INTRODUCTION

Trade between nations and the link between trade and economic growth are neither recent nor
novel development. The link between economic growth and trade was widely relised and
exploited. International trade is the exchange of capital, goods and services across international
borders or territories.1

This paper endeavors to discuss the role of the general Agreement on tariffs and trade/WTO in
fostering sustainable international trade and Economic Development.

GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT)

General agreement on tariffs and trade was a multilateral agreement regulating international
trade. According to its preamble, its purpose was the “substantial reduction of tariffs and other
trade barriers and elimination of preferences, on a reciprocal and mutually advantageous basis.”

It was negotiated during the United Nations Conference on Trade and Employment and was the
outcome of the failure of negotiating governments to create the international Trade Organization
(ITO). GATT was signed by 23 nations in Geneva on October 30, 1947 and took effect on
January 1, 1948. It lasted until the signature by 123 nations in Marrakesh on April 14, 1994 of
the Uruguay Round agreements, which established the World Trade Organization on January 1,
1995.

The original GATT TEXT (1947) is still in effect under the WTO framework, subject to the
modifications of GATT 1994.2

The foundations of the international trade regime date back to 1947 when the General Agreement
on Tariffs and Trade (GATT) was concluded. This Agreement, salvaged from an unratified
larger agreement to establish an International Trade Organization, was to be one piece of the so-
called Breton- Woods system, designed in the post-World War II environment to promote and
manage global economic development. (The International Monetary Fund and International
Bank for Reconstruction and Development—the World Bank—were the other two main pieces.)
The 48-year history of the GATT established the two basic directions for the trade regime:

1
Trade-Define trade at dictionary.com
2
World Trade Organization: WTO legal texts; General Agreement on Tariffs and Trade 1994

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•Developing requirements to lower and eliminate tariffs, and

•Creating obligations to prevent or eliminate non-tariff barriers to trade, i.e., other types of rules,
policies or measures that could act as impediments to trade.

From 1948 to 1994, the GATT Secretariat oversaw the development of the multilateral trade
regime, including eight negotiating “Rounds” that further developed the trade regime along both
the above noted lines. Early rounds focused more on tariffs alone, but non-tariff barriers began
coming to the fore in the so called Kennedy Round that ended in 1964. The last of these
negotiations, the “Uruguay Round,” concluded in 1994. The Marrakech Agreement Establishing
the World Trade Organization marked the end of the Round, and established the WTO as an
organizational structure to administer the GATT and the other various multilateral trade
agreements. Never properly established as an international regime since its awkward beginnings,
the multilateral trade system now had a real “home.” Among the key changes brought about at
this time was the creation of a more effective dispute settlement system, complete with an
appellate body.

FOSTERING INTERNATIONAL TRADE UNDER GATT

The main role of GATT in the international trade was regulating the contracting parties to
achieve the purpose of the agreement which were reducing tariffs and other barriers, and to
achieve the liberalization in international trade. The role was reflected in following aspects:

Firstly, GATT established a set of standard to guide the contracting parties to participate in
international trade practices. GATT stipulated several of basic principle to conduct the
contracting parties in international business, such as General Most-Favored-Nation Treatment
(Article II), Non-discriminatory Administration of Quantitative Restrictions (Article XIII), and
General Elimination of Quantitative Regulations (Article XI) and so on in the “GATT 1947".
Every contracting party should obey these basic principles when they were involved in trade
relations, otherwise they would be condemned, even be taken revenge by other parties. Besides
this, contracting parties reached quite a little of agreements, and made some rules during
pervious multilateral trade negotiations. For instance, Kennedy Round which was started from
May 1964 brought about the Anti-dumping Agreement. (WTO). These rules and agreements

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which were made in the multilateral rounds later become the basic principles which were
accepted by all the parties, and stimulated the development of international trade.

Secondly, GATT reduced the tariff on the basis of mutual benefit; accelerate the trade
liberalization after the World War II. GATT’s major contribution was to reduce of tariffs by
sponsoring “rounds" of multilateral negotiations.3 By sponsoring the multilateral negotiations,
there was a significant reduce of the tariff. There were about 35% average tariff reductions in
both Kennedy Round and Tokyo Round. Future more, in the Uruguay Round which was the
conductive in the history of GATT multilateral negotiation, the contracting parties practiced the
rules that kept cutting the tariff rate; there was an average tariff cut of 39% in this round of
negotiation. 4 By cutting the tariff rate, there is less trade barriers in doing international business
which will mutual benefit the parties which participated, and promote trade liberalization.
Thirdly, GATT reduced the discrimination in tariff and trade which promoted to reduce other
trade barriers. As stated in the Article II5, “Each contracting party shall accord to the commerce
of the other contracting parties’ treatment no less favorable than that provided for in the
appropriate Part of the appropriate Schedule annexed to this Agreement." According to this
statement, GATT regulate the contracting parties cannot increase the levels of tariff as their wish,
but some countries used other non-tariff barriers to promote their protectionism. Therefore,
GATT claimed the contracting parties should not use other barriers to protect their own
industries, it requested the reduction of the non-tariff barriers and quantitative restriction to make
sure the benefit from the reduction of tariff not be erased by the non-tariff barriers. After
Kennedy Round, the multilateral negotiation started to cover non-tariff barriers on goods. Future
more, the Uruguay Round also made the progress in decreasing and eliminating non-tariff
barriers, especially in agriculture products. All these are good for eliminating the trade barriers,
which towards the development of the international trade. Finally, GATT acted as the “court of
international trade", by providing a platform for contracting parties to negotiation and talk to
settle disputes in international trade. One of the objectives of GATT was to settle the disputes
between two or more parties. When two or more parties are involved in the international trade, it
is inevitable that without disputes. Some of the disputes may be solved by the two parties
themselves, however, some disputes could not be solved by themselves, without the help of the
3
Mike.W.P 2008
4
Reck A.2010
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GATT 1947

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third party, and the disputes may be remaining unresolved for years. So it needed GATT to solve
those disputes which could not solve by parties themselves. Before it was replaced by

ECONOMIC DEVELOPMENT UNDER GATT

Despite the important role played by GATT in the world economy, economist has not developed
a unified theoretical framework that interprets and evaluates the principles that form the
foundation of GATT. Our purpose here is to propose such a framework. Working within a
general equilibrium trade model, we represent government preferences with a very general
formulation that includes all the major political-economy models of trade policy as special cases.
Using this general framework we establish three key results. First, GATT's principle of
reciprocity can by viewed as a mechanism for implementing efficient trade agreements. Second,
through the principle of reciprocity countries can implement efficient trade agreements if and
only if they also abide by the principle of nondiscrimination. And third, preferential agreements
undermine GATT's ability to deliver efficient multilateral outcomes through the principle of
reciprocity, unless these agreements take the form of customs unions among partners that are
sufficiently similar

THE WORLD TRADE ORGANISATION (WTO)

Have you ever wondered who helped make all the rules and regulations for how businesses and
countries trade goods with each other? Today’s global marketplace is extremely complex, with
thousands of moving parts.

The World Trade Organization is an intergovernmental organization which regulates

international trade. The WTO officially commenced on 1 January 1995 under the Marrakesh
Agreement signed by the 123 nations on 15 April 1994, replacing the General Agreement on
tariffs and trade(GATT), which commenced in 19486.

The WTO deals with regulation of trade between participating countries by providing a
framework for negotiating trade agreements and a dispute resolution process aimed at enforcing

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World Trade Organization-UNDERSTANDING THE WTO:BASICS

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participants’ adherence to WTO agreements, which are signed by representatives of member
governments7 and ratified by their parliaments8.

Most of the issues that the WTO focuses on derive from previous trade negotiations, especially
from the Uruguay round (1986-1994). The WTO agreements are lengthy and complex because
they are legal texts covering a wide range of activities. They deal with: agriculture, textiles and
clothing, banking, telecommunications, government purchases, industrial standards and product
safety, food sanitation regulations, intellectual property, and much more. But a number of
simple, fundamental principles run throughout all of these documents. These principles are the
foundation of the multilateral trading system.

WTO has much stronger provisions for enforcement of the rules. If a member state is aggrieved,
it can lodge a complaint with WTO that will strive to ensure that the transgressor complies with
the provisions of WTO. WTO can even impose trade sanctions against erring members as a last
resort. The very fact that GATT, which started with a mere 23 members in 1948, was
instrumental in associating over one hundred more members till it got rechristened as WTO is a
reflection of the efficacy of the organization.

FUNCTIONS OF WORLD TRADE ORGANISATIONS

Among the various functions of the WTO, these are regarded by analysts as the most important:

-it oversees the implementation, administration and operation of the covered agreements.

-it provides a forum for negotiations and for settling of disputes

Additionally, it is the WTOs duty to review and propagate the national trade policies and to
ensure the coherence and transparency of trade policies through surveillance in global economic
policy making.9

Another priority of the WTO is the assistance of developing, least developed and low income
countries in transition to adjust to WTO rules and disciplines through technical cooperation and
training.

7
Understanding the WTO handboo k at WTO official website
8
Malanczuk, P (1999). International Organizations and space law. Page 305.
9
Main functions, WTO Official site

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THE ROLE OF WTO IN FOSTERING ECONOMIC DEVELOPMENT

Free trade is not a new idea. It exists in different economic theories since - between the fifteenth
and the eighteenth centuries in Europe, such as mercantilism, Adam Smith’s absolute advantage
theory, and the Ricardian comparative advantage theory, among others.

According to Adam Smith,

… [T]he tailor does not attempt to make his own shoes, but he buys them from the shoemaker.
The shoemaker does not attempt to make his own clothes, but employs a tailor.… [W]hat is
prudence in the conduct of every private family can scarce be folly in that of a great kingdom. If
a foreign country can supply us with a commodity cheaper than we ourselves can make it, better
buy it… [W]e have some advantage.

Adam Smith’s arguments, mentioned above, regarding ‘specialization’ and ‘absolute advantage’
in international trade, were further developed by David Ricardo who, in his book ‘The Principles
of Political Economy and Taxation’ of 1817, offered the theory of ‘comparative advantage’.
‘Comparative advantage’ is a concept central to international trade theory; it holds that a country
should specialize in the production and export of those goods, and should concurrently import
those goods in which it has a comparative disadvantage. This theory formed the basis for
increasing the economic welfare of a country through international trade. The theory usually
favors specialized production in which the country is relatively well endowed, such as raw
materials, fertile land, skilled labor, or accumulation of physical capital. The comparative
advantage theory is the explanation for why developed and developing countries can and do
benefit from international trade. Following this theory, even the poorest countries with little or
no absolute advantage can participate in international trade and benefit, on the basis of its
comparative advantages. It seems not excessive to say that David Ricardo is the ‘architect’ of the
current WTO. Economists in the nineteenth and twentieth centuries have endeavored to refine
the models of David Ricardo, such as Huckster-Ohlin, Paul Samuelson, and Joseph Stiglitz, etc.

Economists through the ages saw so clearly, the citizens of a state benefit from getting as large a
volume of imports as possible in return for its exports or, equivalently, from exporting as little as
possible to pay for its imports. Openness to trade and investment promotes growth in a number
of ways, including: it encourages economies to specialize and produce in areas where they have a

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comparative advantage over other economies; trade expands the markets to where domestic
producers can access; trade diffuses new technologies and ideas, increasing domestic workers’
and managers’ productivity; eliminating tariffs on imports gives consumers access to cheaper
products, increasing their purchasing power and living standards, and gives producers access to
cheaper inputs, reducing their production costs and boosting their competitiveness.

Liberalized trade and rapid growth, in not few countries, are responsible for much of the poverty
reduction, such as China, India, Thailand, and Vietnam.

CONCLUSION

In conclusion, the world trading system manages the balance between the pursuit of national
advantage on one hand and concession requisite for participating in cooperative arrangement
involving competitive nation-states. These states are at different levels of development, some
post industrial some industrialization and others languishing. Therefore it is not surprising that
the world trading system has evolved to in some way take account of certain pragmatic
necessities and accommodations. This is reflected in the special and differential treatment
provisions, the negotiation credit policy and the various statutes in the WTO to permit
management of trade flows to benefit national industries.

The main aim was and never about free trade. It concerns in some deep sense the struggle for
prosperity as outlined by the UN and the original GATT preamble.

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BIBLIOGRAPHY

STATUTES

GENERAL AGREEMENT ON TRADE AND TARIFFS 1994

BOOKS

-Understanding the WTO handbook at WTO official website8

- Malanczuk P. International Organizations and space law. Page 305 (1999

-Hanoi law university- text book international trade and business law

-The WTO case law of 2001- Cambridge

- Mike W, P 2008