2.

GATT: General Agreement on Tariffs and Trade: Origin, Objectives, Tariff

Negotiation

Origin of GATT:

Inspired by the success of agreement for international monetary co-operation as reflected in the formati
operation as reflected in international trade also was desired by many trading nations for expansion of wor

It was thought that for healthy world trade, attempt must be made to relax the existing trade restrictions, s

As such, at the International Conference on Trade and Employment held in 1946 at Havana, a proposal
called the International Trade Organisation (ITO) was made with the miscellaneous and general obj
maintaining world trade and employment.

Though the Havana Charter for ITO was designed as a sort of international trade constitution, it was not t
to various difficulties and lack of common agreement.

However, some of the countries took up one of the important issues of the Havana Charter regarding rela
by incorporating it into a General Agreement on Tariffs and Trade (GATT). This was signed in 1947 by
trading nations, including India. GATT membership has now gone up to more than 64.

As the name itself suggests, the General Agreement was concerned only with tariffs and trade restriction
matters. It serves as an important international forum for carrying on negotiations on tariffs.

Under GATT, member nations meet at regular intervals to negotiate agreements to reduce quotas, tariffs a
on international trade. GATT, by its very nature, is a contractual agreement among parties (or natio
collectively administered by the contracting nations.

However, it has become a permanent international organisation for safeguarding the conduct of in
institution for the multilateral expansion of trade.

Objectives of GATT:
By reducing tariff barriers and eliminating discrimination in international trade, the GATT
1. Expansion of international trade,
2. Increase of world production by ensuring full employment in the participating nations,

3. Development and full utilisation of world resources, and

4. Raising standard of living of the world community as a whole.

However, the articles of the GATT do not provide directives for attaining these objectives. These are to be
GATT through the promotion of free (unrestricted) and multilateral international trade.
As such, the rules adopted by GATT are based on the following fundamental principles:
1. Trade should be conducted in a non-discriminatory way;
2. The use of quantitative restrictions should be condemned; and
3. Disagreements should be resolved through consultations.

In short, members of GATT agree to reduce trade barriers and to eliminate discrimination in internationa
and free trade may be promoted, leading to wider dimensions of world trade and prosperity.
Most Favoured Nations Clause:

In general terms, members of GATT agree that reduction in tariffs and elimination of discrimination i
should be on a reciprocal and mutually advantageous basis.

To ensure against discrimination, members agree to grant to each other unconditional most favoured nati
export duties, with certain exceptions. Article I of the Agreement deals with the most favoured nation
advantage, favour, privilege or immunity granted by a contracting party to any product originating in
country shall be accorded immediately and unconditionally to a like product originating in or destined for
contacting parties.

Thus, the principle of most favoured nation implies that each nation should be treated as the most favo
contracting parties are forbidden from granting any new preference. And the negotiations and conce
bilateral agreements should be extended to all member countries on an equal basis so that the concessio
also signifies that the permitted quantitative restrictions should be administered without favouring any par
GATT permits such restrictions only for:
(i) Safeguarding exchange reserves when a country has balance of payments difficulties.
(ii) Restricting imports that would harm domestic price supports and production control programmes of a

GATT also lays down that state trading should be non-discriminatory. However, the formation of customs
are allowed by the General Agreement provided their purpose is to facilitate trade between the constituent
barriers to the trade of other member nations.

(iii) Underdeveloped countries to further their economic development under procedures approved by GATT
The following guidelines are to be followed in tariff negotiations:
1. Reduction in tariffs is to be negotiated on a reciprocal and mutually advantageous basis.

2. The negotiations should be either for reduction of tariffs or binding of low tariffs. Binding of low tariffs
will be assured of the continuance of low tariffs so that they can take up business expansion and productiv
risk (of high tariff).

3. Each member has to work in good faith and not raise its tariffs and other qualitative measures wit
bargaining power in tariff negotiations (when anticipated).

The GATT adopted the bilateral-multilateral technique of negotiating reduction in tariffs. It was a bilatera
the negotiations were carried on a nation-to-nation basis. In fact, the contracting parties formed pairs am
pair conducted negotiations on a selective commodity-by- commodity basis. The negotiations had mult
tariff reductions agreed within bilateral pairs of negotiating parties were made generally applicable to all c
the most-favoured nation clause.

The bilateral-multilateral method of tariff negotiations was in vogue till the operation of the Kennedy Rou
Kennedy Round five main tariff negotiating conferences had been held which effected agreements (binding
about 60,000 tariff rates between the participating countries.
The bilateral-multilateral technique of tariff reduction has the following drawbacks:

1. It leads to unfavourable terms of trade to the underdeveloped primary producing nations on accoun
position in a bilateral agreement with an advanced nation. The principle of reciprocity was injurious to thei
2. It creates uncertainty and instability in the tariff structure of various countries.
3. It causes injustice to the already low-tariff countries, as they are in a very weak bargaining position
exchange for concessions offered by other countries (previously with high tariffs).

4. It is a very slow method of reducing tariffs. Hence the achievements made during a long period of 14 ye
very substantial or encouraging.

In fact, at the ministerial meeting of the contracting parties in 1961, it was agreed that the reduction of
nation basis should be continued but in view of the changing conditions of world trade, the traditional
negotiation on a commodity-by-commodity and nation-by-nation basis are inadequate and inappropri
bilateral aspect of negotiations was given up in Kennedy Round.

WTO: The World Trade Organisation: Features, Structures, Objective and

Function of the WTO
The World Trade Organisation (WTO): Features, Structures, Objective and Function of
the WTO!
Introduction:
The establishment of the World Trade Organisation (WTO) as the successor to ,the
GATT on 1 January 1995 under the Marrakesh Agreement places the global trading
system on a firm constitutional footing with the evolution of international economic
legislation resulted through the Uruguay Round of GATT negotiations.
A remarkable feature of the Uruguay Round was that it paved the way for further
liberalisation of international trade with the fundamental shift from the negotiation
approach to the institutional framework envisaged through transition from GATT to
WTO Agreement.
The GATT 1947 and the WTO co-existed for the transitional period of one year in 1994.
In January 1995, however, the WTO completely replaced the GATT. The membership of
the WTO increased from 77 in 1995 to 127 by the end of 1996.
Features of the WTO:
The distinctive features of the WTO are:
i. Unlike the GATT, it is a legal entity.
ii. Unlike the International Monetary Fund (IMF) and the World Bank (WB) it is not an
agent of the United Nations.
iii. Unlike the IMF and the World Bank, there is no weighted voting, but all the WTO
members have equal rights.
iv. Unlike the GATT, the agreements under the WTO are permanent and binding to the
member countries.
v. Unlike the GATT, the WTO dispute settlement system is based not on dilatory but
automatic mechanism. It is also quicker and binding on the members. As such, the WTO
is a powerful body.
vi. Unlike the GATT, the WTOs approach is rule- based and time-bound.
vii. Unlike the GATT, the WTOs have a wider coverage. It covers trade in goods as well
as services.
viii. Unlike the GATT, the WTOs have a focus on trade-related aspects of intellectual
property rights and several other issues of agreements.
ix. Above all, the WTO is a huge organisational body with a large secretariat.
Structure of the WTO:
The organisational structure of the WTO is outlined in the Chart 50.1.

The Ministerial Conference (MC) is at the top of the structural organisation of the WTO.
It is the supreme governing body which takes ultimate decisions on all matters. It is
constituted by representatives of (usually, Ministers of Trade) all the member countries.
The General Council (GC) is composed of the representatives of all the members. It is
the real engine of the WTO which acts on behalf of the MC. It also acts as the Dispute
Settlement Body as well as the Trade Policy Review Body.
There are three councils, viz.: the Council for Trade in Services and the Council for
Trade-Related Aspects of Intellectual Property Rights (TRIPS) operating under the GC.
These councils with their subsidiary bodies carry out their specific responsibilities
Further, there are three committees, viz., the Committee on Trade and Development
(CTD), the Committee on Balance of Payments Restrictions (CBOPR), and the
Committee on Budget, Finance and Administration (CF A) which execute the functions
assigned to them by e WTO Agreement and the GC.

The administration of the WTO is conducted by the Secretariat which is headed by the
Director General (DG) appointed by the MC for the tenure of four years. He is assisted

by the four Deputy Directors from different member countries. The annual budget
estimates and financial statement of the WTO are presented by the DG to the CBFA for
review and recommendations for the final approval by the GC.
Objectives of the WTO:
The purposes and objectives of the WTO are spelled out in the preamble to the
Marrakesh Agreement.
In a nutshell, these are:
1. To ensure the reduction of tariffs and other barriers to trade.
2. To eliminate discriminatory treatment in international trade relations.
3. To facilitate higher standards of living, full employment, a growing volume of real
income and effective demand, and an increase in production and trade in goods and
services of the member nations.
4. To make positive effect, which ensures developing countries, especially the least
developed secure a level of share in the growth of international trade that reflects the
needs of their economic development.
5. To facilitate the optimal use of the worlds resources for sustainable development.
6. To promote an integrated, more viable and durable trading system incorporating all
the resolutions of the Uruguay Rounds multilateral trade negotiations.
Above all, to ensure that linkages trade policies, environmental policies with sustainable
growth and development are taken care of by the member countries in evolving a new
economic order.
Functions of the WTO:
The WTO consisting a multi-faced normative framework: comprising institutional
substantive and implementation aspects.
The major functions of the WTO are as follows:
1. To lay-down a substantive code of conduct aiming at reducing trade barriers including
tariffs and eliminating discrimination in international trade relations.
2. To provide the institutional framework for the administration of the substantive code
which encompasses a spectrum of norms governing the conduct of member countries in
the arena of global trade.
3. To provide an integrated structure of the administration, thus, to facilitate the
implementation, administration and fulfillment of the objectives of the WTO Agreement
and other Multilateral Trade Agreements.
4. To ensure the implementation of the substantive code.
5. To act as a forum for the negotiation of further trade liberalisation.
6. To cooperate with the IMF and WB and its associates for establishing a coherence in
trade policy-making.
7. To settle the trade-related disputes.