gatt to wto

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GATT WTO

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Background: Period between the First and Second World Wars: – 1920s: Attempt to organize world trade on a liberal basis. – at the beginning of the 1930s, the monetary system broke down – Reciprocal Trade Agreements and trade restrictions were introduced – Many countries retreated towards an autarkic pattern of production Table: Average tariff rates in selected countries on manufactured products

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Period following the Second World War (WW II): 1– Memories of the pre-war period: economic reason as major cause from World War-II • High reparations from WW I • High inflation rate • High unemployment rate 2– Victorious countries (US, Britain) were determined to learn from mistakes: • Economic success • Strong trade relation • Economic interdependency

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Bretton Woods conference (1944) as starting point for a new order of then world economy with the cornerstones: International Monetary Fund (IMF) International Bank for Reconstruction and Development (IBRD) International Trade Organization (ITO) • IMF was designed to take care of short term problems in connection with international liquidity • IBRD is one of 5 institutions that comprise the World Bank Group • During negotiations on the ITO in 1946, some countries saw a need for immediate tariff reductions :- US took the initiative in preparing a document on a “general agreement on tariffs and trade” Subsequent negotiations in Geneva between a group of 23 countries resulted in a set of mutual tariff reductions (GATT)

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1. Foundation of the GATT The GATT was signed by its 23 founding members on 30 October 1947 and entered into force on 1 January 1948 23 Founding member countries of the GATT: United States, Canada, Cuba, Brazil, Chile, Australia, New Zealand, China, India, Myanmar, Sri Lanka, Pakistan, Syria, Lebanon, South Africa, Zimbabwe, United Kingdom, France, Belgium, Luxembourg, Netherlands, Norway, Czechoslovakia GATT was introduce as a stepping stone towards the establishment of the ITO and embodied many principles of the proposed ITO.

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Conference in Havana (1947/48): What should be the authority of the proposed ITO? Disagreement between the US and the UK prevented the ratification of the charter by the US That why ITO never came into existence and GATT was left as the framework for trade relations (though it was a less ambitious organization than would have been the ITO)

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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. Geneva Round (1947)

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Development of average tariffs in the US from 1865-1967 Geneva round

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Time - April 1949 – August1949 Duration – 5 months Countries –Accession of ten more country (From 23 to 33 ) Denmark, Finland, Sweden, Greece, Nicaragua, Uruguay Haiti, Liberia, Dominican Republic, Italy, All Members negotiated an additional 13,000 tariff reductions from last round. Agreement that the accession of a new member country does only two-third majority of all existing member countries If a member votes again accession it does not need to extend trade policy concessions to this country 3. Annecy Round (1949) Table: Average tariff rates in selected countries on manufactured products

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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 that Round: Dispute between the US and the UK “no bilateral tariff cuts on US—UK 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. Torquay Round (1950/51)

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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 Libeia 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. Geneva Round (1955/56)

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Time - September 1960 – July 1962 Duration – 11 months Background (late 50s): Average tariff rates differed sharply within the European Economic Community (EEC), ranging from 6% for Germany to 19% for Italy: 6. Dillon Round (1960-62) Table: Average tariff rates in European countries on manufactured products The Round was divided into two phases: – First phase was concerned for negotiations with 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

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• Round resulted in 4,400 tariff concessions covering $4.9 billion of trade. • Last round of negotiations which were undertaken on a bilateral basis: Participants came up with lists demanding tariff reductions from their main trading partners. These list were the basis for bilateral trade negotiations. The Most favored nation principle ensured that all member countries were granted with all trade advantages. In effect, that means no nation will be treated worse than another. • 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

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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). 7. Kennedy Round (1964-67)

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•The round had introduced the linear tariff reduction or across- the-board which was a formula based approach. Problems: Tariff reduction in agricultural products was the main bone of contention for US and EEC. Agriculture was by an large left out from tariff cuts. Disagreement on the linear tariff reductions which resulted in agriculture being treated separately. Achievements: Industrial tariffs were reduced by 35 percent across the board over a period of 5 years. Tariff concessions were worth $40 billion of world trade.

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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.

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1958 Dillon Round 1968 Ext. Tariff Kennedy Round ---------------------------------------------------------------------------------------------------------- Belgium 9.7 8.7 10.4 6.6 France 17.0 15.3 10.4 6.6 Germany 6.4 5.8 10.4 6.6 Italy 18.7 16.8 10.4 6.6 Netherlands 9.7 8.7 10.4 6.6 UK 16.5 14.9 14.9 9.2 Denmark 5.6 5.2 5.2 3.2 Austria 14.9 11.4 11.4 8.2 Sweden 6.5 6.3 6.3 4.2 Norway 10.3 10.3 10.3 6.4 Multilateral Tariff Reductions (Simple Average MFN Tariff Rates, Industrial products)

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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 8. Tokyo Round (1973-79)

Main agreements, understandings, decisions & declarations of Tokyo Round: : 

Main agreements, understandings, decisions & 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.

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Pre-Tokyo (%) Post-Tokyo (%) Reduction Finished manufactures 10.3 6.9 33% Semi-manufatures 5.8 4.1 30% Raw materials 0.8 0.4 52% Total industrial products 7.2 4.9 33% Table: Tariff changes in the Tokyo Round; averages, weighted by MFN imports US argued for further linear tariff cuts – EC sought greater harmonization of tariffs • After 4 years, an agreement was reached: The “Swiss formula” t1 = c*t0/(c+t0) – where t0= original tariff and t1 = final tariff (both in percentage terms) Negotiations resulted in the value of c being set at 16

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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 9. Uruguay Round (1986-94)

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• 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

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Negotiating groups in the Uruguay Round a) Trade barriers and related matters 1) Subsidies and countervailing measures 2) Non-tariff measures 3) Safeguards 4) Tariffs b) Sector specific matters 5) Agriculture 6) Natural resource products 7) Services 8) Textiles and clothing 9) Tropical products

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c) Procedures 10) Dispute settlement 11) GATT articles 12) Functioning of the GATT 13) Multilateral Trade Negotiations d) Others 14) Trade related aspects of intellectual property (TRIP‘s) 15) Trade related investment measures (TRIMs)

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• The goals set at the Uruguay Round were ambitious: – Inclusion of services and intellectual property rights – Better integration of agriculture, textiles and clothing into the system • The prominence given to agriculture reflected the interests of the US and the Cairns Group (agricultural net-exporting countries) • The objectives for agricultural commodities were: – Improved market access for imports – Discipline in direct and indirect producer subsidies – Bringing of all measures affecting import access and export competition within GATT rules and disciplines • Meeting of trade ministers in Montreal in 1988: Four negotiating groups faced serious problems to find an agreement (Textiles and clothing, safeguards, agriculture, TRIP’s)

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• An agreement on agriculture seemed out of reach: – US wanted abolition of all trade distorting subsidies in agriculture – EC was unwilling to negotiate on the substance of the CAP – Cairns Group threatened to leave all negotiations if an agreement on agriculture was not found • The failure of the US and the EC to reach an agreement led to the suspension of the Round in December1990 which was the intended date for its completion • At the end of 1991 the Secretary General of the GATT, Arthur Dunkel, tabled a Draft Final Act (Dunkel Text): – Reduction of specific agricultural tariffs – Ratification of non-tariff barriers – Cuts in domestic support – Reductions in export subsidy expenditures and the volume of subsidized exports

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• US and Cairns Group were willing to accept the Dunkel Text • EC was reluctant and had an internal debate over reform of its agricultural policy (MacSharry Reform of the CAP) • In November 1992 the US and the EC reached finally a bilateral agreement on agriculture (Blair House Accord) which led to the final agreement of the Uruguay Round on 15 December 1993 • The Uruguay Round Agreements was signed on 15 April 1994 in Marrakesh • The delay of the Uruguay Round allowed some negotiations to progress further than would have been possible in 1990: It allowed the replacement of the GATT by the World Trade Organization (WTO)

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Ministerial Conference Council for Trade in Goods General Council meeting as Trade Policy Review Body Council for TRIPS General Council meeting as Dispute Settlement Body General Council Council for Trade in Services Appellate Body Dispute Settlement panels Committees on Trade and Environment Trade and Development Subcommittee on Least-Developed Countries Regional Trade Agreements Balance of Payments Restrictions Budget, Finance and Administration Working parties on Accession Working groups on Trade, debt and finance Trade and technology transfer (Inactive: (Relationship between Trade and Investment, (Interaction between Trade and Competition Policy (Transparency in Government Procurement) Committees on Market Access Agriculture Sanitary and Phytosanitary Measures Technical Barriers to Trade Subsidies and Countervailing Measures Anti-Dumping Practices Customs Valuation Rules of Origin Import Licensing Trade-Related Investment Measures Safeguards Working party on State-Trading Enterprises Committees on Trade in Financial services Specific Commitments Working parties on Domestic Regulation GATS Rules

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Uruguay round versus Earlier rounds The spirit of opposition. The agenda was made very heavy and oppressive for the developing country. Major focus of negotiations shifted from tariff cutting to reduction in non-tariff barriers. It covered every outstanding policy issue. Developing countries were required to actively participate in negotiation, meaning that they were to give concession in order to receive additional concessions, something which they had not done before. Rush of new members in the last round had showed that multilateral trade agreement was considered an anchor for development.

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Streamlined dispute settlement mechanism and Trade Review Policy Mechanism. Proposed creation of a new institution WTO. More transparent rules for dumping investigation and rules for determining the injury to the industry. The coverage of government procurement widened. It appeared that developing countries may have made more concessions.

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Thank You! Presented By: Rohit Garg IITTM-Gwalior PGDM-IB