GENERAL AGREEMENT ON TARIFF

AND TRADE AND

WORLD TRADE ORGANISATION

BACKGROUND
During great depression of 1930s the
international trade was badly affected and
various countries imposed import restrictions
for safeguarding their economies.
It resulted in sharp decline in world trade.

1n 1945, USA put forward many proposals for

extending international trade and
employment.

On October 30th, 1947; 23 countries at

Geneva signed an agreement related to tariffs
imposed on trade.

PRINCIPLES ADOPTED BY GATT

NON DISCRIMINATION
A contracting partys trade policies must treat all GATT
members equally.
No member country shall discriminate between the
members of GATT in the conduct of international trade.
Members of GATT agree to apply the principle of most
favored nation to all import and export duties.
National Treatment : Foreign goods, services, or
investment are to be treated no less favorably within
a nations domestic markets than competing products or
services produced locally.

ROUNDS OF GATT NEGOTIATION

Between 1947 and the last year of GATT there were 8 rounds of
negotiations between the participating countries.
The first 6 rounds were related to curtailing tariff rates. 7th round
included the non tariff obstacles.

The 8th round was entirely different from the previous rounds because it
included a number of new subjects for consideration. This 8th round was
known as URUGUAY ROUND.
The discussions at this round only gave birth to WORLD TRADE
ORGANISATION (WTO).

FROM GATT TO WTO

Following the UR agreement, GATT was converted from a
provisional agreement into a formal international organization
called World Trade Organization (WTO), with effect from
January 1, 1995
GATT

WTO

GATT was ad hoc and provisional

WTO and its agreements are permanent

GATT had contracting parties

WTO has members

GATT system allowed existing domestic

legislation to continue even if it violated a
GATT agreement

WTO does not permit this

GATT system was less powerful, dispute

settlement system was slow and less
efficient, its ruling could easily blocked

WTO is more powerful than GATT, dispute

settlement mechanism is faster and more
efficient, very difficult to block the rulings.

World Trade Organization (WTO)

The World Trade Organization (WTO) deals with the global rules
of trade between nations. Its main function is to ensure that
trade flows as smoothly, predictably and freely as possible.
WTO is an organization for liberalizing trade, a forum for
governments to negotiate trade agreements and a place for them
to settle trade disputes
At the heart of the system known as the multilateral trading
system are the WTOs agreements, negotiated and signed by a
large majority of the worlds trading nations, and ratified in their
parliaments.
The WTO has larger membership than GATT, with the numbers
being 153. India is one of the founder members of GATT.

Functions of WTO:
WTO is based in Geneva, Switzerland. Its functions are:
Administering the multilateral trade agreements which together

make up the WTO

Acting as a forum for multilateral trade negotiations
Seeking to resolve trade disputes
WTO is not a Free trade institution. It permits tariffs and
other forms of protection but only in limited circumstances.

Principles of WTO

Non discrimination
Free Trade: Promote free trade between nations through
negotiations.
Stability in the trading system: Member countries are
committed not to raise tariff and non tariffs barriers
arbitrarily.
Promotion of Fair Competition: WTO provides for
transparent, fair and undistorted competition.
It discourages unfair competitive practices such as export
subsidies and dumping.

The Uruguay Round (1986-1994)

The results of the Uruguay Round (UR) were signed in Marrakech, Morocco on
15 April 1994 .The WTO came into being on 1 January 1995 by virtue of the
Agreement establishing the WTO.
The scope of the multilateral trading system was broadened from trade in
goods (GATT) to encompass trade in services (GATS) and trade related aspects
of intellectual property rights (TRIPS). It was a rule-based global trading
system complete with its own dispute resolution procedures .
The Single Undertaking concept
The multilateral trade agreements under the WTO system are treated as a
single undertaking which means that every member state of the WTO is a party
to every one of these agreements and must implement them accordingly.

TRIPS (Trade Related Intellectual Property

Rights Agreement)
The agreement requires member countries to provide patent

protection to all products or processes in all fields. The protection is

granted subject to the following three conditions:
The product or process is a new one.
It contains an inventive step.
It is capable of industrial application for 20 years from the grant

of the patent

TRIPS (Trade Related Intellectual Property

Rights Agreement)
TRIPS agreement covers the following seven
intellectual properties:

Patents
Copyright and other related Rights
Geographical Indications
Industrial Designs
Trade marks
Layout design of integrated circuits
Undisclosed information including trade secrets

GATS (General Agreement on Trade in Services)

The GATS agreement covers four modes of supply for the delivery of services in crossborder trade:
Criteria

Mode 1: Crossborder supply

Mode 2:
Consumption
abroad

Mode 3:
Commercial
presence

Service delivered within the territory of the

Member, from the territory of another Member.
Eg: transborder data flows

Service delivered outside the territory of the

Member, in the territory of another Member, to
a service consumer of the Member. Eg :
Tourism

Supplier Presence

Service supplier not

present within the
territory of the
member

Service delivered within the territory of the

Member, through the commercial presence of
the supplier (provision of services abroad
through FDI or representative offices).

Service delivered within the territory of the

Member, with supplier present as a natural
Mode 4: Presence person (entry and temporary stay of foreign
of a natural person consultants)

Service supplier
present within the
territory of the
Member

TRIMS (Trade Related Investment

Measures)
TRIMS refers to certain conditions or restrictions
imposed by a government in respect of foreign
investment in the country.
In the late 1980's, there was a significant increase in
foreign direct investment throughout the world.
TRIMS are widely employed by developing countries.
The Agreement on TRIMs provides that no contracting
party shall apply any TRIM which is inconsistent with
the WTO articles

Anti Dumping Measures:

The WTO Agreement provides clarity in the method of
determining that a product is dumped.

A product is regarded as dumped when its export price is less

than the normal price in the exporting country or its cost of
production plus a reasonable amount of administrative, selling
and any other costs.
Anti-dumping duties are to be imposed on goods that are
deemed to be dumped and causing injury to producers of
competing products in the importing country. These duties are
equal to the difference between the goods export price and
their normal value, if dumping causes injury.

Countervailing measures - Action taken by the importing

country, usually in the form of increased duties to offset
subsidies given to producers or exporters in the exporting
country.

Evaluation of WTO
The WTO members now account for over 97% of the
international trade indicating the potential of bringing
about an orderly development of international trade.
Benefits of WTO:
GATT / WTO has made significant achievements in
reducing tariff and non tariff barriers to trade. Developing
countries too have been benefiting significantly.
Liberalization of investments has been fostering economic
growth of a number of countries.
It has a system in place to settle trade disputes between
nations.
It has a mechanism to deal with violation of trade
agreements.

Drawbacks:
Negotiations and decision making in the WTO
are dominated by the developed countries.
Many developing countries do not have the
financial and knowledge resources to
effectively participate in WTO discussions and
negotiations.
Due to the dependence of developing countries
on the developed ones, the developed
countries are able to resort to arms twisting
tactics.

Tariff: A tariff is a tax. It adds to the cost of imported goods and

is one of several trade policies that a country can enact.
Non-tariff barriers to trade (NTBs) are trade barriers that restrict
imports but are not in the usual form of a tariff. Some
common examples of NTB's are anti- dumping measures
and countervailing duties.
sanitary and phytosanitary measures (SPS):
SPS measures refer to any measure, procedure, requirement,
or regulation, taken by governments to protect human,
animal, or plant life or health from the risks arising from the
spread of pests, diseases, disease-causing organisms, or from
additives, toxins, or contaminants found in food, beverages, or
feedstuffs.

 Specific Tariffs : A fixed fee levied on one unit of an imported

good is referred to as a specific tariff. For example, a country
could levy a $15 tariff on each pair of shoes imported, but levy a
$300 tariff on each computer imported.
Ad Valorem Tariffs this type of tariff is levied on a good based on
a percentage of that good's value. An example of an ad valorem
tariff would be a 15% tariff levied by Japan on U.S. automobiles.
Import Quotas : An import quota is a restriction placed on the
amount of a particular good that can be imported.
free trade area : Trade within the group is duty free but
members set their own tariffs on imports from non-members
(e.g. NAFTA).

WTO: Benefits for business

Creation of a stable, rule based, multilateral trading regime

Market access translates into market opportunities
The rule based system creates certain rights of access
- Security of access
tariff bindings and disciplines on barriers to trade whether tariff or non tariff. It also provides
non discriminatory treatment of products and services.

- Stability of access
the application of uniform rules in key areas of the trading process e.g. customs valuation,
import licenses etc.

- Rights against unfair trade practices for

Domestic industry
Export industry
Import industry