 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 Tariffs and anti-dumping measures 62
Round)
1973-79 Geneva(Tokyo Round) Tariffs ,non-tariff measures, “framework” 102
agreements
1986-94 Geneva(Uruguay Tariffs, non tariffs measures, rules, 123
Round) services, intellectual property, dispute
settlement, textiles, agriculture, creation
of WTO etc.
 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
 Table: Average tariff rates in selected countries on manufactured
products

Denmark Holland USA France Austria UK Italy Germany

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

 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 You
By
Vinod Menon & Ruchit Rajen
PGDM Module – II
SEC - A