*

GATT

GENERAL AGREEMENT ON TRADE AND TARIFF

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

 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 23
countries as its founder members.
India was the founder members of GATT along with
World Bank,IMF and WTO.
The primary actions of organization were to freeze and
reduce tarrif levels on various commodities.

*It was originally set up as a temporary arrangements

to bring about trade liberalization.

*It later

became an important and permanent set-up to

attend to all trade issue among the members countries.

*GATT played

a prominent role in settlement of trade

disputes between 2 countries

 Free trade has been the motto of GATT.

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.
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

Objectives
Raising standard of living
Ensuring

full employment & a large & steadily

growing volume of real income & effective demand

Developing full use of the resources of the world

Expansion of production & international trade

GATT

Liberalization of trade in goods

and service

Increases
competition
from foreign
goods and
services

Threat to
domestic
firms

Facilitates global
sourcing

Benefits to
consumers

Opportunity
for Indian
firms to
export

Increases competitiveness
of domestic firms

Encourages globalization of Indian firms

FUNCTIONS OF GENERAL
AGREEMENT ON TARIFFS AND
TRADE.
1.
2.
3.
4.

Trade negotiations under GATT

Safeguards
Trade negotiations among
developing countries
Solves Trade Disputes.

1. TRADE NEGOTIATIONS
UNDER GATT

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).
As a result of these negotiations, the tariff rates
on thousands of items entered into world trade
were
reduced. The developed countries
achieved a 50% reduction in many industrial
products.

2. 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
imported in excessive quantities and are
causing or threatening to cause serious
injury to competing domestic producers.

3. TRADE NEGOTIATIONS AMONG

DEVELOPING COUNTRIES

In an effort to increase the trade among developing nations,

the eighteen of GATT members joined in an agreement in
1973, providing for an exchange of mutually advantageous
tariff and trade concessions.
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.
All developing countries whether or not they are members of
GATT are allowed to join it. The participants negotiated for
concessions on about 500 tariffs heading including
agricultural,manufactured foods and raw material.

4.SOLVES TRADE DISPUTES

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

It also solves trade disputes among

members countries impartially, amicably
and quickly by identify the measures to
solve the problems of balance of payment
without upsetting international trade.

Principles of GATT
1. Trade
without
discrimination:
A
country
granting
advantages(tariffs,subsidies)
to
one
nonGATT party must grant the same
advantage to other member countries in
export and import duties and changes.
Exceptions:incase of regional trading
arrangements and the developing
nations.
2. Protection through tariffs: Protection
to home industries can be provided only
through customs tariffs and not through
any other.

3.A stable Basis of Trade:

- Stable and predictable basis for trade is provided
under rules
- 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.

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

Place/name

Subjects
covered

1947

Geneva

Tariffs

1949

Annecy

Tariffs

1951

Torquay

Tariffs

Second Phase
Focused on reducing tariffs
Year

Place/name

1960-1961

Geneva
Dillon Round

1964-1967

Geneva
Kennedy
Round

1973-1979

Geneva
Tokyo Round

Subjects covered
Tariffs
Tariffs and antidumping measures
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

Place/name

Subjects covered

1986-1994

Geneva
Uruguay
Round

Tariffs, non-tariff
measures, rules,
services,
intellectual
property, dispute
settlement, textiles,
agriculture, creation
of WTO, etc

ROUNDS

1. Geneva Round (1947)

Time - April 1947 October1947
Duration 7 months
Countries 23
Negotiations in this and the succeeding 4 Rounds were on a
bilateral basis -: product-by-product, request-offer
members completed 123 negotiations and established 20
schedules containing the tariff reductions. which became an
integral part of GATT.

 The Agreement covered some 45,000 tariff concessions and about

$10 billion in trade.
First Round was successful since the US was ..
enthusiastic for free trade
was willing to cut its tariffs on imports from Europe
did not put pressure on European countries to abandon their trade
restrictions

2. Annecy Round (1949)

Time - April 1949 August1949
Duration 5 months
Countries Accession of ten more country (From 23 to 33 )
Denmark, Finland,

Sweden,

Nicaragua, Uruguay

Haiti,

Republic,

Greece,
Liberia,

Dominican

Italy,

All Members negotiated an additional 13,000 tariff reductions

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

3. Torquay Round (1950/51)

Time - September 1950 April1951
Duration 8 months
Countries Accession of five more countries (33+5 = 38)
Austria,

Germany, Turkey,

Philippines, Peru

Participants completed some 500 negotiations

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

 Major problem of this Round is Dispute between the US and the

UK no bilateral tariff cuts on USUK trade
Contracting parties exchanged some 8,700 tariff reductions of
about 25% in relation to the 1948 level.
During the Torquay Round, the US indicated that the ITO
Charter would not be re-submitted to the US Congress: End of
ITO.

4. Geneva Round (1955/56)

Time - January 1956 May 1956
Duration 5 months
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
The momentum toward lower tariffs was lost
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)

 Low-tariff countries were frustrated by their inability to bargain

effectively with high-tariff countries.
Fourth Round produced similarly not sufficient results ($2.5 billion
worth of tariff reductions)

5. Dillon Round (1960-62)

Time - September 1960 July 1962
Duration 11 months
Average tariff rates differed sharply within the European
Economic Community (EEC), ranging from 6% for Germany to
19% for Italy.
The Round was divided into two phases:
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)

 Second phase was a further general round of tariff negotiations

Round resulted in 4,400 tariff concessions covering $4.9 billion of
trade.
Last round of negotiations which were undertaken on a bilateral
basis
As a result of Dillon Round, tariff rates on manufactured goods
came down sharply (e.g. common external tariff of the EEC fell to
10.4% in 1968)
Agricultural and textile sectors were still not considered

6. Kennedy Round (1964-67)

Time - May 1964 June1967
Duration 37 months
Countries 66
A very ambitious round. It had 4 major goals:
To slash tariffs by half with minimum number of
exceptions.
To break down farm trade restrictions.
To strip off non tariff regulations.
To aid developing nations.

 The participating countries presented 80% of world trade.

Round named after President John F Kennedy who died the year
before the round.
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.
A short lived International Wheat Agreement was intended to
stabilize world wheat prices.

 Large reductions in grains and chemical products.

Reduction of tariff in tropical products, primary materials
and manufactured goods of interest to the less developed
countries.
Food aid programme totaling 4.5 million tons a year for
developing 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)

Time - September 1973 November1979
Duration 74 months
Countries 102
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)

Time - September 1986 December1993
Duration 87 months
Countries 123
Period following the Tokyo Round
World-wide recession
Trade conflicts between three major trading blocs: US, EC,
Japan
US-EC trade disputes centered on agricultural issues (EC
became exporter)
US wanted Japan to open its domestic market for US exports

 EC wanted to limit Japanese export growth

GATT ministerial meeting (1982): Attempt to meet problems left by
the Tokyo Round failed in Resurgence of protectionism
US reacted to protectionist pressure and considered the initiation of
a new round of negotiations
Japan favored a new GATT round: Multilateral negotiations were
preferred to bilateral pressure from the US and the EC
Other countries were mostly in favor of new round:
Smaller industrial countries wished to curtail the tendency of the
big three to ignore GATT principles
Agricultural-exporting countries were concerned about US producer
subsidies and EC export subsidies

 Developing countries wanted to secure greater tariff preferences

A committee was established to determine the objectives of a new
round of negotiations to be launched in 1986
There was little agreement between the big three
Initiative was taken by G9 group of mid-sized industrial nations and
G10 group of developing countries led by India and Brazil

Year

Name

Sub.
Covered

Countries

Achievements

1947

Geneva

Tariffs

23

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%

Signing of GATT,
45,000 tariff
concessions affecting
$10 billion of trade

Year

Name

Sub.
Covered

Countries

1956

Geneva

Tariffs,
admission of
Japan

23

Achievements

$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

Year

Name

Sub. Covered

Countries

Achievements

1973

Tokyo

Tariff, non-tariff
measures,
"framework"

102

Tariff reductions worth

more than $300 billion
dollars achieved

1986

Urugua
y

Tariffs, non-tariff
measures, rules,
services,
intellectual
property, dispute
settlement,
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
Uruguay

round
of
multilateral
trade
negotiations was initiated in September 1986
and concluded on the 15th September, 1993.
Mr. Arthur Dunkel, the Director General of
GATT submitted a proposal on the 20 th
December,1991 popularly known as Dunkel
Proposal which lead trade liberalization in
many areas like:
Trade Related Investment Measures(TRIMs)
Related
Intellectual
Property
Trade
Rights(TRIPs)
other services, textiles, clothing and

agriculture subsidies, Market.

Market
Arthur Dunkel suggested that the Government
control in marketing activities and operation
will have to be less.
The member governments will have to abolish
the public distribution system.

Agriculture
The member Governments are suggested to
reduce the subsidy on fertilizers, seeds, and
other inputs and eliminate the administered
pricing in respect to agriculture sector.
Arthur Dunkel was in favor of reducing the
price variation of agricultural products of
domestic market and international markets.

Trade Related Intellectual

Property Rights(TRIPs)
Dunkel
proposal
regarding
trade
related
intellectual property rights (TRIPs) in respect of
Business and commerce include
Protection of patents
Copy rights
Design
Trade Marks
Trade Secrets

Earlier process patents were granted to food,

medicines, drugs and clinical products but
proposed TRIPs agreement provides patents in all
the areas like, food, medicines, drugs and clinical
products, computer programming, integrated
circuit design, trade secrets etc. Also given more
important to Copyright and Trade mark.
Protection will be available for 20 years for patents
and copyrights, computer programming and data
compilations will be protected for at least 50
years. Trade marks would be protected for at least
seven years and semi-conductor layout design
would be protected for nearly 10 years.
A council on TRIPs would supervise operation of
the agreement along with GATT and the General
Agreement on Trade in Services.

Quota Abolition in Textile

GATT members abolished quotas on
trade
in
textiles
and
clothing.
Consequently, prices started declining
and the major buyers are narrowing
their sources. Large Asian countries with
vertically integrated industries are
becoming the worlds leading suppliers

Strategies for Textile Firms

Product Specialization:

Firms close advanced markets like firms in

Central America and North Africa should
concentrate on producing customized products
and the firms in other regions concentrate on
traditional products by developing linkages with
mega firms.
Cross-border Co-operation:
Mega firms and major Asian countries should
formulate strategies by taking into account
cross- border co-operation with the LDCs in the
same region.

Improve sourcing skills:

LDCs need to develop abilities in

sourcing materials to be competitive and
regionally integrated value chains.
Focus on higher value products:
LDCs firms need to enhance the
value addition rather than producing low cost
products and should also diversify their product
mix away from commodity-type items.
More flexible rules of origin:
Import markets should offer LDCs nonreciprocal preferential markets access
conditions, including rules of origin
requirements that are easy to fulfill.

Interregional Cooperation:

Firms and countries should accelerate interregional co-operation like South-South cooperation for developing joint production .
Creation of Conducive Environment:

LDCs should create conducive environment

for the growth of textile business from their
countries. Otherwise, the current textile policy
would adversely affect their economies.

AGREEMENT ON TRADE RELATED

INVESTMENT MEASURES (TRIMS)
These are rules that apply to the domestic
regulations a country applies to foreign investors,
often as part of an industrial policy.
The agreement was agreed upon by all members of
the World Trade Organization. (The WTO wasn't
established at that time, it was his predecessor, the
GATT (General Agreement on Trade and Tariffs).
The WTO came about in 1994-1995.

Trade Related Investment Measures(TRIMs) is

one of the four principle legal agreements of the
WTO.

TRIMs are rules that restrict preference of

domestic firms and thereby enable international
firms to operate more easily within foreign markets.

GENERAL AGREEMENT ON TRADE IN

SERVICES (GATS)

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.

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.

Before the WTO's Uruguay Round

negotiations, public services such as
healthcare, postal services, education, etc.
were not included in international trade
agreements. Most such services have
traditionally been classed as domestic
activities, difficult to trade across borders.
But after the existence GATS, foreign
participation has increased. For example
educational services have been "exported"
for as long as universities have been open to
international students.