General Agreement on Tariffs and Trade (GATT) was an international trade agreement signed in 1947. 23 nations were signatories of this trade agreement. GATT came into effect on 1 January, 1948. The GATT was the only multilateral instrument governing international trade from 1946 until the WTO was established on 1 January 1995. The GATT was a treaty, not an organization although a small secretariat occupied what is today the Centre William Rappard in Geneva, Switzerland. Despite attempts in the mid-1950s and 1960s to create some form of institutional mechanism for international trade, the GATT continued to operate for almost half a century as a semi-institutionalized multilateral treaty regime on a provisional basis.
Objectives of GATT?
The GATT’s objectives were:
To reduce the barriers to international trade. This was achieved through the reduction of tariff barriers, quantitative restrictions and subsidies on trade through a series of agreements. The 7 rounds of negotiations from 1947 to 1993 reduced average tariffs on industrial goods from 40% to 50%.
To remove all the trade discriminations. The steps taken at GATT led to economic globalization.
To encourage full employment and large and steadily growing volume of real income and effective demand.
To improve the world production and exchange of goods.
To ensure the full use of world resources.
To settle the disputes through consultation within the framework of GATT.
Rounds of Global Trade Talks under GATT:
First Round (1947):
Place: Geneva, Switzerland
Discussion: 23 countries, which had formed GATT, exchanged tariff concessions on 45,000 products worth 10 billion US dollars of trade per annum. affected 10% of total Global Trade.
Second Round (1950)
Place: Annecy, France
Discussion: 13 countries took part in the round. The main focus of the talks was more tariff reductions of specific products.
Third Round (1951)
Place: Torque, England
Discussion: 38 countries took part in the round. The main focus was more tariff reduction on specific products, The simultaneous rejection by the United States of the Havana Charter signified the establishment of the GATT as a governing world body.
Fourth Round – (1955-1956)
Place: Geneva, Switzerland.
Discussion: 26 countries took part in the round. $2.5 billion in tariffs were eliminated or reduced.
Fifth Round (Dillion Round) – 1960-1962
Place: Geneva, Switzerland.
Discussion: The talks were named after U.S. Treasury Secretary and former Under Secretary of State, Douglas Dillon, who first proposed the talks. 26 countries took part in the round. Along with reducing over $4.9 billion on 4400 items in tariffs, means 20% tariff reduction it also generated discussion relating to the creation of the European Economic Community (EEC).
Sixth Round (Kennedy Round) – 1964-1967
Place: Geneva, Switzerland.
Discussion: With the formation EEC, the US had been put at a disadvantage. As a reaction to this, the US Congress passed the Trade Expansion Act in October 1962 which authorised the Kennedy administration to make 50 per cent tariff reduction in all commodities. This paved the way for the opening of the Kennedy round of trade negotiations. This round had the participation of 62 countries. They agreed on an average duty reduction of 25 per cent on agricultural items. Non-tariff obstacles, too remained untouched and scant attention was paid to the problems of developing countries. Trade in industrial products after the completion of Kennedy Round was substantially free of restrictions.
Seventh Round (Tokyo Round) – 1973-1979
Place: Geneva, Switzerland.
Discussion: 102 countries took part in the round. Its objectives were laid down in the Tokyo Declaration. The Declaration set out a far-reaching program for the negotiations in six areas. These are
tariff reduction
reduction of elimination of non-tariff barriers
reduction of all trade barriers in selected sectors
discussion on the multilateral safeguard system
trade liberalisation in the agricultural sector
special treatment of tropical products.
interests and problems of developing countries.
Eighth Round – 1986-1993
Place: beginning Punta Del Este, Uruguay Closing at Geneva Switzerland
Discussion: After seven years of Uruguay Round negotiations Finally, on 15 April 1994, 123 Ministers of member countries ratified the results of the Uruguay Round at Marrakesh (Morocco) and the GATT disappeared and passed into history and it was absorbed by the World Trade Organization (WTO) on 1 January 1995. In the Uruguay Round, the GATT extended to three new areas, viz. Intellectual property rights services and investment. It also covered agriculture and textiles, which were outside the GATT jurisdiction.
The Uruguay Round was concerned with two aspects of trade in goods and services. The first related to increasing market access by reducing or eliminating trade barriers. Reductions in tariffs, reductions in non-tariff support in agriculture, the elimination of bilateral quantitative restrictions, and reductions in barriers to trade in services met this. The second related to increasing the legal security of the new levels of market access by strengthening and expanding rules and procedures and institutions.
To sum up Agriculture, Services, TRIPS, TRIMS related issues and birth of WTO were the main highlights of Uruguay round
Dunkel Proposals
The Uruguay Round of GATT negotiations which began in September 1986 ought to have been concluded by the end of 1990. But at the ministerial meeting in Brussels in December 1990, an deadlock was reached over the area of agriculture and the talks broke down. To remove this deadlock Mr. Arthur Dunkel, Director General of GATT, compiled a very detailed document, popularly known as Dunkel Proposals. This proposal culminated into the Final Act on December 15, 1993. India signed this proposal on April 15, 1994. All 124 members the countries signed on this agreement.
Defects of GATT:
The major defects of GATT are as follows:
1. No Enforcement Authority:
The GATT has attempted to prescribe an international code of conduct in the sphere of trade. But there was no enforcement authority to oversee the compliance of GATT regulations by contracting parties and to settle their trade disputes.
2. Problems in the Formulation of General Rules:
The members of GATT are much diversify in nature, they had varied in economic and political motives and they were also at different stages of development. These reasons created difficulty in framing and implementing uniform general rules of conduct concerning trade, tariffs and payment.
3. Less Benefits for the LDC’s:
The most of the members of GATT were in the category of the LDC’s. The GATT had provided less benefit to these countries. At present, there are more restrictive trade arrangements in the world. The Commodity-to-Commodity based approach has proved to be detrimental to the interests of LDC’s.
This approach creates difficulty in their future planning of production and exports. The GATT also not given any compensation to the less developed countries on account of damage to their economies caused by the actions of developed countries.
4. Quantitative Trade Restrictions:
The GATT had certainly ensured the sealing down of tariff structure but the quantitative trade restrictions remained for a long time outside the GATT ambit. Consequently, the developed countries had used with impunity the quantitative trade restrictions such, as import quotas, export subsidies, voluntary export restraints, health and safety regulation etc.
Even though the 1993, agreement of GATT disapproved the adoption of quantitative trade restrictions and the substitution of tariffs in their place, it did not prohibit the contracting parties from taking recourse to them.
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