GATT and WTO

GATT History: World War 1 and the pre-Bretton Woods Conference era
The Treaty of Peace (or the treaty of Versailles), signed between the Entete powers (Germany) and the Allied powers (Great Britain being at the centre of the Allied powers in World War-1) on June the 28th 1919 at Versailles, marked the end of the World War-1 The War Guilt clauses of the treaty required Germany to pay heavy reparations (compensations that Germany completed paying in October 2010!!) These payments and compensations were made through the Bank for International Settlement (BIS) which consisted of British and German representatives like Hjalmar Schacht, who became the economics minister for Hitler during the World War-2. During World War-2, Norway accused Germany of looting the occupied territories through the BIS which was primarily managed by German nationals like Herman Schmitz and Walter Funk, as Hitler kept on increasing his reparations The United Nations Monetary and Financial Conference recommended the "liquidation of the Bank for International Settlements at the earliest possible moment. However, powerful nations like the US and the Great Britain opposed the liquidation. President Harry Truman reversed the recommendations for liquidation of the BIS. The US was keen on accessing international resources through the concept of free trade, while the Great Britain was interested in global economic stability post the world wars, such that the wealth of a nation need not be polarized into a single nation, but to be spread across the world, to ensure minimization of risk of financial instability of a single nation affecting the entire wealth.

GATT History: The Bretton Woods Conference and agreements

The Bretton Woods conference (United Nations Monetary and Financial Conference) of 1944 identified the Bank for International Settlements (BIS) as a conflict source between nations and the need for a separate international organization to establish rules and regulations for international trade to promote international monetary security and recommended the formation of the International Monetary Fund (IMF) and the World Bank in addition to the International Trade Organization (ITO).

The ITO was expected to complement these two organizations in establishing rules, regulations and standard international tariffs for free trade among the nations of the world and also formulate standard international policy framework applicable to all the participating nations for exchange of goods.
Though the ITO charter was agreed on at the U.N. Conference on Trade and Employment (held in Havana, Cuba, in March 1948), it was never ratified by the U.S. Senate. As a result, the ITO never came into existence. Resource rich countries like the US and Great Britain had imposed very high tariffs and complex economic agenda and policies for trading. The ITO formulations were opposed by the resource rich countries which objected that its enforcement provisions would interfere with the autonomy of domestic policy making. An urgent need was felt to create an international governing body that was empowered with the authority to frame and carry out trade and tariff policy decision making across the world. The General Agreement on Tariffs and Trade (GATT) was signed in April,1947 at the UN negotiations at Geneva, came into effect in 1948

GATT: Rounds of negotiations

Gatt had a total of 9 negotiations in the form of ROUNDS, starting from 1946 at Geneva. The negotiations begin with an agreement between members on agendas pertaining to Multilateral Trade policies and tariffs and non-tariff barriers. The Uruguay round was the last completed round in 1986, which sought for the formation of a permanent body for global trading policies and currently the negotiations are going on Doha round of 2001.

GATT: Description of negotiation rounds

NAME Geneva START April 1946 DURATION 7 months COUNTRIES 23 SUBJECT COVERED Tariffs ACHEIVEMENTS Signing of GATT, 45,000 tariff concessions affecting $10 billion of trade Countries exchanged some 5,000 tariff concessions Countries exchanged some 8,700 tariff concessions, cutting the 1948 tariff levels by 25% $2.5 billion in tariff reductions Tariff concessions worth $4.9 billion of world trade Tariff concessions worth $40 billion of world trade Tariff reductions worth more than $300 billion dollars achieved The round led to the creation of WTO, and extended the range of trade negotiations, leading to major reductions in tariffs (about 40%) and agricultural subsidies, an agreement to allow full access for textiles and clothing from developing countries, and an extension of intellectual property rights.

Annecy

April 1949

5 months

13

Tariffs

Torquay Geneva II Dillon Kennedy Tokyo

September 1950 January 1956 September 1960 May 1964 September 1973

8 months 5 months 11 months 37 months 74 months

38 26 26 62 102

Tariffs Tariffs, admission of Japan Tariffs Tariffs, Anti-dumping Tariffs, non-tariff measures, "framework" agreements

Uruguay

September 1986

87 months

123

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

Doha

November 2001

141

Tariffs, non-tariff measures, agriculture, labour standards, environment, competition, investment, transparency, patents etc

The round is not yet concluded.

GATT: Objectives and principles

Objectives
1 To expand international trade by liberalising trade so as to bring about all round economic prosperity 2. Raising standard of living. 3. Ensuring full employment and a large and steadily growing volume of real income and effective demand. 4. Developing full use of the resources of the world. 5. Expansion of production and international trade

Principles
1. Non-discrimination No member country shall discriminate between the members of GATT in the conduct of international trade 2. Prohibition of Quantitative Restrictions Limit restrictions on trade to the less rigid tariffs

Rules/Conventions
1. Any proposed change in the tariff, or other type of commercial policy of a member country should not be undertaken without consultation of other parties to the agreement.

3. Consultation Resolve disagreements through consultation

2. The countries that adhere to GATT should work towards the reduction of tariffs and other barriers to international trade, which should be negotiated within the framework of GATT.

GATT: Role in globalization

Achievements
The average level of tariffs on manufactured products in industrial countries was brought down from about 40 per cent in 1947 to 3 percent after the Uruguay Round of 1986 The number of signatories increased from 1947, to 128, in 1995 during which the GATT. Agricultural trade Trade in agriculture became progressively more distorted by the support given to farmers (which took the form of severe barriers to imports and subsidies to exports) in the industrial nations. Textiles Trade in textiles was restricted by the Multi-Fibre Arrangement (MFA). Under the MFA imports of textile items to a number of developed countries were restricted by quotas Trade of developing countries Developing countries with balance of payments problems have been generally exempted form the liberalisation.

Limitations

23 in

The 1950s and 1960s are described as the golden decades of capitalism. The output levels of companies using newer and newer technologies in many eases were much larger than the domestic markets could absorb. There was also a surge in international investments. Expansion of markets to other countries enabled even companies in other industries to increase their output.

The World Trade Organization: From the GATT

The GATT was the only multilateral instrument governing international trade from 1947. At the time only 23 nations were signatories The first six Rounds of MTNs concentrated almost exclusively on reducing tariffs. The period of 1950-1973 is conspicuous by the splendid results of progressive trade liberalisation Although the elimination of Tariff Barriers continued, the developed countries had substantially increased Non-Tariff Barriers (NTBs). Moreover the oil crisis of the 1970s, saw the developing nations being hit hard by the NTBs. Exports of developing countries gained significantly less from the GATT Rounds than did exports of the industrial nations. GATT excluded globalization of agricultural and textile trade due to which the developing nations faced difficulties in exporting as these areas were the forte of the developing nations. The Uruguay Round (UR) of September 1986, followed by the Dunkel Draft of 1993 formally established the WTO as a permanent body for global trading policies replacing the GATT, which was a framework of temporary guidelines since its inception in 1947

The World Trade Organization versus the GATT

GATT WTO

GATT was ad hoc and provisional

WTO and its agreements are permanent

GATT had contracting parties

WTO has members

GATT system allowed existing domestic legislation to continue even of it violated a GATT agreement

WTO does not permit such legislation

GATT was less powerful, dispute settlement system was slow and less efficient, its ruling could be blocked

WTO is more powerful than GATT, dispute settlement mechanism is faster and more efficient, very difficult to block the rulings.

WTO functions
1. The WTO shall facilitate the implementation, administration and operation and further the objectives of the Multilateral Trade Agreements and shall also provide the framework for the implementation, administration and operation of Multi-Lateral Trade Agreements. 2. The WTO shall provide the forum for negotiations among its members concerning their multilateral trade relations in matters dealt with under the Agreements. 3. The WTO shall administer the Understanding on Rules and Procedures Governing the Settlement of Disputes 4. The WTO shall administer the Trade Review Mechanism 5. With a view to achieving greater coherence in global economic policy making, the WTO shall cooperate, as appropriate, with the IMP and IBRD and its affiliated agencies.

WTO: An attempt to overcome the shortcomings of GATT

Limitations of GATT
Agricultural trade Trade in agriculture became progressively more distorted by the support given to farmers (which took the form of severe barriers to imports and subsidies to exports) in the industrial nations. Textiles Trade in textiles was restricted by the Multi-Fibre Arrangement (MFA). Under the MFA imports of textile items to a number of developed countries were restricted by quotas Trade of developing countries Developing countries with balance of payments problems have been generally exempted form the liberalisation. The Agreement on Textiles and Clothing aims to reduce the tariffs over a ten year period. However, the tariffs remain as high as 12% under this agreement that has met with opposition from the developing countries in the recent times. Trade of developing countries According to the Understanding on the balance of payments, members are to avoid imposing new quantitative restrictions for balance of payments purpose.

How to addresses the limitation

Agricultural trade The Agreement on Agriculture tries to reduce the trade distorting effects of border protection, domestic support policies and export subsidies. Textiles