3. GENERAL AGREEMENT ON
TARIFFS AND TRADE (GATT)
• Outcome of the failure of negotiating governments to
create the International Trade Organization (ITO)
• Negotiated during the UN Conference on Trade and
Employment
• Formed in 1947 and transformed to World Trade
Organization (WTO) in 1995
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4. • Part of economic recovery after World War II, Bretton
Woods Conference suggested an organization to
regulate trade.
• Parallel to the Governments negotiating the ITO, 15
negotiating states began negotiating for the GATT as
a way to attain early tariff reductions
• The ITO failed in 1950 and then GATT agreement
was introduced
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5. GATT's main objective
• Reduction of barriers to international trade
• Achieved through reduction of tariff barriers,
quantitative restrictions and subsidies on trade
through a series of agreements
• It was a treaty, not an organization
• A small secretariat occupied what is today the Centre
William Rappard in Geneva, Switzerland
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6. HISTORY OF GATT
Efforts to negotiate international trade agreements began in 1927 at the
League of Nations but were unsuccessful.
Precursor organization to GATT, ITO, was first proposed in February
1945 by the United Nations Economic and Social Council (UNESCO).
Owing to the United States failing to implement the ITO, GATT was the
only organization left.
On 1 January, 1948 the agreement was signed by 23 countries:
Australia, Belgium, Brazil, Burma, Canada, Ceylon, Chile, China,
Cuba, the Czechoslovak Republic, France, India, Lebanon,
Luxembourg, Netherlands, New Zealand, Norway, Pakistan,
Southern Rhodesia, Syria, South Africa, the United Kingdom, and
the United States.
According to GATT's own estimates, the negotiations created 123
agreements that covered 45,000 tariff items that related to
approximately one-half of world trade or $10 billion in trade.
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7. • The General Agreement on Tariffs and Trade
(GATT) was first signed in 1947.
• Was designed
• To provide an international forum
• That encouraged free trade between member states
• By regulating and reducing tariffs on traded goods
• Providing a common mechanism for resolving trade
disputes.
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9. TRADE BARRIERS
TARIFF AND NON-TARIFF
BARRIERS
• While free-trade maximizes world welfare, most nations
impose some trade restrictions that benefit special groups
in the nation. The most important type of trade restriction
historically is the tariff.
• This is a tax or duty on the imports or exports.
• When a small nation imposes an import tariff, the
domestic price of the importable commodity rises by the
full amount of the tariff for individuals in nation. As a
result, domestic production of the importable commodity
expands while domestic consumption and imports fall.
However, the nation as a whole faces the unchanged
world price since the nation itself collects the tariff. 9
10. TARIFFS
• Tariffs can be ad-Valorem, specific, or
compound.
• Ad-Valorem tariff is expressed as a fixed
percentage of the value of the traded
commodity.
• Specific tariff is expressed as a fixed sum
per physical unit of the traded commodity.
• A compound tariff is a combination of an
Ad Valorem and a specific tariff.
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11. TRADE RESTRICTIONS
/TRADE BARRIERS
• An import tariff is a duty on the imported commodity,
while an export tariff is a duty on the exported
commodity.
• Export tariffs are prohibited by the U.S. Constitution but
are often applied by developing countries on their
traditional exports (such as Ghana on it’s cocoa and
Brazil on it’s coffee) to get better prices and revenues.
• Developing nations rely heavy on export tariff to raise
revenues because of their ease of collection.
• On the other hand, industrial countries invariably impose
tariffs or other trade restrictions to protect some(usually
labor-intensive)industry, while using mostly income taxes
to raise revenues. 11
12. TRADE BARRIERS (CONTD)
• According to Stolper-Samuelson theorem , an
increase in the relative price of a commodity (for
example, as a result of a tariff) raises the return or
earnings of the factor used intensively in it’s
production.
For example, if a capital-abundant nation
imposes an import tariff on the labor intensive
commodity, wages in the nation will rise.
• However, since the nation’s benefit comes at the
expense of other nations, latter are likely to retaliate,
so that in the end all nations usually lose.
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13. TRADE BARRIERS (CONTD)
• Two arguments are that protection is needed to reduce domestic
unemployment and a deficit balance of payments.
• A more valid argument for protection is the infant-industry argument.
• However, what trade protection can do, direct subsidies and taxes
can do better in overcoming purely domestic distortions.The same is
true for industries important for national defense.The closest we
come to a valid economic argument for protection is the optimal tariff
(which,however, invites retaliation).
• Trade protection in the United States is usually given to low-wage
workers and to large, well organized industries producing producing
consumer products.
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14. NON-TARIFF BARRIERS
• International trade also hampered by numerous
• Technical, administrative, and other regulations.
• These include safety regulations for automobile
and electrical equipment, health regulations for the
hygienic
• Production and packaging of imported food
products, and labeling requirements showing
origin and contents.
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15. NON TARIFF BARRIER
[SUBSIDIES]
• National government sometimes grant subsidies to
domestic producers to help improve their trade position.
Such devices are indirect form of protection provided to
domestic businesses, whether they may be import
competing producers or exporters.
• Two types of subsidies can be distinguished: a domestic
subsidy , which is sometimes granted to producers of
import-competing goods,and an export subsidy, which
goes to producers of goods that are to be sold overseas.
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16. OTHER NON TARIFF
BARRIERS
• Government Procurement Policies: Because
government agencies are large buyers of goods and
services, they are attractive customers for foreign
suppliers. Most governments however, favor
domestic suppliers over foreign ones in the
procurement materials and products. E.g,
Government often extend preferences to domestic
suppliers in the form of buy-national policies
campaigns.
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17. IMPACT OF TRADE
BARRIERS
• Advanced industrial nations committed themselves after
World War II to removing barriers to the free flow of goods,
services,and capital between nations
• This goal was enshrined in the General Agreement on Trade
and Tariffs [GATT]
• Under the umbrella of GATT, eight rounds of negotiations
among member states(now numbering 146) have worked to
lower barriers to the free flow of goods and services
• The most recent round of negotiations, known as the Uruguay
Round, was completed in Dec,1993.The Uruguay round further
reduced trade barriers; extended GATT to cover services as
well as manufactured goods; provided enhanced protection for
patents, trademarks, and copyrights; and established the
World Trade Organization (WTO)to police the international trading
system
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18. IMPACT OF TRADE
BARRIERS
• In the late 2001, the WTO launched a new round of talks
[Doha,Qatar] aimed at further liberalizing the global trade and
investment framework.
• The agenda included cutting tariffs on industrial goods,
services,and agricultural products; phasing out subsidies to
agricultural producers; reducing barriers to cross border
investments; and limiting the antidumping laws.
• The rich nations spend around $300 billion a year in subsidies
to support their farm sectors. The worlds poorer nations have
the most to gain from any reductions in agricultural tariffs and
subsidies. 18
20. SUCCESSES
• Continual reductions in tariffs helped spur very high
rates of world trade growth during the 1950s and
1960s — around 8% a year on average
• Trade growth consistently out-paced production
growth
• The rush of new members during the Uruguay Round
demonstrated recognition of multilateral trading
system as the anchor for development and an
instrument of economic and trade reform.
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22. GATT’s success in reducing tariffs to a low level, with
a series of economic recessions 1970-80’s drove
governments to devise other forms of protection for
sectors facing increased foreign competition
High rates of unemployment and constant factory
closures led governments in Western Europe and
North America to seek bilateral market-sharing
arrangements with competitors and to embark on a
subsidies race to maintain their holds on agricultural
trade
Both these changes undermined GATT’s credibility
and effectiveness.
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23. • The problem was not just a deteriorating trade policy
environment.
By the early 1980s the General Agreement was clearly
no longer as relevant to the realities of world trade as it
had been in the 1940s
• World trade had become far more complex and
important than 40 years before
• The globalization of the world economy was underway
• Trade in services — not covered by GATT rules
• Ever increasing international investments
23
24. • Factors convinced GATT members that a new
effort to reinforce and extend the multilateral
system should be attempted.
That effort resulted in the Uruguay Round,
the Marrakesh Declaration, and the creation
of the WTO. 24
Editor's Notes
The General Agreement on Tariffs and Trade (typically abbreviated GATT) 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 formed in 1947 and lasted until 1994, when it was replaced by the World Trade Organization in 1995.
The Bretton Woods Conference had introduced the idea for an organization to regulate trade as part of a larger plan for economic recovery after World War II. As governments negotiated the ITO, 15 negotiating states began parallel negotiations for the GATT as a way to attain early tariff reductions.
