WTO n GATT

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General Agreement on Tariffs and Trade

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General Agreement on Tariffs and

Trade (GATT)

Outcome of the failure of negotiating governments to

create the International Trade Organization (ITO) Negotiated during the UN Conference on Trade and

Employment

Formed in 1947 and transformed to World Trade

Organization (WTO) in 1995

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Part of economic recovery after World War II, BrettonWoods Conference suggested an organization toregulate trade

Parallel to the Governments negotiating the ITO, 15negotiating states began negotiating for the GATT as away to attain early tariff reductions

The ITO failed in 1950 and then GATT agreement wasintroduced

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GATT's main objective

Reduction of barriers to international trade

Achieved through reduction of tariff barriers,quantitative restrictions and subsidies on trade througha series of agreements

It was a treaty, not an organization

A small secretariat occupied what is today the CentreWilliam Rappard in Geneva, Switzerland

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Inception

Efforts to negotiate international trade agreements began in 1927 atthe League of Nations but were unsuccessful.

Precursor organization to GATT, ITO, was first proposed inFebruary 1945 by the United Nations Economic and Social Council(UNESCO).

Owing to the United States failing to implement the ITO, GATT wasthe only organization left.

On 1 January, 1948 the agreement was signed by 23 countries:Australia, Belgium, Brazil, Burma, Canada, Ceylon, Chile,China, Cuba, the Czechoslovak Republic, France, India,

Lebanon, Luxembourg, Netherlands, New Zealand, Norway,Pakistan, Southern Rhodesia, Syria, South Africa, the UnitedKingdom, and the United States.

According to GATT's own estimates, the negotiations created 123agreements that covered 45,000 tariff items that related to

approximately one-half of world trade or $10 billion in trade. 6


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The General Agreement on Tariffs and Trade

(GATT) was first signed in 1947.

Was designed

To provide an international forum

That encouraged free trade between memberstates

By regulating and reducing tariffs on tradedgoods

Providing a common mechanism for resolvingtrade disputes.

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Terms which helpunderstanding GATT

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TRADE BARRIERS

Tariff and Non-Tariff BarriersWhile free-trade maximizes world welfare, most

nations impose some trade restrictions that benefitspecial groups in the nation. The most important type

of trade restriction historically is the tariff. This is a tax or duty on the imports or exports.

When a small nation imposes an import tariff, thedomestic price of the importable commodity rises by

the full amount of the tariff for individuals in nation.As a result, domestic production of the importablecommodity expands while domestic consumption andimports fall. However, the nation as a whole faces theunchanged world price since the nation itself collectsthe tariff. 9


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Tariffs

Tariffs can be ad-Valorem, specific, or compound. Ad-Valorem tariff is expressed as a fixed percentage of

the value of the traded commodity.

Specific tariff is expressed as a fixed sum per physicalunit of the traded commodity.

Acompound tariff is a combination of an Ad Valoremand a specific tariff.

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Trade Restrictions /Trade Barriers An import tariff is a duty on the imported commodity,

while an export tariffis a duty on the exportedcommodity.

Export tariffs are prohibited by the U.S. Constitution but are

often applied by developing countries on their traditionalexports (such as Ghana on its cocoa and Brazil on itscoffee) to get better prices and revenues.

Developing nations rely heavy on export tariff to raiserevenues because of their ease of collection.

On the other hand, industrial countries invariably imposetariffs or other trade restrictions to protect some(usuallylabor-intensive)industry, while using mostly income taxesto raise revenues.

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Trade Barriers (Contd)

According to Stolper-Samuelson theorem , an increase inthe relative price of a commodity (for example, as a result ofa tariff ) raises the return or earnings of the factor used

intensively in its production.

For example, if a capital-abundant nation imposes animport tariff on the labor intensive commodity, wagesin the nation will rise.

However, since the nations benefit comes at the expense of

other nations, latter are likely to retaliate, so that in the endall nations usually lose.

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Trade Barriers (Contd) Two arguments are that protection is needed to reduce domestic

unemployment and a deficit balance of payments.

A more valid argument for protection is the infant-industryargument.

However, what trade protection can do, direct subsidies andtaxes can do better in overcoming purely domesticdistortions.The same is true for industries important for nationaldefense.The closest we come to a valid economic argument forprotection is the optimal tariff (which,however, invites

retaliation). Trade protection in the United States is usually given to low-

wage workers and to large, well organized industries producingproducing consumer products.

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Non-Tariff Barriers

International trade also hampered by numerous

Technical, administrative, and other regulations.

These include safety regulations for automobile andelectrical equipment, health regulations for thehygienic

Production and packaging of imported food products,and labeling requirements showing origin andcontents.

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Non Tariff Barrier [Subsidies]

National government sometimes grant subsidies todomestic producers to help improve their trade position.Such devices are indirect form of protection provided to

domestic businesses, whether they may be importcompeting producers or exporters.

Two types of subsidies can be distinguished: a domestic

subsidy, which is sometimes granted to producers ofimport-competing goods,and an export subsidy, whichgoes to producers of goods that are to be sold overseas.

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Other Non Tariff Barriers

Government Procurement Policies: Because governmentagencies are large buyers of goods and services, they areattractive customers for foreign suppliers. Most

governments however, favor domestic suppliers overforeign ones in the procurement materials and products.E.g, Government often extend preferences to domesticsuppliers in the form of buy-national policies campaigns.

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Impact of trade barriers

Advanced industrial nations committed themselves afterWorld War II to removing barriers to the free flow of goods,services,and capital between nations

This goal was enshrined in the General Agreement on Trade andTariffs [GATT]

Under the umbrella of GATT, eight rounds of negotiationsamong member states(now numbering 146) have worked tolower barriers to the free flow of goods and services

The most recent round of negotiations, known as the UruguayRound, was completed in Dec,1993.The Uruguay round further

reduced trade barriers; extended GATT to cover services as wellas manufactured goods; provided enhanced protection forpatents, trademarks, and copyrights; and established the WorldTrade Organization (WTO)to police the international tradingsystem

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Impact of trade barriers

In the late 2001, the WTO launched a new round of talks[Doha,Qatar] aimed at further liberalizing the global tradeand investment framework.

The agenda included cutting tariffs on industrial goods,services,and agricultural products; phasing out subsidies toagricultural producers; reducing barriers to cross borderinvestments; and limiting the antidumping laws.

The rich nations spend around $300 billion a year insubsidies to support their farm sectors. The worlds poorernations have the most to gain from any reductions inagricultural tariffs and subsidies.

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Did GATTsucceed?

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Successes Continual reductions in tariffs helped spur very

high rates of world trade growth during the 1950s

and 1960s around 8% a year on average Trade growth consistently out-paced production

growth

The rush of new members during the Uruguay

Round demonstrated recognition of multilateraltrading system as the anchor for development andan instrument of economic and trade reform.

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But.

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GATTs success in reducing tariffs to a low level, with a

series of economic recessions 1970-80s drovegovernments to devise other forms of protection forsectors facing increased foreign competition

High rates of unemployment and constant factoryclosures led governments in Western Europe and North

America to seek bilateral market-sharing arrangementswith competitors and to embark on a subsidies race to

maintain their holds on agricultural trade

Both these changes undermined GATTs credibility andeffectiveness.

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The problem was not just a deteriorating tradepolicy environment.

By the early 1980s the General Agreement wasclearly no longer as relevant to the realities of worldtrade as it had been in the 1940s

World trade had become far more complex andimportant than 40 years before

The globalization of the world economy was

underway Trade in services not covered by GATT rules

Ever increasing international investments

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Factors convinced GATT members that a new effortto reinforce and extend the multilateral systemshould be attempted.

That effort resulted in the Uruguay Round, theMarrakesh Declaration, and the creation of the

WTO.

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WTO


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Agenda

About WTO

Functions of WTO

The WTO Structure

Principles of WTO

Objective of WTO

Q & A

Key Subjects in WTO


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About WTO


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World Trade Organization

Created by : Uruguay Round negotiations (1986-94)

Membership :153 countries (on 23 July 2008)

Budget : 185 million Swiss francs for 2008

2007 Secretariat Staff : 625

Head : Director-General, Pascal Lamy

Established: 1 January 1995

Location :- Geneva, Switzerland


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Objectives

Taking positive steps to ensure that developing countries.

Introduce sustainable development.

Raising standard of living and income .

The WTO reiterates the objectives of GATT .


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Functions of WTOAdministering and Implementing the multilateral and plurilateral trade agreements.

Acting as a forum for multilateral trade negotiations .

Seeking to resolve trade disputes.

Overseeing national trade policies.

Cooperating with other international institutions.

Maintaining trade related database.

Acting as a watchdog of international trade .

Technical assistance and training for developing countries.


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TheWTOStructure

Ministerial conference

Secretariat

Dispute Settlement Body General Council

Director General

Trade Policy Review Body


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The WTO Structure

CommitteeOn Budget

CommitteeOn T & D

CommitteeOn BoP

Council forService

Council forGoods

Trade relatedIntellectualPropertyrightscouncil


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Principles of WTO


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The WTO Principles

Rule BasedTradingSystem

TreatmentFor LDCs

CompetitionOn BoP

EnvironmentProtection

Transparency

DismantlingTrade

Barriers

PrinciplesOf

WTO

MFNTreatment

NationalTreatment

FreeTrade

Principle


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Key Subjects in WTO
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Key Subjects in WTO

Health & safety measures

Helping least developed and food importing countries

Textile and Clothing

Agriculture


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Thank You

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WTO n GATT