The General Agreement on Tariffs and Trade was established by The council for
trade in goods to accelerate the economy of its signatory members by reducing
various trade barriers imposed in order to protect municipal producers, as after
the second world war the economic conditions of various countries became worse,
it not only affected the nations physically but also devastated them
financially. Later GATT was replaced by World Trade Organization.
focused on reconstruction and liberalization of trade for the purpose of
boosting the economy of the affected nations. General Agreement On Tariffs And
Trade was signed on 30th October 1947 and came into effect on 1st January 1948.
Initially it focused on elimination or reducing of quotas, Tariffs and subsidies
which hinders the international trade between the nations, alongside it also
preserved some significant regulations which are required in order to maintain
healthy and fruitful trade relations. There were series of conferences held at
different locations such as Switzerland, France, England, Japan etc. not only
these conferences came with new and effective policies but also with each
conference the number of participants also increased.
Once a system involving
only 23 countries focusing only on reducing tariffs now circumscribes 128 member
nations dealing with virtually all manner of global commerce, including trade in
services, textiles, agriculture, Intellectual property and lot more.
Principles of the GATT:
General Agreement On Tariffs and Trade is a multilateral trade agreement
focusing on expansion of International trade and negotiating in case of
discrepancies. Conflict of opinion can arise between different nations with
regard to various policies of the agreement, few nations must see some of the
clauses as discriminatory so in order to resolve the same, a forum for
discussions is provided that allows for disciplined resolution of trade dispute
based on the founding principles of the GATT.
These principles are as follow:
- National Treatment:
According to this principle there should be no
discrimination between the foreign goods and the domestic goods. Once the
foreign goods enters the domestic market they should be given the same treatment
as given to locally produced goods. It does not applies to goods only but also
in case of services, intellectual property etc. For example country A is
importing products from two countries i.e. country B and C respectively, so
country A cannot treat the products from both the countries less favourably than
its own like domestic product.
- Most Favoured nation principle (MFN):
According to this principle the country
cannot discriminate between their trading partners i.e. it cannot accord one
nation with special favours such as reduced custom duties and others not. All
the member under this agreement must be given equal treatment. For example if
country A is importing like products from country B and C then it shall be under
the obligation to treat the like products from both the countries equally
without any discrimination.
Although it provides with some exceptions for
instance it can provide the developing countries with the special access to
their markets or can raise barriers in case it feels that a particular product
is traded unfairly by any specific countries.
Furthermore, GATT also led to the formation of various regional trading groups,
the non members of the groups are also given equal treatment and are not
discriminated against. For example: NAFTA , EU, ASIAN). This agreement also
focused on preventing various unfair practices by providing remedies such as
anti-dumping and countervailing duties.
Relationship between international trade and world economy.
Incorporation into the world economy has demonstrated a strong means for nations
to advance financial development, improvement, and reduction of poverty.
Beginning around 1947, when the General Agreement on Tariffs and Trade (GATT)
was made, the world had undergone eights rounds of trade liberalization as well
as unilateral and regional liberalization which has provided with great benefits
to the world trade system. These eight rounds of trade liberalization led to the
development of World Trade Organization to deal with increasing multilateral
This process of integration provided with couple of benefits to the developing
countries, in some nations poverty reduced drastically and in other nations
income have risen dramatically. With phases the exports of the developing
countries started increasing and greatly contributed to world trade economy.
Whereas it can be observed that many countries benefited by the progress, on the
other hand the progress was uneven for some of the countries. For example Asia
by Liberalising its economy and providing opportunities and special treatment
attracted foreign direct investment which helped in the growth of their economy
like we can see how countries like India and China substantially moved towards
globalization, but if we talk about Latin America or Africa they still
struggling to deal with variety of economic problems.
One of the basic reason
for their decline is to restrict their integration in the world economy by not
lowering their trade barriers, their weak management, their isolated policies
and their bend towards strict protectionism.
Benefits of Trade Liberalization
- Policies that make an economy open to trade and investment with the rest
of the world are needed for sustained economic growth. The evidence on this
is clear. No country in recent decades has achieved economic success, in
terms of substantial increases in living standards for its people, without
being open to the rest of the world. In contrast, trade opening (along with
opening to foreign direct investment) has been an important element in the
economic success of East Asia, where the average import tariff has fallen
from 30 percent to 10 percent over the past 20 years.
- Opening up their economies to the global economy has been essential in
enabling many developing countries to develop competitive advantages in the
manufacture of certain products. Freeing trade frequently benefits the poor
especially. Developing countries can ill-afford the large implicit
subsidies, often channelled to narrow privileged interests, that trade protection provides.
Moreover, the increased growth that results from freer trade itself tends to
increase the incomes of the poor in roughly the same proportion as those of the
population as a whole.
- There is considerable evidence that more outward-oriented countries tend
consistently to grow faster than ones that are inward-looking. Indeed, one
finding is that the benefits of trade liberalization can exceed the costs by
more than a factor of 10. Countries that have opened their economies in
recent years, including India, Vietnam, and Uganda, have experienced faster
growth and more poverty reduction. On average, those developing countries
that lowered tariffs sharply in the 1980s grew more quickly in the 1990s
than those that did not.
- In spite of the fact that there are benefits from further developed
admittance to other nations' business sectors, nations benefit most from
changing their own business sectors. The principle benefits for modern
nations would come from the advancement of their rural business sectors.
Non-modern countries would gain about in much the same way from headway of
gathering and cultivating. The get-together of low-pay countries,
nevertheless, would gain most from cultivating movement in current countries
because of the more important relative meaning of agriculture in their
There are a few circumstances wherein nations are permitted to disregard GATT
non-discrimination standards and past responsibilities like duty ties. These
address permissible exemptions that, while executed by the rules, are GATT
endorsed or GATT legitimate. The main special cases are Trade Remedies and free
trade area allowances.
An important class of exceptions is known as trade remedies. These are laws that
enable domestic industries to request increases in import tariffs that are above
the bound rates and are applied in a discriminatory fashion. They are called
remedies because they are intended to correct for unfair trade practices and
unexpected changes in trade patterns that are damaging to those industries that
compete with imports.
These remedies are in the GATT largely because these procedures were already a
part of the laws of the United States and other allied countries when the GATT
was first conceived. Since application of these laws would clearly violate the
basic GATT principles of non-discrimination, exceptions were written into the
original agreement, and these remain today.
AntidumpingAntidumping laws provide protection to domestic import-competing firms that can
show that foreign imported products are being "dumped" in the domestic market.
Since dumping is often considered an unfair trade practice, antidumping is known
as an unfair trade law. Dumping is defined in several different ways. In
general, dumping means selling a product at an unfair, or less than reasonable,
More specifically, dumping is defined as:
The percentage by which the actual price must be raised to reach the fair or
reasonable price is called the dumping margin. For example, if a firm sells its
product in its home market for Rs16 but sells it in a foreign market for Rs12,
then the dumping margin is 25 percent since a 25 percent increase in the Rs12
price will raise it to Rs16.
- Sales in a foreign market at a price less than in the home market
- sales in a foreign market at a price that is less than average
production costs, or
- if sales in the home market do not exist, sales in one foreign market at
a price that is less than the price charged in another foreign market.
Protection in the form of an antidumping (AD) duty
(i.e., a tariff on imports) can be provided if two conditions are satisfied:
- The government must show that dumping, as defined above, is actually
- The government must show that the import-competing firms are suffering
from, or are threatened with, material injury as a result of the dumped
imports. Injury might involve a reduction in revenues, a loss of profit,
declining employment, or other indicators of diminished well-being.
Anti-subsidyAnti-subsidy laws provide protection to domestic import-competing firms that can
show that foreign imported products are being directly subsidized by the foreign
government. Since foreign subsidies are considered an unfair trade practice,
anti-subsidy is considered an unfair trade law. The subsidies must be ones that
are targeted at the export of a particular product.
These are known as specific
subsidies. In contrast, generally available subsidies, those that apply to both
export firms and domestic firms equally, are not actionable under this
provision. The percentage of the subsidy provided by the government is known as
the subsidy margin.
Import-competing firms have two recourses in the face of a foreign government
- They can appeal directly to the WTO using the dispute settlement procedure.
They can petition their own government under their domestic anti-subsidy laws.
In either case, they must demonstrate two things:
- that a subsidy is being provided by the foreign government and
- that the resulting imports have caused injury to the import-competing
If both conditions are satisfied, then a country may implement a countervailing
duty (CVD)�that is, a tariff on imports set equal to the subsidy margin.
Free Trade Areas
Another normal circumstance requires an exemption for the standards of the
GATT/WTO. Numerous nations have chosen to follow various ways toward trade
liberalization. The multilateral methodology depicts the course of the GATT, by
which numerous nations all the while lessen their exchange boundaries, yet not
The elective methodology is alluded to as regionalism, by which two
to a few nations consent to lessen their duties and different boundaries to
zero-yet just among themselves. This is known as a regional approach since most
times the streamlined commerce accomplices are close by, or at any rate are huge
exchanging accomplices (however this isn't generally the situation).
In principle, a free trade agreement means free trade will be implemented on all
products traded between the countries. In practice, free trade areas often fall
short. First, they are rarely implemented immediately; instead, they are put
into place over a time horizon of ten, fifteen, or even twenty or more years.
Thus many free trade areas (FTAs) today are really in transition to freer trade.
Second, FTAs sometimes exempt some products from liberalization. This occurs
because of strong political pressure by some domestic industries. If a
substantial number of products are exempted, the area is known as a preferential
trade arrangement, or a PTA.
An FTA violates the GATT/WTO principle of most-favoured nation because MFN
requires countries to offer their most liberal trade policy to all GATT/WTO
members. When an FTA is formed, the most liberal policy will become a zero
tariff, or free trade. However, the original GATT carved out an exception to
this rule by including Article 24.
Article 24 allows countries to pair up and
form free trade areas as long as the FTA moves countries significantly close to
free trade and as long as countries notify the GATT/WTO of each new agreement.
The simple logic is that an FTA is in the spirit of the GATT since it does
involve trade liberalization.
Can GATT's Principles Be Applied to 'New' Trade Policy Issues?
GATT is certainly not perfect, but most observers agree that its principles have
worked remarkably well to liberalize world trade. Can these principles also be
applied to the variety of new issues before the WTO? A number of these issues,
such as agreements on labor and environmental standards, would extend GATT's
reach well beyond traditional trade policy matters, and as such appear to
encroach on traditional limits of national sovereignty.
This raises fundamental
questions about the structure of international economic relations among
sovereign states. Therefore, an important analytical question concerns the
minimal range of policies over which international negotiations must proceed if
global efficiency is to be achieved.
In recent work I have started to investigate such inquiries by exploring how
homegrown work norms may be taken care of in the GATT/WTO. I think about a few
ways to deal with the treatment of homegrown work guidelines inside an economic
alliance. First I show that the "harmless disregard" of work principles inside
an economic accord will bring about wasteful decisions for both exchange
hindrances and work guidelines, much as work interests and social activists have
asserted. In any case, I likewise show that immediate exchanges over work
guidelines are not expected to arrive at productive results.
considered, I portray GATT decide changes that on a basic level could permit
state run administrations to accomplish effective strategy results while
proceeding to haggle over levies alone, subsequently protecting a level of
public sway over customarily homegrown arrangement decisions. The necessary rule
changes would broaden the rationale of correspondence as presently contained in
GATT to the decision of homegrown work guidelines.
Yet, there is a significant
qualification between the GATT rule transforms I recommend and the progressions
that have been proposed in ongoing WTO conversations - in particular, the proper
consideration of a "social condition" that would allow limitations to be put on
imports from nations not consenting to a predefined rundown of least norms.
These proposed changes would permit state run administrations to bring import
limitations up in light of the feeble work principles of their exchanging
Conversely, the progressions recommended by my examination would
rather permit legislatures to bring import limitations up in return for fixing
their own work guidelines. This reorientation, connecting the allowable degree
of import insurance in GATT to one's own work guidelines as opposed to the work
norms of one's exchanging accomplices, is the paper's focal directive for the
use of GATT's standards to the new exchange strategy issues.
The international movement towards open markets prompted by the General
Agreement On Tariffs And Trade(GATT) has its premise that trade liberalization
will benefit all those who are concerned. Each country will be able to exploit
its position of comparative advantage, once a free and fair trade regime has
been implemented. After the Second World War, world trade has been growing
continuously due to a number of factors.
In particular, the liberalization of
trade restrictions and advent of WTO(which is an outcome of GATT) in recent
times have expanded the trade between the international communities. The World
Trade Organization (WTO) and its predecessor, the General Agreement on Tariffs
and Trade(GATT), have contributed to global economic welfare in many and varied
They range over the WTO's five areas of competence, which are to Establish
international trade rules and disciplines, Negotiate reductions in
policy-induced distortions to the free flow of goods and services between
Members (including when non-members seek to accede), Settle trade-related
disputes between members, Monitor, record notifications and disseminate
information on trade and trade-related policies of Members and Coordinate with
other international organizations on trade-related issues, including aid for
There is also a consensus that GATT trade negotiations have contributed
to the economic welfare gains that have resulted from trade policy reforms since
the late 1940s, and could contribute further if the Doha round of negotiations
can be brought to a successful trade-liberalizing conclusion. The challenge is
thus still before the economics profession to better identify how the GATT/WTO
has contributed to trade-related policy reforms and to use that knowledge to
more precisely estimate how much that contribution is worth in terms of national
and global economic welfare.
Award Winning Article Is Written By: Mr.Anmol Kumar Ghai
Authentication No: JL41207886359-9-0722