CHAPTER – I

INTRODUCTIONS OF THE GENERAL AGREEMENT ON

TARIFFS AND TRADE (GATT)

The General Agreement on Tariffs and Trade (GATT), which was signed in 1947, is a

multilateral agreement regulating trade among 153 countries. According to its preamble, the

purpose of the GATT is the "substantial reduction of tariffs and other trade barriers and the

elimination of preferences, on a reciprocal and mutually advantageous basis."

The GATT functioned de facto as an organization, conducting eight rounds of talks addressing

various trade issues and resolving international trade disputes. The Uruguay Round, which was

completed on December 15, 1993 after seven years of negotiations, resulted in an agreement

among 117 countries (including the U.S.) to reduce trade barriers and to create more

comprehensive and enforceable world trade rules. The agreement coming out of this round, the

Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, was

signed in April 1994. The Uruguay Round agreement was approved and implemented by the

U.S. Congress in December 1994, and went into effect on January 1, 1995.

From 1948 to 1994, the General Agreement on Tariffs and Trade (GATT) provided the rules for

much of world trade and presided over periods that saw some of the highest growth rates in

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international commerce. It seemed well-established, but throughout those 47 years, it was a

provisional agreement and organization.

The original intention was to create a third institution to handle the trade side of international

economic cooperation, joining the two “Bretton Woods” institutions, the World Bank and the

International Monetary Fund.

The General Agreement on Tariff and Trade is a multilateral treaty that lays down agreedrules

for conducting international trade. It came into force in January 1948. 119governments which

together account for 90 per cent of the world merchandise tradesubscribe it to. Its basic aim is to

liberalize trade and for the last 45 years it has beenconcerned with negotiating the reduction of

trade barriers and with international traderelations. The rapid and uninterrupted growth in the

volume of international trade till1992 provides a good testimony for the success of the GATT.

The General Agreement on Tariffs and Trade (GATT) was originally created by the Bretton

WoodsConference as part of a larger plan for economic recovery after World War II. The

GATT‘s main purpose was to reduce barriers to international trade. This was achieved through

the reduction of tariff barriers, quantitative restrictions and subsidies on trade through a series of

different agreements. The GATT was an agreement, not an organization. Originally, the GATT

was supposed to become a full international organization like the World Bank or IMF called the

International Trade Organization. However, the agreement was not ratified, so the GATT

remained simply an agreement. The functions of the GATT have been replaced by the World

Trade Organization. What is the purpose of GATT? According to the Preamble of GATT, the

objectives of the contracting parties include, • raising standards of living • ensuring full

employment • thelarge and steadily growing volume of real income and effective demand •

developing the full use of the resources of the world • expanding the production and exchange of

goods.

The Preamble also states the contracting parties‘ belief that ―reciprocal and mutually

advantageous arrangements directed to the substantial reduction in tariffs and other barriers to

trade and to the elimination of discriminatory treatment in international commerce‖ would

contribute toward these goals. Importantly, ―free trade‖ is not the stated objective of GATT.

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The role of GATT in integrating developing countries into an open multilateral trading system is

also of major consequence. The increasing participation of developing countries in the GATT

tradingsystem and the pragmatic support provided to them through the flexible application of

certain rules helped developing countries to both expand and diversify their trade. It could now

be said that a great number of these countries have already become full partners in the system as

can bewitnessed by their active participation in the Uruguay Round. The task of helping to

integrate further the least-developed countries is one of the challenges that lies ahead in the

WTO. Similarly, the full integration of countries with economies in transition into the trading

system must be achieved in order to strengthen economic interdependence as a basis for greater

prosperity and world peace. These negotiations were critical to ensure the future health of the

world economy and the trading system. The globalization of the world economy over the past

decade has created a greater reliance than ever on an open multilateral trading system. Free trade

has become the backbone of economic prosperity and development throughout the world. Partly

as a result of this, there has been a shift in trade policy mechanisms from border measures to

internal policy measures, substantially affecting the management of trade relations.

Purpose of GATT

According to the Preamble of GATT,main objective was the “Reduction of Barriers to

International Trade” This was achieved through the Reduction of Tariff barriers Quantitative

Restrictions Subsidies on trade through a series of agreements. Although, other objectives of the

contracting parties include,

raising standards of living

ensuring full employment

a large and steadily growing volume of real income and effective demand

developing the full use of the resources of the world

Expanding the production and exchange of goods.

The General Agreement on Tariffs and Trade (GATT) was first signed in 1947, was designed -

o To provide an international forum

o That encouraged free trade between member states

o By regulating and reducing tariffs on traded goods

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o Providing a common mechanism for resolving trade disputes.

OBJECTIVES OF GATT :

To expand International trade by liberating trade.

Build an International trading system

to ensure orderly and equitable expansion of world trade and contribute to the prosperity

of US.

Reduce foreign export subsides, tariff and non-tariff barrier and internal supports.

\Cuts costs by 50 – 100% on important electronic items

To strengthen and clarify rules for agricultural trade.

To reduce subsidization for agricultural production.

Expansion of production and international trade.

Better utilization of resource of the world.

History :

3 Phases

First Phase : 

From 1947 until the Torquay Round.Commodities 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

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Second Phase : 

A second phase, encompassing three rounds, from 1959 to 1979.Focused on reducing tariffs

Second Phase

Year Place/name Subjects covered

1960-1961 Geneva

Dillon Round

Tariffs

1964-1967 Geneva

Kennedy Round

Tariffs and anti-dumping measures

1973-1979 Geneva

Tokyo Round

Tariffs, non-tariff measures, “framework”

agreements

Third Phase : 

The Third phase, consisting only of the Uruguay Round from 1986 to 1994.Extended the

agreement fully to new areas such as intellectual property, services, capital, and agriculture. Out

of this round the WTO was born.

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Year Place/name Subjects covered

1986-1994 Geneva

Uruguay Round

Tariffs, non-tariff measures, rules, services, intellectual

property, dispute settlement, textiles, agriculture, creation

of WTO, etc.

GATT Round

GATT members have engaged in eight intensive series of multilateral trade negotiations. Since

the fifth series of negotiations (Dillon Round), multilateral negotiations under the GATT have

been called the “XX Round Negotiations” or simply the “XX Round.”

During the Doha Ministerial Conference, it was decided to launch a new series of negotiations.

This series of negotiations is called the Doha Development Agenda, because some developing

countries oppose the word “Round.” Figure II-4 outlines a brief history of trade liberalization

negotiations.

Tariffs were gradually reduced over the course of several negotiating rounds. In addition, trade

rules other than tariffs were developed. In particular, the Uruguay Round produced landmark

results, including the strengthening of trade rules and the development of binding dispute

settlement procedures.

GATT round negotiations

Trade Negotiations under GATT:

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Eight major trade negotiations took place under the GATT auspice as follows:

1.The first round in 1947 (Geneva) saw creation of the GATT.

2.The second round in 1949 (Annecy, France) involved negotiation with nationsthat desired

GATT membership. The principal emphasis was on tariff negotiations.

3.The third round in 1951 (Torquay, England) continued accession and tariff reduction

negotiations.

4.The fourth round in 1956 (Geneva) proceeded along the same track as earlierrounds.

5.The fifth round in 1960-61 (Geneva, Dillon Round) involved further revisionof the GATT and

the addition of more countries.

6.The sixth round in 1964-67 (Geneva Kennedy Round) was hybrid of earlierproduct by product

approach with across the board tariff reductions.

7.The seventh round in 1973-79 (Geneva, Tokya Round) centred on thenegotiation of additional

tariff cuts and developed a series of agreementsgoverning the use of non-tariff measures.

8.The eight round (Uruguary Round ) started in 1986 and was concluded inApril 1994.As a

result of these negotiations, the tariff rates for thousands of items entering into worldtrade were

reduced or bound against increase. The average level of tariffs onmanufactured goods in

industrial countries was bout 3 per cent now as compared to about 40 percent in the immediate

second world was years. Developing countries weredisappointed with Kennedy round and the

Tokyo Round. However, given its provisionalnature and the limited field of action, the success

of GATT in promotion and securingliberalisation of much of world trade over 47 years was

incontestable.

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FUNDAMENTAL PRINCIPLES OF GATT :

1. Non Discrimination: No member country shall discriminate between members of GATT.

Exceptions are allowed.

2. Prohibition of Quantitative Restrictions

3. Concept of consultation aims to avoid damage to trading interests of contracting parties.

4. GATT provides frame work within which the negotiations can be held for reduction of tariff

another barrier to trade and structure for embodying results of such negotiations

OTHER FUNCTIONS OF GATT :

Most Favored function status: Matters related to the tariff and related matters granted to any of

the trading partner. Ensures that any tariff reduction or any other trade concession is extended to

all GATT parties. National treatment: GATT members must give imported goods treatment

equal to that of domestic goods. No restrictions on charges like rates may be applied to imported

goods unless equally treated.

Protection through tariff : Prohibits quantitative restrictions / Quotas. Contracting parties are

expected to provide protection by means of tariffs which are transparent and subject to

negotiations in the GATT. Dispute Settlement: Procedures from Uruguay round negotiations

provides more automatic and effective resolution of disputes between member nations.

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Evaluation of GATT

1. When GATT was signed in the year 1947 only 23 nations were party to it. In the 1986,

there were 117 were members. One of the principle achievement of GATT was the

establishment of forum for continuing consultation.

2. GATT achieved considerable liberalization, few exception are as follow as:-

Agricultural trade was an exception to the liberalizations. Trade in agricultural became

progressively more distorted by the support given to the farmers in agricultural sectors.

Another exception was textile: trade in textile was restricted by MFA. under MFA import

of textile items, to number of developed countries was restricted by quota.

Developing countries with balance of payment problem have been generally exempted

from liberalization.

3 The average level of tariff on manufactured products in industrial countries was brought

down from 40% in 1947 to 3% in 1986.

4 The export of developing countries gained significantly less from the GATT agreement

then did the export of developed countries

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CHAPTER – II

GATT & WTO

GATT WTO

1) It Stands for General Agreement on Tariffs and

Trade

1) ) It Stands for World Trade Organization

2) GATT was adhoc and provisional. 2) WTO is permanent.

3) GATT has contracting parties. 3) WTO has members.

4) GATT system allows existing domestic,

legislation to continue even if it violated GATT

agreement.

4) WTO does not permit this.

5) GATT was less powerful and dispute

settlement mechanism was less efficient.

5) WTO is more powerful and dispute

settlement mechanism was more efficient

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PRINCIPLES OF THE “GATT”&THE “WTO”

The ultimate aim of GATT is the establishment of a free multilateral trading system and

liberalization of international trade through removal of discrimination in international trade and

reduction in trade barriers. For the achievement of this objective, GATT has adopted the

following fundamental principles. These principles forbid unfair trade practice and set a code of

conduct for the participants. The WTO establishes a framework for trade policies; it does not

define or specify outcomes. That is, it is concerned with setting the rules of the trade policy

games. Five principles are of particular importance in understanding both the pre-1994 GATT

and the WTO:

1. Non-discrimination:

It has two major components: the most favoured nation (MFN) rule, and the national treatment

policy. Both are embedded in the main GATT/WTO rules on goods, services, and intellectual

property, but their precise scope and nature differ across these areas. The MFN rule requires that

a GATT/WTO member must apply the same conditions on all trade with other GATT/WTO

members, i.e. a GATT member has to grant the most favorable conditions under which it allows

trade in a certain product type to all other GATT/WTO members. National treatment means that

imported goods should be treated no less favorably than domestically produced goods and was

introduced to tackle non-tariff barriers to trade.

2. Reciprocity:

It reflects both a desire to limit the scope of free-riding that may arise because of the MFN rule,

and a desire to obtain better access to foreign markets. A related point is that for a nation to

negotiate, it is necessary that the gain from doing so be greater than the gain available from

unilateral liberalization; reciprocal concessions intend to ensure that such gains will materialize.

3. Binding and enforceable commitments:

The tariff commitments made by GATT/WTO members in a multilateral trade negotiation and

on accession are enumerated in a schedule of concessions. These schedules establish "ceiling

bindings": a country can change its bindings, but only after negotiating with its trading partners,

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which could mean compensating them for loss of trade. If satisfaction is not obtained, the

complaining country may invoke the GATT/WTO dispute settlement procedures.

4. Transparency:

The GATT/WTO members are required to publish their trade regulations, to maintain institutions

allowing for the review of administrative decisions affecting trade, to respond to requests for

information by other members, and to notify changes in trade policies to the GATT/WTO. These

internal transparency requirements are supplemented and facilitated by periodic country-specific

reportsthrough the Trade Policy Review Mechanism (TPRM).The GATT system tries also to

improve predictability and stability, discouraging the use of quotas and other measures used to

set limits on quantities of imports.

5. Safety valves:

In specific circumstances, governments are able to restrict trade. The GATT‘s agreements permit

members to take measures to protect not only the environment but also public health, animal

health and plant health. How do principles works in practice? Despite high-sounding principles,

the WTO Agreements contain an extensive range of measures that permit members at least to

modify, and at times to escape, their obligations. A full explanation of how these work would

require book-length treatment. Here we provide brief examples of some of the main

qualifications, which indicate how a member government can exercise a degree of sovereignty

within the framework of rules prescribed by the agreements:

1. Grandfathering pre-existing preferences:

This means that if, at the time of signing the agreement, a country gives some trading partners

preferential treatment it can continue to do so.

2. Regional trade agreements:

Countries can be members of regional trade agreements, as well as the WTO even though there

are different obligations. This represents a derogation of the MFN principle but is allowed under

certain conditions.

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3. Waivers:

Waivers to obligations are permitted in certain exceptional circumstances. For instance, the

United States received a waiver in the case of the Canada-United States Automotive Agreement.

4. Non-application of national treatment:

The national treatment principle does not apply to government procurement or to the provision of

subsidies for domestic production. General Exceptions - General exceptions are permitted in

cases where government measures, although restrictive of trade, are required for reasons of:

public morals; human, animal, plant life and health; compliance with domestic regulations; trade

in gold and silver; the products of prison labour; conservation of natural resources; protection of

national treasures; and participation in international commodity agreements.

5. National Security:

Actions can be taken to protect national security.

6. Food and human security:

Temporary export prohibitions are permitted in the case of critical shortages of food and

essentials.

7. Balance of payments:

A country can take measures to alleviate a balance of payments problem.

8. Safeguards and countervailing duties:

Allowance is made for safeguards against injury caused to domestic industries by sudden

increases in imports of products. In addition, a country has the ability to address cases of

dumping, and to provide countervailing duties against subsidies.

9. Concessions:

A country has the ability to reduce or withdraw concessions offered.

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10. Developing countries:Special conditions are provided for developing countries.

OBJECTIVES OF THE “GATT”&THE “WTO”

There have been three basic objectives behind the establishment of the GATT.

1. It was to provide a framework for the conduct of trade relations.

2. It was to provide a framework for, and to promote, the progressive elimination of trade

barriers.

3. It was to provide a set of rules that would prevent countries from taking unilateral action.

These objectives aimed to make the international trade free from all restrictions and to facilitate

the expansion of international trade. Reductions in trade barriers and various rounds of

negotiations have facilitated the expansion of trade. ‗Most Favoured Nations (MFN)‘ treatment

under GATT has also facilitated the expansion of trade.

The Uruguay Round, Passing from GATT to WTO

The last and largest GATT round, was the Uruguay Round which lasted from 1986 to 1994 and

led to the WTO’s creation. Whereas GATT had mainly dealt with trade in goods, the WTO and

its agreements now cover trade in services, and in traded inventions, creations and designs

(intellectual property).The Final Act Embodying the Results of the Uruguay Round of

Multinational Trade Agreementsconsists of the Final Act itself, the Agreement establishing the

WTO ("WTO Agreement") and agreements annexed to it, and additional GATT agreements,

decisions and declarations. The text can be found in various sources: 1867 U.N.T.S. 3, 33 I.L.M.

9 (1994) (December 1993 text) and 33 I.L.M. 1143 (1994)(April 1994 text), The Final Act

Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations(K4603

1987 .A3 1994), The Legal Texts: The Results of the Uruguay Round of Multilateral Trade

Negotiations (K4603 1987.A4 1999); reprint of The Results of the Uruguay Round of

Multilateral Trade Negotiations: The Legal Texts (Perkins Ref. 382.92 R436, 1994)and in The

Uruguay Round of Multilateral Trade Negotiations (Microforms Room, filed with GATT

Documents). The text is also available online on theWTO website, in LexisNexis

(INTLAW;GATT) and Westlaw (GATT database with the search pr(final)), and on

WorldTradeLaw.net. Two of the most important of the annexed agreements are the General

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Agreement on Trade in Services (GATS), 33 I.L.M. 44 (1994) (December 1993 text) and 1869

UNTS 183, 33 I.L.M. 1167 (1994) (April 1994 text) and theAgreement on Trade Related

Aspects of Intellectual Property (TRIPS), 33 I.L.M. 81 (1994) (December1993 text) and 1869

UNTS 299, 33 I.L.M. 1197 (1994) (April 1994 text)

CHAPTER – III

TRADE POLICY IN GATT

WORLD TRADE IN SERVICES

The industrial sector can be classified as production sector and service sector. Productionsector

refers the industries that are engaged in production and supply of goods. Servicesector refers

providing services and exchanging services to the public as well as society.The growing

importance of services is reflected in the international trade also. The valueof the international

trade in services comes to about one fourth of the value of the valueof the trade in goods.

Services make up a major share of the invisible account in theBalance of payments of a country.

The most important services in international trade include:

Transport

Travel

Communication

Media

Business services

Insurances

Engineering and constructions services

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Banking Financial Services

Characteristics and Categories of Services:

An important characteristics of services that has far reaching implications formarketing of

services is their inseparability. That is services cannot be sepearated fromtheir providers, whether

they are persons or machines. This does not, however mean thatall services require the physical

proximity of the provider and user.

CHARACTERISTICS:

(a)Those that necessarily require the physical proximity of the provider and theuser; and

(b)Those that do not, though such physical proximity may be useful.The services where physical

proximity is essential fall into three categories:

 -The mobile provider and immobile user categorize the first category. In this casethe provider

goes into the place of user and doing services. For example the technicalpeople of L & T

Company in India goes to Srilanka and do the construction work.Similarly a technician may have

to go a plant abroad to rectify a problem with the plant.- Mobile user and immosbile provider

characterizes the second category. I.e. usergoes towards the provider. For example a patient who

wants an open-heart surgery willhave to go to a hospital where the required facilities are

available.-The third category consists of of mobile user and mobile provider. In this caseeither

the provider going to the user or the user going to the provider may achieveproximity. For

example dry-docking facilities for ships.

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OBSTACLES OR RESTRICTIONS IN SERVICE SECTOR:

Due to the special characteristics and the socio economic and politicalimplications of certain

services, they are generally subject to various types of

nationalrestrictions. Protective measures include visa requirements,

investment regulations,marketing regulations, restrictions on the employment of foreigners,

compulsion to uselocal facilities etc. Heavily protected r restricted services in different countries

includebanking and insurance; transportation, television, radio, film and other forms

of communications and so on.

INSTITUTIONAL INFRASTRUCTURE FOR EXPORT PROMOTION IN INDIA

The Government of India has set up a number of institutions whose main functions are tohelp an

exporter in its export efforts. It is therefore, necessary for the exporters toacquaint themselves

with these institutions and the nature of help they can render to themso that they can initially

contact them to get whatever help they could get from theseinstitutions in exporting their

products.

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CHAPTER – IV

SUCCESS & FAILURE OF THE “GATT” SUCCESS

One of the important achievements of GATT was the establishment of a forum for continuing

consultations. ―Disputes that might otherwise have caused continuing hard feeling, reprisals,

and even diplomatic rupture, have been brought to the conference table and compromised‖.

GATT could achieve considerable trade liberalization. Over the 47 years GATT was successful

in promoting and securing liberalization of world trade. Continued reductions in tariffs alone

helped to achieve very high rates of world trade growth during the 1950‘s and 1960‘s – around 8

percent a year on an average. The momentum of trade liberalization helped to ensure that trade

growth consistently out-paced production growth throughout the GATT era, a measure of

countries increasing ability to trade with each other and to reap the benefits of trade. The rush of

new members during the Uraguay Round demonstrated that the multilateral trading system was

recognized as an anchor for development and an instrument of economic and trade reform.

FAILURE:

As time passed new problems arose. The Tokyo Round in the 1970s was an attempt to tackle

some of these but its achievements were limited. This was a sign of difficult times to come.

GATT‘s success in reducing tariffs to such a low level, combined with a series of economic

recessions in the 1970s and early 1980s, drove governments to devise other forms of protection

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for sectors facing increased foreign competition. High rates of unemployment and constant

factory closures led governments in Western Europe and North America to seek bilateral market-

sharing arrangements with competitors and to embark on a subsidies race to maintain their holds

on agricultural trade. Both these changes undermined GATT‘s credibility and effectiveness. The

problem was not just a deteriorating trade policy environment. By the early 1980s the General

Agreement was clearly no longer as relevant to the realities of world trade as it had been in the

1940s. The expansion of services trade was also closely tied to further increases in world

merchandise trade. In other respects, GATT had been found wanting. For instance, in agriculture,

loopholes in the multilateral system were heavily exploited, and efforts at liberalizing

agricultural trade met with little success. In the textiles and clothing sector, an exception to

GATT‘s normal disciplines was negotiated in the 1960s and early 1970s, leading to the

Multifibre Arrangement. Even GATT‘s institutional structure and its dispute settlement system

were causing concern.These and other factors convinced GATT members that a new effort to

reinforce and extend the multilateral system should be attempted. That effort resulted in the

Uruguay Round, the Marrakesh Declaration, and the creation of the WTO.

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CHAPTER – V

CONCLUSIONS

The General Agreement on Tariffs and Trade (GATT) is a multilateral agreement regulating

international trade. According to its preamble, its purpose is the "substantial reduction of tariffs

and other trade barriers and the elimination of preferences, on a reciprocal and mutually

advantageous basis."

It was negotiated during the UN Conference on Trade and Employment and was the outcome of

the failure of negotiating governments to create the International Trade Organization (ITO).

GATT was signed in 1948 and lasted until 1993, when it was replaced by the World Trade

Organization in 1995. The original GATT text (GATT 1958) is still in effect under the WTO

framework, subject to the modifications of GATT 1994.

The World Trade Organization (WTO) is an organization that intends to supervise and

liberalizeinternational trade. The organization officially commenced on January 1, 1995 under

the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade (GATT),

which commenced in 1948. The organization deals with regulation of trade between participating

countries; it provides a framework for negotiating and formalizing trade agreements, and a

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dispute resolution process aimed at enforcing participants' adherence to WTO agreements which

are signed by representatives of member governments and ratified by their parliaments. Most of

the issues that the WTO focuses on derive from previous trade negotiations, especially from the

Uruguay Round (1986–1994).

CHAPTER – VI

BIBLOGRAPHY

LOTS OF BOOKS AND WEBSITES ARE AVAILABLE FOR THIS PROJECT BUT THE

ABOVE MATERIAL OR INFORMATION ABOUT “GATT” IS COLLECTED FROM THE

FOLLOWING SOURCES:-

1. INTERNET

‘General information on the GATT, including enlargement

www.wto.org

http://en.wikipedia.org/wiki/World_Trade_Organization

http://www.blurtit.com/q112370.html

www.gatt . org

http://www.sweetliberty.org/gatt.htm

http://www.answers.com/topic/general-agreement-on-tariffs-and trade#ixzz2ntpQt94b

2. ECONOMICS TEXTBOOK’S.

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