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GATT AND WTO

presented by:
Sakshi Jain
0421731605
GENERAL AGREEMENT ON TARIFFS AND TRADE

At the end of the Second World War, it was necessary for the coalitions to create policies that could be
implemented in order to prevent the outbreak of war. Thus, as a result of the economic situation that impacted the
outbreak of the Second World War, the General Agreement on Tariffs and Trade (GATT) was created.

By the late 1940s, representatives of the American government had met several times with representatives of other
major nations to design a post-war international trading system that would parallel the international monetary
system. These meetings had two objectives:
1) to draft a charter for the ITO and
2) to negotiate the substance of an ITO agreement, specifically, rules governing international trade and reductions in
tariffs.

Owing to the United States failing to implement the ITO, GATT was the only organization left. GATT evolved
through several rounds of negotiations in 1947.


GATT was a treaty whereby 23 member countries (12 developed + 11 developing), increasing afterwards agreed
to a set of rules to govern trade with one another and maintained reduced import tariffs for other members.

Fundamental perception of GATTs founders:
1. Multilateral institution facilitating cooperation among countries important for economic reasons
2. Will also help reduce the risk of war positive correlation between trade and peace and non-discrimination
and good foreign relations

The GATT treaty did not provide for a formal institution, but a small GATT Secretariat, with a limited institutional
apparatus, was eventually headquartered in Geneva to administer various problems and complaints that might
arise among members.

GENERAL AGREEMENT ON TARIFFS AND TRADE

Objectives according to the Preamble of GATT 1947:
Raising standards of living. Ensuring full employment, steady growing real income and effective demand. Full use
of worlds resources, expanding goods production and exchange
Reciprocal reductions of trade barriers and elimination of discriminatory treatment will help realising these goals

GATT/WTO contain a set of specific legal obligations regulating trade policies of member states.

FIVE KEY PRINCIPLES under GATT to ensure this are:

I. Reciprocity
II. Non-discrimination
III. Enforceable Commitments
IV. Transparency
V. Safety Valves


GENERAL AGREEMENT ON TARIFFS AND TRADE
1. RECIPROCITY

Reciprocity refers to the practice that occurs in GATT negotiating rounds, whereby one country offers to reduce a
barrier to trade and a second country reciprocates by offering to reduce one of its own trade barriers. Reciprocity,
the practice of swapping tariff concessions, facilitates the reduction of trade barriers.

To negotiate, a country has to gain more than from unilateral liberalisation

2. NON-DISCRIMINATION

Non discrimination, or equal treatment, means that if one GATT member offers a benefit or a tariff concession to another
GATT member, for example, a reduction
in its import tariff for bicycles, it must offer the same tariff reduction to all GATT members.

Most Favoured Nation Art. 1 of GATT embodies the MFN rule. At its simplest, it requires any favourable
treatment granted to a product originating in or destined for any other country, to be accorded immediately and
unconditionally to the like product originating in or destined for the territories of all other member states.

E.g. Spanish coffee case: Spain applied a higher duty on the types of coffee imported from Brazil while applying a lower
duty on other coffees considered to be like products. The Panel considered this to be a breach of its GATT MFN
obligation.


GENERAL AGREEMENT ON TARIFFS AND TRADE
National Treatment, (in Art. III of GATT)- It states that having once passed the border, foreign goods cannot be
treated less favourably than similar domestic goods in terms of
(i) internal (indirect) taxation and
(ii) non-tax policies (e.g. regulations)

Thus, non discrimination extends the benefits of a reciprocal tariff reduction beyond the two parties that initially
negotiated it to all GATT members.





3. ENFORCEABLE COMMITMENTS

Liberalisation of commitments is useless if not enforceable.
Agreed-upon tariff commitments are enumerated in lists termed Schedules of Concessions (Art. II)
Members concerned cannot raise tariffs above bound levels without negotiating compensation with the principal
suppliers of the product concerned
If another governments actions are perceived to have the effect of nullifying or impairing committed market
access , this would lead to dispute settlement procedure.

Elements of this procedure
1. Panel of impartial experts determines whether a contested measure violates GATT or not.
2. Since GATT is an intergovernmental agreement, private parties do not have legal standing before its
dispute settlement body, only governments have the right to bring cases

GENERAL AGREEMENT ON TARIFFS AND TRADE
4. TRANSPARENCY

This involves access to information on the trade regime of signatories
Internal transparency: requirement to publish national trade regulations

External transparency: multilateral surveillance facilitated by periodic country reports prepared by GATT
Secretariat (and discussed by its Council) by so-called Trade Policy Review (TPR) mechanism

Benefits of transparency, (e.g. publishing TPRs and other reports):
1. Reduces pressure on the dispute settlement system: measures can first be discussed by the appropriate GATT
body before filing an appeal.
2. Strengthens GATT/WTO legitimacy by informing civil society what is going on in multilateral trade policy
and what are the key implications.


5. SAFETY VALVES

Government can restrict trade in specific circumstances. There are two types of provisions/articles (exceptions in
GATT):
1. To attain non economic objectives: protect public health, national security or industries so seriously injured
by import competition that social/political problems arise.
2. To ensure fair competition: often in conflict with market access as its instruments are duties
Countervailing duties on imports that have been subsidised
Antidumping duties on imports that have been dumped, i.e. sold at a price below the one charged in
the home market


GENERAL AGREEMENT ON TARIFFS AND TRADE
WORKING METHOD

Over the next 40 years, GATT grew in membership and in its success at reducing barriers to trade. GATT members
regularly met in what came to be known as negotiating rounds. These rounds were primarily focused on
negotiating further reductions in the maximum tariffs that countries could impose on imports from other GATT
members.
Contracting parties (CPs) usually met every six months for several weeks at regular sessions in order to discuss
economic issues with its members.


TRADE ROUNDS
Name Start Duration Countries Subjects covered Achievements
Geneva April 1947 7 months 23 Tariffs
Signing of GATT, 45,000 tariff concessions
affecting $10 billion of trade
Annecy April 1949 5 months 13 Tariffs
Countries exchanged some 5,000 tariff
concessions
Torquay September 1950 8 months 38 Tariffs
Countries exchanged some 8,700 tariff
concessions, cutting the 1948 tariff levels
by 25%
Geneva II January 1956 5 months 26 Tariffs, admission of Japan $2.5 billion in tariff reductions
Dillon September 1960 11 months 26 Tariffs
Tariff concessions worth $4.9 billion of
world trade
Kennedy May 1964 37 months 62 Tariffs
Tariff concessions worth $40 billion of
world trade
Tokyo September 1973 74 months 102
Tariffs, non-tariff
measures, "framework"
agreements
Tariff reductions worth more than $300
billion dollars achieved
Uruguay September 1986 87 months 123
Tariffs, non-tariff
measures, rules, services,
intellectual property,
dispute settlement,
textiles, agriculture,
creation of WTO, etc
The round led to the creation of WTO, and
extended the range of trade negotiations,
leading to major reductions in tariffs
(about 40%) and agricultural subsidies, an
agreement to allow full access for textiles
and clothing from developing countries,
and an extension of intellectual property
rights.
WORLD TRADE ORGANIZATION (WTO)
Following the UR Agreement, GATT was converted from a provisional agreement into a formal international
organisation called World Trade Organisation (WTO) with effect from January 1, 1995. Presently, it has 149
members.
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 .

OBJECTIVES OF THE WTO

Raising standards of living
Ensuring full employment
Ensuring a large and steadily growing volume of real income and effective demand
Expanding the production of and trade in goods and services, while allowing for the optimal use of the worlds
resources
seeking both to protect and preserve the environment and to enhance the means for doing so in a a manner
consistent with the respective needs and concerns of Parties to the Agreement at different levels of economic
development

WORLD TRADE ORGANIZATION
THE PRINCIPLES:

Most-favoured-nation (MFN): treating other people equally Under the WTO agreements, countries cannot
normally discriminate between their trading partners. If it grants someone a special favour (such as a lower customs
duty rate for one of their products) and it will have to do the same for all other WTO members.
National treatment: Treating foreigners and locals equally Imported and locally-produced goods should be
treated equally at least after the foreign goods have entered the market.
Freer trade: gradually, through negotiation Lowering trade barriers is one of the most obvious means of
encouraging trade. The barriers concerned include customs duties (or tariffs) and measures such as import bans or
quotas that restrict quantities selectively.
Promoting fair competition The WTO is sometimes described as a free trade institution, but that is not entirely
accurate. The system does allow tariffs and, in limited circumstances, other forms of protection. More accurately, it
is a system of rules dedicated to open, fair and undistorted competition.

Predictability: through binding and transparency Sometimes, promising not to raise a trade barrier can be as
important as lowering one, because the promise gives businesses a clearer view of their future opportunities. With
stability and predictability, investment is encouraged, jobs are created and consumers can fully enjoy the benefits
of competition choice and lower prices. The multilateral trading system is an attempt by governments to make
the business environment stable and predictable.
Encouraging development and economic reform The WTO system contributes to development. On the other
hand, developing countries need flexibility in the time they take to implement the systems agreements. And the
agreements themselves inherit the earlier provisions of GATT that allow for special assistance and trade
concessions for developing countries.



WORLD TRADE ORGANIZATION
FUNCTIONS

The WTO has the following five specific functions.
1. The WTO shall facilitate the implementation, administration and operation and further the objectives of the
Multilateral Trade Agreements and shall also provide the framework for the implementation, administration and
operation of plurilateral Trade Agreements.
2. The WTO shall provide the forum for negotiations among its members concerning their multilateral trade relations
in matters dealt with under the Agreements.
3. The WTO shall administer the Understanding on Rules and Procedures Governing the Settlement of Disputes
4. The WTO shall administer the Trade Review Mechanism.
WORLD TRADE ORGANIZATION
WORLD TRADE ORGANIZATION
THE 10 BENEFITS:

1. The system helps promote peace
2. Disputes are handled constructively
3. Rules make life easier for all
4. Freer trade cuts the costs of living
5. It provides more choice of products and qualities
6. Trade raises incomes
7. Trade stimulates economic growth
8. The basic principles make life more efficient
9. Governments are shielded from lobbying
10. The system encourages good government

DIFFERENCE BETWEEN GATT AND WTO


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
GATT was less powerful, dispute settlement system was slow
and less efficient, its ruling could be blocked
WTO is more powerful than GATT, dispute settlement
mechanism is faster and more efficient, very difficult to
block the rulings.

GATT AND WTO

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