The General Agreement The General Agreement on Trade and Tariffson Trade and Tariffs

World TradeWorld Trade

The WTO's predecessor, the GATT, was The WTO's predecessor, the GATT, was established on a provisional basis after established on a provisional basis after the Second World War in the wake of the Second World War in the wake of other new multilateral institutions other new multilateral institutions dedicated to international economic dedicated to international economic cooperation - notably the "Bretton cooperation - notably the "Bretton Woods" institutions now known as the Woods" institutions now known as the World Bank and the International World Bank and the International Monetary Fund. Monetary Fund.

The original 23 GATT countries were The original 23 GATT countries were among over 50 which agreed a draft among over 50 which agreed a draft Charter for an International Trade Charter for an International Trade Organization (ITO) - a new specialized Organization (ITO) - a new specialized agency of theUnited Nations. agency of theUnited Nations.

The Charter was intended to provide The Charter was intended to provide not only world trade disciplines but not only world trade disciplines but also contained rules relating to also contained rules relating to employment, commodity employment, commodity agreements,restrictive business agreements,restrictive business practices, international investment and practices, international investment and services. services.

In an effort to give an early boost to In an effort to give an early boost to trade liberalization after the Second trade liberalization after the Second World War - and to begin to correct the World War - and to begin to correct the large overhang of protectionist large overhang of protectionist measures which remained in place measures which remained in place from the early 1930s – from the early 1930s – Tariff negotiations were opened among Tariff negotiations were opened among the 23 founding GATT "contracting the 23 founding GATT "contracting parties" in 1946. parties" in 1946. This first round of negotiations resulted This first round of negotiations resulted in 45,000 tariff concessions affecting in 45,000 tariff concessions affecting $10 billion - or about one-fifth - of world $10 billion - or about one-fifth - of world trade. trade.

The tariff concessions and rules The tariff concessions and rules together became known as the General together became known as the General Agreement on Tariffs and Trade and Agreement on Tariffs and Trade and entered into force in January 1948. entered into force in January 1948.

It was also agreed that the value of It was also agreed that the value of these concessions should be protected these concessions should be protected by early - and largely "provisional" - by early - and largely "provisional" - acceptance of some of the trade rules acceptance of some of the trade rules in the draft ITO Charterin the draft ITO Charter. .

Although the ITO Charter was finally Although the ITO Charter was finally agreed at a UN Conference on Trade agreed at a UN Conference on Trade and Employment in Havana Cuba in and Employment in Havana Cuba in March 1948 ratification in national March 1948 ratification in national legislatures proved impossible in some legislatures proved impossible in some cases. cases.

When the United States' government When the United States' government announced, in 1950, that it would not announced, in 1950, that it would not seek Congressional ratification of the seek Congressional ratification of the Havana Charter, the ITO was effectively Havana Charter, the ITO was effectively dead. dead.

Despite its provisional nature, the Despite its provisional nature, the GATT remained the only multilateral GATT remained the only multilateral instrument governing international instrument governing international trade from 1948 until the establishment trade from 1948 until the establishment of the WTO. of the WTO.

Although, in its 47 years, the basic Although, in its 47 years, the basic legal text of the GATT remained much legal text of the GATT remained much as it was in 1948, there were additions as it was in 1948, there were additions in the form of "plurilateral" - voluntary in the form of "plurilateral" - voluntary membership agreements and continual membership agreements and continual efforts to reduce tariffs.efforts to reduce tariffs.

Much of this was achieved through a Much of this was achieved through a series of "trade rounds". series of "trade rounds".

The biggest leaps forward in The biggest leaps forward in international trade liberalization have international trade liberalization have come through multilateral trade come through multilateral trade negotiations, or "trade rounds", under negotiations, or "trade rounds", under the auspices of GATT – the Uruguay the auspices of GATT – the Uruguay Round was the latest and most Round was the latest and most extensive. extensive.

Although often lengthy, trade rounds offer a Although often lengthy, trade rounds offer a package approach to trade negotiations; an package approach to trade negotiations; an approach with a number of advantages over approach with a number of advantages over issue-by-issue negotiations.issue-by-issue negotiations. For a start, a trade round allows participants For a start, a trade round allows participants to seek and secure advantages across a wide to seek and secure advantages across a wide range of issues.range of issues. Second, concessions which are necessary Second, concessions which are necessary but would otherwise be difficult to defend in but would otherwise be difficult to defend in domestic political terms, can be made more domestic political terms, can be made more easily in the context of a package which also easily in the context of a package which also contains politically and economically contains politically and economically attractive benefits. attractive benefits.

Third, developing countries and other less Third, developing countries and other less powerful participants have a greater chance powerful participants have a greater chance of influencing the multilateral system in the of influencing the multilateral system in the context of around than if bilateral context of around than if bilateral relationships between major trading nations relationships between major trading nations are allowed to dominate. are allowed to dominate.

Finally, overall reform in politically-sensitive Finally, overall reform in politically-sensitive sectors of world trade can be more feasible sectors of world trade can be more feasible in the context of a global package - reform of in the context of a global package - reform of agricultural trade was a good example in the agricultural trade was a good example in the Uruguay Round. Uruguay Round.

Most of GATT's early trade rounds were Most of GATT's early trade rounds were devoted to continuing the process of devoted to continuing the process of reducing tariffs. The results of the reducing tariffs. The results of the Kennedy Round in the mid-sixties, Kennedy Round in the mid-sixties, however, included a new GATT Anti-however, included a new GATT Anti-Dumping Agreement. Dumping Agreement.

The Tokyo Round during the seventies The Tokyo Round during the seventies was a more sweeping attempt to extend was a more sweeping attempt to extend and improve the system. and improve the system.

Conducted between 1973 and 1979 and with Conducted between 1973 and 1979 and with 102 participating countries, the Tokyo Round 102 participating countries, the Tokyo Round continued GATT's efforts to progressively continued GATT's efforts to progressively reduce tariffs. reduce tariffs. The results included an average one-third cut The results included an average one-third cut in customs duties in the world's nine major in customs duties in the world's nine major industrial markets, bringing the average tariff industrial markets, bringing the average tariff on manufactured products down to 4.7 on manufactured products down to 4.7 percent compared with about 40 per cent at percent compared with about 40 per cent at the time of GATT's creation.the time of GATT's creation. The tariff reductions, phased in over a The tariff reductions, phased in over a period of eight years, involved an element of period of eight years, involved an element of harmonization, bringing the highest tariffs harmonization, bringing the highest tariffs down proportionately more than the lowest. down proportionately more than the lowest.

Elsewhere, the Tokyo Round had mixed results. Elsewhere, the Tokyo Round had mixed results. It failed to come to grips with the fundamental It failed to come to grips with the fundamental problems affecting farm trade and also stopped problems affecting farm trade and also stopped short of providing anew agreement on short of providing anew agreement on "safeguards" (emergency import measures). "safeguards" (emergency import measures). Nevertheless, a series of agreements on non-Nevertheless, a series of agreements on non-tariff barriers did emerge from the negotiations, tariff barriers did emerge from the negotiations, in some cases interpreting existing GATT rules, in some cases interpreting existing GATT rules, in others breaking entirely new ground.in others breaking entirely new ground. In most cases, only a relatively small number of, In most cases, only a relatively small number of, mainly industrialized, GATT members ascribed to mainly industrialized, GATT members ascribed to these agreements and arrangements which, as a these agreements and arrangements which, as a consequence, were often referred to as "codes". consequence, were often referred to as "codes". They include the following agreements: They include the following agreements:

They include the following agreements: They include the following agreements: Subsidies and countervailing measures - interpreting Articles VI, XVI Subsidies and countervailing measures - interpreting Articles VI, XVI and XXIII of the General Agreement and XXIII of the General Agreement

-Technical barriers to trade - sometimes called the Standards Code -Technical barriers to trade - sometimes called the Standards Code

-Import licensing procedures -Import licensing procedures

-Government procurement -Government procurement

-Customs valuation - interpreting Article VII -Customs valuation - interpreting Article VII

-Anti-dumping- interpreting Article VI and replacing the Kennedy -Anti-dumping- interpreting Article VI and replacing the Kennedy Round Anti-Dumping Code Round Anti-Dumping Code

-Bovine Meat Arrangement -Bovine Meat Arrangement

-International Dairy Arrangement -International Dairy Arrangement

-Trade in Civil Aircraft -Trade in Civil Aircraft

Several of the above Codes were Several of the above Codes were amended and extended in the Uruguay amended and extended in the Uruguay Round. Round.

Those on subsidies and countervailing Those on subsidies and countervailing measures, technical barriers to trade, measures, technical barriers to trade, import licensing, customs valuation and import licensing, customs valuation and anti-dumping, are now multilateral anti-dumping, are now multilateral commitments within the WTO Agreement commitments within the WTO Agreement -in other words, all WTO members are -in other words, all WTO members are committed to them - while those on committed to them - while those on government procurement, bovine meat, government procurement, bovine meat, dairy products and civil aircraft remain dairy products and civil aircraft remain "plurilateral" agreements. "plurilateral" agreements.

Given its provisional nature and limited field of Given its provisional nature and limited field of action, the success of GATT in promoting and action, the success of GATT in promoting and securing the liberalization of much of world trade securing the liberalization of much of world trade over 47 years is incontestable.over 47 years is incontestable. Continual reductions in tariffs alone helped spur Continual reductions in tariffs alone helped spur very high rates of world trade growth - around 8 very high rates of world trade growth - around 8 per cent a year on average - during the 1950s and per cent a year on average - during the 1950s and 1960s. 1960s. And the momentum of trade liberalization helped And the momentum of trade liberalization helped ensure that trade growth consistently out-paced ensure that trade growth consistently out-paced production growth throughout the GATT era. production growth throughout the GATT era. The rush of new members during the Uruguay The rush of new members during the Uruguay Round demonstrated that the multilateral trading Round demonstrated that the multilateral trading system, as then represented by GATT, was system, as then represented by GATT, was recognized as an anchor for development and an recognized as an anchor for development and an instrument of economic and trade reform. instrument of economic and trade reform.

The limited achievement of the Tokyo Round, The limited achievement of the Tokyo Round, outside the tariff reduction results, was a sign of outside the tariff reduction results, was a sign of difficult times to come.difficult times to come. GATT's success in reducing tariffs to such a low GATT's success in reducing tariffs to such a low level, combined with a series of economic level, combined with a series of economic recessions in the 1970s and early 1980s, drove recessions in the 1970s and early 1980s, drove governments to devise other forms of protection for governments to devise other forms of protection for sectors facing increased overseas competition. sectors facing increased overseas competition. High rates of unemployment and constant factory High rates of unemployment and constant factory closures led governments in Europe and North closures led governments in Europe and North America to seek bilateral market-sharing America to seek bilateral market-sharing arrangements with competitors and to embark on a arrangements with competitors and to embark on a subsidies race to maintain their holds on agricultural subsidies race to maintain their holds on agricultural trade.trade. Both these changes undermined the credibility and Both these changes undermined the credibility and effectiveness of GATT. effectiveness of GATT.

Apart from the deterioration in the trade Apart from the deterioration in the trade policy environment, it also became apparent policy environment, it also became apparent by the early 1980s that the General by the early 1980s that the General Agreement was no longer as relevant to the Agreement was no longer as relevant to the realities of world trade as it had been in the realities of world trade as it had been in the 1940s. 1940s. For a start, world trade had become far more For a start, world trade had become far more complex and important than 40 years before: complex and important than 40 years before: the globalization of the world economy was the globalization of the world economy was underway, international investment was underway, international investment was exploding and trade in services - not covered exploding and trade in services - not covered by the rules of GATT - was of major interest by the rules of GATT - was of major interest to more and more countries and, at the same to more and more countries and, at the same time, closely tied to further increases in time, closely tied to further increases in world merchandise trade. world merchandise trade.

In other respects, the GATT had been found In other respects, the GATT had been found wanting:wanting: for instance, with respect to agriculture for instance, with respect to agriculture where loopholes in the multilateral system where loopholes in the multilateral system were heavily exploited - and efforts at were heavily exploited - and efforts at liberalizing agricultural trade met with little liberalizing agricultural trade met with little success - and in the textiles and clothing success - and in the textiles and clothing sector where an exception to the normal sector where an exception to the normal disciplines of GATT was negotiated in the disciplines of GATT was negotiated in the form of the Multifibre Arrangement.form of the Multifibre Arrangement.Even the institutional structure of GATT and Even the institutional structure of GATT and its dispute settlement system were giving its dispute settlement system were giving cause for concern. cause for concern.

Together, these and other factors Together, these and other factors convinced GATT members that a new convinced GATT members that a new effort to reinforce and extend the effort to reinforce and extend the multilateral system should be multilateral system should be attempted. attempted.

That effort resulted in the Uruguay That effort resulted in the Uruguay Round. Round.

The seeds of the Uruguay Round were The seeds of the Uruguay Round were sown in November 1982 at a Ministerial sown in November 1982 at a Ministerial Meeting of GATT members in Geneva. Meeting of GATT members in Geneva.

Although Ministers intended to launch Although Ministers intended to launch a major new negotiation, the meeting a major new negotiation, the meeting stalled on the issue of agriculture and stalled on the issue of agriculture and was widely regarded as a failure.was widely regarded as a failure.

In fact, the work program that In fact, the work program that Ministers agreed formed the basis for Ministers agreed formed the basis for what was to become the Uruguay what was to become the Uruguay Round negotiating agenda. Round negotiating agenda.

Nevertheless, it took four more years of Nevertheless, it took four more years of exploring and clarifying issues and exploring and clarifying issues and painstaking consensus-building, before painstaking consensus-building, before Ministers met again in September 1986, in Ministers met again in September 1986, in Punta del Este, Uruguay, to agree to launch Punta del Este, Uruguay, to agree to launch the Uruguay Round.the Uruguay Round. They were able to accept a negotiating They were able to accept a negotiating agenda which covered virtually every agenda which covered virtually every outstanding trade policy issue including the outstanding trade policy issue including the extension of the trading system into several extension of the trading system into several new areas, notably trade in services and new areas, notably trade in services and intellectual property.intellectual property. It was the biggest negotiating mandate on It was the biggest negotiating mandate on trade ever agreed and Ministers gave trade ever agreed and Ministers gave themselves four years to complete it. themselves four years to complete it.

By 1988, the negotiations had reached the By 1988, the negotiations had reached the stage of a "Mid-term Review". stage of a "Mid-term Review". This took the form of a Ministerial Meeting in This took the form of a Ministerial Meeting in Montreal, Canada, and led to the elaboration Montreal, Canada, and led to the elaboration of the negotiating mandate for the second of the negotiating mandate for the second stage of the Round. stage of the Round. Ministers agreed a package of early results Ministers agreed a package of early results which included some concessions on market which included some concessions on market access for tropical products - aimed to assist access for tropical products - aimed to assist developing countries - as well as a developing countries - as well as a streamlined dispute settlement system and streamlined dispute settlement system and the Trade Policy Review Mechanism which the Trade Policy Review Mechanism which provided for the first comprehensive, provided for the first comprehensive, systematic and regular reviews of national systematic and regular reviews of national trade policies and practices of GATT trade policies and practices of GATT members. members.

At the Ministerial meeting in Brussels, in At the Ministerial meeting in Brussels, in December 1990, disagreement on the nature December 1990, disagreement on the nature of commitments to future agricultural trade of commitments to future agricultural trade reform led to a decision to extend the round. reform led to a decision to extend the round.

By December 1991, a comprehensive draft By December 1991, a comprehensive draft text of the "Final Act", containing legal texts text of the "Final Act", containing legal texts fulfilling every part of the Punta del Este fulfilling every part of the Punta del Este mandate, with the exception of market mandate, with the exception of market access results, was on the table in Geneva. access results, was on the table in Geneva.

For the following two years, the negotiations For the following two years, the negotiations lurched continuously from impending failure lurched continuously from impending failure to predictions of imminent success. to predictions of imminent success.

Several deadlines came and went; farm trade Several deadlines came and went; farm trade was joined by services, market access, anti-was joined by services, market access, anti-dumping rules and the proposed creation of dumping rules and the proposed creation of a new institution, as the major points of a new institution, as the major points of conflict; and differences between the United conflict; and differences between the United States and European Communities became States and European Communities became central to hopes for a final, successful central to hopes for a final, successful conclusion.conclusion. It took until 15 December 1993 for every It took until 15 December 1993 for every issue to be finally resolved and for issue to be finally resolved and for negotiations on market access for goods and negotiations on market access for goods and services to be concluded. services to be concluded. On 15 April 1994, the deal was signed by On 15 April 1994, the deal was signed by Ministers from most of the 125 participating Ministers from most of the 125 participating governments at a meeting in Marrakesh, governments at a meeting in Marrakesh, Morocco. Morocco.

How is the WTO different from GATT?How is the WTO different from GATT?The World Trade Organization is not a simple extension of The World Trade Organization is not a simple extension of GATT; on the contrary, it completely replaces its GATT; on the contrary, it completely replaces its predecessor and has a very different character. Among the predecessor and has a very different character. Among the principal differences are the following: principal differences are the following:

- The GATT was a set of rules, a multilateral agreement, - The GATT was a set of rules, a multilateral agreement, with no institutional foundation, only a small associated with no institutional foundation, only a small associated secretariat which had its origins in the attempt to establish secretariat which had its origins in the attempt to establish an International Trade Organization in the 1940s. The WTO an International Trade Organization in the 1940s. The WTO is a permanent institution with its own secretariat. is a permanent institution with its own secretariat.

- The GATT was applied on a "provisional basis" even if, - The GATT was applied on a "provisional basis" even if, after more than forty years, governments chose to treat it after more than forty years, governments chose to treat it as a permanent commitment. The WTO commitments are as a permanent commitment. The WTO commitments are full and permanent. full and permanent.

- The GATT rules applied to trade in merchandise goods. In - The GATT rules applied to trade in merchandise goods. In addition to goods, the WTO covers trade in services and addition to goods, the WTO covers trade in services and trade-related aspects of intellectual property. trade-related aspects of intellectual property.

- - While GATT was a multilateral instrument, by the 1980s While GATT was a multilateral instrument, by the 1980s many new agreements had been added of a plurilateral, many new agreements had been added of a plurilateral, and therefore selective, nature.and therefore selective, nature. The agreements which constitute the WTO are almost The agreements which constitute the WTO are almost all multilateral and, thus, involve commitments for the all multilateral and, thus, involve commitments for the entire membership. entire membership. - The WTO dispute settlement system is faster, more - The WTO dispute settlement system is faster, more automatic, and thus much less susceptible to blockages, automatic, and thus much less susceptible to blockages, than the old GATT system. The implementation of WTO than the old GATT system. The implementation of WTO dispute findings will also be more easily assured. dispute findings will also be more easily assured.

The "GATT 1947" will continue to exist until the end of The "GATT 1947" will continue to exist until the end of 1995, thereby allowing all GATT member countries to 1995, thereby allowing all GATT member countries to accede to the WTO and permitting an overlap of activity accede to the WTO and permitting an overlap of activity in areas like dispute settlement. in areas like dispute settlement. Moreover, GATT lives on as "GATT 1994", the amended Moreover, GATT lives on as "GATT 1994", the amended and up-dated version of GATT 1947, which is an integral and up-dated version of GATT 1947, which is an integral part of the WTO Agreement and which continues to part of the WTO Agreement and which continues to provide the key disciplines affecting international trade provide the key disciplines affecting international trade in goods. in goods.

Problems with PoliciesProblems with Policies

There are two important consequences of There are two important consequences of globalization. First, it extends the third world globalization. First, it extends the third world model to industrial countries. model to industrial countries. In the third world, there’s a two tiered society In the third world, there’s a two tiered society — a sector of extreme wealth and privilege, — a sector of extreme wealth and privilege, and a sector of huge misery and despair and a sector of huge misery and despair among people. among people. That division is deepened by the policies That division is deepened by the policies dictated by the West. dictated by the West. It imposes a neoliberal “free market” system It imposes a neoliberal “free market” system that directs resources to the wealthy and to that directs resources to the wealthy and to foreign investors, with the idea that foreign investors, with the idea that something will trickle down. something will trickle down.

The second consequence, which is also The second consequence, which is also important, has to do with governing important, has to do with governing structures.structures.

Throughout history, the structures of Throughout history, the structures of government have tended to coalesce around government have tended to coalesce around other forms of power — in modern times, other forms of power — in modern times, primarily around economic power. primarily around economic power.

So, when you have national economies, you So, when you have national economies, you get national states. get national states.

We now have an international economy and We now have an international economy and we’re moving towards an international state. we’re moving towards an international state.

Globalization of the economy is exporting jobs to Globalization of the economy is exporting jobs to high repression, low wage areas — which undercuts high repression, low wage areas — which undercuts the opportunities for productive labor at home. the opportunities for productive labor at home. It’s a way of increasing corporate profits, of course. It’s a way of increasing corporate profits, of course. And it’s much easier to do with a free flow of capital And it’s much easier to do with a free flow of capital

To quote the business press, we’re creating “a new To quote the business press, we’re creating “a new imperial age” with a “de facto world government.”imperial age” with a “de facto world government.” It has its own institutions —like the International It has its own institutions —like the International Monetary Fund (IMF) and the World Bank, trading Monetary Fund (IMF) and the World Bank, trading structures like NAFTA and GATT (the North structures like NAFTA and GATT (the North American Free Trade Agreement and the General American Free Trade Agreement and the General Agreement on Tariffs and Trade), executive meetings Agreement on Tariffs and Trade), executive meetings like the G 7 (the seven richest industrial countries ; like the G 7 (the seven richest industrial countries ; the US, Canada, Japan, Germany, Britain, France, the US, Canada, Japan, Germany, Britain, France, and Italy — who meet regularly to discuss economic and Italy — who meet regularly to discuss economic policy) and the European Community bureaucracy. policy) and the European Community bureaucracy.

The structure of decision making answers The structure of decision making answers basically to the transnational corporations, basically to the transnational corporations, international banks, etc.international banks, etc. It’s an effective blow against democracy. It’s an effective blow against democracy. All these structures raise decision making to All these structures raise decision making to the executive level, leaving what’s called a the executive level, leaving what’s called a “democratic deficit” — parliaments and “democratic deficit” — parliaments and populations with less influence. populations with less influence.

Not only that, but the general population Not only that, but the general population doesn’t know what’s happening, and it doesn’t know what’s happening, and it doesn’t even know that it doesn’t know.doesn’t even know that it doesn’t know. One result is a kind of alienation from One result is a kind of alienation from institutions. People feel that nothing works institutions. People feel that nothing works for them. for them.