CHAPTER I

INTRODUCTIONS OF THE GENERAL AGREEMENT ON

TARIFFS AND TRADE (GATT)

The General Agreement on Tariffs and Trade (GATT), which was signed in 1947, is a
multilateral agreement regulating trade among 153 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."
The GATT functioned de facto as an organization, conducting eight rounds of talks addressing
various trade issues and resolving international trade disputes. The Uruguay Round, which was
completed on December 15, 1993 after seven years of negotiations, resulted in an agreement
among 117 countries (including the U.S.) to reduce trade barriers and to create more
comprehensive and enforceable world trade rules. The agreement coming out of this round, the
Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, was
signed in April 1994. The Uruguay Round agreement was approved and implemented by the U.S.
Congress in December 1994, and went into effect on January 1, 1995.
From 1948 to 1994, the General Agreement on Tariffs and Trade (GATT) provided the rules for
much of world trade and presided over periods that saw some of the highest growth rates in
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international commerce. It seemed well-established, but throughout those 47 years, it was a

provisional agreement and organization.
The original intention was to create a third institution to handle the trade side of international
economic cooperation, joining the two Bretton Woods institutions, the World Bank and the
International Monetary Fund.
The General Agreement on Tariff and Trade is a multilateral treaty that lays down agreedrules for
conducting international trade. It came into force in January 1948. 119governments which
together account for 90 per cent of the world merchandise tradesubscribe it to. Its basic aim is to
liberalize trade and for the last 45 years it has beenconcerned with negotiating the reduction of
trade barriers and with international traderelations. The rapid and uninterrupted growth in the
volume of international trade till1992 provides a good testimony for the success of the GATT.
The General Agreement on Tariffs and Trade (GATT) was originally created by the Bretton
WoodsConference as part of a larger plan for economic recovery after World War II. The GATTs
main purpose was to reduce barriers to international trade. This was achieved through the
reduction of tariff barriers, quantitative restrictions and subsidies on trade through a series of
different agreements. The GATT was an agreement, not an organization. Originally, the GATT
was supposed to become a full international organization like the World Bank or IMF called the
International Trade Organization. However, the agreement was not ratified, so the GATT
remained simply an agreement. The functions of the GATT have been replaced by the World
Trade Organization. What is the purpose of GATT? According to the Preamble of GATT, the
objectives of the contracting parties include, raising standards of living ensuring full
employment thelarge and steadily growing volume of real income and effective demand
developing the full use of the resources of the world expanding the production and exchange of
goods.
The Preamble also states the contracting parties belief that reciprocal and mutually
advantageous arrangements directed to the substantial reduction in tariffs and other barriers to
trade and to the elimination of discriminatory treatment in international commerce would
contribute toward these goals. Importantly, free trade is not the stated objective of GATT. The
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role of GATT in integrating developing countries into an open multilateral trading system is also
of major consequence. The increasing participation of developing countries in the GATT
tradingsystem and the pragmatic support provided to them through the flexible application of
certain rules helped developing countries to both expand and diversify their trade. It could now
be said that a great number of these countries have already become full partners in the system as
can bewitnessed by their active participation in the Uruguay Round. The task of helping to
integrate further the least-developed countries is one of the challenges that lies ahead in the
WTO. Similarly, the full integration of countries with economies in transition into the trading
system must be achieved in order to strengthen economic interdependence as a basis for greater
prosperity and world peace. These negotiations were critical to ensure the future health of the
world economy and the trading system. The globalization of the world economy over the past
decade has created a greater reliance than ever on an open multilateral trading system. Free trade
has become the backbone of economic prosperity and development throughout the world. Partly
as a result of this, there has been a shift in trade policy mechanisms from border measures to
internal policy measures, substantially affecting the management of trade relations.

Purpose of GATT
According to the Preamble of GATT,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. Although, other objectives of the
contracting parties include,

raising standards of living

ensuring full employment
a large and steadily growing volume of real income and effective demand
developing the full use of the resources of the world
Expanding the production and exchange of goods.

The General Agreement on Tariffs and Trade (GATT) was first signed in 1947, was designed o
o
o
o

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.

OBJECTIVES OF GATT :
To expand International trade by liberating trade.
Build an International trading system
to ensure orderly and equitable expansion of world trade and contribute to the prosperity

of US.
Reduce foreign export subsides, tariff and non-tariff barrier and internal supports.
\Cuts costs by 50 100% on important electronic items
To strengthen and clarify rules for agricultural trade.
To reduce subsidization for agricultural production.
Expansion of production and international trade.
Better utilization of resource of the world.

History :
3 Phases
First Phase :

From 1947 until the Torquay Round.Commodities which would be covered by the agreement and
freezing existing tariff levels

Year
1947
1949
1951
Second Phase :

Place/name
Geneva
Annecy
Torquay

Subjects covered
Tariffs
Tariffs
Tariffs

A second phase, encompassing three rounds, from 1959 to 1979.Focused on reducing tariffs
Second Phase

Year

Place/name

Subjects covered

1960-1961

Geneva

Tariffs

1964-1967

Dillon Round
Geneva

Tariffs and anti-dumping measures

1973-1979

Kennedy Round
Geneva

Tariffs, non-tariff measures, framework

Tokyo Round

agreements

Third Phase :

The Third phase, consisting only of the Uruguay Round from 1986 to 1994.Extended the
agreement fully to new areas such as intellectual property, services, capital, and agriculture. Out
of this round the WTO was born.

Year

Place/name

Subjects covered

1986-1994

Geneva

Tariffs, non-tariff measures, rules, services, intellectual

Uruguay Round

property, dispute settlement, textiles, agriculture, creation

of WTO, etc.

GATT Round

GATT members have engaged in eight intensive series of multilateral trade negotiations. Since
the fifth series of negotiations (Dillon Round), multilateral negotiations under the GATT have
been called the XX Round Negotiations or simply the XX Round.
During the Doha Ministerial Conference, it was decided to launch a new series of negotiations.
This series of negotiations is called the Doha Development Agenda, because some developing
countries oppose the word Round. Figure II-4 outlines a brief history of trade liberalization
negotiations.
Tariffs were gradually reduced over the course of several negotiating rounds. In addition, trade
rules other than tariffs were developed. In particular, the Uruguay Round produced landmark
results, including the strengthening of trade rules and the development of binding dispute
settlement procedures.
GATT round negotiations

Trade Negotiations under GATT:

Eight major trade negotiations took place under the GATT auspice as follows:
1.The first round in 1947 (Geneva) saw creation of the GATT.
2.The second round in 1949 (Annecy, France) involved negotiation with nationsthat desired
GATT membership. The principal emphasis was on tariff negotiations.
3.The third round in 1951 (Torquay, England) continued accession and tariff reduction
negotiations.
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4.The fourth round in 1956 (Geneva) proceeded along the same track as earlierrounds.
5.The fifth round in 1960-61 (Geneva, Dillon Round) involved further revisionof the GATT and
the addition of more countries.
6.The sixth round in 1964-67 (Geneva Kennedy Round) was hybrid of earlierproduct by product
approach with across the board tariff reductions.
7.The seventh round in 1973-79 (Geneva, Tokya Round) centred on thenegotiation of additional
tariff cuts and developed a series of agreementsgoverning the use of non-tariff measures.
8.The eight round (Uruguary Round ) started in 1986 and was concluded inApril 1994.As a
result of these negotiations, the tariff rates for thousands of items entering into worldtrade were
reduced or bound against increase. The average level of tariffs onmanufactured goods in
industrial countries was bout 3 per cent now as compared to about 40 percent in the immediate
second world was years. Developing countries weredisappointed with Kennedy round and the
Tokyo Round. However, given its provisionalnature and the limited field of action, the success of
GATT in promotion and securingliberalisation of much of world trade over 47 years was
incontestable.

FUNDAMENTAL PRINCIPLES OF GATT :

1. Non Discrimination: No member country shall discriminate between members of GATT.
Exceptions are allowed.
2. Prohibition of Quantitative Restrictions
3. Concept of consultation aims to avoid damage to trading interests of contracting parties.

4. GATT provides frame work within which the negotiations can be held for reduction of tariff
another barrier to trade and structure for embodying results of such negotiations
OTHER FUNCTIONS OF GATT :
Most Favored function status: Matters related to the tariff and related matters granted to any of
the trading partner. Ensures that any tariff reduction or any other trade concession is extended to
all GATT parties. National treatment: GATT members must give imported goods treatment equal
to that of domestic goods. No restrictions on charges like rates may be applied to imported goods
unless equally treated.
Protection through tariff : Prohibits quantitative restrictions / Quotas. Contracting parties are
expected to provide protection by means of tariffs which are transparent and subject to
negotiations in the GATT. Dispute Settlement: Procedures from Uruguay round negotiations
provides more automatic and effective resolution of disputes between member nations.

Evaluation of GATT
1. When GATT was signed in the year 1947 only 23 nations were party to it. In the 1986,
there were 117 were members. One of the principle achievement of GATT was the
establishment of forum for continuing consultation.

2. GATT achieved considerable liberalization, few exception are as follow as: Agricultural trade was an exception to the liberalizations. Trade in agricultural became
progressively more distorted by the support given to the farmers in agricultural sectors.
Another exception was textile: trade in textile was restricted by MFA. under MFA import
of textile items, to number of developed countries was restricted by quota.
Developing countries with balance of payment problem have been generally exempted
from liberalization.
3

The average level of tariff on manufactured products in industrial countries was brought
down from 40% in 1947 to 3% in 1986.

The export of developing countries gained significantly less from the GATT agreement
then did the export of developed countries

CHAPTER II
GATT & WTO

GATT

WTO

1) It Stands for General Agreement on Tariffs and 1) ) It Stands for World Trade Organization
Trade
2) GATT was adhoc and provisional.

2) WTO is permanent.

3) GATT has contracting parties.

3) WTO has members.

4)

GATT system allows existing domestic, 4) WTO does not permit this.

legislation to continue even if it violated GATT

agreement.

5) GATT was less powerful and dispute

5) WTO is more powerful and dispute

settlement mechanism was less efficient.

settlement mechanism was more efficient

PRINCIPLES OF THE GATT&THE WTO

The ultimate aim of GATT is the establishment of a free multilateral trading system and
liberalization of international trade through removal of discrimination in international trade and
reduction in trade barriers. For the achievement of this objective, GATT has adopted the
following fundamental principles. These principles forbid unfair trade practice and set a code of
conduct for the participants. The WTO establishes a framework for trade policies; it does not
10

define or specify outcomes. That is, it is concerned with setting the rules of the trade policy
games. Five principles are of particular importance in understanding both the pre-1994 GATT
and the WTO:
1. Non-discrimination:
It has two major components: the most favoured nation (MFN) rule, and the national treatment
policy. Both are embedded in the main GATT/WTO rules on goods, services, and intellectual
property, but their precise scope and nature differ across these areas. The MFN rule requires that
a GATT/WTO member must apply the same conditions on all trade with other GATT/WTO
members, i.e. a GATT member has to grant the most favorable conditions under which it allows
trade in a certain product type to all other GATT/WTO members. National treatment means that
imported goods should be treated no less favorably than domestically produced goods and was
introduced to tackle non-tariff barriers to trade.
2. 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 be greater than the gain available from
unilateral liberalization; reciprocal concessions intend to ensure that such gains will materialize.
3. Binding and enforceable commitments:
The tariff commitments made by GATT/WTO members in a multilateral trade negotiation and on
accession are enumerated in a schedule of concessions. These schedules establish "ceiling
bindings": a country can change its bindings, but only after negotiating with its trading partners,
which could mean compensating them for loss of trade. If satisfaction is not obtained, the
complaining country may invoke the GATT/WTO dispute settlement procedures.
4. Transparency:
The GATT/WTO members are required to publish their trade regulations, to maintain institutions
allowing for the review of administrative decisions affecting trade, to respond to requests for
information by other members, and to notify changes in trade policies to the GATT/WTO. These
internal transparency requirements are supplemented and facilitated by periodic country-specific
11

reportsthrough the Trade Policy Review Mechanism (TPRM).The GATT system tries also to
improve predictability and stability, discouraging the use of quotas and other measures used to
set limits on quantities of imports.
5. Safety valves:
In specific circumstances, governments are able to restrict trade. The GATTs agreements permit
members to take measures to protect not only the environment but also public health, animal
health and plant health. How do principles works in practice? Despite high-sounding principles,
the WTO Agreements contain an extensive range of measures that permit members at least to
modify, and at times to escape, their obligations. A full explanation of how these work would
require book-length treatment. Here we provide brief examples of some of the main
qualifications, which indicate how a member government can exercise a degree of sovereignty
within the framework of rules prescribed by the agreements:
1. Grandfathering pre-existing preferences:
This means that if, at the time of signing the agreement, a country gives some trading partners
preferential treatment it can continue to do so.
2. Regional trade agreements:
Countries can be members of regional trade agreements, as well as the WTO even though there
are different obligations. This represents a derogation of the MFN principle but is allowed under
certain conditions.

3. Waivers:
Waivers to obligations are permitted in certain exceptional circumstances. For instance, the
United States received a waiver in the case of the Canada-United States Automotive Agreement.
4. Non-application of national treatment:

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The national treatment principle does not apply to government procurement or to the provision of
subsidies for domestic production. General Exceptions - General exceptions are permitted in
cases where government measures, although restrictive of trade, are required for reasons of:
public morals; human, animal, plant life and health; compliance with domestic regulations; trade
in gold and silver; the products of prison labour; conservation of natural resources; protection of
national treasures; and participation in international commodity agreements.
5. National Security:
Actions can be taken to protect national security.
6. Food and human security:
Temporary export prohibitions are permitted in the case of critical shortages of food and
essentials.
7. Balance of payments:
A country can take measures to alleviate a balance of payments problem.
8. Safeguards and countervailing duties:
Allowance is made for safeguards against injury caused to domestic industries by sudden
increases in imports of products. In addition, a country has the ability to address cases of
dumping, and to provide countervailing duties against subsidies.
9. Concessions:
A country has the ability to reduce or withdraw concessions offered.
10. Developing countries:Special conditions are provided for developing countries.
OBJECTIVES OF THE GATT&THE WTO
There have been three basic objectives behind the establishment of the GATT.
1. It was to provide a framework for the conduct of trade relations.
2. It was to provide a framework for, and to promote, the progressive elimination of trade
barriers.
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3. It was to provide a set of rules that would prevent countries from taking unilateral action.
These objectives aimed to make the international trade free from all restrictions and to facilitate
the expansion of international trade. Reductions in trade barriers and various rounds of
negotiations have facilitated the expansion of trade. Most Favoured Nations (MFN) treatment
under GATT has also facilitated the expansion of trade.
The Uruguay Round, Passing from GATT to WTO
The last and largest GATT round, was the Uruguay Round which lasted from 1986 to 1994 and
led to the WTOs creation. Whereas GATT had mainly dealt with trade in goods, the WTO and
its agreements now cover trade in services, and in traded inventions, creations and designs
(intellectual property).The Final Act Embodying the Results of the Uruguay Round of
Multinational Trade Agreementsconsists of the Final Act itself, the Agreement establishing the
WTO ("WTO Agreement") and agreements annexed to it, and additional GATT agreements,
decisions and declarations. The text can be found in various sources: 1867 U.N.T.S. 3, 33 I.L.M.
9 (1994) (December 1993 text) and 33 I.L.M. 1143 (1994)(April 1994 text), The Final Act
Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations(K4603
1987 .A3 1994), The Legal Texts: The Results of the Uruguay Round of Multilateral Trade
Negotiations (K4603 1987.A4 1999); reprint of The Results of the Uruguay Round of
Multilateral Trade Negotiations: The Legal Texts (Perkins Ref. 382.92 R436, 1994)and in The
Uruguay Round of Multilateral Trade Negotiations (Microforms Room, filed with GATT
Documents). The text is also available online on theWTO website, in LexisNexis
(INTLAW;GATT) and Westlaw (GATT database with the search pr(final)), and on
WorldTradeLaw.net. Two of the most important of the annexed agreements are the General
Agreement on Trade in Services (GATS), 33 I.L.M. 44 (1994) (December 1993 text) and 1869
UNTS 183, 33 I.L.M. 1167 (1994) (April 1994 text) and theAgreement on Trade Related Aspects
of Intellectual Property (TRIPS), 33 I.L.M. 81 (1994) (December1993 text) and 1869 UNTS 299,
33 I.L.M. 1197 (1994) (April 1994 text)

CHAPTER III

14

TRADE POLICY IN GATT

WORLD TRADE IN SERVICES

The industrial sector can be classified as production sector and service sector. Productionsector
refers the industries that are engaged in production and supply of goods. Servicesector refers
providing services and exchanging services to the public as well as society.The growing
importance of services is reflected in the international trade also. The valueof the international
trade in services comes to about one fourth of the value of the valueof the trade in goods.
Services make up a major share of the invisible account in theBalance of payments of a country.
The most important services in international trade include:

Transport
Travel
Communication
Media
Business services
Insurances
Engineering and constructions services
Banking Financial Services

Characteristics and Categories of Services:

An important characteristics of services that has far reaching implications formarketing of
services is their inseparability. That is services cannot be sepearated fromtheir providers, whether

15

they are persons or machines. This does not, however mean thatall services require the physical
proximity of the provider and user.
CHARACTERISTICS:
(a)Those that necessarily require the physical proximity of the provider and theuser; and
(b)Those that do not, though such physical proximity may be useful.The services where physical
proximity is essential fall into three categories:
-The mobile provider and immobile user categorize the first category. In this casethe provider
goes into the place of user and doing services. For example the technicalpeople of L & T
Company in India goes to Srilanka and do the construction work.Similarly a technician may have
to go a plant abroad to rectify a problem with the plant.- Mobile user and immosbile provider
characterizes the second category. I.e. usergoes towards the provider. For example a patient who
wants an open-heart surgery willhave to go to a hospital where the required facilities are
available.-The third category consists of of mobile user and mobile provider. In this caseeither
the provider going to the user or the user going to the provider may achieveproximity. For
example dry-docking facilities for ships.

OBSTACLES OR RESTRICTIONS IN SERVICE SECTOR:

Due to the special characteristics and the socio economic and politicalimplications of certain
services,

they

are

generally

subject

to

various

types

of
16

nationalrestrictions. Protective measures include

visa requirements,

investment regulations,marketing regulations, restrictions on the employment of foreigners,

compulsion to uselocal facilities etc. Heavily protected r restricted services in different countries
includebanking and insurance; transportation, television, radio, film and other forms
of communications and so on.
INSTITUTIONAL INFRASTRUCTURE FOR EXPORT PROMOTION IN INDIA
The Government of India has set up a number of institutions whose main functions are tohelp an
exporter in its export efforts. It is therefore, necessary for the exporters toacquaint themselves
with these institutions and the nature of help they can render to themso that they can initially
contact them to get whatever help they could get from theseinstitutions in exporting their
products.

CHAPTER IV
SUCCESS & FAILURE OF THE GATT SUCCESS
17

One of the important achievements of GATT was the establishment of a forum for continuing
consultations. Disputes that might otherwise have caused continuing hard feeling, reprisals,
and even diplomatic rupture, have been brought to the conference table and compromised .
GATT could achieve considerable trade liberalization. Over the 47 years GATT was successful in
promoting and securing liberalization of world trade. Continued reductions in tariffs alone helped
to achieve very high rates of world trade growth during the 1950s and 1960s around 8 percent
a year on an average. The momentum of trade liberalization helped to ensure that trade growth
consistently out-paced production growth throughout the GATT era, a measure of countries
increasing ability to trade with each other and to reap the benefits of trade. The rush of new
members during the Uraguay Round demonstrated that the multilateral trading system was
recognized as an anchor for development and an instrument of economic and trade reform.
FAILURE:
As time passed new problems arose. The Tokyo Round in the 1970s was an attempt to tackle
some of these but its achievements were limited. This was a sign of difficult times to come.
GATTs success in reducing tariffs to such a low level, combined with a series of economic
recessions in the 1970s and early 1980s, 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 marketsharing arrangements with competitors and to embark on a subsidies race to maintain their holds
on agricultural trade. Both these changes undermined GATTs credibility and effectiveness. The
problem was not just a deteriorating trade policy environment. By the early 1980s the General
Agreement was clearly no longer as relevant to the realities of world trade as it had been in the
1940s. The expansion of services trade was also closely tied to further increases in world
18

merchandise trade. In other respects, GATT had been found wanting. For instance, in agriculture,
loopholes in the multilateral system were heavily exploited, and efforts at liberalizing
agricultural trade met with little success. In the textiles and clothing sector, an exception to
GATTs normal disciplines was negotiated in the 1960s and early 1970s, leading to the
Multifibre Arrangement. Even GATTs institutional structure and its dispute settlement system
were causing concern.These and other 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.

CHAPTER V

19

CONCLUSIONS
The General Agreement on Tariffs and Trade (GATT) is a multilateral agreement regulating
international trade. According to its preamble, its purpose is the "substantial reduction of tariffs
and other trade barriers and the elimination of preferences, on a reciprocal and mutually
advantageous basis."
It was negotiated during the UN Conference on Trade and Employment and was the outcome of
the failure of negotiating governments to create the International Trade Organization (ITO).
GATT was signed in 1948 and lasted until 1993, when it was replaced by the World Trade
Organization in 1995. The original GATT text (GATT 1958) is still in effect under the WTO
framework, subject to the modifications of GATT 1994.
The World Trade Organization (WTO) is an organization that intends to supervise and
liberalizeinternational trade. The organization officially commenced on January 1, 1995 under
the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade (GATT), which
commenced in 1948. The organization deals with regulation of trade between participating
countries; it provides a framework for negotiating and formalizing trade agreements, and a
dispute resolution process aimed at enforcing participants' adherence to WTO agreements which
are signed by representatives of member governments and ratified by their parliaments. Most of
the issues that the WTO focuses on derive from previous trade negotiations, especially from the
Uruguay Round (19861994).

CHAPTER VI
20

BIBLOGRAPHY
LOTS OF BOOKS AND WEBSITES ARE AVAILABLE FOR THIS PROJECT BUT THE
ABOVE MATERIAL OR INFORMATION ABOUT GATT IS COLLECTED FROM THE
FOLLOWING SOURCES:1. INTERNET
General information on the GATT, including enlargement

www.wto.org
http://en.wikipedia.org/wiki/World_Trade_Organization
http://www.blurtit.com/q112370.html
www.gatt.org
http://www.sweetliberty.org/gatt.htm
http://www.answers.com/topic/general-agreement-on-tariffs-and
trade#ixzz2ntpQt94b

2. ECONOMICS TEXTBOOKS.

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