GATT

2. 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

3. GATT
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

4. Inception
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

5. General Agreement on Tariffs and Trade

6. 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.

7. GATT ??
Was the outcome of the failure of negotiating
governments to create the ITO
The Bretton Woods Conference 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
Once the ITO failed in 1950, only the GATT
agreement was left.
A Treaty, not an Organization

8. Objective
The GATT's main objective was the
“Reduction of Barriers to International Trade”
This was achieved through the Reduction of
Tariff barriers
Quantitative Restrictions
Subsidies on trade through a series of agreements

9. History
Divided into 3 phases:
First:
 From 1947 until the Torquay Round
 Largely concerned which commodities would be covered by
the agreement
 Freezing existing tariff levels
Second:
 From 1959 to 1979
 Focused on reducing tariffs
Third:
 Consists only of the Uruguay Round from 1986 to 1994
 It extended the agreement to new areas such as intellectual
property, services, capital, and agriculture
 Final outcome was creation of WTO

10. History (Contd...)
GATT signatories occasionally negotiated new trade
agreements that all countries would enter into
Each set of agreements was called a round
In general, each agreement bound members to
reduce certain tariffs. Usually this would include
many special-case treatments of individual products,
with exceptions or modifications for each country.

11. First Phase
Commodities which would be covered by the
agreement and freezing existing tariff levels
Year Place/name Subjects
covered
1947 Geneva Tariffs
1949 Annecy Tariffs
1951 Torquay Tariffs

12. Second Phase
Focused on reducing tariffs
Year Place/name Subjects covered
1960-1961 Geneva
Dillon Round
Tariffs
1964-1967 Geneva
Kennedy
Round
Tariffs and anti-dumping
measures
1973-1979 Geneva
Tokyo Round
Tariffs, non-tariff
measures, “framework”
agreements

13. Third Phase
Year Place/name Subjects covered
1986-1994 Geneva
Uruguay Round
Tariffs, non-tariff
measures, rules,
services, intellectual
property, dispute
settlement, textiles,
agriculture, creation of
WTO, etc
Extended the agreement fully to new areas such as
intellectual property, services, capital, and agriculture.
Out of this round the WTO was born.

14. ROUNDS
NAME START DURA
TION
COUNT
RIES
SUB.
COVERED
ACHIVEMENTS
1.GENEVA APRIL
1947
7
MONTH
S
23 TARIFFS SIGNING OF GATT,
45,000 TARIFF
CONCESSIONS
AFFECTING $10
BILLION OF TRADE.
2.
ANNECY
APRIL
1949
5
MONTH
S
13 TARIFFS COUNTRIES
EXCHANGED SOME
5000 TARIFF
CONCESSIONS.

15. ROUNDS CONT…
NAME STAR
T
DURATIO
N
COUNT
RIES
SUB.
COVERED
ACHEVEMENTS
3.
TORQUAY
SEPT.
1950
8 MONTHS 38 TARIFFS COUNTRIES
EXCHANGED SOME
8700 TARIFF
CONCESSIONS,
CUTTING THE
TARIFFS BY 25%
4. GENEVA
II
JAN.
1956
5 MONTHS 26 TARIFFS,
ADMISSION
OF JAPAN
$2.5 BILLION IN
TARIFF REDUCTION
5. DILLON SEPT.
1960
11 MONTHS 26 TARIFFS TARIFF CONCESSION
WORTH $4.9 BILLION
OF WORLD TRADE.

16. ROUNDS CONT…
NAME STAR
T
DURATIO
N
COUN
TRIES
SUB.
COVERED
ACHIVEMENTS
6.
KENNEDY
MAY
1964
37 MONTHS 62 TARIFFS &
ANTIDUMPING
TARIFF CONCESSION
WORTH $40 BILLION OF
WORLD TRADE
7. TOKYO SEPT.
1973
74 MONTHS 102 TARIFF, NON
TARIFF
MEASURES,
“FRAMEWORK”
AGREEMENTS
TARIFF REDUCTION
WORTH $190 BILLION
ACHIEVED.
8.
URUGUAY
SEPT.
1986
87 MONTHS 123 TARIFFS,NON
TARIFFS,RULES,
SERVICES,IP,DIS
PUTE
SETTLEMENT,TE
XTILES,AGRI.
CREATION OF WTO, &
EXTENDED THE RANGE OF
TRADE
NEGOTIATION,LEADING TO
THE REDUCTION IN
TARIFFS(ABOUT 40%).

17. 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.

18. 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.

19. 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.

20. 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.

21. 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
consumer products.

22. 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.

23. 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.

24. GATT & its impact on Indian
Pharmaceutical Industry
 Globally output of Indian pharmaceutical industry
4th
rank in terms of volume,
13th
rank in terms of value.
 Out put of Pharmaceuticals
In 2001----229 billion
In 2002----260 billion(grew by 16%)
Bulk drugs – 21%
Formulation—79%
 GATT
• Strengthen R&D capabilities during 10 yr transitional period
• Strategic alliance with research based companies abroad for setting
up joint ventures in India

25. Did GATTDid GATT
succeed?succeed?

26. 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.

27. 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.

28. 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.

29. WTO
The World Trade Organization (WTO) was
born on 1st January 1995 with the main
objective to improve the welfare of the
people of the member countries. The main
function is to ensure that trade flows as
smoothly, predictable and freely as possible.

30. How is the WTO different
from GATT
WTO covers both aspects that is trade in goods as
well as trade in services along with most important
TRIPs (Trade Related Intellectual Property Rights)
agreement.
Now GATT agreement is one of the parts of WTO
agreement.

31. WTO
GATT GATS TRIMSTRIPS
GATTGATT: GENERAL AGREEMENT ON TARIFF AND TRADE.: GENERAL AGREEMENT ON TARIFF AND TRADE.
GATSGATS: GENERAL AGREEMENT ON TRADE IN SERVICES.: GENERAL AGREEMENT ON TRADE IN SERVICES.
TRIPSTRIPS: TRADE RELATED INTELECTUAL PROPERTY: TRADE RELATED INTELECTUAL PROPERTY
RIGHTSRIGHTS
TRIMSTRIMS: TRADE RELATED INVESTMENT MEASURES: TRADE RELATED INVESTMENT MEASURES..

32. successes of GATT
• huge increases in world trade
• new members: 23 to 110
• enormous reductions in tariffs

33. References
 Bagwell K; Staiger R, 1999- An economic theory of GATT,
American Economic Review 89, 215-248.
 GATT, 1979. The Tokyo Round of Multilateral Trade
Negotiations: Report of the Director- General of GATT. Geneva.
 WTO, 1995. Analytical Index: Guide to GATT Law and Practice,
Vol 2. WTO, Geneva.
 Michael Hudson, Super Imperialism: The Origin and
Fundamentals of U.S. World Dominance, 2nd ed. (London and
Sterling, VA: Pluto Press, 2003), 258.