~TRANSFORMATION OF GATT TO WTO~

PROJECT WORK OF
INTERNATIONAL TRADE AND FINANCE

TRIMESTER-III

TRANSFORMATION OF GATT TO WTO

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SUBMITTED TO:
SUBMITTED BY:
Mr. Rajesh Gautam

Dhruv Khurana

~TRANSFORMATION OF GATT TO WTO~

2015 B.A.LL.B 51

ACKNOWLEDGEMENT

This Research Project is made possible through the help and support from everyone,
including: parents, teachers, family, friends, and in essence, all sentient beings. Especially,
please allow me to dedicate my acknowledgment of gratitude toward the following
significant advisors and contributors. I would like to thank Mr. Rajesh Gautam for her
most support and encouragement. He offered valuable and detailed advices on organization
and the theme of the project

Thank You.

Dhruv Khurana
(NLIU, Bhopal)

~TRANSFORMATION OF GATT TO WTO~

TABLE OF CONTENTS

ACKNOWLEDGEMENT.......................................................................................................2
INTRODUCTION....................................................................................................................3
GENERAL AGREEMENT ON TARIFFS AND TRADE...................................................................3
ROLE OF GATT IN PROMOTING INTERNATIONAL TRADE....................................4
WORLD TRADE ORGANIZATION....................................................................................7
PRINCIPLES OF THE TRADING SYSTEM....................................................................................7
SUBJECTS OF WTO.................................................................................................................7
ROLE OF WTO IN GLOBALIZATION........................................................................................8
REPLACEMENT OF GATT BY WTO...............................................................................10
INDIAS ROLE IN WORLD TRADE ORGANISATION.................................................13
INCORPORATING LIVELIHOOD CLAUSE:................................................................................13
WTO AND INDIAN INDUSTRIES............................................................................................14
CONCLUSION.......................................................................................................................15
REFERENCES.......................................................................................................................16
WEB SOURCES:.....................................................................................................................16
REPORTS:..............................................................................................................................16

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INTRODUCTION

GENERAL AGREEMENT ON TARIFFS AND TRADE

The General Agreement on Tariffs and Trade (GATT) was originally created by the Bretton
Woods Conference 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 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 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 trading system 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 be witnessed 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
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shift in trade policy mechanisms from border measures to internal policy measures,
substantially affecting the management of trade relations. The Uruguay Round sought to
establish a new balance in rights and obligations among trading nations as a result of this
phenomenon. We are gradually moving towards a global marketplace, and for that, we need a
global system of rules for trade relations among partners in that market place.
The challenges that we face are therefore enormous. The only way back from this
globalization in the world economy would be through depression and eventual chaos. We
therefore have no choice but to move forward. In doing so, however, we must be sure to
preserve to the highest extent possible the spirit and tradition of the GATT, which to a large
extent was the key to its success.

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ROLE OF GATT IN PROMOTING INTERNATIONAL TRADE

The main role of GATT in the international trade was regulating the contracting parties to
achieve the purpose of the agreement which were reducing tariffs and other barriers, and to
achieve the liberalization in international trade. The role was reflected in following aspects:
Firstly, GATT established a set of standard to guide the contracting parties to participate in
international trade practices. GATT stipulated several of basic principle to conduct the
contracting parties in international business, such as General Most-Favored-Nation Treatment
(Article II), Non-discriminatory Administration of Quantitative Restrictions (Article XIII),
and General Elimination of Quantitative Regulations (Article XI) and so on in the GATT
1947. Every contracting party should obey these basic principles when they were involved
in trade relations, otherwise they would be condemned, even be taken revenge by other
parties. Besides this, contracting parties reached quite a little of agreements, and made some
rules during pervious multilateral trade negotiations. For instance, Kennedy Round which
was started from May 1964 brought about the Anti-dumping Agreement. (WTO). These rules
and agreements which were made in the multilateral rounds later become the basic principles
which were accepted by all the parties, and stimulated the development of international trade.
Secondly, GATT reduced the tariff on the basis of mutual benefit, accelerate the trade
liberalization after the World War II. GATTs major contribution was to reduce of tariffs by
sponsoring rounds of multilateral negotiations. (Mike.W.P, 2008) By sponsoring the
multilateral negotiations, there was a significant reduce of the tariff. There were about 35%
average tariff reductions in both Kennedy Round and Tokyo Round. Future more, in the
Uruguay Round which was the most productive in the history of GATT multilateral
negotiation, the contracting parties practiced the rules that kept cutting the tariff rate, there
was an average tariff cut of 39% in this round of negotiation. (Reck A, 2010) By cutting the
tariff rate, there is less trade barriers in doing international business which will mutual benefit
the parties which participated, and promote trade liberalization.
Thirdly, GATT reduced the discrimination in tariff and trade which promoted to reduce other
trade barriers. As stated in the Article II: schedule of concession in GATT 1947, Each
contracting party shall accord to the commerce of the other contracting parties treatment no
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less favorable than that provided for in the appropriate Part of the appropriate Schedule
annexed to this Agreement. According to this statement, GATT regulate the contracting
parties cannot increase the levels of tariff as their wish, but some countries used other nontariff barriers to promote their protectionism. Therefore, GATT claimed the contracting
parties should not use other barriers to protect their own industries, it requested the reduction
of the non-tariff barriers and quantitative restriction to make sure the benefit from the
reduction of tariff not be erased by the non-tariff barriers. After Kennedy Round, the
multilateral negotiation started to cover non-tariff barriers on goods. In 1968/1969, GATT
compiled the Inventory of Non-tariff Barriers which listed more than 800 individual trade
barriers in several volumes. Codes was one of the six agreements passed in the Tokyo Round,
it established new rules on government procurement, technical barriers to trade, customs
valuation, import licensing, antidumping, and subsidies and countervailing measures. The
codes worked towards the goal which to eliminate the non-tariff barriers. Future more, the
Uruguay Round also made the progress in decreasing and eliminating non-tariff barriers,
especially in agriculture products. All these are good for eliminating the trade barriers, which
towards the development of the international trade.
Fourthly, GATT protected the benefits of the developing countries to a certain extent to
international trade. One of the basic objectives of GATT was that raising of standards of
living and the progressive development of the economies of all contracting parties, and
considering that the attainment of these objectives is particularly urgent for less-developed
contracting parties. (GATT 1947) In order to achieve this objective, GATT established some
special measures for less-developed countries, such as provide tariff protect for specific
industries, quotas which are with the purpose of balance of payment. With the increasing
number of developing countries jointed the GATT, there were more concern in the trade
position and benefit of less-developed countries, more over with the developing countries
flight, so GATT established some measures for developing countries so that will benefit the
less-developed countries in export-oriented trade. At the GATT ministerial meeting of 1963,
it enabled the Contracting Parties to discharge the responsibilities towards the development
objectives of the developing countries which led to add Part IV which entitled Trade and
Development to the General Agreement. (Yusuf.A, 1982) The new Part IV provided
preferential treatment to the developing countries. In the Uruguay Round which was an
important milestone for developing countries in their integration into the global economy
(Martin.W & Winters.L.A, 1996), the participants agreed a number of rules which would
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benefit the developing countries, for example, agricultural liberalization, manufacture trade
liberalization. There was a significant reduction of non-tariff barriers (especially export
subsidies) in agriculture, it converted virtually all agriculture nontariff barriers into tariff. In
manufacture trade, the tariff levied on manufacture products which imported from developing
countries was reduced by 40 percent on average. All these measurement reduced the burden
on the economy of developing countries, and had positives in the development of trade for
less developed countries.
Finally, GATT acted as the court of international trade, by providing a platform for
contracting parties to negotiation and talk to settle disputes in international trade. One of the
objectives of GATT was to settle the disputes between two or more parties. When two or
more parties are involved in the international trade, it is inevitable that without disputes.
Some of the disputes may be solved by the two parties themselves, however, some disputes
could not be solved by themselves, without the help of the third party, and the disputes may
be remaining unresolved for years. So it needed GATT to solve those disputes which could
not solve by parties themselves. Before it was replaced by WTO, in a certain period, GATT
had become a legal mechanism to settle trade disputes among contracting parties, it provided
a platform for contracting parties to settle disputes so that the trade conflicts and disputes can
be solved immediately which would protect the benefit of both parties, and lay the foundation
to achieve the main objective of GATT.

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WORLD TRADE ORGANIZATION

The World Trade Organization (WTO) is an international organization that establishes rules
for international trade through consensus among its member states. It also resolves disputes
between the members, which are all signatories to its set of trade agreements.
The WTO states that its aims are to increase international trade by promoting lower trade
barriers and providing a platform for the negotiation of trade and to their business.
PRINCIPLES OF THE TRADING SYSTEM
The WTO discussions should follow these fundamental principles of trading:
1.

A trading system should be free of discrimination in the sense that one country cannot
privilege a particular trading partner above others within the system, nor can it

2.

discriminate against foreign products and services.

A trading system should tend toward more freedom, that is, toward fewer trade

3.

barriers (tariffs and non-tariff barriers).

A trading system should be predictable, with foreign companies and governments
reassured that trade barriers will not be raised arbitrarily and that markets will remain

4.
5.

open.
A trading system should tend toward greater competition.
A trading system should be more accommodating for less developed countries, giving
them more time to adjust, greater flexibility, and more privileges.

SUBJECTS OF WTO

Agriculture
Services
Non-agriculture
Intellectual Property Rights
Trade investment, competition, policy, government procurement and trade facilities
Trade rules
Dispute settlements
Trade and environment
Trade, finance and debt
Trade and technology transfer
Electronic commerce

ROLE OF WTO IN GLOBALIZATION

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WTO plays an important role in the principle of trade without discrimination in the
free market trade.
1.

Most-favoured-nation (MFN):
Treating other people equally. Under the WTO agreements, countries cannot normally
discriminate between their trading partners. Grant someone a special favour (such as a
lower customs duty rate for one of their products) and you have to do the same for all
other WTO members.

2.

National treatment:
Treating foreigners and locals equally. Imported and locally-produced goods should
be treated equally at least after the foreign goods have entered the market.

3.

Freer trade - gradually, through negotiation:

Lowering trade barriers is one of the most obvious means of encouraging trade. The
barriers concerned include customs duties (or tariffs) and measures such as import
bans or quotas that restrict quantities selectively.

4.

Predictability - through binding and transparency:

With stability and predictability, investment is encouraged, jobs are created and
consumers can fully enjoy the benefits of competition choice and lower prices. The
multilateral trading system is an attempt by governments to make the business
environment stable and predictable.

5.

Promoting fair competition:

The WTO is sometimes described as a free trade institution, but that is not entirely
accurate. The system does allow tariffs and, in limited circumstances, other forms of
protection. More accurately, it is a system of rules dedicated to open, fair and
undistorted competition.

6.

Encouraging development and economic reform:

The WTO system contributes to development. On the other hand, developing
countries need flexibility in the time they take to implement the systems agreements.
An analysis of World Trade by WTO-

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REPLACEMENT OF GATT BY WTO

On January 1, 1995, the World Trade Organization was found to replace GATT after the
eighth round of GATT multilateral negotiation. WTO to replace GATT was an inevitability of
history. The replacement of the General Agreement on Tariffs and Trade (GATT) by the WTO
heightened concern among critics because its stronger enforcement powers represent a further
shift in power from citizens and national governments to a global authority run by unelected
bureaucrats. There are such reasons why GATT was replaced WTO.
Firstly, the major weakness of the GATT was provisional arrangement. It was not an
effective international covenant, and it had no real enforcement mechanism. If the bilateral
agreement broke by one of another country, GATT has nothing could be done. There are
some rules that have been set for enforcement by GATT but it has been dysfunction due to the
rule did not have the power to make other countries or parties to follow the rule or agreement
set by GATT. Moreover, the GATT created the solution during the emergency moment which
is temporary. This will lower down the credibility of GATT and resulted nobody would
follow the agreement. According to the WTO.org, in the period of 1948 to 1994, the General
Agreement on Tariffs and Trade (GATT) offer the rules for most of world trade and presided
over the periods. Within the period, there was some moment of highest growth rates which
was over the international commerce. It seemed well-established, but throughout those 47
years, it was a provisional agreement and organization. Beside that, the GATT system can
still survived because of taking those sensitive areas of trade outside the rules. There were
some rules for enforcement but they were basically has not been functioning. The "rules"
were being unnoticed after the member countries internal political pressures or specialinterest demands have become overwhelming.
Secondly, the scope on jurisdiction of GATT was limited only in products transaction.
However with development of globalization, the transactions in services and technologies,
and international investments constitute a high proportion of international trade. Since the
GATT only concentrated on the products transaction, there was a gap for GATT to regulate
the transactions in services and technologies and international investments. With the
increasing proportions of transactions in services and technologies, and international
investments in international trade, it is unavoidable that some countries will impose tariff and
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other trade barrier or non-tariff barriers in these kinds of transitions. Because of the
jurisdiction of GATT only limited in products transaction, so in this situations GATT can
make nothing on it and leave the burden on trade rampant in the trade, it far block GATT to
promote its objective to achieve trade liberalization.
Thirdly, there were some limitations in the disputes settlement systems of GATT. According
to the WTO.org, the major weakness of the disputes settlement systems of GATT was it
should have a positive consensus in the GATT Council to bring the dispute into a panel, and
adoption of the panel report as well. The positive consensus means that all the contracting
parties should agree the decision of Council. For example, when the Council decide to the
bring the dispute between two or more parties in to panel, if there was objection from one of
the contracting parties, the Council can block the establishment of the panel. This weakness
of dispute settlement system gives the chance for those countries which have discrimination
on the parties involved in the disputes to object the decision. This will make the disputes
among parties remain unsolved, and it does not have any positives on the promoting
international trade liberalization.
Fourthly, some rules in GATT were not strict enough, it was hard to execute in real economic
practices. Some contracting parties would construe the rules of GATT in their self interests,
and GATT did not have the necessary means of verification and inspection. In the Article
XIX in GATT 1947, there is a statement that any product is being imported into the
territory of that contracting party to cause or threaten serious injury to domestic
producers in that territory of like or directly competitive products. In this statement, GATT
did not provide specific regulations about how to verify the injuries and how to investigate
and check the injuries, more over the GATT did not specifically define who was the domestic
producers. These made it hard to execute the rules. For example, as stated in the article, to
cause serious injury to domestic producers, because it was not quite strict, some countries
which did not injury seriously may use this article to impose sterner measures to other
countries.
Finally, the historical multilateral rounds of GATT were influenced by the policies of some
larger countries. From the Geneva Round to Uruguay Round, there was national sovereignty
existing in the multilateral negotiation rounds. The multilateral negotiation rounds were
influenced by the Western signatory states, the decision making right was major handled by
the Western countries, especially United States. Although the balance of power has changed
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by the establishing of European Communities (later known as European Union) and the
emergence of Japan, but these countries are all industrial countries, they have the common
interest in economic interest. So before the Part IV was add to GATT, there was a long period
that GTAA was the place for small number of developed countries to adjust trade policies.
With more and more developing countries contracted to GATT, the status of developing
counties had improved. Yet still had majority of developing countries did not have common
interest with United States and the Western European countries, so did economic interest. So
the strong national sovereignty among contracting parties baffled the development of GATT.
All in all, these factors make the GATT was replaced by WTO was needs of the times and
follow the tide of development economy.

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INDIAS ROLE IN WORLD TRADE ORGANISATION

India has consistently taken the stand that the launch of any new round of talks depends on a
full convergence of views amongst the entire WTO membership on the scope and framework
for such negotiations. Our more urgent task is to resolve the concerns of developing countries
on implementation of the Uruguay Round agreements. We are against calls for new
commitments from the developing world for achieving symmetry and equity in the existing
agreements. It is in favour of non-trade issues be permanently kept off the negotiating table.
INCORPORATING LIVELIHOOD CLAUSE:
Ensuring food and livelihood security is critical, particularly for a large agrarian economy
like India. Indias proposal in ongoing negotiations includes suggestions like allowing
developing countries to maintain appropriate level of tariff bindings, commensurate with their
developmental needs and the prevailing distortions in international markets.
We are also seeking a separate safeguard mechanism including provision for imposition of
quantitative restrictions under specified circumstances, particularly in case of a surge in
imports or decline in prices; exemptions for developing countries from obligations to provide
minimum market access; exemptions of all measures taken by developing countries for
poverty alleviation, rural development and rural employment.
We also strongly favour extension of higher levels of protection to the geographical
indications for products like Basmati rice, Darjeeling tea, and Alphonso mangoes at par with
that provided to wines and spirits under the Trade-related Aspects of Intellectual Property
Rights (TRIPS) agreement. In the TRIMS (Agreement on Trade-Related Investment
Measures) review we want flexibility for developing countries in adopting appropriate
domestic policy while permitting foreign investment.

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WTO AND INDIAN INDUSTRIES
Indian industry has had to face greater competition in the wake of globalisation. But it has
successfully completed, as can be inferred from the fact that there has been no particular
surge in imports. In fact, as per the provisional data for 2000-01 our non-oil imports declined
by 14 per cent while our exports rose by over 20 per cent in the same period. A close watch is
also being kept to ensure that Indian industry does not have to face unfair competition from
dumped or subsidised imports of other countries.
The issue of affordable access to treatment for AIDS, which has gathered international
attention in recent months, is hopefully a pointer in the right direction. The TRIPS agreement
should not be allowed to hinder the efforts of developing countries to provide affordable
access to medicines.
The apex Indian organisations representing various industries are sincerely working towards
ensuring a gainful transition with least disadvantage into the global economy. The
government also has to strive to improve infrastructure and provide a facilitating environment
for inducing acceleration in trade.
Developed countries have been putting pressures on inclusion of non-trade issues such as
labour standards, environment protection, human rights, rules on investment, competition
policy in the WTO agreements.
This is because by asserting that particular developing countries are not observing and
implementing the rules in regard to the non-trade issues so that the developed countries can
ban the imports of some goods in their countries, as the USA has been trying to do so from
time to time. We are against any inclusion of non-trade issues that are directed in the long run
at enforcing protectionist measures, particularly against developing countries.

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CONCLUSION

This project work has aimed at looking to the establishment of GATT and its transformation
from its erstwhile form to the new WTO. The conclusion may be summed up as that The over
50 years history of GATT, it had promoted prosperity and development of it contracting
members, and had positives in the development of world economic after the World War II.
the World Trade Organization was found to replace GATT after the eighth round of GATT
multilateral negotiation. WTO to replace GATT was an inevitability of history. The
replacement of the General Agreement on Tariffs and Trade (GATT) by the WTO heightened
concern among critics because its stronger enforcement powers represent a further shift in
power from citizens and national governments to a global authority run by unelected
bureaucrats.
The World Trade Organization (WTO) is an international organization that establishes rules
for international trade through consensus among its member states. It also resolves disputes
between the members, which are all signatories to its set of trade agreements. The WTO
states that its aims are to increase international trade by promoting lower trade barriers and
providing a platform for the negotiation of trade and to their business.

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REFERENCES

WEB SOURCES:
www.wto.org
www.rbi.in
www.thelawteacher.net
www.britannica.com
www.jagranjosh.com
www.grupobafar.com
www.it.iitb.ac.in

REPORTS:
TRADE AND DEVELOPMENT IN THE GATT AND WTO: THE ROLE OF SPECIAL
AND DIFFERENTIAL TREATMENT FOR DEVELOPING COUNTRIES, WORLD
ORGANISATION REPORT,

TRADE

2013.

KHANDEKAR, M., ANALYSIS OF WTO, 2014

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