What is GATT ? General Agreement on Tariffs and Trade

World War–II lasted from 1939 to 1945. The was left many countries in Europe and Asia totally battered. Their economies were shattered; there was tremendous stain on political and social systems resulting in wide spread annihilation and migration of people. Intentional peace was ruffled. Something had to be done to put these war-ravaged economies back in shape. Simultaneously, the various colonies in Asia and Africa were acquiring political freedom. And there was urgent pressure on them for rapid economic development and political stabilization. In this background the United Nations Organisation (UNO) was born on the collective wisdom of the world.

UNO came to encompass the concerns for development in economic, commercial, scientific, social and cultural sphere of the member nations. It formed various forums and agencies. One such forum under the UNO was the General Agreement on Tariffs and Trade (GATT) which was
established in 1947.

GATT which emerged from the “ashes of the Havana Charter” was formed in 1947 and lasted until 1994, when it was replaced by the World Trade Organization in 1995. In International Conference on Trade and Employment in Havana in the winter of 1947-48, fifty-three nations drew up and signed a charter for establishing an International Trade Organisation (ITO). But the US Congress did not ratify the Havana Charter with the result that the ITO never came into existence (1950).

At the same time 23 nations agreed to continue extensive tariff negotiations for trade concessions at Geneva, which were incorporated in a General Agreement of Tariffs and Trade. This was signed on 30th October 1947 and came into force form 1st January 1948 when other nations had also signed it.

The critical juncture was reached during the Uruguay Round of multilateral trade negotiations, which may be called the final act. It was signed by 12 countries in which India was signatory. Popularly known as Dunkel agreement, It finally emerged as the World Trade Organisation (WTO) on 1st January, 1995.

What was the main objective of GATT?
The GATT’s main objective was the reduction of barriers to international trade. This was achieved through the reduction of tariff barriers, quantitative restrictions and subsidies on trade through a series of agreements. The GATT was a treaty, not an organization although a small secretariat occupied what is today the Centre William Rappard in Geneva, Switzerland. The functions of the GATT were taken over by the World Trade Organization which was established during the final round of negotiations in early 1990s.

Rounds of Global Trade Talks under GATT:
First Round:Geneva April 1947
In the first round of talks held in Geneva in 1947, 23 countries, which had formed GATT, exchanged tariff concessions on 45,000 products worth 10 billion US dollars of trade per annum.This affected 10% of total Global Trade.

Second Round : Annecy Round – 1950
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 total..

Third Round Torquay Round – 1951
The third round occurred in Torquay, England in 1951. 38 countries took part in the round. 8,700 tariff concessions were made totaling the remaining amount of tariffs to three-fourths of the tariffs which were in effect in 1948. The contemporaneous rejection by the United States of the Havana Charter signified the establishment of the GATT as a governing world body.[4]

Fourth Round Geneva Round – 1955-1956
The fourth round returned to Geneva in 1955 and lasted until May 1956. 26 countries took part in the round. $2.5 billion in tariffs were eliminated or reduced.

Fifth Round Geneva (Dillion) Round – 1960-1962
The fifth round occurred once more in Geneva and lasted from 1960 to 1962. The talks were named after U.S. Treasury Secretary and former Under Secretary of State, Douglas Dillon, who first proposed the talks. 26 countries took part in the round. Along with reducing over $4.9 billion on 4400 items in tariffs, it also yielded discussion relating to the creation of the European Economic Community (EEC).

Sixth Round Kennedy Round – 1964-1967
With the formation EEC, the US had been put at a disadvantage. As a reaction to this, the US Congress passed the Trade Expansion Act in October 1962 which authorised the Kennedy administration to make 50 per cent tariff reduction in all commodities. This paved the way for the opening of the Kennedy round of trade negotiations at Geneva in May 1964, which were to be completed by 30 June 1967.This round had the participation of 62 countries and negotiated tariff reductions of approximately $ 40 billion, covering about four-fifths of the world trade. The major industrial countries in this group applied substantial cuts on their dutiable imports, e.g. as much as 64 per cent cuts in the case of the United States, 3 per cent in case of Britain, 30 per cent in case of Japan, 24 per cent in case of Canada. They left the US and European tariff on the manufactured goods in the range of 5 to 15 per cent. However, with regard to agricultural products, the negotiations had lesser success. They agreed on an average duty reduction of 25 per cent on agricultural items. Non-tariff obstacles, too remained untouched and scant attention was paid to the problems of developing countries.In IMF study revealed that weighted average tariff for all industrial products had been reduced to 7.7 per cent, 9.8 per cent on finished manufactured products, 8 per cent on semi-finished products and 2 per cent on raw materials. Thus trade in industrial products after the completion of Kennedy Round was substantially free of restrictions.

Seventh Round Tokyo Round – 1973-1979
Reduced tariffs and established new regulations aimed at controlling the proliferation of non-tariff barriers and voluntary export restrictions. 102 countries countries took part in the round. Concessions were made on $190 billion worth. The Seventh Round of Multilateral Trade Negotiations (MTN) was launched in September 1973 under the auspices of GATT. Its objectives were laid down in the Tokyo Declaration. The Declaration set out a far-reaching programme for the negotiations in six areas. These are

  1. tariff reduction
  2. reduction of elimination of non-tariff barriers
  3. coordinated reduction of all trade barriers in selected sectors
  4. discussion on the multilateral safeguard system
  5. trade liberalisation in the agricultural sector taking into account the special characteristics
  6. special treatment of tropical products.
  7. It also emphasized that MTN must take into account the special, interests and problems of developing countries.

Eighth Round Uruguay Round – 1986-1993
The Eighth Round of GATT negotiations which began at Punta Del Esta in Uruguay in September 1986 ought to have been concluded by the end of 1990. But at the ministerial meeting in Brussels in December 1990, an impasse was reached over the area of agriculture and the talks broke down. The talks were restarted in February 1991 and continued till August 1991. On 20 December 1991. Aurthur Dunkel, the then Director-General of GATT tabled a Draft Final Act of the Uruguay Round, known as the Dunkel Draft Text. This was a take-it-or-leave-it” document which was hotly discussed at various fora in the member countries through 1992 till July 1993 when the then Director General, Sutherland relaunched the negotiations in Geneva. On 31 August 1993, the Trade Negotiations Committee (TNC) passed a resolution to conclude the Uruguay Round by 15 December. On 15 December 1993 at the final session, Chairman Sutherland declared that seven years of Uruguay Round negotiations had come to an end. Finally, on 15 April 1994, 123 Ministers of member countries ratified the results of the Uruguay Round at Marrakesh (Morocco) and the GATT disappeared and passed into history and it was absorbed by the World Trade Organization (WTO) on 1 January 1995. The Uruguay Round of trade negotiations undertaken by the GATT since its establishment in 1947 had a wide agenda. The GATT originally covered international trade rules in the goods sector only. Domestic policies were outside the GATT purview and it operated only at international border. In the Uruguay Round, the GATT extended to three new areas, viz. Intellectual property rights services and investment. It also covered agriculture and textiles, which were outside the GATT jurisdiction.

The final year embodying the results of the Uruguay Round of Multilateral Trade Negotiations comprises 28 Agreements. It had two components: the WTO Agreement and the Ministerial decisions and declarations. The WTO Agreement covers the formation of the organisation and the rules governing its working. Its Annexures contain the Agreements covering trade in goods, services, intellectual property rights, plurilateral trade, GATT Rules 1994, dispute settlement rules and trade policy review. The Uruguay Round was concerned with two aspects of trade in goods and services. The first related to increasing market access by reducing or eliminating trade barriers. Reductions in tariffs, reductions in non-tariff support in agriculture, the elimination of bilateral quantitative restrictions, and reductions in barriers to trade in services met this. The second related to increasing the legal security of the new levels of market access by strengthening and expanding rules and procedures and institutions.

What is the difference between GATT & WTO?
The WTO is not an extension of the GATT but succession to the GATT. It completely replaces GATT and has a very different character. The major
differences between the two are:
1. The GATT had no status whereas the WTO has a legal status. It has been created a by international treaty ratified by governments and legislatures
of member states.
2. The GATT was a set of rules and procedures relating to multilateral agreements of selective nature. There were separate agreements on separate issues, which were not binding on members. Any member could stay out of the agreement. The agreements, which form part of the WTO, are permanent and binding on all members.
3. The GATT dispute settlement system was dilatory and not binding on the parties to the dispute. The WTO dispute settlement mechanism is
faster and binding on all parties.
4. GATT was a forum where the member countries met once in a decade to discuss and solve world trade problems. The WTO, on the other hand, is
a properly established rule based World Trade Organization where decisions on agreement are time bound.
5. The GATT rules applied to trade in goods. Trade in services was included in the Uruguay Round but no agreement was arrived at. The
WTO covers both trade in goods and trade in services.
6. The GATT had a small secretariat managed by a Director General. But the WTO has a large secretariat and a huge organizational setup.

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  • Anonymous

    it's really good….thanks 4 info

  • Anonymous

    It was very useful information. Thnk u……….

  • Shashank

    Thanks for the explanations!!

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