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General Agreement on Tariffs and Trade
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General Agreement on Tariffs and
Trade (GATT)
Outcome of the failure of negotiating governments to
create the International Trade Organization (ITO) Negotiated during the UN Conference on Trade and
Employment
Formed in 1947 and transformed to World Trade
Organization (WTO) in 1995
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Part of economic recovery after World War II, BrettonWoods Conference suggested an organization toregulate trade
Parallel to the Governments negotiating the ITO, 15negotiating states began negotiating for the GATT as away to attain early tariff reductions
The ITO failed in 1950 and then GATT agreement wasintroduced
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GATT's main objective
Reduction of barriers to international trade
Achieved through reduction of tariff barriers,quantitative restrictions and subsidies on trade througha series of agreements
It was a treaty, not an organization
A small secretariat occupied what is today the CentreWilliam Rappard in Geneva, Switzerland
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Inception
Efforts to negotiate international trade agreements began in 1927 atthe League of Nations but were unsuccessful.
Precursor organization to GATT, ITO, was first proposed inFebruary 1945 by the United Nations Economic and Social Council(UNESCO).
Owing to the United States failing to implement the ITO, GATT wasthe only organization left.
On 1 January, 1948 the agreement was signed by 23 countries:Australia, Belgium, Brazil, Burma, Canada, Ceylon, Chile,China, Cuba, the Czechoslovak Republic, France, India,
Lebanon, Luxembourg, Netherlands, New Zealand, Norway,Pakistan, Southern Rhodesia, Syria, South Africa, the UnitedKingdom, and the United States.
According to GATT's own estimates, the negotiations created 123agreements that covered 45,000 tariff items that related to
approximately one-half of world trade or $10 billion in trade. 6
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The General Agreement on Tariffs and Trade
(GATT) was first signed in 1947.
Was designed
To provide an international forum
That encouraged free trade between memberstates
By regulating and reducing tariffs on tradedgoods
Providing a common mechanism for resolvingtrade disputes.
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Terms which helpunderstanding GATT
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TRADE BARRIERS
Tariff and Non-Tariff BarriersWhile free-trade maximizes world welfare, most
nations impose some trade restrictions that benefitspecial groups in the nation. The most important type
of trade restriction historically is the tariff. This is a tax or duty on the imports or exports.
When a small nation imposes an import tariff, thedomestic price of the importable commodity rises by
the full amount of the tariff for individuals in nation.As a result, domestic production of the importablecommodity expands while domestic consumption andimports fall. However, the nation as a whole faces theunchanged world price since the nation itself collectsthe tariff. 9
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Tariffs
Tariffs can be ad-Valorem, specific, or compound. Ad-Valorem tariff is expressed as a fixed percentage of
the value of the traded commodity.
Specific tariff is expressed as a fixed sum per physicalunit of the traded commodity.
Acompound tariff is a combination of an Ad Valoremand a specific tariff.
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Trade Restrictions /Trade Barriers An import tariff is a duty on the imported commodity,
while an export tariffis a duty on the exportedcommodity.
Export tariffs are prohibited by the U.S. Constitution but are
often applied by developing countries on their traditionalexports (such as Ghana on its cocoa and Brazil on itscoffee) to get better prices and revenues.
Developing nations rely heavy on export tariff to raiserevenues because of their ease of collection.
On the other hand, industrial countries invariably imposetariffs or other trade restrictions to protect some(usuallylabor-intensive)industry, while using mostly income taxesto raise revenues.
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Trade Barriers (Contd)
According to Stolper-Samuelson theorem , an increase inthe relative price of a commodity (for example, as a result ofa tariff ) raises the return or earnings of the factor used
intensively in its production.
For example, if a capital-abundant nation imposes animport tariff on the labor intensive commodity, wagesin the nation will rise.
However, since the nations benefit comes at the expense of
other nations, latter are likely to retaliate, so that in the endall nations usually lose.
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Trade Barriers (Contd) Two arguments are that protection is needed to reduce domestic
unemployment and a deficit balance of payments.
A more valid argument for protection is the infant-industryargument.
However, what trade protection can do, direct subsidies andtaxes can do better in overcoming purely domesticdistortions.The same is true for industries important for nationaldefense.The closest we come to a valid economic argument forprotection is the optimal tariff (which,however, invites
retaliation). Trade protection in the United States is usually given to low-
wage workers and to large, well organized industries producingproducing consumer products.
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Non-Tariff Barriers
International trade also hampered by numerous
Technical, administrative, and other regulations.
These include safety regulations for automobile andelectrical equipment, health regulations for thehygienic
Production and packaging of imported food products,and labeling requirements showing origin andcontents.
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Non Tariff Barrier [Subsidies]
National government sometimes grant subsidies todomestic producers to help improve their trade position.Such devices are indirect form of protection provided to
domestic businesses, whether they may be importcompeting producers or exporters.
Two types of subsidies can be distinguished: a domestic
subsidy, which is sometimes granted to producers ofimport-competing goods,and an export subsidy, whichgoes to producers of goods that are to be sold overseas.
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Other Non Tariff Barriers
Government Procurement Policies: Because governmentagencies are large buyers of goods and services, they areattractive customers for foreign suppliers. Most
governments however, favor domestic suppliers overforeign ones in the procurement materials and products.E.g, Government often extend preferences to domesticsuppliers in the form of buy-national policies campaigns.
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Impact of trade barriers
Advanced industrial nations committed themselves afterWorld War II to removing barriers to the free flow of goods,services,and capital between nations
This goal was enshrined in the General Agreement on Trade andTariffs [GATT]
Under the umbrella of GATT, eight rounds of negotiationsamong member states(now numbering 146) have worked tolower barriers to the free flow of goods and services
The most recent round of negotiations, known as the UruguayRound, was completed in Dec,1993.The Uruguay round further
reduced trade barriers; extended GATT to cover services as wellas manufactured goods; provided enhanced protection forpatents, trademarks, and copyrights; and established the WorldTrade Organization (WTO)to police the international tradingsystem
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Impact of trade barriers
In the late 2001, the WTO launched a new round of talks[Doha,Qatar] aimed at further liberalizing the global tradeand investment framework.
The agenda included cutting tariffs on industrial goods,services,and agricultural products; phasing out subsidies toagricultural producers; reducing barriers to cross borderinvestments; and limiting the antidumping laws.
The rich nations spend around $300 billion a year insubsidies to support their farm sectors. The worlds poorernations have the most to gain from any reductions inagricultural tariffs and subsidies.
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Did GATTsucceed?
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Successes Continual reductions in tariffs helped spur very
high rates of world trade growth during the 1950s
and 1960s around 8% a year on average Trade growth consistently out-paced production
growth
The rush of new members during the Uruguay
Round demonstrated recognition of multilateraltrading system as the anchor for development andan instrument of economic and trade reform.
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But.
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GATTs success in reducing tariffs to a low level, with a
series of economic recessions 1970-80s drovegovernments to devise other forms of protection forsectors facing increased foreign competition
High rates of unemployment and constant factoryclosures led governments in Western Europe and North
America to seek bilateral market-sharing arrangementswith competitors and to embark on a subsidies race to
maintain their holds on agricultural trade
Both these changes undermined GATTs credibility andeffectiveness.
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The problem was not just a deteriorating tradepolicy environment.
By the early 1980s the General Agreement wasclearly no longer as relevant to the realities of worldtrade as it had been in the 1940s
World trade had become far more complex andimportant than 40 years before
The globalization of the world economy was
underway Trade in services not covered by GATT rules
Ever increasing international investments
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Factors convinced GATT members that a new effortto reinforce and extend the multilateral systemshould be attempted.
That effort resulted in the Uruguay Round, theMarrakesh Declaration, and the creation of the
WTO.
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WTO
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Agenda
About WTO
Functions of WTO
The WTO Structure
Principles of WTO
Objective of WTO
Q & A
Key Subjects in WTO
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About WTO
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World Trade Organization
Created by : Uruguay Round negotiations (1986-94)
Membership :153 countries (on 23 July 2008)
Budget : 185 million Swiss francs for 2008
2007 Secretariat Staff : 625
Head : Director-General, Pascal Lamy
Established: 1 January 1995
Location :- Geneva, Switzerland
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Objectives
Taking positive steps to ensure that developing countries.
Introduce sustainable development.
Raising standard of living and income .
The WTO reiterates the objectives of GATT .
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Functions of WTOAdministering and Implementing the multilateral and plurilateral trade agreements.
Acting as a forum for multilateral trade negotiations .
Seeking to resolve trade disputes.
Overseeing national trade policies.
Cooperating with other international institutions.
Maintaining trade related database.
Acting as a watchdog of international trade .
Technical assistance and training for developing countries.
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TheWTOStructure
Ministerial conference
Secretariat
Dispute Settlement Body General Council
Director General
Trade Policy Review Body
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The WTO Structure
CommitteeOn Budget
CommitteeOn T & D
CommitteeOn BoP
Council forService
Council forGoods
Trade relatedIntellectualPropertyrightscouncil
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Principles of WTO
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The WTO Principles
Rule BasedTradingSystem
TreatmentFor LDCs
CompetitionOn BoP
EnvironmentProtection
Transparency
DismantlingTrade
Barriers
PrinciplesOf
WTO
MFNTreatment
NationalTreatment
FreeTrade
Principle
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Key Subjects in WTO
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Key Subjects in WTO
Health & safety measures
Helping least developed and food importing countries
Textile and Clothing
Agriculture
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Thank You