*

GENERAL AGREEMENT ON TRADE AND TARIFF

Tariff

or duty is a tax imposed by the government on an imported good as it enters a country. Tariff does 2 things:

1. It adds on the cost of the imported item and hence to the price of that imported item. It thus possibly reduces the competitiveness of that item .Thus tariff may act as a measure protecting the local industry. 2. It gives revenue to the government

 Gatt the predecessor of the WTO, was born in 1948 as result of the international desire to liberalize trade. It was set up on October 30,1947 in Geneva with 23 countries as its founder members. India was the founder members of GATT along with World Bank,IMF and WTO. The primary actions of organization were to freeze and reduce tarrif levels on various commodities.

*It was originally set up as a temporary arrangements

to bring about trade liberalization.

*It later

became an important and permanent set-up to attend to all trade issue among the members countries. played a prominent role in settlement of trade disputes between 2 countries

*GATT

 Free trade has been the motto of GATT.

During the next nearly half a century 1948-1994 many nations successively joined the agreements .There were 8 rounds of GATT trade negotiations in this period. Bringing forth significant reductions in tariff and non-tariff barriers to trade.
Gatt was created to be part of the international trade organization(ITO),however ITO failed to be created so GATT was left as an independent organization. In 1944 GATT was taken over by WTO

 Raising standard of living

Ensuring
full employment & a large & steadily growing volume of real income & effective demand

Developing full use of the resources of the world Expansion of production & international trade

GATT

Liberalization of trade in goods and service

Increases competition from foreign goods and services

Facilitates global sourcing

Opportunity for Indian firms to export

Threat to domestic firms

Benefits to consumers

Increases competitiveness of domestic firms

Encourages globalization of Indian firms

1. 2. 3.

4.

Trade negotiations under GATT Safeguards Trade negotiations among developing countries Solves Trade Disputes.

The GATT has organized seven trade negotiations on so far. They are: 1947 (Geneva), 1949 (Anney, France), 1951 (Torquay, England), 1956 (Geneva), 1960-61 (Geneva, Dillon Round), 1964-67 (Geneva, Kennedy Round) and 1973-79 (Geneva, Tokyo Round). As a result of these negotiations, the tariff rates on thousands of items entered into world trade were reduced. The developed countries achieved a 50% reduction in many industrial products.

2. Safeguards
The agreement also provides proper safeguards for the domestic industry and trade. Article XIX of the General Agreement permits a member country to impose restrictions on imports or suspend tariff concessions on products if they are imported in excessive quantities and are causing or threatening to cause serious injury to competing domestic producers.

3. TRADE NEGOTIATIONS AMONG DEVELOPING COUNTRIES

In an effort to increase the trade among developing nations, the eighteen of GATT members joined in an agreement in 1973, providing for an exchange of mutually advantageous tariff and trade concessions. These eighteen members are (countries) Bangladesh, Brazil, Chile, Egypt, India, Israel, S.Korea, Mexico, Pakistan, Paraguay, Peru, Philippines, Romania, Spain, Tunisia, Turkey, Uruguay and Yugoslavia. The agreement is known as Protocol relating to trade negotiations among developing countries. All developing countries whether or not they are members of GATT are allowed to join it. The participants negotiated for concessions on about 500 tariffs heading including agricultural,manufactured foods and raw material.

4.SOLVES TRADE DISPUTES

The GATT has been successful in the accomplishment of its objectives. It contains an enabling clause that reconciles the principle of granting special and differential treatment to the developing countries. It also solves trade disputes among members countries impartially, amicably and quickly by identify the measures to solve the problems of balance of payment without upsetting international trade.

Principles of GATT
1. Trade without discrimination: A country granting advantages(tariffs,subsidies) to one nonGATT party must grant the same advantage to other member countries in export and import duties and changes. Exceptions:incase of regional trading arrangements and the developing nations. 2. Protection through tariffs: Protection to home industries can be provided only through customs tariffs and not through any other. Exceptions: Developing nation where development need more imports.

3.A stable Basis of Trade: - Stable and predictable basis for trade is provided under rules - Contracting countries should obey levels of tariffs -No one country can change the tariffs 4.Consultation: member countries should consult one another in the matter of trade and trade problems or they can call on GATT for settlement . The GATT council has set up panels of independent experts to examine the trade disputes between member states. . The members on the panel are chosen among countries which have no direct interest in the disputes being investigated. The panel is generally interested in making mutual and amicable settlement between the two parties.

PHASES
Divided into 3 phases:
First:
From 1947 until the Torquay Round Largely concerned which commodities would be covered by the agreement Freezing existing tariff levels

Second:
From 1959 to 1979 Focused on reducing tariffs

Third:
Consists only of the Uruguay Round from 1986 to 1994 It extended the agreement to new areas such as intellectual property, services, capital, and agriculture Final outcome was creation of WTO

First Phase
Commodities which would be covered by the agreement and freezing existing tariff levels
Year 1947 1949 Place/name Geneva Annecy Subjects covered Tariffs Tariffs

1951

Torquay

Tariffs

Second Phase
Focused on reducing tariffs

Year
1960-1961 1964-1967

Place/name
Geneva Dillon Round Geneva Kennedy Round Geneva Tokyo Round

Subjects covered
Tariffs Tariffs and anti-dumping measures Tariffs, non-tariff measures, framework agreements

1973-1979

Third Phase
Extended the agreement fully to new areas such as intellectual property, services, capital, and agriculture. Out of this round the WTO was born.
Year 1986-1994 Place/name Geneva Uruguay Round Subjects covered Tariffs, non-tariff measures, rules, services, intellectual property, dispute settlement, textiles, agriculture, creation of WTO, etc

ROUNDS

1. Geneva Round (1947)

Time - April 1947 October1947

Duration 7 months
Countries 23 Negotiations in this and the succeeding 4 Rounds were on a

bilateral basis -: product-by-product, request-offer

members completed 123 negotiations and established 20 schedules containing the tariff reductions. which became an integral part of GATT.

 The Agreement covered some 45,000 tariff concessions and about

$10 billion in trade. First Round was successful since the US was .. enthusiastic for free trade was willing to cut its tariffs on imports from Europe did not put pressure on European countries to abandon their trade restrictions

2. Annecy Round (1949)

Time - April 1949 August1949
Duration 5 months Countries Accession of ten more country (From 23 to 33 ) Denmark, Nicaragua, Finland, Uruguay Sweden, Haiti, Greece, Liberia,

Dominican Republic,

Italy,

All Members negotiated an additional 13,000 tariff reductions from last round. If a member votes against accession it does not need to extend trade policy concessions to this country.

3. Torquay Round (1950/51)

Time - September 1950 April1951

Duration 8 months
Countries Accession of five more countries (33+5 = 38) Austria, Germany, Turkey, Philippines, Peru

Participants completed some 500 negotiations Additional tariff reductions emerging from these negotiations were modest: Negotiations were not considered to be a success

 Major problem of this Round is Dispute between the US and the UK no bilateral tariff cuts on USUK trade

Contracting parties exchanged some 8,700 tariff reductions of

about 25% in relation to the 1948 level. During the Torquay Round, the US indicated that the ITO Charter would not be re-submitted to the US Congress: End of ITO.

4. Geneva Round (1955/56)

Time - January 1956 May 1956

Duration 5 months
From 1951 to 1955, GATT membership increased by only one country on net, with the withdrawal of Libya being balanced by the accession of Japan The momentum toward lower tariffs was lost

Important factor behind the passivity during this period:

Growing protectionism in the US (Feeling that the US had given away concessions, while European countries were reluctant in

eliminating their trade barriers)

 Low-tariff countries were frustrated by their inability to bargain

effectively with high-tariff countries. Fourth Round produced similarly not sufficient results ($2.5 billion worth of tariff reductions)

5. Dillon Round (1960-62)

Time - September 1960 July 1962

Duration 11 months
Average tariff rates differed sharply within the European Economic Community (EEC), ranging from 6% for Germany to

19% for Italy.

The Round was divided into two phases: First phase was concerned for negotiations with European Economic Community (EEC) member states for the creation of a single schedule of concessions for the EEC based on its Common

External Tariff (CET)

 Second phase was a further general round of tariff negotiations Round resulted in 4,400 tariff concessions covering $4.9 billion of trade.

Last round of negotiations which were undertaken on a bilateral

basis As a result of Dillon Round, tariff rates on manufactured goods came down sharply (e.g. common external tariff of the EEC fell to 10.4% in 1968)

Agricultural and textile sectors were still not considered

6. Kennedy Round (1964-67)

Time - May 1964 June1967 Duration 37 months

Countries 66
A very ambitious round. It had 4 major goals: To slash tariffs by half with minimum number of exceptions. To break down farm trade restrictions. To strip off non tariff regulations. To aid developing nations.

 The participating countries presented 80% of world trade.

Round named after President John F Kennedy who died the year before the round. It aimed to increase trade between the US and the European Economic Commission(EEC). An Anti-Dumping code was agreed upon, however US never agreed upon it so it had little practical implications. American Selling Price had also been eliminated.

A short lived International Wheat Agreement was intended to

stabilize world wheat prices.

 Large reductions in grains and chemical products.

Reduction of tariff in tropical products, primary materials

and manufactured goods of interest to the less developed countries. Food aid programme totaling 4.5 million tons a year for developing countries.

As a result of Kennedy Round, the Common External Tariff of

the European Community fell to 6.6%. Kennedy round agreement was signed on June 30, 1967 ;

last day of the US negotiating authority under the Trade

Expansion Act.

7. Tokyo Round (1973-79)

Time - September 1973 November1979 Duration 74 months

Countries 102
Discouraging economic climate during Tokyo Round : Oil crisis (1973); World-wide stagflation(Crisis)

Proliferation of non-tariff barriers during the early 1970s.

Strained trade relations between the US, the EC and Japan

Main agreements & declarations of Tokyo Round:

Agreement on Govt. Procurement, Agreement on Anti-dumping Code, Agreement on Customs Valuation Code,

Agreement on Import Licensing procedures,

Agreement on Subsidies Code,

Agreement on Trade in Civil Aircraft,

 Declaration on Trade measures taken for Balance of

payment purposes,

International Dairy Agreement, International Bovine meat Agreement, Safeguard Action for development purposes.

8. Uruguay Round (1986-94)

Time - September 1986 December1993 Duration 87 months

Countries 123
Period following the Tokyo Round World-wide recession Trade conflicts between three major trading blocs: US, EC, Japan

US-EC trade disputes centered on agricultural issues (EC

became exporter) US wanted Japan to open its domestic market for US exports

 EC wanted to limit Japanese export growth

GATT ministerial meeting (1982): Attempt to meet problems left by

the Tokyo Round failed in Resurgence of protectionism US reacted to protectionist pressure and considered the initiation of a new round of negotiations Japan favored a new GATT round: Multilateral negotiations were preferred to bilateral pressure from the US and the EC Other countries were mostly in favor of new round: Smaller industrial countries wished to curtail the tendency of the

big three to ignore GATT principles

Agricultural-exporting countries were concerned about US producer subsidies and EC export subsidies

 Developing countries wanted to secure greater tariff preferences

A committee was established to determine the objectives of a new

round of negotiations to be launched in 1986 There was little agreement between the big three Initiative was taken by G9 group of mid-sized industrial nations and G10 group of developing countries led by India and Brazil

Year 1947

Name Geneva

Sub. Covered Tariffs

Countries 23

Achievements Signing of GATT, 45,000 tariff concessions affecting $10 billion of trade Countries exchanged some 5,000 tariff concessions Countries exchanged some 8,700 tariff concessions, cutting the 1948 tariff levels by 25%

1949

Annecy

Tariffs

13

1950

Torquay

Tariffs

38

Year

Name

Sub. Covered

Countries

Achievements

1956

Geneva

Tariffs, admission of Japan

Tariffs

23
$2.5 billion in tariff reductions 26 Tariff concessions worth $4.9 billion of world trade Tariff concessions worth $40 billion of world trade

1960

Dillon

1964

Kennedy

Tariffs, anti-dumping

66

Year 1973

Name Tokyo

Sub. Covered Tariff, non-tariff measures, "framework"

Countries 102

Achievements

Tariff reductions worth more than $300 billion dollars achieved

The creation of WTO, and extended the range of trade negotiations, leading to major reductions in tariffs & agricultural subsidies, to allow full access for textiles from developing countries, and an extension of intellectual property rights.

1986 Uruguay Tariffs, non-tariff measures, rules, services, intellectual property, dispute settlement, textiles, agriculture, creation of WTO, etc

123

 Uruguay round of multilateral trade negotiations

was initiated in September 1986 and concluded on the 15th September, 1993. Mr. Arthur Dunkel, the Director General of GATT submitted a proposal on the 20th December,1991 popularly known as Dunkel Proposal which lead trade liberalization in many areas like: Trade Related Investment Measures(TRIMs) Trade Related Intellectual Property Rights(TRIPs) other services, textiles, clothing and agriculture subsidies, Market.

Market
Arthur Dunkel suggested that the Government control in marketing activities and operation will have to be less. The member governments will have to abolish the public distribution system.

The member Governments are suggested to reduce the subsidy on fertilizers, seeds, and other inputs and eliminate the administered pricing in respect to agriculture sector. Arthur Dunkel was in favor of reducing the price variation of agricultural products of domestic market and international markets.

Dunkel proposal regarding trade related intellectual property rights (TRIPs) in respect of Business and commerce include Protection of patents Copy rights Design Trade Marks Trade Secrets

Earlier process patents were granted to food, medicines, drugs and clinical products but proposed TRIPs agreement provides patents in all the areas like, food, medicines, drugs and clinical products, computer programming, integrated circuit design, trade secrets etc. Also given more important to Copyright and Trade mark. Protection will be available for 20 years for patents and copyrights, computer programming and data compilations will be protected for at least 50 years. Trade marks would be protected for at least seven years and semi-conductor layout design would be protected for nearly 10 years. A council on TRIPs would supervise operation of the agreement along with GATT and the General Agreement on Trade in Services.

GATT members abolished quotas on trade in textiles and clothing. Consequently, prices started declining and the major buyers are narrowing their sources. Large Asian countries with vertically integrated industries are becoming the worlds leading suppliers

Strategies for Textile Firms

Product Specialization:

Firms close advanced markets like firms in Central America and North Africa should concentrate on producing customized products and the firms in other regions concentrate on traditional products by developing linkages with mega firms. Cross-border Co-operation: Mega firms and major Asian countries should formulate strategies by taking into account cross- border co-operation with the LDCs in the same region.

Improve sourcing skills:

LDCs need to develop abilities in sourcing materials to be competitive and regionally integrated value chains. Focus on higher value products: LDCs firms need to enhance the value addition rather than producing low cost products and should also diversify their product mix away from commodity-type items. More flexible rules of origin: Import markets should offer LDCs nonreciprocal preferential markets access conditions, including rules of origin requirements that are easy to fulfill.

Interregional Cooperation:

Firms and countries should accelerate interregional co-operation like South-South co-operation for developing joint production .
Creation of Conducive Environment:

LDCs should create conducive environment for the growth of textile business from their countries. Otherwise, the current textile policy would adversely affect their economies.

AGREEMENT ON TRADE RELATED INVESTMENT MEASURES (TRIMS)

These are rules that apply to the domestic regulations a country applies to foreign investors, often as part of an industrial policy. The agreement was agreed upon by all members of the World Trade Organization. (The WTO wasn't established at that time, it was his predecessor, the GATT (General Agreement on Trade and Tariffs). The WTO came about in 1994-1995.

Trade Related Investment Measures(TRIMs) is one of the four principle legal agreements of the WTO. TRIMs are rules that restrict preference of domestic firms and thereby enable international firms to operate more easily within foreign markets.

GENERAL AGREEMENT ON TRADE IN SERVICES (GATS)

It is a treaty of the World Trade Organization (WTO) that entered into force in January 1995 as a result of the Uruguay Round negotiations. The treaty was created to extend the multilateral trading system to service sector, in the same way the General Agreement on Tariffs and Trade (GATT) provides such a system for merchandise trade.

Before the WTO's Uruguay Round negotiations, public services such as healthcare, postal services, education, etc. were not included in international trade agreements. Most such services have traditionally been classed as domestic activities, difficult to trade across borders. But after the existence GATS, foreign participation has increased. For example educational services have been "exported" for as long as universities have been open to international students.