GATT Final

General Agreement on Tariffs and Trade (GATT) : 

General Agreement on Tariffs and Trade (GATT)

General Agreement on Tariffs and Trade (GATT) (1/3) : 

General Agreement on Tariffs and Trade (GATT) (1/3) 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

GATT (2/3) : 

GATT (2/3) Part of economic recovery after World War II, Bretton Woods Conference suggested an organization to regulate trade Parallel to the Governments negotiating the ITO, 15 negotiating states began negotiating for the GATT as a way to attain early tariff reductions The ITO failed in 1950 and then GATT agreement was introduced

GATT (3/3) : 

GATT (3/3) GATT's main objective Reduction of barriers to international trade Achieved through reduction of tariff barriers, quantitative restrictions and subsidies on trade through a series of agreements It was a treaty, not an organization A small secretariat occupied what is today the Centre William Rappard in Geneva, Switzerland

Inception : 

Inception Efforts to negotiate international trade agreements began in 1927 at the League of Nations but were unsuccessful. Precursor organization to GATT, ITO, was first proposed in February 1945 by the United Nations Economic and Social Council (UNESCO). Owing to the United States failing to implement the ITO, GATT was the 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 United Kingdom, and the United States. According to GATT's own estimates, the negotiations created 123 agreements that covered 45,000 tariff items that related to approximately one-half of world trade or $10 billion in trade.

In Brief : 

In Brief

Slide 7: 

General Agreement on Tariffs and Trade

Slide 8: 

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 member states By regulating and reducing tariffs on traded goods Providing a common mechanism for resolving trade disputes.

GATT ?? : 

GATT ?? Was the outcome of the failure of negotiating governments to create the ITO The Bretton Woods Conference introduced the idea for an organization to regulate trade as part of a larger plan for economic recovery after World War II As governments negotiated the ITO, 15 negotiating states began parallel negotiations for the GATT as a way to attain early tariff reductions Once the ITO failed in 1950, only the GATT agreement was left. A Treaty, not an Organization

Objective : 

Objective The GATT's main objective was the “Reduction of Barriers to International Trade” This was achieved through the Reduction of Tariff barriers Quantitative Restrictions Subsidies on trade through a series of agreements

History : 

History 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

History (Contd...) : 

History (Contd...) GATT signatories occasionally negotiated new trade agreements that all countries would enter into Each set of agreements was called a round In general, each agreement bound members to reduce certain tariffs. Usually this would include many special-case treatments of individual products, with exceptions or modifications for each country.

First Phase : 

First Phase Commodities which would be covered by the agreement and freezing existing tariff levels

Second Phase : 

Second Phase Focused on reducing tariffs

Third Phase : 

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.

ROUNDS : 

ROUNDS

ROUNDS CONT… : 

ROUNDS CONT…

ROUNDS CONT… : 

ROUNDS CONT…

Before moving on…. : 

Before moving on….

Terms which help understanding GATT : 

Terms which help understanding GATT

TRADE BARRIERSTariff and Non-Tariff Barriers : 

TRADE BARRIERSTariff and Non-Tariff Barriers While free-trade maximizes world welfare, most nations impose some trade restrictions that benefit special 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, the domestic price of the importable commodity rises by the full amount of the tariff for individuals in nation. As a result, domestic production of the importable commodity expands while domestic consumption and imports fall. However, the nation as a whole faces the unchanged world price since the nation itself collects the tariff.

Tariffs : 

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 physical unit of the traded commodity. A compound tariff is a combination of an Ad Valorem and a specific tariff.

Trade Restrictions /Trade Barriers : 

Trade Restrictions /Trade Barriers An import tariff is a duty on the imported commodity, while an export tariff is a duty on the exported commodity. Export tariffs are prohibited by the U.S. Constitution but are often applied by developing countries on their traditional exports (such as Ghana on it’s cocoa and Brazil on it’s coffee) to get better prices and revenues. Developing nations rely heavy on export tariff to raise revenues because of their ease of collection. On the other hand, industrial countries invariably impose tariffs or other trade restrictions to protect some(usually labor-intensive)industry, while using mostly income taxes to raise revenues.

Trade Barriers (Contd) : 

Trade Barriers (Contd) According to Stolper-Samuelson theorem , an increase in the relative price of a commodity (for example, as a result of a tariff) raises the return or earnings of the factor used intensively in it’s production. For example, if a capital-abundant nation imposes an import tariff on the labor intensive commodity, wages in the nation will rise. However, since the nation’s benefit comes at the expense of other nations, latter are likely to retaliate, so that in the end all nations usually lose.

Trade Barriers (Contd) : 

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-industry argument. However, what trade protection can do, direct subsidies and taxes can do better in overcoming purely domestic distortions.The same is true for industries important for national defense.The closest we come to a valid economic argument for protection 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 producing producing consumer products.

Non-Tariff Barriers : 

Non-Tariff Barriers International trade also hampered by numerous Technical, administrative, and other regulations. These include safety regulations for automobile and electrical equipment, health regulations for the hygienic Production and packaging of imported food products, and labeling requirements showing origin and contents.

Non Tariff Barrier [Subsidies] : 

Non Tariff Barrier [Subsidies] National government sometimes grant subsidies to domestic producers to help improve their trade position. Such devices are indirect form of protection provided to domestic businesses, whether they may be import competing producers or exporters. Two types of subsidies can be distinguished: a domestic subsidy , which is sometimes granted to producers of import-competing goods,and an export subsidy, which goes to producers of goods that are to be sold overseas.

Other Non Tariff Barriers : 

Other Non Tariff Barriers Government Procurement Policies: Because government agencies are large buyers of goods and services, they are attractive customers for foreign suppliers. Most governments however, favor domestic suppliers over foreign ones in the procurement materials and products. E.g, Government often extend preferences to domestic suppliers in the form of buy-national policies campaigns.

Impact of trade barriers : 

Impact of trade barriers Advanced industrial nations committed themselves after World 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 and Tariffs [GATT] Under the umbrella of GATT, eight rounds of negotiations among member states(now numbering 146) have worked to lower barriers to the free flow of goods and services The most recent round of negotiations, known as the Uruguay Round, was completed in Dec,1993.The Uruguay round further reduced trade barriers; extended GATT to cover services as well as manufactured goods; provided enhanced protection for patents, trademarks, and copyrights; and established the World Trade Organization (WTO)to police the international trading system

Impact of trade barriers : 

Impact of trade barriers In the late 2001, the WTO launched a new round of talks [Doha,Qatar] aimed at further liberalizing the global trade and investment framework. The agenda included cutting tariffs on industrial goods, services,and agricultural products; phasing out subsidies to agricultural producers; reducing barriers to cross border investments; and limiting the antidumping laws. The rich nations spend around $300 billion a year in subsidies to support their farm sectors. The worlds poorer nations have the most to gain from any reductions in agricultural tariffs and subsidies.

Counter Trade : 

Counter Trade Counter trade denotes whole range of barter like agreements; it’s principle is to trade goods and services for other goods and services when they cannot be traded for money.Some examples are; 1. An Italian co. that manufactures power generating equipment, ABB SAE Sadelmi SpA, was awarded a720 Million Baht $17.7Mn) contract by the Electricity Generating Authority of Thailand.The contract specified that he company had to accept 218 million baht($5.4 million) of Thai farm products as part payment.

Counter Trade : 

Counter Trade 2.Saudi Arabia agreed to buy 10 747 jets from Boeing with payment in crude oil, discounted at 10 percent below posted world prices. 3. GE won a contract for a $ 150 million electric generator project in Romania by agreeing to market $150 million of Romanian products in markets to which Romania did not have access. 4.The Venezuelan government negotiated a contract with Caterpillar under which Venezuela would trade 3,50,000 tons of iron ore for Caterpillar earthmoving equipment.

INTERNATIONAL TRADE AND INTERNATIONAL FINANCE : 

INTERNATIONAL TRADE AND INTERNATIONAL FINANCE Trade and Balance of Payment, Dis-equilibrium in Balance of Payment and it’s rectification. International Monetary System: Components –Foreign Exchange Market International Equity Market and Euro Currency Market. IMF and International Monetary System: Exchange Rate Determination [Concept only], Capital Account Convertibility.

International Monetary Fund [IMF] : 

International Monetary Fund [IMF] The IMF was established at a conference in Brettonwoods,New Hampshire, U.S.A on July 1-22, 1944.(The conference also established the World Bank).The IMF came in to official existence on December27,1945, and commenced financial operations on March1,1947.It currently has 184 member countries. The statutory purpose of IMF are to promote international monetary co-operation, facilitate the expansion and balanced growth of international trade, promote exchange rate stability, help to establish a multilateral payments system, make the general resources of the IMF temporarily available to it’s members under adequate safeguards, and shorten the duration and lessen the degree of dis-equilibrium in the international balance of payments of members.

WORLD BANK GROUP : 

WORLD BANK GROUP The World Bank Group is made of five organizations: The International Bank for Reconstruction and Development(IBRD) The International Development Association(IDA), The International Finance Corporation(IFC) The Multilateral Investment Guarantee Agency (MIGA) The International Center for Settlement of Investment Disputes (ICISD). Established in 1944 at a conference of the world leaders in Bretton woods, New Hampshire,United States, the World Bank is the world’s largest source of development assistance. The World Bank’s mission is to fight poverty and improve the living standards of people in the developing world.The World Bank has 184 member countries.

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Did GATT succeed?

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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 multilateral trading system as the anchor for development and an instrument of economic and trade reform.

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But…….

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GATT’s success in reducing tariffs to a low level, with a series of economic recessions 1970-80’s drove governments to devise other forms of protection for sectors facing increased foreign competition High rates of unemployment and constant factory closures led governments in Western Europe and North America to seek bilateral market-sharing arrangements with competitors and to embark on a subsidies race to maintain their holds on agricultural trade Both these changes undermined GATT’s credibility and effectiveness.

Slide 40: 

The problem was not just a deteriorating trade policy environment. By the early 1980s the General Agreement was clearly no longer as relevant to the realities of world trade as it had been in the 1940s World trade had become far more complex and important than 40 years before The globalization of the world economy was underway Trade in services — not covered by GATT rules Ever increasing international investments

Slide 41: 

Factors convinced GATT members that a new effort to reinforce and extend the multilateral system should be attempted. That effort resulted in the Uruguay Round, the Marrakesh Declaration, and the creation of the WTO.

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THANK YOU