1. General Agreement on Tariffs & Trade (GATT),
Protectionism V/s Free Trade
Rules of Trade?!
Participating countries should agree upon!
Who gains? How much?
I should gain more in trade than others!!!!
2 Parties – Developed & Developing countries
$Developed countries have always tried to dominate$
Tariff is a tax on import & or export
World Trade Organization (WTO) &
Agreement of Agriculture (AoA)
in Indian context
2. Foreign Trade –
Trade across the borders of countries
• Trade across borders – practice since time immemorial
– Transport by ocean route
– Settlement mode – Barter or Gold
– No restrictions – Free Trade
• As transport & communication improved – new settlement
mechanism (currency) evolved
– Led to increased international trade. Countries started imposing
trade restrictions….
• To protect domestic industry – Free Import
• To protect prices (peaking) in local markets – Free Import
• To handle problem of Balance of Payments (BoP) – Import > Export
• To favor friendly countries and discriminate foes
• Trade restrictions led to
– Scarcity of goods in some countries and its surplus in others
BoP = Import value – Export value; if Import> Export, unfavourable BoP,
if Export> Import, favourable BoP
3. 2 World Wars
• Political/social relationships among countries had
worsened
– Favoring & discriminating got more common
– Developed countries (US, UK, Germany, France, Italy,
Japan, Russia) found it difficult to export their products
• Developed countries wanted to develop a system to
ensure orderly conduct of trade through
• Promoting good monetary relations among countries
• To remove trade restrictions
• Free convertibility of currencies (that were suspended during
world wars due to exchange controls)
• To maintain stability in exchange rate among countries
4. June, 1944
Brettenwoods, Newhampshire, USA
• Representatives of 44 allied countries met to
discuss rules of orderly trade
• Decided to set up 3 institutions
– International Monetary Fund (IMF)
– International Bank for Reconstruction &
Development (IBRD)
• To help countries that suffered in world wars
– International Trade Organization (ITO)
• To deal with problems of international trade
Set up 1945
Not established
due to
controversies
5. 1947-48
Havana
• International Conference on Trade & Employment
– 53 countries decided to create a legal body – ITO
– Again, it was not set up because US congress did not
approve
– But, 23 countries continued the exercise of
negotiating trade concessions, thus
– Incorporating GATT – 30th October, 1947
– GATT came into force from 1st January, 1948
– India is the founding member of GATT
6. Main purposes of GATT
• To ensure competition in Commodity (Agri &
Industrial) trade through
– Removal of trade restrictions
– Thus bring about economic prosperity
• GATT included 8 rounds of (trade)
negotiations
– Last round popularly known as Uruguay Round
held from 1986 to 1990.
7. Structural Change in world trade
(4 decades since inception of GATT from 1950s to 1980s)
Particulars 1950s 1980s
Share of agriculture in world trade (%) 46 17
Share of service sector in Developed countries (%) 50-70
Share of service sector employment (USA)(%) >70
Export value of service sector $35 bn
• Commodity sector – comparative cost advantage – in
favour of Japan & other newly industrialized countries.
• Developed countries including US lost adv
• Therefore, these countries, under the leadership of the
US, took initiative to bring services sector into trade
negotiations
• Because they had advantage in this sector
8. September, 1986
8th Round of GATT – Uruguay
• Traditional subjects of GATT used to be
– Tariff &
– Non-tariff barriers
– Improvement in GATT rules & disciplines on
• Subsidies & countervailing & anti-dumping measures
– Dispute settlements
Countervailing measures, means to make good the loss due to some act of others (Eg, imposing
tax by importing country to offset subsidy given by exporting country)
10. Establishment of WTO
• Uruguay round resulted in formation of WTO
• The ‘new subjects’ became its essential part
– Establishment – 1st January 1995
– Headquarter – Geneva, Switzerland
– As of 2021 – 164 member countries
– Platform for Governments to negotiate trade rules
(agreements) and resolve disputes
• Top body – Ministerial conference (held in every 2
years) to discuss trade rules
– For regular issues – ambassadors (gÁAiÀĨsÁj)
11. TRIMS
• It intended to provide easy access (for US & other developed
country companies) to invest in growing economies of world
– Investment in financial services (Banking, insurance, stocks etc.)
– Telecommunication, IT
– Retailing
• Conditions imposed
– Governments should not discriminate between foreign and domestic
investors
– Foreign & domestic investors to be treated alike
– No restrictions on areas of investment (agri, telecom, retail etc)
– No restrictions on extent of investment (100% foreign equity)
– Free import of raw materials & components
– No conditions to use local products & materials
– Export of a part of produce, not to be made mandatory
All these conditions were intended to snatch the powers of developing countries and
thus be able to produce at cheaper cost and gain by selling it.
12. Important Agreements of WTO -
Agriculture sector
• Agreement on Agriculture
• Agreement on the application of Sanitary &
Phytosanitary Measures (SPS)
• Agreement on Technical Barriers to Trade
(TBT)
• Agreement on Textiles & Clothing
13. WTO
Agreement on Agriculture (AoA)
• Treaty – focuses on reducing the agricultural
support and subsidies given to farmers by
Governments
• One of the most controversial or debatable
agreements within the WTO
• Focused on reducing “trade distorting”
agricultural subsidies
• Important Components or Features
– Market Access
– Domestic Subsidy or Support
– Export Subsidy
14. Market Access
• Giving free access to foreign producers (imports) to
domestic market. 2 elements
– Tariffication & Reduction commitment
• There were many ways of putting barriers viz., Quantitative
restrictions, quotas, export/import licensing
• All these were to be replaced by tariffs only
• Reduction: Developed countries – by 36% in 6 years; Developing
countries – 24% in 10 years
– Minimum import quantity – 3% of total (domestic)
consumption is allowed
• Otherwise, it needs to be increased
• Exceptions 1– if it is staple food of importing country
Exceptions 2– If there is import surge – Special Safeguard Limits
can be imposed
Market Access Domestic Subsidy or Support Export Subsidy
15. Domestic Support or Domestic Subsidy
• Subsidy (¸ÀºÁAiÀÄzsÀ£À) – is given to help the
deprived class to fulfil some need
– Food, fertilizer, irrigation, electricity, poly-house,
fertigation, etc
– AoA tries to determine acceptable & unacceptable
supports given by government to farmers
– Aggregate Measure of Support (AMS) – is tool by to
measure the total support given
• AMS= ∑supports given by government to farmers of each
commodity
• AMS includes
– Product specific subsidies – Procurement Price
– Non-product specific subsidies - fertilizer, irrigation, electricity
Market Access Domestic Subsidy or Support Export Subsidy
16. Categories of Support Measures
Green Box, Blue Box & Amber Box Subsidies
• Green Box Subsidies (Not trade distorting or minimal)
– Have minimum impact on trade. Allowed to any extent.
Includes support given to
• Research & Development, Pest & disease control, training,
extension, advisory, food security, food aid (ration), income
insurance (kissan samman), Relief during natural disaster
• These should be funded by government and should not charge
higher price to consumers
• Blue Box Subsidies (Not trade distorting or minimal)
– Direct payments under production limiting programmes
• For supporting & reforming agriculture
• Should have non-trade objectives (should not distort trade) – Eg.,
Poly-house, farm pond (PÀȶ ºÉÆAqÀ)
Market Access Domestic Subsidy or Support Export Subsidy
17. • Amber Box Subsidies (distorts production and trade)
– Eg., electricity, seeds, fertilizers, irrigation,
minimum support prices
– Even if provided, should be <5-10% of total value
of production (crop)
– 30 countries including US
• Investment subsidies (generally given to farmers in
developing countries)
• Agri input subsidies (given in poor countries)
Market Access Domestic Subsidy or Support Export Subsidy
18. Export Subsidy
• Subsidies given directly to exporters in order
to promote export and earn foreign exchange
– Subsidy given to handling, international freight,
transport, storage etc
– Distorts trade; destabilizes world market
– If countries are giving these subsidies they are to
be reduced to
• 36% over base year (base year value: 1986-90)
– Did not exist in India
Market Access Domestic Subsidy or Support Export Subsidy
19. Impact of WTO
• Battle between free trade & protectionism
• Fueled globalization – more adverse effects
than positives
– Widening gap between rich & poor
– Developed countries try to impose undue rules
• TRIPS – US tried to patent Tulsi, Cow urine,
Basmati rice, neem, haldi etc
– India needs to undertake huge documentation –
herbal wealth
20. S.P. Shukla
• The major economic powers have succeeded in
creating a new international regime where the profits
and the dominance of the transnational corporations
will be the decisive considerations.
• The regime will legitimize the process of progressive
erosion of the sovereign economic space of the 3rd
world countries.
• What more, the new system will provide a built-in
coercive mechanism of cross-relation through which
the major powers will be able to intrude into and
occupy such economic space in the 3rd world.
21. Dr. Manmohan Singh
• We cannot live in a world of butter mountain
& rivers of milk funded liberally by subsidies,
when the poor starve in the village of the 3rd
world.
• We mush find ways in which trade aids
development.
