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Background
World War–II lasted from 1939 to 1945. This left many countries in Europe and Asia
totally battered. Their economies were shattered; there was tremendous stain on political
and social systems resulting in wide spread extermination and migration of people.
Intentional peace was ruffled. Something had to be done to put these war-ravaged
economies back in shape. Simultaneously, the various colonies in Asia and Africa were
acquiring political freedom. And there was urgent pressure on them for rapid economic
development and political stabilization. In this background the United Nations
Organization (UNO) was born on the collective wisdom of the world.
GATT which emerged from the “ashes of the Havana Charter” was formed in 1947 and
lasted until 1994, when it was replaced by the World Trade Organization in 1995
Havana Charter was the charter of the defunct International Trade Organization (ITO).
It was signed by 53 countries on March 24, 1948. It allowed for international cooperation
and rules against anti-competitive business practices. The charter ultimately failed
because the Congress of the United States rejected it. Elements of it would later become
part of the General Agreement on Tariffs and Trade (GATT).
At the same time 23 nations agreed to continue extensive tariff negotiations for trade
concessions at Geneva, which were incorporated in a General Agreement of Tariffs and
Trade. This was signed on 30th October 1947 and came into force form 1st January 1948
when other nations had also signed it.
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Toward the end of World War II, representatives of the US and its Allied Forces
attempted to work out the arrangements for the post war era. As a result of these
negotiations, after World War II three important international measures were undertaken
by the US and its Allies to liberalize trade and payment.
After the War, European countries and Japan had to rebuild their production
plants; this meant that these countries required a large amount of foreign capital. To
encourage free flow of private capital, International Bank for Reconstruction and
Development (IBRD, now the World Bank) was also established.
GATT was the result of an international conference held at Geneva in 1947 to consider a
draft charter for the International Trade Organization (ITO). The US initiated
negotiations with 22 other countries that led to commitments to regulate 45,000 tariff
rates. So GATT began its provisional existence on January 1, 1948, when 23 contracting
parties signed the agreement. However, US Congress refused in 1950 to ratify the treaty
establishing the ITO
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Exceptions:
Their principles were to resolve or prevent war through the United Nations and to
eliminate the economic causes of war by establishing three international economic
institutions.
Part of economic recovery after World War II, Bretton Woods Conference suggested an
organization to regulate trade
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Bretton Woods System is a system of monetary management established the rules for
commercial and financial relations among the world's major industrial states in the mid
20th century. The Bretton Woods system was the first example of a fully negotiated
monetary order intended to govern monetary relations among independent nation-states.
TRADE BARRIERS
Tariffs
Tariffs can be ad-Valorem, specific, or compound.
Ad-Valorem tariff is expressed as a fixed percentage of the value of the
traded commodity.
Specific tariff is expressed as a fixed sum per physical unit of the traded
commodity.
A compound tariff is a combination of an Ad Valorem and a specific
tariff.
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The agenda included cutting tariffs on industrial goods, services, and agricultural
products; phasing out subsidies to agricultural producers; reducing barriers to
cross border investments; and limiting the antidumping laws.
The rich nations spend around $300 billion a year in subsidies to support their
farm sectors. The world’s poorer nations have the most to gain from any
reductions in agricultural tariffs and subsidies.
While free-trade maximizes world welfare, most nations impose some trade
restrictions that benefit special groups in the nation. The most important type of
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, the domestic price of the
importable commodity rises by the full amount of the tariff for individuals in
nation. As a result, domestic production of the importable commodity expands
while domestic consumption and imports fall. However, the nation as a whole
faces the unchanged world price since the nation itself collects the tariff.
Continual reductions in tariffs helped spur very high rates of world trade growth
during the 1950s and 1960s — around 8% a year on average.
Trade growth consistently out-paced production growth.
The rush of new members during the Uruguay Round demonstrated recognition of
multilateral trading system as the anchor for development and an instrument of
economic and trade reform.
But…….
GATT’s success in reducing tariffs to a low level, with a series of economic
recessions 1970-80’s drove governments to devise other forms of protection for
sectors facing increased foreign competition
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