HIMACHAL PRADESH NATIONAL LAW UNIVERSITY

SESSION: 2022- 2023

ECONOMICS ASSIGNMENT
General Agreement on Tariffs and Trade

(GATT)

Submitted To: Submitted By:

Dr. HARI CHAND THAKUR ASHISH SHARMA

(ASSISTANT PROFESSOR OF ECONOMICS)

(1120212280)

B.B.A. LL.B. (HONS)

 Acknowledgement

This work is being upheld by Himachal Pradesh National Law University, Shimla in light of the
platform and exposure they are providing. I would like to express my special thanks and
gratitude to all involved within this work especially my guide and mentor Dr. Hari Chand Thakur
(Assistant Professor of Economics) for the kind of support, efforts and timely guidance provided
by him and giving me the golden opportunity to do this knowledgeable work on “General
Agreement on Tariffs and Trade (GATT)” that helped me to learn a lot about all the related
aspects to GATT and its provisions. I would also like to thank my batchmates for helping me as
well as for providing a room for discussion on the topic and to search the relevant materialistic
information. I could not forget the books and online sources that helped a lot in my research.

I have tried my best to make the content reliable and I hope my work would not disappoint you
at all.
 DECLARATION BY THE STUDENT

I the undersigned solemnly declare that the project assignment “General Agreement on Tariffs
and Trade (GATT)” is based on my own work carried out during our study under the supervision
of Dr. Hari Chand Thakur. I assert the statement made and comment drawn are an outcome of
my research work. I further certify that:-

1. The work contained in the assignment is original and has been done by me under the general
supervision of my economics professor.

2. This work has not been submitted to any other organizations, journals, websites and not by
any Institution or any other University of India or abroad.

3. I have followed the guidelines provided by the university in writing the assignment.

4. Whenever we have used materials (data, theoretical analysis, and text) from other sources, we
have given due credit to them in the text of the and giving their detail in the references.

Ashish Sharma

(1120212280)
 TABLE OF CONTENTS

 Introduction

 History and Background

 What is GATT

 Objectives of GATT

 Principles of GATT

 Achievements of GATT

 Initial Stage of GATT

 1962 Trade Expansion Act and Kennedy round

 Trade Reform Act of 1974 and the Tokyo round

 The 1984 and 1988 Trade Acts

 Outstanding trade problems and the Uruguay round

 The Uruguay Round

 Benefits from the Uruguay Round

 Rules and Disciplines

 Criticism of GATT

 Case study 1
INTRODUCTION

The general agreement on Trades and Tariffs (GATT) in neither the name of an organization nor
any institution. Rather, it is a treaty that was signed by 23 countries after the Second World War
to boost up the world economy by liberalizing the trade between countries and promoting
international trade. This was done by removing the barriers such as tariffs, subsidies, quotas etc
that were imposed by different countries to their imports that in consequence reduced the
intensity of trade in between various countries.

A very huge breakdown was experienced by countries after the epidemics and great depression
of 1930s and the first as well as Second World War. Thus, a need to preserve the resources and
prepare for precautions during such circumstances was felt by the countries. The main motto was
to uplift the economies of all the countries and have a common platform to trade at the
international level.

The main achievement of the policy of GATT was that it provided for discrimination free trade
among all. Each and every country signatory to the GATT was required to treat all the other
signatories equally and according to the agreement signed. The practicality of this agreement was
that if one country applies the free mechanism of trade under GATT for its main partner
countries, the effect will automatically reach all the signatories through a cyclic procedure.
HISTORY AND BACKGROUND

The General Agreement on Tariffs and trade (GATT) evolved from the “ashes of Havana
Charter”. Due to the exclusive patter of trade barriers, rigorous impressions were left behind by
the great depression of 1930 and the Second World War, and the world experienced a huge
setback. So the large economies decided and Allied powers decided to meet and design some
change to liberalize the world trading system after Second World War.

Several conferences were held during the era of 1944-48 that recommended the establishment of
several international organizations for the welfare of the economy such as IMF (International
Monetary Fund) and World Bank. A conference was held during 1947-48 during the winters in
Havana that was known as “International Conference on Trade and Employment”. In this
conference, the establishment of an International Trade Organization (ITO) was recommended in
order to promulgate the international trade between the 53 countries who participated in the
conference. But the US congress denied recognizing the Havana Charter and as a result such ITO
never came into existence. But the need to promote international trade was still there. Thus, an
agreement was signed in between 23 countries in Geneva who agreed to continue with trade and
tariffs negotiations and liberalize trading between on another as incorporated in the agreement
signed that was known as the “General Agreement on Tariffs and Trade”. The agreement was
signed on October 30, 1947 and came into effect from January 1, 1948.

However, this GATT disappeared in between the 1955 as it merged in the World Trade
Organization (WTO) established on January 1, 1955. But it still remained effective since April
14, 1994 until the signature of 123 nations under it.

GATT was just an agreement mutually signed by several nations with purpose of promoting
international trade by reducing or eliminating trade barriers such as tarrifs, or quotas, substantial
reduction on tariffs and import duties etc on a mutually advantageous basis.
WHAT IS GATT

GATT is multilateral treaty signed by 96 governments that are known as contracting parties and
thirty one other countries have applied the GATT rules de facto. It was neither an organization
nor any court of justice but just a treaty established to cover almost 80% of trade under it. It was
a forum to control the rules of conduct for international trade in order to increase liberalization of
the world economy.

Different contracting parties met on a timely basis for this forum to discuss and solve the issues
with respect to negotiations in international trade.

Not only the rules of conduct, but the GATT mechanism also provided for the settlements in case
of trade disputes, consultations, trade obligations and even authorized reflationary measures.
Thus, it also acted as a standard to be followed by the signatory countries while executing the
trade of their respective countries. It was almost similar as an international organization having
its headquarters at Geneva and council of representatives too. Overall function of GATT was to
call for international conferences in order to reduce trade fluctuations at international level on a
multilateral basis.
OBJECTIVES OF GATT

The ultimate aim of GATT was to expand the international trade so as to bring overall prosperity
through liberalization. The important objectives that could be inferred from the preamble and
intention of GATT are:-

 To raise the living standards of the people across the globe.

 To ensure a situation of full employment along with a continuous growth in the volume
of real income and effective demand.
 To develop a system that provides for full utilization of the resources available around the
world.
 To expand the overall production capacity of economies and promote international trade
among them.

In order to achieve these objectives the following aspects were covered under the agreement:-

 Multilateral trade negotiations

 Settlement of disputes along with consultation and conciliations.
 Waivers that need to be granted in some exceptional circumstances.

All these objectives of GATT are based on some fundamental principles of trade contained in the
Code of International Trade Conduct. These principles were important for the realization of the
above said objectives.
PRINCIPLES OF GATT

1. Most Favored Nation (MFN) Principle

The principle of Most Favored Nation was enunciated because of the very basis of non
discrimination among the member countries. It was needed by the policies of GATT that
no member nation should discriminate with another in terms of trade in any way. Thus,
the MFN principle was uplifted which says that “Each of the nation should be treated as
the Most favored nation.” While working on the trade duties on imports and exports
from the contracting parties, each one should be favored equally as far as the quantitative
restrictions are concerned.

Exception- The exception to this principle is that there is no restriction if some grouped
nations wanted to design free trade areas or customs within their groups or territory.
GATT permits its members to follow measures to counter unloading and product
subsidies. Notwithstanding, such measures ought to be applied distinctly to offending
nations.

2. Reducing rigidity in Tariffs

GATT rules prohibit quantitative restrictions. Domestic countries are only allowed to use
custom tariffs for their protection and no other restriction on imports could be levied on
the trade from contracting countries. Restriction through trade barriers should be limited
to less rigid tariffs.

Exception- The exception for these principles can be enjoyed by countries that suffer
from unfavored balance of payments position. The exception could also be applied to
developing countries and their primary products like agriculture and fishery if their
domestic production is equal to the restricted production.

3. Stability Principle
 The provisions of GATT provide for a stable and predictable basis for trade. It keeps a
check on the tariffs negotiated by the contracting nations and binds them to a stable level
which helps to prevent unilateral increase in them. However, there are provisions for
renegotiating the binding tariffs but still the increase in tariffs is prevented as much
because every increase will cost to be compensated by all the nations together.

4. Consultation and Discussion

The GATT establishment has provided a platform for discussions and settlements of
disputes related to the subject of trade and tariffs among the nations. Thus, each and
every nation is bound to consult its disputes or concerns regarding the international trade
to its members. GATT has specifically provided for some counsels who can assist such
trade disputes. Panels are formed for this purpose and the members of the panel are
chosen from those countries that have no interest in such disputes or negotiations.
ACHIVEMENTS OF GATT

 When the GATT was signed during 1948, only 23 countries were member to it while in
the year 1986, there were 117 members under this agreement. Thus, one the most
beneficial achievement of GATT was the continuation of this agreement as a forum for
continuing with mutual consultation.
 Within industrial countries, the average level of tariffs imposed on manufactured
products was reduced to 3% in 1986 from the excess 40% in 1947.
 In this process of liberalization, agricultural trade was treated as an exception. Thus, trade
in agriculture became more distorted through farmer’s support provided to the
agricultural sector.

INITITIAL STAGE OF GATT

Some serious protectionist devices were used by the United States Congress on the Trade
agreements Act, 1950 due to which the aim of reduction in tariffs was not achieved since 1962.
These devices were:-
1. Peril point provisions that restricted the president from negotiating on tariff reductions that are
deem to cause damage to the domestic industries.
2. The escape clause, that empowers the domestic industries to petition the imports causing
damage to them in the International Trade Commission (US Tariff commission till 1975), which
then could recommend the president to retrieve any negotiated tariff reductions. Only an increase
in the share of imports was sufficient to prove injury for any domestic industry.
3. National Security Clause, that restricted tariff reductions even if they are already negotiated if
such reductions pose danger to the industries of national defense.

Since it is common that serious tariff reductions will necessarily hurt some of the industries,
mainly those for which the nation has a comparative disadvantage, thus these protectionist
devices were large barriers to the path of trade negotiations and tariff reductions.
1962 TRADE EXPANSION ACT AND KENNEDY ROUND

A new situation was created by the European Economic Community or Common market during
the 1962 and to deal with that situation the US Congress came up with the Trade Expansion Act
of 1962 replacing the old Trade Agreements Act.
This new act empowered the President to negotiate across the board tariff reductions with
maximum 50 percent of their level till 1962 and to completely remove the duties that were 5
percent or less during the 1962 level.

It also provided adjustment assistance mechanism for the displaced workers and industries that
were affected by tariff reductions. Thus, the no injury to domestic industries doctrine was
replaced by this new approach to retrain and provide assistance to displaced workers and tax
relief, low coast debts as well as technical support to help the injured firms.
This principal was the most significant part of the Act since it provided the mechanism where
society at large which was benefitting from the tariff reductions was made to bear or share the 
burden of adjustment too.
However, this assistance actually emerged in the 1970s when few workers and firms qualified
for the adjustment assistance. While 1980 proved as the assistance program's peak year with
almost more than half a million workers recieved almost 1.6 billion dollar in adjustment
assistance. However after that the program started degrading with only 15 thousand workers
getting assistance of 51 million dollar in the year 1984.

Under GATT auspices, wide ranging Multi lateral trade negotiations were initiated by the United
States with the authority of this Trade Expansion Act 1962. These negotiations were known by
the name of Kennedy round. Such negotiations of Kennedy rounds were completed in 1967 and
resulted in the settlement of tariff rates with almost 35 per cent of the 1962 level, phasing with
the five year period intervals. At the end of 1972 with the full implementation of the agreement,
average tariff rates were at the level lower than 10 percent for industrial nations. Despite of all
that, there were still some hurdles in the form of non tariff trade barriers, specifically in the
agricultural sector.
TRADE REFORM ACT OF 1974 AND THE TOKYO ROUND

In 1974, the Trade Expansion Act of 1962 was gradually replaced by the Trade Reforms Act.
Now, the president was authorized for tariff negotiations upto 60 percent and remove tariffs of 5
percent or less and also to negotiate with the non tariff barriers.
Under this authority of the Trade Reforms Act 1974, United States went for the multi lateral
trade agreement meet which was known as the Tokyo Round that was concluded in 1979.
The phase over period for negotiated tariff reductions was extended to eight years starting from
1980; average level was 31 per cent for the United States, 27 percent for the European common
market and 28 percent for Japan.
Also, a code of conduct was prepared for nations adhering to such conducts while applying the
non tariff trade barriers.
This trade liberalization from the Tokyo round resulted in total static gains of about 1.7 billion
dollar annually through estimation. And it was likely that the dynamic gains that were rising
from the economies of scale and greater all rounded efficiency and innovations would add more
rise to as high as 8billion dollar per year and innovations would add more rise to as high as
8billion dollar per year.
These were the rough estimates at that time. However, the United states on one hand benefitted
from the Tokyo Round while on the other hand its Labor that was a scarce factor in United States
and the industries that were largely in small businesses were somewhat injured.
THE 1984 AND 1988 TRADE ACTS

Three major provisions were provided by the U.S. Trade and Tariffs act of 1984 --
1. This act authorized the president to negotiate with international agreements related to the
protection of intellectual property rights and to reduce the trade barriers in services,
technological products and direct investments.
2. It provided extension to 'Generalized System of Preferences (GSP) that permits the access to
exports of developing countries to the U.S. for eight years till July 1993, but also removed the
preferential access for most advanced developing countries such as Korea and Taiwan.
3. The act authorized the president to freely negotiate trade agreements with Israel.
Under these provisions of the Act, United States called for a new multilateral trade negotiations
known as the Uruguay Round that began in 1986.

OUTSTANDING TRADE PROBLEMS AND THE URUGUAY ROUND

Although a great success was achieved in the reduction of tariffs without any discrimination
through multilateral trade negotiations after the World war 2 but still there were some hurdles in
the path of trade liberalization. These problems were used to resolve through the Uruguay
Round.

The problems

 The first and foremost problem there was the technique used by many countries to bypass
GATT rules with help of imposing some non tariff trade barriers (NTBs) to international
trade. This protectionism device affected almost 50 percent of the world trade. These
types of non trade barriers are put up discriminately by the nations towards the exports
from some specific nations, these techniques pose a serious damage to the approach
towards multilateralism and trade liberalization. If this trend continues, then the leading
nations may demand shares from other nation's market in order to allow them to trade
 their in their own markets and that would lead to unnecessary discrimination.
The more danger will pose when the continuation of such NTBs will lead to reduction
and retaliation in flow of international trade. The consequence of such reductions will be
misallocation of international resources, degradation in the structural adjustments of
developed economies and in growth in developing economies, and an increase in the
possibility of a trade war due to which all countries would have to suffer.
 A second major trade problem GATT rules only regulate the trade in products but not the
trade for services. After the war era, the significance of services has rapidly increased
accounting for almost 50 percent of value added in industrial countries and constitutes
approx 20 percent of the international trade. Thus, the absence of services in GATT
provisions is a serious problem for the current system.
 The third problem in trade is from the agricultural sector since it is also excluded from
GATT provisions like services. As we all know that most countries have very prominent
agricultural support programs and deliberately shield their agriculture from the outer
world through a series of powerful techniques such as subsidies, tariffs, quotas, health
and safety regulations and so on. Thus, agricultural sector hardly finds its way in the
international trade.
 The fourth major problem is the slow and cumbersome dispute settlement mechanism
provided by the GATT. Generally, Cases brought before the GATT can be dragged to
several years and within such meantime the party to the dispute may block the settlement
recommendations.
 Fifth problem is that proliferation of non trade barriers by the mature economies to their
major industrial sectors such as textile, steel, automobile etc., shatters the growth of the
developing economies and makes it impossible for them to grow up from their
international debts.
THE URUGUAY ROUND

Most of the outstanding problems discussed above were covered under the Uruguay Round of
1986 that was the eighth round of multilateral negotiations on trades and tariffs and was
scheduled to be concluded in 1990s. The aim of this round was to establish some rules to keep a
check on proliferation of new protectionist devices and reverse their affects, to bring services and
agriculture as well as foreign investments into the trade negotiations, to negotiate with the
international rules for protection of intellectual property rights and to improve the dispute
settlement mechanism provided by GATT by ensuring timely decisions and more compliance on
GATT regulations.

Although the round was scheduled to be concluded it 1990, but on December 1990 when a
ministerial meeting was going in Brussels, an impasse was reached at the point of agriculture
which resulted in the breakdown of talks. The talks restarted in February 1991 and continued till
August 1991.The final draft was tabled by Aurthur Drunkel in December 1991 which was known
by the name “Drunkel Draft text”.;

This draft was a “take-or-leave-it” document that was thoroughly discussed at various meets in
different countries through 1992 till July 1993 after which the then Director General, Sutherland
called for the negotiations at Geneva. The Trade Negotiations Committee (TNC) on 31st August
1993 passed a resolution to conclude the Uruguay round by 15th December. The final session
was held on December 15 at which the Director general Sutherland officially declared the end of
the seven years long negotiations of the Uruguay Round. Finally on 15th April 1994, the results
of Uruguay round were ratified by 123 ministers from member countries at Morocco and GATT
disappeared after that and turned into a history as it was absorbed under the establishment of
World Trade Organization on January 1, 1995.

The final act consisting the results of Uruguay round for Multilateral Trade negotiations
comprised of 28 agreements. It was mainly divided into two components: first was related to
WTO agreements and the second was ministerial declarations and regulations. The WTO
agreement covers the establishment of the organization and the rules to govern this organization.
Under its Annexure several parts like goods, services, intellectual property rights, plurilateral
trade, GATT rules 1994, dispute settlement rules etc were covered.

The Uruguay round’s main focus was on two issues for trade of goods and services. The first was
related to reduction of trade barriers so as to increase market access. This aspect was covered up
by reduction in tariffs, reduction in non tariff supports to the agriculture, elimination of bilateral
agreements restrictions and reductions in barriers in trade for services. The second aspect was
related to increasing legal security of the new levels of market access by widening or
strengthening the rules and procedures and institutions.

BENEFITS FROM THE URUGUAY ROUND

The secretariat at GATT estimated the following gains from the proper implementation of the
Uruguay round agreements—

 Income and Trade

1. An increase of $510 billion in the world income by 2005.
2. Trading in goods across the world raised by $745 billion in the year 2005.
3. The largest hike in the trading of goods across the world with 60% in clothing, 205 in
agriculture, forestry and fishery and 19% in processed food and beverages.
4. Increase in imports and exports of developing and transition economies as a whole by
almost 50% above the average increase for the whole world.
 Tariff Reduction
In the Uruguay round most developed and developing countries cut out their different
restrictive and discriminatory policy techniques for safeguarding their industries. Thus as
a result of that, the level of trade ‘Bindings’ has risen up. Here ‘binding’ implies that the
freedom to use protectionist devices as trade barriers has been abandoned. Several tariff
reductions take place at this stage—
1. Tariff bindings of developed countries increased from 785 to 99% while that of
developing countries increased from 22% to 72%.
2. For the agriculture, the bindings of developed countries changed from 81% to 100%
while that of developing from 22% to 100%.
3. The tariffs imposed on industrial products were reduced to 3.9% from earlier 6.3%.
4. There is progress in reduction of tariff escalation for the benefit of developing countries
that seek to export more processed primary product.
5. Tariff cuts more than average to be executed for many goods of export interest for
developing countries.
 Market Access
Some of areas were covered under the Uruguay round related to the Market access. The
important among them were tariffs, textiles and agriculture.
Tariffs- Industrial tariffs reduced to 45 in the developed countries and ere no longer a
barrier for trade. The tariffs of developing countries were also reduced considerably.
The overall reduction in tariffs in the Uruguay round was average of one third and the
value of industrial products entering the developed countries free from MFN without any
duty increased from 20% to 44%. The proportion of imports entering the developed
countries through all sources with 15% or above tariffs declined by 75 to 5% and for
imports from developing countries it declined by 9% to 5%. The market access also
upgraded from 78% to 99% in developed countries and from 22% to 72% in developing
countries due to high levels of trade bindings on industrial goods.

 Textiles and Clothing

The agreement on Textiles and Clothing was also a significant part of market access. It
was a major achievement of the Uruguay round that it integrated this sector in the
multilateral framework. The integration of this sector was deemed to take place by
January 1, 2005 in four phases. All the MFA (Multi-fiber Agreement) restrictions were to
be removed when these products will gradually integrate to the GATT rules. The result
after this will be that exports from developing countries would increase with respect to
the clothing products as those nations competitive in nature.

 Agriculture
The agricultural agreement contained minimum market access commitment for products
of this sector. This agreement purports to replace non tariff barriers with simple custom
duties so as to open the national markets at the world competition, to check the
 overproduction in continuously degrading government aids and to reduce subsidies along
with the volume of subsidies exports.
 First the estimates by the GATT Secretariat revealed that the minimum market
access commitments on agricultural products subject to tariffication would create
vast market opportunities for among such important products as 1.8 m. tons of
course grain, 1.1 m. tons of rice, 0.8 m. tons of wheat, and 0.7 m. tons of dairy
products.
 Second, a 36% reduction in export subsidies and an 18% decline in domestic support to
agricultural producers would further increase market access. Lastly, the increase of tariff
bindings from 81% to 100% in developed countries and from 22% to 100% in
developing countries, and no non-tariff barriers on agricultural products would
further enhance market access in these products.
 Thus the reductions in tariffs on farm products and of subsidies to agriculture by the
developed countries would make the exports of developing countries more
profitable. The terms of trade would, in turn, be in favour of agriculture.
RULES AND DISCIPLINES

The Uruguay Round also strengthened multilateral rules and disciplines. The most
important of these related to subsidies and countervailing measures, antidumping,
safeguards and disputes settlement. Rules concerning the dispute settlement have been
made time bound, automatic and judicial in approach under the W.T.O.
 TRIMs.
Trade Related Investment Measures (TRIMs) prohibit investment measures that are
inconsistent with national treatment or general elimination of quantitative
restrictions. Developing countries have been given 5 years to phase out inconsistent
TRIMs and developed countries 2 years. The TRIMs Agreement does not impose any
obligation to provide access to any particular sector for foreign investment.

 GATS
The achievement of the Uruguay Round was the General Agreement on Trade in
Services which is the first set of multilaterally agreed and legally enforceable rules and
disciplines relating to international trade in services. Services include financial,
telecommunications and services of natural persons. The GATS requires non-
discrimination by governments on the basis of Most Favored Nation (MFN) clause
and transparency in the form of publication of all relevant laws and regulations relating to
service trade.
 TRIPs.
 The Uruguay Round also contained the Agreement on Trade Related Intellectual
Property Rights.
 It provides norms and standards for copyrights and related rights, trademarks,
geographical indications, industrial designs, patents, layout designs of integrated
circuits, trade secrets and protection of undisclosed information.
 The Agreement allowed one year for developed countries, 5 years for
developing and 11 years for least developed countries to change their laws for the
implementation of TRIPs.
  The TRIPs Agreement on patents would be able to tap the generic market in the USA
and is expected to generate new business worth billions of dollars by the turn of the
century and similar opportunities in the EEC for developing countries like India.
 They would also gain from the inflow of better technology and create a better climate
for research and development in agriculture and pharmaceuticals.
 As a result, the quality of products available in the market will improve. For
instance, if the farmers can get better quality seeds from multinationals even at higher
prices and improve and increase their produce substantially, they stand to gain.
 Similar will be the case with national drug manufacturers in developing
countries when they establish strategic linkages for development of their new
discoveries in drugs.

CRITICISMS OF GATT

 There had been large scale evasion of GATT rules1 by contracting parties over the years
which made a mockery of the GATT. From the beginning of the GATT, agriculture was
treated as a special case where GATT rules hardly applied. Almost every developed
country followed such agricultural trade policies which were inconsistent with the
GATT rules.

It was only at the Kennedy Round and the Tokyo Round that a few agreements
were arrived at relating to agricultural and dairy products. But trade liberalization for
agricultural products has much less than for manufactures. Producers of
agricultural products have been resorting to domestic support policies leading to surplus
production that can be exported only with the help of heavy subsidies.

 No doubt, developed countries have removed the majority of tariff barriers, yet they have
been reluctant to abolish others. Rather, they have devised new trade
restrictions under the garb of “voluntary export restraints”, “low-cost suppliers”,
“market disruption” etc. which are outside the GATT rules. They are applied against
 developing and state trading countries and Japan. For instance, such restrictions
affect over 50 per cent of the French imports and 45 per cent of the United States.
 The GATT’s role was being undermined by concluding bilateral, discriminatory and
restrictive arrangements outside the GATT rules.
 The EEC and the US have placed many import restrictions on innumerable products from
Brazil, Hong Kong, Korea, and a host of other developing countries, countries, besides
Japan, after bilateral negotiations. At present, over 100 MFA type bilateral agreements
are in force in the world which restricts exports of developing countries to the developed
ones.
 The increasing use of subsidies had been another important factor in side-tracking the
GATT. This is because GATT’s rule on subsidies is not explicit. The GATT rules
permitted domestic subsidies but they led to retaliation if they damaged the trade
interests of other countries. The result has been further worsening of open trade.
 The “safeguard” rules under Article XIX of the GATT allowed the contracting
parties to grant protection in case of need, such as injurious dumped or subsidized
imports, or in severe balance of payments difficulties. But all temporary restrictions
permitted under the escape clause have become permanent features of the world
trading system.
 The GATT rules in Article XXIV which permitted the formation of customs unions and
free-trade areas had been distorted and abused. These rules left many
ambiguities which seriously weakened the GATT. “They had set a dangerous precedent
for further special deals, fragmentation of the trading system, and damage of the trading
interests of non-participants.” As a result, the benefits of MFN rule failed to spread
uniformly among the contracting parties.
 The GATT being a mandatory body did not possess any mechanism to get its rules
implemented by contracting parties. The procedure for dispute settlement consisted of a
panel of three to five independent experts whose recommendations had no legal binding.
This was a serious weakness of the GATT. It was perhaps due to these inherent loopholes
in the working of GATT that as much as 80 per cent of world trade was being conducted
outside the GATT rules. Despite these criticisms, 125 countries operated under the GATT
rules, while the remaining countries of the world benefitted from them under the umbrella
of the MFN rule.
CASE STUDY 1

Mexican GATT decision: Trade politics in Third world

In 1980 Mexico chose not to join the General Agreement on Tariffs and Trade (GATT). Certain
genuine conditions shaped a positive climate for Mexican adherence, yet President L6pez
Portillo delayed Mexican section endlessly. This basic choice is inspected according to two
points of view: a left-inclining international strategy, and homegrown limitations in the Mexican
political framework. Major international strategy factors were a developing hatred of U.S.
strength joined with an inclination for leading relations with the U.S. on a bilateral basis. Inward
political tensions mirrored the proceeded with change of the Mexican political framework at the
upper levels and the overall independence of some world class bunches from the state. L6pez
Portillo's choice didn't establish an altogether dismissal of exchange advancement.
Notwithstanding, the choice could have worldwide repercussions in politicizing U.S.- Mexican
exchange relations, in easing back patterns toward more liberated exchange (particularly in Latin
America), and in reinforcing multilateral associations like UNCTAD in which Third World
nations practice impressive power.
REFERENCES

 General Agreements on Tariffs and Trade- PPt, by Digivijay Singh Katoch

 Dominick Salvatore, Book on International Economics
 Accountlearning.com, https://accountlearning.com/gatt-objectives-principles/ , ( Last
visited 10 Nov, 2021 6:25 PM)
 Investopedia.com ,https://www.investopedia.com/terms/g/gatt.asp, ( Last visited 12 Nov,
2021 3:25 PM)