GATT(ppt)1

GENERAL AGREEMENT ON TRADE AND TARIFF

* GATT

“Tariff” or “duty” is a tax imposed by the government on an imported good as it enters a country. Tariff does 2 things:

1. It adds on the cost of the imported item and hence to the price of that imported item. It thus possibly reduces the competitiveness of that item .Thus tariff may act as a measure protecting the local industry.

2. It gives revenue to the government

• Gatt the predecessor of the WTO, was born in 1948 as result of the international desire to liberalize trade.It was set up on October 30,1947 in Geneva with 23 countries as its founder members.

• India was the founder members of GATT along with World Bank,IMF and WTO.

• The primary actions of organization were to freeze and reduce tarrif levels on various commodities.

*It was originally set up as a temporary arrangements to bring about trade liberalization.

*It later became an important and permanent set-up to attend to all trade issue among the members countries.

*GATT played a prominent role in settlement of trade disputes between 2 countries

• Free trade has been the motto of GATT.

• During the next nearly half a century 1948-1994 many nations successively joined the agreements .There were 8 rounds of GATT trade negotiations in this period. Bringing forth significant reductions in tariff and non-tariff barriers to trade.

• Gatt was created to be part of the international trade organization(ITO),however ITO failed to be created so GATT was left as an independent organization. In 1944 GATT was taken over by WTO

Objectives

•Raising standard of living

•Ensuring full employment & a large & steadily growing volume of real income & effective demand

•Developing full use of the resources of the world

•Expansion of production & international trade

GATT

Liberalization of trade in goods and service

Increases competition

from foreign

goods and services

Facilitates global sourcing

Opportunity for Indian firms to export

Threat to domestic

firms

Benefits to consumers

Increases competitiveness of

domestic firms

Encourages globalization of Indian firms

FUNCTIONS OF GENERAL AGREEMENT ON TARIFFS AND

TRADE.

1. Trade negotiations under GATT2. Safeguards 3. Trade negotiations among

developing countries4. Solves Trade Disputes.

1. TRADE NEGOTIATIONS UNDER GATT

The GATT has organized seven trade negotiations on so far. They are: 1947 (Geneva), 1949 (Anney, France), 1951 (Torquay, England), 1956 (Geneva), 1960-61 (Geneva, Dillon Round), 1964-67 (Geneva, Kennedy Round) and 1973-79 (Geneva, Tokyo Round).

As a result of these negotiations, the tariff rates on thousands of items entered into world trade were reduced. The developed countries achieved a 50% reduction in many industrial products.

2. Safeguards The agreement also provides proper

safeguards for the domestic industry and trade.

Article XIX of the General Agreement permits a member country to impose restrictions on imports or suspend tariff concessions on products if they are imported in excessive quantities and are causing or threatening to cause serious injury to competing domestic producers.

3. TRADE NEGOTIATIONS AMONG DEVELOPING COUNTRIES

In an effort to increase the trade among developing nations, the eighteen of GATT members joined in an agreement in 1973, providing for an exchange of mutually advantageous tariff and trade concessions.

These eighteen members are (countries) Bangladesh, Brazil, Chile, Egypt, India, Israel, S.Korea, Mexico, Pakistan, Paraguay, Peru, Philippines, Romania, Spain, Tunisia, Turkey, Uruguay and Yugoslavia. The agreement is known as Protocol relating to trade negotiations among developing countries.

All developing countries whether or not they are members of GATT are allowed to join it. The participants negotiated for concessions on about 500 tariffs heading including agricultural,manufactured foods and raw material.

4.SOLVES TRADE DISPUTES

The GATT has been successful in the accomplishment of its objectives. It contains an enabling clause that reconciles the principle of granting special and differential treatment to the developing countries.

It also solves trade disputes among members’ countries impartially, amicably and quickly by identify the measures to solve the problems of balance of payment without upsetting international trade.

Principles of GATT 1. Trade without discrimination: A

country granting advantages(tariffs,subsidies) to one nonGATT party must grant the same advantage to other member countries in export and import duties and changes.

Exceptions:incase of regional trading arrangements and the developing nations.

2. Protection through tariffs: Protection to home industries can be provided only through customs tariffs and not through any other.

Exceptions: Developing nation where development need more imports.

3.A stable Basis of Trade: - Stable and predictable basis for trade is provided under rules - Contracting countries should obey levels of tariffs -No one country can change the tariffs4.Consultation: member countries should consult one another in the matter of trade and trade problems or they can call on GATT for settlement . The GATT council has set up panels of independent experts to examine the trade disputes between member states. . The members on the panel are chosen among countries which have no direct interest in the disputes being investigated. The panel is generally interested in making mutual and amicable settlement between the two parties.

PHASES

Divided into 3 phases:First: From 1947 until the Torquay Round Largely concerned which commodities would be covered by the agreement Freezing existing tariff levelsSecond: From 1959 to 1979 Focused on reducing tariffsThird: Consists only of the Uruguay Round from 1986 to 1994 It extended the agreement to new areas such as intellectual property, services,

capital, and agriculture Final outcome was creation of WTO

First PhaseCommodities which would be covered by the

agreement and freezing existing tariff levels

Year Place/name Subjects covered

1947 Geneva Tariffs

1949 Annecy Tariffs

1951 Torquay Tariffs

Second Phase Focused on reducing tariffs


1960-1961 GenevaDillon Round

Tariffs

1964-1967 GenevaKennedy Round

Tariffs and anti-dumping measures

1973-1979 GenevaTokyo Round

Tariffs, non-tariff measures, “framework”agreements

Third Phase


1986-1994 GenevaUruguay Round

Tariffs, non-tariff measures, rules, services, intellectual property, dispute settlement, textiles, agriculture, creation of WTO, etc

Extended the agreement fully to new areas such as intellectual property, services, capital, and agriculture. Out of this round the WTO was born.

ROUNDS

Time - April 1947 – October1947

Duration – 7 months

Countries – 23

Negotiations in this and the succeeding 4 Rounds were on a

bilateral basis -: “product-by-product, request-offer”

• members completed 123 negotiations and established 20

schedules containing the tariff reductions. which became an

integral part of GATT.

1. Geneva Round (1947)

• The Agreement covered some 45,000 tariff concessions and about

$10 billion in trade.

• First Round was successful since the US was ..

– enthusiastic for free trade

– was willing to cut its tariffs on imports from Europe

– did not put pressure on European countries to abandon their trade

restrictions

Time - April 1949 – August1949


Countries –Accession of ten more country (From 23 to 33 )

Denmark, Finland, Sweden, Greece,

Nicaragua, Uruguay Haiti, Liberia,

Dominican Republic, Italy,

All Members negotiated an additional 13,000 tariff reductions

from last round.

If a member votes against accession it does not need to extend

trade policy concessions to this country.

2. Annecy Round (1949)

Time - September 1950 – April1951


Countries – Accession of five more countries (33+5 = 38)

Austria, Germany, Turkey, Philippines, Peru

• Participants completed some 500 negotiations

• Additional tariff reductions emerging from these negotiations

were modest: Negotiations were not considered to be a “success“

3. Torquay Round (1950/51)

• Major problem of this Round is Dispute between the US and the

UK “no bilateral tariff cuts on US—UK trade”

• Contracting parties exchanged some 8,700 tariff reductions of

about 25% in relation to the 1948 level.

• During the Torquay Round, the US indicated that the ITO

Charter would not be re-submitted to the US Congress: End of

ITO.

Time - January 1956 – May 1956


From 1951 to 1955, GATT membership increased by only one

country on net, with the withdrawal of Libya being balanced

by the accession of Japan

• The momentum toward lower tariffs was lost

• Important factor behind the passivity during this period:

Growing protectionism in the US (Feeling that the US had given

away concessions, while European countries were reluctant in

eliminating their trade barriers)

4. Geneva Round (1955/56)

• Low-tariff countries were frustrated by their inability to bargain

effectively with high-tariff countries.

• Fourth Round produced similarly not sufficient results ($2.5 billion

worth of tariff reductions)

Time - September 1960 – July 1962


Average tariff rates differed sharply within the European

Economic Community (EEC), ranging from 6% for Germany to

19% for Italy.

The Round was divided into two phases:

– First phase was concerned for negotiations with European

Economic Community (EEC) member states for the creation of a

single schedule of concessions for the EEC based on its Common

External Tariff (CET)

5. Dillon Round (1960-62)

• Round resulted in 4,400 tariff concessions covering $4.9 billion of

trade.

• Last round of negotiations which were undertaken on a bilateral

basis

• As a result of Dillon Round, tariff rates on manufactured goods

came down sharply (e.g. common external tariff of the EEC fell to

10.4% in 1968)

• Agricultural and textile sectors were still not considered

– Second phase was a further general round of tariff negotiations

Time - May 1964 – June1967


Countries – 66

•A very ambitious round. It had 4 major goals:

To slash tariffs by half with minimum number of

exceptions.

To break down farm trade restrictions.

To strip off non tariff regulations.

To aid developing nations.

6. Kennedy Round (1964-67)

• The participating countries presented 80% of world trade.

• Round named after President John F Kennedy who died the year

before the round.

• It aimed to increase trade between the US and the European

Economic Commission(EEC).

• An Anti-Dumping code was agreed upon, however US never

agreed upon it so it had little practical implications. American

Selling Price had also been eliminated.

• A short lived International Wheat Agreement was intended to

stabilize world wheat prices.

• Large reductions in grains and chemical products.

• Reduction of tariff in tropical products, primary materials

and manufactured goods of interest to the less developed

countries.

• Food aid programme totaling 4.5 million tons a year for

developing countries.

• As a result of Kennedy Round, the Common External Tariff of

the European Community fell to 6.6%.

• Kennedy round agreement was signed on June 30, 1967 ;

last day of the US negotiating authority under the Trade

Expansion Act.

Time - September 1973 – November1979


Countries – 102

• Discouraging economic climate during Tokyo Round :

– Oil crisis (1973); World-wide “stagflation”(Crisis)

– Proliferation of non-tariff barriers during the early 1970s.

– Strained trade relations between the US, the EC and Japan

7. Tokyo Round (1973-79)

Main agreements & declarations of Tokyo Round:

• Agreement on Govt. Procurement,

• Agreement on Anti-dumping Code,

• Agreement on Customs Valuation Code,

• Agreement on Import Licensing procedures,

• Agreement on Subsidies Code,

• Agreement on Trade in Civil Aircraft,

• Declaration on Trade measures taken for Balance of

payment purposes,

• International Dairy Agreement,

• International Bovine meat Agreement,

• Safeguard Action for development purposes.

Time - September 1986 – December1993


Countries – 123

• Period following the Tokyo Round

– World-wide recession

– Trade conflicts between three major trading blocs: US, EC,

Japan

– US-EC trade disputes centered on agricultural issues (EC

became exporter)

8. Uruguay Round (1986-94)

– US wanted Japan to open its domestic market for US exports

– EC wanted to limit Japanese export growth

• GATT ministerial meeting (1982): Attempt to meet problems left by

the Tokyo Round failed in “Resurgence of protectionism”

• US reacted to protectionist pressure and considered the initiation of

a new round of negotiations

• Japan favored a new GATT round: Multilateral negotiations were

preferred to bilateral pressure from the US and the EC

• Other countries were mostly in favor of new round:

– Smaller industrial countries wished to curtail the tendency of the

‘big three’ to ignore GATT principles

– Agricultural-exporting countries were concerned about US producer

subsidies and EC export subsidies

– Developing countries wanted to secure greater tariff preferences

• A committee was established to determine the objectives of a new

round of negotiations to be launched in 1986

• There was little agreement between the ‘big three’

• Initiative was taken by G9 group of mid-sized industrial nations and

G10 group of developing countries led by India and Brazil

Year Name Sub. Covered

Countries Achievements

1947 Geneva Tariffs 23Signing of GATT,

45,000 tariff concessions affecting $10 billion of trade

1949 Annecy Tariffs 13 Countries exchanged some 5,000 tariff

concessions

1950 Torquay Tariffs 38 Countries exchanged some 8,700 tariff

concessions, cutting the 1948 tariff levels

by 25%

Year Name Sub. Covered

Countries Achievements

1956 Geneva Tariffs, admission of

Japan

23

$2.5 billion in tariff reductions

1960 Dillon Tariffs 26 Tariff concessions worth $4.9 billion of

world trade

1964 Kennedy Tariffs, anti-dumping

66 Tariff concessions worth $40 billion of

world trade

Year Name Sub. Covered Countries Achievements

1973 Tokyo Tariff, non-tariff measures,

"framework"

102 Tariff reductions worth more than $300 billion

dollars achieved

1986 Uruguay Tariffs, non-tariff measures, rules,

services, intellectual

property, dispute settlement,

textiles, agriculture,

creation of WTO, etc

123 The creation of WTO, and extended the range of trade negotiations,

leading to major reductions in tariffs & agricultural subsidies, to allow full access for

textiles from developing countries, and an extension of intellectual property

rights.

URUGUAY ROUND

Uruguay round of multilateral trade negotiations was initiated in September 1986 and concluded on the 15th September, 1993.

Mr. Arthur Dunkel, the Director General of GATT submitted a proposal on the 20th December,1991 popularly known as Dunkel Proposal which lead trade liberalization in many areas like:

Trade Related Investment Measures(TRIMs) Trade Related Intellectual Property

Rights(TRIPs) other services, textiles, clothing and

agriculture subsidies, Market.

Market

Arthur Dunkel suggested that the Government control in marketing activities and operation will have to be less.

The member governments will have to abolish the public distribution system.

Agriculture

The member Governments are suggested to reduce the subsidy on fertilizer’s, seeds, and other inputs and eliminate the administered pricing in respect to agriculture sector.

Arthur Dunkel was in favor of reducing the price variation of agricultural products of domestic market and international markets.

Trade Related Intellectual Property Rights(TRIPs)

Dunkel proposal regarding trade related intellectual property rights (TRIPs) in respect of Business and commerce include Protection of patents Copy rights Design Trade Marks Trade Secrets

Earlier process patents were granted to food, medicines, drugs and clinical products but proposed TRIPs agreement provides patents in all the areas like, food, medicines, drugs and clinical products, computer programming, integrated circuit design, trade secrets etc. Also given more important to Copyright and Trade mark.

Protection will be available for 20 years for patents and copyrights, computer programming and data compilations will be protected for at least 50 years. Trade marks would be protected for at least seven years and semi-conductor layout design would be protected for nearly 10 years.

A council on TRIPs would supervise operation of the agreement along with GATT and the General Agreement on Trade in Services.

Quota Abolition in Textile

GATT members abolished quotas on trade in textiles and clothing. Consequently, prices started declining and the major buyers are narrowing their sources. Large Asian countries with vertically integrated industries are becoming the world’s leading suppliers

Strategies for Textile FirmsProduct Specialization:

Firms close advanced markets like firms in Central America and North Africa should concentrate on producing customized products and the firms in other regions concentrate on traditional products by developing linkages with mega firms.Cross-border Co-operation:

Mega firms and major Asian countries should formulate strategies by taking into account cross- border co-operation with the LDCs in the same region.

Improve sourcing skills: LDCs need to develop abilities in sourcing materials to be competitive and regionally integrated value chains.Focus on higher value products: LDCs firms need to enhance the value addition rather than producing low cost products and should also diversify their product mix away from commodity-type items.More flexible rules of origin:

Import markets should offer LDCs non-reciprocal preferential markets access conditions, including rules of origin requirements that are easy to fulfill.

Interregional Cooperation: Firms and countries should accelerate

inter-regional co-operation like South-South co-operation for developing joint production .

Creation of Conducive Environment: LDCs should create conducive

environment for the growth of textile business from their countries. Otherwise, the current textile policy would adversely affect their economies.

These are rules that apply to the domestic regulations a country applies to foreign investors, often as part of an industrial policy.

The agreement was agreed upon by all members of the World Trade Organization. (The WTO wasn't established at that time, it was his predecessor, the GATT (General Agreement on Trade and Tariffs). The WTO came about in 1994-1995.

AGREEMENT ON TRADE RELATED INVESTMENT MEASURES (TRIMS)

Trade Related Investment Measures(TRIMs) is one of the four principle legal agreements of the WTO.

TRIMs are rules that restrict preference of domestic firms and thereby enable international firms to operate more easily within foreign markets.

GENERAL AGREEMENT ON TRADE IN

SERVICES (GATS)

It is a treaty of the World Trade Organization (WTO) that entered into force in January 1995 as a result of the Uruguay Round negotiations.

The treaty was created to extend the multilateral trading system to service sector, in the same way the General Agreement on Tariffs and Trade (GATT) provides such a system for merchandise trade.

Before the WTO's Uruguay Round negotiations, public services such as healthcare, postal services, education, etc. were not included in international trade agreements. Most such services have traditionally been classed as domestic activities, difficult to trade across borders.

But after the existence GATS, foreign participation has increased. For example educational services have been "exported" for as long as universities have been open to international students.

GATT(ppt)1

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