GATT - WTO

General Agreement on
Tariffs and Trade

Context: Pre-war depression cured

by WWII - unlikely to be a regular
economic policy option.

Depression caused by protectionism.

Depressions causes political instability.
Political instability causes war

Ergo: Need to end protectionism

Harry S. Truman, US
President

General Agreement on
Tariffs and Trade

Thus - US leads campaign for postwar trade

regime based upon:
Classic (economic) liberal principle of
comparative advantage. In effect:
Tariffs would be lowered
Each country to specialise in production of
those goods it produced best (trading with
other countries as appropriate).
In theory all countries would be better off as a
result.

General Agreement on
Tariffs and Trade
1947: Originally US vision for
postwar trade regime to be
encapsulated in creation of
International Trade Organisation.
Met domestic opposition.
GATT - established as temporary
agreement to provide basis for trade
negotiation underway in Geneva.

General Agreement on
Tariffs and Trade
In consequence US effectively
dominated GATT.
For example:
The eight trade rounds that
constituted GATT for example, were
typically initiated by grants of
negotiating authority from the US
congress to the US President

General Agreement on
Tariffs and Trade

GATT embodies 1st world rules/

assumptions for economic prosperity:

Standardised production,
Vast scale of production,
Endless expansion of markets

combine to create the engine for global

economic growth

General Agreement on
Tariffs and Trade
GATT based on four norms:
Most-Favoured Nation
Reciprocity
Exemptions
Development Norm

General Agreement on
Tariffs and Trade

Most-Favoured Nation

All members agree to extend unconditional

MFN status to one another - no country
receives preferential treatment not accorded
to all other MFN countries.
Any benefits acquired by one country are
automatically extended to all MFN partners
Only exceptions to this rule are customs
unions (e.g. EU, NAFTA)

General Agreement on
Tariffs and Trade

Reciprocity

Any country that benefits from anothers tariff

reduction should reciprocate to an equivalent
extent.
In theory then, fair and equitable tariff
reductions by all countries are ensured.
Taken with the MFN principle, reciprocity is
intended to create a downward spiral of
tariffs.

General Agreement on
Tariffs and Trade

Exemptions

Regarded as acceptable if:

temporary
imposed for short-term balance-ofpayments reasons
country experiencing severe market
disruptions due to increased imports

General Agreement on
Tariffs and Trade
Development Norm added (from
1965 onwards) allowing:
1. Unilateral/unreciprocated tariff
reductions by developed countries
on imports from developing
countries
2. Export subsidies by developing
countries.

General Agreement on
Tariffs and Trade

GATT until the 1980s focused (very

successfully) on reducing manufacturing tariffs:

1948 - 1993
Reduction in official tariffs on manufacturing from 40%
to 5%
Global trade increases by factor of four (mainly
benefiting 1st world - by 1990s 20% of the worlds
population does 80% of international trade.)

SO - GATT A (BUT NOT THE ONLY) FACTOR BEHIND

GLOBALISATION

General Agreement on
Tariffs and Trade

Till 1994, emphasis was on

checking dumping and unethical
business practices.

WTO Structure
Ministerial Conference
General Council
Goods Council

Services Council

Intellectual Property Council

International Treaties

Objective to reduce tariff to Zero, therefore

lead to liberalisation.

Present day WTO system is based on

uruguay round agreements.

Removal of Quantitative Restrictions

Agreement on Agriculture
GATS
TRIMS
TRIPS
Regional Trade Agreement

Agreement on General
Removal of Quantitaive
Restrictions

No Qty restriction except:

To protect the Balance of Payment
Protect country in case of problems with
domestic producers.
In case of domestic surplus of agricultural or
fisheries product.

Agreement on Agriculture

GATT was applicable for

Agricultural trade.
Drawback: Import quotas and
Subsidies

Under WTO all countries except

LDCs were to reduce tariffs and
subsidies.

General Agreement on
Trade in services (GATS)

Objective: Liberalisation of trade in all

services as a result of exponential
growth of service sector triggered by
communication revolution.

Applicable to all services like Banking,

Films, Music, Travel, Insurance etc.

Agreement on Trade
Related Investment
Measures (TRIMS)

Objective: To treat foreign investment

on par with domestic investment.
To remove quantitative restrictions on
imports.

Under GATT: Discrimination was in the form

of
- Obligation to use local input

TRIMS
- Produce for export as a condition to use
local inputs
To balance outflow of Forex due to import
with foreign exchange earnings through
exports.
Qty. restictions on export.

All these restriction were to be

removed under WTO membership.

Trade related Intellectual

property rights (TRIPS)

Includes Patents, Copyrights, Trade

Marks, Registered designs. Obj is
to bridge the gap in the ways
rights are protected around the
world, and to bring them under
common International rules.

TRIPS

Ensured: Min. standard of protection to

intellectual property.
Domestic procedures to enforce IPRs
Dispute settlement between WTO
members

Regional Trade
Agreements

Special agreements between some

countries. WTO accords special
provisions for them.

Reasons for such agreements:Economic integration

Customs unions
Free Trade areas
Common markets

Regional Trade
Agreements

Eg:- EU

ASEAN
NAFTA (North American Free Trade Area)
EFTA (European Free Trade Area)
GCC (Gulf Co-operative Council)
SAPTA ( South Asia Preferential Tariff
Agreement)
SAFTA (South Asian Free Trade Area)

Impact of WTO
Increase in export earnings
Agricultural exports earnings will
improve as a result of reduced trade
barriers and domestic subsidies.
Atmosphere for free trade and equal
opportunities.
Help in globalisation.

Impact of WTO

TRIPS favours MNC and Developed

countries as they hold the max.
patents.

No provisions for controlling

restrictive trade practices of
foreign investors under TRIMS.

Impact of WTO

GATS also favour developed

countries as WTO members will
have to open service sector for
foreign investors.

Good for India esp. in labour

intensive industries like textile,
apparel, food, leather etc.

Impact of WTO

Non Tariff Barriers against India on

Human rights issues like child
labour.

India will have to cut down costs

and improve use of technology to
be globally competitive.