GLOBAL BUSINESS

Module 3 :

Trade Agreements, Organizations, Institution

General Agreement on Tariffs and Trade (GATT)

MARK ANTHONY P. LACUESTA, RND Master in Management Major in Business Management

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

General Agreement on Tariffs and Trade (GATT)

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

General Agreement on Tariffs and Trade (GATT)

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

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.

In Brief

General Agreement on Tariffs and Trade

 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.

Objective
The GATT's main objective was the

Reduction of Barriers to International Trade

This was achieved through the Reduction of
Tariff barriers Quantitative Restrictions Subsidies on trade through a series of agreements

History
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

History (Contd...)
GATT signatories occasionally negotiated new

trade agreements that all countries would enter into Each set of agreements was called a round In general, each agreement bound members to reduce certain tariffs. Usually this would include many special-case treatments of individual products, with exceptions or modifications for each country.

First Phase
Commodities which would be covered by the

agreement and freezing existing tariff levels

Year 1947 1949 Place/name Geneva Annecy Subjects covered Tariffs Tariffs

1951

Torquay

Tariffs

Second Phase
Focused on reducing tariffs
Year
1960-1961 1964-1967

Place/name
Geneva Dillon Round Geneva Kennedy Round Geneva Tokyo Round

Subjects covered
Tariffs Tariffs and anti-dumping measures Tariffs, non-tariff measures, framework agreements

1973-1979

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 1986-1994 Place/name Geneva Uruguay Round Subjects covered Tariffs, non-tariff measures, rules, services, intellectual property, dispute settlement, textiles, agriculture, creation of WTO, etc

ROUNDS
NAME
1.GENEVA

START APRIL 1947

DURAT COUNTR SUB. ION IES COVERED

7 MONTHS

ACHIVEMENTS
SIGNING OF GATT, 45,000 TARIFF CONCESSIONS AFFECTING $10 BILLION OF TRADE.

23

TARIFFS

2. ANNECY APRIL 1949

5 MONTHS

13

TARIFFS

COUNTRIES EXCHANGED SOME 5000 TARIFF CONCESSIONS.

ROUNDS CONT
NAME
3. TORQUAY

START DURATION COUNTR IES

SEPT. 1950 8 MONTHS

SUB. COVERED TARIFFS

ACHEVEMENTS
COUNTRIES EXCHANGED SOME 8700 TARIFF CONCESSIONS, CUTTING THE TARIFFS BY 25%

38

4. GENEVA II

JAN. 1956

5 MONTHS

26

TARIFFS, ADMISSION OF JAPAN

$2.5 BILLION IN TARIFF REDUCTION

5. DILLON

SEPT. 1960

11 MONTHS

26

TARIFFS

TARIFF CONCESSION WORTH $4.9 BILLION OF WORLD TRADE.

ROUNDS CONT
NAME
6. KENNEDY

START DURATIO N
MAY
1964

COUNT RIES

SUB. COVERED
TARIFFS &
ANTIDUMPING

ACHIVEMENTS
TARIFF CONCESSION
WORTH $40 BILLION OF WORLD TRADE

37 MONTHS

62

7. TOKYO

SEPT. 1973

74 MONTHS

102

TARIFF, NON TARIFF MEASURES, FRAMEWORK AGREEMENTS

TARIFF REDUCTION WORTH $190 BILLION ACHIEVED.

8. URUGUAY

SEPT.

87 MONTHS

123

TARIFFS,NON

CREATION OF WTO, &

1986

TARIFFS,RULES,
SERVICES,IP,DISPU TE SETTLEMENT,TEXTI LES,AGRI.

EXTENDED THE RANGE OF

TRADE NEGOTIATION,LEADING TO THE REDUCTION IN TARIFFS(ABOUT 40%).

Terms which help understanding GATT

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.

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.

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. 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.

Trade Barriers (Contd)

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. if a capital-abundant nation imposes an import tariff on the labor intensive commodity, wages in the nation will rise.
However, since the nations benefit comes at the
For example,

expense of other nations, latter are likely to retaliate, so that in the end all nations usually lose.

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.

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.

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.

Did GATT succeed?

 Continual reductions in tariffs helped spur

very high rates of world trade growth during the 1950s 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.

But.

 GATTs success in reducing tariffs to a low level, with

a series of economic recessions 1970-80s 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 GATTs credibility

and effectiveness.

 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 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

 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.