BY PRABHJYOT SINGH RANDHAWA

CLASS: XII-E
ROLL NO. 30

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General Agreement on Tariffs and
Trade (GATT)
 Outcome of the failure of negotiating governments
to create the International Trade Organization (ITO)
 Negotiated during the UN Conference on Trade
and Employment
 Formed in 1947 and transformed to World Trade
Organization (WTO) in 1995

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 Part of economic recovery after World War II, Bretton
Woods Conference suggested an organization to
regulate trade
 Parallel to the Governments negotiating the ITO, 15
negotiating states began negotiating for the GATT as a
way to attain early tariff reductions
 The ITO failed in 1950 and then GATT agreement
was introduced

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 GATT's main objective
 Reduction of barriers to international trade
 Achieved through reduction of tariff
barriers, quantitative restrictions and subsidies on trade
through a series of agreements
 It was a treaty, not an organization
 A small secretariat occupied what is today the Centre
William Rappard in Geneva, Switzerland

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 Inception
 Efforts to negotiate international trade agreements began in 1927 at
the League of Nations but were unsuccessful.
 Precursor organization to GATT, ITO, was first proposed in February
1945 by the United Nations Economic and Social Council (UNESCO).
 Owing to the United States failing to implement the ITO, GATT was
the only organization left.
 On 1 January, 1948 the agreement was signed by 23 countries: Australia,
Belgium, Brazil, Burma, Canada, Ceylon, Chile, China, Cuba, the
Czechoslovak Republic, France, India, Lebanon, Luxembourg,
Netherlands, New Zealand, Norway, Pakistan, Southern
Rhodesia, Syria, South Africa, the United Kingdom, and the
United States.
 According to GATT's own estimates, the negotiations created 123
agreements that covered 45,000 tariff items that related to approximately
one-half of world trade or $10 billion in trade. 6
 The General Agreement on Tariffs and Trade
(GATT) was first signed in 1947.

 Was designed
 To provide an international forum
 That encouraged free trade between
member states
 By regulating and reducing tariffs on traded
goods
 Providing a common mechanism for resolving
trade disputes.

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 Terms which help
understanding GATT

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 TRADE BARRIERS
Tariff and Non-Tariff Barriers
 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.
 This is a tax or duty on the imports or exports.
 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. 9
 Tariffs
 Tariffs can be ad-Valorem, specific, or compound.
 Ad-Valorem tariff is expressed as a fixed percentage of
the value of the traded commodity.
 Specific tariff is expressed as a fixed sum per physical
unit of the traded commodity.
 A compound tariff is a combination of an Ad Valorem
and a specific tariff.

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 Trade Restrictions /Trade Barriers
 An import tariff is a duty on the imported
commodity, while an export tariff is a duty on the
exported commodity.
 Export tariffs are prohibited by the U.S. Constitution but are
often applied by developing countries on their traditional
exports (such as Ghana on it’s cocoa and Brazil on it’s
coffee) to get better prices and revenues.
 Developing nations rely heavy on export tariff to raise
revenues because of their ease of collection.
 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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 Trade Barriers (Cont.)
 According to Stolper-Samuelson theorem , an increase in
the relative price of a commodity (for example, as a result of
a tariff ) raises the return or earnings of the factor used
intensively in its production.
For example,
if a capital-abundant nation imposes an
import tariff on the labor intensive commodity, wages
in the nation will rise.
 However, since the nation’s benefit comes at the expense of
other nations, latter are likely to retaliate, so that in the end
all nations usually lose.

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 Trade Barriers (Cont.)
 Two arguments are that protection is needed to reduce domestic
unemployment and a deficit balance of payments.
 A more valid argument for protection is the infant-industry
argument.
 However, what trade protection can do, direct subsidies and taxes
can do better in overcoming purely domestic distortions. The
same is true for industries important for national defense. The
closest we come to a valid economic argument for protection is
the optimal tariff (which, however, invites retaliation).
 Trade protection in the United States is usually given to low-
wageworkers and to large, well organized industries producing
producing consumer products.

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 Non-Tariff Barriers
 International trade also hampered by numerous
 Technical, administrative, and other regulations.
 These include safety regulations for automobile
and electrical equipment, health regulations for
the hygienic
 Production and packaging of imported food
products, and labeling requirements showing
origin and contents.

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 Non-Tariff Barrier [Subsidies]
 National government sometimes grant subsidies 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.

 Two types of subsidies can be distinguished: a domestic

subsidy , which is sometimes granted to producers of
import-competing goods, and an export subsidy,
which goes to producers of goods that are to be sold
overseas.

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 Other Non-Tariff Barriers
 Government Procurement Policies: 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.
E.g, Government often extend preferences to domestic
suppliers in the form of buy-national policies campaigns.

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 Impact of trade barriers
 Advanced industrial nations committed themselves after
World War II to removing barriers to the free flow of
goods, services, and capital between nations
 This goal was enshrined in the General Agreement on Trade and
Tariffs [GATT]
 Under the umbrella of GATT, eight rounds of negotiations
among member states(now numbering 146) have worked
to lower barriers to the free flow of goods and services
 The most recent round of negotiations, known as the Uruguay
Round, was completed in Dec,1993.The Uruguay round further
reduced trade barriers; extended GATT to cover services as well
as manufactured goods; provided enhanced protection for
patents, trademarks, and copyrights; and established the
World Trade Organization (WTO)to police the international
trading system
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 Impact of trade barriers
 In the late 2001, the WTO launched a new round of talks
[Doha, Qatar] aimed at further liberalizing the global trade and
investment framework.
 The agenda included cutting tariffs on industrial goods,
services, and agricultural products; phasing out
subsidies to agricultural producers; reducing barriers to cross
border investments; and limiting the antidumping laws.
 The rich nations spend around $300 billion a year in
subsidies to support their farm sectors. The world’s poorer
nations have the most to gain from any reductions in
agricultural tariffs and subsidies.

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Did GATT
succeed?

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 Successes
 Continual reductions in tariffs helped spur very
high rates of world trade growth during the1950s
and 1960s — around 8% a year on average
 Trade growth consistently out-paced
production growth
 The rush of new members during the Uruguay
Round demonstrated recognition of multilateral
trading system as the anchor for development and
an instrument of economic and trade reform.
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But…….

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 GATT’s success in reducing tariffs to a low level, with a
series of economic recessions 1970-80’s drove
governments to devise other forms of protection for
sectors facing increased foreign competition

 High rates of unemployment and constant factory

closures led governments in Western Europe 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

 Both these changes undermined GATT’s credibility

and effectiveness.
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 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 the1940s
 World trade had become far more complex and
important than 40 years before
 The globalization of the world economy was
underway
 Trade in services — not covered by GATT rules
 Ever increasing international investments

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 Factors convinced GATT members that a new effort
to reinforce and extend the multilateral system
should be attempted.

That effort resulted in the Uruguay Round, the

Marrakesh Declaration, and the creation of the
WTO.

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 WTO

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 Agenda

About WTO

Objective of WTO

Functions of WTO

The WTO Structure

Principles of WTO

Key Subjects in WTO

Q&A

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 About WTO

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 World Trade Organization

Location :- Geneva, Switzerland

Established: 1 January 1995

Created by : Uruguay Round negotiations (1986-94)

Membership :153 countries (on 23 July 2008)

Budget : 185 million Swiss francs for 2008

2007 Secretariat Staff : 625

Head : Director-General, Pascal Lamy

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 Objectives

The WTO reiterates the objectives of GATT .

Raising standard of living and income .

Introduce sustainable development.

Taking positive steps to ensure that developing countries.

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 Functions of WTO
Administering and Implementing the multilateral and plurilateral trade agreements.

Acting as a forum for multilateral trade negotiations .

Seeking to resolve trade disputes.

Overseeing national trade policies.

Cooperating with other international institutions.

Maintaining trade related database.

Acting as a watchdog of international trade .

Technical assistance and training for developing countries.

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 The WTO Structure
Ministerial conference Director General

Secretariat

Dispute Settlement Body General Council

Trade Policy Review Body

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 The WTO Structure

Trade
related
Committee Committee Committee Council for Council for Intellectual
On Budget On T & D On BoP Service Goods Property
Rights
council

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 The WTO Principles

Environment Transparency
MFN
Protection Treatment

Competition
On BoP
National
Principles Treatment
Of
Treatment WTO
For LDCs

Rule Based Free

Trading Trade
System Principle
Dismantling
Trade
Barriers

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 Key Subjects in WTO
Agriculture

Health & safety measures

Helping least developed and food importing countries

Textile and Clothing

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