GATT WTO and Impact of WTO in Nepalese Economy

GATT
The General Agreement on Tariffs and Trade (GATT) covers international trade in goods.
The General Agreement on Tariffs and Trade was a treaty created after World War II to help the
economies of countries affected by the war.
It was the first worldwide multilateral  free trade agreement between 23 countries signed in
Geneva on 30 October 1947, and took effect on 1 January 1948 that eliminated tariffs and
increased international trade.
The membership increased to more than 128 countries by 1994.
The purpose of GATT was to eliminate harmful trade protectionism. That had sent global trade
down 66% during the Great Depression.

Objectives of GATT

 Creating a credible and reliable system of international trade rules

 Ensuring fair and equitable treatment of all participants (principle of non-discrimination)
 Stimulating economic activity through guaranteed policy bindings
 Promoting trade and development through progressive liberalization.
GATT had three main principles.

I. The most important requirement was that each member must confer most favored nation
status to every other member

II. Second, GATT prohibited restrictions on the number of imports and exports. The

exceptions were:

 When a government had a surplus of agricultural products.

 If a country needed to protect its balance of payments because its foreign exchange
reserves were low.
 Emerging market countries that needed to protect new/developing industries.
 In addition, countries could restrict trade for reasons of national security. These included
protecting patents, copyrights, and public morals.

III. The third provision was added in 1965, addressing developing countries joining the
GATT. Developed countries agreed to eliminate tariffs on imports from developing
countries to boost those economies. Connected to the process of liberalization, to the
developing countries is once more given a privilege as they have more time to fulfil their
obligations.
Pros and Cons of GATT
Pros

 GATT encouraged international trade.It boosted world trade by 8% a year during 1950s
and 1960s.Trade grew from $302 billion in 1970 to $3.8 trillion in 1993. It was such a
success that many more countries wanted to join. By 1995, there were 128 members,
generating an extremely large percent world trade. By increasing trade, GATT also
helped in promoting world peace.
 By increasing trade, GATT promoted world peace. In the 100 years before GATT, the
number of wars was 10 times greater than the 50 years after GATT.
 The success of GATT inspired other international deals and organizations such as
European Union
 GATT also improved communication. It provided incentives for countries to learn
English, the language of the world’s largest consumer market. This adoption of common
language reduced misunderstanding. English gave the insight into the developed
country’s culture, marketing and product needs

Cons

 Domestic industries that can't compete globally will likely fail.

 The globalization of industries exposes more of the world to risks within that industry.
 Trade agreements could overrule domestic law, forcing governments to cede some level
of control over their citizens.
 Small economies and businesses may struggle to compete with large economies and
businesses.
WTO
WTO is the successor to the General Agreement on Tariffs and Trade (GATT) established in the
wake of the Second World War.
The members concluded that the GATT system was straining to adapt to a new globalizing world
economy. In response to the problems identified in the 1982 Ministerial Declaration (structural
deficiencies, spill-over impacts of certain countries' policies on world trade GATT could not
manage etc.), established in 1Jan 1995 signed by 123 nations.
The World Trade Organization (WTO) is the only global international organization dealing with
the rules of trade between nations. It is a global organization that manages commerce between its
member nations.
The WTO has 164 member countries accounting for 98% of world trade.It is a Global
membership group that promotes and manages free trade

Funtions

1. Administers existing multilateral trade agreements. (MFN Status) 

2. Manage smooth flow of Global Trade durable trading system

3. Settles trade disputes
4. It manages ongoing negotiations for new trade agreements
5. Building the trade capacity of developing economies
6. Cooperating with other international organizations (ILO, International Monetary Fund,
united natioins, WHO)
Principles of WTO
WTO elaborates these principles which are the foundation of multilateral trading system
A. Principle of Non-Discrimination
1. Most Favored Nation (MFN)
 Most-favored-nation (MFN) status is an economic position in which a country
enjoys the best trade terms given by its trading partner.
 It receives the lowest tariffs, fewest trade barriers,

 All 164 members of the WTO receive most-favored-nation status.

a) WTO agreement says that countries cannot normally discriminate between their trading
partners
b) If a country lowers a trade barrier, it has to the same for all its trading partners
2. The National Treatment
 The principle of giving foreigners the same treatment as one’s own nationals is
called national treatment
 It requires that no discrimination between imported goods and domestically
produced goods once they have passed customs.
B. Principle of Free and Fair Trade
1. Rules on market access
I.Tariff Barriers
 Custom Duties and Taxes
 Financial Charges
II. Non-Tariff Barriers
 Quantitative Restrictions-Prohibition, quotas
 Customs formalities

2. Rules on unfair trade
 Dumping (it refers to selling goods less than its cost) , Anti-Dumping
Agreements
 Subsidies-contribution by government conferring a benefit
C. Encouraging development and economic reform

 Developing countries need flexibility in the time they take to implement the
system’s agreements. And the agreements themselves inherit the earlier
provisions of GATT that allow for special assistance and trade concessions
for developing countries.

D. Safety values.

 In specific circumstances, governments are able to restrict trade. The WTO's

agreements permit members to take measures to protect not only the
environment but also public health, animal health and plant health.

E. Reciprocity

 The principle of reciprocity in the GATT/WTO refers to the ideal of mutual

changes in trade policy that bring about changes in the volume of each
country's imports that are of equal value to changes in the volume of its
exports." Thus, concessions are balanced or reciprocated when they result in
equivalent changes in bilateral trade flows.
 WTO Members are not required to completely remove their trade barriers,
nor are they generally required to have the same levels of protection, either
in general or at the product level. Instead, as a result of negotiations, WTO
Members are expected to make similar efforts in undertaking concessions,
taking into account their levels of development and importance in world
trade
Difference between WTO and GATT

WTO GATT
WTO and its agreement are permanent GATT was provisional
WTO has members GATT had contracting parties
WTO deals in trade in services and GATT dealt with trade in goods
intellectual property as well
WTO introduced a trade policy review There was no such policy review mechanism
mechanism that increases the available in GATT
transparency of member’s trade policies
and practices

How the WTO takes decisions

The WTO continues a long tradition in GATT of seeking to make decisions not by voting but by
consensus. This procedure allows members to ensure their interests are properly considered even
though, on occasion, they may decide to join a consensus in the overall interests of the
multilateral trading system. Where consensus is not possible, the WTO agreement allows for
voting. In such circumstances, decisions are taken by a majority of the votes cast and on the basis
of "one country, one vote".

Structure of WTO

1. MinisterialConference:
The topmost decision making body WTO is Ministerial Conference. It meets once in two
years. It is the chief policy-making body of WTO and any major policy changes, such as
a decision to alter competition policy or to rewrite the WTO agreement, require its
approval.
It takes appropriate measures to administer the new global trade rules
 2. General Council: The second level of WTO is General Council. It consists of members,
ambassadors and heads of delegations. It meets several times a year in Geneva.
The General Council also meets as the Dispute Settlement Body and the Trade Policy
Review Body.
3. Other Councils: There are many other types of council like Goods Council, Services
Council, IP Council etc. These councils deal with specific issues.

WTO and Impact on Nepalese Economy

 Nepal became member of WTO in 23April 2004 as 147th member.

 Being a part of WTO is very essential for developing countries like Nepal
 It provides access to the larger market
 Lowering trade barriers provides opportunity of business to grow
 It helps to increase exports and country’s economic growth
 Nepal is taking steps to diversify its narrow production and export base which continue to be
concentrated in textiles, clothing and agricultural products and reliant on a limited number of
trading partners, particularly India.
 Members encouraged Nepal to continue its economic reform process, and address its supply-
side constraints, notably high transit and transportation costs.
 Members showed interest about Nepal's plans to facilitate FDI in hydroelectricity and
provide clean energy. 
 Nepal also took several steps to further liberalize its trade regime, including ongoing
programs on import procedures, and the electronic government procurement system.
Moreover, new laws have been enacted, such as the Industrial Enterprises Act 2016, the
Special Economic Zone Authority Act 2016, and the Labor Act 2017, 
 Nepal’s trade volume has surged since Nepal’s accession to WTO, but it is lopsided with
imports playing the dominant role. It implies a big chunk of money is leaving the country to
finance imports.
 Nepal announced a reduced trade deficit, down by NPR 307 billion (12.02 percent Year-on-
Year) in the first quarter of the current fiscal 2019-20.
 In the same period, Nepal spent NPR 334.9 billion on imports, registering a reduction by
10.34 percent
 Due trade in services many people are going for work in foreign country.
 Remittance has become dominant contributing factor in GDP