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GATT – General Agreement on Tariffs and Trade : 

GATT – General Agreement on Tariffs and Trade


INTRODUCTION Created by BrettonWoods Conference as a part of a larger plan for economic recovery after world war II. Purpose – To reduce the barriers to international trade. Achieved by, Reduction of tariff barriers Quantitative restrictions Through a series of different agreements.

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GATT is an simple agreement and not an organization. Since it was not ratified - it was not able to become an organization like World bank/ IMF. Now Functions of GATT replaced by WTO.


GATT - HISTORICAL PERSPECTIVE - 1947 Bretton Woods Conference – 1944 – was starting point for new world order. World Economy – organized – 3 institutions IMF – International Monetary Fund IBRD - International Bank for Reconstruction and Development – World Bank ITO - International Trade Organization


IMF, IBRD, ITO IMF – takes care of the short term problems in connection with international liquidity. IBRD – helps to channel international investments along desired lines. ITO – deals with the real side of trading relations, helps to create liberal system of regulations governing world trade.


IMF, IBRD, ITO IMF and IBRD came to existence But ITO never. Reason: After public stating of the approval of ITO – ITO underwent discussion at International Conference on Trade and employment that met in autumn of 1946 in London - adjourned to Geneva following year – concluded in Havana in winter – 1947 – 48. 53 nations signed – resulting charter for ITO – followed by ratification. But US senate did not ratify it / any country ratify it – So ITO was never established.

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Regardless of what happened to the proposed ITO, anxious to get about the business of reducing trade barriers – participant nations in London conference – urged that extensive tariff negotiations (discussions) be inaugurated. These negotiations - resulted in extensive set of bilateral trade concessions – extended to all participants – incorporated GATT 1947. Initially, Protocol of provisional application PPA was signed in late 1946 – 22 original members of GATT. This PPA became effective from 1 Jan 1948 and through this GATT was applied.


OBJECTIVES OF GATT To expand International trade by liberating trade. Build an International trading system – to ensure orderly and equitable expansion of world trade and contribute to the prosperity of US. Reduce foreign export subsides, tariff and non-tariff barrier and internal supports. Cuts costs by 50 – 100% on important electronic items


OBJECTIVES OF GATT To strengthen and clarify rules for agricultural trade. To reduce subsidization for agricultural production. Expansion of production and international trade. Better utilization of resource of the world.


FUNDAMENTAL PRINCIPLES OF GATT 1. Non Discrimination: No member country shall discriminate between members of GATT. Exceptions are allowed. 2. Prohibition of Quantitative Restrictions 3. Concept of consultation aims to avoid damage to trading interests of contracting parties. 4. GATT provides frame work within which the negotiations can be held for reduction of tariff an other barriers to trade and structure for embodying results of such negotiations


OTHER FUNCTIONS OF GATT Most Favored function status: Matters related to the tariff and related matters granted to any of the trading partner. Ensures that any tariff reduction or any other trade concession is extended to all GATT parties. National treatment: GATT members must give imported goods treatment equal to that of domestic goods. No restrictions on charges like rates may be applied to imported goods unless equally treated.


OTHER FUNCTIONS OF GATT Protection through tariff : Prohibits quantitative restrictions / Quotas. Contracting parties are expected to provide protection by means of tariffs which are transparent and subject to negotiations in the GATT. Dispute Settlement: Procedures from Uruguay round negotiations provides more automatic and effective resolution of disputes between member nations.

GATT ROUNDS - First Phase : 

GATT ROUNDS - 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.







Did GATT succeed? : 

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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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.

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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

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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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