General Agreement on Tariffs And Trade

The General Agreement on Tariffs and Trade (GATT) is a trade agreement signed in
1947. With the signing of the GATT by 23 countries on October 30, 1947, a formal
agreement to reduce barriers to international commerce through the elimination or
reduction of quotas and tariffs and major restrictions was established. The goal of the
GATT was to help the world economy recover from the adverse impact of World War
II by rebuilding and liberalising nternational trade.

It was improved upon in the years that followed until the World Trade Organisation
(WTO) was established on January 1st, 1995, which absorbed and expanded it.
Around 90 percent of world trade was covered by the 125 countries that signed the
agreement.

Pre-war protectionist measures, including trade controls and quotas, were the primary
motivation for establishing the General Agreement on Tariffs and Trade (GATT).
Commercial conflicts between nations could be settled by arbitration, and this
framework facilitated several international tariff-reduction agreements. Following
World War II, the GATT was hailed as a significant accomplishment.

The GATT was also a major step forward in the fight against racial and ethnic
discrimination in international trade. The agreement mandated equal treatment of
every GATT signatory member. The World Trade Organisation (WTO) later adopted
the most-favoured-nation principle. With this agreement, tariff cuts would
automatically be applied to all GATT members once a country has negotiated a tariff
reduction with other countries (typically its most important trading partners). In the
past, governments had the option of negotiating exceptions to tariff decreases if their
domestic producers were impacted.

Objectives of GATT and its Functions

Global trade fell by 66 percent during the Great Depression because of trade
protectionism, which the GATT eliminated. The impact of the Great Depression and
World War II on the global economy was curbed by the GATT to some extent.

There were three significant stipulations of the GATT. They were:

• All members had to agree to give each other the most favoured nation status.

• Tariffs were to be applied evenly to all members. Special tariffs between

British Commonwealth and customs union members were not included in the
agreement.
• Tariffs were allowed if removing them would seriously harm domestic
producers.
Exports from developing countries will no longer be taxed due to an agreement
reached by developed countries. Developed countries benefited from lower tariffs as
well. Demand for trade with industrialised countries increased as the number of
middle-class customers grew due to the GATT.

The GATT is still in place as the cornerstone of the WTO. The accord of 1947 has
long since expired. However, its terms were integrated into the GATT 1994
agreement, designed to keep trade accords in place while the WTO was being
established. As a result, the GATT of 1994 is an integral part of the WTO pact.

Reasons for Adopting GATT

The likelihood of war being sparked has decreased. The GATT contributed to world
peace by promoting global trade. Because of this event, the European Union was born
(EU). Despite its flaws, the EU has played a significant role in preventing hostilities
between its members. Generally speaking, a country’s economy is less likely to go to
war with another country if commerce with that country is important to it. To reduce
the risk of war, more countries should trade.

The GATT offered incentives for countries to better communicate with one another
and minimise the likelihood of war. These days, even the typical person is more likely
to pick up a foreign language skill than they used to be because it gives them access to
wider markets for their products abroad. Many people are fluent in English to work in
call centres for companies based in English-speaking nations.

Other Important Aspects

Domestic industries may have difficulty competing: Some domestic industries can be
destroyed by low tariffs, resulting in substantial unemployment in that industry.
Governments with more significant financial or policy clout can influence sectors to
their advantage more effectively than smaller nations. A wealthy country can spend
money subsidising industries to boost its worldwide competitiveness.

The nature of global trade had shifted by the 1980s. The GATT failed to deal with the
trade in services, which allowed it to grow beyond the ability of a single government
to manage it. Financial services, for instance, underwent a globalisation process.
There has been an increase in the importance of foreign direct investment. Lehman
Brothers’ bankruptcy put the entire global economy in jeopardy as a result. The 2008
financial crisis necessitated a concerted effort by the world’s central banks. Because
of blocked credit markets, they were forced to supply liquidity.
GATT Rounds

During the GATT (General Agreement on Tariffs and Trade) years, eight rounds of
tariff negotiations were held between 1947 and 1994: Geneva (1947), Annecy (1949),
Torquay (1950-51), Geneva (1956), Geneva (1960-61) - also known as the Dillon
Round, the Kennedy Round (1964-67), the Tokyo Round (1973-79) and the Uruguay
Round (1986-94.

Round One

Twenty-three nations met in Geneva to establish the mission of the GATT: “to
contribute to rising the standard of living and full employment by entering into
reciprocal and mutually advantageous arrangements directed to substantial reduction
of tariffs and other barriers to trade and the elimination of discriminatory treatment in
international commerce.”

Under the terms of the GATT, each country would grant most-favored-nation
treatment to all other parties, disciplines were included to restrict members from
imposing new trade barriers, and a non-binding process was introduced to encourage
the resolution of disputes. The outcome of this 1947 meeting was agreement on a
lasting framework for post-war commercial relations whereby trade barriers were
contained and then gradually reduced over time.

The first Geneva Round was considered a huge success. The 23 participating
countries (which, at the time accounted for 80 percent of world trade) implemented
tariff reductions on a most-favored nation basis — all members receive the same
benefits. The United States demonstrated leadership by example, by cutting its tariffs
by 35 percent.
The next 15 years following the Geneva Round the postwar era saw frequent rounds
but modest progress in tariff reductions. It wasn’t until the so-called “Kennedy Round”
in the mid-sixties that the scope of negotiations broadened to address economic
development of smaller economies, and — controversial with the U.S. Congress —
led to the signing of an anti-dumping agreement.

The Tokyo Round during the seventies expanded the scope further to address non-
tariff barriers. Members worked to clarify existing dispute settlement provisions under
the GATT and create procedures applicable to non-tariff commitments. Dispute
resolution acquired more explicit procedures such as time limits, but remained
unenforceable.

The Uruguay Round: the GATT Gets a Permanent Home

The Uruguay Round was the 8th round of multilateral trade negotiations (MTN)
conducted within the framework of the General Agreement on Tariffs and
Trade (GATT), spanning from 1986 to 1993 and embracing 123 countries as
"contracting parties". The Round led to the creation of the World Trade Organization,
with GATT remaining as an integral part of the WTO agreements. The broad mandate
of the Round had been to extend GATT trade rules to areas previously exempted as
too difficult to liberalize (agriculture, textiles) and increasingly important new areas
previously not included (trade in services, intellectual property, investment
policy trade distortions).[2] The Round came into effect in 1995 with deadlines
ending in 2000 (2004 in the case of developing country contracting parties) under the
administrative direction of the newly created World Trade Organization (WTO).[3]

The Doha Development Round was the next trade round, beginning in 2001 and still
unresolved after missing its official deadline of 2005.[4]

Goals

The main objectives of the Uruguay Round were:

⚫ to reduce agricultural subsidies

⚫ to lift restrictions on foreign investment
⚫ to begin the process of opening trade in services like banking and insurance.
⚫ to include the protection of intellectual property
⚫ They also wanted to draft a code to deal with copyright violation and other forms
of intellectual property rights.
⚫ national treatment, and effective enforcement of dispute settlement outcomes.

The Round to End All Rounds?

The first WTO ministerial conference was held in 1996 in Singapore, which focused
on implementation of agreements to date but also began to consider topics relevant to
international trade not yet in the ambit of the WTO, such as investment, trade
facilitation, and competition laws.

A new round wouldn’t begin until November 2001. The agenda was ambitious. All
countries agreed to negotiate further opening of their agriculture and manufacturing
markets, remove barriers to trade in services, and expand intellectual property
protections. At the center of the agenda was a desire to promote the participation of
developing countries in the negotiations and in the global economy. At the tenth WTO
meeting of trade ministers in December 2015 — fourteen years after the Doha Round
began — trade ministers from over 160 countries failed to agree that negotiations
should continue. Negotiations had been at an impasse, with positions unchanged for
too long.

Frustrated by the lack of progress in the Doha round, many nations have turned to
regional and bilateral trade arrangements as an alternative. As many as 279 regional
trade agreements worldwide have been notified to the WTO. The United States now
has 20 such agreements in force.

Given the increasing complexity of the global trading system, the stalemate in global
trade negotiations, and the proliferation of regional and bilateral trading arrangements,
members of the WTO realize they must evolve the institution and its processes to
remain relevant to future negotiations. In the meanwhile, the WTO system continues
to play a vital role overseeing the implementation of the GATT and providing a venue
for members to discuss and advance rules-based trade amicably as commerce evolves.
Conclusion

Following World War II, the General Agreement on Tariffs and Trade (GATT) was
drafted to aid war-torn countries’ sagging economic fortunes. The World Trade
Organisation was created as a result of this agreement. As a result of the GATT, there
was a decrease in the chance of war and increased contact between countries.

The most-favoured-nation principle has superseded quotas in establishing tariffs in

most countries. Trade barriers were gradually reduced throughout several rounds of
negotiations. Tariff agreements among GATT members are governed by the most-
favoured-nation concept, which the GATT established. Through the General
Agreement on Tariffs and Trade, international trade was opened up, and tariffs were
abolished.

WTO(World Trade Organisation)

The World Trade Organization (WTO) is a multilateral organization headquartered in

Geneva, Switzerland. It came into existence on January 1, 1995, as a successor to the
General Agreement on Tariffs and Trade (GATT). The organization functions as a
central body that facilitates global trade.

The WTO provides a common platform to negotiate trade agreements among member
countries and to resolve any trade disputes. It manages 60 global and about
300 regional trade agreements. The 60 trade agreements are accorded the status of
international law. The WTO comprises 164 member states. There are also observer
states that are not signatories to the WTO agreements, and they do not participate in
free trade.

History of WTO

The WTO started functioning on 1 January 1995, but its trading system is half a
century older. Since 1948, the General Agreement on Tariffs and Trade (GATT) had
given the rules for the system. (The second WTO ministerial meeting, held in Geneva
in May 1998, included a celebration of the 50th anniversary of the system.)

• It did not take long for the General Agreement to give birth to an unofficial,
extant international organization, also known informally as GATT.
• Over the years, GATT evolved through several rounds of negotiations.
• The General Agreement on Tariffs and Trade (GATT) had its last round in
1986 and it lasted till 1994.
• This was known as the Uruguay Round and it led to the formulation of the
World Trade Organization (WTO).
While GATT mostly dealt with trade in goods, the WTO and its agreements could not
only cover goods but also trade in services and other intellectual properties like trade
creations, designs, and inventions.

The WTO has 164 members and 23 observer governments. Afghanistan became the
164th member in July 2016. In addition to states, the European Union, and each EU
country in its own right is a member.

Structure of the World Trade Organization

The Ministerial Conference

The Ministerial Conference of the WTO meets every two years to make important
decisions about existing trade agreements. The Ministerial Conference holds the
authority to make decisions on any aspects of all multilateral agreements made under
the WTO.

The Conference includes representatives from all members of the WTO. It gives equal
representation to all its members regardless of the size of their economy or share
in international trade. It can be thought of as the legislative branch of the WTO. The
12th Ministerial Conference is now scheduled to take place in June 2021 in
Kazakhstan.

The WTO is headed by the Ministerial Conference, while the daily operations are
carried out by three administrative bodies:

1. General Council

The General Council comprises the representatives of all member countries and acts
as the representative of the Ministerial Conference when it comes to daily operations.
Its job is to carry out the implementation and monitoring function of the WTO.

The General Council is further divided into multiple councils and committees that
focus on specific topics. Examples of such bodies include the Council on Goods, the
Councils on Services, the Committee on Textiles under the Council on Goods, etc.

2. Dispute Settlement Body

The Dispute Settlement Body is a part of the General Council and is responsible for
settling trade disputes between member states. There is also an Appellate Body, where
member states can appeal any decisions made against them during a dispute
settlement.

3. Trade Policy Review Body

The Trade Policy Review Body is also a part of the General Council and is
responsible for ensuring the trade policies of member states are in line with the goals
of the WTO. Member countries are required to inform the WTO about changes in
their laws and trade policies.

The body undertakes regular reviews of the policies to ensure they conform to the
rules of the WTO. This is part of the monitoring function of the WTO, and it helps the
WTO to adapt to the changing economic landscape.

Objectives of WTO

1. To raise the standard of living in member countries.

2. Development of a multilateral trading system.
3. To reduce Tariff and Non-Tariff barrier.
4. To eliminate discriminatory treatment in international trade relationships.
5. To make coordination between trade policies, environmental policies and
sustainable development

Functions of the World Trade Organization (WTO)

The WTO’s overriding objective is to help trade flow smoothly, freely, fairly, and
predictably. It does this by:

• Administering WTO trade agreements

• Conducting forum for trade negotiations
• Handling trade disputes
• Monitoring national trade policies
• Providing technical assistance and training for developing countries
• Cooperation with other international organizations

Ministerial Conferences of WTO

Ministerial Place Year Description

Conferences

MC1 Singapore 1996 Ministers of finance, trade, foreign, and

agriculture from more than 120 countries
participated and the following issues were
in discussion.

• trade and investment

• trade facilitation
 • transparency in government procurement

• trade and competition

These are known as the Singapore Issues.

MC2 Geneva, 1998 Discussions on the implementation of Singapore

Switzerland Issues.
Further discussions for the next round
related to Export subsidies, market access,
etc.

MC3 Seattle, USA 1999 The Uruguay Round was discussed.

Further discussions on agricultural and
services mandated at the last Ministerial.

The Ministerial Conference ended without a

conclusion though.

MC4 Doha, Qatar 2001 The Doha Round was discussed.

MC5 Cancún, 2003 Discussions on the progress of the Doha

Mexico Development Agenda and other negotiations
from the last Ministerial.

MC6 Hong Kong 2005 Discussions on aiming to conclude the Doha

Round by 2006.
Adoption of the ‘Swiss Formula’ to cut
down tariffs on non-agricultural goods
(NAMA) by both developed and developing
countries with different coefficients.

MC7 Geneva, 2009 This meeting didn’t revolve around the

Switzerland Doha Round.

Ministers discussed various other ideas for

 further development.

The theme of MC7 was ‘The WTO, the

Multilateral Trading System and the
Current Global Economic Environment’

MC8 Geneva, 2011 Discussions on multiple topics for least

Switzerland developed nations and trade policy reviews.

WTO approved Montenegro, Russian

Federation, and Samoa accessions.

Doha Round was discussed to make the

mandate more effective, operational, and
precise.

MC9 Bali, 2013 The ‘Bali Package’ was adopted by the

Indonesia WTO that aimed at the following points:

• Boosting trade in the least developed

countries (LDCs)

• Higher food security provisions for

developing countries

• Streamlining trade

The Bali Package is a selection of issues

from the broader Doha Round negotiations.

Yemen became a part of WTO.

MC10 Nairobi, 2015 Discussion on agriculture, cotton, and issues

Kenya of LDCs.

The Nairobi Package was adopted by WTO

that delivered beneficial commitments to
WTO’s poorest members.
MC11 Buenos Aires, 2017 Discussions on e-commerce duties, fisheries
Argentina subsidies, and other commitments to negotiations
in all sectors.

MC12 Nur-Sultan, 2021 Postponed due to pandemic situation.

Kazakhstan

Doha Declaration
The Doha Declaration is the November 2001 declaration that came
out of the 4th Ministerial Conference of the WTO, that took place
in Doha, Qatar.

• This declaration gives the mandate for negotiations on an array of

topics including issues concerning the implementation of the previous
agreements.

• This is called the Doha Declaration on the TRIPS Agreement and

Public Health.

• There were disagreements between developed and developing countries.

• The major bones of contention were agriculture, non-tariff trade

barriers, industrial tariffs, services, and trade remedies.

• The Bali Ministerial Declaration was achieved in 2013 which is the

first agreement under the Doha Round, and also the first unanimous
agreement under WTO.

Dispute Settlement of the World Trade

Organization

• WTO is an international body that also deals in Dispute Settlements.

• The member country will approach the WTO’s dispute settlement body
when a country fails to comply with WTO rules.

• All the members are encouraged to settle the disputes through

consultation or a panel if the consultation fails.
 • The constituted panel will circulate the verdict of the dispute
settlement amongst WTO members who can decide to reject the
ruling.

• If the ruling is approved, the member country that violated the rules
must change rules in line with the WTO Agreement.

• In the case of failure to do so, the complaining country and the

violating country may determine a mutually-acceptable compensation,
failing which, the complaining country may retaliate suitably.

Is India a founding member of the WTO?

• India has been a member of the World Trade organization since the
beginning of 1995.

• India was also a member of GATT since 1948.

What are the advantages of WTO?

• With WTO, member countries get a provision of a legal framework to

process negotiations and disputes amongst them. Other advantages
are:

• Better stability in trade

• Predictability

• The WTO is also an administrative organization that allows trade

under certain conditions for global ease.

Functions of the WTO

The WTO’s functions can be broadly divided into the following categories:

1. Trade Negotiations

The WTO facilitates trade negotiations among countries by providing a framework to

structure the agreements, as well as providing dispute resolution mechanisms. It
creates an international legal framework that ensures the smooth exchange of goods
and services among the member countries.
2. Implementation and Monitoring

Once the agreements are negotiated, the job of the WTO is to ensure that the signatory
countries adhere to their commitments in practice. It also produces research based on
the impact of the agreements on the economies of the countries involved.

3. Dispute Settlement

The WTO also acts as a dispute settlement body when there is a trade conflict
between its member states. The members of the WTO can file complaints against
other member states if they feel the trade and economic policies of a country are
divergent from their commitments under one of the agreements of the WTO.
Following the complaint, there are formal hearings like a court until a settlement is
reached.

4. Building Trade Capacity

The WTO runs special programs to support developing countries by helping them
build the capacity to participate in free trade with more developed countries. It also
gives concessions under certain agreements to low-development countries to ease
them into free trade with other countries.

5. Outreach

Finally, the WTO carries out lobbying and outreach across the world as a part of its
larger objectives to promote free trade. They try to persuade governments to reduce
barriers to trade to free, fair, and open markets around the world.