Evaluation of GATT

General Agreement on Tariffs And

Trade
 Evaluation of GATT
• The General Agreement on Tariffs and Trade
(GATT), which was signed in 1947, is a
multilateral agreement regulating trade
among about 150 countries. According to its
preamble, the purpose of the GATT is the
"substantial reduction of tariffs and other
trade barriers and the elimination of
preferences, on a reciprocal and mutually
advantageous basis
• Toward the end of World War II,
representatives of the US and its Allied
Forces endeavored to work out the
arrangements for the post war era. As a
result of these negotiations, after World
War II three important international
measures were undertaken by the US
and its Allies to liberalize trade and
payment.
• International Monetary Fund (IMF) was
established to facilitate international
payments.
• To rebuild , European countries and Japan
and to encourage free flow of private capital,
International Bank for Reconstruction and
Development (IBRD, now the World Bank)
was also established.
• To facilitate free trade, ITO was to be born.
• GATT was the result of an international
conference held at Geneva in 1947 to consider a
draft charter for the International Trade
Organization (ITO). The US initiated negotiations
with 22 other countries that led to commitments
to regulate 45,000 tariff rates.
• Technically, GATT was viewed as an agreement
under the provisions of US Reciprocal Trade Act
of 1934, and hence did not require approval of
Congress. It was considered a provisional
agreement that would be replaced once the ITO
became operational to take over its functions.
• The General Agreement on Tariffs and Trade
(GATT) was first signed in 1947. The agreement
was designed to provide an international forum
that encouraged free trade between member
states by regulating and reducing tariffs on traded
goods and by providing a common mechanism
for resolving trade disputes.
• So GATT began its provisional existence on
January 1, 1948, when 23 contracting parties
signed the agreement. However, US Congress
refused in 1950 to ratify the treaty establishing
the ITO.
 Major Provisions of GATT

• Tariff: GATT obligates each country to accord non

discriminative, most favored nation (MFN)
treatment to all other contracting parties with
respect to tariffs. MFN treatment does not mean
free trade or national treatment. Imports from
contracting parties are subject to tariffs or
quotas. MFN treatment means that no other
countries with some exceptions receive better
treatment or lower tariffs.
• Exceptions:
– Existing tariff preferences such as those between
British Commonwealth.
– GATT/WTO allows the formation of customs
union, which causes a significant erosion of the
MFN principle.
– An escape clause allows any contracting party to
withdraw or modify tariff concessions, if it
threatens a serious injury to domestic producers.
• Quantitative Restrictions: GATT in general
prohibits the use of quantitative restrictions on imports
and exports.
• Exceptions:
– agriculture - when government needs to remove surplus of
agricultural and fisheries products. Important to US
– balance of payments - to safeguard balance of payments. If
a country's foreign exchange reserve is low.
– Developing countries - LDCs may use import quotas to
encourage infant industries.
– National Security- Strategic controls on certain exports.
– Patents, Copyrights, Public Morals
• Special Provisions to promote the Trade of
Developing Countries. In 1965, the
contracting parties added Part IV (Trade and
Development) to GATT.
– GATT gives high priority to reduction/elimination
of tariffs on products of LDCs.
– refrain from introducing tariffs and NTBs to such
imports.
– refrain from imposing internal taxes to discourage
consumption of primary products from LDCs
– not expect reciprocal commitments from LDCs.
• Other Provisions
– provisions to eliminate concealed
protection such as customs valuation. For
example, American Selling Price valuation.
By ASP, an ad valorem tariff is imposed on
the domestic price.
– procedural matters: each member is
entitled to one vote, decisions are made by
majority vote. 2/3 majority is required to
waive obligations. settlements of disputes.
 Important Articles: GATT
• Article I General Most-Favo Article I ured-Nation
Treatment;
• Article II Schedule of Concession
• Article III National Treatment on Internal Taxation
and Regulation;
• Article VI Antidumping and countervailing duties
• Article VII Valuation for custom purposes
• Article VIII Fee and formality concerned with
import and export of goods limited to the cost of
services rendered
• Article IX Equal treatment with respect tp
marking requirements
• Article X publication of all laws, regulation,
judicial decisions and administrative rulings etc
for custom purposes
• Article XI General Elimination of Quantitative
Restrictions;
• Article XIII Non-discriminatory Administration of
Quantitative Restrictions;
• Article XVI Subsidies;
• Article XX General Exceptions;
 Accomplishments
• Trade liberalization in industrial products
• Adopted codes on Non Tariff Barriers (NTBs)
• No world wars since 1948 , Increased trade
promotes world peace
 Problems -GATT
• Failed to liberalize trade in agricultural products
to any significant degree. This was one of the
major goals of the Uruguay Round.
• Article 24 permits member countries to form a
CU or FTA. The EC keep out agricultural products,
lowered duties to many African and
Mediterranean countries, which are not extended
to other GATT contracting parties
• Has experienced partial success in regulating
trade practices adopted by member countries in
response to BOP difficulties.
• For example, in 1971 the US imposed a 10%
surcharge on its imports, thereby doubling its
average duties.
• Steady erosion of MFN principle by the EC
• has condoned managed trade for textiles,
largely because of pressure from the US, and
automobiles (VERs) Multi fiber ageement
• GATT was an executive agreement under the
Protocol of Provisional Application. It was only
a gentlemen's agreement with no teeth, no
enforcement power to discipline parties that
violate the rules. Moreover, contracting
parties are not obligated to observe rules that
are inconsistent with their domestic laws at
the time of entry into GATT. Many countries
sidestep or bypass the rules by narrowly
defining commodities for tariff purposes.