General Agreements on Trade and Tariffs - Coursework Example

Essay (Business) Student name Course name Date Table of Contents Table of Contents 2 Introduction 3 The General Agreement on Tariffs and Trade (GATT) 3 The main accomplishments of General Agreement on Tariffs and Trade (GATT) 6 How GATT differed from the now functional World Trade Organization 7 Conclusion 7 Introduction The General Agreements on Trade and Tariffs (GATT) was formed by few countries in 1947 and grew consistently to become a global body that oversaw trade agreements amongst the contracting countries. The GATT enabled the formulation of various trade agreements that involved the reduction of tariffs as well as the elimination of import quotas. The series of agreements that took place all over the world were aimed at fine tuning the rule of trade engagements between countries who were party to the agreement (Ayenagbo, et al. 2011). The GATT had an intention of creating an alternative body for handling the trading part of the international cooperation. It was formulated at a time when the nations of the world were smarting from the Second World War, and there was a need to have in place an economic oriented global body that would join the two Bretton woods institutions namely: the World Bank and the international monetary fund. The GATT was to later be converted to WTO in 1995 with expanded scope and more members (World Trade Organization, 2004) This essay aims at reviewing the terms that led to the formation of the GATT as well as their historical background. It will describe the accomplishments of the agreements and the manner in which the body differs with the world trade organization. The General Agreement on Tariffs and Trade (GATT) The GATT refers to a number of multilateral agreements on trades whose objectives is to set in motion the scraping of import quotas and the reduction of tariffs among the countries under the agreement (World Trade Organization 2004). The GATT was formulated in 1947 in Geneva Switzerland with an initial membership of 23 countries with an intention of elevating it to a United Nations agency late in 1948. When the formation of the trade agreement by United Nations agency failed to take place, the tenement was improved and further made larger in a set of agreements (Ayenagbo, et al. 2011). The formation of the multilateral agreements was meant to direct the efforts of the cooperating countries to notably, the Bretton woods institutions, the World Bank and the International Monetary Fund. It was later to become one of the most effective trade liberalization instruments, by playing a part in the expansion of world trade in the later part of the twentieth century. Before its replacement by world trade organization in 1995, the GATT had membership of 125 countries reflecting 90 percent of the world trade (Karacaovali, 2013). The most important principle of the GATT was that of engaging in trade without any discrimination, whereby each member was bound by the agreement to open its markets to trade to each other (Karacaovali, 2013). As stated in the unconditional most favored clause, it meant that a nation and its biggest partners agreed to reduce or do away with a tariff, and then the agreement was going to apply to other members of the trade agreement. The agreements involved a number of tariffs specifically meant for contracting countries that represent the rates that each member country has consented to extend to the other countries (Mavroidis 2005). The other principle of the GATT is that of protecting the domestic economies of member countries through the use of tariffs rather than the use of import quotas and any other quantitative restrictions on import of goods (Karacaovali, 2013). The GATT was meant to seek to an end on the use of the trade quotas in a systematic manner. The other binding rules involved the use of uniform regulations of each of the countries under the agreement to negotiate for the reduction of tariffs upon the request of another country (Mavroidis 2005). The third principle of the GATT is that of transparency that requires the countries contracting to the agreements to make public their trading regulations, in order to maintain the institutions that allows for the negotiations on decisions that have an impact on trade, to be able to give responses to information sought by other member countries and also notify any changes in trade regulations to world trade organizations. The requirements for transparent are regulated by the trade deploy review mechanism that give periodical reports (Mavroidis, 2005). The principle of safety valves on the other hand enables the governments of member nations in some specific circumstances to restrict trade. The principle gave permission to take some measures that are aimed at protecting the domestic environment, the health of the citizens as well as the animal and plant health (Ayenagbo, et al. 2011). The normal business of GATT was to negotiate on specific trade issues that affect particular products, or countries, although major multilateral trade conferences that were convened more often iron out the tariff reductions and other related problems. There were seven of such conferences that took place in different parts of the world. They include, Geneva in 1947 where the signing of the agreement was done (Ayenagbo, et al. 2011). We also had the Annecy meeting in France in 1949, Torquay England in 1951 and again Geneva in 1956 and another one in the same place in 1960-1962. The most important of all the rounds is what were known as the Kennedy round between 1964 and 1967, the Tokyo round of 1973 to 1979 and the Uruguay round of 1986 to 1994 all held in Geneva Switzerland. The conferences had a positive result of reducing the average tariffs on the industrial goods for forty percent of their market price in 1947 to fewer than five percent in 1993 (Poretti, 2009). The most notable of all the agreements was the Uruguay round where the treaty adopted at the negotiations reduced tariffs on industrial output by 40 % and went ahead to reduce subsidies on agricultural products as well as other more important agreements. It was here that the stronger WTO was created (Poretti, 2009). The main accomplishments of General Agreement on Tariffs and Trade (GATT) The GATT was created with an interim purpose meant to usher in a more inclusive global body whose field of action was limited, but the success it accomplished for the 47 years of its existence in the promotion and the securing of trade liberalization of most of the world trade cannot be underscored (Ayenagbo, et al. 2011). Sustained reductions in the tariffs helped in catalyzing the increasing rate of growth in the global trade arena over the years spanning between 1950 and the 1960s estimated to be a growth of 8 percent per annum (Ayenagbo, et al. 2011). The momentum that the GATT created a momentum of trade liberalization that helped to ensure that growth in trade consistently grew more than production throughout the era of GATT, as well as the measure of the rate of increase in the ability of a country to do business with each other and to enjoy the benefits of doing trade. The accomplishment of the GATT is clearly demonstrated by the rush of so many countries to join in the Uruguay rounds of negotiations. It demonstrated that the multilateral trade agreement was a good show of anchoring for development and growth as well as an instrument for economic reforms (Bossche and Werner 2012). How GATT differed from the now functional World Trade Organization The world trade organization was established in 1994 as a substitute to the GATT that had been in place for 47 years. The formation of the world trade organization was a culmination of the Uruguay round table agreements that was attended by 125 countries in 1994. The implications of the formation of the world trade organization is that all the frameworks that lead to the formation of the General agreement on tariffs will be incorporated in the WTO agreements, the scope and the accomplishments are concerned (Bossche and Werner, 2012). There are a number of key differences that exist between GATT and WTO as far as functions and the accomplishments are concerned. While the GATT was made up of rules that had been agreed by nations, the world trade organization is an institutional body. The world trade organization expanded its scope from the agreements on commodity trade to trading in the service industry as well as the intellectual property rights (Blanchard, 2007). The GATT was designed to serve multilateral agreements in a number of negotiations, particularly the Tokyo round created selective trade partnerships and caused the breaking of the bond among the members. The WTO arrangement on the other hand is simply a general agreement of multilateral settlement agreements for GATT (Blanchard, 2007). Conclusion In conclusion, the main aim of the formation of GATT was to lead to the formation of a more universal body. Though the objective did not come to pass, the GATT was expanded in terms of scope with more mandates. More negotiations led to the formation of WTO which have more members compared to the GATT and is more institutionalized. It is the current functional body that brings together member countries on matters to do with trade, especially negotiations on tariffs and quotas. It is therefore correct to say that the two trade agreements have had immense positive contributions to the general trade agreements. With the liberalization of trade, all countries now have a level playing ground as far as international trade in goods and services is concerned. Bibliography Ayenagbo, K. et al. (2011). Analysis of the importance of general agreement on tariffs and trade (GATT) and its contribution to international trade. Journal of economics and international finance, 3(1), 13-28. Blanchard, E.J. (2007). ‘Foreign direct investment, endogenous tariffs, and preferential trade agreements’, SSRN Electronic Journal, 7(1), 1-49. doi: 10.2139/ssrn.691469. Bossche, P. and Werner, Z. (2012). The law and policy of the world trade organization: Text cases and materials. 3rd edn. New York: Cambridge University Press. Karacaovali, B. (2013). ‘Trade-diverting free trade agreements, external tariffs, and feasibility’, University of Hawaii at Manoa, Department of Economics Working Paper No. 13-21. SSRN Electronic Journal. doi: 10.2139/ssrn.2372226. Mavroidis, P.C. (2005). The general agreement on tariffs and trade: A commentary. Oxford: Oxford University Press, USA. Narlikar, A. (2005). The world trade organization: A very short introduction. Oxford: Oxford University Press, USA. Poretti, P. (2009). The regulation of subsidies within the general agreement on trade in services of the WTO: Problems and prospects. Netherlands: Kluwer Law International. World Trade Organization. (2004). A handbook on the WTO dispute settlement system: A WTO Secretariat publication. Reprint edn. United Kingdom: Cambridge Univeristy Press. Read More