GATT 1947 basically set up a framework for the exchange of tariff concessions and established a code of rules on non-discrimination and unfair trading practices. GATT borrowed heavily from the Havana Convention and ITO, yet it took the form of contractual agreement rather than a standing organization. It continued to serve primarily as a framework within which bargaining for the removal of trade barriers occurred.
Further negotiation rounds on GATT continued throughout the years. The main goal was to further reduce tariffs. In the mid-1960s, the Kennedy round added an Anti-Dumping Agreement. The Tokyo round in the 70’s improved other aspects of trade. The Uruguay round lasted from 1986 to 1994 culminating in the Marrakesh Treaty which established GATT as a part and parcel of the WTO. Once a country becomes a member of the WTO, it is automatically bound to follow the GATT 1994.
The GATT 1994 incorporates as is the provisions of the GATT 1947, and yet it clarifies the nature and extent of some obligations mentioned in the earlier agreement. The preamble to the GATT is structured on the basis of comparative cost advantage and free market in the sense that the GATT was devised to show the way international economic and trade relations is supposed to be conducted.
The basic purposes of the GATT are included in its various articles and the text. Part I includes Article I and II, i.e. the ‘most favoured nations’ clause and tariff schedules for the contacting parties. Part II comprises of the commercial policy regulations. Part III includes among other things the provisions on territorial applications, custom unions and free trade areas. Part IV deals with the principles and objectives for helping less developed countries.
The GATT was originally only concerned with trade in goods, although its main principles now also apply to trade in services an intellectual property rights as dealt with respectively by the General Agreement on Trade in Services and the TRIPS Agreement.
After World War II, the United Kingdom and the United States submitted proposals to the Economic and Social Council of the United Nations regarding the establishment of an international trade body that was to be named the International Trade Organization. ECOSOC convened a conference, the United Nations Conference on Trade and Employment in 1946, to take into consideration the UK and US proposals. A Preparatory Committee drafted the ITO charter and it was approved at the conference in Havana, Cuba. The first round of trade negotiations took place while the preparatory committee was still working on drafting the charter because the participants wanted to begin the process of trade liberalization as soon as possible. Their results were incorporated into the General Agreement, which was signed in 1947.
The General Agreement on Tariffs and Trade (GATT) was a free trade agreement between 23 countries that eliminated tariffs and increased international trade.1 As the first worldwide multilateral free trade agreement, a significant portion of international trade between January 1, 1948 and January 1, 1995 was governed by GATT.
GATT 1947 to GATT 1994: The objective of GATT was to progressively reduce tariffs and other trade barriers. The methodology adopted was to negotiate reduction of tariffs and trade liberalization by developing ingenious methods of Tariff Rounds between various contracting parties. In all, there were eight rounds, among which the first four were in Geneva (1947), Annecy (1949), Torque (1951) and Geneva (1956). They basically witnessed small achievements in duty reduction. US did not allow for substantial reduction in tariffs and as a result the other countries refrained from doing the same as they followed the principles of MFN and reciprocity. This lead to the formation of European Economic Community, though it was to be in conformity with the provisions of GATT.
The Dillon Round (1961) was negotiated in the background of the threat of EEC’s common external tariff which to some countries meant trade distortion. Not much was done to combat non-tariff barriers and tariff cuts were very small. Then came the Kennedy Round negotiations (1967) where, negotiations expanded from a product by product approach to an industry/sector wise method of cutting tariffs. Also, there was establishment of a code on Anti-Dumping. In Tokyo Round (1979), to combat the non-tariff measures, agreements were reached on technical barriers to trade, subsidies and countervailing measures, import licensing procedures, civil aircrafts, a revised anti-dumping code, and many other subjects. The last round was the Uruguay Round (1994) which continued for nearly eight years. It was focused on the revision and strengthening of GATT rules which resulted in the formation of GATT 1994. For the first time trade related investment measures, trade in services, and intellectual property rights became the subject of multilateral negotiations resulting in specific agreements. This also led to the establishment of WTO equipped with a strengthened Dispute Settlement Mechanism.
ESSENTIAL PRINCIPLES AND PROVISIONS
Most Favoured Nation: The object and the purpose of Article I is to prohibit discrimination among like products originating in or destined for different countries. Any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately or unconditionally to the like product originating in or destined for the territory of all other contracting parties.
The prohibition of discrimination served as an incentive for concessions negotiated reciprocally, to be extended to all other members of WTO on a MFN basis. This article has both economic and political underpinnings. As a political measure it helps suppress aggression in the international relations, promotes development of multilateralism and acts as a prophylactic against discrimination. As an economic measure it secures the benefits of bargain, ensures value of bilateral trade negotiation to a third country for the same exports wherein most efficient producers will have equal access to export markets regardless of country of origin.
MFN particularly allows smaller countries to participate in the advantages that larger countries often grant to each other, whereas smaller countries would often not be powerful enough to negotiate such advantages by themselves.
National Treatment: The principle of National treatment as embodies in Article III of GATT prohibits discrimination between domestic and foreign goods in the application of internal taxation and government regulations after the foreign goods satisfy customs measures at the border. The main reason why GATT/ WTO drafter has proposed NTP was after imposing so much restriction with regard to MFN principles, the drafter considered that the member nation can discriminate the imported products indirectly and to prevent such indirect acts of member nations NTP was introduced to prevent and restrict the domestic government from imposing any internal regulation that might create some scope for discrimination to imported products over domestic product. Just like the MFN principle, the scope of the NTP also covers the scope of de jure and de facto discrimination of imported products.
Reciprocity: It reflects both, a desire to limit the scope of free-riding that may arise because of the MFN rule, and a desire to obtain better access to foreign markets. A related point is that for a nation to negotiate, it is necessary that the gain from doing so should be greater than the gain available from unilateral liberalization; reciprocal concessions intend to ensure that such gains will materialize.
Binding and enforceable commitments: The tariff commitments made by WTO members in a multilateral trade negotiation and on accession are enumerated in a schedule (list) of concessions. These schedules establish "ceiling bindings": a country can change its bindings only after negotiating with its trading partners, which could mean compensating them for loss of trade. If not satisfied, the complaining country may invoke the WTO dispute settlement procedures.
Anti-Dumping and Countervailing Duties: Article VI of the GATT defines dumping as offering a product for sale in export markets at lower price below its normal value. The normal value of a product is defined as the price charged by a firm in its home market in the ordinary course of trade. It is generally accepted in the multilateral trading system that if dumping takes place, it might result in unfair trade as the domestic industry of the importing country suffers as a result of dumping. The process of Anti- Dumping investigation focuses on establishing a normal value of the product when sold in the domestic market of the importing company; establishing the export price of the product; comparing the export price with the normal value established; and ascertaining whether the domestic industry of the importing country is suffering injury as a result of dumped imports.
Publication and Transparency: GATT Article X aims at enhancing the transparency and good governance. Information and knowledge of the regulations and rules in place upgrade the conditions under which traders and operators engage. They can take their business decisions and plan their operations based on this information. Access to accurate information also reduces the opportunity for unfair competition. The basic purpose of this article is that secrecy of trade rules amounts to non-tariff barriers and if nations are allowed to keep trade regulations covered in their cupboards, there is every likelihood that the objectives of GATT i.e. transparency, predictability and uniformity would be violated.
General Exceptions: Article XX obligates the members that nothing in this agreement shall be construed to prevent the adoption or enforcement of any contracting party of exceptions of this Article subject to the condition that these exceptions/measures should not be applied arbitrarily between the countries where the same conditions prevail. And these exceptions should not amount to disguised restrictions on international trade. Some of these exceptions are as follows:
Necessary to protect public morals;
Necessary to protect human, animal, plant life or health;
Relating to importations or exportations of gold or silver;
Relating to the products of prison labour;
Imposed for the protection of national treasures of artistic, historic or archaeological value
Relating to the conservation of exhaustible natural resources, etc.
IMPACT OF GATT 1994 ON THE WORLD
GATT promoted the establishment of world trade liberalization and economy globalization. After this agreement the world market has experienced decline in tariff levels and lesser restrictions in trading. In addition, agriculture, textile trade, trade in services, intellectual property and other aspects of the operation mechanism, has made for the advantageous development of trade.
Next benefit was actually creating peace among countries. With the help of WTO, a system was created that helps the trade process to go on smoothly and providing countries a constructive and fair outlet for dealing with disputes over trade issues. Also, the cost of living decreased to some extent because protectionism increased the cost of the goods, in terms of the production, raw material and so on. GATT lowered the trade barriers through negotiations and brought up the principles of non-discrimination due to which the price of the goods became cheaper.
The environment for international trade is made favourable by lowering the trade barriers (protectionism). All the good made around the world can be exported and imported from different parts of the world. It gives customers a variety of choices, and a range of qualities they can afford or they prefer. It increases the competition as the imported goods hit the market, but the government can play its role by using the cash in producing quality products or utilizing it by providing loans in different sectors. With the growth in income, the government or the companies benefiting from the trade will have to invest in some new faculty which creates jobs and employment. When job holders and employment increases its economic growth.
A few agreements that were entered into as a result and part of the GATT 1994 are as follows:
Agreement on Agriculture.
Agreement on sanitary and phytosanitary measures.
Agreement on textile and clothing.
Agreement on technical barriers to trade.
Agreement on trade related investment measures.
Agreement on implementation of the anti-dumping clause.
Agreement on pre shipment inspection.
Agreement on rules of origin.
Agreement on import licensing procedure.
Agreement on trade related aspects of intellectual property rights.
Agreement on safeguards.
A few drawbacks or limitations of GATT were that, domestic industries were not able to compete globally and small economies and businesses struggled to compete with the large economies and businesses because the competition grew immensely and hence those markets failed. The globalization of the industries exposed more people and states to the world to risks within that industry. Also, Trade agreements could overrule domestic laws sometimes, forcing the governments to cede some level of control over their citizens, due to which some states were reluctant to become a member, and those who became a member, tried to make sure that the agreement does not overpower their domestic regulations and policies.
In terms of agriculture, the agreement focused mainly on the following aspects: First one was the market access. This included tariff reduction and access opportunities, prohibition of quantitative restriction on import, and other safeguard measures. The second aspect was Export subsidies. An export subsidy reduces the price paid by foreign importer, which means the domestic consumer pays more than the foreign consumer. Another aspect to be focused upon was the domestic support to the agriculture sector. This included framing policies for their betterment and building safety programs for natural disasters and proving them with income insurance.
To sum up, GATT has made international trade a lot smoother and peaceful for the world and has helped with many other aspects related to trade as well. The ‘rule oriented system brings stability and predictability to the trading system. The main objectives to reduce barriers in trade and the elimination of preferences, on a reciprocal and mutually advantageous basis was achieved.
Autar Krishan Koul, ‘Guide to the WTO and GATT: Economics, Law and Politics’, Third Edition
https://www.wto.org/english/docs_e/legal_e/06-gatt_e.htm (last visited on 27.05.2021)
Raj Bhalla, ‘International Trade Law: Theory and Practice’, Second Edition (2001)
https://www.thebalance.com/gatt-purpose-history-pros-cons-3305578 (last visited on 27.05.2021)
https://www.wto.org/english/docs_e/legal_e/ursum_e.htm#top (last visited on 27.05.2021)
Submitted by: KARAN SHARMA
Course: BA.LLB (H)
Year: 5TH Year (10th Semester)
College: Delhi Institute of Rural Development (GGSIPU)