Introduction:

The General Agreement on Tariffs and Trade, known as the GATT, is onethird of the Bretton Woods system that was created after World War II to
ensure a stable trade and economic world environment. The International
Monetary Fund (IMF) and World Bank are the other two bodies of the
Bretton Woods system.
While often referred to as an international organization, the GATT had a
defacto role as an international organization before the creation of the
World Trade Organization (WTO). The WTO was established on January 1,
1995 by the Final Act of the Uruguay Round of negotiations.

The Basic Principles of the GATT:

1. Most-Favored-Nation (MFN) Treatment:
This is the fundamental principle of the GATT and it is not a coincidence
that it appears in Article 1 of the GATT 1947. It states that each contracting
party to the GATT is required to provide to all other contracting parties the
same conditions of trade as the most favourable terms it extends to any
one of them, i.e., each contracting party is required to treat all contracting
parties in the same way that it treats its most-favoured nation.

2. Reciprocity:
GATT advocates the principles of rights and obligations. Each
contracting party has a right, e.g. access to markets of other trading
partners on a MFN basis but also an obligation to reciprocate with trade
concessions on a MFN basis. In a way, this is closely associated with the
MFN principle.

3. Transparency:
Fundamental to a transparent system of trade is the need to harmonize the
system of import protection, so that barriers on trade can be reduced
through the process of negotiations. The GATT therefore, limited the use of
quotas, except in some specific sector such, as agriculture and advocated
import regimes that are based on tariff-only.
In addition, the GATT and now the WTO, required many notifications from
contracting parties on their agricultural and trade policies so that these can
be examined by other parties to ensure that they are GATT/WTO
compatible.

4. Tariff Binding and Reduction:

When GATT was established, tariffs were the main form of trade protection
and negotiations in the early years focused primarily upon tariff binding and
reduction. The text of the 1947, GATT lays out the obligations on the
contracting parties in this regard.

Functions of GATT
In fulfillment of its objectives, GATT adopted certain measures. These
may
1.
2.
3.
4.
5.
6.

be discussed under the following headings.

Most favored nation clause
Trade negotiations
Tariff and non-tariff measures
Safeguards
Complaints and waivers
Settlement of disputes

1. Most Favored Nation clause

The Most favored Nation clause is one of the significant provisions

adopted by GATT. Under the concept of Most Favored Nation, all
contracting parties of the agreement would be treated as most favored
nations. The principal objective is that the benefits extended to one
should also be extended to all contracting parties. There should be no
discrimination among nations. Trading should be carried on the principle
of non-discrimination and reciprocity. This clause discouraged the member
countries from granting any new trade concessions unless those were
mutually agreed upon. However, many escape clauses were found. Under
specific circumstances, less developed countries were allowed to exercise
the right to discriminate. For example, dumping and export subsidy might
be countered by trade measures only against the offending country.
Moreover, special concessions were allowed for trade with former colonies
of less developed western countries.
2. Trade negotiations under GATT
From 1947 to 2001, GATT has organized 12 trade negotiations. The
following table shows various negotiations of GATT and WTO since 1947.
Year

Round

Outcome of Negotiations

1947

Geneva
Round

Several thousands of tariff concessions covering nearly 50 p

cent of world trade.

1949

Annecy
Round
(France)

Announcement of modest tariff reductions.

1950-51

Torquay,
England
Round

Over 1948 level, 25 per cent ' tariff reductions were made.

1955-56

Geneva
Round

Modest tariff reductions

1961-62

Geneva,
Modest tariff reductions
Dillon Round

1964-67

Geneva,
Kennedy
Round

35 percent tariff reduction on industrial products and modes

reduction in agricultural products. Also antidumping code wa
announced.

1973-79

Geneva,

Negotiation of additional tariff cuts developed a series of

Year

Round

Outcome of Negotiations

Tokyo Round agreements governing the use of non-tariff measures.

1986-94

Uruguay
Round

Tariff non tariff measures, rules, services, intellectual proper

dispute settlement, creation of WTO etc.

1996 (9 to Singapore
13 Dec)
Ministerial

Two separate working parties were setup on investment and

commercial law. Working group was also formed on
Government procurement, Trade facilitation added to WTO
agenda.

1998 (18 Geneva

to 20 May) Ministerial

Programme on E-commerce launched.

1999 (30
Nov to 3
Dec)

Market access, agriculture, services, E-Commerce

Seattle
Ministerial

2001 (9 to Doha
13 Dec)
Ministerial

New Round

3. Tariff and Non-tariff measures

Tariff measures:
Tariffs were the important obstacle to international trade. Therefore, GATT
encouraged negotiations for the reduction of hig4 tariffs, The participating
countries agreed to cut tariff of thousands of industrial products.
Reduction of

tariff was

on reciprocal

and

mutually advantageous

basis. Article 11 of the GATT provided that all concessions granted by

contracting parties must be entered in a schedule of concessions. Once a
concession was included in the schedule of concessions, it could not be
withdrawn except under specified circumstances.
Non-tariff measures
Post-World War II witnessed reduced distorting effects of non-trade
barriers world trade. The Tokyo Round held during 1973 1979 tackled
the problems of non-tariff barriers under more effective international
discipline. All the agreements provide for special and more favorable
treatment for developing countries. The negotiations led to the following
non-tariff measures:

restriction on use of subsidies,

technical barriers,

import licensing procedures,

government procurement,
custom valuation,
permission of anti-dumping code.

To read more about the non-tariff measures of GATT, refer this

article: Non-tariff measures of GATT
5. Complaints and waivers
Article XXII of the GATT entertains complaints from contacting party
relating to the operation of the agreement. The contracting party who is
likely to be deprived of the benefits under GATT agreement can request
the other party for consultation. The basicprinciple of GATT is that
member countries should consult one another on trade matters and
problems. Article XXV of the GATT provides the procedure for granting
waiver to some contracting party from the application of the provisions of
the GATT. Waivers are granted on the approval by two thirds of voting
contracting parties.
6. Settlement of disputes
GATT aimed at the smooth settlement of disputes among the contracting
parties. GATT allows the member countries to settle problems among
them by consulting one another on matters of trade. Initially, the
contracting parties should resolve the disputes by holding talks on
bilateral basis. In case of failure, the dispute may be referred to panels of
independent experts formed under GATT council. The panel members are
drawn from countries which have no direct interest in the disputes. If the
offending parties does not act upon the panels decision, the aggrieved
party is authorized to withdraw all concessions offered to the offending
party.

Since

the

panel

procedure

ensures

mutually

settlement, members make increased use of the panel.

satisfactory