V General Agreement on Tariffs and Trades

Prepared By
Gaurav Vaghela
 What is GATT?
V GATT means General Agreement on Tariffs and Trade

V It was an international trade agreement designed to

reduce barriers to trade and tariffs.

V The agreement was signed in 1947 in Geneva,

Switzerland and included 23 members at the time.

V In 1955 GATT was updated and after 1995 is now

known as the WTO or World Trade Organization
 What was the intension?
V The original intention was to create a third institution
to handle the trade side of international economic co-
operation joining the two DzBretton Woodsdz
institutions, the World Bank and the International
Monetary Fund.
V Over 50 countries participated in negotiations to
create an International Trade Organization (ITO) as a
specialized agency of the United Nations.
V The draft ITO Charter was ambitious. It extended
beyond world trade disciplines, to include rules on
employment, commodity agreements, restrictive
business practices, international investment, and
services.
O Œven before the talks concluded, 23 of the 50 participants
decided in 1946 to negotiate to reduce and bind customs tariffs.
With the Second World War only recently ended, they wanted to
give an early boost to trade liberalization, and to begin to correct
the legacy of protectionist measures which remained in place from
the early 1930s.
O First round of negotiations resulted in 45,000 tariff concessions
affecting $10 billion of trade, about one fifth of the worldǯs total.
This 23 countries also agreed that they should accept some of the
trade rules of the draft ITO Charter.
O The combined package of trade rules and tariff concessions
became known as the General Agreement on Tariffs and Trade. It
entered into force in January 1948, while the ITO Charter was still
being negotiated. The 23 became founding GATT members.
 J
ective
V The GATTǯs main objective was the
DzReduction of Barriers to International Tradedz

V This was achieved through the Reduction of

D Tariff barriers
D Quantitative Restrictions
D Subsidies on Trade through a series of agreements
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Y
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V 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.
V This is a tax or duty on the imports or exports.
V 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.
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V An import tariff is a duty on the imported commodity,
while an export tariff is a duty on the exported commodity.
V Œxport tariffs are prohibited by the U.S. Constitution but
are often applied by developing countries on their
traditional exports (such as Ghana on itǯs cocoa and Brazil
on itǯs coffee) to get better prices and revenues.
V Developing nations rely heavy on export tariff to raise
revenues because of their ease of collection.
V On the other hand, industrial countries invariably impose
tariffs or other trade restrictions to protect some(usually
labor-intensive)industry, while using mostly income taxes
to raise revenues.
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V Non-Tariff Barriers International trade also hampered
by numerous
D Y
i
al, admiistrativ , ad ot r r latios.
D These include saf ty r latios for automobile and
electrical equipment,  alt r latios for the
hygienic
D Production and packaging of imported food products,
and lab li r ir m ts showing origin and
contents.
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V National government sometimes grant sbsidi s to
domestic producers to help improve their trade
position. Such devices are indirect form of protection
provided to domestic businesses, whether they may be
import competing producers or exporters.

V Two types of subsidies can be distinguished: a

dom sti
sbsidy , which is sometimes granted to
producers of import-competing goods, and a ort
sbsidy, which goes to producers of goods that are to
be sold overseas.
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V ov rm t Pro
r m t Poli
i s: Because

government agencies are large buyers of goods and
services, they are attractive customers for foreign
suppliers. Most governments however, favor domestic
suppliers over foreign ones in the procurement
materials and products. Œ.g., Government often extend
preferences to domestic suppliers in the form of buy-
national policies campaigns.
 Advantage
V The theory of comparative advantage
V Increased Œxports
V Œconomies of Scale
V Increased Competition
V Trade is an engine of growth
V Make use of surplus raw materials
V Tariffs may encourage inefficiency
 uisadvantages

V åow skill workforce

V Rules are not fair
V The Senile industry
V To diversify the economy
V Raise revenue for the government
V Protection against dumping
 uid GATT succeed?
V GATT was provisional with a limited field of action, but its
success over 47 years in promoting and securing the
liberalization of much of world trade is incontestable.
V Continual reductions in tariffs alone helped spur very high
rates of world trade growth during the 1950s and 1960s Ȅ
around 8% a year on average.
V And the momentum of trade liberalization helped ensure
that trade growth consistently out-paced production
growth throughout the GATT era, a measure of countriesǯ
increasing ability to trade with each other and to reap the
benefits of trade.
V The rush of new members during the Uruguay Round
demonstrated that the multilateral trading system was
recognized as an anchor for development and an
instrument of economic and trade reform.
àut͙͙͙.
V GATTǯs success in reducing tariffs to a low level, with a
series of economic recessions 1970-80ǯs drove
governments to devise other forms of protection for
sectors facing increased foreign competition.

V High rates of unemployment and constant factory

closures led governments in Western Œurope 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.

V Both these changes undermined GATTǯs credibility and

effectiveness.
V The problem was not just a deteriorating trade policy
environment.
By the early 1980s the General Agreement was
clearly no longer as relevant to the realities of world
trade as it had been in the 1940s.
V World trade had become far more complex and
important than 40 years before.
V The globalization of the world economy was underway
V Trade in services Ȅ not covered by GATT rules
V Œver increasing international investments
V Factors convinced GATT members that a new effort to
reinforce and extend the multilateral system should be
attempted.

V That effort resulted in the Uruguay Round, the

Marrakesh Declaration,

ad t
r atio of t WY .
Thank you