GENERAL AGREEMENTS ON

TARIFFS AND TRADE

INTRODUCTION
General Agreement on Tariffs and Trade (GATT), set of multilateral
trade agreements aimed at the abolition of quotas and the reduction
of tariff duties among the contracting nations. When GATT was
concluded by 23 countries at Geneva, in 1947 (to take effect on Jan. 1,
1948), it was considered an interim arrangement pending the formation
of a United Nations agency to supersede it. When such an agency failed
to emerge, GATT was amplified and further enlarged at several
succeeding negotiations. It subsequently proved to be the most effective
instrument of world trade liberalization, playing a major role in the
massive expansion of world trade in the second half of the 20th century.
By the time GATT was replaced by the World Trade
Organization (WTO) in 1995, 125 nations were signatories to its
agreements, which had become a code of conduct governing 90 percent
of world trade.

GATT’s most important principle was that of trade

without discrimination, in which each member nation opened its markets
equally to every other. As embodied in unconditional most-favoured
nation clauses, this meant that once a country and its largest trading
partners had agreed to reduce a tariff, that tariff cut was automatically
extended to every other GATT member. GATT included a long schedule
of specific tariff concessions for each contracting nation, representing
tariff rates that each country had agreed to extend to others. Another
fundamental principle was that of protection through tariffs rather than
through import quotas or other quantitative trade restrictions; GATT
systematically sought to eliminate the latter. Other general rules
included uniform customs regulations and the obligation of each
contracting nation to negotiate for tariff cuts upon the request of another.
An escape clause allowed contracting countries to alter agreements if
their domestic producers suffered excessive losses as a result of trade
concessions.

GATT’s normal business involved negotiations on specific trade

problems affecting particular commodities or trading nations, but major
multilateral trade conferences were held periodically to work out tariff
reductions and other issues. Seven such “rounds” were held from 1947
to 1993, starting with those held at Geneva in 1947 (concurrent with the
signing of the general agreement); at Annecy, France, in 1949; at
Torquay, Eng., in 1951; and at Geneva in 1956 and again in 1960–62.
The most important rounds were the so-called Kennedy Round (1964–
67), the Tokyo Round (1973–79), and the Uruguay Round (1986–94), all
held at Geneva. These agreements succeeded in reducing average tariffs
on the world’s industrial goods from 40 percent of their market value in
1947 to less than 5 percent in 1993.

OVERVIEW
The new multilateral trade agreements which extend GATT-like rules to
services and intellectual property, are perhaps the most eye-catching
elements of the results of the negotiations. Nevertheless, of the total
effort expended on the round, most was directed to the traditional GATT
ends of strengthening and broadening the multilateral rules for trade in
goods, and of reducing barriers to trade in goods. The majority of the
agreements negotiated in the round concern one or other aspect of trade
in goods. The Uruguay Round agreements on goods fall essentially into
four groups. First is the “GATT, a modified version of the original
General Agreement on Tariffs and Trade (now referred to as the “GATT
1947”), together with certain comparatively minor agreements which
interpret or bring up to date particular GATT provisions, and a legal text
(the Marrakesh Protocol) that brings under the multilateral GATT
umbrella the individual tariff and non-tariff commitments made by WTO
members in the Uruguay Round. This is the subject of this book. A
second group consists of two major agreements that aim to bring trade in
agricultural products, and in textiles and clothing, within the normal
trading rules from which they have in recent years largely escaped. A
third group is made up of five agreements which go well beyond the
original GATT rules in prescribing how particular aspects of policies
affecting trade should be applied. And finally, a further group of six
agreements deals with different aspects of the traditional GATT concern
to regulate and ease the necessary formalities of customs and trade
administration. These are handled in other books in this series.

Why Was the GATT Created?

The GATT was established in 1948 to regulate world trade. It was
created to boost economic recovery after the Second World War by
reducing or eliminating trade tariffs, quotas and subsidies.

During the Great Depression, a breakdown of international relations and

an increase in trade regulation made poor economic conditions worse.
These factors contributed to the outbreak of the Second World War.
After the war, the Allies believed that a multilateral framework for
world trade would loosen the protectionist policies that defined the
1930s. It would also create an economic interdependency that would
encourage partnership and reduce the risk of conflict. The idea was to
establish a code of conduct that would progressively liberalize (remove
or loosen restrictions on) international trade. Within this code of
conduct, consultation on trade issues among member nations could take
place and be resolved. Data on world trade characteristics and trends
could be collected and shared.

The GATT was established more than a year before the North Atlantic
Treaty Organization (NATO), a Western military alliance. The GATT
played an important role in the Cold War, which began shortly after the
Second World War. It helped the US-led capitalist West spread its
influence by liberalizing trade through multilateral agreements. The
West, with which Canada was aligned, gained more economic allies
through these agreements. This strengthened its global influence in the
face of the communist Eastern bloc led by the Soviet Union. After the
Cold War, with the collapse of the Soviet Union in 1991, the GATT
transitioned into a truly global organization — the WTO. It admitted
former communist bloc countries, such as Czech Republic, Poland and
Romania.

Functions of GATT
In fulfillment of its objectives, GATT adopted certain measures. These
may be discussed under the following headings.
1. Most favored nation clause
2. Trade negotiations
3. Tariff and non-tariff measures
4. Safeguards
5. Complaints and waivers
 6. Settlement of disputes

1. Most Favored Nation clause

The “Most favored Nation clause is one of the significant provisions
adopted by GATT. Under the concept of Most Favored Nation, all
contracting parties of the agreement would be treated as most favored
nations. The principal objective is that the benefits extended to one
should also be extended to all contracting parties. There should be no
discrimination among nations. Trading should be carried on the principle
of non-discrimination and reciprocity. This clause discouraged the
member countries from granting any new trade concessions unless those
were mutually agreed upon. However, many escape clauses were found.
Under specific circumstances, less developed countries were allowed to
exercise the right to discriminate. For example, dumping and export
subsidy might be countered by trade measures only against the offending
country. Moreover, special concessions were allowed for trade with
former colonies of less developed western countries.

2. Trade negotiations under GATT

From 1947 to 2001, GATT has organized 12 trade negotiations. The
following table shows various negotiations of GATT and WTO since
1947.

Bilateral Negotiations

To prepare for the GATT, the 23 signing nations carried out negotiations
among themselves to reduce some tariffs and other trade barriers.
Canada negotiated bilaterally with seven of the countries. Its discussions
with the United States were the most extensive of any that took place at
that time. Canada had negotiated trade agreements with the US in 1935
and 1938. But once both nations signed GATT, it became the basic
agreement governing trade relations between them, superseding the 1938
agreement. (See Canada-US Economic Relations.)

GATT rules required that any member country give all members the
same privileges regarding tariffs and other commercial policy measures
that it gave to the most favoured nation (MFN) with which it negotiated.
This was known as the MFN principle. It was established to remove
trade discrimination.

Multilateral Trade Groups

Canada was part of several multilateral trading groups that operated in

concert with the GATT. These included the Organisation for Economic
Co-operation and Development (OECD); the Quadrilateral Group; and
the Cairns Group of Fair Trading Nations. Membership in these groups
allowed Canada to influence the direction of trade negotiations.

The most influential group was the informal Quadrilateral Group, or the
“Quad” as it was called. It emerged early on in GATT’s history. The
group included Canada, Japan, the US and the European Union — the
world’s four largest trade entities at the time. The Quad introduced most
of GATT’s reciprocal tariff cuts. This lowered rates among all GATT
countries in accordance with the MFN principle. The Quad became a
more formal alliance at the 1981 G7 summit in Montebello, Quebec. It
was most influential during the Uruguay Round (1986–94), when it
prioritized agricultural negotiations and pushed for the creation of
the WTO.

3. Tariff and Non-tariff measures

Tariff measures:
Tariffs were the important obstacle to international trade. Therefore,
GATT encouraged negotiations for the reduction of hig4 tariffs, The
participating countries agreed to cut tariff of thousands of industrial
products. Reduction of tariff was on reciprocal and mutually
advantageous basis. Article 11 of the GATT provided that all
concessions granted by contracting parties must be entered in a schedule
of concessions. Once a concession was included in the schedule of
concessions, it could not be withdrawn except under specified
circumstances.

Non-Tariff Measures
Post-World War II witnessed reduced distorting effects of non-trade
barriers world trade. The Tokyo Round held during 1973 — 1979
tackled the problems of non-tariff barriers under more effective
international discipline. All the agreements provide for special and more
favorable treatment for developing countries. The negotiations led to the
following non-tariff measures:

 restriction on use of subsidies,

 technical barriers,
 import licensing procedures,
 government procurement,
 custom valuation,
 permission of anti-dumping code.

5. Complaints and waivers

Article XXII of the GATT entertains complaints from contacting party
relating to the operation of the agreement. The contracting party who is
likely to be deprived of the benefits under GATT agreement can request
the other party for consultation. The basic principle of GATT is that
member countries should consult one another on trade matters and
problems. Article XXV of the GATT provides the procedure for
granting waiver to some contracting party from the application of the
provisions of the GATT. Waivers are granted on the approval by two
thirds of voting contracting parties.

6. Settlement of disputes
GATT aimed at the smooth settlement of disputes among the contracting
parties. GATT allows the member countries to settle problems among
them by consulting one another on matters of trade. Initially, the
contracting parties should resolve the disputes by holding talks on
bilateral basis. In case of failure, the dispute may be referred to panels of
independent experts formed under GATT council. The panel members
are drawn from countries which have no direct interest in the disputes. If
the offending parties does not act upon the panel’s decision, the
aggrieved party is authorized to withdraw all concessions offered to the
offending party. Since the panel procedure ensures mutually satisfactory
settlement, members make increased use of the panel.

Principles of GATT
For the realization of the above mentioned objectives, GATT adopted
the following principles.

1. Non Discrimination,
2. Protection through tariffs,
3. A stable basis of trade, and;
4. Consultation
1. Non Discrimination
The international trade should be conducted on the basis of
nondiscrimination. No member country shall discriminate between the
members of GATT in the conduct of international trade. On this basis,
the principle “Most favored Nation” (MFN) was enunciated. This
means that “each nation shall be treated as good as the most favored
nation”. All contracting parties should regard others as most favorable
while applying and administering import and export duties and charges.
As far as quantitative restrictions are concerned, they should be
administered without favor.

2. Protection through tariffs only

GATT rules prohibit quantitative restrictions. Domestic industries
should be protected only through customs tariffs. Restrictions on trade
should be limited to the less rigid tariffs.

Exceptions: exceptions to this principle is given to the countries which

suffer from unfavorable balance of payments position. Developing
countries also enjoy this exception. Import restrictions may be applied to
agricultural and fishery products if their domestic production is subject
to equally restrictive production.

3. A stable basis of trade

GATT seeks to provide a stable and predictable basis for trade. It binds
the tariff levels negotiated among the contracting countries. Binding of
tariffs prevents the unilateral increase in tariffs, But still there is a
provision for renegotiation of bound tariffs. A return to higher tariffs is
discouraged by the requirement that any increase is to be compensated
for.

4. Consultation
The member countries should consult one another on trade matters and
problems. The members who feel aggrieved that their rights under
GATT are withheld can call for a fair settlement. Panels of independent
experts have been formed under the GATT council. Panel members are
drawn from countries which have no direct interest in the disputes under
investigation. They look into the trade disputes among members. The
panel procedure aims at mutually satisfactory settlement among
members.

Rounds In GATT

Initial round
Preparatory sessions were held simultaneously at the UNCTE regarding
the GATT. After several of these sessions, 23 nations signed the GATT
on 30 October 1947 in Geneva, Switzerland. It came into force on 1
January 1948
Annecy Round: 1949
The second round took place in 1949 in Annecy, France. 13 countries
took part in the round. The main focus of the talks was more tariff
reductions, around 5,000 in total.
Torquay Round: 1951
The third round occurred in Torquay, England in 1951. Thirty-eight
countries took part in the round. 8,700 tariff concessions were made
totaling the remaining amount of tariffs to ¾ of the tariffs which were in
effect in 1948. The contemporaneous rejection by the U.S. of
the Havana Charter signified the establishment of the GATT as a
governing world body.

Geneva Round: 1955–56

The fourth round returned to Geneva in 1955 and lasted until May 1956.
Twenty-six countries took part in the round. $2.5 billion in tariffs were
eliminated or reduced.

Dillon Round: 1960–62

The fifth round occurred once more in Geneva and lasted from 1960 to
1962. The talks were named after U.S. Treasury Secretary and former
Under Secretary of State, Douglas Dillon, who first proposed the talks.
Twenty-six countries took part in the round. Along with reducing over
$4.9 billion in tariffs, it also yielded discussion relating to the creation of
the European Economic Community (EEC).

Kennedy Round: 1964–67

The sixth round of GATT multilateral trade negotiations, held from 1964
to 1967. It was named after U.S. President John F. Kennedy in
recognition of his support for the reformulation of the United States
trade agenda, which resulted in the Trade Expansion Act of 1962. This
Act gave the President the widest-ever negotiating authority.
As the Dillon Round went through the laborious process of item-by-item
tariff negotiations, it became clear, long before the Round ended, that a
more comprehensive approach was needed to deal with the emerging
challenges resulting from the formation of the European Economic
Community (EEC) and EFTA, as well as Europe's re-emergence as a
significant international trader more generally.
Japan's high economic growth rate portended the major role it would
play later as an exporter, but the focal point of the Kennedy Round
always was the United States-EEC relationship. Indeed, there was an
influential American view that saw what became the Kennedy Round as
the start of a transatlantic partnership that might ultimately lead to a
transatlantic economic community.
To an extent, this view was shared in Europe, but the process of
European unification created its own stresses under which the Kennedy
Round at times became a secondary focus for the EEC. An example of
this was the French veto in January 1963, before the round had even
started, on membership by the United Kingdom.
Another was the internal crisis of 1965, which ended in the Luxembourg
Compromise. Preparations for the new round were immediately
overshadowed by the Chicken War, an early sign of the impact variable
levies under the Common Agricultural Policy would eventually have.
Some participants in the Round had been concerned that the convening
of UNCTAD, scheduled for 1964, would result in further complications,
but its impact on the actual negotiations was minimal.
In May 1963 Ministers reached agreement on three negotiating
objectives for the round:

1. Measures for the expansion of trade of developing countries as a

means of furthering their economic development,
2. Reduction or elimination of tariffs and other barriers to trade, and
3. Measures for access to markets for agricultural and other primary
products.
The working hypothesis for the tariff negotiations was a linear tariff cut
of 50% with the smallest number of exceptions. A drawn-out argument
developed about the trade effects a uniform linear cut would have on the
dispersed rates (low and high tariffs quite far apart) of the United States
as compared to the much more concentrated rates of the EEC which also
tended to be in the lower held of United States tariff rates.
The EEC accordingly argued for an evening-out or harmonization of
peaks and troughs through its cerement, double cart and thirty: ten
proposals. Once negotiations had been joined, the lofty working
hypothesis was soon undermined. The special-structure countries
(Australia, Canada, New Zealand and South Africa), so called because
their exports were dominated by raw materials and other primary
commodities, negotiated their tariff reductions entirely through the item-
by-item method.
In the end, the result was an average 35% reduction in tariffs, except for
textiles, chemicals, steel and other sensitive products; plus a 15% to 18%
reduction in tariffs for agricultural and food products. In addition, the
negotiations on chemicals led to a provisional agreement on the
abolition of the American Selling Price (ASP). This was a method of
valuing some chemicals used by the noted States for the imposition of
import duties which gave domestic manufacturers a much higher level of
protection than the tariff schedule indicated.
However, this part of the outcome was disallowed by Congress, and the
American Selling Price was not abolished until Congress adopted the
results of the Tokyo Round. The results on agriculture overall were poor.
The most notable achievement was agreement on a Memorandum of
Agreement on Basic Elements for the Negotiation of a World Grants
Arrangement, which eventually was rolled into a new International
Grains Arrangement.
The EEC claimed that for it the main result of the negotiations on
agriculture was that they "greatly helped to define its own common
policy". The developing countries, who played a minor role throughout
the negotiations in this round, benefited nonetheless from substantial
tariff cuts particularly in non-agricultural items of interest to them.
Their main achievement at the time, however, was seen to be the
adoption of Part IV of the GATT, which absolved them from according
reciprocity to developed countries in trade negotiations. In the view of
many developing countries, this was a direct result of the call at
UNCTAD I for a better trade deal for them.
There has been argument ever since whether this symbolic gesture was a
victory for them, or whether it ensured their exclusion in the future from
meaningful participation in the multilateral trading system. On the other
hand, there was no doubt that the extension of the Long-Term
Arrangement Regarding International Trade in Cotton Textiles, which
later became the Multi-Fiber Arrangement, for three years until 1970 led
to the longer-term impairment of export opportunities for developing
countries.
Another outcome of the Kennedy Round was the adoption of an Anti-
dumping Code, which gave more precise guidance on the
implementation of Article VI of the GATT. In particular, it sought to
ensure speedy and fair investigations, and it imposed limits on the
retrospective application of anti-dumping measures.
Kennedy Round took place from 1962 to 1967. $40 billion in tariffs
were eliminated or reduced.
Tokyo Round: 1973–79
Reduced tariffs and established new regulations aimed at controlling the
proliferation of non-tariff barriers and voluntary export restrictions. 102
countries took part in the round. Concessions were made on $19 billion
worth of trade.
Formation of Quadrilateral Group: 1981
The Quadrilateral Group was formed in 1982 by the European Union,
the United States, Japan and Canada, in order to influence the GATT.
Uruguay Round: 1986–94
The Uruguay Round began in 1986. It was the most ambitious round to
date, as of 1986, hoping to expand the competence of the GATT to
important new areas such as services, capital, intellectual
property, textiles, and agriculture. 123 countries took part in the round.
The Uruguay Round was also the first set of multilateral trade
negotiations in which developing countries had played an active role.[17]
Agriculture was essentially exempted from previous agreements as it
was given special status in the areas of import quotas and export
subsidies, with only mild caveats. However, by the time of the Uruguay
round, many countries considered the exception of agriculture to be
sufficiently glaring that they refused to sign a new deal without some
movement on agricultural products. These fourteen countries came to be
known as the "Cairns Group", and included mostly small and medium-
sized agricultural exporters such as Australia, Brazil, Canada, Indonesia,
and New Zealand.
The Agreement on Agriculture of the Uruguay Round continues to be
the most substantial trade liberalization agreement in agricultural
products in the history of trade negotiations. The goals of the agreement
were to improve market access for agricultural products, reduce
domestic support of agriculture in the form of price-
distorting subsidies and quotas, eliminate over time export subsidies on
agricultural products and to harmonize to the extent possible sanitary
and phytosanitary measures between member countries.
GATT and World Trade Organization
In 1993, the GATT was updated ('GATT 1994') to include new
obligations upon its signatories. One of the most significant changes was
the creation of the World Trade Organization (WTO). The 76 existing
GATT members and the European Communities became the founding
members of the WTO on 1 January 1995. The other 51 GATT members
rejoined the WTO in the following two years (the last being Congo in
1997). Since the founding of the WTO, 33 new non-GATT members
have joined and 22 are currently negotiating membership. There are a
total of 164 member countries in the WTO,
with Liberia and Afghanistan being the newest members as of 2018.
Of the original GATT members, Syria, Lebanon and the SFR
Yugoslavia have not rejoined the WTO. Since FR Yugoslavia (renamed
as Serbia and Montenegro and with membership negotiations later split
in two), is not recognised as a direct SFRY successor state; therefore, its
application is considered a new (non-GATT) one. The General Council
of WTO, on 4 May 2010, agreed to establish a working party to examine
the request of Syria for WTO membership. The contracting parties who
founded the WTO ended official agreement of the "GATT 1947" terms
on 31 December 1995. Montenegro became a member in 2012,
while Serbia is in the decision stage of the negotiations and is expected
to become a member of the WTO in the future.
Whilst GATT was a set of rules agreed upon by nations, the WTO is
an intergovernmental organization with its own headquarters and staff,
and its scope includes both traded goods and trade within the service
sector and intellectual property rights. Although it was designed to serve
multilateral agreements, during several rounds of GATT negotiations
(particularly the Tokyo Round) plurilateral agreements created selective
trading and caused fragmentation among members. WTO arrangements
are generally a multilateral agreement settlement mechanism of GATT.

Conclusion
In this paper, I have attempted to show that the question of whether the
GATT should have direct effect is very complex. The GATT is a
Constitutional agreement like the Treaty. However, it adopts a different
set of economic goals than the Treaty. The GATT is also an international
agreement. However, it establishes a regulatory structure which is
different from that established by the other international agreements of
the Community.

It is also far from obvious that the GATT is intended to protect

individuals rights. The agreement seems to be specifically designed to
manage trade relations between sovereign entities. Thus, perhaps the
concept of direct effect which exists for the Treaty and the other
international agreements should not apply to the GATT. After all, one
may still respect the rule of GATT law and individual rights
domestically without granting direct effect to the agreement prior to a
WTO ruling.

On the other hand, it is true that the effects of the GATT are ultimately
felt by individuals. The GATT does contain clear and precise obligations
to which the GATT members have agreed. The GATT also has
established a dispute resolution system to resolve conflicts between the
contracting parties in a rule based manner. Thus, there is reason for
believing that individuals should be able to claim rights under the GATT
after a WTO determination of the Community's obligations under the
GATT.

In the end, the reader must decide whether direct effect for the GATT is
appropriate. That is, should the ECJ grant direct effect to the GATT
because no other country has done so or should it deny direct effect
because this would deny the Community of its rights under the GATT.
Direct effect is a complex question which must be approached in a
complex manner. I do not claim to have resolved the dispute, but do
hope to have further illuminated the issues.
Footnotes:
 Text book of class 12,business studies
 International business book by Sonia Gupta
 Kle university notes on International business
