Amity School of Business

Amity School of Business

BBA, V Semester
International Marketing
Prof. Ruchi Khandelwal

GATT and WTO

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From GATT to WTO

• ITO (International Trade Organization) formed after
World War II, as a specialized agency of the UN to
manage business aspect of international economic
cooperation.
• Combined package of trade rules and tariff
concessions negotiated and agreed by 23 countries
out of 50 participating countries came into force in
the form of GATT in 1947.
• GATT was instrumental in securing liberalization of
world trade.

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Multilateral Trade Rounds under GATT

YEAR ROUND/ SUBJECTS COVERED COUNTRIES AVERAGE
NAME TARIFF CUT
(%)
1947 Geneva Tariffs 23 35
1949 Annecy Tariffs 13 NA
1951 Torquay Tariffs 38 25
1956 Geneva Tariffs 26 NA
1960-61 Dillon Tariffs 26 NA
1964-67 Kennedy Tariffs and anti-dumping 62 35
measures
1973-79 Tokyo Tariffs, non-tariff measures, 102 33
framework agreements
1986-94 Uruguay Tariffs, non-tariff measures,
rules, services, intellectual
property, dispute settlement,
textiles, agriculture, creation
of WTO etc. 3
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World Trade Organization

• The World Trade Organization (WTO), is an international organization
designed to supervise and liberalize international trade.
• The WTO came into being on January 1, 1995, and is the successor to the
General Agreement on Tariffs and Trade (GATT), which was created in
1947, and continued to operate for almost five decades.
• The World Trade Organization
– deals with the rules of trade between nations at a near-global level.
– is responsible for negotiating and implementing new trade agreements, and
– is in charge of policing member countries' adherence to all the WTO
agreements, signed by the bulk of the world's trading nations and ratified in
their parliaments.
• The current body of trade agreements comprising the WTO consists of 16
different multilateral agreements (to which all WTO members are parties)
and two different plurilateral agreements (to which only some WTO
members are parties).
• The WTO currently has 153 members.

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Functions of WTO
• Negotiating the reduction or elimination of obstacles to trade (import
tariffs, other barriers to trade) and agreeing on rules governing the conduct
of international trade (e.g. antidumping, subsidies, product standards, etc.
• Administering and monitoring the application of the WTO's agreed rules
for trade in goods, trade in services, and trade-related intellectual property
rights.
• Monitoring and reviewing the trade policies of our members, as well as
ensuring transparency of regional and bilateral trade agreements.
• Settling disputes among our members regarding the interpretation and
application of the agreements
• Building capacity of developing country government officials in
international trade matters
• Assisting the process of accession of some 30 countries who are not yet
members of the organization
• Conducting economic research and collecting and disseminating trade data
in support of the WTO's other main activities
• Explaining to and educating the public about the WTO, its mission and its
activities.
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Principles of the Trading System

• Trade without discrimination
– Most-favored-nation (MFN): treating other people equally
– Some exceptions are allowed:
• Countries can set up a free trade agreement
• Countries can give developing countries special access to
their markets.
• Or a country can raise barriers against products that are
considered to be traded unfairly from specific countries.
– National treatment: Treating foreigners and locals
equally      
• Imported and locally-produced goods should be treated
equally — at least after the foreign goods have entered the
market.

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Principles of the Trading System

• Freer trade: gradually, through negotiation
– Lowering trade barriers concerning customs duties (or tariffs) and
measures such as import bans or quotas that restrict quantities
selectively.
– The WTO agreements allow countries to introduce changes gradually,
through “progressive liberalization”.
• Predictability: through binding and transparency
– Promising not to raise a trade barrier
– Discourage the use of quotas and other measures used to set limits on
quantities of imports.
– Many WTO agreements require governments to disclose their policies
and practices publicly within the country or by notifying the WTO.
– Regular surveillance of national trade policies through the Trade
Policy Review Mechanism

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Principles of the Trading System

• Promoting fair competition
– The WTO is actually not a “free trade” institution, but it is a system of
rules dedicated to open, fair and undistorted competition. The system
does allow tariffs and, in limited circumstances, other forms of
protection. More accurately, The rules — MFN and national treatment
— are designed to secure fair conditions of trade.
– The issues of dumping and subsidies are complex, and the rules try to
establish what is fair or unfair, and how governments can respond, in
particular by charging additional import duties calculated to
compensate for damage caused by unfair trade.
• Encouraging development and economic reform
– The WTO system contributes to development on one hand and on the
other, that allow for special assistance and trade concessions for
developing countries which need flexibility in the time they take to
implement the system’s agreements.

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Trade Agreements in WTO

Umbrella AGREEMENT ESTABLISHING WTO
Goods Services Intellectual
Property
Basic Principles GATT GATS TRIPS
Additional details Other goods
agreements
and annexes
Market Access Countries' Countries'
Commitments schedule of schedule of
commitments commitments
(and MFN
exemptions)
Dispute Settlement DISPUTE SETTLEMENT
Transparency TRADE POLICY REVIEWS 9
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Trade agreements in WTO

GATT
• Reduction in tariffs
– As per Marrakech Protocol in the GATT, developed countries were
required to cut average tariffs on industrial products by 40%in five
equal installments from Jan1,1995
– Tariff reduction on textiles, clothing, leather and leather products was
lower than average
– Average level of tariffs applicable to industrial products:
• 6.3% to 3.8% in developed countries
• 15.3% to 12.3% in developing countries
• 8.6% to 6% in transition economies
• Tariff bindings
– Applicable to
• 99% imports in developed countries (from previous 78%)
• 73% imports in developing countries (from previous 21%)
• 98% imports in transition economies (from previous 73%)
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Trade agreements in WTO - GATT

• Agreement on Agriculture
– Tariffication and special safeguards
– Domestic Support ( termed as AMS- aggregate measurement of support) to be cut
back ( Green , Amber and Blue boxes)
– Export subsidies

Developed countries Developing countries

6 years:1995:2000 10 years:1995:2004
Tariffs
Average cut for all agricultural products 36% 24%
Minimum cut per product 15% 10%

Domestic Support
Total AMS cut for sector 20% 13%
(Base period: 1986-88)
Exports
Value of subsidies 36% 24%
Subsidized quantities
(Base period:1986-90 21% 14%
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Least-developed countries do not have to make commitments to reduce tariffs or subsidies.
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Trade agreements in WTO - GATT

• Agreement on Textiles and Clothing
– From 1974, until the end of 1994, international trade in textiles was
governed by the Multi-fibre arrangement (MFA)
– MFA conflicted with GATT’s tariffication process and GATT’s
principle of MFN
– Since 1995, ATC has taken over from MFA
• Standards and safety measures for International markets
– Agreement on Sanitary and Phytosanitary (SPS) measures sets out
basic rules on food safety and plant health standards. It allows
countries to set their own standards. But it also says regulations must
be based on science. They should be applied only to the extent
necessary to protect human, animal or plant life or health. And they
should not arbitrarily or unjustifiably discriminate between countries
where identical or similar conditions prevail.
– Agreement on Technical barriers to trade (TBT) tries to ensure that
regulations, standards, testing, and certification procedures do not
create unnecessary obstacles in trade.
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Trade agreements in WTO - GATS

• General Obligations and disciplines defines modes of trading
services internationally.
• MFN also applies to service sector, but some special temporary
exemptions have been allowed to countries that already have
preferential agreements in services with their trading partners.
• Individual countries’ commitments to open markets in specific
sectors and the extent of their openness is clearly defined, and is
‘bound’.
• Government services are explicitly placed, not subjected to any
GATT principle, on market access or national treatment.
• Transparency and establishment of enquiry points within the
bureaucracies.
• International Payments and Transfers
• Complexity of international trade in services

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Conflicting views on Intellectual Property protection

Industrialized Countries Developing Countries

IP protection increases Weak or no IP protection provides

Profits from an innovation which increase Easy access to information and

technology, that permits
Outlays on R&D enhancing
Economic growth with outlays on R&D,
which gives

Probability of discovering a new product

Competitive advantage to challenge
leading to
industrialized nations leading to
Higher quality of consumers’ life styles.
Narrowing of gap between developed and
developing countries.

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Trade agreements in WTO - TRIPS

• Agreement on Trade-Related Aspects of Intellectual
Property Rights covers five broad issues:
– how basic principles of the trading system and other international
intellectual property agreements should be applied
– how to give adequate protection to intellectual property rights
– how countries should enforce those rights adequately in their own
territories
– how to settle disputes on intellectual property between members of the
WTO
– special transitional arrangements during the period when the new
system is being introduced.
• The provisions of TRIPS relate to patents, copyrights and
related rights, trademarks, industrial designs, layout
designs of integrated circuits, undisclosed information
and trade secrets, and geographical indications.
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Trade agreements in WTO - TRIMs

• Agreement on Trade Related Investment Measures
– When investment is the mode of international market entry, the host
governments often impose conditions on foreign investors to
encourage investments in accordance with their national priorities.
– TRIMs stipulate that no member nation shall violates ‘ national
treatment ‘ principle. It also outlaws
• Measures that lead to restriction in quantities
• Measures that require particular levels of local procurement (local
content requirements)
• Measures that limit a company’s imports or set targets for the company
to export (trade balancing requirements)
– Countries are not prevented from imposing export performance
requirements as a condition for investment.
– They are also allowed to insist on local equity in certain percentage.
– They can also insist that the foreign investor must bring most up-to-
date technology or must conduct a specific level or type of R&D
locally.
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Trade agreements in WTO

• Agreement on Subsidies and Countervailing Measures
– The agreement contains two categories of subsidies:
Prohibited subsidies and actionable subsidies
– Prohibited subsidies are those that require recipients to meet
certain export targets, or to use domestic goods instead of
imported goods.
– In the case of Actionable subsidies, the complaining country
has to show hat the subsidy has an adverse effect on its
interest. The agreement defines three types of damages by
such subsidies:
• One country’s subsidy can hurt a domestic industry in an importing
country.
• It can hurt rival exporters from another country when two compete in
third markets.
• The domestic subsidies in one country can hurt exporters trying to
compete in the subsidizing country’s domestic market.
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Trade agreements in WTO - Dumping

• According to Article VI of GATT 1994 a product is
considered as being “dumped” when it is introduced
into the commerce of another country at less than
its normal value.
– A product is said to be dumped (less than its normal
value) if the price of the product exported from one
country to another
•  is less than the comparable price, in the ordinary course of trade,
for the like product when destined for consumption in the
exporting country, or,
• In the absence of domestic price, is less than either
– The highest comparable price for the like product for export to any
third country in the ordinary course of trade, or
– The cost of production of the product in the country of origin plus a
reasonable addition for administrative, selling and general costs
(SGA), and profits.
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Trade agreements in WTO

• Non tariff barriers
– Import licensing
• Automatic licensing may be there, otherwise the procedures should be
simple, transparent and predictable.
– Rules for the valuation of goods at customs
• WTO gives customs administrations the right to request further information
in cases where they have reason to doubt the accuracy of the declared value
of imported goods.
– The Pre-shipment Inspection
• The obligations placed on governments which use pre-shipment inspections
include non-discrimination, transparency, protection of confidential
business information, avoiding unreasonable delay, the use of specific
guidelines for conducting price verification and avoiding conflicts of
interest by the inspection agencies.
– The Rules of Origin agreement
• WTO members have to ensure that their rules of origin are transparent; that
they do not have restricting, distorting or disruptive effects on international
trade; that they are administered in a consistent, uniform, impartial and
reasonable manner.
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Trade agreements in WTO

Plurilateral” agreements not signed by all members:
• Agreement on Trade in Civil Aircraft
 Eliminates import duties on all aircraft, other than military aircraft, as
well as on all other products covered by the agreement — civil aircraft
engines and their parts and components, all components and sub-
assemblies of civil aircraft, and flight simulators and their parts and
components.
 Contains disciplines on government-directed procurement of civil
aircraft and inducements to purchase, as well as on government
financial support for the civil aircraft sector.
• Agreement on Government Procurement
 Designed to make laws, regulations, procedures and practices regarding
government procurement more transparent and to ensure they do not
protect domestic products or suppliers, or discriminate against foreign
products or suppliers.

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