Introduction to GATT and WTO
Achievements of GATT
WTO over GATT
Role of WTO
India’s Role in WTO
INTRODUCTION TO GATT
(GATT) is a multilateral agreement regulating international trade. Its purpose is
the "substantial reduction of tariffs and other trade barriers and the elimination
of preferences, on a reciprocal and mutually advantageous basis. It was
negotiated during the UN Conference on Trade and Employment and was the
outcome of the failure of negotiating governments to create the International
Trade Organization (ITO). GATT was signed in 1947 and lasted until 1993,
when it was replaced by the World Trade Organization in 1995. The original
GATT text (GATT 1947) is still in effect under the WTO framework, subject to
the modifications of GATT 1994
GATT- GENERAL AGREEMENT ON TARIFF
The international conference of 1944 which recommended the
establishment of IMF(International Monetary Fund) and
World Bank and also recommended the establishment of
ITO(International Trade Organisation) but did not
materialize, but in the year 1948 GATT was established.
International trading system, since 1948 was at least in
principles, guided by the rules and procedures agreed to the
signatories to the GATT which was an agreement sign by
the member nations, which where admitted on the basis of
there willingness to accept the GATT disciplines.
The primary objectives;-of GATT was to expand
international trade by liberalizing so as to bring about all
round economic prosperity, the important objective are
as follows as:1)Raising standards of living.
2)To control the tax structure.
3) Ensuring full employment and large and steady
growing volume of real income and effective demand.
4) Developing full use of resources of the world.
5)Expansion of production and international trade.
6)Give the priority for multilateral agreements.
GATT has certain conventions and general principles governing
international trade among countries that follows the GATT
agreement:1) Any proposed change in the tariff or any type of commercial
policy of a member country should not be undertaken without the
consultation with the other parties to the agreement.
2) The countries that adhear to get work towards the reduction of
tariff and other barriers to the international trade should be
negotiated within the frame work of GATT.
b) NON TARIFF
(Change in monetary value)
(Quality & Quantity
of product and
EVALUATION OF GATT
When GATT was signed in the year 1947 only 23 nations
were party to it. In the 1986, there were 117 were members.
One of the principle achievement of GATT was the
establishment of forum for continuing consultation.
GATT achieved considerable liberalization, few exception
are as follow as: Agricultural trade was an exception to the liberalizations.
Trade in agricultural became progressively more distorted
by the support given to the farmers in agricultural sectors.
Another exception was textile: trade in textile was restricted
by MFA. under MFA import of textile items, to number of
developed countries was restricted by quota.
Developing countries with balance of payment
problem have been generally exempted from
The average level of tariff on manufactured
products in industrial countries was brought down
from 40% in 1947 to 3% in 1986.
The export of developing countries gained
significantly less from the GATT agreement then did
the export of developed countries
A BRİEF HİSTORY OF THE GATT
Beggar-thy-neighbour tariff policies of 1930s
Bretton Woods Conference at the end of the WWII, finance
ministers from the Allied nations gathered to discuss creation
of a new monetary system that would support postwar
reconstruction, economic stability, and peace.
=> IBRD & IMF
=> need for a third institution, ITO.
1940s: Representatives met to design a postwar trading system
that would parallel the international monetary system.
Draft a Charter for ITO,
Negotiate the substance of an ITO agreement (rules governing
governing international trade and reductions in tariffs.
1947: 23 Members
Today: 153 Members
TİMELİNE OF GATT & WTO -1
1944: At the Bretton Woods Conference, which created
the IBRD and IMF, there is talk of a third organisation,
1947: As support for another international organisation
wanes in the U. S. Congress, the General Agreement on
Tariffs and Trade is created. The Gatt Treaty Creates a
set of rules to govern trade among 23 member countries
rather than a formal institution.
1950: Formal U.S. Withdrawal from the ITO concept as
the U.S. Administration abandons efforts to seek
congressional ratification of the ITO
TİMELİNE OF GATT & WTO -2
1951 – 1986: Periodic negotiating rounds occur, with
occasional discussions of reforms of GATT. In 1980s, serious
problems with dispute resolutions arise.
The Uruguay Round, a new round of trade negotiations, is
launched. This culminates in 1994 Treaty that establishes the
1995: The WTO is created at the end of the Uruguay Round,
2009: The GATT consists of 153 members, accounting for
approximately 97% of world trade.
Geneva round (Switzerland)
The first round took place in 1949 in Geneva, siwtzerland.23 counties took
part in the round. The main focus of the talks was more tariff reductions,
around 45,000 products.
Annecy round (France)
Annecy Round: 1949
The second round took place in 1949 in Annecy, France. 13 countries took
part in the round. The main focus of the talks was more tariff reductions,
around 5000 in total.
Turkey round (Brittan)
The third round occurred in Turkey, England in 1950. Thirty-eight countries
took part in the round. 8,700 tariff concessions were made totaling the
remaining amount of tariffs to ¾ of the tariffs which were in effect in 1948.
The contemporaneous rejection by the U.S. of the Havana Charter signified
the establishment of the GATT as a governing world body
Geneva round (Switzerland)
The fourth round returned to Geneva in 1955 and lasted until May 1956. Twentysix countries took part in the round. $2.5 billion in tariffs were eliminated or
Geneva round (Switzerland)
The fifth round occurred once more in Geneva and lasted from 1960-1962. The
talks were named after U.S. Treasury Secretary and former Under Secretary of
State, Douglas Dillon, who first proposed the talks. Twenty-six countries took
part in the round. Along with reducing over $4.9 billion in tariffs, it also yielded
discussion relating to the creation of the European Economic Community (EEC).
Kennedy Round (Tokyo -Japan)
The sixth round of GATT multilateral trade negotiations, held from 1963 to 1967.
It was named after U.S. President John F. Kennedy in recognition of his support
for the reformulation of the United States trade agenda, which resulted in the
Trade Expansion Act of 1962. This Act gave the President the widest-ever
negotiating authority. 56% taxes reduced in that time. And 99 countries are
1973 – 1979
A first attempt for reforming the system,
Progressive reduction of tariffs, average tariff on industrial
products became 4.7%,
Discussion of fundamental problems: Agricultural product
trade, Safeguards (emergency import measures),
A series of agreements and arrangements on non-tariff trade
barriers => Small number of GATT members subscribed to
Several Codes on Plurilateral Commitments (Eg. Government
Procurement, Civil Aircraft, Diary Products).
1986 – 1994
This was 8th round of multilateral trade organization
which was held in September 1986. The first 6 round of
MTN(Multi Lateral Trade Negotiation) concentrated
almost exclusively on reducing tariffs while the 7th round
which was the Tokyo round (1973-79). Moved on to
tackle the non tariff barriers. The Uruguay round
agreement broaden the scope of MTN by including new
1) General Agreement on Trade In Services (GATS).
2) Trade Related Aspects Of Intellectual Property
and services. (TRIPS)
3) Trade Related Investment Measures (TRIMS)
UNSOLVED PROBLEMS OF GATT -1
By the 1980s several problems had surfaced:
dispute resolution mechanism of GATT was not effectively
functioning. Longstanding disagreements among members
regarding issues like government subsidies, regulations for
number of commodities (agricultural products and textiles)
were widely exempt from GATT disciplines.
forms of administered trade protection (anti-dumping
duties, VERs, counterveiling duties) were restricting trade and
distorting trade patterns in many important sectors.
UNSOLVED PROBLEMS OF GATT -2 Trade
in services was expanding rapidly and GATT
had no rules regarding trade in services.
producing intellectual property were
becoming increasingly frustrated by the lack of
intellectual property protection in many developing
regarding trade related investment measures
(eg. Domestic purchase requirements for plants built
from FDI) were hotly disputed
FUNDAMENTAL PRİNCİPLES OF
THE GATT/WTO SYSTEM
RECIPROCITY: A practice that occurs in GATT
negotiating rounds, whereby one country offers to
reduce a barrier to trade and a second country
“reciprocates” by offering to reduce one of its own
practice of swapping tariff concessions, facilitates
the reduction of trade barriers.
NONDISCRIMINATION: (Equal treatment) If
one GATT member offers a benefit or a tariff
concession to another GATT member, it must
offer the same tariff reduction to all GATT
Most Favoured Nation Treatment: Grant someone a
special favour, then have to do the same for all other
WTO members. Each member treats all the other
members as “most favoured trading partners”.
National Treatment: Imported or locally-produced
goods should be treated equally – at least after the
foreign goods have entered the market.
Freer Trade: Lowering trade barriers, gradually and
through negotiation. Trade barriers concerned include
customs duties and measures such as import bans or
quotas, red tape, and exchange rate policies.
Predictability through binding and transparency:
Once lowered, promising not to raise trade barriers gives
businesses a clearer view of their future opportunities.
With stability and predictability, investment is
encouraged, jobs are created, and consumers can fully
enjoy the benefits of competition (variety, and lower
Percentages of Tariffs Bound Before and After the 1986 –
IMPACT OF A TARİFF ON A SMALL
⇒ Raise the price that
consumers pay for a
⇒ Provide tax revenue to
⇒ Potential to create
Very small country will
benefit by unilaterally
lowering its tariffs,
Because very small
countries are unable to
affect the world prices
IMPACT OF A TARİFF ON A LARGE
Reciprocity becomes important when large countries are changing
their trading policies,
If a tariff is imposed
Because import demand will comprise largeshare of world wide demand,
prices are affected
Quantity of Imports demanded will decrease
Wold Price falls
Terms of Trade Improves
Cost of tariff is pushed on to foreign producers
Country is better off
Consumers pay higher prices, but gov’t collect revenue, and import
competing producers earn higher revenue
The use of tariff policy by the large country
⇒ Importing Country better off
⇒ Exporting Country worse off
⇒ Inefficiencies in the world trading system
Level of production becomes too high in
importing country, and level of production
becomes too low in exporting country
INDIA’S ROLE IN WTO
Founder member - India is a founder member of the General Agreement on Tariffs and
Trade (GATT) 1947 and its successor, the World Trade Organization (WTO), which came
into effect on 1.1.95 after the conclusion of the Uruguay Round (UR) of Multilateral Trade
Stability and Predictability - India's participation in an increasingly rule based
system in the governance of international trade is to ensure more stability and predictability,
which ultimately would lead to more trade and prosperity for itself and the 149 other
nations which now comprise the WTO.
MFN - India also automatically avails of MFN and national treatment for its exports to all
WTO members. According to the WTO Secretariat Report, along with the policy statement
by the Government of India, India is expected to snatch most of the business deals that are
presently catering the developed nations which includes major service based industries like
telecom, financial services, infrastructure services such as transport and power.
The increase in availability and reduction in tariffs has prompted many
developed nations to go for business with India especially in IT industry. If
the trend continues then by 2025, India is expected to cater to the software
and services demands of major giants of the business world. Analyzing the
present relationship with the promising economic growth of India, one can
be sure that India is going to enjoy a very candid and bright relationship
with WTO and associated member nations by 2025
“India has also played an important part in the effective
formulation of major trade policies”
T-O-T DRİVEN PRİSONER’S
Two parties can improve
their situations by acting
⇒ However, indivudual
incentives they face lead
them to act noncooperatively.
The problem facing the
countries at the end of
WWII was that they knew
they would collectively be
better off under free trade.
Though each country
benefited from its own
import tariff, it also
suffered at the hand of its
trading partner’s import
A mechanism was needed by which countries could
jointly commit to tariff reductions that would reduce
the losses due to production and consumption
distortions, and through gains in efficiency, make all
countries, better off.
Practice of reciprocal tariff reductions provided the
necessary mechanism for countries to commit to freer
In all countries, the reallocation of labour and capital
away from protected import competing firms and
toward export sectors would generate real efficiency
gains => Export Oriented Growth Strategy !
POWER OF NON DİSCRİMİNATİON
Convenience and practicality,
Setting the same tariff policy on imports from all countries
ensures that resources are allocated to their most productive
On the import side, nondiscrimination ensures that countries
purchase imports from the lowest-cost source country, (trade
diversion is prevented)
Prevents re-reouting in order to circumvent high tariffs, in
which exporter ships its goods to a third country repackages it,
and then ships it to a final destination where it will qualify for
the third country’s preferential tariff, sometimes substantial
transformation becomes necessary that leads the firm to move
a stage of production to the third country,
On export side, nondiscrimination protects exporting countries
from bilateral opportunism. If one country were later to offer
a lower tariff rate to a third country, this could erode the value
of the original tariff concession to the first trading partner.
SUCCESS OF GATT
Regular meetings of GATT members are known as
Primarily focus on further reductions in the in the
maximum tariffs that countries could impose on imports
from other GATT members
Tariffs on manufactured products fell from a tradeweighted average of roughly 35% before the creation
of GATT in 1947, to about 6.4% at the start of the
Uruguay round in 1986.
The volume of trade among GATT members surged:
In 2000 the volume of trade among WTO members
stood at 25 times its 1950 volume.
Trade related investment measures refers to certain conditions or
restrictions imposed by a government in respect of foreign investment of the
country. The agreement on TRIMS provide that no contracting party shall apply any
TRIM, which is in consistence with WTO, article.
Following TRIM are considered as in-consistence:1) Local content requirements.
2) Trade balancing requirement.
3) Foreign exchange balancing requirements.
4) Domestic sale requirements
The TRIMs agreement does not provide any new
It focusses on two Articles that were identified in
a previous case under the GATT
III (National Treatment)
Article XI (Quantitative Restrictions)
AIMS OF THE AGREEMENT
promote the expansion and progressive
liberalisaiton of world trade and to facilitate
investment, while ensuring competition
development and financial needs of
developing countries, particularly least
investment measures can cause traderestrictive and distorting effects
Articles and an Annex
Art I - clarifies that the agreement applies only to
trade in goods
Art 2 - applies Articles III or XI and refers to the
Art 3-4 deal with general exceptions and Art XVIIIb
Art 5 Notification and transition periods
Art 9 - Review
National treatment of imported product, unless
specified in other agreements
Subjects the purchase or use by an enterprise of
imported products to less favourable conditions than
the purchase or use of domestic products
Prohibition of quantitative restrictions on imports
Part of the general trend in textiles and agriculture to
phase out the use of quantitative restrictions
ILLUSTRATIVE LIST - PARA 1
1 (a) covers local content TRIMs
which require the purchase or use by an
enterprise of products of domestic origin
or domestic source.
Para 1(b) covers trade balancing TRIMs
which limit the purchase or use of
imported products by an enterprise to an
amount related to the volume or value of
local products that it exports.
ILUSTRATIVE LIST- PARA 2
2(a) deals with border measures that deal with
2(b) restrictions to trade that arise from foreign
exchange access restrictions such as balancing
2 (c) deals with measures that restrict exports.
Governments of WTO members, or countries
entitled to be members within 2 years after 1
January, 1995 shouold make notifications within
90 days after the date of their acceptance of the
Members are obliged to eliminate TRIMs which
have been notified. Such elimination is to take
place within two years after the date of entry into
force of the agreement for developed countries
years for developing
seven years for LDC
TRIMS introduced less than 180 days before the
agreement do not benefit from transition period.
Members are also not allowed to change
measures that have been notified if these
changes are inconsistent with the agreement.
The same TRIM can be applied to a new
vs EU, Japan, US
Canada vs. Japan and EU
Panama vs EU (Bananas)
National car policy
the manufacturer to have local content
Lower sales tax
Subsidy issue was also involved.
Automotive sector - Canada-US Auto Pact
Required a company to have local content levels
beyond the North American Free Trade
Agreement in order to have a lower tariff rate
Result was the tariff was increased to MFN rate
in identifying TRIMs that
violate the agreement
Difficulties in identifying alternative
policies to achieve the same objective
Difficulties in accounting for noncontingent outcomes such as the financial
crisis in Asia and Latin America
Difficulties in meeting the transition
DEVELOPMENT DIMENSION OF THE
Only developing countries notified TRIMS
Most frequent sector was the automotive
The most frequent policy was local content
APPLYING FOR EXTENSIONS OF
WHERE TO FROM HERE?
Developing countries are serious about not
moving ahead on TRIMS until the agreement has
The focus is on how to proceed with the review.
INVESTMENT AND THE WTO
the agreement as it is
Extend the illustrative list
Complement the TRIMs agreement with new rules
on investment that have features of BITs and
NAFTA chapter 11.
There are two dispute panels have clarified
precisely the role of TRIMs and GATT.
We have a clear specification of the consistency of
policies in the annex list an the GATT
Guidance on transition periods
Annex list is not exclusive of policies that are
inconsistent with III:1 and XI:4
Seek to expand the list
Require a clarification of “restrict” versus
Proposal to expand the role of provisions related
to market access and operations of foreign
Three components of an investment architecture
Pre and post establishment
National treatment with respect to policies
NAFTA type investor-state model
Unworkable in the WTO context
Goods Council has requested a joint
UNCTAD/WTO Secretariat study on the
“development effects of TRIMs”.
Joint with Trade Analysis Branch (UNCTAD)
and Trade and Finance (WTO).
Identify and define TRIMs
II Historical experience with TRIMS
III What is ‘development’?
Establishment and development of industry
of the study.
FDI AND POVERTY
and growth - parallels with trade and
of FDI flows
(poor intensive) sectors
Not a huge amount of total flows, but important for
out” domestic investment and
more important in the context of large
Auto industry - seat covers, wiring harnesses
to researchers and data
case studies are hugely important
Economists are terrible at doing this kind of work.
have knowledge of past studies to
contribute to step II
Developing a research agenda on development
dimension of TRIMs
please send to my Mail ID
Mail –id :firstname.lastname@example.org