GATT & WTO

Formation to Transformation
 The Atlantic Charter
A history of sorts
The Atlantic Charter was a statement issued
on 14 August 1941 that set out American and
British goals for the period following the end
of the Second World War.

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Churchill and Roosevelt aboard
the HMS Prince of Wales

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 Many of the ideas of the Charter came from an
ideology of Anglo-American internationalism that
sought British and American cooperation for the
cause of international security. 

 Roosevelt's attempts to tie Britain to concrete war

aims and Churchill's desperation to bind the US to
the war effort helped provide motivations for the
meeting which produced the Atlantic Charter.

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 It was assumed at the time that Britain and
America would have an equal role to play in
any post-war international organization that
would be based on the principles of the
Atlantic Charter.

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The eight principal points of the Charter were:
 No territorial gains were to be sought by the United
States or the United Kingdom;

 Territorial adjustments must be in accord with the

wishes of the peoples concerned;

 All people had a right to self-determination;

 Trade barriers were to be lowered;

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 There was to be global economic cooperation and
advancement of social welfare;

 The participants would work for a world free of want

and fear;

 The participants would work for freedom of the seas;

 There was to be disarmament of aggressor nations,

and a common disarmament after the war.
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 The Atlantic Charter inspired several other
international agreements and events that
followed the end of the war: the dismantling
of the British Empire, the formation of NATO,
and the General Agreement on Tariffs and
Trade (GATT) all derive from the Atlantic
Charter.

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 The General Agreement on
Tariffs and Trade
 In July 1944 United States and Britain held a
conference (Bretton Woods) for a set of post-war,
economic institutions including setting up
 International Bank for Reconstruction and Development
(World Bank)

 International Monetary Fund

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 In December 1945 United States attempted to
launch the idea of an International Trade
Organization (ITO)
 Met for a first set of negotiations in London—twenty-three
founding members were present and signed General
Agreement on Tariffs and Trade (GATT)
 In 1948 ITO charter was agreed to at a United Nations
Conference
 In 1950 US announced it would not seek US
Congressional ratification of Havana Charter, effectively
terminating ITO plan
• Was in response to pressures from isolationist members of the US
Congress
 Consequently, the vehicle for post-war trade negotiations
became the GATT
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 The General Agreement on
Tariffs and Trade
 Between 1946 and 1994, the GATT provided a
framework of multilateral trade negotiations

 Rounds reduced tariffs among member countries in

many (but not all) sectors
 Average tariff on manufactured products imposed by
industrial countries fell from 35%(highest) to 4%

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 However the GATT Secretariat could not always
effectively enforce negotiated agreements without
legal standing of the ITO
• Resolved in 1994 with Marrakesh Agreement
 Provided for creation of World Trade Organization (WTO)

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 What Does GATT Entail?
 Most important Principle—NON-DISCRIMINATION
 Important sub-principles
• Most-favoured-nation
 A fundamental standard of the GATT, each contracting party to the
GATT is required to provide all other contracting parties with the
same conditions of trade as the most favourable terms it extends,
i.e., each contracting party is required to treat all contracting parties
in the same way that it treats its “most favoured nation”.

 For instance if Japan lowers a tariff on Indonesia's exports of a

certain product, it must also lower its tariff on the exports of that
product from all other member countries

 Exceptions are allowed and preferences are granted

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 National treatment
 Addresses internal, domestic policies such as taxes
 Foreign goods within a country should be treated no less
favorably than domestic goods with regard to tax policies

 Reciprocity
The benefits of any bilateral agreements between contracting parties,
regarding tariff reductions and market access, are extended
simultaneously to all other contracting parties. The principle of
reciprocity relates to the requirement to reciprocate the treatment
provided by other contracting parties. It is closely associated with MFN

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 What Does GATT Entail?
 A second important GATT principle
 General prohibition of quotas or quantitative
restrictions on trade
• Reflects a longstanding view that price distortions
(tariffs) are preferred to quantity distortions in
international markets
• Quantitative restrictions were one of the most
significant impediments to trade prior to GATT
• Exceptions are allowed

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 GATT- Exceptions
 The agreement also recognised that there are
circumstances in which strict adherence to these principles
would be inappropriate.
 The GATT therefore provided for exceptions and
waivers. In particular:
 Developing countries were to be given special status;
 Countries that offer each other more favourable treatment
within a union were allowed to waive full adherence to the
MFN clause;
 Agricultural trade was given special treatment, especially
with regard to non-tariff barriers.

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 GATT Exceptions—
Agricultural Products
 Applied when certain domestic programs were in
place
 Granted to address US agricultural programs
• Used for decades to reduce US imports of sugar, dairy products
and peanuts
 In addition, United States insisted export subsidies
be allowed for agriculture
 Generally prohibited by GATT
 European Union became the most vociferous
supporter of these exemptions in 1980s and 1990s

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 GATT Exceptions—Textiles
and Clothing
 In 1961, a US-initiated conference of major textile traders
was convened
 Developed the Short Term Arrangement Regarding International
Trade in Cotton Textiles
• Withdrew cotton textile trade from the MFN system for a period of one
year
 In October 1962, Long Term Arrangement Regarding
International Trade in Cotton Textiles replaced STA
 Allowed importers to curb imports in cases of “market disruption” via
bilateral or unilateral action
 In December 1972, a GATT fact-finding study on world
textile trade was completed
 Resulted in Arrangement Regarding International Trade in Textiles
or the Multi-fiber Arrangement
• General, multilateral framework for managing textile and clothing trade

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 Reaction to GATT Exceptions
 Exceptions generated negative feelings on
the part of developing countries
 Agriculture, textiles, and clothing are products
countries first turn to in their trade and
development process
 Developing countries wondered how they could
have a fair chance to participate in the trade and
development process

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 GATT—Tariff Bindings
 Tariffs are bound at an agreed-upon level often above
applied levels
 Levels may not be increased in the future
 Applied rates below bound rates may be increased
 General purpose of the binding principle
• To introduce a degree of predictability into the world trading
system

• When GATT was established tariffs were the main

form of trade protection, and negotiations in the early
years focused primarily upon tariff reduction. The text
of the 1947 GATT lays out the obligations of the
contracting parties in this regard.

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 GATT introduced stipulations with regard to subsidies,
countervailing duties, and antidumping duties

 Use of subsidies is not supposed to harm trading

interests of other members
• If subsidies cause “material injury” or “threat thereof” to a
domestic industry of another country that country can apply
countervailing duties or tariffs on its imports of product from
subsidizing country

 Leaves room for different interpretations/controversy

• “Dumped” goods are defined as exports sold at a price
below those charged by the exporter in its domestic
market
 Allowed for antidumping duties or tariffs to be imposed under
certain circumstances
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 GATT- evaluation
 Although officially only an international treaty,
the GATT evolved into a “de facto world
trade organization” (Hoekman 2002: 44) that
provided a negotiating forum for its
contracting parties and a set of rules for
conducting international trade.

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 The principal mechanism for progress on trade liberalisation
within the GATT has been periodic multilateral negotiating
rounds.

 In all, there have been eight such rounds, starting with the
Geneva Round of 1947 that established the GATT, and
concluding with the Uruguay Round that ended in 1994 after
having established the WTO. The primary focus of the
majority of rounds has been promotion of multilateral
tariff reductions, and the extension of the agreed
reductions to all members in accordance with the MFN
clause.

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The Birth of
THE WTO

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 The World Trade
Organization
 The initial Bretton Woods vision of an International Trade
Organization ended in 1950
 In 1990 Canada proposed a Multilateral Trade Organization
to address weaknesses of the GATT Secretariat
 In 1991, the Director General of GATT, Authur Dunkel
released a draft agreement for the Uruguay Round that
became known as “the Dunkel text”
 Included a draft charter for MTO
 By the end of 1993, text of the Uruguay Round contained a
final charter for a World Trade Organization (WTO)
 Marrakesh Agreement is actually “Marrakesh Agreement
Establishing the World Trade Organization”

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 Marrakesh Agreement
 Marrakesh Agreement and WTO is sometimes referred to
as a “tripod” in that it primarily addressed the following areas
 Trade in Goods—an Agreement on Agriculture and an Agreement
on Textiles and Clothing
 Trade in Services as specified in General Agreement on Trade in
Services
 Intellectual Property as specified in Agreement on Trade-Related
Aspects of Intellectual Property Rights
 Included a WTO charter
 Established WTO as a legal international organization
 Stipulated that “WTO shall provide the common institutional
framework for the conduct of trade relations among its members”
 Defined the functions of WTO

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Administrative Structure of the
WTO

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Administrative Structure of the
WTO

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 Trade in Goods
 Agreement on Agriculture addresses three
outstanding issues concerning international trade in
agricultural goods
 Market access
• Replaced a quota-based system with a system of bound tariffs
and tariff-reduction commitments
 Known as tariffication—represents a significant change of regime
• Non-tariff measures (quotas) are now prohibited
 Domestic support
• Distinction is made between
 “Green box” measures—are exempt from any reduction
commitments
 “Amber box” measures—are not exempt
 Export subsidies
• Use has not been eliminated but limited to specified situations
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 Accession to the WTO
 Following the establishment of a working party
for the accession process, bilateral, plurilateral
and multilateral negotiations take place in
parallel. The successful conclusion of these
negotiations leads to the drafting of an
accession package (“terms of
accession/entry”), which needs to be adopted
by the accession working party and approved
by the WTO's General Council or Ministerial
Conference.
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 …accession
 Subsequently, the acceding government has
to accept the “terms of entry” — either
through signature or ratification — and
becomes a full-fledged WTO member 30
days after it notifies the acceptance of its
Protocol of Accession to the WTO Director-
General.

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 Agreement on Agriculture
 Best viewed as a change in rules
 Not as a significant program for the liberalization
of trade in agricultural products
 Hope that further liberalization of tariffied
quotas will take place in the current Doha
Round of trade negotiations

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 Agreement on Textiles and
Clothing
 Requires countries to reintegrate textile and
clothing sectors back into GATT framework .

 At the end of ten-year period, all quotas on textile

and clothing trade must be removed

 Noteworthy points
 Integration is in terms of volume, not value
 Importing countries expanded Annex to include many
items never subject to MFA
 Safeguard clause can be invoked to slow down its
implementation

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 Trade in Services
 Composes more than 20% of total world trade and has at
times grown faster than trade in goods
 General Agreement on Trade in Services (GATS)—
significant outcome of Uruguay Round
 Represented first time services were brought into a multilateral trade
agreement
 Negotiations were difficult due to fact that trade in services is less
tangible than trade in goods
 Defined trade in services as occurring in one of four modes
 Mode 1: Cross-border trade
 Mode 2: Movement of consumers
 Mode 3: Foreign direct investment or FDI
 Mode 4: Movement of natural persons

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 Trade in Services
 Cross-border trade
 Mode of supply that does not require physical movement of
producers or consumers
• For example, Indian firms provide medical transcription services to US
hospitals via satellite technology
 Movement of consumers
 Consumer travels to the country of producer
• For example, tourism services
 Foreign direct investment
 Services that require a commercial presence by producers in
country of the consumers
• For example, financial services
 Temporary movement of natural persons
 Non-commercial presence by producers
• For example, consulting, construction, and instructional services

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 Difficulty Negotiating GATS
 Resistance from a number of developing
countries
 United States and European Union
supported it
 Prevailed upon developing countries to allow
negotiations to move forward
 Each member was allowed to specify
nondiscrimination exemptions on a “negative
list” of sectors upon entry into the agreement
 Were to last for 10 years
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 Positive List Restrictions
 GATS prohibited certain market access restrictions
 Number of service suppliers
 Total value of service transactions
 Total number of operations or quantity of output
 Number of personnel employed
 Type of legal entity in the case of FDI
 Share of foreign ownership in the case of FDI
 These requirements were optional if a member
identified ones they want to maintain in a second
positive list

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 Protocols to GATS
 Second GATS Protocol: Revised Schedules of
Commitments on Financial Services, 1995
 Third GATS Protocol: Schedules of Specific
Commitments Relating to Movement of Natural
Persons, 1995
 Fourth GATS Protocol: Schedules of Specific
Commitments Concerning Basic
Telecommunications, 1997
 Fifth GATS Protocol: Schedules of Specific
Commitments and Lists of Exemptions from Article
II Concerning Financial Services, 1998

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 Intellectual Property
 An asset in the form of rights conferred upon a product of
invention or creation by a country’s legal system
 Agreement on Trade-Related Aspects of Intellectual
Property Rights
 Most contentious aspect of Marrakesh Agreement
 Defined intellectual property as belonging to one of six categories
• Copyrights
• Trademarks
• Geographical indications
• Industrial designs
• Patents
• Layout designs of integrated circuits
 Applied the principle of nondiscrimination to intellectual property

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 TRIPS Agreement
 Sets out obligations for members
 Copyrights
• Members must comply with 1971 Berne Convention on copyrights
 Trademarks
• Goods and services are to be protected for a term of no less than seven years
• Provisions for the registration of trademarks must be made and are renewable
indefinitely
 Geographical indications
• Members must provide legal means to prevent false use of geographical
indications
 Industrial designs
• Members must protect “independently created industrial designs that are new or
original”
 Patents
• Exceptions exist and include protection of public order, human, animal, and plant
life
 Layout designs of integrated circuits
• Distribution of protected layout designs is forbidden

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 TRIPS Agreement
 Citizens and firms in developed countries own most of the
world’s IP
 Developing countries currently often have less IP protection
than developed countries
 Especially in the case of patents
 Raises cost of many goods and services to developing
countries
 Represents a transfer from developing country consumers to
developed country producers
 Allows for greater transition periods for developing countries for the
six obligations
• Developed countries must have instituted the above obligations by 1996
• Developing countries must have instituted them by 2000
• Least developed countries have until 2005

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 TRIPs Agreement
 In short to medium time frames welfare gains may be
absent
 Some economists from developing countries consider
TRIPs to be a welfare-worsening, “non-trade” agenda item
that has no place in WTO
 Lacks efficiency gains that characterize trade and restricts freedom
of countries to choose intellectual property regime that is best for
them
 Represents a significant concession on the part of
developing world
 Most contentious area of agreement is AIDS drugs
 US government has pressured countries to honor US patents on
AIDS drugs
• Could price drugs above the reach of AIDS patients in certain countries,
increasing AIDS mortality rates
 Meeting in 2001 offered flexibility with regard to public health
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 Benefits to Developing
Countries from TRIPS?
 Economist Keith Maskus (2000) argues
 Increased inward FDI and technology transfer
 Increased domestic innovation
 TRIPs imposes short-term costs in the hopes
of generating long-term benefits

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 Dispute Settlement
 Marrakesh Agreement included an
Understanding on Rules and Procedures
Governing the Settlement of Disputes
 Original GATT was unclear about resolution
of disputes—Marrakesh Agreement
attempted to clarify dispute settlement
procedures
 WTO includes councils on trade in goods
and services as well as a council on TRIPs
 Should help minimize occurrence of disputes
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Dispute Settlement in the
WTO

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 Dispute Settlement
 If the consultation process fails to settle a dispute
within 60 days, the complaining member may
request the establishment of a panel
 Composed of three or five “well-qualified governmental or
non-governmental individuals”
 Function is to assist DSB in dispute settlement process
• Consults the parties involved and provides DSB with a written
report of its findings
• DSB has 60 days to adopt report by consensus unless a party to
dispute decides to appeal
 The appeal of a panel report is referred to an appellate
body
• Reviews the appeal and submits its report to the DSB
• Any DSB member can effectively insist on the adoption of the
appellate body report

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 Dispute Settlement
 Dispute settlement procedure applies to all aspects
of the Marrakesh Agreement
 Improves procedures of old GATT and makes a
significant contribution to the conduct of
international trade
 Effectiveness of procedures depends on members’
commitment to it
 A country has option of ignoring outcome of the dispute
settlement process
• Complaining member has right to impose retaliatory tariffs on a
volume of imports from the other country determined by the DSB

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 The Environment
 In 1991, the GATT reactivated a long-dormant Working
Group on Environmental Measures and International Trade
(EMIT)
 GATT dispute resolution panel issued its controversial
opinion in the now-famous tuna-dolphin case
 Ruled against US law banning imports of Mexican tuna that involved
dolphin-unsafe fishing practices
 Argued import ban violated general prohibition against quotas and
United States had not attempted to negotiate cooperative
agreements on dolphin-safe tuna fishing
• US environmental community reacted strongly against the GATT panel
ruling, casting the GATT as anti-environment
 Trade-environment issue has loomed large over the WTO ever since

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 Committee on Trade and the
Environment
 EMIT was replaced by Committee on Trade and the
Environment
 Most developing country members of WTO have taken a
dim view of the work of CTE
 Fear the possibility of further protection against their exports on
environmental grounds, what they term “green protection”
 Often view environmental matters as non-trade issues that have no
place in the trade policy agenda of the WTO
 Many trade economists support the developing-country view
that environmental issues represent an “intrusion” into WTO
trade agenda
 Suggest environmental agenda could result in an inappropriate “one
size fits all” approach to environmental policies across WTO
members

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 Committee on Trade and the
Environment
 In 1999, WTO formally took up trade and
environment issue
 Report argued increased trade can have both positive
and negative impacts on the environment
 Emphasizes trade-driven growth cannot always be
counted upon to deliver improvements in environmental
quality through increased incomes
• Consequently, these higher incomes must be “translated into
higher environmental quality” through mechanism of international
cooperation
• Also emphasized that government subsidies to polluting and
resource-depleting sectors such as agriculture, fishing, and
energy can exacerbate the environmental consequences of trade

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