the general agreement on tariffs and trade

8/8/2019 The General Agreement on Tariffs and Trade

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Running Head: THE GENERAL AGREEMENT 1

The General Agreement on Tariffs and Trade

Diane K. Pearson

University of Phoenix


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THE GENERAL AGREEMENT 2

The General Agreement on Tariffs and Trade

International commercial activity requires planning, direction, and administration based

on the development of effective laws and regulations. Historical data may be analyzed to

determine the most operationally useful and equitable methods of carrying out trade operations.

The key to moving goods across borders in a method that benefits all parties to the transactions

lies in moderation and fair practices. Agreements and regulations exist to serve these purposes.

One such agreement is the General Agreement on Tariffs and Trade (GATT), which provides

guidance with regard to trade regulations and dispute settlement. What follows is a discussion of

how GATT interacts with other established trade laws and entities, and liability standards for

freight figures carrying out international trade activity.

GATT Defined

The agreement known as GATT was adopted in 1947 and included provisions for

promoting global trade between nations, decreasing international taxes and tariffs, and serving as

an impartial forum for any trade-related disputes (Columbia, n.d.). This accord aims to foster a

more compatible and hospitable commercial environment for all entities seeking to conduct

international business, regardless of location or size. The intended removal or reduction of

global tariffs diminishes the barriers to trade that would prevent less wealthy nations or entities

from pursuing certain commercial exchanges. Moreover, GATT ensures the existence of an

independent and objective moderator for any disagreements that may arise during the

performance of this trade.

Functions of the World Trade Organization

Present-day commerce relies on the influence and direction provided by various

international trade facilitators and regulators. One of the most prominent of these is the World

Trade Organization (WTO), which primarily exists as an open, neutral meeting place where


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trading entities can negotiate agreements and settle commercial disputes (World, 2010). The

WTO also authors and implements various trade regulations as related to the current

international trade situation, and with regard to the transactions between nations conducting

business.

GATT Law and the WTO

The WTO works closely with the tenets outlined under GATT, featuring legal directives

and continued dispute moderation as applied to the sale of goods. As noted by World (2010), the

bulk of the WTOs current work comes from the 198694 negotiations called the Uruguay

Round and earlier negotiations under the General Agreement on Tariffs and Trade (p. 11). This

emphasizes the significance of the GATT treaty within the regulatory aspect of global trade. Of

note is that whereas the WTO functions as a regulating body for all types of trade including

services and design operations, GATT law pertains to the sale of tangible goods only.

Most Favored Nation Status

One important aspect of GATT law under the WTO involves the statuses accorded to

trading partners by nations conducting global exchanges. A country holding the designation of

most favored nation (MFN) as assigned by a trading partner will have the advantage of reduced

import tariffs and ultimately fewer trade barriers than countries without this status (Amadeo,

2010). This creates an imbalanced venue of commerce for entities seeking to conduct fair

international business transactions, as only certain groups or nations will benefit from these

reductions. Under GATT regulations, all nations within the WTO enjoy MFN status equally

when this designation is applied by one country to another member country (Most-Favored-

Nation Trading Status, 1991). This ensures that all nations abiding by the laws issued under

GATT will not suffer or lose out on commercial opportunities simply because one nation

receives more beneficial treatment.


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Settlement of Trade Disputes

The impartial attitude and policies of the WTO make proportionate the dealings that this

organization conducts with each of its members. Of note is the presence of the WTO,

complemented by the unbiased authority of GATT, in the realm of dispute settlement. This

function allows the application of a unified procedure for the resolution of disagreements among

WTO members, regardless of origin, global influence, or area of trade. Members may approach

the WTO for guidance related to clashes on items such as trade subsidies, anti-dumping

practices, intellectual property rights, and import inspection results (World, 2010).

This cohesion strengthens the organization and reinforces the concepts behind its rules.

By determining when members have exceeded limitations or broken rules, the WTO and GATT

give muscle to the words that outline these laws or regulations. As stated in procedural

documentation issued by the WTO, without a means of settling disputes, the rules-based system

would be less effective because the rules could not be enforced. The WTOs procedure

underscores the rule of law and it makes the trading system more secure and predictable

(World, 2010, p. 55).

Trade Regulations and Barriers

Certain commercial activities under directives issued by GATT and the WTO will also

fall under specific import regulations and other barriers to trade. Countries may opt to impose

tariffs on imported goods to raise the cost of those goods, making them less attractive to

domestic buyers. This increases the likelihood that locally made goods will be purchased in

place of the imported products, which in turn boosts the domestic economy.

Financial hindrances constitute just a portion of the barriers that affect international trade

with nontariff barriers creating the remainder of these hurdles for exporting entities. Examples

of these barriers include voluntary export restraints, technical barriers, and import licensing


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requirements (Sumner, Smith, & Rosson, 2002). Voluntary export restraints involve limiting the

number of items a country can export. Technical barriers include product package and size

regulations. Import licensing requirements may necessitate the acquisition of a license by the

exporting country for each item imported into the licensing country.

Management Decisions Based on Barriers

The existence of these barriers will affect the resulting strategies implemented by

corporate management. Advanced export documentation and application completion will be

required in cases in which import licensing applies, with the proper approvals and authorizations

in place prior to exporting products. This can influence manufacturing schedules, personnel

required for completion and facilitation of the trade activities, and financial needs for the export

program. Technical barriers such as required package sizes, definition of products, and

capabilities of items will vary according to destination country. Therefore, managers must

designate sufficiently capable strategists who must in turn take these features into consideration

when planning related projects.

Liability for International Freight Carriers

The movement of finished goods from manufacturing origins to end user or customer

destinations requires reliable freight carriers to ensure that expected transactions take place. The

deals made by company planners to accommodate tariff and non-tariff barriers or to meet the

requirements of importing nations ultimately lead to the need for capable freight partners. Goods

move from origin to destination via air and sea, which leads to a variety of potential liability

exposure. As a result, global freight regulations specify the levels of responsibility for each type

of international freight carrier.

According to the terms of the Montreal Convention, an air carrier bears responsibility for

items damaged during the transit from origin to destination as long as the damage did not result


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from circumstances beyond the control of the carrier (Payne, 2010). These circumstances

include improper packaging by the shipper, acts of war, or invasive steps taken by officials

associated with the physical shipment, such as Customs officials or port officers. Kumar (2010)

states that ocean carriers must provide seaworthy vessels, voyage directly from origin to

destination without unloading at unplanned or unauthorized ports, and ensure that the goods

remain in the same condition as at the time of departure. Should a carrier deviate from these

directives, any damage to carried goods would become the sole responsibility of the offending

carrier. Ocean intermediaries may limit levels of liability by stating the liability terms of each

shipment on the carriage documentation, such as the ocean waybill (Block, 2008). Should the

terms name the agent the responsible party if damages occur, then liability lies with the

intermediary in that case.

Conclusion

Conducting sufficient research into the functions of international commerce will ensure

that resulting legislation is based on input from the individuals and entities most affected by this

activity. Trade barriers exist to protect the interests of competing industries and trading nations,

but these barriers may also hinder legitimate functions of commerce if applied overzealously.

Liability of entities responsible for moving the freight created by manufacturers in these nations

serves as the final step in a meticulous process of movement of goods across borders.


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References

Amadeo, K. (2010). Most favored nation status. Retrieved November 8, 2010, from

http://useconomy.about.com/od/glossary/g/Favored_Nation.htm

Block, S. (2008). Kirbys wake? How the calm waters of ocean transportation intermediary and

subcontractor liability suddenly became unpredictable. Retrieved November 8, 2010,

from http://www.forwarderlaw.com/library/view.php?article_id=519

Columbia University Center for International Earth Science Information Network. (n.d.).

General agreement on tariffs and trade. Retrieved November 8, 2010, from

http://www.ciesin.org/TG/PI/TRADE/gatt.html

Kumar, S. (2010). Overseas carriage of goods into India: an overview. Retrieved November 8,

2010, from http://www.beneschlaw.com/files/Publication/f6d706e0-dc7e-47b0-b026-

fc058d51be64/Presentation/PublicationAttachment/8d9e4b65-d33d-4dd6-a368-

ff0fadb13ffe/BFCA_InterConnect_Winter10_030210.pdf

Most-Favored-Nation Trading Status. (1991). Congressional Digest, 70(10), 227. Retrieved

November 8, 2010, from MasterFILE Premier database

Payne, M. (2010). Update on cargo liability for international air freight. Retrieved November 8,

2010, from http://www.beneschlaw.com/files/Publication/f6d706e0-dc7e-47b0-b026-

fc058d51be64/Presentation/PublicationAttachment/8d9e4b65-d33d-4dd6-a368-

ff0fadb13ffe/BFCA_InterConnect_Winter10_030210.pdf

Sumner, D.A., Smith, V.H., & Rosson, C.P. (2002). Tariff and non-tariff barriers to trade.

Retrieved November 8, 2010, from http://www.farmfoundation.org/news/articlefiles/816-

sumner.pdf

World Trade Organization. (2010). Understanding the WTO. Retrieved November 8, 2010, from

http://www.wto.org/english/thewto_e/whatis_e/tif_e/understanding_e.pdf

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