Functions of General Agreement on Tariffs and Trade GATT

role of gatt
role of gatt

It was, therefore, necessary to review the dispute settlement system of the GATT and to make it more effective and expeditious. The Uruguay Round of Trade negotiations were also concerned with trade in textiles and clothing. In this sphere, the object was to seek integration of this sector into the GATT and the eventual elimination of the Multi-Fibre Arrangement and other restrictions on textile and clothing as these were found inconsistent with the GATT. In making the assessment of gains from the Tokyo Round, Salvatore remarked, “It has been estimated that the total static gains from trade liberalization under the Tokyo Round amounted to about $ 1.7 billion annually.

The less developed countries, faced with acute food shortage, had to maintain the regime of agricultural support programmes through subsidies and the public distribution system. The advanced nations, having large food surpluses were also found to be retaining the agricultural support programmes. A major issue at this Round was one of the Trade Related Intellectual Property Rights .

Consequently, they could not secure desired concessions from the developed countries. The trade agreement between two or more countries to promote trade by reducing or eliminating trade barriers is known as a multilateral trade agreement. The GATT process was to negotiate an agreement to reduce barriers to trade, sign that agreement, pause for a while, and then start negotiating the next agreement. The rounds of talks in the GATT, and now the WTO, are shown in Table 1.

According to the MFN principle, a signatory state granting any trade or financial advantage to another state shall grant it to all the other signatory states. Tariffs played the main role in trade protection and negotiation in the early years when GATT was established. GATT Limited the use of quotas in some of the specific sectors like advocated Import regimes and agriculture which are based on tariff only. GATT lacked a proper institutional structure whereas WTO provides a more institutional framework for implementing its principles. WTO has a strong legal basis as its agreements are permanent and all the member countries have approved it in their Parliaments.

During the 1940s, the United States sought to establish a set of post-war multilateral institutions, one of which would be devoted to the reconstruction of world trade. In 1945 and 1946, the U.S. took concrete steps to bring about such an organisation, proposing a conference to negotiate a charter for a trade organisation. The GATT was first conceived at the 1947 United Nations Conference on Trade and Employment , at which the International Trade Organization was one of the ideas proposed. It was hoped that the ITO would be run alongside the World Bank and the International Monetary Fund . More than 50 nations negotiated ITO and organising its founding charter, but after the withdrawal of the United States these negotiations collapsed. Similarly, under GATT, the dispute settlement process was very lengthy and took several years to complete.

Beside that, the GATT system can still survived because of taking those sensitive areas of trade outside the rules. There were some rules for enforcement but they were basically has not been functioning. The “rules” were being unnoticed after the member countries internal political pressures or special-interest demands have become overwhelming. Finally, GATT acted as the “court of international trade”, by providing a platform for contracting parties to negotiation and talk to settle disputes in international trade. One of the objectives of GATT was to settle the disputes between two or more parties.

The first five trade rounds conducted by GATT were parallel bilateral negotiations, where different countries negotiated with each other by forming pairs. Since GATT’s inauguration, eight trade rounds have been conducted, each attempting to liberalize trade. The first five rounds were parallel bilateral negotiations where different countries negotiated with each other by forming pairs. Member’s Schedules of Concessions form an integral part of the GATT 1994. The GATT 1994 is administered by the Council for Trade in Goods and the Committees reporting to it. Dedicated portions of the WTO website provide access to WTO documents relating to trade in goods as well as WTO disputes brought under the GATT 1994.

By way of multilateral negotiations between the member states (for instance the so-called “Uruguay Round”, which was held in Uruguay from 1986 to 1994, from which the World Trade Organization arose), custom tariffs shall be reduced and made transparent. GATT the ultimate objective was to reduce barriers to international trade. Transparent system of trade is needed to harmonize the system of import protection so that the trade barriers can be reduced by the process of negotiation.

Uruguay Round negotiated the most ambitious set of trade-liberalization agreements in GATT’s history. The worldwide trade treaty adopted at the round’s end slashed tariffs on industrial goods by an average of 40 percent, reduced agricultural subsidies, and included groundbreaking new agreements on trade in services. The treaty also created a new and stronger global organization, the WTO, to monitor and regulate international trade. GATT went out of existence with the formal conclusion of the Uruguay Round on April 15, 1994.

Advantages of GATT in International Business: Strong Multilateral Relationship

At the same time every effort must be made to help those who are at the periphery of the system – least-developed countries, and countries in regions such as Africa – to more fully integrate themselves and reap the benefits which the system has to offer. GATT reduced the rights of a sovereign to rule its people like other free trade agreements. The agreement on trade and tariffs required the countries to synchronize their domestic laws in accordance with the agreement to gain trade benefits. However, since countries did not agree to this provision it led to disputes between the Nations. Within this framework, the WTO offers with several Internet governance and digital policy related points, together with e-commerce, arbitration, liberalisation of the telecommunications markets, and trade in telecommunications providers. The World Trade Organization is an intergovernmental organization that is concerned with the regulation of worldwide commerce between nations.

role of gatt

The Seventh GATT Conference known as the Tokyo Round ( ) was held at Tokyo. The GATT was a binding contract among the countries which together accounted for over 90 percent of the world merchandise trade. Apart from 117 contracting parties, there were thirty one role of gatt such countries which applied the GATT rules de facto. The member countries met from time to time to discuss matters of common interest and enact provisions related to tariff and non-tariff barriers for ensuring free and larger multilateral international trade.

Principle of National Treatment, Art. 3

On the contrary, WTO is a global body, which superseded GATT and deals with the rules of international trade between member nations. It was the most ambitious round to date, as of 1986, hoping to expand the competence of the GATT to important new areas such as services, capital, intellectual property, textiles, and agriculture. The Uruguay Round was also the first set of multilateral trade negotiations in which developing countries had played an active role. We know GATT was established to reduce or eliminate international trade restrictions. With each trade round, GATT was able to liberalize and promote international trade. The reduction in tariffs positively impacted international trade as it encouraged many countries to start to trade internationally and join the GATT agreement.

  • GATT had regulated that the participating nations cannot increase tariffs at will.
  • The relative importance of trade in services has considerably increased in the postwar period.
  • The WTO General Council, on 26 May 2009, agreed to hold a seventh WTO ministerial conference session in Geneva from 30 November-3 December 2009.
  • This time 38 countries were involved, and almost 9,000 tariff concessions passed, reducing tax levels by as much as 25%.
  • There is also the possibility of a rise in rice imports from Japan and Korea.

Canada had negotiated trade agreements with the US in 1935 and 1938, however as soon as both nations signed GATT, it became the basic agreement governing trade relations between them, superseding the 1938 settlement (see Canada-US Economic Relations). Whilst GATT was a set of rules agreed upon by nations, the WTO is an intergovernmental organisation with its own headquarters and staff, and its scope includes both traded goods and trade within the service sector and intellectual property rights. Although it was designed to serve multilateral agreements, during several rounds of GATT negotiations plurilateral agreements created selective trading and caused fragmentation among members. WTO arrangements are generally a multilateral agreement settlement mechanism of GATT.

Other Services

GATT had regulated that the participating nations cannot increase tariffs at will. The participating nations opened the markets impartially to every other member. According to GATT, once a nation and its largest trade allies had agreed to reduce a tariff, that reduction automatically became applicable to all other GATT members.

Even though the December 1993 agreement of GATT disapproved the adoption of quantitative trade restrictions and the substitution of tariffs in their place, it did not prohibit the contracting parties from taking recourse to them. It paved the way for trade concessions in the export of raw, semi-processed and processed tropical products by the developed countries. However, textiles and clothing, one of the principal exports of the LDC’s like India, remained subjected to restrictive provisions of the Multi-Fibre Agreement .

Major activities of Federation of Indian Export Organization (FIEO)

Apart from agreeing upon certain trade concessions, these countries evolved a multilateral treaty which incorporated in advance the commercial policy clauses of the Havana Charter. However, the articles of the GATT do not provide directives for attaining these objectives. These are to be indirectly achieved by the GATT through the promotion of free and multilateral international trade. With the promotion of international trade, there was a significant movement of products and services across borders.

The GATT was first discussed in the course of the United Nations Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization . It was signed by 23 nations in Geneva on 30 October 1947, and took effect on 1 January 1948. It remained in impact till the signature by 123 nations in Marrakesh on 14 April 1994, of the Uruguay Round Agreements which established the World Trade Organization on 1 January 1995. The WTO is the successor to the GATT, and the unique GATT textual content remains to be in impact underneath the WTO framework, subject to the modifications of GATT 1994.


In the 18th and 19th century, almost all nations and nation-states believed that protectionism is a must for the well-being of domestic economies. The idea of liberalizations and thereby abolishment of protectionist measures peaked in the middle half of the 20th century. The epitome of liberalism took the first palpable shape as GATT, which was later replaced by the WTO. No doubt, the Kennedy Round of the GATT negotiations could make a significant contribution in effecting substantial tariff cuts, yet the achievement was still short of objective. However, there was greater awareness among the advanced countries about the trade needs of the LDC’s.

Even in December 1993 agreement, there was the provision only of some scaling down of the export subsidies on farm products. The developed countries oppose trade liberalisation vehemently where it even slightly hurts their exports. However, in the spheres in which they have trade advantages, they remain indifferent to the needs and problems of the less developed countries.

However, this part of the outcome was disallowed by Congress, and the American Selling Price was not abolished until Congress adopted the results of the Tokyo Round. The most notable achievement was agreement on a Memorandum of Agreement on Basic Elements for the Negotiation of a World Grants Arrangement, which eventually was rolled into a new International Grains Arrangement. Measures for access to markets for agricultural and other primary products. To an extent, this view was shared in Europe, but the process of European unification created its own stresses under which the Kennedy Round at times became a secondary focus for the EEC.

The Article I was concerned with the most favoured nation treatment, the Article II was related to all tariff concessions negotiated by the contracting parties. It was to be the highly ambitious International Trade Organization . The 50 countries that started negotiations wanted it to be an agency within the United Nations that would create rules, not just on trade, but also on employment, commodity agreements, business practices, foreign direct investment, and services. Congress and some other countries’ legislatures refused to ratify it. In 1950, the Truman administration declared defeat, effectively ending the ITO. Developed countries agreed to eliminate tariffs on imports from developing countries to boost those economies.

Secondly, the scope on jurisdiction of GATT was limited only in products transaction. However with development of globalization, the transactions in services and technologies, and international investments constitute a high proportion of international trade. Since the GATT only concentrated on the products transaction, there was a gap for GATT to regulate the transactions in services and technologies and international investments.

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