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GATT-Fundamental Principles & Impact on Developing Countries

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The rule or convention of GATT requires that:

Any proposed changes in the tariff,or other types of commercial policy of a member country,should not be undertaken without consultation with other parties to the agreement.

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

The GATT trade roundsYear Place/ name Subjects covered

Countries1947 Geneva Tariffs 231949 Annecy Tariffs 131951 Torquay Tariffs 381956 Geneva Tariffs 261960–1961 Dillon Round Tariffs 261964–1967 Kennedy Round Tariffs and anti-dumping

measures 621973–1979 Tokyo Round Tariffs, non-tariff measures,

“framework” agreements 1021986–1994 Uruguay Round Tariffs, non-tariff measures,

rules, services, intellectual property, dispute settlement, textiles, agriculture, creation of WTO, etc 123

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GATT – Key Principles

Non-discriminationReciprocityEnforceable CommitmentsTransparencySafety Valves

GATT Principles: Non-DiscriminationKey rules--MFN and National Treatment Principles.

Most-Favoured Nation(MFN), embodied in Art. I:A product made in one member country cannot be

treated less favourably than a like product originating in any other country

Three areas of application under WTO: goods (GATT), services (GATS) and intellectual property (TRIPs)

National Treatment, in Art. III having once passed the border, foreign goods cannot be treated less favourably than similar domestic goods in terms of (i) internal (indirect) taxation and(ii) non-tax policies (e.g. regulations)

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GATT Principles: Reciprocity

Rationale from the political economy literature:

Costs of liberalisation concentrated => loosing industries organised

Benefits (although in the aggregate usually greater than costs) dispersed lesser incentives for consumers to defend expected welfare gains

Potential reciprocal sector-specific gains may thus help sell trade liberalisation politically

To negotiate,a country has to gain more than from unilateral liberalisation.

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GATT Principles: Enforceable Commitments

Liberalisation commitments useless if not enforceable.

Agreed-upon tariff commitments are enumerated in lists termed Schedules of Concessions (Art. II)Tariff ceilings are establishedMembers concerned cannot raise tariffs above bound

levels without negotiating(try to reach an agreement) compensation with the principal suppliers of the product concerned

If another government’s actions are perceived(understand) to have the effect of nullifying(make of no use) or impairing committed market access => dispute settlement procedure.

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Elements of this procedurePanel of impartial experts determines whether a

contested measure violates GATT/WTO or notSince GATT/WTO is an intergovernmental agreement,

private parties do not have legal standing before its dispute settlement body, only governments have the right to bring cases.

Existence of dispute settlement procedure precludes(prevent from happening) use of unilateral retaliation(action taken in turn for an offense)

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GATT Principles: TransparencyAccess to information on the trade regime of signatories

Internal transparency: requirement to publish national trade regulations

External transparency: multilateral surveillance facilitated by periodic country reports prepared by GATT/WTO Secretariat (and discussed by its Council) so-called Trade Policy Review (TPR) mechanism

Benefits of transparency, e.g. publishing TPRs and other reports

Reduces pressure on the dispute settlement system measures can first be discussed by the appropriate GATT/WTO body before filing an appeal

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Strengthens GATT/WTO legitimacy(accordance with the law) by informing civil society what is going on in multilateral trade policy and what are the key implications

According to studies in the 1990s, reduces trade-policy uncertaintyMight otherwise result in low investment and growth

rates and shift to non-tradableReduces risk premium paid in capital markets for

likely trade regime(a government)/policy reversals.

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GATT Principles: Safety Valves

Government can restrict trade in specific circumstances.There are three types of provisions/articles (exceptions in GATT/WTO):

1. To attain noneconomic objectives: protect public health, national security or industries so seriously injured by import competition that social/political problems arise

2. To ensure “fair competition” often in conflict with market access as its instruments are duties Countervailing(Additional import duty

imposed to offset the effect of concessions and subsidies granted by an exporting country to its exporters.) duties on imports that have been subsidised

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Antidumping duties on imports that have been dumped, i.e. sold at a price below the one charged in the home market

1.To attain economic objectivesif serious balance-of-payments(A record of all transactions made between one particular country and all other countries during a specified period of time) difficultiesor to support an infant industry (In economics, an infant industry is a new industry, which in its early stages is unable to compete with established competitors abroad).

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Ever since World war2 the developing countries have been expressing their dissatisfaction with the pattern of world trade.This increased during 1960s.

The developing countries demanded for provision of differential treatment to ensure that the world trading system responds to the particular needs of the developing countries.

Since 1970,the agreements designed to promote these facilities were referred to as “differential”treatment.

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Developing Countries:

India,China,Brazil,Egypt,Hongkong,Kenya,Korea,Iran,Iraq,Malaysia,Mexico,Pakistan,Burma,Peru,Singapore,South Africa,SriLanka,Thailand,etc..,

To improve trading following privileges were made:

- The right to renegotiate tariff buildings so as to raise tariffs on products it desire to produce(infant industries)- The privilege to use quantitative restrictions in balance-of-payments difficulties.- A privilege to use any measure necessary to promote a particular industry.

Continual reductions in tariffs helped spur (incentives)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 multilateral trading system as the anchor for development and an instrument of economic and trade reform.

GATT’s success in reducing tariffs to a low level,with a series of economic recessions 1970-80’s drove governments to devise other forms of protection for sectors facing increased foreign competition

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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

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World trade had become far more complex and important than 40 years before

The globalization of the world economy was underway

Trade in services — not covered by GATT rules Ever increasing international investmentsFactors 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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