Introduction – History of GATT Objectives The GATT Rounds Exceptions and waivers Reasons For Exclusion of Agriculture Gatt Rounds between 1947 – 1994 Present formation of GATT GATT passed or failed

Degree of openness of the economy to the penetration of foreign goods and services

1700 - A country grew rich by the amount of gold it received and sold in the foreign market

1800 – Adam Smith and David Ricardo challenged the mercantilist view.

Law of comparative advantage international laissez faire

The US governing class held long and hard to protectionism

1930 – Great Depression High unemployment and depression in

export Tariff rates raised to draconian level A trade war leading to the total collapse

of international trade

The realignment occurred between Great Britain and the US

The Bretton Woods Conference created the International Monetary Fund

World Bank for economic restructuring and development in western Europe

The General Agreement on Trade and Tariff was created in 1946

Initial purpose is substantial reduction of tariffs and other trade barriers and the elimination of preferences

It was founded on the principles of nondiscrimination and multilateralism in international trade

It was lauded for the dramatic increase of the world trade

An agreement for trade between 150 countries

France Germany Spain Italy USA

1913 20% 13% 41% 18% 44%

1925 21% 20% 41% 22% 37%

1931 30% 21% 63% 46% 48%

The outcome of the failure of negotiating governments to create the International Trade Organization

The objective was achieved through the reduction of tariff barriers, quantitative restrictions and subsidies on trade through a series of agreements

The functions of the GATT were taken over by the World Trade Organization

The objectives of the 1947 Agreement were to establish an orderly and transparent framework within which barriers to trade could be gradually reduced, and international trade thereby expanded

The most important elements of the Agreement included those of: non-discrimination: the Most Favored Nation (MFN)

principle protection shall be afforded to domestic industries consultation shall be the primary method to solve

global trade barriers tariff reduction.

Year Place/Name Topics Covered Counries

1947 Geneva(Switzerland) Tariffs 23

1949 Annecy(France) Tariffs 13

1951 Torquay(UK) Tariffs 38

1956 Geneva Tariffs 26

1960-61 Geneva(Dillon Round) Tariffs 26

1964-67 Geneva(Kennedy Round)

Tariffs and anti-dumping measures 62

1973-79 Geneva(Tokyo Round) Tariffs ,non-tariff measures, “framework” agreements

102

1986-94 Geneva(Uruguay Round)

Tariffs, non tariffs measures, rules, services, intellectual property, dispute

settlement, textiles, agriculture, creation of WTO etc.

123

Developing countries were given special status.

Countries that offer each other more favorable treatment within a custom's union were allowed to waive full adherence to the MFN clause.

Agricultural trade was given special treatment, especially with regard to non-tariff barriers.

The general consensus of opinion was that agriculture was a unique sector of the economy, that, for reasons of national food security, could not be treated like other sectors.

With the expansion of the manufacturing economy, agriculture was in relative decline. Political and social pressures demanded, however, that the decline be halted or slowed down, and that agriculture be protected from the full rigors of the international market.

1947: Geneva Round – Participants completed 123 negotiations and

established 20 schedules containing the tariff reductions

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

Denmark Holland USA France Austria UK Italy Germany

1950 3% 11% 14% 18% 18% 23% 25% 26%

Table: Average tariff rates in selected countries on manufactured products

main focus of the talks was more tariff reductions Agreement that the accession of a new member country does not require unanimity, but only two-third majority of all existing member countries

The contemporaneous rejection by the United States of the Havana Charter signified the establishment of the GATT as a governing world body

8700 concessions were made Major problem of that Round: Dispute

between the US and the UK => no bilateral tariff cuts on US—UK trade

$2.5 billion tariffs were eliminated or reduced.

The momentum toward lower tariffs was lost

Low-tariff countries were frustrated by their inability to bargain effectively with high-tariff countries

Along with reducing over $4.9 billion in tariffs, it also yielded discussion relating to the creation of the European Economic Community (EEC)

Last round of negotiations which were undertaken on a bilateral basis:

– The Most favoured nation principle ensured that all member countries were granted with all trade advantages. In effect, that means no nation will be treated worse than another.

Denmark Holland Austria France UK Italy Germany

1950 3% 11% 18% 18% 23% 25% 26%

1958 6% 10% 15% 17% 17% 19% 6%

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

Concessions were made on $40 billion worth of tariffs

The US suggested… – Reduction of tariffs across the board by 50% (linear rule) – “dominant supplier authority”: On commodities in which the US and

the European Community (EC) accounted for 80% or more of the world trade, tariffs should be cut by up to 100%

– US offered that tariffs for tropical products and tariff rates of less than 5% should be completely eliminated, provided that the EC reciprocated

US suggestions were phrased in a non-discriminatory manner, but naturally guided by self-interest

Sectoral groups for the discussion of five sensitive product sets were created: Aluminums, chemicals, paper and pulp, steel, textiles and clothing

– This allowed more scope for lobbying by producer interest groups

Kennedy Round was successful: tariff protection dropped significantly in manufacturing in the late 1960s and early 1970s – Tariffs reductions in industrial countries were

estimated to be between 36-39% – Tariff reductions affected 75% of world trade – As a result of Kennedy Round, the CET of the

European Community fell to 6.6%. Tariff cuts on raw materials, textiles and

clothing were much lower Agriculture was by an large left out from tariff

cuts

Concessions were made on $190 billion worth. Tokyo Round was much concerned with

commercial policy rules: set-up of several study groups

– Group: How to deal with non-tariff barriers (Technical barriers; quantitative restrictions; subsidies

– Other groups: How to deal with tariffs; agriculture; tropical products; safeguards (i.e. emergency protection)

The “Swiss formula”: – where t0= original tariff and t1 = final tariff

(both in percentage terms) – Negotiations resulted in the value of c being set

at 16 – Examples: t0 = 10% => t1 = 6.2% t1=

ct0 t0 = 20% => t1 = 8.9%

c +t0

One-third cut in customs duties in the world's nine major industrial markets, bringing the average tariff on manufactured products down to 4.7 per cent

Pre - Tokyo Post -Tokyo Reduction

Total Industrial product 7.2% 4.9% 33%

Raw Material 0.8% 0.4% 52%

Semi-Manufacturers 5.8% 4.1% 30%

Finished Manufacturers 10.3% 6.9% 33%

Textiles, clothing, travel goods received lower tariff cuts

Agriculture received attention, but was by an large left out from tariff cuts and continued to be a source of friction in the 1980s

Concessions for the import of tropical products: Many were granted duty free access

Developing countries failed to achieve greater concessions and remained dissatisfied

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) – US wanted Japan to open its domestic

market for US exports – EC wanted to limit Japanese export growth

Japan favored a new GATT round: Multilateral negotiations were preferred to

bilateral pressure from the US and the EC

Objective Reduce the agriculture subsidies Put restriction on foreign investment To begin the process of open trade in banking and

insurance

Agenda:Tariffs, Non-Tariff Measures, National

Resource products, Textile and clothing, agriculture, Tropical products, Gatt articles, Tokyo Round codes, Anti- Dumping, Subsidies, Intellectual Property, Investment measures, Dispute settlement, The Gat system, Services

Agreement on agriculture Agreement on textile and clothing Agreement on Technical Barriers to

Trade Agreement on Trade Related Aspects

of Investment Measures Agreement on Import Licensing

Procedures

WTO replaced The 75 existing GATT members and the

European Communities became the founding members of the WTO

A total of 153 member countries in the WTO.

It expanded its scope from traded goods to trade within the service sector and intellectual property rights.

Continual reductions in tariffs alone helped spur very high rates of world trade growth

Limited achievement of the Tokyo Round, outside the tariff reduction results, was a sign of difficult times to come

General Agreement was no longer as relevant to the realities of world trade

Agriculture sector was deeply upset

Thank YouBy

Vinod Menon & Ruchit RajenPGDM Module – II

SEC - A