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A Brief History of GATT

The WTO's predecessor, the GATT, was established on a provisional basis after the
Second World War in the wake of other new multilateral institutions dedicated to
international economic cooperation - notably the "Bretton Woods" institutions now
known as the World Bank and the International Monetary Fund.
The original 23 GATT countries were among over 50 which agreed a draft Charter
for an International Trade Organization (ITO) - a new specialised agency of the
United Nations. The Charter was intended to provide not only world trade
disciplines but also contained rules relating to employment, commodity
agreements, restrictive business practices, international investment and services.
In an effort to give an early boost to trade liberalization after the Second World
War - and to begin to correct the large overhang of protectionist measures which
remained in place from the early 1930s - tariff negotiations were opened among the
23 founding GATT "contracting parties" in 1946. This first round of negotiations
resulted in 45,000 tariff concessions affecting $10 billion - or about one-fifth - of
world trade. It was also agreed that the value of these concessions should be
protected by early - and largely "provisional" - acceptance of some of the trade
rules in the draft ITO Charter. The tariff concessions and rules together became
known as the General Agreement on Tariffs and Trade and entered into force in
January 1948.
Although the ITO Charter was finally agreed at a UN Conference on Trade and
Employment in Havana in March 1948 ratification in national legislatures proved
impossible in some cases. When the United States' government announced, in
1950, that it would not seek congressional ratification of the Havana Charter, the
ITO was effectively dead. Despite its provisional nature, the GATT remained the
only multilateral instrument governing international trade from 1948 until the
establishment of the WTO.
Although, in its 47 years, the basic legal text of the GATT remained much as it was
in 1948, there were additions in the form of "plurilateral" voluntary membership,
agreements and continual efforts to reduce tariffs. Much of this was achieved
through a series of "trade rounds".

Trade Rounds the package route to progress


The biggest leaps forward in international trade liberalization have come through
multilateral trade negotiations, or "trade rounds", under the auspices of GATT the
Uruguay Round was the latest and most extensive.

Although often lengthy, trade rounds offer a package approach to trade


negotiations; an approach with a number of advantages over issue-by-issue
negotiations. For a start, a trade round allows participants to seek and secure
advantages across a wide range of issues. Second, concessions which are necessary
but would otherwise be difficult to defend in domestic political terms, can be made
more easily in the context of a package which also contains politically and
economically attractive benefits. Third, developing countries and other less
powerful participants have a greater chance of influencing the multilateral system
in the context of a round than if bilateral relationships between major trading
nations are allowed to dominate. Finally, overall reform in politically sensitive
sectors of world trade can be more feasible in the context of a global package reform of agricultural trade was a good example in the Uruguay Round.
Most of GATT's early trade rounds were devoted to continuing the process of
reducing tariffs. The results of the Kennedy Round in the mid-sixties, however,
included a new GATT Anti-Dumping Agreement. The Tokyo Round during the
seventies was a more sweeping attempt to extend and improve the system.

The Tokyo Round a first try at reforming the trading system


Conducted between 1973 and 1979 and with 102 participating countries, the Tokyo
Round continued GATT's efforts to progressively reduce tariffs. The results
included an average one-third cut in customs duties in the world's nine major
industrial markets, bringing the average tariff on manufactured products down to
4.7 per cent compared with about 40 per cent at the time of GATT's creation. The
tariff reductions, phased in over a period of eight years, involved an element of
harmonization, bringing the highest tariffs down proportionately more than the
lowest.
Elsewhere, the Tokyo Round had mixed results. It failed to come to grips with the
fundamental problems affecting farm trade and also stopped short of providing a
new agreement on "safeguards" (emergency import measures). Nevertheless, a
series of agreements on non-tariff barriers did emerge from the negotiations, in
some cases interpreting existing GATT rules, in others breaking entirely new
ground. In most cases, only a relatively small number of, mainly industrialized,
GATT members
ascribed to these agreements and arrangements which, as a consequence, were
often referred to as "codes". They include the following agreements:
Subsidies and countervailing measures - interpreting Articles VI, XVI and XXIII of
the General Agreement

Technical barriers to trade - sometimes called the Standards Code


Import licensing procedures
Government procurement
Customs valuation - interpreting Article VII
Anti-dumping- interpreting Article VI and replacing the Kennedy Round
Anti-Dumping Code
Bovine Meat Arrangement
International Dairy Arrangement
Trade in Civil Aircraft
Several of the above Codes were amended and extended in the Uruguay Round.
Those on subsidies and countervailing measures, technical barriers to trade, import
licensing, customs valuation and anti-dumping, are now multilateral commitments
within the WTO Agreement -in other words, all WTO members are committed to
them - while those on government procurement, bovine meat, dairy products and
civil aircraft remain "plurilateral" agreements.

Did GATT Succeed?


Given its provisional nature and limited field of action, the success of GATT in
promoting and securing the liberalization of much of world trade over 47 years is
incontestable. Continual reductions in tariffs alone helped spur very high rates of
world trade growth - around 8 per cent a year on average - during the 1950s
and1960s. And the momentum of trade liberalization helped ensure that trade
growth consistently out-paced production growth throughout the GATT era. The
rush of new members during the Uruguay Round demonstrated that the multilateral
trading system, as then represented by GATT, was recognized as an anchor for
development and an instrument of economic and trade reform.
The limited achievement of the Tokyo Round, outside the tariff reduction results,
was a sign of difficult times to come. GATT's success in reducing tariffs to such a
low level, combined with a series of economic recessions in the 1970s and early
1980s, drove governments to devise other forms of protection for sectors facing
increased overseas competition. High rates of unemployment and constant factory
closures led governments in Europe and North America to seek bilateral

market-sharing arrangements with competitors and to embark on a subsidies race


to maintain their holds on agricultural trade. Both these changes undermined the
credibility and effectiveness of GATT.
Apart from the deterioration in the trade policy environment, it also became
apparent by the early 1980s that the General Agreement was no longer as relevant
to the realities of world trade as it had been in the 1940s. For a start, world trade
had become far more complex and important than 40 years before: the
globalization of the world economy was underway, international investment was
exploding and trade in services - not covered by the rules of GATT - was of major
interest to more
and more countries and, at the same time, closely tied to further increases in world
merchandise trade. In other respects, the GATT had been found wanting: for
instance, with respect to agriculture where loopholes in the multilateral system
were heavily exploited - and efforts at liberalizing agricultural trade met with little
success - and in the textiles and clothing sector where an exception to the normal
disciplines of GATT was negotiated in the form of the Multifibre Arrangement.
Even
the institutional structure of GATT and its dispute settlement system were giving
cause for concern.
Together, these and other factors convinced GATT members that a new effort to
reinforce and extend the multilateral system should be attempted. That effort
resulted in the Uruguay Round.

The Uruguay Round - creating a new system


The seeds of the Uruguay Round were sown in November 1982 at a Ministerial
Meeting of GATT members in Geneva. Although Ministers intended to launch a
major new negotiation, the meeting stalled on the issue of agriculture and was
widely regarded as a failure. In fact, the work programme that Ministers agreed
formed the basis for what was to become the Uruguay Round negotiating agenda.
Nevertheless, it took four more years of exploring and clarifying issues and
painstaking consensus -building, before Ministers met again in September 1986, in
Punta del Este, Uruguay, to agree to launch the Uruguay Round. They were able to
accept a negotiating agenda which covered virtually every outstanding trade policy
issue including the extension of the trading system into several new areas, notably
trade in services and intellectual property. It was the biggest negotiating mandate
on trade ever agreed and Ministers gave themselves four years to complete it.

By 1988, the negotiations had reached the stage of a "Mid-term Review". This took
the form of a Ministerial Meeting in Montreal, Canada, and led to the elaboration
of the negotiating mandate for the second stage of the Round. Ministers agreed a
package of early results, which included some concessions on market access for
tropical products - aimed to assist developing countries - as well as a streamlined
dispute settlement system and the Trade Policy Review Mechanism which
provided for the first comprehensive, systematic and regular reviews of national
trade policies and practices of GATT members.
At the Ministerial meeting in Brussels, in December 1990, disagreement on the
nature of commitments to future agricultural trade reform led to a decision to
extend the round. By December 1991, a comprehensive draft text of the "Final
Act", containing legal texts fulfilling every part of the Punta del Este mandate, with
the exception of market access results, was on the table in Geneva. For the
following two years, the negotiations lurched continuously from impending failure
to predictions of imminent success. Several deadlines came and went; farm trade
was joined by services, market access, anti-dumping rules and the proposed
creation of a new institution, as the major points of conflict; and differences
between the United States and European Communities became central to hopes for
a final, successful conclusion. It took until 15 December 1993 for every issue to be
finally resolved and for negotiations on market access for goods and services to be
concluded. On 15 April 1994, the deal was signed by Ministers from most of the
125 participating governments at a meeting in Marrakesh, Morocco.

How is the WTO different from GATT?


The World Trade Organization is not a simple extension of GATT; on the contrary,
it completely replaces its predecessor and has a very different character. Among
the principal differences are the following:
The GATT was a set of rules, a multilateral agreement, with no institutional
foundation, only a small associated secretariat, which had its origins in the attempt
to establish an International Trade Organization in the 1940s. The WTO is a
permanent institution with its own secretariat.
The GATT was applied on a "provisional basis" even if, after more than forty
years, governments chose to treat it as a permanent commitment. The WTO
commitments are full and permanent.
The GATT rules applied to trade in merchandise goods. In addition to goods, the
WTO covers trade in services and trade-related aspects of intellectual property.

While GATT was a multilateral instrument, by the 1980s many new agreements
had been added of a plurilateral, and therefore selective, nature. The agreements,
which constitute the WTO, are almost all multilateral and, thus, involve
commitments for the entire membership.
The WTO dispute settlement system is faster, more automatic, and thus much less
susceptible to blockages, than the old GATT system. The implementation of WTO
dispute findings will also be more easily assured.
The "GATT 1947" will continue to exist until the end of 1995, thereby allowing all
GATT member countries to accede to the WTO and permitting an overlap of
activity in areas like dispute settlement. Moreover, GATT lives on as "GATT
1994", the amended and up-dated version of GATT 1947, which is an integral part
of the WTO Agreement and which continues to provide the key disciplines
affecting international trade in goods.

General Agreements on Tariffs and Trade


1. GATT
Toward the end of World War II,
representatives of the US and its
Allied Forces endeavored to work
out the arrangements for a new
world order in the post war era.
As a result of these negotiations,
after World War II the US and its
Allies planned to establish three
important international institutions
to liberalize trade and payment.
Three
institutions
+ UN

(i) International Monetary Fund


(IMF) was established to facilitate

international payments.
(ii) International Bank for
Reconstruction and Development.
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.
(iii) GATT was established in
order to set up International Trade
Organization (ITO), which was to
regulate world trade.
(iv) As a political complement to
these institutions, United Nations
was also established in 1945 to
replace the League of Nations.

What is
GATT

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.
Technically, GATT was viewed as
an agreement under the provisions
of US Reciprocal Trade Act of
1934, and hence did not require
approval of Congress. It was
considered a provisional
agreement that would be replaced
once the ITO became operational
to take over its functions.
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.
Major
functions
of a world
governmen
t

organization Functions
WTO/GATT,
regulates trade
1948
regulates
IMF (1944) currency
practices
IBRD

allocates

investment to
(World
developing
Bank, 1944)
countries
national
diplomatic rights
governments
United
Nations (Jan defense/war
1942)
WIPO
(world
intellectual
property
organization)

copyrights,
trademarks (a
UN agency,
established
1967)

2. Major Provisions of GATT


1. Tariff

(i) GATT obligates each country to


accord nondiscriminative, most
favored nation(MFN) treatment to all
other contracting parties with respect
to tariffs.
(ii) MFN treatment does not mean
free trade or national treatment.

Imports from contracting parties are


subject to tariffs or quotas. MFN
treatment means that no other
countries with some exceptions
receive better treatment or lower
tariffs.
(i) Existing tariff preferences such as
those between British
Commonwealth.

Exceptions
to MFN

(ii) GATT/WTO allows the formation


of customs union, which causes a
significant erosion to the MFN
principle.
(iii) An escape clause allows any
contracting party to withdraw or
modify tariff concessions, if it
threatens a serious injury to domestic
producers.

2.
GATT in general prohibits the use of
Quantitativ
quantitative restrictions on imports
e
and exports.
Restrictions
Exceptions

(i) agriculture - when government


needs to remove surplus of
agricultural and fisheries products.

Important to US
(ii) balance of payments - to
safeguard balance of payments. If a
country's foreign exchange reserve is
low.
(iii) Developing countries - LDCs
may use import quotas to encourage
infant industries.
(iv) National Security- Strategic
controls on certain exports. Patents,
Copyrights, Public Morals

3.
Developing
Countries

Special Provisions to promote the


Trade of Developing Countries. In
1965, the contracting parties added
Part IV (Trade and Development) to
GATT.
(i) Developed economies will give
high priority to reduction/elimination
of tariffs on products of LDCs.
(ii) refrain from introducing tariffs
and NTBs to such imports.
(iii) refrain from imposing internal
taxes to discourage consumption of
primary products from LDCs

(iv) not expect reciprocal


commitments from LDCs.
By 2016, China may become the
largest economy in the world. Its
status may be changed to that of a
developed economy.

Other
provisions

Provisions to eliminate concealed


protection such as customs valuation.
For example, American Selling Price
valuation. By ASP, an ad valorem
tariff is imposed on the domestic
price. procedural matters: each
member is entitled to one vote,
decisions are made by majority vote.
2/3 majority is required to waive
obligations. settlements of disputes.

3. Achievements and Problems of GATT/WTO [Opinion]

Achievements

GATT has
enjoyed a
membership
of over 100
countries and
generated
about 85-

90% of world
trade.
(i) trade
liberalization
in industrial
products
(Kennedy
Round)
(ii) Adopted
codes on
NTBs (Tokyo
Round)
(iii) No world
wars since
1948 (Choi:
Increased
trade
promotes
world peace)
(iv) replaced
by WTO on
January 1,
1995.

Difference between GATT and


WTO

(i) GATT was


a provisional
agreement by
contracting

parties with
no legal
enforcement
power.
WTO is a
binding
permanent
agreement by
members.
(ii) GATT
only included
trade in
goods.
WTO
additionally
includes trade
in services,
international
investments
and
intellectual
property
rights.
(iii) GATT
has no
provisions to
settle trade
disputes.
WTO set up a

dispute
settlement
body and
disputes are
quickly
resolved.
Problems

(i) WTO
failed to
liberalize
trade in
agricultural
products to
any
significant
degree. This
was one of
the major
goals of the
Uruguay
Round.
Intellectual
Property
Rights is
another
problem.
(ii) steady
erosion of
MFN
principle by

the EU, and


to a less
extent by the
NAFTA.
Article XXIV
permits
member
countries to
form a CU or
FTA. The EU
adopted VILs
to keep out
agricultural
products,
lowered
duties to
many African
and
Mediterranea
n countries,
which are not
extended to
other GATT
contracting
parties.
GATT was an
organization
with no teeth,
no
enforcement

power to
discipline
parties that
violate the
rules, much
as the League
of Nations
had no power
to discipline
rogue
members.
While the
League of
Nations fell
apart, GATT
has been
functioning
for more than
four decades,
and
eventually
was replaced
by WTO.
(iii) Lack of
discipline of
nonmembers
(25 observers
+ 14 others).
WTO has not
done
anything to

eliminate
pirate
activities in
Africa. It has
no military
force to
discipline
rogue nations
that disrupt
trade.
(iv) WTO has
not been able
to regulate
currency
manipulation
as a
protective
instrument to
restrict
imports.
territorial disputes

There will be
more disputes
concerning
the use of
maritime
resources
outside
territorial
waters (12

nautical miles
from coastal
states).

4. Trade and Diminishing National Sovereignty (Opinion)

Sovereignty
in autarky

International
Organization
s encroach
on national
sovereignty

A country is presumed to have


full sovereignty over its citizens
within its territory. Any foreign
governments or entities that say
any negative things on
domestic regulations or
problems have been criticized
for meddling with internal or
domestic politics. This was so
at least until GATT was formed
in 1948, and GATT was
transformed into WTO in
January 1995.
Members of WTO are agreeing
to abide by the rules of WTO,
and hence allowing WTO
to monitor domestic laws that
may be in conflict with trade
rules set by the WTO.
Similarly, members of
International Monetary Fund
also allow the Funds
surveillance of their exchange
rate practices. Thus, increased

trade is gained only through


reduced national sovereignty.
Gains from trade often forces
member countries to sacrifice
some national sovereignty.

Example

Services and
Foreign
Direct
Investment

For example, Indias patent


laws allowed counterfeit copies
of drugs without requiring
license fees, which made Indian
drugs available at low cost to
the mass. Now India overturned
its Patent Laws for all
medicines invented since 1995.
This shows Indias attempt to
make their internal laws
consistent with the rules of
WTO.

WTO not only governs trade in


goods, but
also services and foreign
direct investment. Similarly,
IMF monitors exchange
practices that harm other
member countries. Increased
trade will continually exert its
pressure to harmonize disparate
domestic laws on the
movement of goods, services

and people. This inexorable


process will continue until all
nations have formed one world
government that not only
regulates trade, investment, and
the movement of people but
also harmonizes all aspects of
human rights in the world
economy.
Trading countries are mutually
interlocked and their economies
are so intertwined that it
becomes increasingly difficult
for one member country to
wage war against others.
Global peace can be guaranteed
only after one world
government is established
much as the presence of the
Federal government eliminates
civil war in the United States.
WTO, IMF and the United
Nations may prove to be just
stepping stones that lead to one
world goverment that may be
formed by the end of this
century. Most likely, citizens of
trading nations will speak one
common international language
and their own national

languages.

Greece'
problem

EU monitors Greece's
economic policies, and
encourages the Greek
government to reduce its
budget deficit.

China and the GATT/WTO

China was one of the 23 founding members of GATT.


became a contracting party on May 21, 1948.

The Kuomintang Government moved to Taiwan and


withdrew from the GATT, May 5, 1950.

In 1982, China was granted observer status in GATT.

In June 1986, China requested "resumption" of its


contracting party status, on the basis that the withdrawal
(by the Kuomintang) was null and void.

In May 1987, the GATT established the Working Party


on China's Status

China became a member of WTO in December 2001.