CONT…NAME STARTDURATIONCOUNTRIESSUB.COVEREDACHEVEMENTS3.TORQUAYSEPT.19508 MONTHS 38 TARIFFS COUNTRIESEXCHANGED SOME8700 TARIFFCONCESSIONS,CUTTING THETARIFFS BY 25%4. GENEVAIIJAN.19565 MONTHS 26 TARIFFS,ADMISSIONOF JAPAN$2.5 BILLION INTARIFF REDUCTION5. DILLON SEPT.196011 MONTHS 26 TARIFFS TARIFF CONCESSIONWORTH $4.9 BILLIONOF WORLD TRADE.
ROUNDS CONT…NAME STARTDURATIONCOUNTRIESSUB.COVEREDACHIVEMENTS6.KENNEDYMAY196437 MONTHS 62 TARIFFS &ANTIDUMPINGTARIFF CONCESSIONWORTH $40 BILLION OFWORLD TRADE7. TOKYO SEPT.197374 MONTHS 102 TARIFF, NONTARIFFMEASURES,“FRAMEWORK”AGREEMENTSTARIFF REDUCTIONWORTH $190 BILLIONACHIEVED.8.URUGUAYSEPT.198687 MONTHS 123 TARIFFS,NONTARIFFS,RULES,SERVICES,IP,DISPUTESETTLEMENT,TEXTILES,AGRI.CREATION OF WTO, &EXTENDED THE RANGE OFTRADENEGOTIATION,LEADING TOTHE REDUCTION INTARIFFS(ABOUT 40%).
TRADE BARRIERSTariff and Non-Tariff BarriersWhile free-trade maximizes world welfare, mostnations impose some trade restrictions that benefitspecial groups in the nation. The most important typeof trade restriction historically is the tariff. This is a tax or duty on the imports or exports.When a small nation imposes an import tariff, thedomestic price of the importable commodity rises bythe full amount of the tariff for individuals in nation.As a result, domestic production of the importablecommodity expands while domestic consumptionand imports fall. However, the nation as a whole facesthe unchanged world price since the nation itselfcollects the tariff.
TariffsTariffs can be ad-Valorem, specific, or compound.Ad-Valorem tariff is expressed as a fixed percentage ofthe value of the traded commodity.Specific tariff is expressed as a fixed sum per physicalunit of the traded commodity.A compound tariff is a combination of an Ad Valoremand a specific tariff.
Trade Restrictions /Trade BarriersAn import tariff is a duty on the imported commodity,while an export tariff is a duty on the exportedcommodity.Export tariffs are prohibited by the U.S. Constitution butare often applied by developing countries on theirtraditional exports (such as Ghana on it’s cocoa and Brazilon it’s coffee) to get better prices and revenues.Developing nations rely heavy on export tariff to raiserevenues because of their ease of collection.On the other hand, industrial countries invariably imposetariffs or other trade restrictions to protect some(usuallylabor-intensive)industry, while using mostly income taxesto raise revenues.
Trade Barriers (Contd)According to Stolper-Samuelson theorem , an increase inthe relative price of a commodity (for example, as a resultof a tariff) raises the return or earnings of the factor usedintensively in it’s production.For example, if a capital-abundant nation imposesan import tariff on the labor intensive commodity,wages in the nation will rise.However, since the nation’s benefit comes at the expenseof other nations, latter are likely to retaliate, so that in theend all nations usually lose.
Trade Barriers (Contd)Two arguments are that protection is needed to reducedomestic unemployment and a deficit balance of payments.A more valid argument for protection is the infant-industryargument.However, what trade protection can do, direct subsidies andtaxes can do better in overcoming purely domesticdistortions.The same is true for industries important fornational defense.The closest we come to a valid economicargument for protection is the optimal tariff (which,however,invites retaliation).Trade protection in the United States is usually given to low-wage workers and to large, well organized industries producingconsumer products.
Non-Tariff BarriersInternational trade also hampered by numerousTechnical, administrative, and other regulations.These include safety regulations for automobileand electrical equipment, health regulations for thehygienicProduction and packaging of imported foodproducts, and labeling requirements showingorigin and contents.
Non Tariff Barrier [Subsidies]National government sometimes grant subsidies todomestic producers to help improve their trade position.Such devices are indirect form of protection provided todomestic businesses, whether they may be importcompeting producers or exporters.Two types of subsidies can be distinguished: a domesticsubsidy , which is sometimes granted to producers ofimport-competing goods,and an export subsidy, whichgoes to producers of goods that are to be sold overseas.
GATT & its impact on IndianPharmaceutical Industry Globally output of Indian pharmaceutical industry4thrank in terms of volume,13thrank in terms of value. Out put of PharmaceuticalsIn 2001----229 billionIn 2002----260 billion(grew by 16%)Bulk drugs – 21%Formulation—79% GATT• Strengthen R&D capabilities during 10 yr transitional period• Strategic alliance with research based companies abroad for settingup joint ventures in India
Did GATTDid GATTsucceed?succeed?
Continual reductions in tariffs helped spur veryhigh rates of world trade growth during the 1950sand 1960s — around 8% a year on averageTrade growth consistently out-paced productiongrowthThe rush of new members during the UruguayRound demonstrated recognition of multilateraltrading system as the anchor for development andan instrument of economic and trade reform.
GATT’s success in reducing tariffs to a low level, with aseries of economic recessions 1970-80’s drovegovernments to devise other forms of protection forsectors facing increased foreign competitionHigh rates of unemployment and constant factoryclosures led governments in Western Europe and NorthAmerica to seek bilateral market-sharing arrangementswith competitors and to embark on a subsidies race tomaintain their holds on agricultural tradeBoth these changes undermined GATT’s credibility andeffectiveness.
Factors convinced GATT members that a neweffort to reinforce and extend the multilateralsystem should be attempted.That effort resulted in the Uruguay Round, theMarrakesh Declaration, and the creation of theWTO.
WTOThe World Trade Organization (WTO) wasborn on 1st January 1995 with the mainobjective to improve the welfare of thepeople of the member countries. The mainfunction is to ensure that trade flows assmoothly, predictable and freely as possible.
How is the WTO differentfrom GATTWTO covers both aspects that is trade in goods aswell as trade in services along with most importantTRIPs (Trade Related Intellectual Property Rights)agreement.Now GATT agreement is one of the parts of WTOagreement.
WTOGATT GATS TRIMSTRIPSGATTGATT: GENERAL AGREEMENT ON TARIFF AND TRADE.: GENERAL AGREEMENT ON TARIFF AND TRADE.GATSGATS: GENERAL AGREEMENT ON TRADE IN SERVICES.: GENERAL AGREEMENT ON TRADE IN SERVICES.TRIPSTRIPS: TRADE RELATED INTELECTUAL PROPERTY: TRADE RELATED INTELECTUAL PROPERTYRIGHTSRIGHTSTRIMSTRIMS: TRADE RELATED INVESTMENT MEASURES: TRADE RELATED INVESTMENT MEASURES..
successes of GATT• huge increases in world trade• new members: 23 to 110• enormous reductions in tariffs
References Bagwell K; Staiger R, 1999- An economic theory of GATT,American Economic Review 89, 215-248. GATT, 1979. The Tokyo Round of Multilateral TradeNegotiations: Report of the Director- General of GATT. Geneva. WTO, 1995. Analytical Index: Guide to GATT Law and Practice,Vol 2. WTO, Geneva. Michael Hudson, Super Imperialism: The Origin andFundamentals of U.S. World Dominance, 2nd ed. (London andSterling, VA: Pluto Press, 2003), 258.
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